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OVERVIEWAND COMPARISON 9 In Germany, the category of "general university funds" has been introduced in Table 1.3 because of statistical problems with associating university base funds with specific socioeconomic objectives.8 At the same time, the large share of this category is suggestive of the preeminent position universities occupy among all German research institutions with respect to their draw on the public R&D purse. In this context, it is noteworthy that about 43 percent of all German public R&D funds goes to universities, whereas in the United States, universities and colleges receive only 20 percent of public R&D funds. The relatively smaller claim of the U.S. academic research enterprise on U.S. public R&D funds is largely explained by the fact that roughly half of U.S. government R&D spending is directed to the development, testing, and evaluation of weapons and other sys- tems for military use, work not done predominantly within academia. The relatively large share of German public R&D funding allocated to the advancement of research, or basic research, is partly a consequence of differences in the classification of the German and U.S. data. Because most U.S. public funds are channeled through federal mission agencies, a large portion of U.S. government-funded basic research is statistically subsumed under specific socio- economic objectives. Nevertheless, the separate classification of basic research in the German public R&D portfolio and the large claim of German academic research on total public R&D funds testify to the comparatively heavy emphasis German research policy places on basic research. All in all, German public R&D funds are more evenly distributed among major socioeconomic objectives than are U.S. public monies. Moreover, there is more equal involvement of the German federal government and the state govern- ments in funding and shaping the nation's public R&D portfolio than is the case in the United States. In the United States, a small amount of federal R&D fund- ing is passed through state governments. Many U.S. states allocate a significant fraction of their budgets to doctorate-granting state universities for support of research. Such funds provide faculty salaries and support research facilities asso- ciated with faculty-directed research activity. Direct support by U.S. states of applied-research projects has, up to now, been concentrated in selected fields, including agriculture, transportation, labor relations, and public health. How- ever, over the past decade, some states have moved to broaden their support to industrial fields (Coburn, 1995~. By contrast, in Germany, the central govern- ment and the federal states are often jointly engaged in funding and administering public research institutions. COMPARISON OF MAJOR TECHNOLOGY TRANSFER INSTITUTIONS Functional Similarities: An Overview Despite the many significant structural differences between the German and American R&D systems, many individual elements of the two national systems

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10 TECHNOLOGY TRANSFER SYSTEMSIN THE UNITED STATES AND GERMANY are functionally comparable and appear to face similar challenges and opportu- nities. German and American research universities have the primary functions of edu- cation and research, with a focus on basic research. They perform most of same technology transfer functions and wrestle with many of the same issues, such as the tension between new and traditional university missions, conflict-of-interest concerns, differences between academic and industrial cultures, and so on. The large German Helmholtz Centers and large federal laboratories in America perform basic and applied research in areas of public interest. They face similar demands to diversify their research portfolios and downsize in response to a contraction of their original national missions. The German Blue List (Blaue Liste) institutes, departmental research institutes, and independent state institutes seem to be comparable to the smaller U.S. federal and state-level laboratories. The Max Planck institutes are characterized by their public base funding and their near-exclusive basic research orientation. Although they have no real insti- tutional counterpart in the United States, their functional equivalents can be found in several publicly funded, U.S. university-affiliated basic research institutes (in- cluding federally funded research and development centers), basic research ac- tivities of certain U.S. federal laboratories (e.g., National Institutes of Health), and private institutes, such as the Howard Hughes Medical Institutes. Again, there is a uniformity of German institutions across the spectrum of research fields that is not found in the United States. The highly networked, semipublic German Fraunhofer institutes conduct pri- marily applied research and development and pursue the mission of technology transfer to industry. There is no single institutional counterpart (public or semi- public) to the Fraunhofer Institutes in the United States. Instead, many of the contract R&D and technology transfer functions of the Fraunhofer institutes are performed in the United States by a large, diverse, and dispersed population of public and privately held for-profit and nonprofit organizations. Most prominent among the latter are the large independent engineering research institutes. Fraun- hofer institutes and U.S. independent engineering research institutes also face several comparable challenges, for example meeting the technology transfer needs of small companies and competing and cooperating effectively with other nonin- dustrial technology transfer institutions in their respective national R&D systems (e.g., national laboratories, university-affiliated institutes). In the two countries, industrial enterprises conduct the largest share of R&D, primarily applied research and development. Cooperative industrial research, including that conducted by R&D consortia, is well established in both Germany and the United States. The technology transfer challenges faced by industrial R&D consortia in the two countries are similar in many respects. Table 1.4 gives an overview of these functional counterparts in German and U.S. research institutions. The following sections provide a more detailed comparative analysis of technology transfer institutions and mechanisms in the two countries.

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OVERVIEWAND COMPARISON TABLE 1.4 Functional Similarities Between Research Institutions in the United States and Germany 11 Primary Functions United States Germany Education, basic research Universities Universities Basic research University-affiliated institutes Max Planck institutes Select federal labs and federally funded R&D centers Some independent research institutes Public mission, Large national laboratories Helmholtz centers public interest Smaller federal laboratories Blue List institutes State-level institutes Departmental institutes State-level institutes Applied research, Independent engineering Fraunhoferinstitutes technology transfer research institutes An-Institutes UIRCs BMBF's cooperative programs Applied research, Industrial consortia AiF cooperative research development Industrial R&D collaborations Industrial R&D collaborations NOTE: UIRCs = university-industry research centers; An-Institutes = Institute an der Universitat (literally, institutes at the university); BMBF = Bundesministerium fur Bildung, Wissenschaft, Forschung und Technologie (Ministry for Education, Science, Research and Technology); AiF = Arbeitsgemeinschaft industrieller Forschungsvereinigungen (Federation of Industrial Research Asso- ciations). Technology Transfer from Higher Education Institutions The primary missions of German and U.S. universities are education and research directed at the advancement of knowledge. However, engineering schools and engineering departments in both countries have long performed a considerable amount of applied as well as basic engineering research. The prin- cipal contribution of universities to the technical needs of industry is human capi- tal, that is, well-educated, learning-skilled science and engineering graduates. Thus, movement of science and engineering graduates to other sectors of a nation's innovation system must be considered the most important technology transfer channel of universities. Although German and U.S. universities are in- volved increasingly in the generation and licensing of intellectual property, the primary research output of German and American academic research remains nonproprietary new knowledge that is disseminated widely through publications and conferences. Because of the nonproprietary, or "public goods" nature, of much of its output, academic research is funded primarily by the public sector in both countries.

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12 TECHNOLOGY TRANSFER SYSTEMSIN THE UNITED STATES AND GERMANY DIFFERENCES OF SCALE AND STRUCTURE There are major differences in the scale of the German and American aca- demic research enterprises. The volume of U.S. academic R&D is roughly four times that performed by German institutions of higher education. Likewise, the output of U.S. academic researchers, measured in terms of the publication of their work in the world's science and engineering literature is about four times that of their German counterparts. (See Table 1.2, above.) Again, however, these differ- ences reflect the different sizes of the two countries' economies and populations. The U.S. academic research enterprise also appears to be much more hetero- geneous and decentralized in its administration and management than its German counterpart. The "nonsystem" of U.S. research universities and colleges is a highly autonomous population of public and private institutions, each established and developed in response to some unique combination of local, regional (state), and national needs and opportunities. These institutions vary considerably in the size of their research budgets, the general orientation of their research (some are more basic, others are more applied), the reputation (quality and productivity) of their research activities, the scope and intensity of their technology transfer ac- tivities, and their administration and accounting practices. By comparison, Ger- man academic research institutions are fewer in number, larger, and more homo- geneous in size, administration, and management as well as in the overall breadth of their research portfolios. With few exceptions, all German universities have a public status. FUNDING OF ACADEMIC RESEARCH Government funds the vast majority of academic research in both Germany and the United States (Table 1.5~. However, in Germany, about 74 percent of all academic research is supported by general-purpose, or base-institutional, funds provided by state (Lander) governments, which are responsible for education under the nation's constitution and fund the public universities within their juris- diction. By contrast, agencies of the U.S. federal government contribute the larg- est share of U.S. academic research funding (60 percent); the share of support provided by U.S. state and local governments is significantly smaller.9 U.S. private universities, which represent an important, highly productive part of the nation's academic research enterprise, depend much more heavily on federal R&D funds than do public universities, which receive both targeted research fund- ing and general-purpose appropriations from state governments. In 1993, federal agencies funded roughly 56 percent of all research at public universities and 74 percent of research performed at U.S. private universities (National Science Board, 1996~. Private companies provide comparable shares of total research funding at German and U.S. universities. U.S. academic institutions rely more heavily on nonprofit organizations for research support than do their German counterparts.

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OVERVIEWAND COMPARISON TABLE 1.5 Support for German and U.S. Academic R&D, Percentage Share by Contributing Sector, 1994 Sector Germany United States Federal government 17.2 60.1 State and local governmentsa 73.5 7.6 Industry 8.3b 6.9 Academic institutionsC 17.9 All other sources 1.0 7.4 aGerman states (Lander) provide general-purpose funds to their universities for education and research. About DM 10 billion of these general-purpose funds were used for academic research in 1994. Only 10 percent of all research support pro- vided for German universities by the Lander was project related. By contrast, the percent share of total U.S. academic R&D funded by U.S. state and local govern- ments reflects only funds targeted specifically for academic R&D activities and does not include general-purpose appropriations used for separately budgeted re- search or to cover unreimbursed indirect costs. See note c, below. (National Sci- ence Board, 1996) bIncludes industry-financed foundations. Without foundations, the share of in- dustry support is 7 percent. CSince German universities determine how much of the general-purpose fund- ing they receive from state governments will be spent on research and in which fields, most German state and local government R&D funding could be classified alternatively as academic institutional funds. The major sources of U.S. academic institutional R&D funds are general-purpose state or local government appropria- tions; general-purpose grants from industry, foundations, or other outside sources; tuition and fees; endowment income; and unrestricted gifts. (National Science Board, 1996) includes grants from nonprofit organizations and international organizations, restricted gifts by private individuals, and other sources not elsewhere classified. SOURCES: Bundesministerium fur Bildung, Wissenschaft, Forschung und Technologie (1996), National Science Board (1996). 13 Since 1970, funding for U.S. academic research from the industrial sector has increased faster than funding from other sources. U.S. academic institutions also increased their share of total research funding during this period, while the shares of funding from federal and state government declined. In Germany, like in the United States, industrial support of academic research has increased faster since 1970 than has support from other sources. Recent statistical data show that in Germany, industrial funding of academic research has increased substantially since 1989, to roughly an 8-percent share of total academic R&D support. Fund- ing provided by the German federal government for university research is prima- rily project oriented and has increased considerably since 1970. As of the early l990s, the distribution of academic research expenditures among major research fields in Germany and the United States reveals several

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14 TECHNOLOGY TRANSFER SYSTEMSIN THE UNITED STATES AND GERMANY TABLE 1.6 Research Expenditures at Universities in the United States and Germany, Percentage by Disciplinary Field, 1993 Discipline United States Germany Engineenng 15.8 19.0 Life sciences 54.4 37.0 Other natural sciencesa 21.7 23.0 Social sciences, humanitiesb 6.3 19.0 Other sciences 1.9 2.0 aThe other natural sciences encompass the physical, mathematical, computer, and environmental sciences. Unlike the U.S. data, German data on academic research in the other natural sciences cannot be disaggregated by discipline. bFor purposes of companson, research spending in psychology is included in this category. SOURCES: Bundesm~nisterium fur Bildung, Wissenschaft, Forschung und Technologie (1996); National Science Board (1996); Wissenschaftsrat (1993a); calculations by the Fraunhofer Institute for Systems and Innovation Research. significant differences (Table 1.6~. These data have to be interpreted with cau- tion, however, as the matching of U.S. and German disciplinary fields is prob- lematic. In any case, the life sciences (i.e., the agricultural, biological, and medi- cal sciences) accounted for 54 percent of U.S. academic research expenditures and only 37 percent of German university research spending. The social sciences and humanities claimed a significantly larger share of total German expenditures than was the case in the United States, and engineering and "other natural sci- ences" (i.e., the chemical, physical, mathematical, computer, and environmental sciences) accounted for slightly larger shares of total academic research spending in Germany than they did in the United States. Public Funding of Academic Research In Germany, a majority of academic R&D is financed with general, or base institutional, funds provided by the states (Lander). Contract and grant funds for German academic R&D come primarily from the German Research Association (Deutsche Forschungsgemeinschaft [DFG]), the Ministry for Education, Sci- ence, Research, and Technology (Bundesministerium fur Bildung, Wissenschaft, Forschung und Technologie [BMBFi), and, increasingly, the European Commis- sion. Contracts and grants generally cover only direct costs of personnel and additional equipment. As a result, the overhead costs related to research sup- ported by these funds must de facto be covered by institutional base funds pro- vided by the states. Therefore, in terms of personnel and time, academic research depends heavily on external sources: roughly half of all German academic re

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OVERVIEWAND COMPARISON 15 search relies on contracts and grants if the related overhead funds covered by the states are included.~ The share of public base funds in U.S. universities is quite low. Instead, the vast majority of U.S. academic research in science and engineering is sponsored directly by nonacademic institutions, primarily federal government agencies, via grants or contracts that include money for overhead costs. The main funding sources are the National Institutes of Health, the National Science Foundation (NSF, comparable to the German DFG), the Department of Defense, the National Aeronautics and Space Administration, the Department of Energy, and the De- partment of Agriculture. The National Institutes of Health is the largest federal contributor to university research, accounting for almost half of these funds. Most research performed by higher education institutions in Germany and the United States is either basic or long-term applied research. Nevertheless, because federal agencies sponsor the vast majority of academic research in the United States, even basic research in many academic fields is directed toward the applied needs of federal agencies. Both German and U.S. academic researchers must compete for research fund- ing on a project-by-project basis via peer-reviewed proposals. However, U.S. researchers depend on this competitive process for a significantly larger share of their total research support than do their German counterparts. This competition for research grants requires a great deal of paperwork and grant management (i.e., non-research-related) effort by the principal investigator, who may serve as both a grant applicant and "volunteer" reviewer of the grant proposals of other research- ers. This system both encourages intensive competition among researchers and fos- ters rapid dissemination of research ideas within the research community. In contrast to the situation in the United States, until recently German aca- demic researchers could rely on a relatively high and stable level of base funds to support the majority of their research activities. Hence, they were able to devote most of their nonteaching time to self-determined, long-term research and spend minimal effort seeking research support. However, in recent years, the pressure on German academic researchers to tap external sources of funding has increased due to stagnation in the growth of public base funding. Contracts and grants currently fund about 40 percent of all direct research costs (excluding overhead) in the engineering sciences. This share is likely to increase over time. As already noted, German universities have to cofinance the overhead costs related to re- search contracts and grants with institutional base funds. This means that 70-to- 80 percent of all costs associated with engineering research activity at German universities depends on contracts and grants, if the related overhead costs cov- ered by institutional base funds are included. Industry Funding of Academic Research Both German and U.S. universities receive research funding from private industry. In 1994, industry support accounted for about 8 percent of total German

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16 TECHNOLOGY TRANSFER SYSTEMSIN THE UNITED STATES AND GERMANY academic R&D expenditures and 7 percent of U.S. academic R&D expenditures. However, the nature of this funding differs in the two countries. The preferred mechanism of German industrial support for academic research is a research con- tract with clearly specified deliverables. In the United States, most industrial funding of academic R&D takes the form of grants, more open-ended arrange- ments without specifically defined research deliverables but with intensive in- volvement of the sponsors in decision making about the research orientation. Considering these differences and the perspectives of its university-based mem- bers, the panel judges university-industry research interaction in Germany to be more heavily oriented toward short-term, incremental problem solving (or less engaged in basic or long-term applied research) than university-industry linkages in the United States. Although no aggregate data exist regarding the distribution of industrial fund- ing of academic research by industry in the two countries, patterns of university patenting in Germany and the United States reveal significant differences in the industrial orientation of German and American university research. U.S. univer- sity patents are concentrated in the areas of biotechnology, medical technology, pharmaceuticals, and agriculture and food process technology, whereas most German university-related patents are in various fields of mechanical engineering and chemistry (Henderson et al., 1994; Schmoch et al., 1996~. In other words, the composition of industrially relevant research at U.S. and German research uni- versities reflects the relative specialization of U.S. and German industries as re- vealed in industrial patent and trade statistics. TYPES OF UNIVERSITY-INDUSTRY TECHNOLOGY TRANSFER German and American universities have moved more aggressively in the last 2 decades to develop closer ties with industry through establishment of patent licensing and technology transfer offices, affiliated institutes and research centers, high-tech incubators, and research parks. U.S. government policies have contrib- uted to this trend in both countries. In consequence, German and American univer- sities today are engaged extensively in technology transfer to private industry and have developed a wide range of mechanisms to execute or facilitate that transfer. Informal Contacts, Consulting, and Personnel Exchange In both systems, informal contacts between university researchers and indus- try researchers and managers via meetings, telephone conversations, and so forth are critical to successful technology transfer. Such contacts promote the discus- sion and exchange of research results and lay the groundwork for more formal types of cooperation such as grants or contracts. Similarly, consulting by faculty members is an important channel of technol- ogy transfer in both countries. U.S. and German science and engineering faculty are allowed to spend roughly 20 percent of their time on outside activities, includ

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OVERVIEWAND COMPARISON 17 ing consulting with industry. Faculty in both countries see consultancies with industry as important personal learning opportunities. Consultancies also enable faculty to earn extra income, cultivate industrial funding sources of research, and create opportunities for graduate student theses. In the United States, regular consultancy by professors with multiyear contracts seems to be an effective means for establishing long-term relationships with industrial partners. In Germany, faculty consulting generally has more of a short-term orientation; that is, it is usually directed at solving discrete technical problems of a firm. This observa- tion applies especially to professors at German polytechnical schools. Arguably, there are greater incentives for U.S. university-based researchers to consult with and seek research support from private industry than there are for German university researchers. U.S. faculty are paid on a 9-month basis and are expected to make up the 3-month salary gap as well as fund most of their research with grants. German faculty are civil servants paid on a 12-month basis, and their research is supported in large part by base institutional research funds. Neverthe- less, the opportunity for additional personal income serves as a strong incentive to German faculty members to engage in secondary consulting activity. Another effective instrument of university-industry technology transfer is the exchange of research staff. Such exchanges are done differently in Germany than in the United States. In the United States, leading research universities often engage in temporary exchange of research personnel with private industry in the context of collaborative research projects. In Germany, however, such exchanges are rare, in large measure because of German civil-service and public employ- ment regulations. Additional disincentives to this type of transfer activity include the relatively high job security of public employees compared with those in in- dustry and the fact that it is impossible to transfer supplementary public pension entitlements (Versorgung des Bundes und der Lander [VBLi) to private employ- ment. At the same time, German technical universities have a long-standing tradition of appointing as professors high-level researchers from industry. Once appointed, these faculty members maintain close ties to their industries of origin through consultancies and contract research. This practice leads to more prac- tice-oriented education and close relations between universities and industry. Finally, at both German universities and leading U.S. research universities, industrial research personnel often play valuable roles as technical advisors to masters- and doctoral-level students and as members of advisory groups for whole departments. However, in the United States, university faculty almost always assume primary supervisory responsibility for their students. At German institu- tions, industrial personnel may be more directly involved in supervising student research. Cooperative Research At German and American universities, cooperative research with private companies is an increasingly important means of technology transfer to industry.

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18 TECHNOLOGY TRANSFER SYSTEMSIN THE UNITED STATES AND GERMANY Public-sector funding has been a major catalyst of university-industry coopera- tion in both countries. The institutional framework that has structured most university-industry re- search collaboration in the United States in recent years is the university-industry research center (UIRC) (Cohen et al., 1994~. UIRCs are an organizationally di- verse set of institutions that facilitate industry access to university research re- sults, engage industry in the definition of a research portfolio, and otherwise pro- mote technology transfer to participating firms in exchange for sustained general or targeted funding (primarily grants) from companies. In most instances, this support is at least matched by funds from public sponsors. Among the many state and federal government entities that support these collaborative research centers, the NSF has assumed the leading role. Indeed, the U.S. panel considers the ex- panding networks of NSF-sponsored industry-university cooperative research centers, engineering research centers, and science and technology centers to be very cost-effective mechanisms for forging university-industry research partner- ships. is UIRCs account for roughly 50 percent of all industrial funding of U.S. aca- demic research and rely on public funds for nearly half of their research budgets. The centers provide a framework for ongoing collaborative research and technol- ogy transfer relationships between universities and industry. UIRCs vary consid- erably with respect to their research orientation (i.e., basic or applied) as well as their disciplinary or technological focus. However, most industrial support of UIRCs appears to be directed at more basic and long-term applied research. The more autonomous university-affiliated research institutes are concentrated in the health and life science fields, where the distinction between basic and applied research is more blurred. While many leading U.S. research universities have developed effective poli- cies, practices, and institutional frameworks (such as UIRCs) for engaging pri- vate companies in mutually beneficial cooperative research, there is ample evi- dence that a great many more U.S. research universities are still struggling to put effective policies and practices in place (Government-University-Industry Re- search Roundtable, 1996~. In Germany, the dominant form of collaborative research is cooperation of regular university institutes with industrial enterprises on projects funded by the BMBF. The number of such cooperative projects funded by BMBF has increased considerably during the past decade, paralleling the proliferation of UIRCs in the United States. Recently, researchers involved in the special research areas (Sonderforschungsbereiche) funded by the DFG in university engineering de- partments have been encouraged to collaborate with industrial partners. In both the BMBF- and DFG-sponsored research, collaboration is directed generally at more long-term, precompetitive activities. In Germany, a specific institutional response to the growing demand for increased technology transfer from academia to industry are the An-Institutes

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OVERVIEWAND COMPARISON - UIRCs. i6 19 (Institute an der Universitat; literally, institutes at the university), whose budgets are equivalent to about 15 percent of the total external R&D funding of the uni- versities.~4 An-Institutes are legally defined as independent entities in order to achieve more administrative flexibility than regular university institutes. As a result, they can adapt more easily to the needs of industry. Both An-Institutes and UIRCs rely on industry funding for roughly one-third of their total research sup- port. However, in contrast to UIRCs, most industrial support of An-Institute research takes the form of contracts, not grants.~5 In summary, UIRCs and other U.S. university-affiliated research institutes and the German An-Institutes represent similar institutional responses to the op- portunities for increased interaction with industry and the constraints, or prob- lems, associated with pursuing such activities within the traditional framework of academic departments. Industry-sponsored research at the German An-Institutes seems to be more oriented toward short-term applied research and problem solv- ina and is more contract-driven than is true for industry support of American Patent Licensing During the last 2 decades, German universities with technical faculties and U.S. research universities have begun to establish many new technology transfer units. Since passage of the 1980 Patent and Trademark Amendments (P.L. 96- 517), more commonly know as the Bayh-Dole Act,~7 most American universities with substantial research activities have established special offices that support the patenting of inventions and the active marketing of these patents. There is great diversity among U.S. research universities with respect to their approach to patenting and technology licensing. Some universities, public institutions in par- ticular, lay claim to all research output generated in their labs; others are more flexible in negotiating the disposition of intellectual property resulting from re- search on their campuses. Likewise, some institutions look to their technology licensing offices to generate revenue, and others see these units as instruments for building long-term relationships with private companies as research patrons or partners. Only a small number of institutions can claim success concerning either objective. Many research universities are still searching for effective ways to manage and grow their R&D and technology transfer activities with industry. At present, most German universities are equipped with technology transfer offices. However, their primary function is to build relationships between small and medium-sized enterprises and faculty members, not to license patents. Only a few of these offices are actively engaged in licensing activities. The current lack of a broad patenting and licensing function at German universities is due to various factors. Among the most important are that under German law, the right to exploit inventions resulting from university-based research supported by insti- tutional base funds rests exclusively with the individual professor or inventor involved, not with the inventor's host institution; most universities have neither

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20 TECHNOLOGY TRANSFER SYSTEMSIN THE UNITED STATES AND GERMANY funds nor infrastructure to support patenting and licensing activities; inventions resulting from federally funded academic research generally can only be licensed on a nonexclusive basis to interested industrial partners; and a portion of any licensing income earned from inventions developed with federal government funds must go to the funding agency. Start-Up Companies With the option of establishing or working for a high-tech start-up company, U.S. academic researchers have an additional important vehicle through which they can transfer as well as have a direct hand in commercializing the results of their own research or technologies originating elsewhere a vehicle largely un- available to their German counterparts.~9 This means of technology transfer has proved to be very effective in highly science-based, technically dynamic indus- tries such as software and biotechnology. This difference between the German and American transfer systems is very important and is discussed in more detail in the section "Selected Technology Transfer Issues in a Comparative Context," later in this overview. Technology Transfer from Government Laboratories OVERVIEW OF MAJOR PLAYERS Government laboratories perform 8 percent of all German R&D and 15 per- cent of all American R&D.20 To date, their measurable contribution to technol- ogy transfer to private industry has been small relative to the size of their R&D budgets. However, government laboratories are seeking to play a more important role in technology transfer in both countries. The U.S. federal government maintains about 720 laboratories. However, fewer than 100 of these laboratories have sufficient resources and capabilities to engage in significant technology transfer to the civilian economy. The major laboratory sponsors and administrators are the Department of Defense, the De- partment of Energy, the Department of Agriculture, the National Aeronautics and Space Administration, the Department of Health and Human Services/National Institutes of Health, and the National Institute of Standards and Technology. The budget for federally funded R&D facilities represents about one-third of the total federal R&D expenditure. More than half of the budget of U.S. federal R&D facilities is spent for defense purposes. The 16 German Helmholtz Centers (formerly called GroJ3forschungseinricht- ungen [GFEs]) are comparable in size and organization, though not necessarily in research portfolios, to the large federal laboratories in the United States. The BMBF is responsible for these large facilities. They receive 90 percent of their base funds from the federal government and the remaining 10 percent from the states. The total spent by Helmholtz Centers on R&D is equivalent to about 20

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OVERVIEWAND COMPARISON 21 percent of all public support for nonuniversity research and development. The German counterparts to the smaller and medium-sized U.S. federal and state laboratories are the departmental research institutes (Ressortforschungseinricht- ungen), which serve the missions of specific federal ministries, and the institutes of the Blue List (Blaue Liste), the latter being independent bodies financed equally by the federal government and the states.2i R&D spending by these institutions represents another 11 percent of public research and development spending out- side universities. The institutes of the Max Planck Society (Max-Planck-Gesell- schaft [MPG]) also are financed equally by the federal government and the states; in this regard, they are comparable to the Blue List institutes. The MPG budget is equivalent to 7 percent of total public R&D spending outside universities. TECHNOLOGY TRANSFER ACTIVITIES In recent years, many government-financed national research facilities in the United States and Germany have experienced increasing pressure to engage in technology transfer to private companies. In particular, the large mission-ori- ented national laboratories in both countries (U.S. national laboratories and Ger- man Helmholtz Centers) are in the stage of considerable reorientation and re- structuring. In the United States, declining funding for defense and civilian nuclear research and demands from Congress during the 1980s to harness the federal laboratories more effectively in the service of industrial competitiveness and environmental technologies encouraged national laboratories to diversify into new research areas, including more commercially relevant fields, and to become more involved in technology transfer to private industry. Likewise, in Germany, the Helmholtz Centers have been encouraged to diversify their research portfo- lios and expand their interactions with private companies in response to declining demand and funding for research in fields related to civilian nuclear energy, the former primary mission of the largest Helmholtz Centers. U.S. Federal Laboratories For U.S. federal laboratories, the Cooperative Research and Development Agreement (CRADA) is the most heavily used mechanism for engaging in coop- erative R&D with industrial partners. The CRADA, created by acts of Congress in 1986 and 1989, has a number of important advantages over other types of cooperative R&D agreements that were used prior to its creation. Foremost among these is the authority it gives participating laboratories to protect from disclosure any intellectual property relevant to the agreement. CRADAs consti- tute the only mechanism by which the federal government can define in advance the disposition of intellectual property rights in government-industry collabora- tions not involving a government contract. In addition, CRADAs authorize labo- ratories to contribute staff and equipment to a CRADA project with a private- sector partner. Importantly, participating firms can contribute staff, equipment,

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22 TECHNOLOGY TRANSFER SYSTEMS IN THE UNITED STATES AND GERMANY and funds for CRADA-related activities, but laboratories cannot transfer CRADA funds to a private-sector partner. An interesting aspect of CRADAs is that they can be initiated by industry and do not necessarily have to be defined by a federal laboratory. Department of Energy laboratories have accounted for a majority of CRADAs negotiated by federal agencies since 1987.22 In addition to cooperative research, U.S. federal laboratories employ other instruments of technology transfer, in particular licensing of intellectual property rights. These licensing activities are based on the Stevenson-Wydler Technology Innovation Act (P.L. 96-480) and Bayh-Dole Act of 1980 and subsequent legisla- tion that allow federal laboratories to grant exclusive licenses and to use license revenues for their own purposes.23 A primary thrust of recent U.S. technology transfer laws has been toward providing these laboratories and individual labora- tory researchers with more incentives and entrepreneurial-like decision-making powers for technology transfer. For example, federal inventors now get at least a 15-percent share of the royalties, and the responsible department also receives some licensing income. Thus, the internal incentives for patenting are high. In addition to the acts mentioned above, many other regulations for supporting tech- nology transfer have been introduced (e.g., the requirement that each federal labo- ratory has to set aside 0.5 percent of its budget for technology transfer activities). As a general tendency, the laboratories and the individual researchers have got more incentives and entrepreneur-like decision-making competencies for tech- nology transfer. Currently, the National Institutes of Health account for the lion's share of all licensing revenues earned by federal agencies for technologies devel- oped within their laboratories. German Helmholtz Centers, Blue List Institutes, and Departmental Institutes The main instrument of technology transfer for German Helmholtz Centers is formal cooperation with industrial partners on projects of common interest. Each partner pays for the work it performs; that is, the Helmholtz Centers gener- ally receive no funding from their industrial collaborators. However, public R&D budget constraints are placing increased pressure on Helmholtz Centers to attract additional contract and grant funding. In recent years, several Helmholtz Centers have instituted patent policies, and some Helmholtz Centers have established their own patent and licensing of- fices, which actively market their technologies to private firms. This develop- ment was initiated in the early 1980s by the introduction of new regulations con- cerning licensing of Helmholtz-generated intellectual property. Prior to that time, license revenues did not increase the Helmholtz Centers' budgets, because public base funds were reduced by the same amount. At present, two-thirds of license income can be used for technology transfer projects (e.g., for the industry-ori- ented development of technical concepts). One-third of license income still has to be transferred to the government; however, the Helmholtz Centers are pres- ently seeking a ruling that will allow them to use all license income for technol

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OVERVIEWAND COMPARISON 23 ogy transfer. Present regulations generally limit the exclusiveness of licenses to 5 years, a period so short that in most cases it acts as an impediment for industrial cooperation with Helmholtz Centers. In practice, therefore, most exclusive li- censes are extended. In the case of Blue List institutes and independent state institutes, patent and license regimes are comparable to those of the Helmholtz Centers, but only few institutes have instituted a more active patent policy. The departmental research institutes have no common and consistent policy for technology transfer to industry. Only a few of these institutions have at- tempted to foster technology transfer. In many respects, their current legal situa- tion with respect to intellectual property rights is comparable to that of federal laboratories in the United States prior to the Stevenson-Wydler and Bayh-Dole Acts of 1980. Specifically, these institutions may not grant exclusive licenses to industrial firms and must transfer any license revenue back to the government. Thus, neither these institutions nor private companies have much incentive to engage each other in technology transfer through patent licenses. However, some departmental institutes have close relations with industry and are performing ef- fective technology transfer in an informal way.24 Max Planck Society The German MPG primarily conducts long-term basic research and, to a lesser extent, applied research in various areas to achieve and maintain scientific excellence, advance knowledge, and serve German societal goals. In this way, it has a research orientation comparable to that of universities, but the research teams and facilities are generally larger and it has no higher-education obligation. (However, many Max Planck scientists hold university professorships.) The larg- est part of Max Planck institute budgets comes from public base institutional funds. Thus, the institutes are able to set their research agendas independently according to researchers' interests (within the general framework of a disci- pline).25 Although the primary mission of the MPG is maintaining German excellence in all fields of basic research, the requirement for technology transfer has recently begun to play an increasing role. The society has a special patent and licensing of lice that actively looks for appropriate industrial partners to exploit the society's research results. In addition, many Max Planck research projects in strategic technological areas, such as biotechnology, material sciences, and organic chem- istry, are conducted in cooperation with industry. The success of these industry contacts, however, depends largely on the initiative of the individual Max Planck scientists. In the United States, most of the functions performed by Max Planck insti- tutes are distributed among research universities, select federal laboratories, and a diverse population of privately held university-affiliated and independent re- search institutes.

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24 TECHNOLOGY TRANSFER SYSTEMS IN THE UNITED STATES AND GERMANY FUTURE CHALLENGES The diversification strategies of German and American government labora- tories, particularly their efforts to engage in more collaborative R&D with private industry, have spawned intense policy debate in both countries. In the United States, there is general recognition that, in principle, many labs are a valuable element of the nation' s R&D enterprise. However, no consensus exists regarding how these capabilities might be matched to the needs of private industry.26 This matching will be highly dependent on defining the mission of the laboratories, something that has yet to be done. For this reason, U.S. policies regarding the technology transfer activities of federal laboratories are likely to remain in a state of great flux for the foreseeable future. In Germany, the importance of all types of national R&D institutions in areas of public interest is widely recognized. However, as the severe restructuring process related to the decline of nuclear energy has shown, continuous reflection about the content, extent, and orienta- tion of public missions is necessary. Furthermore, there is disagreement about the appropriate level of collaboration with private industry and the division of labor with other institutions. A question that must be answered is whether it makes more sense for the large U.S. defense-oriented federal laboratories and the German Helmholtz Cen- ters to be downsized to fit their reduced traditional public missions or to be diver- sified or reoriented instead. Clearly, these laboratories are equipped with large numbers of highly trained R&D personnel and, in many cases, are unique facili- ties housing valuable equipment. Some of these labs are at the forefront in areas of basic and applied research that are relevant to both public missions and private industry and have successfully engaged in technology transfer to private compa- nies. Many, however, have traditionally performed R&D that has little direct relevance to most civilian industries, have had limited experience dealing with private companies as clients,27 and are likely to remain more bureaucratically encumbered than other major R&D performers by virtue of their continuing pub- lic-mission focus and management structures. At a time of increasingly con- strained public R&D budgets and shifting national R&D needs, maintaining these laboratories at or near their present size denies resources to other public R&D performers that may be better equipped to take on the new R&D priorities. Given the large size of these facilities in Germany and the United States and their result- ing economic and employment importance to their host states or regions, how- ever, the political impediments to their downsizing are likely to remain formi- dable. Given the present trends on the part of government laboratories in both Ger- many and the United States toward research diversification and increased interac- tion with private companies, it is not surprising that the other major technology transfer sectors in both countries are concerned about the impact this reorienta- tion of mission will have on their long-term ability to compete fairly for public

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OVERVIEWAND COMPARISON 25 and private research funding. Perhaps more than any other issue facing the two countries' technology transfer systems, the fate of German and U.S. government laboratories has focused the attention of policymakers on the need to reconsider the traditional division of labor among the major elements of their national R&D systems. Ultimately, both nations will have to assess the relative strengths and weaknesses of these competing sectors of their technology transfer systems and seek to define the most productive role for each sector, while attending carefully to the potential for greater collaboration among them. Technology Transfer from Contract Research Institutes Germany and the United States have a variety of research institutes that per- form contract research for both industrial and government clients. However, in Germany, these institutes play a considerably larger role in serving the R&D needs of private industry than do their counterparts in the United States. THE FRAUNHOFER MODEL In Germany, contract research is conducted mainly by the 46 institutes of the semipublic Fraunhofer Society, which receives about 1 percent of the total na- tional R&D budget. Fraunhofer institutes receive between 20 and 30 percent of their budgets in the form of base institutional funds from the federal government; the exact amount depends on their success in generating sufficient contract work for public and private clients. Thus, the research orientation of the Fraunhofer institutes is heavily demand driven. Another characteristic feature of Fraunhofer institutes is their close relationship to universities, institutionalized through the joint appointment of Fraunhofer directors as university professors.28 Thus, the Fraunhofer society is a significant bridging institution between academic and in- dustrial research. Other typical channels of technology transfer from Fraunhofer institutes are on-thejob training of graduate students and an active patent policy. In recent years, Fraunhofer institutes have assumed a more active role in the establishment of spin-off companies, a highly effective yet still relatively underutilized instru- ment of technology transfer in Germany. Presently, the Fraunhofer Society is seeking to develop new instruments for technology transfer, especially through the establishment of for-profit "innovation centers," each associated with a non- profit institute. The mission of the innovation centers is to develop the research results of the institutes further to industrial products, and to introduce them into the marketplace. The competence of the institutes is largely sustained and advanced by re- search projects for public clients that are medium or long-term in orientation and by public institutional base funds used for self-determined research in new strate- gic areas. The success of the Fraunhofer model depends on the roughly equal

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26 TECHNOLOGY TRANSFER SYSTEMSIN THE UNITED STATES AND GERMANY contribution of institutional base funds, contracts for public clients, and contracts for industrial clients to the institutes' research budgets. The organization of the Fraunhofer institutes into one society allows for stra- tegic cooperation among different institutes working in the same technological cluster and joint investment in costly facilities (e.g., demonstration centers). In the special case of microelectronics, the six related institutes cooperate closely with industry through the microelectronics alliance, which coordinates their re- search activities with the needs of potential applicants. In the Fraunhofer institutes, Germany has a dense infrastructure of publicly funded contract R&D institutions that are geared toward serving the R&D needs of both traditional manufacturing and new high-tech industries. These institutes are geographically distributed, networked, and perform a lot of general and in- dustry-targeted production and manufacturing R&D (e.g., industrial engineering, mechanical engineering, materials engineering) as well as R&D in highly dy- namic technology areas. Decisions regarding the reallocation of roles and mis- sions is generally the responsibility of the individual institutes, which have to continually adapt their research portfolios to the needs of the market. This adap- tation is also coordinated between different Fraunhofer institutes. The An-Institutes, previously discussed in the context of universities, also perform contract research for firms and engage in activities similar to those of Fraunhofer institutes. However, An-Institutes are not organized in a network. INDEPENDENT AND AFFILIATED RESEARCH INSTITUTES IN THE UNITED STATES In the United States, there is no system of industry-oriented contract R&D institutions (publicly or privately funded) that is truly comparable to the German Fraunhofer institutes. Instead, most of the combined contract R&D and technol- ogy transfer functions performed by the Fraunhofer institutes in Germany are carried out in the United States by a large, diverse, and highly dispersed popula- tion of nonprofit and for-profit R&D organizations, including a plethora of pri- vately held affiliated and independent nonprofit institutions, several large private R&D and management consulting firms, and the research units of some U.S. industrial consortia. The vast majority of U.S. privately held affiliated and independent research institutions receive most of their funding from federal mission agencies or private foundations and conduct primarily basic research. More than half are concentrated in the health and medical fields, and these organizations 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 institutions constitute a critical link in U.S. drug testing and evaluation and directly benefit health- and medicine-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 these industries.

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OVERVIEWAND COMPARISON 27 Even within the relatively small population of private independent and affili- ated engineering R&D organizations, many of which were established originally to serve the needs of regional industries, there are today relatively few 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 institutions per- form the vast majority of their R&D to address the needs of federal agency mis- sions, not the needs of private companies. Unlike the Fraunhofer institutes, these independent engineering institutions are sustained exclusively by contract re- search, are not networked, and are only marginally linked to U.S. universities. Moreover, U.S. independent engineering research organizations appear to be less targeted or specialized in terms of areas of technical expertise than are the Fraunhofer institutes.29 Technology Transfer by Industrial R&D Consortia Cooperative industrial research, whereby independent industrial enterprises join together to conduct research projects of common interest, is an important vehicle of technology transfer in Germany, the United States, and other parts of the world. Although no hard data are available on the volume of cooperative R&D in Germany and the United States, such activity is estimated to represent in excess of 4 percent of the total industrial R&D in both countries.30 Formal indus- trial R&D consortia, though responsible for only a subset of all cooperative R&D performed by German and American companies, are nonetheless substantial ways of technology transfer in both countries. R&D consortia have a longer history and a more established role in Germany than they do in the United States. Consortia appear to be organized in different ways in the two countries. In Germany, there are about 100 industrial research associations, representing about 50,000 enterprises, joined under the umbrella organization of the Federation of Industrial Research Associations (Arbeitsgemeinschaft industrieller Forschungs- vereinigungen [AiFi). A characteristic feature of the AiF is its bottom-up ap- proach to selecting research projects. A group of companies, generally small and medium-sized enterprises, define a project of common interest. Each project is suggested by a different group of companies. The projects are selected by the associations and carried out by the most appropriate research establishments. About half of the projects are executed within the associations' own institutions, the rest are contracted out to universities and other public or private organiza- tions. Two-thirds of the projects are financed by the associations and one-third by the Federal Ministry of Economics. For projects sponsored by the Federal Ministry of Economics, AiF assumes responsibility for evaluating the project and administering the funds. The results of the projects are published and made available to all members of an association. However, the enterprises involved directly in the definition and execution of AiF projects tend to profit the most from this type of technology transfer. The cooperative projects of the industrial

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28 TECHNOLOGY TRANSFER SYSTEMSIN THE UNITED STATES AND GERMANY research associations represent about 1 percent of total German industrial R&D spending. In the United States, there has been unprecedented growth in industrial coop- erative research since the early 1980s. As of December 1995, 575 joint research ventures had been registered with the U.S. Department of Justice, and evidence suggests that these account for but a fraction of the research alliances U.S. com- panies have entered into since the early 1980s (Hagedoorn, 1995; Vonortas, 1996.3 Compared with the level of company participation in Germany, how- ever, U.S. firms are less involved in consortia-related activity. U.S. consortia are likely to include independent R&D organizations, univer- sities, and federal laboratories in addition to private firms. During the early-to- mid l990s, a growing number of consortia across a wide spectrum of industries were organized around the technological capabilities of U.S. federal laboratories. This growth has leveled off in recent years, however, as federal laboratories have refocused on their core missions.32 Many U.S. industrial R&D consortia receive at least some public funding. A few, such as Semiconductor Manufacturing Tech- nology Research Corporation (SEMATECH) and the National Center for Manu- facturing Sciences, receive core funding from the federal agencies that helped establish them in the 1980s. The vast majority of U.S. industrial consortia, how- ever, are strictly private-sector undertakings that derive most of their research support from member companies. These consortia (e.g., Electric Power Research Institute, Gas Research Institute) compete for federal research funding on a project-by-project basis but receive little or no core funding from the federal government. The mechanisms or channels by which U.S. industrial R&D con- sortia solicit R&D funding from the federal government are more ad hoc, decen- tralized, and diverse than those used by AiF member companies. Because of the many different organizational types of U.S. consortia, it is difficult to generalize about the way U.S. consortia define and execute R&D projects or transfer technology. U.S. consortia appear to differ from the AiF in that they involve the cooperation of a relatively stable group of firms that define a series of common research projects, which are then carried out or outsourced by a separate consortium-managed research institution. Another aspect of U.S. consortia that distinguishes them from AiF consortia is that the research entity established by a U.S. consortium can itself suggest new research projects to the consortium membership. The advantage of this type of organization is that it facilitates the building of mutual confidence among consor- tium members, a decisive prerequisite for successful technology transfer. How- ever, consortium research organizations can also develop an agenda and a dyna- mism of their own that lead them to generate projects of less interest to their constituent member firms. Finally, in part because of their diversity and highly autonomous natures, there has been remarkably little sharing of organizational and operational prac- tices among the rapidly growing population of U.S. R&D consortia.33 By con