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Emerging Technology Report #50: March 31, 2003

Supporting the Diffusion and Proliferation of Emerging Technology

- Comment -

Global Emerging Technology Institute (GETI)

The U.S. is often praises for the relatively advanced infrastructure that supports emerging technology development and its commercialization. This includes innovations derived from government funding for cutting-edge technology development, university affiliated research institutes that are supported by money from the public/private sectors, and early-stage investors that range from individuals, to angel networks, to venture capital firms. Though the system has led to a great deal of economic growth (and some disappointment) over the past 15 years, it also has produced some negative externalities that are not conducive to providing incentives that spur innovation and the building new industries and markets. There are arguably certain characteristics that are serving as an impediment. For example, the patent system has been named as problematic at times when a company uses it to restrict the distribution of an innovation where it may be better off if more companies had it in order to incorporate it into new products and processes. The practices of some universities have also been criticized by many as most technology licensed to the private sector by university technology licensing offices (TLOs) have usually been provided to companies on an exclusive basis for up-front fees. Some argue that this activity is limiting innovation and runs against the grain of the traditional norm, an openness that led to U.S. universities having a strong comparative advantage in terms of producing research that may become commercially relevant. Well, that should be restated as having a comparative advantage in the basic research area, which makes it more likely that commercially viable technology would be the end result.

On the corporate side, IBM has been the mother of all patent filings in the U.S., filing an impressive 3,288 patents in 2002. The company's management strategy is to continue the production of revenue-generating patents that it can license while expanding its technology services product line, slowly but surely moving away from producing hardware. The U.S. university system, as reported by the Association of University Technology Managers, on average produces more patents per year (from 500-800) than IBM. However, more than half of the university-licensing agreements are exclusive deals to companies. This is interesting considering that U.S. taxpayers indirectly fund a great deal of the research, where IBM is using its own money. In other words, a lot of the allegedly private sector innovation was simply the continuation of some publicly funded basic research project, innovation which may have never seen the light of day in the market place unless public funds were used to absorb the high-risk and cost associated with moving from basic research, to prototyping, to eventually commercialization. IBM appears to be doing more to promote the diffusion and commercialization of its technologies, providing non-exclusive licenses to manufacturers. These manufacturers then proceed to compete to develop commercial products. This is where the markets are made, as the return on the most impressive technology that consumed a large amount of funding may prove to be a huge dud if a viable market cannot be built around it and applications developed for its implementation and use.

Countries that seek to diffuse more innovations to more companies should fare better in the long run when it comes to such areas as nanotech, where a great deal of cross-pollination is required in order to bring various disciplines/areas of expertise together in order to create new innovations. Also, a lot of cooperation is required throughout the value chain, from R&D to product development to sales. The growth of all of this could be retarded if the number of companies that are endowed with the rights to use the technology is limited in any way.

Licensing is one source of revenue, but not the only one, when capitalizing on a technology's commercial viability. Providing exclusive deals is betting on one horse, and that in and of itself is more risky and may not necessarily lead to new multi-billion dollar markets for new products in new industries in the future. It may also, especially in nanotech, put U.S. companies at a disadvantage and really level the playing field for countries that, on the surface, do not appear to be as innovative or competitive but place a higher value on cooperation. Granted, it is feasible and reasonable for a company that has created or acquired a technology to be able to realize gains and a strong return on investment through the use of patent rights. However, it may be more important for market growth to promote more diffusion, especially in that case where a lot of the funding for the seed technology came at taxpayer's expense.

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