Generous Schools Generate More Licensing Revenues

While money is often downplayed as a motivator for academic researchers, it turns out they are more like the rest of us than some thought, according to a new study from the London School of Economics and Political Science. The more a university shares its royalties with faculty researchers, the more overall licensing income that university earns, the study suggests.

In The Impact of Royalty Sharing Incentives on Technology Licensing in Universities, Saul Lach and Mark Schankerman contend that the design of intellectual property rights and other forms of incentives for faculty may have real effects on growth and productivity. The model is based on the Association of University Technology Manager’s annual survey of university tech transfer activities.

The findings reinforce those of a 2001 paper, Why Do Some Universities Generate More Start-ups than Others? by Dante Di Gregorio and Scott Shane of the University of Maryland, which found, in part, that more start-ups could be expected when there are lower royalty payments back to university inventors. This would apparently be the case because the best way for the researchers to benefit economically would be in starting a company.

The profit motive for faculty is stronger in private universities than public institutions, Lach and Schankerman find, resulting in private institutions generating more licensing revenues for both the faculty and the universities.

Technology licensing offices (TLOs) in private schools also were more productive in generating licensing revenue than their public counterparts, which may be consistent with the influence of the greater incentives present for private institution faculty researchers. It is possible that faculty motivated by opportunities for wealth generation from their research findings might be more likely to engage in research that will yield commercializable results, although the present study does not explore this. Instead, Lach and Schankerman suggest other reasons for the difference between the TLO effectiveness of public and private schools.

We provide new survey evidence which shows that TLOs in private universities are more likely to use performance-based pay, are less constrained in their freedom of operation by state laws and regulations, and are more focused on generating license income rather than social objectives such as promoting local and regional development, the authors say.

To generate more revenue for a university tech transfer office, public university administrators may wish to review or modify their intellectual property policies and incentives to reward faculty more generously, but the social objectives comment in the above excerpt may be of some interest to the TBED community. In contrast, DiGregorio and Shanes research suggests more limited faculty incentives may be more useful in creating local start ups based on university research, but, according to Lach and Shankerman, at the risk of lower returns to the university.

So the public policy question is raised: How does one optimize opportunities for local commercialization of university technology without decreasing institution and faculty incentives to pursue market-oriented research?

One answer, according to Lach and Shankerman, is to focus policy toward increasing the amount of publicly funded R&D conducted within public research institutions, which is a goal of several state TBED organizations and federal programs such as EPSCoR. The authors write publicly funded R&D has a positive and significant effect on licensing revenues in public universities only. Industrial-funded R&D, which is often for intellectual property owned by the industrial partner, was found to have no significant effect in either public or private institutions.

The Impact of Royalty Sharing Incentives on Technology Licensing in Universities is available at: http://cep.lse.ac.uk/pubs/download/dp0729.pdf

Why Do Some Universities Generate More Start-ups than Others? is available at:
http://bmgt3-notes.umd.edu/faculty/km/papers.nsf/225f2e46a850b27885256a560076708a/30aee75dc1ee05a385256a4f0051b6f3?OpenDocument

Links to these studies and more than 4,000 additional TBED-related research reports, strategic plans and other papers can be found at the Tech-based Economic Development (TBED) Resource Center, jointly developed by the Technology Administration and SSTI, at: http://www.tbedresourcecenter.org/

Copyright State Science & Technology Institute 2006. Redistribution to all others interested in tech-based economic development is strongly encouraged. Please cite the State Science & Technology Institute whenever portions are reproduced or redirected.