Universities Remain Good Source for R&D Support

Universities have long been a valuable source of the basic research which is required in order for industries to grow, mature, and remain competitive. However, by its very nature, university research does not produce results which can immediately be used for commercial purposes. In most cases, additional research work will be needed in order to determine whether products with an adequate level of commercial potential can be produced. Accordingly, any relationship involving university technology necessarily involves a good deal of patience and appreciation of the risks associated with the development process.

Business relationships between universities and the private sector have been in place for some period of time, although there have been a number of changes in the forms of the relationships. A pattern was established in 1948 by the Massachusetts Institute of Technology when it began a program which allowed various companies to pay an annual fee in order to obtain the right to interface with research scientists on campus, obtain advance word of scientific breakthroughs, and visit the campus. Other universities, such as Stanford University, created “research parks” on land owned by the university as a place for technology-driven ventures to organize and commence operations. Also, major corporations began to enter into long-term joint research arrangements with universities and their affiliated hospitals.

It has been estimated that over 5,000 technology-based companies have been launched in the United States since 1980 based on technology discovered and/or developed by universities and that more than half of these companies have survived. Many of these survivors were eventually acquired or merged with established firms.  The majority of those companies have been in close proximity to the universities from which there technology emerged and it is estimated that companies started based on university research have contributed to the creation of more than 260,000 new jobs since 1980.  University patenting exploded from just 495 issued patents in 1980 to 3,278 in 2005.  In 2005 28,349 current licenses were in place, each representing a one on one partnership between a company and a university.  The trend continued in 2006 when more than 3,000 United States patents were issued to universities and hospitals, and nearly 5,000 new patent license agreements were executed.  A great majority of the licenses issued by universities are going to small companies.  American universities contribute $40 billion annually to the American economy. According to the Association of University Technology Managers, over the past nine years approximately 3,600 new products were introduced from 1998 through 2006 as a direct result of university research in a broad array of fields including medicine, public safety, food and agriculture, new materials, semiconductor devices, education, and communications; 527 new products were introduced in 2005 alone–and 3,641 new products since 1980. University research helped create whole new industries like biotechnology and is now a leader in the rapidly growing field of nanotechnology.

Financial support for university research has continued to grow.  Historically, most of the funding that universities received for their research activities came from the public sector, primarily from agencies and departments within the federal government.  For example, of the $38 billion invested in university research in 2003 only a small fraction–$3 billion—came from industry sources and much of that money went to university medical schools for clinical trials.  Federal support for university research was generally driven by national priorities such as defense and helped to support a research portfolio that delicately balanced basic and applied research.  Unfortunately, however, federal support for research and development activities, including funding for universities, has been declining in recent years and this trend is expect to continue as the burden from non-discretionary commitments—Social Security, Medicare, and Medicaid—creates increasing pressure to reduce the discretionary budget from which academic federal research and development is primarily funded.  As a result, the funding sources for academic research in the United States are expected to diversify in the future with industry expected to play an important and somewhat controversial role.  In fact, while the federal government financed more than 60% of all research and development activities in the United States in 1965, by 2006 the pendulum had swung in the opposite direction as 65% of the research and development funding in that year could be traced to private sources and only 35% to the United States government.

Even when industry funding represented a relatively small contribution to support of university research and development activities many top universities could point to industry partnerships as important benefactors.  For example, 16% of the 2006 research budget at MIT, which does not have a medical school, came from industry sources. UC Berkeley, also without a medical school, received 6% of its 2007 grants from industry ($32 million of $504 million total) and received a pledge of $500 million from British Petroleum, which is not included in the $504 million previously mentioned, to be spent over 10 years to support alternative energy research led by Berkeley.  Today, the range of industry-academia relationships has grown to be as broad as the imaginations of businesspeople and university officials will permit including standard industry-sponsored research agreements, exclusive license agreements, non-exclusive licensing programs, “spin offs” with equity interests for the university and the researchers involved in the development of the technology that is essential to the business plans of those companies, and grants and gifts.

The content in this post has been adapted from material that will appear in Technology Management and Transactions (Fall 2008) and is presented with permission of Thomson/West.  Copyright 2008 Thomson/West.  For more information or to order call 1-800-762-5272.

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