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The Commercialization of University Innovations

Policy Dialogue on Entrepreneurship, PDE

The crown jewel of the U.S. university system – the finest in the world – is the research university, where knowledge creation is the ultimate goal. Recognition of the centrality of knowledge creation to economic growth makes the efficiency of university innovation a top concern to policymakers, especially since the federal government funds two-thirds of the $48 billion of R&D performed in academic institutions.1  In too many universities, commercialization of research discoveries is not as rapid or as successful as it could be. The solution provided by Technology Transfer Offices (TTO) has been mixed, as too many have been directed to focus on maximizing revenue through patent licensing, leading to a sub-optimal level of technology diffusion. In the face of declining funding of basic science research, venture capital migration to downstream opportunities, and heightened competition from abroad, the optimal commercialization of U.S. university innovations could not be more important.

Overlooking Great Innovations

The impossible dilemma facing TTOs is the demand from administrators to maximize revenue from licensing faculty-created innovations (often tied up in the patent process, which itself is problematic), by assessing which inventions are most likely to lead to successful commercialize products. The challenge is impossible because no one knows what innovations will succeed in the market; history is littered with sure-fire ideas that fail and seemingly insignificant discoveries that underpin billion-dollar industries. Thus, the university innovation model cannot succeed if it is based on predicting – and pre-approving – winners.2

  • Many ways of commercializing an innovation. An emphasis on licensing patents and revenue maximization will miss many innovations.2 Better universities recognize that patenting is only one of many pathways from innovation to marketplace to society.3 While university spin-offs are few, they are disproportionately high performing companies. Academic spin-offs have gone public at a rate that is 114 times more than the “going public rate” for U.S. enterprises generally.4 
  • Lags are Losses. The lag between discovery and commercialization is 4 years on average.5 Long lags hurt the university (slower returns), the firms (lower profit opportunity), and those in society for whom the innovation represent a significant improvement in quality of life.
  • Faculty Work-Arounds. Faculty benefit from incentives to participate in the commercialization process6 and help form social networks with industry.7  Inventor cooperation is crucial for commercial development of embryonic inventions8  and such development is necessary for the success for 71 percent of the inventions licensed.9 Yet many TTO directors report that less than half of the inventions with commercial potential are disclosed to their office.10 Faculty may not disclose for a variety of reasons, including the high perceived cots of interacting with TTOs.11  

Pro-Growth Policy Action

Federal and State government should encourage universities to emphasize the number of university innovations and the speed with which they are moved into the marketplace, not licensing revenue. Consider the following approaches:

  • Introduce a dose of competition to the TTOs by encouraging universities to give faculty the power to choose a third party (or themselves) to negotiate license arrangements, provided that they return some portion of their profits to the university.
  • Promote technology transfer activities via regional alliances that operate in ways to maximize volume. This would lower costs of the commercialization functions.
  • Consider the benefits of a radical approach of encouraging universities to give up their intellectual property rights and to rely on donations of successful faculty. This would allow universities to focus on their core activities and would help attract innovative talent.12

1  National Science Foundation.  S&E Indicators  2008.  

2  Idem

3  Litan, R. E., Mitchell, L., & Reedy, E.  Commercializing University Innovations: Alternative Approaches. National Bureau of Economic Research . 2007.

4  Goldfarb, Brent and Magnus Henrekson. "Bottom-Up Versus Top-Down Policies Towards the Commercialization of University Intellectual Property." Research Policy. 2003.

5  Markman, Gideon D., Peter T. Gianiodis, Phillip H. Phan, and David B. Balkin. "Innovation Speed: Transferring University Technology to Market." Research Policy 34, no. 7. 2005.

6  Phan, Phillip H. and Siegel, Donald.  The Effectiveness of University Technology Transfer: Lessons Learned, Managerial and Policy Implications, and the Road Forward . 2006.

7  Litan, R. E., Mitchell, L., & Reedy, E.  Commercializing University Innovations: Alternative Approaches. National Bureau of Economic Research . 2007.

8  Jensen and Thursby 2001

9  Jensen, Richard A., Jerry G. Thursby, and Marie C. Thursby.  Disclosure and Licensing of University Inventions: `The Best we can do with the s**t we Get to Work with' . International Journal of Industrial Organization. 2003.

10 Ibid

11 Owen-Smith, J. & Powell, W. To Patent or Not: Faculty Decisions and Institutional Success at Technology Transfer. Journal of Technology Transfer, 26(1-2). 2001.

12 Litan, R. E., Mitchell, L., & Reedy, E.  Commercializing University Innovations: Alternative Approaches. National Bureau of Economic Research . 2007.

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