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302 TECHNOLOGY TRANSFER SYSTEMS IN THE UNITED STATES AND GERMANY lion disclosures; that means that not all invention disclosures resulted in patent applications. The U.S. technology licensing offices at universities have estab- lished an effective system to select inventions with sufficient economic pros- pects. A similar system does not exist in Germany, so that the relatively high number of patent applications from German universites can, at least partly, be taken as indicator for an insufficient quality selection. University-related patents do not reflect the general orientation of academic research but can be used as an indicator for transfer-related activities. For analy- sis of these activities, differentiating university patents according to technology areas is quite revealing (Figure 3.20; for methodological details, see "Research Programs of the European Union," above). With reference to the general interna- tional distribution, patents of German professors are primarily in the field of chemistry, including pharmaceuticals and biotechnology. In mechanical and con- struction engineering, the specialization indexes are mostly negative for patents of German professors, but at a moderate level. Compared with the large volume of external funding for mechanical and construction engineering, the outcome in patents is quite modest, and the question arises whether this finding can be taken as an indicator for less effective technology transfer. In all fields of electronics and information technology the specialization indexes of the patents of German professors are distinctly below average, which has to be interpreted against the background of a low level of industrial activity in this area. TECHNOLOGY TRANSFER FROM PUBLIC INTERMEDIATE R&D INSTITUTIONS Max Planck Society Complementary to German universities, the MPG is the major institution performing outstanding basic and long-term applied research. The MPG's main areas of focus are physics, biology, and chemistry. Many Max Planck institutes perform research in areas of strategic interest to industry. The most important channel of knowledge transfer is the exchange of scientific personnel. However, collaborative research with industry plays a modest but increasing role. Up to now, the intensity of contacts with industry has depended primarily on the will- ingness and interest of individual MPG scientists. With declining public funding, the usefulness and achievements of the MPG have to be proved, and the society has to approach technology transfer more actively. GENERAL ORIENTATION Reestablished in 1948 as the successor to the Kaiser Wilhelm Society, founded in 1911, the MPG basically has the same role today that it had in 1948. In the German landscape of scientific research, the MPG is a prominent research

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TECHNOLOGY TRANSFER IN GERMANY Electrical energy Audiovisual technology Telecommunication Information technology Semiconductors Optics Control Medical engineering Organic chemistry Polymers Pharmaceuticals Biotechnology Materials Agriculture, food Basic mataterials chemistry Process engineering Surfaces Material processing Thermal processes Environment Machine tools Engines Mechanical elements Handling Agricultural machines Transport Nuclear engineering Weapons Consumer goods Civil engineering 303 - 1 00 -80 -60 -40 -20 0 20 Specialization index l 40 60 80 FIGURE 3.20 Specialization of German Patent Office patents of German university pro- fessors, in relation to the average distribution at the EPO for the period 1989 to 1992. SOURCE: Schmoch et al. (1996a).

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304 TECHNOLOGY TRANSFER SYSTEMS IN THE UNITED STATES AND GERMANY body with a focus on promoting science and conducting basic research in various areas of natural and social sciences in the public interest. Whereas industry and other nonprofit institutions such as the FhG and the AiF are involved chiefly in the field of applied R&D, universities and especially the MPG are almost completely oriented toward basic and long-term applied re- search. This balanced structure of the institutes and their respective "output" is seen to legitimate the existence of the MPG including its public funding. The definition of research areas and even the establishment of the society itself can be seen as a reaction of the federal government to an established situa- tion in which universities fall under the jurisdiction of the federal states. With their priority of educating a broad array of students, universities are not in a position to focus on specific research-intensive topics. Prior to 1948, the central government had practically no way to promote areas of research thought to be of strategic importance for the country's international competitiveness. The formation of federal scientific institutes, through the MPG, was a solution. These institutes · conduct research in important or strategic fields of science with an ad- equate concentration of personnel and equipment; quickly enter newly developing fields, especially those outside the main- stream, or fields that cannot be covered sufficiently at the universities; and conduct research that requires special or large equipment, or research that is so costly that it cannot be undertaken at universities (see Max-Planck- Gesellschaft, 1994a). RESEARCH AREAS Whereas the Kaiser Wilhelm Society focused primarily on promoting the natural sciences, the MPG adds the humanities and social sciences. Because the MPG aims to be a pioneer in science and tries to complement research at univer- sities, it cannot do research in all conceivable areas. Thus, the MPG concentrates on fields that contain extraordinary opportunities for science. The society's re- search is focused in three areas: the chemical-physical-technical section, the bio- logical-medical section, and the humanities section. These sections cover, for example, biochemical and clinical research, metal research, astrophysics, com- parative law, education, and history all with a strong focus on basic research (Table 3.16~. The MPG has not established an institute devoted to engineering, since it is not seriously interested in short-term applied research. In recent years, there has not been much change in the research priorities of the Max Planck institutes (MPIs); only research activities in biology have in- creased to any significant extent. So far, the principal areas supported have been physics and biology research, amounting to almost 60 percent of total expendi- tures (Figure 3.21, Table 3.17~.

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TECHNOLOGY TRANSFER IN GERMANY TABLE 3.16 Average Number of Permanent Staff and Scientists at Max Planck Institutes, Main Sections, 1993 305 Full-Time Full-Time Percent Area of Research Staff Scientists Scientists Chem~cal-Physical-Technical Section 208 556 29 Biological-Medical Section 127 39 31 Humanities-Social Sciences Section 57 20 34 SOURCE: Max-Planck-Gesellschaft (1994b); calculations of Fraunhofer Institute for Systems and Innovation Research. ORGANIZATION The society's main units are its institutes. In 1994, research was conducted at 62 institutes, 2 laboratones, and 3 independent research groups (figures for West Germany only). The size of the institutes differs widely; only a small num- ber contain fewer than 50 or more than 800 permanent staff members (Table 3.16~. In 1994, about 11,050 persons were employed full-time in MPG units. Beside the senior scientists (about 3,050 people), technicians, and other regular employees, there have been an increasing number of visiting researchers, fellows, and junior scientists (doctoral candidates); in 1994, there were a total of 5,500 individuals in this latter group. The average period of stay of visiting researchers and fellows was about 7 months. In the Kaiser Wilhelm Society, institutes were designed around an outstand- ing scientist (Harnack pnnciple). Today, given the complexity of research at MPIs, this principle is being applied at the departmental level. This personality- centered form of organization can explain the rise and fall of individual institutes 40 - 5 To ---Biology ----- Chemistry -- --Astronomy & Astrophysics --- Medical Research I I I I I I 87 88 90 91 92 93 94 Year FIGURE 3.21 Max Planck institutes' expenditures in main supported areas, percent of total. SOURCE: Max-Planck-Gesellschaft (various years).

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306 TECHNOLOGY TRANSFER SYSTEMS IN THE UNITED STATES AND GERMANY TABLE 3.17 Areas of Research at Max Planck Institutes, Percent by Expenditures and Scientists, 1994 Section arid Area of Research Expenditure Scientists Chemical-Physical-Technical Section Chemistry 8.3 7.7 Physics 29.7 29.2 Astronomy and astrophysics 10.0 10.1 Atmospheric arid geological sciences 4.1 4.0 Mathematics 0.6 0.6 Information technology 1.4 1.4 Biological-Medical Section Biological research 26.9 22.3 Medical research 8.1 6.2 Social Sciences-Humanities Section Law 3.6 5.0 History 3.0 6.5 Sociology 1.1 1.5 Psychology 1.4 1.5 Linguistics 1.3 2.7 Education 0.3 0.5 Economics 0.1 0.6 SOURCE: Max-Planck-Gesellschaft (1994b). or departments. If a departing head scientist is not replaced by an equivalent successor, the research focus of the institute or department might be changed (depending on the new leader) or even dissolved. The Harnack principle is con- sidered to be an important basis for scientific excellence. In recent years, how- ever, strategic considerations about relevant and declining research areas increas- ingly supplement this personality-centered principle. As a rule, a board of directors is responsible for the entire institute; the mem- bers of the board elect a managing director, who serves for a set period. In addi- tion to the board of directors, an advisory board (Fachbeirat), consisting of ex- perts from different local and nonlocal scientific institutions, functions as an evaluating and advising body, submitting its reports to the president of the MPG. At many of the institutes, there are boards of curators (Kuratorium) as well, whose members are public authorities or interested scientists, including representatives from industry. The chief administrative bodies of the Max Planck Society are the Executive Committee (Verwaltungsrat) and the Senate (Senat). The Executive Committee comprises the president, four vice presidents (three from each section and one from industry), the treasurer, and up to four senators. Together with the secre- tary-general, who heads the general administration, the Executive Committee forms the Board of Trustees (Vorstand).

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TECHNOLOGY TRANSFER IN GERMANY 307 The central decision-making body is the Senate. In addition to its supervi very role, the Senate assumes functions crucial to MPG existence, such as the . . . establishment, closure, or reorganization of institutes and independent de- partments, including decisions on the incorporation of new areas of re- search; · appointment of scientific members, directors, and heads of independent departments; · election of the president, the vice presidents, and the members of the ex- ecutive committee; assessment of the budget and other decisions concerning the use of funds; and · approval of the guidelines of the institutes (see Meyer-Krahmer, 1990~. The Senate, comprising approximately 60 members, contains various repre- sentatives of the Executive Committee and of the three sections. The federal government can appoint two ministers or secretaries of state (Stuatssekretare) as official MPG senators, and the federal states can appoint three. Other senators are elected for a period of 6 years and represent other scientific institutions, in- dustry (most of them members of the board of leading German companies), gov- ernment, banks, employer and employee associations, public media, and other institutions of public interest. Permanent guests of the Senate include presidents or chairmen of the main science-promoting organizations in Germany. All in all, about 50 percent of the senators are scientists, most of them representing the MPG.25 The Scientific Council (Wissenschaftlicher Rat), which includes about 270 scientists (all scientific members of the society) and 1 scientific staff member for each institute elected by the institute's scientists, is the most important advisory body with a role in guidelines for scientific research. In the context of technology transfer, it is interesting to assess the influence of industrial representatives and other nonscientific groups on the orientation of the MPG. As mentioned, about one-quarter of the Senate is made up of industry representatives and another one-quarter of government representatives. These nonscientific officials have a non-negligable influence on the general policy of the Max Planck Society. However, nonscientific groups have a rather marginal influence at the level of the institutes. Advisory board members of the institutes are highly reputed scientists, not lobbyists for a particular interest. All in all, the organizational structures reflect the general aim of the MPG to pursue indepen- dently basic research (see also Max-Planck-Gesellschaft, 1994a,b). BUDGET AND FINANCE Like universities, the MPG conducts chiefly basic research and is financed largely by public funds. Whereas financing of the universities is a duty of the

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308 TECHNOLOGY TRANSFER SYSTEMS IN THE UNITED STATES AND GERMANY TABLE 3.18 Budget Structure of the MPG, 1994 Type of Funds Million DMShare in Percent Public institutionala1,53488.5 Projectb19911.5 Total1,733100 aIncludes special allowances, general revenues, and transfers from 1993. bIncludes transfers from 1993 and additional project support. SOURCE: Max-Planck-Gesellschaft (1994c). states, the MPG was initially financed primarily by the federal government. Gradually the share of state funding increased to 50 percent. Since a long-term commitment of financial resources is needed to ensure the continuity of basic research and to generate new technical knowledge, the so-called institutional fi- nancial support, or promotion, of scientific bodies has been established. Out of MPG's budget of DM 1.73 billion in 1994, DM 1.53 billion (88.5 per- cent) were public institutional funds. This money covered expenditures like wages, building maintenance, investment in equipment, and other payments. DM 199 million (about 11.5 percent) were noninstitutional allowances designated for individual research projects (Table 3.18~. A further breakdown of project funds, for 1993, can be seen in Table 3.19. The project-specific money came primarily from the Ministry of Science and Technology and the KU. With the decrease of project funding by the federal and state governments, the allowances for indi- vidual research projects by the EU have become increasingly significant. The importance of externally funded scientists is clearly demonstrated by comparing their numbers with the number of regular scientists (i.e., those paid within the institution-funded part of the budget). In the biomedical section, exter- nally funded scientists comprised 53.5 percent of the total number. In the physi- cal-chemical section, their share was 25.5 percent, and in the social science sec TABLE 3.19 Structure of Project Funds, 1993 SourceMillion DM Share in Percent Federal government and states105.2 62.1 KU, other public institutions35.3 20.9 Foundations, industrial contracts, endowments23.6 13.9 MPG assets5.2 3.1 Total169.3 100.0 SOURCE: Max-Planck-Gesellschaft (1994b).

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TECHNOLOGY TRANSFER IN GERMANY 309 lion, it was 16.6 percent. Overall, about 35 percent of all scientists are sponsored by external funds. One indicator of the amount of applied research being done is the number of contracts or direct grants to MPIs by industry. Not surprisingly, this figure is very low. Only between 5 and 6 percent of project funds are the result of such contracts. In 1994, about 2,000 contracts brought in DM 37 million to the insti- tutes; for 1995, this revenue was estimated to be between DM 37 and DM 40 million, or the equivalent of 0.5 percent of the overall budgets of the MPIs. None- theless, a few institutes support a considerable number of their scientists with industrial grants. These institutes conduct research in the fields of biochemistry (e.g., MPIfur Biochemie), synthetic polymers (MPIfur Polymerforschung), and material analysis (MPI fur Metallforschung). Still, the scientific community within the MPG prefers to obtain grants from foundations and public agencies. TECHNOLOGY TRANSFER The MPG emphasizes its identity as an organization for basic research. But, especially in the late 1940s and 1950s, the society carried out a large volume of applied research. The current strong orientation toward basic research occurred over time (Mayntz, 1991), in particular against the background of the growing relevance of the FhG. Today, the main function of the MPG inside the German framework of science is to perform basic research.26 The assumption is that basic research provides an important stimulus for more applied R&D in industry (Dose, 1993~; therefore, the work of the MPG pays off. How is the transfer of basic research findings accomplished and assessed by the MPG? The "classic" type of transfer, through the exchange of research per- sonnel, may be the most effective. Most MPI directors are at the same time honorary professors at a local university. Thus, there is close contact with the other institution promoting basic research. Some of the expensive MPG facili- ties especially for research in astronomic and solid-state physics are used by university research groups as well. Another important factor is the number of recipients of doctoral degrees, an estimated 80 percent of whom will be employed in industrial R&D departments. In 1993, the mean number of recipients of doc- toral degrees for the institutes in the chemical-physical-technical section was 1327; the biomedical section graduated an average of 7.2; and the social sciences sec- tion graduated an average of 1.9. Several institutes were well above the average, like the MPI for Polymer Research (MPI fur Polymerforschung), which gradu- ated 42 Ph.D.'s, and the MPI for Psychiatric Research (MPI fur Psychiatrische Forschung), which graduated 19. Although many of these graduates will work as scientists in industry, those scientists who prepare a habilitation thesis28 tend to become professors at universities. Again, as professors, they educate dozens of students and junior scientists and are an important means of knowledge transfer. The MPG allows its scientists to take a sabbatical term for doing research in

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310 TECHNOLOGY TRANSFER SYSTEMSIN THE UNITED STATES AND GERMANY industry. This temporary transfer has to be approved by the MPG and is as yet quite underdeveloped. Consultancy contracts with industry and the supply of expert reports are additional means of knowledge transfer. Recently, MPG scien- tists have been allowed to engage actively in the development of spin-off compa- nies. The already-mentioned decrease in public funds and increase in public pres- sure toward a stronger and more active technology transfer to industry has forced even the MPG to document its capabilities and achievements for a broader public. Because basic research is the main focus of the MPG, long-term applied research, which is of greater interest to industry, is pursued only by certain institutes. It is helpful to concentrate on the examples of more industry-oriented institutes and thereby explain different technology transfer mechanisms. The MPI for Polymer Research belongs to the chemical-physical-technical section. In 1993, the institute had an average size staff: 167 full-time employees (including 51 scientists), 31 externally funded employees (including 18 scien- tists), 25 visiting researchers, 26 fellows, 118 doctoral candidates, and 24 master's candidates. Partly due to a high percentage of chemical research (high even for an industrial laboratory), this institute has an above-average number of contacts with industry. These contacts, which include domestic and foreign companies of all sizes in chemistry or chemistry-related areas, are established by means of publications, exhibitions, and conferences. A considerable amount of collabora- tive research with industry takes place in several projects of joint interest. Gener- ally, there is no cash flow from industry to the institute; the major interest is in a mutual exchange of knowledge. Sometimes, a company is acquainted with the spectrum of topics dealt with by the institute and wants to contract for certain research services. However, the MPG accepts research contracts very restric- tively. Such work will be undertaken only if free publication of all research results is guaranteed. Another prerequisite is that the contract research be for- mally approved by the society. Another type of contact arises when the institute needs to perform experiments but does not possess the equipment or facilities. In these cases, the experiments are performed in industrial laboratories. The ex- change may occur in the other direction, too: The institutes are permitted to offer their facilities to industry (Weaner, 1995~. The MPI for Biochemistry (MPIfur Biochemie), located near Munich, pro- vides another example of active knowledge transfer. With more than 800 em- ployees, half of them scientists, this institute is one of the largest, as it was formed by combining three formerly independent institutes. It is located next to a large medical clinic and the Center of Genetic Research of the University of Munich. Interdisciplinary research and applied clinical research are carried out, as is basic research, depending on the specific work group or department. This institute will function as the nucleus for a biotechnology incubator that is currently being es- tablished there. The concentrated settlement of companies with the core business of biotechnology is being funded by the Bavarian state and managed by the

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TECHNOLOGY TRANSFER IN GERMANY 311 Fraunhofer Management Society. This form of state-promoted science, which integrates applied and basic research institutes, universities, and industry, will be a major achievement, as it is not yet well developed in Germany. The MPG always claims to be an advocate for pure basic research, but at least 19 institutes in the biological-medical section (out of a total of 24) and approximately 16 institutes in the physical-chemical-technical section (out of 26) conduct research in areas that are generally interesting for their industrial applica- tion. By the definition of the Frascati Manual (Organization for Economic Co- operation and Development, 1994a), they perform basic research. These activi- ties are primarily carried out in two major areas: biotechnology and materials (see Bild der Wissenschaft, 1994b). In biotechnology, there are MPIs for biochemis- try, biophysics, molecular genetics, and brain research; in materials, there are institutes for solid-state physics, microstructure physics, and metal research. The MPG has made a major effort to make it easier for its institutes to under- take technology transfer to make the benefits of technology transfer more appar- ent. In a recent publication, the MPG stated that its institutes contribute to 9 strategic areas with 70 subgroups of strategic technologies like new materials, cell biotechnology, and nanotechnology (the definition of the strategic areas is from Grupp, 1993~. Only a few subgroups are not represented by the MPG (see Max-Planck-Gesellschaft, 1995~. A major indicator of the extent of application-oriented MPG research is pat- ents. Between 1989 and 1992, most MPG patents were registered in biotechnol- ogy or in related areas like organic chemistry and pharmacy. In terms of regis- tered European patents, the MPG heads the field of genetic engineering in Germany; it is ranked number seven among the leading patent assignees world- wide (Bird der Wissenschaft, 1994a). In addition, MPG research that requires new tools and advanced equipment leads to spin-offs and a certain number of patents in measuring and control technology. As to the four focal areas, there have been a small number of MPG patents related to semiconductor devices; MPG has no patents in either production technology or information technology. Few information-technology-related patents have been awarded because that par- ticular institute was established only recently. Within the MPG, the Garching Innovation GmbH is responsible for intellec- tual property rights. Garching Innovation was established in 1969 as the central institution for technology transfer from MPIs and serves as its mediating agent for the industrial use of research findings. If the results of basic research carried out at an MPI can be exploited technically, an attempt is made to transfer the findings to industry through licensing or, in the case of collaborative research, through direct transfer of patents. MPG scientists are free to publish or apply for patents, so not all of the research findings are reported to Garching Innovation first. Garching has to cope with the very necessary, but sometimes hindering, attitude of scientists: They want to publish their results as soon as possible. They are often not aware that with intelligent timing, patents and publications do not

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312 TECHNOLOGY TRANSFER SYSTEMSIN THE UNITED STATES AND GERMANY hinder each other and can exist in parallel. In 1994, Garching Innovation com- pleted 45 license agreements and had license revenues of DM 7 million, with a trend toward growth. It received about 90 new inventions for exploitation and managed about 600 domestic patents and 860 patents in foreign countries. To sum up, the MPG always emphasizes the value of technology transfer, but it never views the success of transfer as a criterion for excellence. Technol- ogy transfer seems not to be a priority; rather, it is seen as a by-product or spin-off of the institutes' research activities. Up to now, the question of whether there are strong ties to industry has depended primarily on the willingness and interest of each individual scientist. Some scientists tend to work in more applied research fields and are ready to maintain contact with industry. Because collaborative research, applied research, and technology transfer are not considered to be pri- orities, but rather depend completely on the willingness of individual scientists, much industrially applicable research is probably undertaken by the institutes but is forgotten before industry becomes aware of its relevance. It will be a challenge for the MPG to overcome this apparent gap without losing its independence and focus on basic research. Helmholtz Centers Helmholtz Centers conduct primarily research on long-term problems entail- ing considerable economic risks in areas of public welfare and in fields requiring large investments. Besides the classic instrument of scientific publications, the major mechanisms of technology transfer are the participation of industry in ad- visory boards and committees and collaborative research uniting industry and the centers on large projects or programs. The centers are funded primarily with public money, but industry and the federal government are striving to increase the share of industrially relevant research these centers conduct. This can be achieved by reducing institutional funds in favor of project support and broader participa- tion of industry in the centers' research planning procedures. It is not clear to what extent these different measures suggested will be implemented. In any case, the centers will go through a process of considerable structural change within the next few years. INSTITUTIONAL STRUCTURES The first Helmholtz Centers were founded in the late 1950s, when the allied forces gave Germany permission to perform nuclear research, then called Large Research Centers (~Gro/3forschungseinrichtungen'). At that time, the federal gov- ernment was struggling to establish a role for itself in technology policy, which was generally the province of the states as part of their responsibility for educa- tion and science. Federal technology policy was limited to special federal pur- poses. In this situation, the establishment of Helmholtz Centers opened a way for

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TECHNOLOGY TRANSFER IN GERMANY 321 status of a federal research institution and received institutional funds from the BMFT, now the BMBF. This decision has to be seen in the context of the intense discussions that were taking place at that time about the technological gap be- tween Europe and America and the more active technology policy being imple- mented by the German federal government (Schimank, 1990~. Today, the FhG is the major German nonprofit organization in the area of applied research, running 46 institutes in Germany 36 consolidated institutes in the old German states and 10 newly established institutes in the new states, supple- mented by 12 subsidiaries of consolidated institutes in the new states. The FhG employs 7,800 people, of whom 2,600 are scientists and engineers. In 1994, the FhG budget amounted to DM 1.1 billion, or roughly $700 million.30 The FhG is organized as a registered society (eingetragener Verein, e.V.) whose principal statutory task is the furtherance of applied research. The FhG is instrumental in keeping up with worldwide technology developments and mak- ing new research results usable for industry and public needs (Schuster, 1990~. Its roughly 700 members come from federal and state governments and other political, scientific, industrial, and economic institutions. The BMBF and state ministries are dominant members (Fraunhofer-Gesellschaft, 1985~. The society is managed autonomously according to its statutes. There are two principal management levels: the society and the institute. Decision making on the society level is in the hands of the Members' Assembly, the Senate, the Board of Directors, and the Scientific-Technical Council. The members elect the Senate, which is responsible for long-term decisions and general policy (i. e., budget and finance, opening and closure of institutes, major investments, and consensus management). Senate membership includes representatives of the sci- entific, economic, political, and public sectors in the German R&D system. The Board of Directors, composed of the FhG president and two full-time directors, carries out policies as determined by the Senate. The Board of Directors is sup- ported by the central administration, which has a staff of more than 200. The Senate and Board of Directors are advised by the Scientific-Technical Council, which is made up of 102 members; 52 of these are institute directors and the rest are scientific and technical staff at the institutes. The council elects a Main Com- mission (Hauptkommission), which keeps in contact with the Board of Directors and thus is a major advisory body for consensus management between the society and the institute levels. The organization and success of the FhG are based on decentralized initiative and responsibility. There are 40 civil research institutes and 6 defense institutes. The definition of research agenda and acquisition of funds, as well as personnel recruitment, are essential tasks of the institutes; the central administration is re- sponsible for general planning, controlling, resource allocation, and business ad- ministration. The institutes have an average staff of 170, including part-time employees and students (the number varies greatly among the institutes), and are organized internally as profit centers according to the same concept of decentrali

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322 TECHNOLOGY TRANSFER SYSTEMS IN THE UNITED STATES AND GERMANY zation. Project and division managers have major responsibility for the acquisi- tion and execution of research, including personnel recruitment. Formal contact between the institutes and their sponsoring and cooperating partners in science, policy, and industry is fostered through advisory boards (Kuratorien) that usually meet once a year to exchange general information and discuss the institutes' activities and progress. In total, the advisory boards of Fraunhofer institutes (FhIs) have 450 members. All in all, industry has only an advisory function at the central and institute levels through representatives in the Senate and the institutes' advisory boards. Thus, the FhG research orientation is largely independent and primarily deter- mined by the institutes in a decentralized way. BUDGET AND FINANCE The typical FhG financial structure is best exemplified by the civil contract research activities of the consolidated 30 institutes in the old states of Germany (leaving aside civilian contract research in the new states, defense research, and investment expenditures). In 1994, the total budget for these institutes amounted to DM 603 million, of which about 70 percent were funds for contract research and 30 percent were institutional funds from the federal and state governments (Fraunhofer-Gesellschaft, 1994~. Ninety percent of the institutional funding is contributed by BMBF; the remaining 10 percent as well as half the costs of estab- lishing new institutes are paid by the state ministries hosting the institutes (some- times, the states bear up to 100 percent of special investments). A major characteristic of the Fraunhofer model is that the level of institu- tional funding is not stable but depends on the income from public and private contracts. In other words, for each institute, the level of institutional funding increases or decreases in relation to the institute's success in contract research (Imbusch and Butler, 1990~. During the early years of FhG, the share of institu- tional funding amounted to about 50 percent and decreased later to about 30 per- cent. These funds were the basis for developing the FhG's reputation for high- quality applied research that thereafter allowed for successful expansion of research and technology transfer with considerably less institutional funding. Figure 3.22 shows the contributions of base institutional funds, public projects, and industrial contracts to the FhG from 1976 to 1994. Each of the three sources contributed about one-third of the total budget, with so-called "other sources" not taken into account here. Income from private contracts showed a strong, steady increase over the period. Public project funding dominated FhG finances up until the economic recession that followed German reunification. There is still uncertainty as to whether industrial contract research will make up for the loss of public project funding. Contract research may fill the gap, because public programs for key technology research indirectly support industrial inter- ests and thus contribute to technology transfer to industry. According to this

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TECHNOLOGY TRANSFER IN GERMANY 225 150 base and special funds contract research (private enterprises) project research (federal government and states) other sources I / ~ "'i'/ ' // /? - - I// //' . ~ - O. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 year FIGURE 3.22 Budget structure of 30 consolidated Fraunhofer institutes in West Ger- many. SOURCE: Fraunhofer-Gesellschaft (1994~. perspective, 55 percent of civilian FhG contract research is relevant for technol- ogy transfer to industry (Figure 3.23~. If only direct investiment is taken into account, the industry contributes about 30 percent of the total (DM 196 million in 1994~. It is interesting to note that the FhG is allowed to carry out contracts for foreign industrial clients. In 1994, DM 18.6 million, almost 10 percent of the industrial budget, came from foreign countries. The largest share of these con- tracts emanated from neighboring German-speaking countries (Switzerland 20 percent and Austria 10 percent); however the volume of contracts with U.S. enterprises is considerable (20 percent). These activities enable the FhG to moni- tor the international development of technology, not only on the supply side through communication with other foreign scientists, but also on the demand side. At the same time, the foreign clients profit from FhG competencies in applied research. FhG activities account for about 1 percent of the German gross domestic expenditure on R&D. The FhG operates in the market of publicly funded tech- nology programs that are partly relevant to private industry (key technologies)

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324 TECHNOLOGY TRANSFER SYSTEMS IN THE UNITED STATES AND GERMANY Source of support 650 ~ 600 550 500 450- 400~ o ._ 350 ~ 300- 250 ~ 200 150- 100 ~ 50 - O - Industry-oriented activities base funds 210 ~ ~ ~ projects for EU 30 ~ ~ , other sources 53 ~ ~ ~ ~ ~ ~ ~ foundations 13~ ~ ~ ~ ~:~ ~ ~ I project research (federal government and states) 160 ~ ~ ~ ~ I: ~ ~ : ~ ~ ~ : ~ : : ~ ~ : ~ ~ ~ ~ I: ~ ~ ~ Cooperative and market-orien- ted projects, contract research; for public clients 85 _ I: ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~:~ _ ~ ~ _ research for EU 30 contract research (private enterprises) 196 55 onto FIGURE 3.23 Industry-oriented activities of 30 consolidated Fraunhofer institutes in West Germany, 1994. SOURCE: FhG-Zentralverwaltung (1995~. and in the market of privately funded external R&D expenditure. The latter amounted to more than DM 6 billion in 1993. For research institutes, this market is actually much smaller, as most of the external industrial research is done by other companies in the private sector. A realistic level of industrial contract research in the publicly funded nonprofit sector would be in the region of DM 1 billion. In 1993, FhG institutes attracted about 20 percent of this market, second only to universities. RESEARCH AREAS Of the main research areas of the FhG, production technology is the largest and, when the materials area is included, shows the distinct focus of FhG on

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TECHNOLOGY TRANSFER IN GERMANY Materials, components Production, manufacturing Information, communication Mircoelectronics, Microsystems Sensors, testing Process technology Energy, civil engineering, environment, health Technical-economic studies, services 325 Private enterprise EU Federal government, states Other sources Base funds 0 20 40 60 80 100 120 140 Million DM FIGURE 3.24 Budget structure of 30 consolidated Fraunhofer institutes in West Ger- many, by research area, in 1994. SOURCE: Fraunhofer-Gesellschaft (1994~. mechanical engineering (Figure 3.24~. A second focus is microelectronics, in association with the related areas of information and communication and sensor technology. FhG activities cover application-oriented basic research (less than 5 percent of total expenditures), applied research, industrial product (process) engineering and prototyping (about 75 percent of expenditures), and technical and scientific services (about 20 percent of expenditures) (Imbusch and Butler, 1990; data for 1986~. This special mixture of R&D types leads to a specific division of labor between the FhG and industrial enterprises (Figure 3.25~. In this idealized scheme, small companies use the whole range of FhG activities up to prototyping, whereas large companies are interested primarily in more basic and long-term strategic research. The average share of FhG industrial contracts varies greatly among institutes and technology areas. Figure 3.26 shows the major trends between 1989 and 1993. During this period, production technology received by far the strongest industrial support; 50 percent of the funding in this area came from industrial contracts. This corresponds to the traditionally close cooperation between indus- try and science in the field of mechanical engineering with Fraunhofer clients in important industrial sectors like the automobile industry. For material technolo- gies, industrial support decreased from above average to average (around 30 per- cent over the 4 years). This may reflect economic difficulties in the German chemical industry and changes in R&D strategies (concentration on mid-term core competencies after a period of long-term diversification in R&D). The trends

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326 TECHNOLOGY TRANSFER SYSTEMS IN THE UNITED STATES AND GERMANY large-scale enterprises medium-sized enterprises small enterprises time until market , ~ curiosity- oriented basic research maturity >10 years Industry Fraunhofer institutes applied develop- prototypes, optimi- series research ment pilot zabon production (products, installations, application- onented industrial basic research, development of key tee hnologies processes, models methods) 2-7 years 1-3 years 3-18 months FIGURE 3.25 Typical division of labor between Fraunhofer institutes and industry. SOURCE: FhG-Zentralverwaltung (1995~. in sensor, process, and energy technology are relatively stable and the values are about average. Trends in information and communication technology and microelectronics, two sectors characterized by a relatively weak industrial base, show perceptible changes. Whereas in information and communication technology the trend is significantly downward, possibly reflecting deep structural changes (decline in the information industry, privatization in the communication industry), the trend in microelectronics switched from a decrease to a significant increase after 1991. This may correspond to a strategic reorientation of Fraunhofer microelectronic institutes toward systems applications instead of devices in areas where U.S. and Japanese competition has grown. TECHNOLOGY TRANSFER In Germany, technology transfer is often seen to be either contract research or intermediary services of specialized transfer agencies (i.e., an institutional infrastruc- ture added to R&D institutions like universities or national laboratories). Actually, the diversified sector of nonuniversity R&D institutes with its multiple levels of interaction with industry represents the major institutional framework for technol- ogy transfer. The FhG in itself can be regarded as an important transfer institu- tion. It bridges the gap between basic research and industrial development, rely- ing on a market-driven and demand-driven orientation to applied research.

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TECHNOLOGY TRANSFER IN GERMANY 60 50 40 30 20 10 On . . 1989 1990 1991 327 1992 1993 year -~-materials, components ~ production, manufacturing - - ~ --information, communication -~-microelectronics, Microsystems --A-sensors, testing O process technology I energy, civil engineering, environment, health technical-economic studies, services average FIGURE 3.26 Share of FhG industrial contracts, according to research area. SOURCE: FhG-Zentralverwaltung (1995~.

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328 TECHNOLOGY TRANSFER SYSTEMS IN THE UNITED STATES AND GERMANY For the FhG, the most important channel for technology transfer is, as de- scribed above, contract research for industry. The Fraunhofer model assumes that contract research guarantees a research orientation geared to application. The targets of a research contract are defined by the sponsor; therefore, it can be assumed that the sponsor is highly interested in using the results for product (pro- cess) developments. The strong reliance of the FhG on industrial contracts im- plies that the research activities are closely related to market demand. The FhG philosophy implies taking the initiative in convincing potential sponsors of the relevance of research subjects. The acquisition of project funds gives the FhG the autonomy to allocate resources to particular research issues within the Fraunhofer institutes. This mechanism encourages in Fraunhofer scientists entrepreneurial behavior in terms of their strategic orientation toward future demand of the ap- plied-research market. The second major transfer channel of the FhG is contract research for public projects or programs related to government responsibilities like health care, envi- ronmental protection, energy and telecommunications infrastructures, defense, and so forth, as well as to German economic competitiveness in world markets. Public research programs that are relevant to industry focus on precompetitive research with the goal of improving national competitiveness in key technolo- gies. Individual contract research projects allow for long-term, application-ori- ented research3i with precompetitive prototypes as the typical transfer result. Public projects run collaboratively with industry are directly relevant for technol- ogy transfer. Closely related to industrial contracts is technology transfer via consultancy or other services considered to be auxiliary. According to interviews with Franhofer researchers, the importance of these activities increases in relation to higher industrial contributions to the research budget of institutes; their purpose is to stabilize contacts with industry. The relations between the FhG and industry represent only one element of technology transfer, albeit an important one. Another decisive step in the innova- tion process occurs at the boundary between basic and applied research. In this regard, the interaction between the FhG and universities is crucial. Most Fraun- hofer institutes are located near universities, and about two-thirds have direct institutional connections based on contracts between the FhG and the university. The main element of such relationships is the joint appointment of a full profes- sor as director of a Fraunhofer institute and to a university chair. The relevant faculty participate in the appointment procedure, but thereafter the Fraunhofer institute is run independently of the university. Some members of the faculty are elected to the institute's advisory board, thus getting full insight into its research activities. The knowledge transfer between the Fraunhofer institute and the uni- versity flows in both directions. At the university, the Fraunhofer director can carry out basic research funded by institutional funds of the university, and the director is in close contact with other academic researchers. At the same time, the

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TECHNOLOGY TRANSFER IN GERMANY 329 university gets aquainted with the needs of applied research; the FhG director is a member of the faculty and can directly influence its research policy. An important element of this close relation to universities is the direct access Fraunhofer institutes get to qualified students. This creates mobility of person- nel, with more than 11 percent of the scientific staff annually moving from the FhG to other employers (Fraunhofer-Gesellschaft, 1993~. Of the 11 percent, 41 percent join industry, thus accomplishing a process that begins when institute directors select qualified students for jobs that turn into regular employment at the institute after graduation from university. For doctoral theses, students are given the chance to participate in cutting-edge research with industrial applica- tions. After 5 to 7 years, they may leave the FhG to start industrial careers. Many stay in contact with "their" FhG institute, thus stimulating further industrial coop- eration. The level of personnel turnover is an indicator of successful technology transfer that is monitored continuously by the central administration of the FhG. In addition to these formal means of technology transfer, the FhG also uses a variety of informal channels. For instance, the institute directors establish close contacts with industrial managers as well as with their academic colleagues. In addition, Fraunhofer scientists are expected to publish papers, attend conferences, and participate on academic and industrial committees. Through these activities, research results are disseminated to the technology and scientific communities, and at the same time, new scientific trends can be followed. These informal transfer activities are also a performance metric for the evaluation of an institute by the central administration. With regard to this kind of networking, the selec- tion of members for the advisory boards of the institutes plays a decisive role. A specific model of close cooperation with industry is the Microelectronics Alliance (Mikroelektronikverbund) of the FhG. This is an organizational union of the FhG' s seven microelectronics institutes with a leadership composed of the directors of these institutes (Fraunhofer-Gesellschaft, 1988~. In view of the often defensive position of the German and European microelectronics industry, the association was established to focus and coordinate the investment and research capacities within the FhG, and especially to coordinate its research orientation with the business policy of the German electronics industry and other research institutions. Cooperation with industry is organized by a special Technology Ad- visory Board (Technologiebeirat) in addition to the usual advisory boards of the institutes. The supporting ministries and the largest German electronics concerns are represented on the board. This institutionalized cooperation helps to concen- trate the resource input for R&D according to the needs of industry, thus paving the way for future technology transfer. The Microelectronics Alliance represents the most direct form of industrial influence on the research policy of Fraunhofer institutes. Within the chain of technology transfer, the present Fraunhofer model covers the range from basic research to prototyping. The final development of products or processes is left to the industrial partners. Some institute directors, however,

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330 TECHNOLOGY TRANSFER SYSTEMS IN THE UNITED STATES AND GERMANY see an increasing need to become involved even in this last stage. As a result, several institutes have established joint ventures with industrial partners or new technology-based firms more or less closely affiliated with the institute. Some of these new firms are spin-offs, run by former FhG researchers at their private entrepreneurial risk.32 Since these initiatives are still young, it is not yet possible to evaluate whether these FhG-associated firms can become a standard element of the Fraunhofer model. Recently, the FhG considered splitting in two, with a division of labor between the institutes and the innovation centers (Innovationscentren). The institutes would focus on applied research and keep their nonprofit status. The innovation centers would be associated with one or several Fraunhofer institutes, develop their results further to create industrial products, and introduce these products into the market- place. The innovation centers would have a for-profit status and would be the basis for establishing spin-offs (FhG-Zentralverwaltung, 1995~. Before the realization of this concept, a variety of administrative, financial, and legal problems have to be resolved. However, this approach seems to be a reasonable adaptation of the Fraunhofer model to the current needs of technology transfer. The patent policy of the FhG is an important technology transfer tool. Insti- tutes can decide whether patents are useful for their general contacts with indus- try. In most cases, inventions created within research projects are not given di- rectly to industry but registered by the institute itself. An industrial partner generally gets an exclusive license, but only for the partner's special application; hence, the FhG is free to license the patented technology to another company for a different application. With more than 200 domestic patent applications in 1993, the FhG is among the most active patent assignees in Germany (Deutsches Patentamt, 1993). The specialization of FhG patents may be distorted to a certain extent by the varying patent policy of the institutes. Overall, most focal areas are well repre- sented (Figure 3.27~. High index values in machine tools and handling (robotics) relate to production technology, as does the above-average value in optics (laser working). Other focuses are material technology (materials, surfaces) and micro- electronics. The low index in data processing may be related to the fact that the research institutes involved have a strong software orientation and, according to the German and European patent laws, patent protection for software is limited. All in all, the Fraunhofer profile, to a certain extent, reproduces the general Ger- man profile (see Figure 3.3), because FhG activities must be close to the market demand. However, in several key areas such as semiconductors, optics, biotech- nology, control, and materials, FhG patent activity is ahead of that industry. MAJOR ELEMENTS OF THE FRAUNHOFER MODEL The success of the Fraunhofer model, as reflected by steadily increasing budgets, is based on a variety of strategic elements, including the decentralized

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TECHNOLOGY TRANSFER IN GERMANY Electrical energy Audiovisual technology Telecommunications Information technology I Semiconductors Optics Control Medical engineering I Organic chemistry | Polymers Pharmaceuticals I Biotechnology Materials Agriculture, food Basic materials chemistry Process engineering Surfaces Material processing I Thermal processes I Environment Machine tools Engines Mechnical elements Handling Agricultural machines! Transport I Nuclear engineering Weapons Consumer goods Civil engineering 331 C l = -100 -80 -60 -40 -20 0 20 40 60 80 100 Specialization index FIGURE 3.27 Specialization of German Patent Office patents held by the FhG in rela- tion to the average distribution at the EPO for the period 1989 to 1992. SOURCE: The database PATDPA; Fraunhofer Institute for Systems and Innovation Research.