Session IV
Innovation Through Knowledge Diffusion


Mark B. Myers

Xerox Corporation (retired)


Koenraad Debackere


Professor Debackere began by noting the rapid increase in scientific collaboration, especially between industry and academia, and he proposed to review research data developed with colleagues about the effects of these links at K.U.Leuven.

Generating Innovation Opportunities

He said that when universities such as Leuven are regarded as knowledge institutes, they can generate innovation opportunities in many ways. These include:

  • Startup technology-oriented enterprises formed by researchers out of the science base generated at the research institute;

  • Collaborative research with companies;

  • Contract research that is based on consulting by scientists who are commissioned by industry;

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Session IV ———————————————————— Innovation Through Knowledge Diffusion Moderator: Mark B. Myers Xerox Corporation (retired) LEUVEN AS A HOTSPOT FOR REGIONAL INNOVATION Koenraad Debackere K.U.Leuen Professor Debackere began by noting the rapid increase in scientific col- laboration, especially between industry and academia, and he proposed to review research data developed with colleagues about the effects of these links at K.U.Leuven. Generating Innovation Opportunities He said that when universities such as Leuven are regarded as knowledge insti- tutes, they can generate innovation opportunities in many ways. These include: • Startup technology-oriented enterprises formed by researchers out of the science base generated at the research institute; • Collaborative research with companies; • Contract research that is based on consulting by scientists who are com- missioned by industry; 0

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1 SESSION IV: INNOVATION THROUGH KNOWLEDGE DIFFUSION • Participation by graduate students in temporary practical studies at firms or in jointly supervised thesis projects; • Advanced academic training of industry employees; • Personnel exchange, or mobility, between companies and research insti- tutes; and • Informal links between industry, government, and universities. He said that interaction was the key word. At one level, interaction takes place at the level of science, such as co-publication between different EC coun- tries. Publication is becoming more important in Europe, as it has been in the United States for many years, and is starting to influence academic and inter- academic behavior in the European community. Universities are increasingly asked for accountability to show how they used public funding and how they can contribute to innovation. Europe is also seeing the influence the Bayh-Dole Act had in the United States and its effect on IP management at universities. “Some think we’re going too far in that direction,” he said, “but nevertheless the fact that universities are being held accountable to exploit the IP they generate has given rise to more patents.” He noted an increase in industry funding for university R&D. Germany leads in this activity, at 11.3 percent, with Belgium at 10.9 percent, the EU-15 at 6.9 percent, and the United States at 6.3 percent. Some institutions do much more, he said, which is always a weakness in using general figures, but this trend already influences how university budgets are created and planned. He said that K.U.Leuven had been working hard for 10-15 years to increase its interactions with industry. Growing Economic Role for the University The economic role of the university is growing more significant for the region, he said. Its mission statement includes the following goal: “To promote and support knowledge and technology transfer to industry.” This mission is carried out at three levels. At the top are researchers on the payroll. As of 2005, K.U.Leuven supported 974 researchers, a number that had doubled in 5 years. Many of these do research for industry. At the middle level, the university is actively involved in three areas: contract research, spin-off formation and regional development, and IPR and licensing. The third level is industry itself. Traditionally, he said, the university had two basic missions: research and teaching, which are still fundamental. But in that traditional academic environ- ment, faculty research was done in “almost a pure ivory-tower setting.” Nowadays, however, universities in many European countries are charged by the government to create structures and activities that support the commercialization of their

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2 INNOVATIVE FLANDERS “ To promote and support knowledge & technology transfer to the industry” -K. Debackere Research Divisions: K.U.Leuven 974 researchers (2005) Contract Research K.U.Leuven R&D Spin-offs & Regional Development IPR & Licensing Industry FIGURE 7 Leuven R&D mission and organization. research. In the Netherlands, he said, universities have a holding company as a PROC Figure 07 separate legal entity to commercialize R&D. This signals a strong strategic intent to exploit research through innovation, but is still somewhat decoupled from what happens within the university. A Matrix Structure for Leuven At Leuven, which Professor Debackere considered to be unusual, there is a “full matrix-like structure” that gives academic researchers incentives to col- laborate with industry. The academic subjects are divided into three groups: biomedical research, the other exact sciences, and the arts and humanities. Within each are the faculty members and the different departments, “the normal hierarchy where people are recruited and promoted on the basis of their teaching and research abilities.” At the same time, the university has a horizontal structure with about 50 research divisions under the umbrella of a central office of Leuven R&D. The divisions are organized on an interdepartmental basis, and professors of research become members of one of those divisions, under which they can organize their industrial involvement. Any proceeds from their work remain within the division. What drives them, said Professor Debackere, is a desire to be part of a strong research environment where they can compete and collaborate with the best of their colleagues. In order to do that, the university lets them reinvest the income

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 SESSION IV: INNOVATION THROUGH KNOWLEDGE DIFFUSION in infrastructure, equipment, and postdoctoral students—in building a strong research environment in the university. “Although this has been criticized as ‘social welfare’,” he said, “we regard it as the best kind of social welfare, because everything is reinvested in the research.” In order to support the divisions and their activities—which include applied research, technology transfer, and the generation of new companies—about 40 people are employed to provide manage- ment support, IT support, and consulting on the incubation of new companies. Advantages of Working with Industry The literature, he said, has traditionally warned academics against working for industry, on the grounds that it may reduce the quality of their work or pull their interest toward financial gain. Professor Debackere described a study that examined the research groups at K.U.Leuven and other studies that gathered com- parable data. The study evaluated academic researchers who collaborated with industry in terms of their publications in ISI-SCIE journals, for both basic and applied research. It also examined the industry involvement and output of control groups of researchers, with similar disciplines and age structures over varying time periods. Consistently, he said, the quality of the academic researchers’ work seemed to benefit from collaboration with industry. Groups heavily involved with industry published more, not less, basic science work. “This for us is a signal that the interaction between industrial R&D and academic R&D can be a reinforcing one,” he said. “Industrial R&D feeds academic R&D with serious problems. So we don’t find a perverting effect of academic science.” After mentioning the challenges facing Europe in strengthening the innova- tion system, he said that research institutes have a critical role to play, which is to transform the university into a regional economic hotspot. He said that in Leuven, more than 100 spin-off companies had already been created. This has led to the creation of “Leuven Inc.,” a 600-member network organization where entrepre- neurs and researchers do meet on a regular basis. Part of its success in expand- ing entrepreneurship, he said, grew out of the formation of effective networks. Some of these were horizontal: contact between universities, IMEC, startups, and other “innovation actors.” Others were vertical: technology clusters, such as DSP Valley, which focused on design of hardware and software technology for digital signal processing, and L-SEC (Leuven Security Excellence Consortium), an international non-profit network dedicated to promoting the use of e-security. He summarized the reasons for Leuven’s success at commercializing R&D as follows: • A critical mass of high-quality, internationally competitive research. “This is why IMEC and K.U.Leuven are very strict in their performance assessments.” • An integrated approach to technology transfer, such as incentives for multidisciplinary teams and high value-added services;

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 INNOVATIVE FLANDERS • Clear incentives and policies to encourage individuals, research groups, and departments to pursue spin-off opportunities; • Creation and acceptance of an entrepreneurial climate in a university context; • A Flemish legal context that is positive with respect to the exploitation of academic research and IP. “Based on my own experience here,” he concluded, “it’s the integrated approach that makes it all work.” Discussion A questioner expressed admiration for the efforts on behalf of the Leuven region. But he expressed doubt about the value spending 3 percent of GDP on research, and asked how that would help create durable and stable jobs for people. He said that the business climate in Belgium in general was not favorable for new firm formation, and asked whether people trying to create spin-offs were expected to give up their jobs to do so. Professor Debackere agreed that the business cli- mate in many European countries, including Belgium, will need to reform in the coming years, and that this would require persistent effort. He also tried to clarify the process of forming a spin-off, which is to create a new employment opportu- nity for the founder and for those employed by the new firm. Leuven wanted to help people do this, but those moving to a new firm were making a career choice. They could not both do a spin-off and remain in their former traditional job. AN INDUSTRY PERSPECTIVE: THE CASE OF THE CHEMICAL INDUSTRY Erwin Annys Federation of the Belgian Chemical Industries and Life Sciences (formerly Fedichem, now Essencia) Dr. Annys began by emphasizing the importance of the chemical industry for Flanders and its economy. With only 1.3 percent of the European population (EU25), Belgium produces 8 percent of the EU’s chemical products, of which 70 percent is in Flanders. Recalculating the chemical activity per capita brings Belgium into second place in the world. The first place, he said, is for Ireland, which had passed Belgium only 2 or 3 years earlier, “largely due to some differ- ences in economic constitution and possibilities created by the Irish government.” He said that Belgium was especially strong in the pharmaceutical sector, with about 40 percent of all pharmaceutical products found in one of the laboratories there.

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 SESSION IV: INNOVATION THROUGH KNOWLEDGE DIFFUSION The Goal of Industrial Biotech The purpose of his talk, however, was to propose a substantial shift in the way the chemical industry will function. Much of the current industry depends on petroleum-based products, as do the transportation, energy, and other dominant industries. The world is running out of petroleum, and it is time to reduce the world’s dependence on it. The objective of Fedichem, he said, is to prepare our industry to be ready in time to combine biotechnology with agriculture, to create and produce new agro-chemical building blocks to provide replacements for the ubiquitous products of petroleum chemistry. This would, in essence, create a huge new industry of industrial biotechnology. To achieve this ambitious goal, he has begun working with colleagues to create a regional version of SusChem, the European Technology Platform for Sustainable Chemistry. SusChem is formed by CEFIC, the European Federation of the Chemical Industry, and EuropaBio, the European Federation of the Biotech- nology Industry, to advance certain goals of the EU, including a more dynamic knowledge-based society (Lisbon, 2000), sustainable development (Goteborg, 2001), and increases in R&D expenditure to 3 percent of GDP (Barcelona, 2002). European Objections to New Bioproducts He said at the outset that his vision would be impeded by environmental and philosophical objections to the creation of new chemical and biological products. This, he warned, was based on widespread misperceptions that “could be a major obstacle for the continuous evolution of Europe.” He cited studies concluding that European competitiveness was at risk unless more social acceptance is obtained that innovation is “a key driver for future competitiveness.” Chemical innovation, in particular, he said, has an “enormous impact downstream,” and he asserted that “the only way to grow further in all industrial sectors is by paying even more attention to chemical innovation.” He said that the three pillars of SusChem are industrial biotechnology, mate- rials technology, and reaction and process design. For the first pillar of industrial biotech, the main goals are to create “bio-renewables” to reduce carbon dioxide emissions and conserve fossil fuels. One of the most promising ways to do this, he said, is to use organisms to convert cellulose or lignin to various substances, but the opposition in Europe to GMOs is a “major topic we have to tackle if we want to succeed.” He discussed the many bioprocesses and bioconversions that will be necessary, including biopolymers, biopharmaceutics, enzymes, and biofuels. “How can we turn an economy which is now petroleum based into a bio-based economy?” he asked. “By research on the conversion of starches, sugars, and other renewable resources into the same materials derived now from petroleum or into new substances.”

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 INNOVATIVE FLANDERS For the second pillar of materials technology, he said that SusChem aims to provide marketing, technology guidance, and innovative products. He said that work in this field would strengthen European competitiveness and improve the well-being of citizens. He estimated the growth rate for nanomaterials and nano- technology at 10-15 percent per year. As part of his vision, he discussed his “dream” of a house that not only uses less energy, but even generates energy. It would make use of many new materials, such as advanced photovoltaics, self-cleaning facade paints, lighting by white organic light-emitting diodes (OLEDs), and nanofoam insulation. It would use new techniques of energy conversion and generation. “This is the kind of innova- tion so far rarely presented publicly by the chemical industry,” he said. He listed other areas whose development could lead Europe toward a bio- based future: • Personalize health care: Here he foresaw new materials for implants, smart drug delivery systems, novel therapeutics, health protection, instant diag- nostics, and disease detection sensors. • Reaction and process design: This area focuses on fundamental enabling technologies, integrating the complementary approaches of chemical synthesis and process design. It contributes all the way from individual reactions to the viability of production plants, and drives sustainable development of the EU chemical and biotech industries. • New nanotechnology approaches: These include materials with new optical properties, hardness and toughness, and electromagnetic properties; new chemi- cal processes like chemical reactivity and catalytic yield; and new bioapplications through self-organization, reparability, adaptability, and recognition. In conclusion, he said that his goal was to bring a renewed vision to chem- istry research and development in Europe. Without chemistry, he said, the EU could not reach its goal of sustainable development, and this could only be accomplished when all parties and sectors work together. Discussion A questioner asked how soon he thought Europe would be ready for a change to a bio-based economy, given the obstacles he had listed. Dr. Annys said that change would take time. He emphasized the need to maintain the existing chemi- cal industry during the changeover, so that the long lifetime of existing chemical installations, which were not designed for 10 years, does not allow a direct change. And a lot of research and scale-up trials are still necessary. “So realistically we are talking about at least 30 years before we will see drastic changes, is my personal impression,” he said.

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7 SESSION IV: INNOVATION THROUGH KNOWLEDGE DIFFUSION INNOVATION THROUGH KNOWLEDGE DIFFUSION Paul Ducheyne Uniersity of Pennsylania Professor Ducheyne said that his work, which focuses, among other subjects, on eradicating bone infections, depended not only on the diffusion of antibiotics away from the implanted surface but also on the diffusion of knowledge into the environment. This required work, he said, with the sources of innovation, the creation of knowledge, and the culture of universities. “We apply the laws of physics and chemistry,” he said, “and also knowledge of biology for the benefit of society. Our teaching gains in depth by first-hand insight into the organizations that apply this knowledge. We also have to be role models in education. Guidance by educators toward implementation of concepts makes for powerful examples in engineering education.” A Broader Training Environment for the PhD He repeated the observation by previous speakers that research-based train- ing is central to the mission of U.S. research universities. PhD work is very focused, and typically does not span the whole spectrum from fundamental to applied work. But when the lab widens this spectrum to include technology transfer, PhD trainees, too, are exposed to the broad nature of engineering sci- ence and its natural collaborations with industry. Academia cannot do the whole job in health science, for example, because valid analyses of interaction between materials and living tissues require larger sample populations than are found in university labs. “The goal is to improve clinical outcomes,” he said, “so we need clinical studies, and academia is not well organized to do that.” He listed many different ways to widen the spectrum of education, includ- ing industry-sponsored research in academia and off-campus collaboration on production, regulatory issues, and legal matters. Likewise, he said, there are many different routes to a startup. One model is creation of a fundamentally new technology for which an appropriate industrial organization does not exist. The startup helps advance technology, create employment, and build society’s wealth. Diffusion of Knowledge Through Patents Patents are another essential element in knowledge diffusion, providing the means of transferring knowledge out of academia. The hypothesis, he said, is that top patent holders in the life sciences positively influence the research productivity of colleagues and trainees around them and provide a return on the public’s investment in biomedical research.

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 INNOVATIVE FLANDERS Once a patent is secured, he said, technology transfer can begin. In U.S. academia, this is assisted by centers for technology transfer (CTT), which help scout for potentially patentable work and manage the application, prosecution, and licensing aspects of patenting. Through the CTT, incentives are created, and the net return is distributed to inventors (about 30 percent) and the university, including individual labs, schools, or research foundations. He cited the opinion of the European Research Council (2005): “In research, Europe has too long adhered to a defunct model of research utility. It must rec- ognize that the transition to a globally competitive, innovation-driven economy necessarily depends upon the stimulation of fundamental research and its link to the innovation process.” Obstacles to Technology Transfer Technology transfer is seldom simple, he said, especially for universities without long experience in the process. Academic cultures vary enormously, and the process of technology transfer may encounter various obstacles: • University leadership may be unfamiliar with tech transfer. • The CTT does not have expertise in all areas. • There may be unrealistic expectations of licensing terms or other outcomes. • Some faculty are not interested, regardless of incentives. In the biomedical field, programs exist to help bridge the critical gap between fundamental work and product development. These programs allow for proof of principle. Some state-sponsored programs are designed to address this transfer time, such as Ben Franklin Technology Partners in Pennsylvania, which includes company involvement and refundable loans after achieving revenues or 8 years of operation. Bio Advance is another model, primarily for pharmaceutical and biotech, which takes an equity position, with ownership determined on the basis of typical investment paradigms for the industry. At the national level, there are the SBIR (Small Business Innovation Research) grants and the ATP (Advanced Technology Program) grants that facilitate bridging this gap. In licensing, some universities have requirements, such as continued dis- semination of knowledge after the license is granted. The university also cannot be held responsible for the quality of the product. Finally, for young faculty the tenure process must be a priority over commercial activities. An “Arm’s Length Relationship” Between University and Industry He illustrated the complexities that can arise in academic-industry partner- ships, using Orthovita, a biomaterials company, as an example. The company

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 SESSION IV: INNOVATION THROUGH KNOWLEDGE DIFFUSION produces a broad materials technology platform that is useful in devising bone substitutes and bone grafts. Although there was a partnership between the Uni- versity of Pennsylvania and Orthovita, academia and industry have different objectives. This gives raise to “relational cliffhangers.” Specifically, the company cannot be the funding vehicle of the university lab, and the university lab cannot be the extension of corporate R&D. “An arm’s-length relationship is essential for both parties,” said Professor Ducheyne. He concluded with some principles of the academic mission. First, for aca- demic institutions, it is fundamental that knowledge creation and dissemina- tion share top priority. This implies that knowledge creation will benefit from the quality of education delivered to students at all levels, be it undergraduate, graduate, or postgraduate. Second, a technology transfer relationship between centers of higher learning and their corporate offspring must not be open-ended but confined in time. Discussion Professor Ducheyne was asked how he would improve innovation in Euro- pean universities. He emphasized the importance of the environment in each case, and said, by way of example, that in Holland at least, the “cliffhangers” he mentioned were often inadequately considered. “It is important that univer- sities do not become applied science centers,” he said. “Excellence cannot be compromised.”