1. Transcending the Tacit Dimension: Markets, Relationships, and Organizations in Technology Transfer Peter Lee UC Davis School of Law ptrlee@ucdavis.edu April 30, 2011 Peter Lee UC Davis School of Law ptrlee@ucdavis.edu April 30, 2011

2. Technology Transfer  How do technologies move from one organization to another?  University-industry technology transfer  “Last year, we made the largest investment in basic research funding in history - an investment that could lead to the world’s cheapest solar cells or treatment that kills cancer cells but leaves healthy ones untouched.” President Barack Obama, State of the Union Address, Jan. 27, 2010

3. Technology Transfer  Modes of technology transfer  Informal Publishing, symposia, placing graduate students  Formal Patenting and licensing via the Bayh-Dole Act  Context (FY 2009)  Universities received 3,417 patents  5,328 total licenses and options executed  596 new companies formed

4. Agenda  Markets: commodifying and exchanging technology  Relationships: tacit knowledge and personal interactions  Organizations: various modes of “integration” between universities and firms to transfer tacit knowledge

5. A Market-Oriented Conception of Formal Technology Transfer  Relies on markets to move technologies to higher- valued uses  Prospect theory  Efficiency gains from enabling one entity to orchestrate the development of a technological prospect  Law  Patents directly reward invention, not commercialization  Markets facilitate transition to commercial product  Policy: Bayh-Dole Act  Universities hold patents but do not make products  => Critiques based on transaction costs, strategic behavior

6. The Role of Patent Disclosure in Facilitating Market-based Transfer  Disaggregating formal technology transfer:  Legal  Cognitive  Patents effectively “codify” an invention  35 U.S.C. § 112  Enablement  Written description  Best mode  Transferring legal rights is tantamount to transferring a technology

7. Refining the Market Conception: Academic Technology Transfer  Empirical accounts of university-industry technology transfer  Licensing markets are not robust:  78% of university licenses only had one bidder  University inventors frequently critical to finding licensees based on personal networks  Relationships rather than anonymous market transactions predominate  A high degree of geographic clustering in university licensing rather than true national markets

8. Tacit Knowledge and the Insufficiency of Patents  Tacit knowledge  “[W]e can know more than we can tell.” Michael Polanyi  Difficult or impossible to codify “Tacitness” is a question of degree  Technical “know-how” not captured in the patent disclosure  Tacit knowledge particularly important for patented university inventions  75% of inventions licensed from universities are early- stage prototypes or “proofs of concept”

9. Tacit Knowledge and the Insufficiency of Patents  Transferring tacit knowledge often requires direct interpersonal interaction  For 71% of university inventions licensed, continued cooperation of the inventor and the licensee was required for further development

10. A Relationship-oriented Model of Technology Transfer  Stakeholders routinely cite personal relationships as important to technology transfer:  Entrepreneurs (75%)  Technology transfer administrators (67%)  University scientists (80%)  Ongoing relationships rather than one-off market transactions

11. Organizational Forms and University- Industry Technology Transfer  How do universities and commercial licensees overcome the limitations of formal technology transfer?  Theories of the firm and vertical integration  “Make or buy” Buy from an independent supplier Vertically integrate and make in-house  Contractual hazards between two independent parties counsel in favor of vertical integration  Opportunistic behavior  Incomplete contracts

12. Technology Transactions, Patents, and Tacit Knowledge  The difficulties of conveying tacit knowledge represent another “contractual hazard”  Private sector responses:  Patents can facilitate the transfer of tacit knowledge Bundling licensing rights and tacit knowledge Intensifying ties between licensors and licensees  Various modes of organizational integration High-tech industries: biotech, IT Joint ventures, corporate partnering, iterative collaboration, “virtual integration”

13. Organizational Forms and University- Industry Technology Transfer  Firms in research-intensive fields face a “make or buy” decision regarding early-stage technological inputs  “Buy” from universities  Licensing patented inventions from universities “Outsourcing” basic research functions  Difficulties of transferring tacit knowledge  Deepen organizational ties  Extending firm research into university laboratories  Integrating faculty inventors into the firm itself

14. Blurring the Boundaries of Universities and Firms  In parallel to patent licensing, faculty inventors, universities, and firms are engaged in various forms of organizational integration  Examples:  Star academic scientists and the rise of biotechnology Scientists integrated into private firms  MIT licensing of engineering and computer science patents Engaging the academic inventor positively impacted the likelihood of commercialization and amount of royalties  Transfer of Air Force technologies to the private sector Strong laboratory-user relationships and joint projects

15. Blurring the Boundaries of Universities and Firms  A continuum of modes of “integration”:  Sponsored research, collaborations with faculty, co- publishing  Academics serving as consultants and scientific advisors  Academics joining the management teams of licensee firms and obtaining equity stakes  Licenses to university spin-outs headed by academic entrepreneurs  Direct absorption of academic human capital to convey tacit knowledge and transfer technology

16. Implications  How do technologies move from one organization to another?  Technology transfer is not an anonymous, one-off market transaction  Based on social/professional connections and long-term relationships  The limitations of patents (and other forms of codification)  Patents may not transfer all valuable information relevant to an invention  Tacit knowledge is critical

17. Implications  Organizational response: integrating faculty inventors into licensee firms  Blurring the boundaries between universities and private companies  The nature and necessity of normative conflict  Academic participation is key to commercial success  Optimizing technology transfer  A multidimensional model of formal technology transfer Legal (licensing patents) Relational/organizational (integrating human capital)

18. Questions