U. of Michigan Finds Good Research Is Not Enough

Some of the top research universities in the country also are among the most

10 Top Research Institutions: How They Stack Up Institutional Snapshots: » University of Maryland-Baltimore County » Brigham Young University » Washington University in St. Louis Data on various measures of the success of colleges in profiting from their researchers' inventions.

successful at commercializing the inventions of their professors and graduate students. Then there is the University of Michigan.

For all its stature as a powerhouse research university, with top-ranked graduate schools, hundreds of millions of dollars in grants, and prestigious, federally financed research centers in optics and computing, the state's flagship campus has rarely earned more than a few million dollars a year in licensing income. Meanwhile, places like the Massachusetts Institute of Technology, Stanford University, and the University of Wisconsin routinely rake in tens of millions.

Even taking into account the fluky nature of the technology-transfer business -- many of the institutions earning the most from royalties owe their success to one or two "big hit" inventions -- Michigan's record has been, until recently, decidedly undistinguished.

The university ranked 65th out of 118 in royalties earned relative to the amount spent on research for the fiscal years 1996 through 2000, based on data reported to the Association of University Technology Managers. Among the 10 universities that spent the most on research and that reported data for all five years, it ranked dead last.

It also fared poorly by other measures. Before an invention can be patented or licensed, researchers first report what they've discovered. Many universities aim for at least one disclosure per $1-million spent on research; some places, like the California Institute of Technology, pride themselves on sometimes having more. Michigan, with 0.3 inventions reported per $1-million spent on research, ranked in the bottom third of the standings.

The university stood higher in the number of patents filed relative to its research spending. But even there, it reached only to the middle of pack.

Though Michigan has had a technology-transfer office since 1983, and officials from the Board of Regents on down had proclaimed the activity a high priority, university leaders realized that its record in this field "wasn't commensurate with our standing," says Marvin G. Parnes, associate vice president for research.

He has led a turnaround by increasing the budget and bringing in more-experienced people, and giving them more flexibility in making deals with outside companies.

Ambivalence and Culture

No one here is sure just why Michigan was lagging, but officials say ambivalence and cultural issues played a role. Early on, some deans and faculty members didn't embrace the notion of commercializing inventions -- and the few that did quickly got turned off by the process. They felt that dealing with the licensing office took too much of their time and energy. In some cases, professors came to feel that licensing personnel weren't savvy enough to appreciate their inventions.

James Shayman, a professor of internal medicine, says that the technology-transfer office around 1995 "declined" to seek a patent for the small-molecule inhibitor he and colleagues had developed. Instead, the researchers got the patent money from his department and division. The invention, which is used to treat inherited metabolic diseases like Tay-Sachs, is now licensed to Genzyme Corporation. "They never gave us a very good reason" for turning it down, says Dr. Shayman. "That was a potential opportunity that could have been lost by the university."

What's more, the business environment in the region, dominated by the Big Three auto companies and other old-style industries, didn't foster an entrepreneurial climate, Mr. Parnes notes. While universities on the coasts and in Texas began responding to the needs of emerging biotechnology and high-technology industries, in Michigan "there was no feedback in the region demanding technology transfer," he says.

The attitude of the university's licensing office certainly didn't help. It was overly cautious and often arrogant, says Thomas S. Porter, a local entrepreneur whose EDF Ventures has invested in several university spinoffs, here and elsewhere. Negotiations that would be resolved in six months at other institutions would drag on for more than a year at Michigan, he says. "It was very exasperating. It was very adversarial."

High turnover in the technology-transfer office probably cost some momentum. Since 1983, the office has changed directors an average of once every three years. Kenneth Nisbet, the seventh, began in January 2001.

Mr. Parnes, who served as acting director from 1998 through 2000, experienced some of the challenges firsthand. For one thing, "the culture of our faculty was not strongly oriented toward commercialization," he says. And soon after taking over, he surveyed potential licensees and discovered that many companies found the university's technology-transfer organization too difficult to penetrate. Up in Wolverine Tower, the hulking, off-campus administration building where the technology-transfer office was lodged, staff members seemed more concerned about protecting the university's intellectual property than getting it into use. Michigan "was less well-oiled than other institutions," Mr. Parnes says.

Improving the technology-transfer operation became a high priority not because of ego or a desire for more income, he says -- although officials hoped for more money as well. "We really believe that our technologies and discoveries should get used throughout the world," says Mr. Parnes. In a world driven by market forces, that means patenting inventions and licensing them. "Publishing doesn't get things developed. Things in the public domain don't get invested in."

Unshackled

Today Mr. Porter and other erstwhile critics paint a different picture. Michigan has twice as many professionals working on technology transfer today as it did three years ago. The office's budget for patenting has been doubled, to $1.6-million, allowing Michigan to more readily pursue patents even if it hasn't yet landed a licensee. The university also has established "satellite" licensing offices on the campuses of the engineering and medical schools to help improve communications with researchers there.

Together, the offices are driving an overall rise in invention disclosures. In the 2001 fiscal year, Michigan tallied 182 disclosures, compared with 168 in the previous year. For 2002, disclosures are expected to top 200.

For the 2001 fiscal year, royalty revenue exceeded $8-million -- double the amount reported in the preceding year and more than $1-million above that in 1998, the previous record-high year. For 2002, royalties should top $7.4-million. Sixty-four licenses were executed in 2001, with a similar amount expected by the time the 2002 deals are all counted. In the five prior years, the office had averaged about 55 licenses a year.

With support from administrators like Mr. Parnes and Fawwaz T. Ulaby, vice president for research, licensing officials say they feel unshackled from the risk-averse culture of the past.

"We can negotiate things that can be more creative," says Robin Rasor, who came to Michigan after directing technology transfer at Ohio State University. For example, the office now offers some young companies licenses with payment plans, rather than insisting on money up front to cover patent costs. She also cites a license executed two years ago with Arbor Networks, a start-up company that sells software to protect computer networks from viruses. It was an all-equity deal, she notes, something that would have been discouraged by the more formulaic approaches of the past.

The company's co-founder, Farnan Jahanian, a professor of electrical engineering and computer science, says he had heard stories from years ago and feared the worst when he went in to negotiate the license for the start-up. He needn't have. The deal took just four months to complete. The negotiation was smooth, he says, but no cakewalk. In return for continued rights to the software, Arbor must meet certain goals for finding additional financing, hiring managers, and signing customers.

Tim Faley, director of licensing for the School of Engineering, likes the milestone-based licenses. They allow the university to give an unproven company a shot at commercializing a certain technology without risking too much. "If it fails, we can get it back."

Among other strategies, the university has grouped related medical and engineering inventions into portfolios, like tissue engineering and microelectrical mechanical systems, known as MEMS. The hope is that such inventions will be more attractive to companies if they can see them in a broader context. "Ten years ago, people probably had to fight real hard to find out what we had to license," says Mr. Nisbet, the technology-transfer director.

Richard Brown, a professor of electrical engineering and computer science, says he thought the satellite licensing offices were just a gimmick when they began, but no longer. "I'm disclosing much more," he says. And, after years of producing patents, Mr. Brown is finally seeing some of his research reach the marketplace. A new company called Ardesta, which opened in Ann Arbor two years ago with $100-million in capital, has licensed several of his inventions involving silicon chips with tiny sensors, and has formed a subsidiary, Sensicore, to commercialize them for use in medicine, pollution control, and other fields.

Timing and luck have also played a part. The kind of research that Mr. Brown is involved with, for example, has been going on for 30 years at Michigan, but companies are only now recognizing its commercial potential.

Michigan hasn't satisfied all of its critics. People like Mr. Porter, for instance, say the university could send an even stronger message about its commitment to technology transfer if it would invest some of its own endowment money in venture-capital funds that back university start-ups. So far, Michigan financial administrators haven't embraced that idea.

The small-technology companies like Sensicore are not yet adding a lot to Michigan's bottom line. But Ardesta executives predict that they will. So might four start-up companies that have developed from the university's 11-year-old Center for Ultrafast Optical Science. One of them sells a new generation of lasers for eye surgery; another sells lasers for micromachining.

It's all part of a new philosophy, says Mr. Nisbet: "Do more deals, and the money will follow."