Transferring technology, creating wealth

As a graduate student of technology management (a relatively new graduate program of UP), I am often asked by my acquaintances to differentiate my degree from an MBA or MPA. I explain it in terms of how they differ in content and emphasis, a very academic definition. My classmate gives a more illustrative definition and a better idea of technology management. For him, it is simply "making money out of technology." I have since adopted his definition and I was glad that this idea resonated in a recent article that I read. It was about several Filipino entrepreneurial teams that won in local and international business plan competitions. Featured were a graduate student from Silliman University who invented a technology for waterless live fish transport, a team from FEU with their business plan for construction boards made out of aluminum packaging, and engineering undergraduates from UP Diliman who prepared a business plan for affordable, high-quality medical equipment. Congratulating them was Presidential Consultant Jose Concepcion III who said, "It’s time for Filipinos to make money."

However, this idea of "technology for wealth-creation" still has to be cultivated in the Filipino consciousness. In the Philippines, a science or engineering career is not looked at as a pathway to becoming rich. When I was an undergraduate, students knew that academic research, especially if they generate inventions, have potential commercial value. But somehow, it was uncommon to think of using our scientific or technical know-how to build a business enterprise. We know that the University of the Philippines has not yet realized the potential value of its technologies or benefited greatly from them, unlike Stanford University, which has already earned $552 million in royalties from its patents since 1970. Based on a survey, for the year 2000, American universities have received a total of $1.2 billion in royalties from their licensed technologies, which have generated $60 billion in product sales and 400,000 new jobs. And this does not yet include the multiplier effects of the increased economic activity on the entire national economy.

Universities enable wealth-creation by transferring the knowledge they create primarily through published work and through their graduates. Knowledge can also be embedded in inventions that arise from university research and are the subject of technology transfer. A university will then apply intellectual property (IP) protection in the form of a patent or utility model and then seek potential investors who may want to license the invention. It is actually like a software license that gives a user a right to use MS Word but not own it, which means that it cannot be reproduced and distributed to other PCs unless permission is granted because the copyright for it remains with the owner, in this case, Microsoft.

A technology license will always include provisions on payments (royalties, up-front fees, milestone payments), exclusivity (MS Word is non-exclusive because it is licensed to anyone who wants to use it and pay the required fee), length of effectivity and obligations of the investor or licensee. I was saddened to hear from an Ateneo professor that one of his colleagues invented a very useful device but sold its patent to an investor rather than licensing it, thereby losing all his rights to the technology. Yes, this is an option, but not preferred, for obvious reasons. Licensing allows maximization of revenues from the technology because it gives the patent (or utility model) owner a longer (and ultimately greater) stream of income, unlike selling, which means just a one-off payment based on the present (and potentially lower) valuation of the invention. If it were licensed, then depending on the terms of the license, the value of the payments may be renegotiated.

Biological materials, like cell lines or tissues, may be transferred through a material transfer agreement or MTA. Some of the MTAs I have seen from UP microbial culture collections limit the use of the microbes for research work. An MTA is an excellent way of controlling the distribution of reproducible materials like cells even if these are not patented and its scope can extend even to the progeny material. If it is not protected by IP, then other entities may use the same material freely as long as it was from another source not governed by an MTA.

The next level of technology transfer would be in the form of spin-off firms and equity participation. A university may want to receive equity in an enterprise that will commercialize a certain technology, instead of royalties. Faculty members would most likely be the founders of these firms themselves and the university may provide business incubation services to them. This is a very different set-up that is not yet widely used.

It will take time before UP evolves into a full-fledged "entrepreneurial university" or for the Katipunan area, with UP, Miriam and Ateneo as research seeds, to metamorphose into a mini-Silicon Valley. The starting points for building an entrepreneurial academic community would be a dynamic research culture and an environment that respects intellectual property. Without these two elements, there may be no technologies to transfer in the first place!

Below, I discuss the technology transfer systems in other countries. I want to emphasize that despite their varied forms, all of them provide the same set of core services in the form of IP and business advice and financial support for patent applications.

USA: University technology transfer in the US has its historical roots in the successful agricultural extension activities of the early American land grant universities, after which our University of the Philippines was patterned. Its administration is primarily through in-house technology licensing offices, which have responsibility for technology disclosures, patent applications, technology marketing and valuation, licensing negotiations and revenue collection. In recent years, these offices are either being complemented by university-industry relations units or are evolving to include some of their functions. This is evidence of increasing recognition that technology transfer is part of a much broader process of establishing university-industry linkages.

Other means of technology transfer are through external patent management firms and establishment of university-related foundations. However, these external entities, while shielding the university from business risks and legal liabilities, are not as widely used by US universities as licensing offices. For one, they choose only a certain percentage of invention disclosures to commercialize, leaving the university the responsibility for the rest. Obviously, they tend to choose those inventions with the greatest potential commercial value. To avoid this "cherry-picking," some universities retain the authority to decide which technologies to give to the external entity. But this strategy also requires establishing some form of in-house licensing or patent office to prescreen invention disclosures. Moreover, there were major publicized disagreements between certain universities and their partner research corporations in the past, which may have contributed to their negative image. The use of external firms or foundations remains a viable option, despite these disadvantages, as shown by UK, Australian and German universities.

Right now, the US has one of the most vibrant systems of university technology transfer. There is a professional organization called the Association of University Technology Managers or AUTM which is composed of hundreds of licensing professionals from different universities. The success of the system has been credited to the famous Bayh-Dole Act of 1980, an act that gave American universities the right to obtain titles on inventions arising from federal-funded academic researches. It provided the academe incentives to set up their own technology transfer units and to maximize the transfer of their intellectual properties to industry. Indeed, according to the law, it is their mandate to do so. If they fail, then the federal government with its march-in rights can take these patents and commercialize them on its own.

The success of the Bayh-Dole in the US, with other countries like Japan and Germany adopting some of its provisions, has generated interest and debate in some of our academic institutions and within DOST. Their question is: "Will a similar legislation improve our local technology transfer system?" I have met some people who believe that it will and some who believe otherwise. On the other hand, most are between these extremes. Personally, I believe that there are lessons that we can learn from the history of the Bayh-Dole Act but these lessons must be placed in the right context. The Bayh-Dole’s primary contribution was to remove the greatest obstacle to the process: bureaucracy. By giving the responsibility for technology transfer to universities, the Bayh-Dole removed the need for private firms to navigate the maze of oftentimes inconsistent rules on licensing by the different federal agencies that fund academic research. For example, licensing an invention that was funded by NASA, the NIH and US-DOE would have been a legal nightmare! Today, a firm would just have to go to an appropriate office in a university.

Further, the law allowed exclusive licensing of inventions from research funded by public funds. As a result, more firms were encouraged to license these technologies. However, not all inventions are licensed with exclusivity, as in the case of recombinant DNA (and other basic technologies that will impact several industries). But exclusivity has its inherent business advantages that make technologies more attractive to potential licensees.

Similar to the US, a large part of academic research in the Philippines is funded by government funds, and a Bayh-Dole-type law will greatly impact technology transfer. But the government, particularly the DOST, and not universities, has already developed specific mechanisms for technology transfer (IP Guidelines and TAPI or Technology Application and Promotion Institute), although UP also has an emerging system. Such legislation will facilitate the transfer process, especially now that other government agencies are designing their own IP rules and policies. However, it is highly unlikely that the DOST will give up its primary role in the transfer process. While the DOST system needs improvement, it has shown itself capable of successful technology transfer from university research, as in the case of the herbal medicines lagundi and sambong from UP Manila.

There is no evidence, local or foreign, to suggest that internal units within universities will necessarily be much better than a government agency or any other external entity in transferring technology. It may be that a DOST-led approach may add another layer of bureaucracy; however, based on my own observations, the "distance" between a UP professor and a DOST research council may be "shorter" than the distance between UP faculty and the UP administration. Nevertheless, there are good reasons for maintaining the autonomy of academic institutions, particularly in shaping their research agenda. A reduced role in managing their own intellectual properties may defeat the very purpose of academic freedom, with grave consequences. (A compromise then has to be made!) Regarding exclusivity for public-funded researches, I personally believe this is a non-issue in the broader context and is best decided for each case based on acceptable criteria.

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Ellery F. Jose is an honor graduate of the BS Molecular Biology and Biotechnology program of the University of the Philippines, Diliman. He is currently finishing his research project on "Developing a Framework for University Technology Transfer: The Case of UP " for his Master in Technology Management (MTM) at the UP Technology Management Center. He worked for the UP Technology Licensing Office in 2004 and was also an S&T research teacher at the Philippine Science High School main campus. He is a founding member of the Pilosopong Tasyo Technopreneurs Cooperative established by enterprising graduate students of the UP-TMC to serve as an incubator organization for potential technology entrepreneurs. In the future, he plans to pursue a career as a technology transfer consultant. E-mail him at [email protected].