There are lots of ways to get innovations out there

Feature July 25, 2007

Carnegie Mellon University, one of the world’s premier research universities, generates a wealth of new technologies every year. But how, exactly, can those innovations best be used? And what is the best way to deploy them? Robert Conway, a senior manager at CMU’s Center for Technology Transfer and Enterprise Creation, describes how the university goes about assessing the potential and the transfer methods for different types of research products. It is a lesson private sector inventors can also profit from.

By Peter Longini, Managing Editor

Innovation alone does not assure commercial success. In fact, most new technologies wind up sitting on their creator’s shelf because the opportunity they offer is too small, or they lack a strategic fit, or there’s some other good business reason to just leave it be. So should it simply gather dust? Or is it still possible to gain some sort of benefit from it?

Carnegie Mellon University – the home to a prolific family of inventors – makes those determinations every day on behalf of its faculty, graduate students, research sponsors, and other stakeholders. Its technology transfer office, like the business development arm of a corporate R&D department, is charged with appraising the opportunities those creations present and then formulating arrangements to take advantage of them. Here’s how they do it:

Different strokes

Different people see different things when they look at the same innovation. Corporate staffers may be inclined to view it as a potential new product, service or enhancement. Enterprising inventors could see it as the foundation for a promising new startup. Government agencies might regard it as a possible new military instrument. But at Carnegie Mellon, which is first and foremost in the knowledge business, they tend to view it as a product of research that one way or another has to get out of the University and into a place where it can contribute to society.

Robert Conway, Senior Manager of Business Development and Licensing in the Center for Technology Transfer and Enterprise Creation at Carnegie Mellon, has evaluated scores of innovations growing out of CMU faculty research. And every one has been unique. “They vary across the board from, at one extreme, a piece of software that the inventors want to make openly available to the public, to a very, very specialized material, chemical compound, or complex system that would require a corporation with lots of resources to develop into a product or a service at the other extreme. Then in the middle, you’ll find technologies that could fit into any number of different areas,” Conway said. 

“They break down into things we want to make publicly available, things we want to spin off into companies, and things that are best for traditional corporate licensing,” he explained. “We look at it, we determine if there is some commercial potential. We start looking for companies that might want to license it for their services or products. Then we negotiate the licenses and, along the way, if it needs patent protection, we apply for the patents. Hopefully they reimburse the University for patent costs and then start paying in some fashion for the right to use the technology.”

But evaluating novel inventions is easier said than done. “We contact a lot of companies, and we usually talk to them on a non-confidential level at first, just to see if they’re interested,” Conway said. “Maybe we’ll have them come in to see what we have, or to talk with a professor. But once we start digging into the details of how we think it’ll work, we ask for non-disclosure agreements to protect the University’s interest in the IP.”

Getting it out

Problem is, different companies often see the same invention applied in very different ways. “We start with kind of a rough idea of how a particular company goes to market, who their customers are, what their products are, and how they sell things,” Conway said. But sometimes that understanding may be off base. “Suppose it’s a piece of software and we have an idea of how Motorola or IBM or Google might use it. They could come back and say we want to use it in a completely different way. So then we adjust our thinking to try and find some other way to transfer the asset at fair market value. When it gets down to different business models, we look for what is an equitable way to access some of that revenue stream to compensate the University for developing the technology.”

At the same time, though, it’s not just about money. “First and foremost, it’s about getting technologies out of the University and into society,” he noted. Indeed, getting ideas out into the world where they can benefit mankind has traditionally been a key difference between university and corporate research. But even in academia, there’s a practical issue: “Since we return half of the University’s net proceeds back to the pool of inventors, we are concerned about finding an equitable way to access some of the revenue that’s going to be generated from this,” he said. “And the answer depends on what their business model is.”

Back to business

“We might start out suggesting a particular way and the company comes around to our way of thinking. Or they might tell us they have a completely different model, so we’ll switch to that,” Conway said. “We explore it together to determine how it would really work. After all, they are the experts in their markets, their customers, their competition, the rules, regulations, the market drivers – all the different forces involved. We are not.

“For one company, the technology might be the core of an entire new product. For another company, that same technology might be a nice addition to a product they already have. We can license things on a non-exclusive basis, to several different companies, and adjust for how those companies are going to use the technology,” he said. “We can segment and license the technologies by use, by territory, by industry, etcetera. So there’s lots of ways we can tailor it for how different companies are going to use the technology.”

Take robotics, for example. “Suppose that you’re looking at a robotic system that’s going to inspect miles of pipe or electrical transmission lines. One company might say ‘we’re in the business of building and selling robots,’ so maybe we’re compensated a certain percentage of the price of every robot they sell based on our technology. Another company might say ‘we’re going to build robots but we’re going to charge by the mile of wires, cables and pipes that we inspect.’ That’s a different calculation for us on how to be equitably compensated. In one case it’s by units sold, another might be by miles, another one might be by number of customers, or millions of dollars each year, or it might be a flat fee. It all depends on the business model.”

Spinning it off

Sometimes a new technology could be used in a number of different ways, in a number of different industries. In that case, licensing it to one or two companies in a single industry may not be the best way to get that technology out into the world. A better way might be through spin-off enterprises. “A very focused team in a startup company spun out of the University might be better at figuring out what the first product should be and which marketplace it goes to. And then they can decide what the second and third and fourth products should be,” Conway observed.

“Many times, the professor and the graduate students form a startup company and we spin them out of the University. Particularly in biomedical applications where you need an extremely high level of knowledge about what has been created, you might need lengthy clinical trials to prove it. The research and development work up through pre-clinical trials can be better done by a spin-off company that can be funded by investors. If the results are promising, then they get purchased by a biotech company for the clinical trails and commercialization.

“Software doesn’t require as much infrastructure to get it going, but it can require a high level of expertise that comes from the grad students and the professors who have been doing the work. Spin that off, have them develop the first few products, and really grow that company,” he said. “We’ve seen a rapid growth in spin-off companies over the past several years. In 2006 we did 14 spin-offs; in 2005 we did 8; in 2004 we did 4; and before that time we were running between 2 and 4. It is a steep climb, but there is certainly a lot more interest nowadays on the part of faculty and investors and tech transfer offices in doing spin-offs.”

Go in peace

“Our terms for a spin-off license are extremely favorable. We have a relationship with these people; they are our students, our professors, and so forth. We know that their cash flow is going to be very low for a long time. So we have to come up with a deal where the cash flow is extremely low. In our case, it’s zero for about the first three years or until they reach some specific milestones. We know that they’re going to be seeking investors, so we want to take a very, very tiny amount of equity in that startup company so that there’s more available for investors like angels and VC companies. “Our primary concern is getting that technology out to the public and helping the spin-off. We want to structure it in such a way that the University is out of the way of the spin-off company so they go do what they need to do. We call it ‘spin-off and go in peace.’ We want to give them the license to the technology they need and then get out of their way so they can be successful.”

License glut

At the same time, though, corporate licensing is still the prevailing approach to technology transfer. “We still do more traditional corporate licenses and commercial licenses to businesses of all sizes, than we do spin-off companies,” Conway acknowledged. But there are a bewildering variety of licensing arrangements, even for software that is publicly available and using open source coding.

“Everyone talks about publicly available software, publicly dedicated software, and all the different ways of licensing that,” he said. “That can be the best way to get a technology out of a university. If the inventors agree and the research sponsor agrees that making it available to the public is the best way to go, we like doing that; it’s a great way to get technology out to the public. But that has its own unique set of challenges: which type of license do you use?

“There are so-called open source licenses – there are 49 or 50 of those right now – and more coming along. So which is the appropriate one to use? They all have different requirements, different amounts of flexibility, different things people can do. And then there’s the best way to get it out there. Do you make it available on a portal through downloads? Do you charge for that? Making it publicly available doesn’t mean it’s free; you could give it away free, or you could charge some nominal amount just to burn it onto a CD and mail it to people and cover administrative costs.

“Quite often the faculty would like to make it freely available to other researchers, but to charge corporations for it. That gets difficult if you’re using an open-source or public commons type of license because you don’t know who’s downloading it. It could be an engineer from Union Carbide or it could be a researcher from another university.”

First things first

But even before the license, the spin-off, or the business plan, there is one important detail that needs to be settled. “When a piece of intellectual property is created at a university, who really owns it?” Conway asks rhetorically. “If it’s created by students, the students may own it and university has no claim to it at all. In those cases, we’ll certify to them that Carnegie Mellon has no claim to this. And we get out of their way.

“Other times you might have inventors who are on the faculty of other universities. And there might be scientists from a corporation who are placed in the laboratory here to help with the research. There are people who come into research early and then leave. And there are people who come in at a later stage and contribute. So the question of who are the inventors of the technology and which entities own pieces or parts of the technology gets to be really interesting. So that’s the first step: Does Carnegie Mellon own this and should we be putting our time into figuring out how to commercialize it? Does the government have rights to it? Do corporations have rights to it? Who are the individuals that have rights to it?

“If we determine that we have rights to it, we might have to work with our counterparts at other universities or at corporations that may also own part of it. Then we all have to get together and collectively decide how to commercialize this. That’s Step One.

“Then we get into determining whether this is something we want to pursue. If we do, the next step is how do we protect it? And then what’s the best way to commercialize it: a spin-off company, open source, different types of licenses? We issue research licenses to hospitals and to other academic institutions. We also do evaluation licenses, where they can try a technology for a certain period of time. We do options where they pay a fee and during an option period they can step forward and ask for a license or step away and say they’re not interested. Some licenses last a very short period of time, some last the life of a patent – 20 years, or even longer. Some of them involve living plant species, living animals, materials, machines, robots. It’s never the same and it’s all really interesting.”  

About the Author:

Peter Longini is the Managing Editor for Inside Product Strategy™. He can be reached at This e-mail address is being protected from spam bots, you need JavaScript enabled to view it .

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