Tech transfer trends

A report by Fred Block and Matthew Keller (Where Do Innovations Come From? Transformations in the U.S. National Innovation System, 1970-2006, July 9 2008) highlights that innovations in the United States increasingly come from public research rather than industry. In 1971 86% of the main innovations came from industry (with no collaboration taking place between industry and public research), but by 2006 this figure had fallen to 31%.

One of the oldest models for technology transfers from public research organisations (PROs) to industry is where a company directly licenses innovation, with no prior R&D collaboration having taken place. However, this has been overtaken in popularity by R&D collaborations – where R&D contracts are followed by licences. This is because, as technology becomes increasingly complex, the gap is widening between basic research and industrial application. This means that the original basic research tends to need further applied development before it can be of any use to industry. It is in this later stage of applied development that collaborations between PROs and industry through contract research are of the upmost importance in order to ensure that industry needs are met.

This trend was highlighted in Where Do Innovations Come From?, which found that innovations in the United States come mainly from US federal laboratories after contract research, rather than from universities.

Further, many economic and institutional studies show that during contract research, tacit knowledge flows between PROs and industry, and vice versa, in an interactive and bidirectional way (“Knowledge Networks and Markets”, OECD Science, Technology and Innovation Policy Papers No 7, June 19 2013; “Knowledge Transfer from Public Research Organisations”, TECHNOPOLIS Report, February 2012; Science and Technology Options Assessment, European Parliament). These references, like those of many other economic publications (eg, Transcending the Tacit Dimension: Patents, Relationships and Organizational Integration in Technology Transfer by Peter Lee, UC Davis School of Law, October 7 2012), underline that the exchange of tacit knowledge can be even more valuable than the licensed patent itself. Indeed, several surveys of CEOs of industrial companies show that they rank collaborative agreements with PROs which are followed by licensing as their preferred technology transfer tool, compared to licences where no collaboration takes place (eg, Respondent Report of the Knowledge Transfer Study, by Empirica for the European Commission’s Directorate-General for Research & Innovation, April 2013; Background Paper: An evaluation of incentives and policies that affect research institutions’ knowledge transfer activities by Rudi Bekkers and Isabel Maria Bodas Freitas – a background paper for the work commissioned by the European Commission’s Directorate-General for Research & Innovation as part of the expert group on knowledge transfer, 2008/2009).

This does not mean that patents and licences have no importance in technology transfers. On the contrary, as highlighted in the relevant literature, the principal role of patents is to structure the R&D process from basic research to the market, and to organise the various collaborations that take place along the way. For example, the French Organisation for Standardisation’s Document FD X50-146 (Intellectual Property Management, December 2010) highlights how intellectual property can be used to structure research and to develop partnerships (ie, open innovation): “Intellectual property in general and patents in particular, are known for their ability to structure research and development partnerships between organizations. Patents are used to materialize, identify and assess at least part of the intellectual contributions and results of a partnership and they contribute to securing flows of part of the knowledge that is shared and/or exchanged between partners.”

Additionally, patents support – through contract research – tacit knowledge exchanges between public research and industry.

As basic research mainly operates between levels zero and two of technology readiness, and public applied research generally operates between levels two and six, contract research made by public applied research is fast becoming the preferred option. Recent worldwide trends in technology transfers between PROs and industry show that several of the most innovative countries are willing to reinforce their public applied research in this way. The model for this is Germany, where public applied research is strong and involves significant collaboration with industry via contract research, with these collaborations being structured by patents. Fraunhofer is the largest public applied research organisation in Europe, with over 22,000 employees. It takes basic research from universities and government basic research institutes (eg, the Max Planck Institute) and develops these results to higher levels of technology readiness before making them available to industry, mainly through contract research (references: Bundesbericht Forschung und Innovation 2014, May 21 2014; Pakt für Forschung und Innovation monitoring, Bericht, 2013; Gemeinsame Wissenschaftskonferenz; Pakt für Forschung und innovation gemeinsame wissenschaft konferenz, 2005; Pakt für Forschung und Innovation monitoring, Bericht, 2011).

Further, as can be seen from the previous references and also in “Strategie der Bundesregierung zur Internationalisierung von Wissenschaft und Forschung” (BMBF, February 2008), Germany’s international research and innovation strategy involves supplementing its public research with foreign basic research, which is also made available to industry by Fraunhofer through contract research.

As shown in Figure 1, countries that have significant IP leaks (ie, ‘technology fountain’ countries such as the United States, the United Kingdom and France), and therefore a negative global trade balance and low manufacturing added value for their gross domestic product (GDP) (see “Is your country ready for open innovation?”, IAM 67), also have a high rate of basic research as a proportion of total public research (OECD Science, Technology and Industry Outlook 2012, September 2012).

Figure 1. IP transfer and rate of research

On the other hand, ‘technology broker’ countries (eg, Germany) and ‘technology sponge’ countries (eg, South Korea and China), which have a global IP net absorption (negative IP leak) and therefore a significant positive global trade balance and high manufacturing added value in GDP, have a low rate of basic research as a proportion of total public research (OECD Science, Technology and Industry Outlook 2012, September 2012).

The situation is the same for the United Kingdom, a technology fountain country: a high basic research rate in public research (especially in universities), high negative global trade balance, high IP leakage and low manufacturing added value in GDP.

These facts and figures and the negative impact they are having on the innovation systems of the countries involved appear at last to have been identified by the United States and the United Kingdom. Both countries are now trying to increase the amount of public applied research at the interface between basic research and industry, and to favour contract research between applied research and industry as the principal method for transferring technology, emulating the Fraunhofer model.

UK situation

The first publication to consider is “Bridging the Valley” – written evidence submitted by David Connell (Valley 19; “Innovation Myths and Lead Customers: Game Changing Policies to Improve the Commercialisation of Research”, UK Parliament, Session 2010-12). This concludes that: “Intermediate research laboratories like the Fraunhofer Institutes in Germany, ITRI in Taiwan and SRI in the US are constantly searching for academic research findings to help build their own internal, more mission orientated, long term R&D programmes. This process makes it inevitable that research undertaken in UK universities will mainly be exploited by overseas organisations.”

Similarly, “Models of Technology Development in Intermediate Research Organisations” by A Mina, D Connell and A Hughes (CBR Working Paper No 396, Centre for Business Research, University of Cambridge, Cambridge, 2009) also recommends establishing intermediate public applied research organisations, which sit between basic research and industry, in order to emulate the Fraunhofer model. According to the working paper, such organisations would be characterised by: “a. Size of investment required to make a difference; b. Life-expectancy of the organization; c. Sectoral focus; d. Incentives (including salary levels and cross-institutional labour mobility); e. Resistance to policy fads and changes of focus; f. Legal status and governance and exploitation of IP; g. Nature of relationships with the client base and academia.”

The second report of the Technology and Innovation Centres’ Science and Technology Committee (Second Report of Session 2010-11, Volume I: February 2 2011) described the committee’s significant and long-term study, which analysed 85 contributions and even involved visiting Fraunhofer in Germany.

Contributors had to answer the following questions:

• What is the Fraunhofer model and would it be applicable in the United Kingdom?
• Are there existing Fraunhofer-type research centres within the United Kingdom and are they effective?
• What other models are there for research centres oriented towards application and results?
• Whose role should it be to coordinate research in a UK-wide network of innovation centres?
• What effect would the introduction of Fraunhofer-type institutes have on the work of public-sector research establishments and other existing research centres which undertake government-sponsored research?

The report concluded that it is important to make the best use of existing capabilities. Technology and innovation centres should build on existing centres and expertise. With regard to long-term public sector funding, the committee found that there is already an imbalance in public funding between basic research and innovation or downstream research. Over the longer term, there is a strong case for widening the network of technology and innovation centres and substantially increasing funding – particularly compared to the level of investment in Germany. It pointed out that the Faraday Partnerships illustrate the dangers of centres suffering from a lack of core public funding and becoming too dependent on commercial income, recommending that the government instead provide permanent funding to ensure that centres stay innovative and give business the ongoing confidence to invest.

With regard to assessing performance, the report predicted that “progress to the ‘one third, one third, one third’ funding model may be slow especially where new centres are established that need to build a reputation with business. However, attaining and maintaining this funding model is a good measure of the performance of individual TICs in the medium to long term”. The ‘one third, one third, one third’ model is based on Fraunhofer’s funding model, where one-third is public block funding, one-third is public competitive funding (eg, by public agencies such as the European R&D Framework Programme or national competitive funding agencies such as the German Research Foundation) and one-third is industry funding.

In other words, the United Kingdom is acknowledging that the drastic cuts to its public applied research centres made in the 1980s were a mistake, and that the need to rebuild them is now urgent.

This is particularly clear from written evidence submitted by the Department for Business, Innovation and Skills: “As highlighted in the Hauser review however, the approach taken to date in the UK to establish and support business focused centres has not had the clear prioritisation, long-term strategic vision, or coordination at a national level that is needed. The mechanisms for identifying the sectors or technologies which would benefit from such support has had no formal role for Technology Strategy Board despite its role to develop and deliver a national technology strategy… The current UK approach has therefore often resulted in sub-optimal and dispersed investments with the lack of long-term funding certainty damaging the ability of the established centres to: engage with business; realise the full potential of their assets; invest in long-term capability; recruit and retain the best staff; and commercialise leading edge research.”

US situation

In “How Does Germany Do It?” (Mechanical Engineering Magazine, November 2013), Charles W Wessner pointed out that: “While Fraunhofer is an independent nongovernmental entity, its distributed structure keeps it focused on practical results. Each Fraunhofer institute is linked with a German university. The institutes pick their own research fields, select their own projects, and decide how to handle project results… Each institute is paired with a university with similar research interests.” Wessner is a programme director with the Board on Science, Technology and Economics, as well as a member of the steering committee which in October 2010 drafted the famous high-level document “Managing University Intellectual Property in the Public Interest” (Committee on Management of University Intellectual Property: Lessons from a Generation of Experience, Research, and Dialogue, Stephen A Merrill and Anne-Marie Mazza (editors), National Research Council; National Academies Press).

“The Fraunhofer Model” (Chicago Tribune, March 26 2014) cited the German institute as a model for success, stating that: “Fraunhofer, a government-supported not-for-profit, is being held up as a model for Chicago as the city embarks on its recently announced $320 million Digital Lab for Manufacturing, one of four government-backed manufacturing institutes announced by President Barack Obama. The White House ultimately envisions up to 45 such institutes nationwide.”

Secretary of Commerce Penny Pritzker (“US Secretary of Commerce Penny Pritzker Testifies on Strengthening Innovation and Manufacturing for a 21st Century Economy”, www.commerce.gov, November 13 2013) has confirmed that the Innovative Manufacturing Initiative launched by the United States emulates the Fraunhofer model, and that she visited Fraunhofer on November 11 2013 (“US Secretary of Commerce Penny Pritzker Travels to Munich, Germany”, www.commerce.gov).

All eyes turn to Germany

Germany seems to be the focus for decision makers from various countries which are trying to improve their innovation model. There are now so many visitors to the Fraunhofer – including from China, the United States, the United Kingdom and France – that President Raimund Neugebauer is not always able to welcome them individually (“That is why others envy us”, Die Zeit, No 08/2014, February 23 2014).

In addition, Germany ranks high in all international innovation rankings. For example, in the European Commission’s innovation ranking (the Union Innovation Scoreboard 2014), Germany ranks second out of 27 European countries and is described as an innovation leader.

Innovation global processes can be broken down into two steps:

• turning research, funding and activities into outputs (eg, publications and intellectual property); and
• transforming these outputs into jobs and economic activity.

The commission’s Union Innovation Scoreboard provides a global ranking for both steps, whereas some innovation rankings analyse only the first step.

For example, the Observatoire des Sciences et Techniques’s Multidimensional Analysis of Scientific and Technological Performances ranks only the first step – patents and publications. It places Germany first out of Germany, Spain, France, Italy and the United Kingdom, and concludes by asking: “How may the German model serve as a model for European countries? Can other European countries hope to catch up with Germany? In what way?”

Moreover, regarding scientific outputs only, the Observatoire found that Germany caught up with the United Kingdom in 2004 with regard to the share of national publications in the total number of publications in the world, and in 2008 with regard to the share of national citations in the total number of citations in the world.

Thanks to its research and innovation policy – and in particular, the improved pairing between its basic research and public applied research – Germany, which was already highly ranked for technological outputs (patents), is now also highly ranked for its scientific publication outputs.

An alternative model?

Several French PROs have the same model as Fraunhofer with regard to funding, and also with regard to IP management, technology transfer activities and office organisation, engagement with industry though contract research, focus on applied research and employee status. These include the Alternative Energies and Atomic Energy Commission (CEA) and the French Aerospace Lab and, more generally, the Carnot Institutes. However, as highlighted previously, applied research as a total of all public research in France is extremely low compared to Germany, and the scientific pairing between basic research institutes or universities with applied research organisations is also considerably weaker. The latter issue is compensated by several of these French applied research organisations – including the CEA – carrying out more basic research internally than the Fraunhofer and participating in the European Commission framework programme, which means that they have a good output of publications and patents, as well as good technology transfer results. For example, the CEA files the greatest number of patents each year of all PROs in Europe, despite having fewer employees than Fraunhofer (16,000). Additionally, CEA has a better success rate in the European Commission framework programme (the ratio between funded projects and projects submissions) than Fraunhofer: about 31% compared to 21% (Lettre Européenne de l’ANRT, No 234, June 2009 and internal source CEA 2014). Moreover, the CEA is the first PRO in the world to feature in the World Intellectual Property Organisation’s Patent Cooperation Treaty applicants, alongside 419 published applications in 2014 (Patent Cooperation Treaty, Yearly Review 2014). Further, the CEA has over 50 joint laboratories where researchers from an industrial company and the CEA’s researchers can work together. This high level of integration in collaboration and contract research promotes technology transfer by maximising tacit knowledge exchanges – both bidirectional and iterative – between industry and public research, as well as codified knowledge transfer (eg, patents or licences).

However, France’s global innovation outputs would be far better if the rate of applied research as a total of public research were higher and if pairing between basic and applied research improved.

Countries would do well to pay attention to this analysis when defining their global innovation policies, especially regarding the pairing between basic and public applied research and the rate of public applied research as a total of public research.