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The Innovation Imperative

  • Date: 04/04/2012
  • Author: Dr. Luis M. Proenza (President, The University of Akron)
  • Location: Ohio Aerospace Institute
  • Thank you, Don, and thank you all for attending today.

    Before I begin, I would like to acknowledge Kevin Dunn and Scott Oldham, current members of our School of Law IP Law and Technology advisory council, and John Hornickel, a former member of the council.

    Thank you, gentlemen, for all you do.

    Today, I want to share some thoughts on innovation, and I first want to provide you with some context and background information, so you can see where my thinking is coming from.

    I will do this by sharing some perspectives on how changes in the global R&D marketplace and globalization are creating a “new normal” for many businesses and industries. Then we will consider how this dynamic environment rewards collaborative innovation, and how the America Invents Act might affect that. Finally we will look at how the model we’ve developed in Akron is helping companies link into the innovation ecosystem.

    Changes in the global R&D marketplace and globalization are creating a “new normal” for many businesses and industries. While the eventual effects of the American Invents Act are not yet clear, it is certain that this dynamic environment will continue to reward collaborative innovation.

    But before we get into any of that…perhaps I can pique your interest by talking about sex.

    You see, the title of my presentation – the “innovation imperative” – is no accident; it serves as a variation on the “biological imperative,” which states that in order for a species to perpetuate its existence, each generation must survive long enough to reproduce. And for most species, reproduction requires the sexual union of male and female specimens to create another, or perhaps many.

    The innovation imperative is similar, in that for an economy to survive, its members must interact to develop new technologies, new processes and products. They must innovate, and they cannot do that in isolation. British scientist, columnist and best-selling author Matt Ridley suggests that human evolution advanced because. “At some point in human history, ideas began to meet and mate, and to have sex with each other.”[1] He applies the same logic to trade and innovation, by saying, “exchange is to technology what sex is to evolution. It creates novelty.”[2]

    Another way of saying this is by an analogy to the “birds and the bees” – and surely, you remember that lesson, no?

    Here it goes: “Sex is to babies, as innovation is to new wealth creation; conception is the common element.”

    My message today is that the global knowledge economy ultimately rewards those companies and organizations that meet the innovation imperative, that engage with their regional innovation ecosystems and create, protect and commercialize new ideas and technologies.

    So, with that as our introduction, let’s begin by taking a brief survey of the shifting global R&D marketplace.

    Global investment in R&D is now more than $1.25 trillion dollars – a sizable industry by any standard[3]

    In 2009 the top 7 countries accounted for more than 70% of that total, and the U.S. alone represented 31%, with nearly $400 billion in expenditures.[4] I hasten to add, however, that although U.S. R&D spending has increased almost uninterruptedly since 1953, our nation’s share of the world’s R&D expenditures has declined as other nations have dramatically increased theirs.[5] To understand just how fast this is happening, consider the fact that just 10 years ago, the U.S. share of the world’s R&D investment was 38%, and it is now just 31%.[6]

    China’s R&D investment has grown at an average of 20% per year in inflation-adjusted dollars[7]; and it has replaced Japan for second place in R&D spending.[8] China’s R&D spending is only 1.7% share its gross domestic product, compared to 2.9% in the U.S., but that share of China’s GDP has doubled in the last 10 years and shows no indication of slowing.[9]

    Shift happens!

    Of course, U.S. spending on R&D is still far beyond that of its closest competitors, but the gap between our nation and others is narrowing, and the pace of that trend is accelerating.

    Within the U.S., 71% of R&D expenditures ($282 billion) are performed by industry, 14% ($54 billion) by universities and colleges and 12% ($46 billion) by the federal government. Foundations and other nonprofits account for 4.4% ($17.5 billion).[10]

     

    U.S. colleges and universities perform 53% of the country’s basic research[11], but only a nominal percentage of applied research.[12] And therein lies a major disconnect.

    You see, for innovation to flourish, we might expect that the source of knowledge creation, basic research at our universities, would be closely linked to its application by industry. But industry presently supports less than 6% of university research, a figure that has declined from a high of 7%.[13]

    Indeed, this is one of those major disconnects in our innovation ecosystem that is now being addressed through broad initiatives such as the National Academy of Sciences’ University Industry Demonstration Project, and through more regional, university-based efforts, like those we have established in Akron.

    Science and technology have always been international endeavors and any discussion of the innovation imperative must include at least a few general comments on globalization, the speed of which is rapidly transforming science and technology.

    Beginning in the 1970s the more rapid pace by which new discoveries began to be quantified in the asset ledgers of corporations ensured that investment funds increasingly began to track the flows of intellectual property developments around the world – which demonstrates the growing interdependencies of the science and technology activities of nations.

    Indeed, we are witnessing several new ways in which the globalization of markets is affecting both how science is funded and how it is practiced. The Wall Street Journal put it this way: “Open market innovation works for the same reason that free trade works: It enables the laws of comparative advantage to govern the allocation of R&D resources. In essence, a company gets lower cost, higher quality ideas from the best sources in the world, allowing it to refocus its own innovation resources where it has clear competitive advantages. With the right people in place to recognize beneficial trade-offs, the company is able to ‘export’ ideas that other businesses could put to better use.”[14]

    So, worldwide R&D is undergoing historic shifts, and globalization is meshing the science, technology and financial sectors into a one vast network. In this dynamic environment, certain truths about intellectual property and technology transfer remain unchanged and bear repeating.

    Let me share three useful maxims often used by practitioners of technology transfer:

    1. "Technology transfer is a contact sport"
    2. "There are no guarantees"
    3. "Every deal is its own deal"

    I share these with you because simple language almost always conveys a great deal more than the convoluted legal arguments that often plague any discussion of technology transfer and negotiations of intellectual property. Thus, the “contact sport” metaphor implies that a good network of connections is necessary within the industries and markets wherein a new technology might be licensed or commercialized. The reference to “no guarantees” is a simple statement that it is often impossible to quantify its value of a newly marketed technology. Likewise, even exceptionally exciting technologies may never get off the ground if placed in the hands of poor managers. Or markets simply may not be ready for them.  Finally, “every deal is its own deal” conveys in simple language the flexibility that a great many transactions require - it tells us that if anyone insists they will do a deal only with a large up-front payment, they probably do not fully understand what they are doing.

    Any company or university should be able to participate in model strategic partnerships that are mutually beneficial through the exchange of comparable value. By comparable value, I do not mean only money, because other commitments, such as the exchange of personnel, research commitments and other reciprocal agreements can bring comparable value to both parties. Strategic partnerships, in which mutual interests are satisfied, hold great promise.

    Unfortunately, some companies are reluctant to engage with universities because of three misperceptions: (1) the slowness of negotiating agreements, (2) squabbling over intellectual property rights and (3) third-party access to the research information that has been supported by a company.

    Universities still are comparatively "new" to the world of economic development, so they need to be especially attuned to how much we have to learn and how much we need to do in order to bridge the cultural divide between the "two cultures" of industry and academia.

    Undoubtedly, some will object to sharing any IP until inventions are verified, protected and derivative inventions are considered.  However, an open innovation model may be appropriate in selected technology areas. The public good of early disclosure and its impact on innovation may out-weigh the costs associated with loss of proprietary position in some circumstances.

    One important element in our technology transfer discussion lies in our failure to tackle the optimization of our education system. Indeed, if the often-quoted suggestion that 95% of all technology transfer takes place as people move from college into the workplace or from one company to another is true, then why do we seldom include this in our technology transfer discussions? Thus, I suggest that close relationships between business and universities are the first step in a talent supply chain optimization. In much the same way that universities harp on about the importance of well-prepared students but fail to sufficiently leverage its relationship with K-12, industry says workforce is its number one issue, but doesn't pay the same attention to its human capital supply chain as it does to the supply chain of materials and components.

    "Business" partners with "business" to improve the transfer of goods, but business has failed so far to adequately partner with universities to facilitate the transition of students into the workforce. If we are to compete in this global economy, we can and must do better to enhance the quality of our talent supply chain.

    As you will see later, we are taking steps in Akron to strengthen the link between collaboration on research and developing talent for industry.

    Much to the chagrin of some of academics, as well as some detractors of higher education, the "Ivory Tower" model of research is largely mythical. Today’s simple reality is that innovation does not occur in splendid isolation for anyone: it happens within an innovation ecosystem - a network of loosely inter-connected elements that enables society to make new discoveries, capture their value in the marketplace, enhance productivity and increase our standard of living.

    To be sure, the innovation ecosystem is a complex and interactive one.   It is shaped not only by the quantity and sources of funds available to support research activities, but also by the talent pool and capabilities of the scientists and engineers who conduct research, and by the settings in which that research is conducted. The innovation ecosystem also is shaped by prevailing public attitudes about the importance and usefulness of research in the broader context of societal pressures and economic opportunity. Quite simply, what this means is that innovation is impacted by complex regulatory and support environments which, in turn, interact with financial opportunities and challenges across the world.

    To paraphrase Erich Bloch, former director of the National Science Foundation, the U.S. R&D system is in the midst of a crucial transition... whereby the previous linear model of R&D has been replaced by a more complex “ecosystem” model, because today's research, design, manufacturing, and marketing processes occur interactively and without clear boundaries between areas.[15]

    Sadly, not everyone has caught up with these trends, and Erich Bloch also noted that those of us in academic science seem to be caught in a sort of scientific "midlife crisis" because 50 years of doing research one way fostered the belief that it cannot be done another way.

    And yet, as we noted earlier in the discussion on the global changes in the R&D marketplace, "Shift happens!"

    We must always remain cognizant that a shortcoming in any piece of the ecosystem is at best inefficient; at worst, it could be a debilitating disconnect that undermines our capacity for commercialization and economic growth.

    So rather than engage in finger pointing between industry and universities, we need to learn each other's cultures better. And we can begin by taking a lesson from an old friend, Copernicus.

    Human partiality notwithstanding, the first thing that the concept of an innovation ecosystem tells us is that neither industry nor academia is exclusively central to innovation. We need a modern "Copernicus" to tell us that the innovation economy's "sun" does not revolve around either one of us or even both of us uniquely. Globalization and the new economy are increasingly demanding that we move towards one another, and indeed some already have.

    Although many universities are still new to it, some such as MIT, Purdue and Wisconsin are highly effective and seasoned veterans. Moreover, some others, such as Akron, have been nationally recognized as exemplars and are pioneering in new directions by innovating on innovation.

    By the same token, many companies are not particularly adept at capitalizing on the technologies they have created. For example, many companies have large stockpiles of patents that they have accumulated for various reasons - perhaps defensively, perhaps because they simply didn't know what do with them or because they represented non-core technologies in which they had neither the experience nor inclination to commercialize. And in a curious form of role-reversal, Universities like Akron are now assisting industry in commercializing their non-core technology patents. Imagine that!

    Better yet, wrap your imagination around the potential power of open and incentive-based innovation

    Proctor & Gamble, Nike, InnoCentive and the X-Prize, among others, have reinvented the reward-based innovation model - better known as open innovation – and reaped impressive results. Open innovation reaches innovators globally with challenges to solve specific problems with promises of significant cash rewards for those who are successful. For the funder, open innovation provides minimum risk in that payment is made only for successful results. Moreover, the X-Prize Foundation has found that often those who aspire to earn the prize leverage resources far in excess of the prize money.

    Quite simply, the process of open innovation, a model for which the University of Akron Research Foundation hosts semi-annual events, tells us that universities, major industry and small entrepreneurial companies often must look outside their own organizations to find solutions to problems.

    I think that any person or entity that professes to have and distribute knowledge will need to embrace a form of open innovation to remain credible and current. This is an interesting reality for many in higher education, who value "academic freedom" and the free and open sharing of information (including peer review), yet who in many ways are themselves not adept at seeking or accepting input, regardless of the source, or of making appropriate adjustments in a timely manner. Likewise, open innovation also will pressure industry innovators, who will need to look outside of their own organizations to keep pace with the speed of discovery and progress.

    So, just as we appear to see some forward movement in industry support for university research, and just as open innovation and incentive-based innovation are forming new buds in our innovation ecosystem…along comes Leahy-Smith – the America Invents Act (AIA)

    Like everyone else, our university is keenly interested in the consequences, both intended and otherwise, of the America Invents Act. And, we too, have our share of proponents of AIA, and those who are more subdued in their enthusiasm. But since the act was signed into law just shy of seven months ago, and implementation still a year off, the best anyone can do is some degree of fortune telling.

    With these caveats in mind, I will hazard just a few guesses as to how AIA will affect university-industry research collaboration.

    I think those universities that already have well-established and flexible tech transfer offices, and which are already in tune with the needs of the investment and business communities, will provide the best avenues for collaborative research with industry. The key word here is flexible. Those who have played the game for a long time must adjust to a new rulebook.

    My advice is to look for partners who are not risk-averse, who are willing to try new approaches and arrangements, but who also have a good grasp of how tech transfer can be accomplished. That last point should be an important one in your considerations of whom to partner with. Because derivation proceedings are likely to become more difficult, tech transfer offices must shoulder a greater responsibility for due diligence, examinations and supervision of institutional primary investigators. In short, work with a university that knows what its doing…or you may find yourself paying the tuition for a partner enrolled in Technology Transfer 101.

    With the federal government tightening its research purse strings, and angel and venture capital investors taking a wait-and-see approach to how first-to-file and the one-year grace period will affect patentability, I suspect basic research may temporarily take a backseat to incremental research objectives of established companies. Again, this can be viewed as an opportunity. This may be a good time to rescue stranded technologies that have languished on a shelf because they were non-core or offered too return to fully develop and commercialize. As I said earlier, tech transfer is a contact sport, and these stranded technologies offer a safer means of trying out new partners.

    One last thought on this topic. Open innovation is not going away because of AIA. With trade secrets gaining more prominence, the accepted definition of “open” may change, but surely it would under other circumstances as well. The reality is that rising international competition and accelerating technological advances will only make collaborative innovation more of necessity than ever, and if AIA presents new challenges, we will find a solution to them.

    So let us consider how universities are moving toward new models of innovation collaboration with industry, and specific program in place in Akron.

    The Kauffman Foundation's Christine Gulbranson and David Audretsch assert that university research does not "passively spill over" into industry for commercialization and thus an institution is needed to move research beyond its early stages to create innovation and economic growth. In an article titled "Proof of Concept Centers: Accelerating the Commercialization of University Innovation," they advocate for a center that offers seed funding for novel research and connects mentors from industry to the university's labs.[16]

    One example that has done this successfully for more than a decade is the von Liebig Center at the University of California San Diego Jacobs School Of Engineering. The center’s stated mission is "to accelerate the commercialization of UCSD innovations into the marketplace, foster and facilitate the exchange of ideas between the University and industry, and prepare engineering students for the entrepreneurial workplace." Founded in 2001 through a $10 million gift, the center has offered seed funding from $15,000 to $75,000 per project to 10 to 12 researchers annually to evaluate commercial potential, develop, test, prototype or conduct market research.

    Similar efforts have yielded fine results for Purdue's Trask Innovation Fund, and the University of Illinois’ IllinoisVENTURES technology investment firm. MIT’s Deshpande Center is another example.

    There are, in fact, myriad university models for economic development: research parks, venture funds, urban redevelopment programs, small business development centers, industry collaborations and research consortia to name just a few. Some, of course, are far more successful than others in creating and supporting strong and vibrant economies. Those that do succeed share several essential strategies, including collaboration with external groups, willingness to be creative in transferring technology and a connection to the local venture capital and industrial community.

    And if I may be so bold, you will find all those and more about 45 miles south of here, at The University of Akron.

    One of the primary implements in our toolbox of economic development is a significant commercialization engine: The University of Akron Research Foundation.

    Created in 2001, UARF has entered into five joint ventures with major corporations, assisted in the launch of 50 start-up companies, and established a 550-member angel investor network that has reported more than $75 million in follow-on funding to 30 companies.

    Another new and significant initiative is our collaboration with the Timken Company, which last year signed a novel open-innovation agreement with us to accelerate technology development in one of their business units. This agreement enables University faculty and postdoctoral students to work alongside Timken researchers to further develop and commercialize the company’s research in advanced materials, engineered surfaces and performance coatings. 

    I have mentioned only two of the new collaborative innovation initiatives that we have underway. There are many others. Some you may have heard of, like our Austen BioInnovation Institute in Akron, while others, such as the National Center for Education and Research on Corrosion and Materials Performance, speak to a more select audience.

    And we keep developing more. One emerging program, titled “Innovation Through Convergence and Entrepreneurship,” or ICE for short, seeks to cut in half the time from which creative young researchers begin work on new projects until they become participants in spin-out companies. This program engages postdoctoral students with other graduate students or medical residents, and draws in investors, attorneys, entrepreneurs and others from the business community early in the process, so that by the time the doctoral candidate completes his degree, he also is immersed in the innovation ecosystem.

    Finally, just like many of you, we also maintain the tried-and-true methods of our business while we innovate and explore new avenues of success. Almost a dozen of our engineering faculty are involved in research with companies whose names are no doubt familiar to many of you: Honeywell, Goodrich Aero, Pratt and Whitney, GE, Rolls Royce, Lockheed Martin, and others, as well as with NASA and the Air Force. They are working on high-temperature materials, intelligent sensors, micro air vehicles, instrumentation, composite materials and variety of other technologies.

    In short, there is far more happening in Akron than we have time here today to discuss. Give me a call anytime, and I will be happy to provide more information or put you in contact with someone on campus who can.

    In closing, this afternoon we have reviewed how changes in the global R&D marketplace and globalization are creating a “new normal” for many businesses and industries. Then we explored how this dynamic environment rewards collaborative innovation without jeopardizing intellectual property. Finally, we considered how universities in general, and The University of Akron in particular, are helping companies link into the innovation ecosystem.

    I hope that some of these ideas have made you mindful of the fact that regardless of the specific subtleties of the American Invents Act on any particular IP, we must redouble our efforts to innovate and commercialize new technologies if we are to continue growing America’s prosperity in the 21st century.

    And thus I leave you with a final quote from Matt Ridley:

    “The more you prosper, the more you can prosper. The more you invent, the more inventions become possible. How can this be? The world of things – of pecans or power stations – is indeed often subject to diminishing returns. But the world of ideas is not. The more knowledge you generate, the more you can generate. And the engine that is driving prosperity in the modern world is the accelerating generation of useful knowledge.”[17]

    And so, ladies and gentlemen, let us be cheerful, and plunge ahead!

    Thank you!



    [1] Ridley, Matthew (2010). The Rationale Optimist: How Prosperity Evolves. New York: HarperCollins. p. 6

     

    [2] Ridley, Matthew, ibid p.71

    [3] National Science Board (2012, January), Science and Engineering Indicators 2012, Chapter 4, p  4-5, Arlington, VA (NSB 12-01) http://www.nsf.gov/statistics/seind10/c4/c4h.htm

    [4] National Science Board, Ibid

    [5] National Science Board, Ibid

    [6] National Science Board, Ibid

    [7] National Science Board, (2012, January), p. 4-53

    [8] National Science Board, Ibid

    [9] National Science Board, Ibid

    [10] National Science Board (2012, January), p. 4-13

    [11] National Science Board (2012, January), p. 4-11

    [12] National Science Board (2012, January), p. 4-16

    [13] National Science Board (2012, January), Chapter 5, p. 5-11

    [14] Darrel Rigby and Christopher Zook (2002, December 3). Manager's Column, The Wall Street Journal, p. B-2.

    [15] Bloch, Erich (1996, September 27). Cooperation, Competition, and Science Policy. Science, Vol. 273 (no. 5283), pp. 1779-80.

    [16] Gulbranson, Christine, Audretsch, David B. (2008). Proof of concept centers: accelerating the commercialization of university innovation. The Journal of Technology Transfer, Vol. 33 (issue 3), pp. 249-258.

    [17] Ridley, Matthew (2010). The Rationale Optimist: How Prosperity Evolves. New York: HarperCollins. P. 248

  • Topic Category: Innovation in a changing intellectual property environment
  • Tags: Innovation, intellectual property, patents, aerospace, Akron Model,
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