University Technology Transfer of Government-Funded Research Has Wide Public Benefits Federal government agencies now provide more than $14 billion a year to university researchers around the country to conduct scientific research. That continuing investment expands human knowledge and helps educate the next generation of science and technology leaders. New discoveries from university research also form the basis for many new products and processes that benefit the nation and its citizens. Economists have attributed as much as one-half of productivity growth over the past 50 years to technological innovation and the scientific research on which it is based. But new products and processes do not spring fully formed from the basic research performed at universities. They require not only good ideas, but further development, capital, marketing, and manufacturing capability. That is where technology transfer comes in. How Does the Public Benefit From Technology Transfer? University technology transfer has helped create new industries and opened new markets. The Association of University Technology Managers (AUTM) estimates that university technology transfer added nearly $25 billion to the economy in 1996. Products developed from university technology transfer include the gene splicing technology that initiated the biotechnology industry, diagnostic tests for breast cancer and osteoporosis, vaccines, faster computer modems, new Internet search engines, improved building materials, and environmentally-friendly technologies. How Does University Technology Transfer Work? Under federal law, as embodied in the Bayh-Dole Act of 1980, nonprofit organizations-including universities--may patent and retain title to inventions created from research funded by the government. In general, the university must disclose each new invention to the federal funding agency within two months of the inventor disclosing it to the university, decide whether or not to retain title to the invention, and then file a patent application within one year of electing to seek title. Universities must license the rights to innovations to industry for commercial development; small businesses receive preference. The federal government also receives a nonexclusive, irrevocable license to the invention. Universities must share with the inventor any income eventually derived from the patent. Any remaining income, after technology management expenses, must support scientific research or education. A principal value of having universities retain control of patent rights is that it ensures that research findings remain available for further use in the laboratory and classroom. Why Does the Government Allow Universities to Keep Control of Government-Funded Inventions? In the 1960s and 1970s, there was great concern that too little federally funded research was being commercialized. Tight restrictions on licensing, varying patent policies among federal agencies, and the lack of exclusive manufacturing rights for government-owned patents made product development a risky proposition for companies. In 1980, only five percent of government-owned patents resulted in new or improved products. To remedy this bottleneck, the Congress in 1980 passed the Bayh-Dole Act. The Act established a uniform government patent policy and allowed universities and other nonprofit organizations to retain title to federally-funded inventions and to work with companies in bringing them to market. The Act thus promoted technology transfer by creating incentives for university researchers to consider the practical applications of their discoveries, and for universities to search out potential companies to develop them. By enabling corporations to negotiate exclusive licenses of promising technologies, the Act encouraged them to invest in the additional research, development, and manufacturing capabilities needed to bring new products to market. Has Bayh-Dole Proved Successful? Before passage of the Bayh-Dole Act, fewer than 250 patents were issued to U.S. universities each year. Sixteen years later in 1996, universities received more than 2,000 new patents, executed nearly 2,200 licensing agreements, and received royalty income from licensing of $242 million. Since 1980, more than 1,500 start-up companies have been formed based on technologies discovered at academic institutions. How are License Fees and Royalties Determined? Universities and potential licensees negotiate the fees. They are rarely large because most of the technology is rudimentary and risky, thus requiring considerable investment by the company to turn it into a useful product or process. Larger fees and royalty rates can be negotiated for those few technologies that have clear commercial applications and large potential markets. However, license fees generally range from a few thousand to a few tens of thousands of dollars; very few reach into six figures. Royalties range from less than one percent of net sales up to about eight percent, but the majority of royalty rates range from three to six percent of net sales. How Do Universities Use Royalties From Licensed Technologies? After covering expenses for technology transfer activities-such as paying a portion of legal fees associated with patenting and licensing and supporting the technology transfer office-universities share royalties with university inventors and reinvest revenues in education and research. The reinvested revenues support graduate students, buy research equipment, and fund additional research. Are Universities Handling Technology Transfer Well? A May, 1998, General Accounting Office (GAO) review of technology transfer activities at 10 major research universities showed programs working well. The universities were selected on the basis of their high volume of federal funding, high level of licensing income, or both. The GAO reported that the universities had designated units and personnel to oversee invention activities, and had established formal policies and procedures to ensure compliance with the Bayh-Dole Act's reporting requirements. The institutions were pursuing licensing opportunities to the extent possible, and royalties were being shared with those responsible for the inventions. What About Financial Conflict-of-Interest? Conflicts may surface when university researchers or universities themselves have an opportunity for financial gain through private use of research results or private relationships with companies exploiting the research results. Since October 1995, universities receiving funds from the National Institutes of Health or the National Science Foundation-the two largest federal supporters of university research-have been required to have in place appropriate policies and procedures for identifying and managing conflicts. In some cases, appropriate conflict-of-interest management may mean eliminating the conflict; in other cases, it may mean careful monitoring and reporting of research activities, data, and documentation. Such policies are essential for ensuring confidence in the integrity of scholarly activities, and protecting the mission of the university. --Association of American Universities, June 2,1998