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A Faster Path from Lab to Market

by Robert E. Litan and Lesa Mitchell

Removing the technology licensing obstacle.

harvard business review • january–february 2010

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The Problem.

University-based inno-vators routinely produce break-through technologies that, if commer-cialized by industry, have the powerto sustain economic growth. Becausetheir research is largely funded by theU.S. government (much of whose$150-billion-plus R&D budget is chan-neled through universities), it is allthe more imperative that these inno-vations find their way to the market-place and generate benefits for soci-ety. But our system today issuboptimal: Many university-devel-oped innovations could reach themarketplace much faster than they donow. The problem, ironically, centerson the very entities designed to facili-tate commercialization. Nearly 30years ago Congress provided a hugeincentive for universities to pursuemore commercialization of federally funded innovations.Through the Bayh-Dole Act, it granted them the rights to theintellectual property. That carrot got immediate results: Virtu-ally every U.S. research university created a technology licens-ing office (TLO) to organize its commercialization activities andincrease revenues from them. These centralized offices requirethat faculty members disclose their inventions to the TLO andpursue licensing opportunities through it.

Yet like the student who could earn A’s but consistentlytakes home B’s, TLOs are underperforming. For example, al-though funding from the National Institutes of Health hasmounted over the years (and is now some $30 billion), the out-put in terms of new FDA-approved drugs has been falling. Asthe Department of Energy prepares to spend tens of billions ofdollars on R&D to replace dirty fossil fuels with alternativesources of energy, it is critical that the disappointing pattern indrug commercialization not be repeated in clean tech.

Perhaps it was not a bad idea at first for universities tocentralize their commercialization capabilities and giveTLOs control of the process; they gained immediate organi-zational benefits and economies of scale. But this monopo-listic model has since evolved into a major impediment. In-ventive faculty members are hostage to their TLO,regardless of its efficiency or contacts. Moreover, becausemany TLOs are short-staffed, professors must queue up toget proper attention for their inventions.

The Breakthrough Idea.

So why notfree up the market in technology li-censing? Let’s allow any inventor-pro-fessor to choose his or her licensingagent—university-affiliated or not—just as anyone in business can nowchoose his or her own lawyer. Thiswould be as simple as having theCommerce Department amend therules of Bayh-Dole. (Maybe the SmallBusiness Administration would haveto revise its rules as well.) Specifically,federal research dollars should comewith a condition attached: Universityrecipients must allow faculty mem-bers to choose their licensing agents.

The Promise.

A free and competi-tive market in technology licensingwould disturb neither the legal statusof the invention nor the way royaltiesor license fees are divided between

faculty member and university (a subject governed by the stan-dard employment contract). But like other free markets, itwould dramatically speed up the commercialization of newtechnologies, and ultimate consumers—in the U.S. and aroundthe world—would thereby benefit from them much more rap-idly. A free market would also most likely lead university TLOsto specialize or turn to outside agents with the appropriate ex-pertise. A university might drop its TLO altogether but con-tinue to earn licensing revenues—less the fees charged by out-side TLOs or agents.

Let’s stop penalizing professors who come up with new ideasand the universities they work for. Most important, let’s notkeep the world waiting for new products and services—someof them lifesaving—while valuable ideas languish on univer-sity shelves.

Robert E. Litan

is the vice president for research and policy, and

Lesa Mitchell

is the vice president for advancing innovation, atthe Kauffman Foundation in Kansas City, Missouri.

MONEY AND DOne symptom of the technology transfer bottle-neck is drug research. Funding of university research by the U.S. National Institutes of Health has risen steadily, yet the number of new drugs* developed trends downward.

SS

NEW APPROVALS NIH FUNDING

SOURCE NIH; FDA

* Defined as new molecular entities and new biologic license applications

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