Over the last 25 years, we have seen a significant increase in formal technology transfer from universities and research institutes to private sector organizations in exchange for monetary compensation. While the number of university offices of technology transfer have increased significantly, there is little real information about their performance. It is not clear to what extent technology transfer activities can pay for university research nor which fields of research and what types of universities are the main gainers from this arrangement. How are offices of technology transfer structured? What types of arrangements do they have for financial payments? This paper addresses these questions, using the results from four recent studies. The first study involved in-depth interviews with technology transfer officials at ten universities and government research institutes (see Postlewait et al., 1993 for detailed results). A second study surveyed the operation of 46 offices of technology transfer (see Castillo et al., 1999), and we incorporate results from two surveys conducted in 1995 and 1996 by AUTM (Association of University Technology Managers). Here we let the data speak for itself, with a minimum of statistical manipulation.

Offices of technology transfer (OTTs) were established to facilitate development and utilization of commercially viable innovations discovered by university and government scientists. The first OTT was established at the Massachusetts Institute of Technology in 1932. A few OTTs are thirty or more years old, but most were created in the 1980s after passage of the Bayh-Dole Act, which created a uniform patent policy among all the federal agencies that funded research. Under Bayh-Dole, universities could retain title to materials and products their employees invented under federal funding.

The initial impetus for establishing offices of technology transfer, even before the Bayh-Dole Act, was the perception of many universities that their patents and ideas were not being utilized by the private sector (Postlewait et al., 1993). These universities recognized that private enterprise would not develop university patents unless it could obtain (often exclusive) rights to these patents. Thus, every OTT official we interviewed felt the first objective of the OTT is to transfer technology and to increase commercial application of university-generated knowledge for public use and benefit.

Two more OTT objectives that have become prominent over time are provision of services to university faculty and fundraising for the university. When university faculty wish to commercialize their ideas, OTTs provide a formal, above board, and relatively effective mechanism to accomplish this. The early success of some universities in obtaining royalties led to the sometimes unsubstantiated perception that OTTs could generate major funds for the university. Despite the importance of earnings from technology transfers, most OTT officials we interviewed agreed that financial concerns did not dominate academic considerations. For example, while a short delay in publication may be imposed to assure patent registration, faculty members are allowed and even encouraged to publish results and to compete in the academic research race, despite patent considerations (Postlewait et al., 1993).

In order to explore patterns of time allocation among technology transfer-related activities, the survey by Castillo et al. (1999) asked OTT personnel to estimate the time they spent on these activities. This information is presented in Table 1, broken out by public and private universities. Licensing activities take the most time at both types of institutions. Such activities include identifying and contacting potential clients, negotiating licensing contracts, and working out protocols for the transfer of knowledge. Note that evaluating inventions and assessing markets overlap. While about the same amount of time is spent in total on these two activities, private universities seem to put more emphasis on market-related activities. Private universities spend relatively more time on market assessment, referring inventors to sources of financing, and enforcing and monitoring contracts. Private universities may give more weight to the earnings obtained by technology transfers. Spending more time on monitoring contracts increases contact time with clients, and builds and enhances the social networking that may lead to future transfers.

OTT personnel have heterogeneous backgrounds, but contract officers tend to have training in the sciences and engineering, and some have business and/or law degrees. Some OTTs have lawyers on staff, but others may rely on outside legal assistance to draft and enforce contracts. Some OTT officials suggest that relying on outside legal assistance for such tasks, and thus limiting the involvement of lawyers in negotiations, allows more flexibility in contracting (Postelwait et al., 1993).

The outcomes of OTT activities have several dimensions. They include patents and licenses, establishment of start-up companies, and earnings in the form of signing fees, royalties, penalties, and equity in start-up companies. OTT activities may also result in contracts, grants, and donations to the university. We mentioned earlier that the number of start-up companies spawned by OTTs has increased significantly in recent years. This in itself is an indicator of the aggregate success of OTTs. Another measure of success is income from royalties. Figure 1.A shows the distribution of earnings for a sample of 30 universities and research institutions in 1992, and Figure 1.B shows this distribution for 1995. In 1992 six of the institutions are "big hitters", with earnings of about $10 million, while in 1995 seven universities exceeded earnings of $10 million. But the 1995 earnings for many of the institutions, including leaders such as the Columbia University more than doubled. This may reflect earnings from new patents as university portfolios increase, more intensive utilization of products resulting from existing patents, and more aggressive commercialization. In 1992 12 institutions showed earnings between $1 and $6 million, while earnings of the rest were below $1 million. In 1995 all 30 leading universities have earnings exceeding $1 million.

Figure 2. OTT earnings as a function of age

Table 4 compares distribution of average income and average number of patents for the universities we sampled. Medical fields led income generation (37%) and patents (34%), while agriculture generated about 19% of the income and about 15% of the patents. Engineering and physics accounted for about 16% of the income, but 29% of the patents. Computer licenses generated a large share of the "Other" category.

* Number of respondents (N) =19 for all categories.

** Includes computer software and hardware and communication devices.

*** Totals do not add up to 100 due to rounding errors.

Table 6 summarizes survey response assessment of key variables that determine earnings in different fields.

Our detailed interviews suggested that OTT negotiators believe that profit from sales of product should be divided among four activities (research, development, marketing, and production). If profits are, say, 20% of the sale, the contribution of the four activities is assumed equal, and the university is entitled to the research contribution, then the OTT royalty should be 5% of sales. This logic suggests that university royalties will be higher in sectors with higher profit rates, in situations where the university has provided a more advanced product (thus contributing to development), or where the relative contribution of research to profit is higher. Table 6 shows that the royalty percentages in agriculture are lower than in other fields, probably due to the lower profit margin. The high royalty rates for medical research agents reflect the relatively high contribution of the university to the value of the marketed product. The average value of the minimum annual royalty payment for licensing diagnostic and therapeutic innovations is much higher than the other categories, especially agriculture and medical research agents. In the case of medical products, the value of the patents is very high and many were transferred to start-ups. Therefore, these are the areas where stock options are used. Notice (from Table 6) that their average value is already quite high. If the companies are successful, these values are likely to rise in the future. No wonder OTTs have lobbied intensively for increased use of stock options as payment for licenses. In retrospect, UCSF would have gained significantly had it had shares in Genenetec, while Stanford’s portfolio would have benefited greatly has it taken stock options in Sun Microsystems.

There are different formulas to share OTT income from licenses. One popular formula is equal sharing (33%) among the university, the department, and the inventor. An alternative is 50-50 sharing between the inventor and the university. A department may share royalties to take into account the team research effort that led to the patent. This way the unit that contributed to the success, and not the principal researchers, benefits from the proceeds. While $500 million in annual revenue seems a large sum in absolute terms, it comprises a very small share of the $10 billion dollars annually spent on research in the United States. Of the top 30 universities in terms of technology transfer earnings, the top 10 generated 2.4% of their research budgets. Midrange institutions generated 1.4% of their research budgets, while the bottom 10% generated .71%. Much of this money does not returns to research program, but covers administrative costs. It is clear that technology transfer revenues cannot pay for university research.

Major corporations have very effective research organizations, but the patterns of development in biotechnology and information suggest complementarity between corporate and university research. University research may introduce breakthrough ideas tand new technology paradigms. Often these innovations are developed by start-ups and then absorbed within large corporations. For example, Genentec was purchased by Hoffmann-LaRoche, while Monsanto took over Calgene and Agrocetus, etc. The major corporations have a much stronger apparatus for product testing, as well as marketing and production. They rely on start-ups to complement their own research labs.

University innovations, OTTs, and start-ups also play an important role in increasing competitiveness. The first computers were developed in universities, but were commercialized by giant companies such as IBM. Some of the breakthroughs that made computers cheaper and more user-friendly again resulted from university innovations and start-ups. For example, Netscape evolved from a research effort that started at the University of Illinois. Most of the biotechnology-based medical treatments are also the result of university research. These innovations, once transferred to the private sector, accelerate the rate of product change and force established companies to act and adjust. In industries such as pharmaceuticals, agricultural chemicals, etc., there are some larger players who, if left to their own devices, might choose to slow the rate of innovation and product development to take some advantage of their market power. Start-up companies introduce new products and innovations that force large corporations to respond by reducing prices, improving their own product mix, or by taking over and marketing the start-up’s innovative products.

The Bayh-Dole Act intensified technology transfers from universities to the private sector and led to proliferation of OTTs. These organizations developed procedures to identify potentially commercial ideas, handle patenting, sell licenses, initiate start-up companies, and monitor and enforce contract compliance. Universities with older OTTs, better academic standing, and larger research budgets are the most successful in technology transfer. Across universities, a small number of products generate much of the earnings. The main areas of earnings are in medical, engineering, agricultural, chemistry, and information. Private university OTTs are more likely to accept stock options and emphasize marketing and contacts with customers. While the earnings of OTTs represent a minute fraction of a university’s research budget, their success is an indicator of the value of publicly-funded university research. This research complements private sector research and is a source of breakthrough innovations, enhanced competitiveness, and technological change.