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TECHNOLOGY TRANSFER IN THE UNITED STATES 151 harnessing private-sector technology and R&D to advance agency and national objectives.75 Moreover, there is agreement in many quarters of the nation' s R&D enterprise that many federal laboratories and their parent agencies have yet to develop effective mechanisms for ensuring appropriate industrial input into the formulation, execution, and evaluation of federal laboratory R&D and technol- ogy transfer activities (Secretary of Energy Advisory Board, 1995~. In addition, the federal laboratories are often faulted for being unable to carry out technology transfer and partnership activities in a more businesslike and less bureaucratic manner. Finally, from the standpoint of potential industry partners, the reliability of the federal laboratories as partners has been called into question by recent dra- matic cuts in technology transfer funds for the Department of Energy laborato- ries. These cuts have been mostly limited to the three DOE weapons laboratories, forcing these labs to scale back and cancel cooperative R&D activities (including the high profile PNGV and Amtex partnerships). Nonetheless, there has been a strong spillover effect, strengthening the underlying perception that the entire federal laboratory system is a partner of uncertain reliability. TECHNOLOGY TRANSFER BY PRIVATELY HELD, NONACADEMIC ORGANIZATIONS * Overview This section examines the scope and nature of technology transfer activities performed by a diverse population of privately held, nonacademic organizations (i.e., entities whose R&D and technology transfer activities fall outside those of the three major sectors of the U.S. technology transfer enterprise).76 This "fourth sector" of the enterprise consists primarily of two types of institutions: those that transfer technology they have had a hand in developing and those that transfer or facilitate the transfer of technology developed by others. Included in the first group are independent and affiliated77 R&D institutes and R&D consortia, pre- dominantly nonprofit organizations. The second group includes providers of tech- nology transfer referrals and information; technology business incubators and research parks; technology brokers, technology transfer consultants, law firms, and technology transfer conference organizers; and technical/professional asso- ciations, societies, and academies. The R&D activities of privately held, nonacademic organizations, measured in dollar terms, are relatively small compared with the investments of other play- ers in the R&D enterprise. These organizations perform somewhere between $8 billion and $12 billion worth of R&D annually, or about half the amount per- formed by academic institutions or federal laboratories and less than one-tenth of *This section draws extensively on a background paper prepared by Robert K. Carr and Christo- pher T. Hill (1995) for the U.S. delegation to the binational panel.

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152 TECHNOLOGY TRANSFER SYSTEMSIN THE UNITED STATES AND GERMANY the R&D conducted by U.S. industry.78 As a group, fourth-sector institutions also account for significantly fewer patents and royalties than do any of the other three it&D-performing sectors. However, aggregate quantitative measures understate the overall importance of fourth-sector organizations to U.S. technology transfer enterprise. First, many of these organizations perform significant R&D in several critical sectors, par- ticularly in health and medical science. Second, many fourth-sector institutions perform strategic technology bridging and assistive technology transfer functions, often facilitating technology transfer among the three major R&D performing sectors. The panel believes that these services could become increasingly impor- tant to the nation's technology transfer enterprise as more and more U.S. firms are compelled to seek and use technology developed beyond their institutional boundaries in order to compete effectively in international markets. Organizations That Create and Transfer Technology The organizations in this category perform in-house R&D, contract for R&D, or perform contracted or cooperative R&D and transfer primarily technology that they have generated internally. These include independent R&D institutes, affili- ated R&D institutes, and consortia or other private nonacademic organizations that conduct R&D and technology transfer. The National Science Foundation estimates that nonprofit institutes more or less the same set as independent plus affiliated R&D institutes performed $5.2 billion worth of R&D in 1994.79 Of this, $2.9 billion came from the federal government, $1.5 from the nonprofit sec- tor (mostly philanthropic foundations), and $800 million from industry. Over half of the 100 largest nonprofit institutes receiving federal funds are focused on re- search in the health and life sciences. Defense-related research also figures promi- nently among these institutions. As of 1992, the 10 largest nonprofit recipients of federal funds were the Universities Research Association, Inch ($468 million) and SEMATECH ($98 million), both research consortia; Massachusetts General Hospital ($91 million), ITT Research Institute ($87 million), Brigham and Women's Hospital ($82 mil- lion), South Carolina Research Authority ($71 million), and Scripps Clinic & Research Foundation ($69 million), all affiliated R&D institutes; SRI Interna- tional ($63 million) and Battelle Memorial Institute ($63 million), both indepen- dent R&D institutes; and the National Research Council, Transportation Research Board, which administers the Strategic Highway Research Program for the De- partment of Transportation ($76 million). INDEPENDENT R&D INSTITUTES In terms of their total investment in R&D, independent R&D institutes, in- cluding independent R&D laboratories, private research hospitals, and indepen

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TECHNOLOGY TRANSFER IN THE UNITED STATES 153 dent medical research centers, constitute one of the largest elements of the fourth sector. Research hospitals and medical research centers comprise almost half of the group. Information concerning the R&D activities of this group is relatively abundant compared with that concerning the other categories studied. Most independent R&D institutes are quite small. Only 89 institutes listed in the Gale's Research Centers Directory (Gale Research, 1996) had a staff of more than 100 or an annual research budget of over $10 million. As Table 2.17 illustrates, more than half of the 85 large "hard science" R&D institutes are focused on research in the medical and health sciences, with most of the remain- ing institutes equally divided between those focusing on multidisciplinary sci- ences, the biological and environmental sciences, and engineering and technol- ogy research. Data on the R&D budgets of these 85 large institutes are incomplete. The 35 institutes that provided budget data spent a total of $1.62 billion on research in 1994. Among the very largest independent institutes (measured in terms of re- search budgets or total staff) are: Midwest Research Institution, SRI Interna- tional Inc., Southwest Research Institute, Research Triangle Institute, RAND Corporation, MITRE Corporation, Memorial Sloan-Kettering Cancer Center, Fred Hutchinson Cancer Research Institute, Fox Chase Cancer Center, Dana-Farber Cancer Institute, the Howard Hughes Medical Institute, and the World Wildlife Fund (Gale Research, 1996~. In 1992, the top 5 recipients of federal R&D funds were SRI International (with $63 million in federal funds), Battelle Memorial Institute ($63 million), Fred Hutchinson Cancer Research Institute ($56 million), Dana-Farber Cancer Research Institute ($50 million), and Research Triangle Institute ($50 million). The technology transfer activities of independent R&D institutes vary widely. Some independent institutes, particularly those focused on health and medical science, appear to perform only basic research. The results of this research are TABLE 2.17 Distribution of 85 Large Independent R&D Institutes by Research Focus, 1994 Research Focus Number of Institutes Percent of Total Agriculture, Food and Veterinary Science 2 Biological and Environmental Sciences 12 Health and Medical Sciences Astronomy and Space Sciences Computers and Mathematics Engineering and Technology Physical and Earth Sciences Multidisciplinary Institutes 43 1 12 o 14 3 14 5l 14 o 16 SOURCE: Gale Research (1996).

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154 TECHNOLOGY TRANSFER SYSTEMSIN THE UNITED STATES AND GERMANY generally disseminated via traditional paths such as publications, meetings, and sharing among colleagues. Other independent R&D institutes, particularly the large ones, do contract work for clients and transfer the majority of the technologies they develop to them. In addition, internally developed intellectual properties may be licensed to a wider market by the institutes or the research client. Independent R&D insti- tutes also carry out technology transfer through other mechanisms, for example, by sharing information at conferences, providing technical assistance, and em- ploying unique R&D facilities and capabilities. In addition to transferring their own internally generated technologies, some independent R&D institutes transfer technology developed by other organiza- tions. For example, Research Triangle Institute has contracts with the Ballistic Missile Defense Organization (BMDO) to facilitate the transfer of technologies developed in BMDO' s R&D programs to private industry. As is the case with R&D, comprehensive sources of data that could be used to measure the technology transfer activities of these institutes are scarce. The 26 independent and affiliated R&D institutes that responded to a survey of the Asso- ciation of University Technology Managers (AUTM) (1994), received roughly $74 million in royalty income in 1993 on a total of 409 licenses. This compares with over $242 million in royalties received on 3,413 licenses by 117 universities reporting to AUTM. The six largest independent, nonprofit, applied it&D/engineering institutes in the United States are Battelle Memorial Institute, Midwest Research Institute, Research Triangle Institute, Southern Research Institute, Southwest Research In- stitute (SwRI), and SRI International. Originally established to provide R&D and technical assistance to industries within a defined, local, or regional geographical TABLE 2.18 The Six Largest Independent, Nonprofit, Applied R&D Institutes in the United States Number of Source of R&D Date of Employees Funds (FY 1994) Name of Institution Incorporation (FY 1994) (Government/Industry [%]) Battelle Memorial Institute 1929 2,599 78/22 (Columbus only) Southwest Research Institute 1947 2,400 42/58 SRI International 1946 1,900 60/40 (Menlo Park only) Research Triangle Institute 1958 1,450 84/16 Midwest Research Institute 1944 1,350 73/27 Southern Research Institute 1941 477 75/25 NOTE: Data as of May 1995. SOURCE: Southwest Research Institute, unpublished data, 1995.

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TECHNOLOGY TRANSFER IN THE UNITED STATES 155 area, these institutes now have clients throughout the world. Although all six perform some contract research for private companies, four rely on government contracts for more than 70 percent of their business. Only one, SwRI, receives a majority of its contract work from private-sector clients (Table 2.18~. These six institutes vary considerably in size. Each has its own peculiar multidisciplinary research focus, organizational structure, and ways of doing busi- ness. For example, SwRI, which conducts research in over 28 different fields from automation through fluid dynamics and hydraulics, has a special organiza- tional structure that allows other independent or federal-government-owned con- tractor-operated labs to be integrated into SwRI as separate departments. SwRI claims no patent rights on its output. Rather, the rights are always given to the clients. Affiliated R&D Institutes Most of the organizations in this group are affiliated with universities, re- search hospitals, or other medical research institutes. It is difficult to estimate the total R&D volume of these organizations, since so few of them report their bud- gets separately from those of their parent institutions. As in the case of independent institutes, most affiliated institutes are small. Only 35 have a staff of more than 100 or an annual research budget of over $10 million (Gale Research, 1996~. Together, these 35 institutes spent a total of $250.7 million on R&D in 1994. The research focus of these large institutes is shown in Table 2.19. Here again, half of the large affiliated R&D institutes are focused on medical and health sciences research. Among the very large affiliated institutes are IIT Research Institute (IITRI), the H. Lee Moffit Cancer Center and Research Insti- tute, and the St. Jude Children' s Research Hospital. IITRI is a separately incorpo- rated nonprofit research organization affiliated with the Illinois Institute of Tech TABLE 2.19 Focus, 1994. Distribution of 35 Large Affiliated R&D Institutes by Research Number Percent Research Focus of Institutes of Total Agriculture, food, and veterinary science 0 Biological and environmental sciences Health and medical sciences Astronomy and space sciences Computers and mathematics Engineering and technology Physical and earth sciences Multidisciplinary institutes o 11 44 5 4 16 2 1 6 6 17 17 SOURCE: Gale Research (1996).

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156 TECHNOLOGY TRANSFER SYSTEMS IN THE UNITED STATES AND GERMANY nology that conducts applied R&D and engineering research. Eighty-five percent of its work is sponsored by government agencies and 15 percent by industry. CONSORTIA AND RELATED ORGANIZATIONS For the purposes of this report, R&D consortia are defined as groupings of two or more organizations that fund or perform collaborative R&D. R &D con- sortia may be permanent organizations consisting of institutions that exist prima- rily for some other purpose but also perform R&D on behalf of their members (e.g., trade organizations) or created specifically to engage in R&D on behalf of the members (e.g., SEMATECH). Consortia may also be temporary organiza- tions created for a specific R&D project or projects that dissolve when the project is terminated. Consortia can be formal partnerships or less-formal groupings. The non- profit corporation is a common type, although for-profit consortia exist as well. Consortia may perform R&D within their own facilities, coordinate R&D done in some or all members' facilities, contract to a nonmember to perform R&D, or engage in some combination of all three activities. In addition to consortia fo- cused on industrial needs, there are a number of consortia that conduct basic research. Not surprisingly, such consortia have a large proportion of university members. Consortia are created for many reasons, including the desire to achieve effi- ciencies from shared facilities and shared costs, to pool scarce talent, to increase synergy within or diversify a participant's technology portfolio, to facilitate stan- dards setting, to market products, or to foster exchange of precompetitive R&D results. It is important to note that formal consortia have become a part of the U.S. R&D enterprise largely because they were deemed to have been successful elsewhere, especially in Japan.82 However, Japan may have needed consortia more than the United States because of the different nature of informal technol- ogy transfer in the two countries. In the United States, labor, particularly high- tech labor, is highly mobile and much technology moves between firms by that route. In countries where labor is less mobile (Japan being the extreme example), other mechanisms may be required to foster technology flow. The U.S. federal government has encouraged the formation of consortia in recent years through changes in law and provision of financial incentives. Prior to 1984, firms participating in collaborative R&D arrangements were exposed to the possibility of treble damages should the arrangement be judged in violation of U.S. antitrust laws. Not surprisingly, this legal climate dampened the enthusiasm of many firms for collaborative R&D efforts. In 1984, Congress passed the Na- tional Cooperative Research Act (NCRA, P.L.98-462), which removed the threat of treble damages for consortia that registered with the DOJ. Congress extended this protection to joint production ventures in 1993 with the passage of the Na- tional Cooperative Production Amendments (P.L. 103-42~.

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TECHNOLOGY TRANSFER IN THE UNITED STATES 157 In addition to the legislative changes, the federal government has also used financial incentives to encourage the formation of research consortia. SEMATECH (Box 6) was established with support from the Defense Advanced Research Projects Agency (DARPA, now ARPA) of approximately $100 million per year. Federal funding of SEMATECH was discontinued in 1996 by mutual agreement of the consortium and DARPA. The federal government is a financial and technical partner in a number of other consortia as well, such as the National Center for Manufacturing Sciences and the Gas Research Institute. However, most federal contributions to consortia are less than the $100 million invested in SEMATECH. The Technology Reinvestment Project (TRP) and the Advanced Technology Program (ATP) encourage the formation of consortia among organizations sub- mitting proposals to these programs.84 In addition, some agencies that engage in CRADAs have begun to emphasize working with consortia, some of which have been formed expressly for that purpose. This is particularly true of the Depart- ment of Energy (DOE), which has the largest CRADA program in the govern ment. Between January 1, 1985 and December 31, 1995, 575 separate JRVs (joint research ventures), involving a total of 9,136 entities or "members," had been registered with the DOJ (Figure 2.17~. Research on JRV findings indicate that most JRV members (86 percent) are profitmaking companies. Private nonprofit organizations including colleges and universities represented 10 percent of mem- berships, and government agencies and organizations constituted 4 percent of JRV members. About one-third of the members of JRVs are foreign based. Over the 10-year period since passage of the NCRA, the average number of members in a JRV has been 15.9. As of 1995, 30 percent of all registered consortia had only 2 members, 45 percent had more than 5 members, and nearly 13 percent had over 20 members. Participation in JRVs is highly concentrated. Whereas more than two-thirds of all identified JRV members (roughly 8,000 of the total 9,136 entities) have participated in only one JRV,28 entities have participated in 21-50 JRVs, and 10 entities were involved in more than 50 JRVs each (Vonortas,1996~. Most research performed by JRVs has been process oriented. With respect to technology focus, the largest single group of consortia was in telecommunica- tions (22.8 percent), followed by environmental technologies (9.7 percent), ad- vanced materials (9.2 percent), energy (8.7 percent), transportation (7.7 percent), software (6.8 percent), chemicals (6.6 percent), and 10 other technology areas with between 4.7 and 0.5 percent (Table 2.20~. Few registered consortia are engaged in research in areas where intellectual property rights are well enforced, for example, biotechnology, pharmaceuticals, and medical equipment.85 Simi- larly, defense-related research has received attention from only a small number of JRVs (National Science Board, 1996~. Data on the total volume of resources invested in these consortia are not available. The amount of resources devoted to collaborative R&D in the United

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IrEr ^mE^nelnEm ~=r'---.Enn,n^`, mE=`f",mn~E=nT nr-n_ :2:2:2:2:2:2:2:2:2:2:2:2:2:2:2:2:2:2:2:2:2:2:2:2:2:2:2:2:2:2:2:.-.:.':.:!.~. .~':.~. .:~:!'t': ~ :~:':':':'~:!':'~ - 'I'm':':':': E:':':' ' ' '~'E ' I'm ~ ~ !'t- E ::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::....::::.::::::::::::::::::::::::::::::::::::::::::::::::::::::: -::::::::::::::::::::::::::::::::=,,:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::: ~ce-s$-e$~ snot -fat Ed co-n-l-l-n--ual--ly~ eva~-u-ale-a~ an-a E -pa-ale- EN ::::::::::::::: : : I:: 1 ~ :A :~::::::: :1:::::: :::::::':':::::::':::::::':::::::':::::::':::::::':':':':':'' :' :':::::::':-':::::::::::::::::':::::::':':::::::':':':':':::::::':::::::':::::: :-:-:-:-:-:-:-:-:-:-:-:-:-:-:-~:I:-:-:-~-E:-:-:E-:~:-I:-:-:-:-:- :- :-:-:-:-:-:-:-:-:'r'.-:-:-:-:-:-:-:-:-~-:-:-:-:-:-:-~-~:~- E-~:r:-:-:-:-:-:-l:-:-:-:-:~- E-:l-:r~-:~:- E-:-:-:-:~:-~-~:-:-:-:-~-:-:-:-:- EVENT-:-:-:-: -:V^: .~.:I:-~-T-:I-~-~:-:-:-:-I: :~:~:-V':~:':'t'~:'~'.:':':':':':':':':v v . Hi. ~..:'~:':!'~.'w:~:':~':':':':'~:~:'l'~:!':!':'l:':!':!'~'~:':!':':':':~'l:':!'-:':':':':~..:'~:':!'l'w:!':':':':':_~:~:~-'~;:!':V:'w:':':':'~'l':!':} ............................................................................................................. ................. In general, U.S. consortia have been more successful at achieving research results than at transferring the fruits of their research back to members (and to a lesser extent from the members to the consortium). Several studies of the Micro electronics and Computer Technology Corporation (MCC) have identified tech nology transfer as the consortium's most serious problem (Gibson and Rogers,

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160 TECHNOLOGY TRANSFER SYSTEMSIN THE UNITED STATES AND GERMANY 120 100 to > 80 o ~ 60 at 40 o 1 20 115 71 60 61 50 47 32 34 25 17 63 1985 1986 1987 19881989 1990 1991 1992 1993 1994 1995 Year FIGURE 2.17 New joint research venture announcements. SOURCE: Vonortas (1996~. 1994; Hill, 1995~. Most other consortia also have problems with technology transfer, even though R&D carried out in consortia is "demand pull," that is, defined by consortia members themselves according to their perceived needs. Largely as a result of weak technology transfer links, many consortia participants have judged their membership in consortia as not worth the cost and effort and have expressed concerns over the return on their consortia investments. A number of large consortia have come together as the Council of Consortia CEOs to solve common problems. "The Council's mission is to sustain the vital- ity of collaborative technology development, transfer, and application as a proven means of both maintaining and advancing North American competitiveness in key industries" (Council of Consortia CEOs, 1997~. The council currently has 16 members drawn from among the largest U.S. and Canadian R&D consortia, in- cluding Bellcore, the Electric Power Research Institute (EPRI), GRI, MCC, SEMATECH, and the Semiconductor Research Corporation (SRC). The council maintains permanent and ad hoc working committees that analyze and report on issues important to consortia management, including technology transfer. The council itself meets twice a year at the CEO level to discuss these and other problems faced by consortia. (See Annex II, pp. 237-240, for an interesting consortium-based case study of successful technology transfer by the Electric Power Research Institute.)

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166 TECHNOLOGY TRANSFER SYSTEMSIN THE UNITED STATES AND GERMANY the success of the transactions they broker. Anecdotal evidence suggests that small brokers tend to occupy tightly focused technology or market niches. Technology Transfer Consultants In addition to brokers, consultants are also important to the technology trans- fer activities of their clients. As with brokers, there are a few large firms and many more small firms and individuals. Unlike brokers, who charge contingency or success fees, consultants are compensated on an hourly or flat-fee basis for performing services that help companies, universities, or federal laboratories li- cense technologies or spin them off into new firms. They perform some of the services provided by brokers, but do so without a financial commitment. In ex- change, they receive a guaranteed fee, but they cannot participate financially in major technology transfer successes. The American Consultants' League has over 40,000 members (most in fields other than technology transfer, of course) and estimates that the total of all consultants in the United States may exceed 10 times that number. Consultants bring considerable expertise about one or more parts of the tech- nology transfer process to their clients, expertise that would be difficult for all but the largest and most active clients to develop in-house. However, there are few, if any, consultants who are charged with independently executing the entire tech- nology transfer process, as brokers do. After all, few technology generators are willing to give an outside consultant complete responsibility for bringing a tech- nology to market on a fixed-fee basis with no incentive for success or penalty for failure. Nonetheless, consultants perform almost every individual function in the technology transfer process, particularly where the formal transfer of intellectual property is involved. Consultants help ferret out marketable technologies within their clients' laboratories. They perform technology evaluations to estimate rela- tive values in technology portfolios and assist in patenting decisions. They do market assessments and surveys, carry out marketing function, help locate poten- tial licensees, and assist in negotiating and executing licenses and intellectual property transfer agreements. Law Firms Although a number of commercial firms, universities, and federal laborato- ries have legal expertise in the technology transfer area, there is still a very active commercial market for such legal services. A large number of law firms and individual attorneys provide services related to technology transfer, including patenting, licensing, and other traditional business-related legal advice. There is, however, a much smaller yet growing cadre of law firms that offer a broader range of new technology-related value-added services.89 A number of U.S. and European law firms have recently formed the TechLaw Group, a nonprofit network of major law firms that provide services for technol

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TECHNOLOGY TRANSFER IN THE UNITED STATES 167 ogy-oriented clients. TechLaw conducts educational programs, joint research projects, study sessions, and exchanges of information and materials, and serves a liaison function with private and government groups involved in promoting technology. TechLaw member firms provide a wide range of technology ser- vices to clients. Many technology-oriented law firms have resident technical expertise on their legal and support staff. It is not uncommon to find attorneys in these firms who also have advanced degrees in the sciences. In addition, the firms often employ consultants to provide specialized expertise. For the most part, law firms are compensated by fixed fees for their technology-related services, but other alternatives, such as outcomes-based fees (e.g., through equity positions) are be- ing considered in this relatively new arena of the legal profession. Technology Transfer Conference Organizers Conferences introduce suppliers and buyers of technology and help initiate the process of technology transfer. A few specialized technology transfer orga- nizations sponsor conferences at which representatives from universities and federal laboratories gather to display their wares technology capabilities and licensable inventions to prospective licensees/sponsors, generally commercial firms. Technology Transfer Conferences (TTC), a nonprofit firm located in Nash- ville, Tennessee, is a major organizer of such conferences. TTC sponsors six conferences per year in the United States, Canada, and abroad and has hosted 125 such meetings in the last 15 years. TTC invites universities and federal laborato- ries as well as some small firms to display their technologies to potential buyers from national companies. These national companies tend to be larger firms, but smaller companies are becoming part of TTC's clientele as well. The technolo- gies showcased in TTC conferences include those in the life, physical, material, and environmental sciences. Companies that attend are generally interested in applied technologies, but TTC reports that more and more firms are investigating sources of basic research and looking to develop contacts in specific technology areas for future use. Another technology transfer conference sponsor is the International Society of Productivity Enhancement (ISPE). ISPE is a nonprofit, membership organiza- tion founded in 1984 to accelerate the international exchange of ideas and scien- tific knowledge. ISPE sponsors two technology transfer conferences per year, each of which attracts between 125 and 150 participants. As with the TTC con- ferences, ISPE events attract representatives from institutions with technologies to sell as well as potential buyers of technologies. TECHNOLOGY BUSINESS INCUBATORS The National Business Incubator Association (NBIA) defines business incu- bators as "assistance programs targeted to start-up and fledgling firms. They

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168 TECHNOLOGY TRANSFER SYSTEMSIN THE UNITED STATES AND GERMANY offer access to business and technical assistance provided through in-house ex- pertise and a network of community resources; shared office, research or manu- facturing space; basic business support such as telephone answering and clerical services; and common office equipment including copy and fax machines. Busi- ness incubators support emerging businesses during their early, most vulnerable stages. They promote new firm growth, technology transfer, neighborhood revi- talization, and economic development and diversification" (National Business Incubator Association, 1997~. While almost all incubators have one or more high-tech firms, not all busi- ness incubators are technology incubators. This latter term is usually applied to incubators that are primarily focused on commercializing new technologies through entrepreneurial ventures. According to NBIA, most technology incuba- tors are associated with universities.90 Other technology incubators are associ- ated with federal laboratories, high-tech firms, or some combination of these in- stitutions.9i The NBIA estimates that of the approximately 550 incubators operating as of early 1997, 90 to 100 were true technology business incubators. In response to a 1991 NBIA survey (National Business Incubator Associa- tion, 1992), incubators ranked "economic development" and "diversification of the local economy" as their first and second most important objectives, respec- tively. They ranked the "commercialization of research" and the "transfer of . . . technical capabilities to local businesses" as their third and fourth most important objectives. Furthermore, over 27 percent of all incubator clients were engaged in "technology products" or "research and development" in 1991. The largest groups of clients were "service firms" and "light manufacturers." 92 According to recent work by Tornatzky et al. (1996), all technology incuba- tors have ties to external sources of technology, since they rarely have expertise available in house. They provide this vital service through several types of ar- rangements. Many technology incubators have arrangements with a nearby uni- versity; some are even sponsored by or integrated into a university. The key service provided by incubators to their clients is access to faculty, graduate stu- dents, and, to a lesser extent, facilities. Some incubators have similar relation ships with federal laboratories or high-tech firms. In a fewer number of cases, technology business incubators are integrated into the technology commercial- ization function of a parent R&D organization. Some technology business incubators do more than serve as first homes for new high-tech businesses, they actively search out potential clients. Some incu- bator programs have developed aggressive efforts to locate potentially com- mercializable technologies and budding entrepreneurs within the research pro- grams of nearby laboratories. This activity takes many forms, from consciousness raising, to establishing networks to identify research with commercial potential, to active searches in which "ferrets" knock on laboratory doors to access the commercial potential of ongoing R&D. A number of federal laboratories have relationships with incubators, but

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TECHNOLOGY TRANSFER IN THE UNITED STATES 169 NASA recently became the first federal agency to directly enter the incubator business. NASA and the IC2 Institute in Austin, Texas, have entered into a 3-year experimental joint project designed to facilitate the commercialization of NASA- developed technologies. They have established two business incubators near the Johnson Space Flight Center in Houston and the Ames Research Center in Sili- con Valley, California. (A third incubator has recently been established at the Stennis Space Center in collaboration with the state of Mississippi.) These incu- bators (NASA calls them Technology Commercialization Centers, or TCCs) fo- cus on the technologies from the adjacent centers that can be commercialized within 1 to 2 years. The Johnson and Ames TCCs house start-up companies and assist them by drawing upon a regional network of entrepreneurs, business and technical experts, capital and market know-how, as well as the talent and technol- ogy pool of NASA. These two TCCs currently house a total of 30 companies. NASA currently pays the incubators' operating expenses, but expects them to become independent within a few years. Research Parks A research park is a real estate development designed to serve the needs of research-oriented companies. Most research parks generally provide space and facilities as part of their services. They are often located near technology sources in universities or other high-technology institutions. Furthermore, because they cluster growing high-technology firms together, they provide a significant oppor- tunity for spontaneous technical interaction and technology transfer. The Association of University-Related Research Parks defines a research park as a property-based venture that has: existing or planned land and buildings specifically designed for private and public research and development facilities, high-technology and sci- ence-based companies and support services; a contractual and/or operational relationship with a university or other institution of higher education; a role in promoting research and development by the university in part- nership with industry, assisting in the growth of new ventures, and pro- moting economic development; and, a role in aiding the transfer of technology and business skills between the university and industry tenants. (Association of University-Related Research Parks, 1997) As of 1980, university-related research parks accounted for a minority of all U.S. research parks. Of the 27 parks established by academic institutions between 1951 and 1980, 16 had failed, 5 were judged marginally successful, and only six were classified as unqualified successes by the U.S. General Accounting Office (1983~. The 1980s witnessed a resurgence in the establishment of university

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170 TECHNOLOGY TRANSFER SYSTEMSIN THE UNITED STATES AND GERMANY related research parks. By 1989, 115 university-related parks housed an esti- mated 2,100 companies and 173,000 workers (Matkin, 1990~. As of 1995, there were 136 U.S.-based university-related research parks housing 4,765 companies and employing over 253,000 people (Association of University Related Research Parks, 1995). TECHNOLOGY TRANSFER ORGANIZATIONS AND MECHANISMS NOT ELSEWHERE CLASSIFIED Technical/Professional Associations A number of technical and professional societies conduct activities designed to stimulate cooperative research and/or facilitate transfer technology. Relative to the entire technology transfer enterprise, the impact of the societies is small, but some of these programs are well established and fill an important niche in specific fields. The American Society of Mechanical Engineers (ASME), for example, has a Committee for Research and Technology Development (CRTD) that has oper- ated for 86 years. ASME does not fund R&D itself, rather it serves as a catalyst to facilitate research activities that involve multiple performers and funding sources. At the moment, ASME manages $15 million worth of contract research. The committee approves a research problem for action, raises funding, and lo- cates scientists and/or engineers to carry out the research. Historically, about half of the funding for CRTD projects comes from industry (including industry asso- ciations) and half from government. The performers of CRTD-sponsored R&D are universities, federal labs, industry, nonprofits, or some combination of these. Most of the research sponsored by ASME is "paper studies," in which results are transferred through publication or presentation at meetings. A few research projects involve lab, or "metal-bending," work. Transfer of these results occurs via the participants themselves (who tend to be the interested parties) and through publication. The American Society of Heating, Refrigerating and Air-Conditioning End . neers maintains a separate research arm that was founded almost a century ago. With a research budget of $2.6 million in 1994, the society sponsors research projects at universities and private firms in areas of interest to its members (Gale Research, Inc., 19951. Projects include evaluation of distribution losses in hot- water systems, filtration of indoor allergens and biological toxins, and computer algorithms for moisture loss and latent-heat loads in bulk storage of fruits and vegetables. The Civil Engineering Research Foundation (CERF), an independent, non- profit foundation created by the American Society of Civil Engineers (ASCE), began operation in 1989. CERF's mission is to unite diverse groups within the civil engineering community in industry-led R&D programs by serving as the

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TECHNOLOGY TRANSFER IN THE UNITED STATES 171 "facilitator, coordinator, and integrator" of civil engineering research. Although CERF has primarily a coordinating role in civil engineering research, it adds some of its own funds to these efforts. Since 1989, the foundation has contrib- uted $11 million (representing money donated by ASCE members) to engineer- ing research programs that it sponsors. CERF uses a variety of means to carry out its objectives, including cooperative research programs, consortia, technol- ogy evaluation centers, surveys, and prototype demonstrations. CERF orga- nized and now administers the National Council for Civil Engineering Research, consisting of over 60 civil-engineering-related research organizations, which fosters cooperation to advance the interests of the civil engineering profession through research. In 1993, CERF led the construction-materials trade associa- tions in launching a $2 billion to $4 billion research program with the ambitious title, "High-Performance Construction Materials and Systems: An Essential Pro- gram for America and its Infrastructure." The program goal is to improve U.S. competitiveness and revitalize the nation's aging infrastructure by exploiting advanced construction materials. Engineering, Design, and Architectural Firms Engineering, design, and architectural firms play a major role in transferring technology, both within the United States and internationally. (See, for example, Freeman, 1968.) Many of the larger firms were established originally as engi- neering design departments of major manufacturing firms and were later spun off as independent companies offering services to a wide range of clients. Over time, these firms have become inventors and systems integrators in their own right, assuming roles as developers of new technologies that they then market along with their more routine design services. Engineering design firms invest relatively little in separately identified R&D, especially in the United States a circumstance for which they have often been criticized. However, they nevertheless conceptualize new technologies, and, working in conjunction with manufacturers, reduce these to practice while retain- ing title to the patents and know-how that result. For example, the M.W. Kellogg Corp. for a number of years was the source of most of the new process technology for producing synthetic anhydrous ammonia from natural gas. Kellogg designed and built plants for numerous U.S. and international firms, often on a "turn-key" basis. Many engineering, design, and architectural firms specialize in process and production technologies, as well as facilities design and construction. They are less likely to develop or own proprietary product technology. Thus, since many producers (e.g., manufacturers, public utilities) only infrequently build new fa- cilities and cannot afford in-house process development and design staffs, these firms fill an important niche in the marketplace. In addition to developing and transferring their own technologies, engineer- ing, design, and architectural firms are important conduits for diffusing new tech

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172 TECHNOLOGY TRANSFER SYSTEMSIN THE UNITED STATES AND GERMANY nologies developed by others. They do this by specifying the use of those new technologies within the designs they sell to their customers. In this way, they act as gatekeepers for new technology, encouraging customers to invest in processes that are most efficient and effective and least likely to pose undue risks of func- tional or financial disappointment. Some engineering, design, and architectural firms are quite large, employing hundreds of people and annually engaging in projects whose total costs are in the billions-of-dollars range. Bechtel, Fluor, Kellogg, A.T. Kearney, and Stone and Webster are in or near this class. Others are much smaller, with highly special- ized expertise in certain narrow but essential fields of technology and may sub- contract for design work with larger firms. Some small firms may have one or more staff who have very broad experience in a sector and can offer a one-stop source of expertise to smaller client firms that need broad-based technical help to solve a problem or to expand capacity or product line. There are also a number of single-person firms and individuals who operate as consultants in this area. There are no data that distinguish those smaller engineering, design, and architectural firms from the many thousands of other types of consultants. Venture Capital Firms The classic function of venture capital (VC) firms in the technology transfer process is to invest in the growth of new start-up or spin-off technology compa- nies. A great many do little more than that. Most VC firms perform their own analyses (e.g., of technologies, markets) before making a commitment to invest, and most are prepared to take remedial actions with their companies (e.g., recruit- ing new management) to protect their investment. However, some VC firms play a more active role in company development. The most important element of any new firm is the quality of its staff, par- ticularly its management. Many VC companies assist their client firms with the identification and recruitment of key management team members. Another method for strengthening new company management is to create networks with other, more experienced, firms, particularly suppliers, customers and neighbors, who can provide informal guidance to managers of the start-up. VC firms may also assist their client companies with other traditional business services, such as finance and accounting, organization, and office space. A number of VC entities limit their investment to specific technology niches. This permits them to acquire technological know-how and to assist their client firms in the technology arena as well as in the financial and management areas. This assistance can take the form of expert market analysis as well as location of sources of complementary technological expertise for the new firm's technical staff. Technology savvy VC firms can also measure and monitor the technologi- cal progress of their clients better than investment firms with a more general portfolio. In 1996, there were more than 600 venture capital funds in the United States.

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TECHNOLOGY TRANSFER IN THE UNITED STATES 173 That year, these funds collectively invested roughly roughly $10 billion in ap- proximately 2,000 companies in all stages of growth from start-up to turnaround, including more than 280 initial public offerings. Also in 1996, 44 percent of venture capital went to information technology companies and another 31 per- cent to health-care-related enterprises, and another 25 percent went to non-tech- nology companies (Horsley, 1997; VentureOne, 1997~. It is estimated that only about one-quarter of VC-funded U.S. start-up companies succeed. Nevertheless, the average return on investment is 20 percent for the VC industry as a whole.93 The Internet The Internet was initially developed for the express purpose of enabling rapid communications and the transfer of large amounts of data and visual representa- tions for the purposes of R&D. It has performed this function admirably for over a decade, and it is slowly acquiring a similar enabling role in technology transfer. Most U.S. it&D-performing institutions have a presence (usually a home page) on the World Wide Web, and most of those without home pages reported that they were in the process of building one. The quality and utility of these home pages vary widely. As users figure out what works and what does not work on the Internet, and as problems of access to intellectual property and payment for Internet-based services are resolved, more and more institutions (particularly high-tech concerns) will establish not only a presence on the Web, but also will provide sophisticated access to real information and other things of value. This access will undoubtedly include some interactive functions, for example, introducing potential providers and purchasers of technology that are key to tech- nology transfer. Outsourcing and outplacing of technologies will be facilitated by on-line databases using sophisticated search engines operated directly by searchers or with the help of human intermediaries. Additional technological advances in communications and processing will permit users to exchange 3-D images, video, and sound over networks, significantly enhancing the quality of presentations and available information. SUMMARY: ORGANIZATIONS THAT TRANSFER TECHNOLOGY CREATED BY OTHERS As the preceding discussion makes evident, the number of privately held, non-A&D-performing U.S. organizations involved in technology transfer to in- dustry is huge, and the spectrum of technology transfer services they provide is extensive. The collective performance of these diverse players, however, has been criticized severely in recent decades. Indeed, the poor performance of many U.S. companies in more traditional manufacturing industries, particularly small and medium-sized enterprises (SMEs), suggests that there are significant gaps in the scope and/or quality of technology transfer services provided to SMEs by public-and private-sector organizations.94 The perception that this vast collec

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174 TECHNOLOGY TRANSFER SYSTEMSIN THE UNITED STATES AND GERMANY lion of privately held organizations is not meeting the technology-transfer/indus- trial-modernization needs of U.S. SMEs was a driving force behind the establish- ment and expansion of public-sector technology-transfer/industrial-extension ini- tiatives by state governments and federal agencies during the 1980s and early l990s. Conclusion Privately held, nonacademic organizations form the smallest of the four sec- tors of the U.S. technology transfer enterprise in terms of R&D performed or quantitatively measurable technology transfer (patents and royalties). This sector is also the least well documented and measured. However, its importance to the nation's innovation system should not be underestimated. As discussed above, these organizations vary widely in size, function, and contribution to the U.S. R&D and technology transfer enterprise. The highly heterogeneous population of U.S. privately held independent and affiliated R&D institutes fills some important gaps in the U.S. R&D enterprise, addressing unique R&D and evaluation needs of certain industries or subsectors (particularly in biomedical fields) that universities and federal laboratories do not address. Nevertheless, it would be inaccurate to characterize most of these insti- tutes as industry-oriented. The vast majority of independent and affiliated research institutes receive most of their funding from federal mission agencies or private foundations and are focused primarily on basic research. More than half of these institutions are concentrated in the health and medical fields, and these institutes collectively account for a significant share of all health and medical R&D performed in the United States. While the R&D activities of many institutes in this group consti- tute a critical link in U.S. drug testing and evaluation, and directly benefit health- and medical-related industries in many other ways, the research agendas of these institutes are not driven or shaped to any significant extent by the day-to-day R&D needs of industry. Even within the relatively small population of independent and affiliated engineering R&D institutes, many of which were originally established to serve the needs of regional industries, there are today relatively few institutes whose R&D activities are substantially geared to the applied R&D needs of private in- dustry. Five of the seven largest independent engineering R&D institutes per- form the vast majority of their R&D in service to federal agency missions, not the R&D needs of private companies. In short, these institutes do not fill perceived gaps in basic or applied R&D that are directly relevant to needs of more tradi- tional, technologically mature manufacturing industries, gaps that many have identified as a significant weakness of the U.S. R&D enterprise (National Acad- emy of Engineering, 1993~. Industry-led research consortia, both publicly and privately funded, have as

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TECHNOLOGY TRANSFER IN THE UNITED STATES 175 sumed greater significance in the U.S. R&D enterprise in the past decade, par- tially filling some of the aforementioned R&D gaps in selected high-tech and technologically mature industries. However, coverage in terms of industries and technology areas (and the share of firms within a given industry or technology field) remains very limited, as does the claim of these consortia on public and private R&D resources overall. Furthermore, in part because of the diversity and highly autonomous nature of U.S. industrial R&D consortia, there has been re- markably little knowledge transfer concerning organizational and operational practices among the rapidly growing population of U.S. consortia. The U.S. population of privately held, non-A&D performing organizations involved in technology transfer to industry is large, diverse, and highly autono- mous, and the range of technology transfer services provided is extensive, though uneven among industrial sectors. Indeed, in the absence of significant public- sector involvement, this diverse group of technology transfer intermediaries, to- gether with private vendors of hardware and software and large industrial firms/ customers, have long constituted the primary sources of new technology, techni- cal assistance, and advice for U.S. small and medium-sized enterprises (SMEs) in most manufacturing industries. During the past decade, however, the slow pace with which many U.S. com- panies, particularly SMEs in more traditional manufacturing industries, have adopted new production technology suggests that significant gaps exist in the scope and quality of industrial-modernization services provided by this vast amal- gam of private companies and private technology transfer intermediaries (Na- tional Academy of Engineering, 1993; National Research Council, 1993a). Admittedly, in recent years, several industry-led initiatives, some with lim ited public funding, have begun to address some of the innovation and technology diffusion challenges that face SMEs as well as larger firms in a number of techno- logically mature U.S. industries. For example, through increased industry self- organization and support from federal agencies and university-based researchers, segments of the U.S. textile and apparel industry have successfully applied mod- ern information technology to achieve a major revitalization of their entire de- sign, supply, and marketing chain largely in response to the new "lean" retail- ing strategies of major retail distributors, strategies also enabled by advances in information technology (Abernathy et al., 1995~.95 Similarly, through a combi- nation of firm-specific and industrywide initiatives, often in partnership with fed- eral agencies or academic researchers, the U.S. automotive industry has success- fully met many of the manufacturing challenges that hit the industry in the late 1970s and early 1980s.96 Other successful or promising industry-led efforts to meet the manufacturing and other technology diffusion needs of SMEs include the National Center for Manufacturing Sciences and SEMATECH's work with semiconductor equipment and material manufacturers.97 Particularly promising in the judgment of the U.S. delegation are the recent technology road mapping exercises of the Semiconductor Industry Association

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176 TECHNOLOGY TRANSFER SYSTEMSIN THE UNITED STATES AND GERMANY and a coalition of organizations from the U.S. chemicals industry that inventory the two industries' sources of technology and forecast technological needs throughout the industries' respective value-added chains (American Chemical Society et al., 1997; Rea et al., 1996~. These road mapping efforts show potential for advancing both the development and diffusion of new technology in indus- tries where technological advance is more evolutionary than revolutionary. From the perspective of firms involved as well some outside observers, the semicon- ductor industry technology road map effort has been successful at focusing the attention and resources of the industry and the federal government on a shared conception of technological challenges and opportunities. The more recently developed technology road map for the chemical industry was launched, in part, by a request from the White House Office of Science and Technology Policy.98 In addition to these industry-specific initiatives, state and federal govern- ments have attempted to strengthen the existing but relatively weak network of private and public service providers with more comprehensive industrial-mod- ernization and technical-extension programs. (See Part II, pp. 76-79 and Annex II, pp. 201-213.~99 Nevertheless, while the experience and promise of these and other private- and public-sector (and joint public-private) initiatives are encouraging, it is im- portant to recognize that the reach of these efforts, in terms of companies, indus- tries, and technology areas (and the share of firms within a given industry or technology field) remains very limited, as does their claim on public and private R&D resources overall (National Academy of Engineering, 1993; Shapira,1997~.