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(Department of Commerce Logo) UNITED STATES DEPARTMENT OF COMMERCE 
The Under Secretary for Technology
Washington, D.C. 20230

Back to Basics: Technology Transfer and Economic Growth

By

Joseph P. Allen
Director
Office of Federal Technology Management
U.S. Department of Commerce

The U.S. has quietly put in place a powerful, but little known new force in our efforts to successfully respond to our international economic competitors. Over the past ten years we have begun to tap into our $55 billion Federal R&D expenditure and found exciting sources for creating new technologies.

First the U.S. unleashed our universities from the bindings of bureaucratic red-tape which greatly chilled corporate America's willingness to fund university research. The results are impressive. Now we are applying this model to the Federal Government's own laboratories so that they too can develop closer ties with industry and other potential partners. Already a new spirit of enterprise is entering these laboratories which will soon begin paying economic returns to the country.

With the Government funding over one-half of the country's R&D, and the great majority of our basic research, better technology management of this tremendous asset is critical. If we are to compete with other countries in breakthrough technologies like superconductivity we must be able to call upon all of our resources. Much of the scientific research performed by Government laboratories and contractors to meet federal program needs can be of enormous value to our private sector.

Transferring this technology into the economy will be a real shot in the arm to our competitive posture. Successful technology partnerships between Government and industry could well be our secret weapon in competing in an increasingly tough world market.

The formula that we are now using with great success is as old as the Republic -- create incentives and rewards for risk-taking, reward individual excellence, and decentralize technology management to the local level. The fact that it took an economic crisis to re-discover these basic truths demonstrates how far afield the U.S. wandered in managing its publicly funded R&D in the heady years after World War II.

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The Federal Government became involved in research in a big way during the War. In the postwar era with our economy virtually standing alone in a desolated world, it was felt that we had a duty to share our scientific wealth with the rest of the world. This was done by putting our research results into the public domain with little concern for commercial development. The Government took away inventions from its contractors and grantees, stockpiling them in Washington. Here they were generally available on a non-exclusive basis to anyone and everyone. Industry was rightly afraid of cooperating with universities because if any Government money was involved in the research, title to the invention might be claimed by Washington.

Such policies effectively negated the incentives of the patent system with predictable results. Federal researchers became much more inclined to publish their research results without bothering with seeking patent protection for possible commercial discoveries. The number of patents reported to Government stagnated and fell.

By the mid-1960's Government R&D had been effectively segregated from the U.S. private sector preventing efficient development of resulting inventions. Indeed, in a study for President Johnson on health funding, it was discovered that not a single drug had been commercialized when the Government owned the patent! This was clearly not in the public interest.

Not surprisingly, U.S. industry showed little interest in Government-funded R&D for the simple reason that it was very difficult to negotiate sufficient license rights to justify commercial development. The Government rarely commercializes products itself and was unintentionally discouraging private sector development as well. Thus, the public investment in Federal R&D became a source of publicly disseminated information generated in splendid isolation from our economy.

Others viewed this freely available information more highly than we did. The United States spends far more on research than any other nation. By making our research results freely available without effective proprietary protection for domestic development, the U.S. unwittingly continued its "technology Marshall plan" long after the wounds from World War II had healed. By the 1970's the U.S. was beginning to be sorely pressed by foreign competition in areas we had long dominated.

As General Electric Vice President Roland Schmitt astutely noted, "Fundamental scientific knowledge is one of America's most effective forms of foreign aid. Unfortunately, it's foreign aid to our strongest rivals... Japan's experience shows that it is possible to succeed technologically while relying on others for fundamental knowledge and new ideas. But instead of rushing off blindly to imitate Japanese methods, we might formulate better

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ways of directing and using our own research. We must make sure that we put our scientific knowledge to use more quickly than others do."

Fortunately, this is precisely what the U.S. has begun doing as a result of two remarkable pieces of legislation. Congress and the Administration were under enormous pressure in the late 1970's to respond to a rapidly worsening trade situation. Much talk was being given to greater centralized technology management supposedly along the lines of Japan's MITI. At the same time a much less heralded proposal was introduced by Senators Birch Bayh and Robert Dole.

The Bayh-Dole bill went in the opposite direction from the attempts to mimic the Japanese technology model then in vogue. The bill took the approach that centralized control of technology was not the solution, but was in fact a large part of the problem. The bill proposed to allow universities and small businesses to own inventions they make under Government R&D in exchange for a royalty free license to the sponsoring Federal agency. This fulfills the Government's interests while still allowing for further commercial development. It was felt that the best way to achieve commercialization was to allow the creators to manage their discoveries without undue interference from Washington.

Universities were also required to share royalties with their inventors to create a win-win situation on campus. Thus, the bill created incentives and authorities for a decentralized technology management model.

The enactment of the Bayh-Dole Act in 1980 is a major watershed in U.S. technology policy. We can now compare the Government's futile attempts to manage federally-supported technology from Washington with eight years of unfettered university-industry cooperation.

While the rate of U.S. patent filings has remained flat or even declined, university patenting is up significantly. The current U.S. lead in biotechnology is a direct result of university-industry cooperation made possible by Bayh-Dole. The General Accounting Office in its April, 1987 report to Congress, "Patent Policy: Recent Changes in Federal Law Considered Beneficial", found a 74% increase in U.S. industry funding of university R&D since enactment of Bayh-Dole. The U.S. is also re-asserting itself in citing new research as the basis for commercial ideas.

According to an April 5, 1988 article in the N.Y. Times entitled "Science and Technology: The Gap is Shrinking Fast", the U.S. is re-establishing its lead in taking ideas from basic R&D to commercialization. The article found: "The trend means that universities, the bastions of basic research in the United States, are playing an increasingly direct role in the formulation of ideas that industry turns into new goods and

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products." It was also found that since 1980 (when the Bayh-Dole Act was passed) "the U.S. moved into the lead and has maintained it ever since" in creating patents from basic scientific research.

This revival of U.S. entrepreneurship, while little publicized here, has caught the attention of the Japanese who are now studying our technology transfer model and are trying to apply it to their universities. It is also being realized that the U.S. Government is no longer giving technology away as in the "good old days."

The Reagan Administration and Congress built on this foundation in 1986 with another landmark piece of legislation giving similar authorities to the Government's own laboratories as already given to our universities. The Federal Technology Transfer Act of 1986 is just now beginning to make its importance felt. One out of every six U.S. scientists and engineers works for Uncle Sam. Yet the Government's laboratories were virtually shut off from doing cooperative R&D with U.S. industry because they were still bound by our old technology policies.

In 1983 the Packard Report to the President documented how far short of their potential these labs had fallen. It was found that many of the best scientists were leaving the Government because of their frustrations.

The new Act is rapidly changing this scene. The law inserts a much needed dose of free enterprise into a stale system. Now if laboratories successfully transfer technology for commercialization the resulting royalties will go back to the laboratory. Now individual Federal scientists will receive at least 15% of those royalties that the Government receives. Now the Federal laboratory director can make appropriate deals with the private sector to cooperate in R&D projects that benefit the Government, the private sector, and most importantly, the American people through a growing economy, and the creation of new products and jobs.

We are beginning to see the patenting rates of our Department of Commerce employees beginning to rise as the universities experienced after 1980. We see a tremendous excitement in our Federal laboratories now that promising commercial discoveries can be pursued in cooperation with the private sector rather than abandoned, or simply published for the benefit of our foreign competitors.

As Government, industry and universities begin to use our new tools more effectively we will see more projects like that recently begun in Peoria, Illinois. There local government has pulled together a Government laboratory, a university and several prominent companies into a promising biotechnology consortium. Such projects will prove to be real boosts to the national and local economies.

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In addition to working with existing businesses, we now see small high technology start-up companies forming around our universities. I believe we will soon see the same phenomenon around our Federal laboratories. There is nothing like this going on anywhere else in the world. There is nothing magical about our success. We simply rediscovered that if allowed to breathe, American creativity and ingenuity can hold its own with anyone. We still have much to accomplish to follow up on this initial progress. But we are finally back on the right track.

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