Transcending the Tacit Dimension: Patents, Relationships, and Organisational Integration in Technology Transfer

1. Transcending the Tacit Dimension: Patents, Relationships, and Organisational Integration in Technology Transfer Peter Lee UC Davis School of Law ptrlee@ucdavis.edu July 10, 2013

2. Technology Transfer • How do technologies move from one organisation to another? • University-industry technology transfer • Strong relationship between innovation and economic growth • “Innovation also demands basic research. Today, the discoveries taking place in our federally financed labs and universities could lead to new treatments that kill cancer cells but leave healthy ones untouched.” • U.S. President Barack Obama, State of the Union Address, Jan. 24, 2012

3. Technology Transfer • Modes of technology transfer • Informal • Publishing, symposia, placing graduate students • Formal • Patenting and licensing of university inventions • Bayh-Dole Act (1980) • Allowed and encouraged government grantees (e.g., universities) to take title to patents arising from publicly-funded research • Context (FY 2011) • Universities received 4,700 patents • 4,899 licenses executed • 670 startup companies formed

4. Agenda • Markets • Patents, commodification, and market-based technology exchange • Relationships • Tacit knowledge and personal interactions • Organisations • Organisational “integration” among faculty inventors, universities, and firms • Assessments, prescriptions, and implications

5. The Industrial Organisation of Commercialisation: From Invention to Product • Vertical integration • Market-based production • Universities • Generate significant numbers of patented inventions • Vertical integration appears counterintuitive and undesirable • Implicit structural choice in favor of market-based commercialisation

6. A Market-Oriented Conception of Technology Transfer • Patents commodify technologies and enable low-cost transfer in licensing markets • Policy: Bayh-Dole Act • Universities hold patents but do not make products • Exploit licensing markets to transfer inventions to the private sector for commercialisation • Law • Patents directly reward invention, not commercialisation • Markets facilitate transition from invention to commercial product

7. The Role of Patent Disclosure in Facilitating Market-based Transfer • Disaggregating formal technology transfer: • Legal • Cognitive • Patents effectively “codify” an invention • Statutory requirements • Enablement • Written description • Best mode • Once patent rights have been licensed, “technology transfer” has occurred

8. Agenda • Markets • Patents, commodification, and market-based technology exchange • Relationships • Tacit knowledge and personal interactions • Organisations • Organisational “integration” among faculty inventors, universities, and firms • Assessments, prescriptions, and implications

9. 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 • Geographic clustering

10. Tacit Knowledge and the Insufficiency of Patent Disclosure • Tacit knowledge • “[W]e can know more than we can tell.” • Michael Polanyi • Personal, uncodified knowledge • Technical “know-how” residing in the inventor’s mind • Not captured in the patent disclosure • Distinctions • Different forms of tacit knowledge • Knowledge regarding the basic operation of an invention • Knowledge useful for its application, extension, or modification for commercial purposes • “Tacitness” is a question of degree

11. Tacit Knowledge and the Insufficiency of Patent Disclosure • Tacit knowledge is critical to formal technology transfer • Value of tacit, operational knowledge related to a patented invention may exceed the value of the invention itself • Tacit knowledge particularly important for patented university inventions • 75% of inventions licensed from universities are early-stage prototypes or “proofs of concept”

12. A Relationship-oriented Model of Technology Transfer • 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 • Stakeholders routinely cite personal relationships as important to technology transfer: • Entrepreneurs (75%) • Technology transfer administrators (67%) • University scientists (80%)

13. Case Studies: Tacit Knowledge and Personal Interactions • Fluorescence activated cell sorter • Method and apparatus for sorting cells • Patented at Stanford University, licensed to Becton-Dickinson • Becton-Dickinson expressly licensed “know-how” from the inventors to be transferred “verbally and by demonstration” • Xalatan • Prostaglandin-based therapy for glaucoma • Patented at Columbia University, licensed to Pharmacia • Inventor, Laszlo Bito, helped address eye irritation and discoloration

14. Agenda • Markets • Patents, commodification, and market-based technology exchange • Relationships • Tacit knowledge and personal interactions • Organisations • Organisational “integration” among faculty inventors, universities, and firms • Assessments, prescriptions, and implications

15. Organisational Forms and University-Industry Technology Transfer • How do faculty inventors, universities, and commercial licensees overcome the limitations of formal technology transfer? • The theory of the firm and vertical integration • How to obtain inputs to production? • Buy from an independent supplier in the market • Vertically integrate and make in-house • Transactional hazards between two independent parties counsel in favor of vertical integration • Exploitation or strategic behavior • Difficulties of covering all contingencies in contracts

16. Technology Transactions, Patents, and Tacit Knowledge • The difficulties of conveying tacit knowledge represent another type of “transactional hazard” • Private sector responses: • Patents can facilitate the transfer of tacit knowledge • Bundling patent licenses and consulting services • Various modes of organisational integration • High-tech industries: biotech, IT • Joint ventures, corporate partnering, iterative collaboration • “Virtual integration”

17. Organisational Forms and University-Industry Technology Transfer • Firms in research-intensive industries face the challenge of obtaining early-stage technological inputs • Buy from universities by licensing academic patents • Difficulties of transferring tacit knowledge • Deepen organisational ties • Extending firm research into university laboratories • Integrating faculty inventors into the firm itself

18. A Knowledge-Based Theory of Organisational Integration • In parallel to patent licensing, faculty inventors, universities, and firms are engaged in various forms of organisational integration • Examples: • Star academic scientists and the rise of biotechnology • Recombinant DNA technology • Patented by Cohen (UCSF) and Boyer (Stanford), licensed to companies • Cohen was an adviser to Cetus, Boyer co-founded Genentech • Faculty inventors integrated into private firms • MIT licensing of engineering and computer science patents • Engaging the academic inventor positively impacted the likelihood of commercialisation and amount of royalties

19. Blurring the Boundaries of Universities and Firms • A continuum of modes of “integration”: • Sponsored research, collaborations with faculty inventors, co-publishing • Faculty inventors serving as consultants or joining the management teams of licensee firms • Licenses to university spin-outs headed by academic entrepreneurs • Direct absorption of academic human capital to convey tacit knowledge and transfer technology

20. Agenda • Markets • Patents, commodification, and market-based technology exchange • Relationships • Tacit knowledge and personal interactions • Organisations • Organisational “integration” among faculty inventors, universities, and firms • Assessments, prescriptions, and implications

21. Assessments, Prescriptions, Implications • The limitations of formal technology transfer • Not a truly “public” repository of technical information • The importance of connections • Spatial inequalities • Improving technology transfer • Enhanced patent disclosure? • High costs, uncertain benefits • Static texts versus dynamic conversations

22. Assessments, Prescriptions, Implications • Improving technology transfer • The persistence of local, person-based technology transfer • A relational orientation for technology transfer offices • Knowledge Exchange Centers • Joint research and development • Normative constraints on vertical integration • Concerns over the commercialisation of academia • Institutional safeguards • Conflict of interest and commitment policies • Limitations on consulting and equity ownership

23. Conclusions • How do technologies move from one organisation 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 often do not transfer all valuable information relevant to an invention • Tacit knowledge is critical

24. Conclusions • Organisational response: integrating faculty inventors into licensee firms • Blurring the boundaries between universities and private companies • Enhancing technology transfer • A multidimensional model of formal technology transfer • Legal (licensing patents) • Relational/organisational (integrating human capital)

25. Questions

26. Assessments, Prescriptions, Implications • Theoretical implications • Challenging conventional patent economics • Traditional view: • Patents are necessary because it’s too easy to appropriate technical knowledge • Tacit knowledge: • Challenges arise because it’s too difficult to appropriate technical knowledge • Even when an invention is disclosed in a patent, additional mechanisms (personal, institutional) are necessary to transfer tacit knowledge