[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]


 
                 FROM THE LAB BENCH TO THE MARKETPLACE: 
                     IMPROVING TECHNOLOGY TRANSFER 

=======================================================================

                                HEARING

                               BEFORE THE

             SUBCOMMITTEE ON RESEARCH AND SCIENCE EDUCATION

                  COMMITTEE ON SCIENCE AND TECHNOLOGY
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 10, 2010

                               __________

                           Serial No. 111-99

                               __________

     Printed for the use of the Committee on Science and Technology


     Available via the World Wide Web: http://www.science.house.gov

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                  COMMITTEE ON SCIENCE AND TECHNOLOGY

                   HON. BART GORDON, Tennessee, Chair
JERRY F. COSTELLO, Illinois          RALPH M. HALL, Texas
EDDIE BERNICE JOHNSON, Texas         F. JAMES SENSENBRENNER JR., 
LYNN C. WOOLSEY, California              Wisconsin
DAVID WU, Oregon                     LAMAR S. SMITH, Texas
BRIAN BAIRD, Washington              DANA ROHRABACHER, California
BRAD MILLER, North Carolina          ROSCOE G. BARTLETT, Maryland
DANIEL LIPINSKI, Illinois            VERNON J. EHLERS, Michigan
GABRIELLE GIFFORDS, Arizona          FRANK D. LUCAS, Oklahoma
DONNA F. EDWARDS, Maryland           JUDY BIGGERT, Illinois
MARCIA L. FUDGE, Ohio                W. TODD AKIN, Missouri
BEN R. LUJAN, New Mexico             RANDY NEUGEBAUER, Texas
PAUL D. TONKO, New York              BOB INGLIS, South Carolina
STEVEN R. ROTHMAN, New Jersey        MICHAEL T. McCAUL, Texas
JIM MATHESON, Utah                   MARIO DIAZ-BALART, Florida
LINCOLN DAVIS, Tennessee             BRIAN P. BILBRAY, California
BEN CHANDLER, Kentucky               ADRIAN SMITH, Nebraska
RUSS CARNAHAN, Missouri              PAUL C. BROUN, Georgia
BARON P. HILL, Indiana               PETE OLSON, Texas
HARRY E. MITCHELL, Arizona
CHARLES A. WILSON, Ohio
KATHLEEN DAHLKEMPER, Pennsylvania
ALAN GRAYSON, Florida
SUZANNE M. KOSMAS, Florida
GARY C. PETERS, Michigan
JOHN GARAMENDI, California
VACANCY
                                 ------                                

             Subcommittee on Research and Science Education

                 HON. DANIEL LIPINSKI, Illinois, Chair
EDDIE BERNICE JOHNSON, Texas         VERNON J. EHLERS, Michigan
BRIAN BAIRD, Washington              RANDY NEUGEBAUER, Texas
MARCIA L. FUDGE, Ohio                BOB INGLIS, South Carolina
PAUL D. TONKO, New York              BRIAN P. BILBRAY, California
RUSS CARNAHAN, Missouri                  
VACANCY                                  
BART GORDON, Tennessee               RALPH M. HALL, Texas
               DAHLIA SOKOLOV Subcommittee Staff Director
            MARCY GALLO Democratic Professional Staff Member
           BESS CAUGHRAN Democratic Professional Staff Member
           MELE WILLIAMS Republican Professional Staff Member
                   MOLLY O'ROURKE Research Assistant

























                            C O N T E N T S

                             June 10, 2010

                                                                   Page
Witness List.....................................................     2

Hearing Charter..................................................     3

                           Opening Statements

Statement by Representative Daniel Lipinski, Chairman, 
  Subcommittee on Research and Science Education, Committee on 
  Science and Technology, U.S. House of Representatives..........     9
    Written Statement............................................    10

Statement by Representative Vernon J. Ehlers, Minority Ranking 
  Member, Subcommittee on Research and Science Education, 
  Committee on Science and Technology, U.S. House of 
  Representatives................................................    11
    Written Statement............................................    12

Prepared Statement by Representative Russ Carnahan, Member, 
  Subcommittee on Research and Science Education, Committee on 
  Science and Technology, U.S. House of Representatives..........    12

                               Witnesses:

Dr. Thomas W. Peterson, Assistant Director, Directorate for 
  Engineering, National Science Foundation
    Oral Statement...............................................    13
    Written Statement............................................    15
    Biography....................................................    23

Ms. Lesa Mitchell, Vice President of Advancing Innovation, Ewing 
  Marion Kauffman Foundation
    Oral Statement...............................................    24
    Written Statement............................................    25
    Biography....................................................    32

Mr. W. Mark Crowell, Executive Director and Associate Vice 
  President, Innovation Partnerships and Commercialization, 
  University of Virginia
    Oral Statement...............................................    33
    Written Statement............................................    35
    Biography....................................................    38

Mr. Wayne Watkins, Associate Vice President for Research, 
  University of Akron
    Oral Statement...............................................    39
    Written Statement............................................    41
    Biography....................................................    57

Mr. Keith L. Crandell, Co-founder and Managing Director, ARCH 
  Venture Partners
    Oral Statement...............................................    57
    Written Statement............................................    60
    Biography....................................................    66

Mr. Neil D. Kane, President and Co-founder, Advanced Diamond 
  Technologies, Inc.
    Oral Statement...............................................    66
    Written Statement............................................    68
    Biography....................................................    73

             Appendix 1: Answers to Post-Hearing Questions

Ms. Lesa Mitchell, Vice President of Advancing Innovation, Ewing 
  Marion Kauffman Foundation.....................................    96

Mr. W. Mark Crowell, Executive Director and Associate Vice 
  President, Innovation Partnerships and Commercialization, 
  University of Virginia.........................................    97

Mr. Wayne Watkins, Associate Vice President for Research, 
  University of Akron............................................    99

             Appendix 2: Additional Material for the Record

Comments from CONNECT Submitted by Representative Brian P. 
  Bilbray........................................................   104

Statement of Susan Hockfield, President, Massachusetts Institute 
  of Technology (MIT)............................................   107


  FROM THE LAB BENCH TO THE MARKETPLACE: IMPROVING TECHNOLOGY TRANSFER

                              ----------                              


                        THURSDAY, JUNE 10, 2010

                  House of Representatives,
     Subcommittee on Research and Science Education
                        Committee on Science and Technology
                                                    Washington, DC.

    The Subcommittee met, pursuant to call, at 10:11 a.m., in 
Room 2318 of the Rayburn House Office Building, Hon. Daniel 
Lipinski [Chairman of the Subcommittee] presiding.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


                            hearing charter

                  COMMITTEE ON SCIENCE AND TECHNOLOGY

             SUBCOMMITTEE ON RESEARCH AND SCIENCE EDUCATION

                     U.S. HOUSE OF REPRESENTATIVES

                         From the Lab Bench to

                       the Marketplace: Improving

                          Technology Transfer

                             june 10, 2010
                         10:00 a.m.-12:00 p.m.
                   2318 rayburn house office building

1. Purpose:

    The purpose of the hearing is to examine the process by which 
knowledge and technology are transferred from academic researchers to 
the private sector, and to identify best practices, policies, and other 
activities that can facilitate the commercialization of federally 
funded research for the benefit of society and the economic 
competitiveness of the United States.

2. Witnesses:

          Dr. Thomas W. Peterson, Assistant Director, 
        Directorate for Engineering, National Science Foundation

          Ms. Lesa Mitchell, Vice President of Advancing 
        Innovation, Ewing Marion Kauffman Foundation

          Mr. W. Mark Crowell, Executive Director & Associate 
        Vice President for Innovation Partnerships and 
        Commercialization, University of Virginia

          Mr. Wayne Watkins, Associate Vice President for 
        Research, University of Akron

          Mr. Keith L. Crandell, Co-founder and Managing 
        Director, ARCH Venture Partners

          Mr. Neil D. Kane, President and Co-founder, Advanced 
        Diamond Technologies, Inc.

3. Overarching Questions:

          What are the challenges to increasing the transfer of 
        knowledge and technology from university researchers to the 
        private sector? Are there best practices, training, or policies 
        that should be put in place at universities, Federal agencies, 
        and industry to facilitate the commercialization of federally 
        funded research?

          How does the National Science Foundation (NSF) foster 
        the transfer of knowledge and technology from U.S. universities 
        to the private sector? What is the appropriate role of NSF 
        beyond its role of supporting basic research in the 
        ``innovation ecosystem''? What changes, if any, should NSF make 
        to its portfolio of programs?

          What are the key elements of successful university-
        industry commercialization collaborations? How do university 
        technology transfer programs vary across institution type? What 
        type of education, training, and support are universities 
        offering professors, postdoctoral fellows, and graduate 
        students interested in the commercialization of their research 
        discoveries? How are universities engaged in local, state, and 
        regional innovation initiatives?

4. Background:

    While there is no single agreed upon definition, innovation is 
generally considered to describe the process by which new scientific 
and technical knowledge is converted into a useful product or service 
that generates economic growth and job creation and/or that improves 
individual and societal well being. Whether or not one includes basic 
research, from which new knowledge is generated, as part of the 
definition of innovation, it is often the necessary first step in the 
process of commercialization of products.
    U.S. economic strength has long been attributed, at least in part, 
to investments in research and development (R&D) by both the Federal 
Government and the private sector, and to its nearly unparalleled 
research universities. In recent years, an increasing number of 
countries have begun to adapt their R&D activities to the U.S. 
innovation model. For example, China increased their investment in R&D 
by 500 percent between 1991 and 2002, from $14 billion to $65 billion. 
Similarly, European Union leaders have urged their members to increase 
their investment in R&D to three percent of their GDP by 2010. In 
addition to significantly increasing funding for R&D activities 
directly, U.S. competitors have also started to invest heavily in 
improving their higher education systems and have begun supplying the 
funds for startup companies and incubation centers for product 
development \1\. In recognition of the critical role that venture 
capital plays in supplementing investments in R&D and in the technology 
transfer process, emerging economies have also made great efforts to 
attract and stimulate venture capital activity in their countries.
---------------------------------------------------------------------------
    \1\ Rising Above The Gathering Storm; The National Academies Press 
2006
---------------------------------------------------------------------------
    This hearing is largely focused on one part of the entire 
``innovation ecosystem'': the process by which the results of academic 
research are transferred out of the university and into the hands of 
companies, including start-up companies, which seek to turn those 
results into useful products.

Federal Research Investments
    According to the National Science Board's 2010 Science and 
Engineering Indicators report, academic performers are estimated to 
account for 55 percent of U.S. basic research, and 31 percent of total 
(basic plus applied) research. The Federal Government provided 60 
percent of funding for academic R&D expenditures in 2008, the 
universities provide approximately 20 percent with institutional funds, 
and the remainder comes from state and local government funds (7 
percent), industry (6 percent) and a mix of other sources (8 percent), 
such as charitable foundations. The Federal share has actually been 
declining from a peak of nearly 70 percent in the early 1970s, with 
colleges and universities making up for the difference using their 
institutional funds. Nevertheless, as has been the case since the 
1950s, the Federal Government is the largest source of support for 
basic research, and universities and colleges remain the largest 
performing sector, with Federal laboratories and the private sector 
nearly tied for a distant second.

Measuring Technology Transfer
    Currently, the effectiveness of any single university's ability to 
transfer knowledge and technology is often measured against a set of 
metrics that include: the number of research articles published and 
cited, the number of invention disclosures filed, the number of patents 
issued, the number of licenses offered, formation of startup companies, 
and the number of products released. A survey by the Association of 
University Technology Managers (AUTM) \2\ indicates that invention 
disclosures filed with university technology transfer offices grew from 
15,510 in 2003 to 19,827 in 2007 and the number of new U.S. patent 
applications filed increased from 7,921 to 11,797 over the same period 
of time. Additionally, AUTM reported a growth in the formation of 
startup companies from 348 in 2003 to 555 in 2007, with a cumulative 
total of 3,388 startup firms associated with university patents and 
licenses. Although a number of factors are evaluated in the AUTM 
survey, many consider the money generated as a result of licensing 
income to be an adequate indicator of a university's technology 
transfer success. According to the 2007 survey, the license income for 
select institutions ranged from $0 to almost $800 million with the 
total license income reported for the 194 institutions at $2.7 billion. 
These data highlight the wide range of success in technology transfer 
occurring at institutions across the country and suggest that perhaps 
the successes of some institutions could serve as useful models for 
other institutions.
---------------------------------------------------------------------------
    \2\ AUTM U.S. Licensing Activity Survey 2007: http://www.autm.net/
AM/
Template.cfm?Section=Licensing-Surveys-AUTM&CONTEN
TID=4518&TEMPLATE=/CM/ContentDisplay.cfm
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    These results may also suggest that a more comprehensive set of 
metrics should be established in order to accurately determine the 
success of knowledge and technology transferred from colleges and 
universities and to quantify the return on Federal investment in 
academic research. The National Science Foundation and the National 
Institutes of Health are currently collaborating on a project known as 
STAR METRICS (Science and Technology for America's Reinvestment: 
Measuring the Effect of Research on Innovation, Competitiveness and 
Science), which is the first national Federal and university 
partnership to document the outcomes of science investments for the 
public. This project is in its initial proof of concept phase in 
partnership with a handful of regionally and otherwise diverse 
institutions. The National Academy of Sciences is also in the early 
stages of a study to outline a framework by which research impact can 
be quantified.

The Role of NSF in Fostering University-Industry Partnerships
    NSF generally promotes knowledge and technology transfer from 
universities to the private sector by increasing the number of 
university-industry partnerships and collaborations. The primary 
agency-wide programs are Grant Opportunities for Academic Liaison with 
Industry (GOALI), Partnerships for Innovation (PFI), and Small Business 
Innovation Research & Small Business Technology Transfer (SBIR/STTR). 
The GOALI program ($18.6 million in FY 2011) seeks to improve industry-
university research linkages in the design and implementation of 
products and processes and funds fundamental research and novel 
collaborations between universities and industry that focus on 
education and knowledge transfer between the two entities. The PFI 
program ($19.2 million in FY 2011) establishes collaborations between 
the private sector, state and local governments, and colleges and 
universities in order to support innovation in regional communities and 
to develop innovation infrastructure for economic growth. In the FY 
2011 budget, NSF has requested $12 million to implement a new 
``innovation ecosystem'' component within the program; to date the 
details of the new component have not been outlined.
    NSF also supports a number of research center programs that focus 
specifically on increasing university-industry collaboration and 
transferring university developed ideas, research results, and 
technology to U.S. industry. For example, the Industry/University 
Cooperative Research Centers Program (I/UCRC) supports partnerships 
between universities and industry that feature industry- relevant 
research and leverages Federal investments by requiring strong 
industrial support of and collaboration in research and education. 
Additionally, the goal of the Engineering Research Centers (ERC) 
program ($65.7 million in FY 2011) is to train engineering graduates in 
an intensive research setting that focuses on fundamental engineering 
systems research to create the country's future innovations and 
innovators.
    The Division of Industrial Innovation and Partnerships within NSF's 
Engineering Directorate houses the SBIR/STTR programs, which seek to 
support regional innovation and economic growth by funding 
translational research at small businesses; SBIR/STTR has a requested 
budget of $142.9 million in FY 2011, a 14 percent increase over FY 
2010. The SBIR program, created by the Small Business Innovation 
Development Act of 1982, requires that any Federal agency that supports 
extramural R&D activities over $100 million allocate 2.5 percent of its 
R&D obligations for projects with small businesses. The STTR program 
was established in 1992 to promote collaborations between small 
businesses and nonprofit organizations such as colleges and 
universities or other federally funded research and development 
centers. Federal agencies that have extramural R&D budgets over $1 
billion are required to participate in the STTR program and must 
allocate 0.3 percent to the program activities. The SBIR/STTR program 
is split into three phases that progress from determining whether an 
innovation has sufficient technical and commercial merit, to conducting 
research to develop the innovation, to the formulation and the 
implementation of a commercialization plan. The Technology and 
Innovation Subcommittee has held numerous hearings on the SBIR and STTR 
programs in recent years.
    In May 2010 the i6 prize program was announced to bring innovative 
ideas to the marketplace. The $12 million challenge is sponsored by the 
U.S. Economic Development Administration, the National Institutes of 
Health (NIH), and NSF. In the first step of the challenge, six teams 
that determine the most creative ways to spark entrepreneurship, 
innovation and technology commercialization in their regions will be 
awarded $1 million. In the second phase, NIH and NSF will use SBIR 
funds to award a total of up to $6 million in supplemental funding to 
the phase I winners.

Current Law Related to Technology Transfer
    In the late 1970s, Congress began to examine ways in which to 
foster technological advancement and commercialization in industry of 
Federal R&D activities, resulting in the enactment of two major laws in 
the 1980s, the Stevenson-Wydler Technology Innovation Act (P.L. 96-418) 
and the Government Patent Policy Act of 1980 or the ``Bayh-Dole Act'' 
(P.L. 96-517). Both of these laws were intended to encourage increased 
innovation-related activities in the business community and to remove 
barriers to technology development, allowing market forces to operate. 
The Stevenson-Wydler Act outlines the assignment of patent rights to 
inventions resulting from collaborative work between Federal 
laboratories and outside entities where direct Federal funds are not 
involved. The Bayh-Dole Act addresses the distribution of patent rights 
resulting from federally-funded R&D performed by outside organizations, 
primarily U.S. universities, stating:

         ``It is the policy and objective of the Congress to use the 
        patent system to promote the utilization of inventions arising 
        from federally-supported research and development; . . . to 
        promote collaboration between commercial concerns and nonprofit 
        organizations, including universities; . . . to promote the 
        commercialization and public availability of inventions made in 
        the United States by United States industry and labor; [and] to 
        ensure that the Government obtains sufficient rights in 
        federally-supported inventions to meet the needs of the 
        Government and protect the public against nonuse or 
        unreasonable use of inventions. . . .'' \3\
---------------------------------------------------------------------------
    \3\ 35 U.S.C. Sec.  200

    The Technology and Innovation Subcommittee intends to carry out a 
comprehensive review of the Bayh-Dole and Stevenson-Wydler Technology 
Innovation Acts later this year. For the purposes of today's hearing, 
witnesses have been asked to testify on the infrastructure, policies 
and practices that promote successful knowledge and technology transfer 
from universities, and the role of the National Science Foundation in 
---------------------------------------------------------------------------
helping to support the innovation ecosystem.

5. Questions for Witnesses:

Dr. Thomas W. Peterson

          Please describe how the National Science Foundation 
        fosters the transfer of knowledge and technology from U.S. 
        universities to the private sector. What specific programs 
        include knowledge transfer either as an explicit goal or as a 
        regular outcome of the program? Has NSF identified best 
        practices for achieving knowledge transfer based on those 
        programs? If so, how is NSF applying those best practices 
        across its broader portfolio of research programs?

          How is NSF planning to implement the new ``innovation 
        ecosystem'' component of the Partnerships for Innovation (PFI) 
        program proposed in the FY 2011 budget? Please describe any 
        outcomes or recommendations that resulted from the recent 
        workshop on the PFI program.

          How is NSF supporting knowledge transfer through its 
        education and training programs? Which programs, if any, 
        provide an opportunity for students and faculty to build the 
        knowledge and skills necessary to participate successfully in 
        knowledge transfer, including through entrepreneurship?

          Beyond NSF's traditional role of supporting basic 
        research, what is the unique role of the agency relative to 
        universities and to the private sector in promoting regional 
        innovation and strengthening U.S. economic competitiveness?

          How does the NSF assess the long-term economic impact 
        of both its knowledge and technology transfer programs and of 
        its basic research programs?

Ms. Lesa Mitchell

          Please provide an overview of the Ewing Marion 
        Kauffman Foundation efforts to advance innovation and promote 
        entrepreneurship. What are the challenges to increasing the 
        transfer of knowledge and technology from university 
        researchers to the private sector? Are there best practices, 
        training, or policies that should be put in place at 
        universities, Federal agencies, and industry to facilitate the 
        commercialization of federally funded research?

          What are the key components of a successful 
        university-industry collaboration? How can Federal investments 
        in basic research be more fully leveraged to promote regional 
        innovation and economic growth?

          Do you believe the National Science Foundation (NSF) 
        has a role to play in the ``innovation ecosystem'' beyond its 
        traditional role of supporting basic research? If so, what is 
        that role? What changes or recommendations, if any, do you have 
        regarding NSF's portfolio of technology transfer and 
        university-industry collaboration related programs, including 
        its process for evaluating the potential for technology 
        transfer through those programs?

Mr. W. Mark Crowell

          Based on your experience at both the University of 
        North Carolina and the University of Virginia, what are the 
        challenges to increasing the transfer of knowledge and 
        technology from university researchers to the private sector? 
        What type of education, training, and services are offered by 
        the University of Virginia to professors, postdoctoral fellows, 
        and graduate students interested in the commercialization of 
        their research discoveries?

          Are there best practices or policies implemented by 
        the institutions that you have been affiliated with that could 
        serve as a model for other universities interested in 
        increasing the commercialization of federally funded research?

          What are the key elements of a successful university-
        industry collaboration? To what extent does the University of 
        Virginia rely on university-industry research partnerships to 
        facilitate knowledge and technology transfer? What other 
        aspects of university-industry collaboration are most critical 
        to enhancing technology transfer? Is the University of Virginia 
        engaged in local, state, and/or regional innovation 
        initiatives?

          Do you believe the National Science Foundation (NSF) 
        has a role to play in the ``innovation ecosystem'' beyond its 
        traditional role of supporting basic research? If so, what is 
        that role? What changes or recommendations, if any, do you have 
        regarding NSF's portfolio of technology transfer and 
        university-industry collaboration related programs?

Mr. Wayne Watkins

          What type of education, training, and services are 
        offered by the University of Akron to professors, postdoctoral 
        fellows, and graduate students interested in the 
        commercialization of their research discoveries? What are the 
        challenges to increasing the transfer of knowledge and 
        technology from university researchers to the private sector? 
        Are there unique challenges faced by mid-sized universities 
        such as yours in the commercialization of federally funded 
        research?

          What are the key elements of a successful university-
        industry collaboration? Are there best practices or policies 
        implemented by the University of Akron that could serve as a 
        model for other universities interested in increasing the 
        commercialization of federally funded research? Specifically, 
        what is the role the University of Akron's Research Foundation? 
        How is the University of Akron engaged in local, state, and 
        regional innovation initiatives?

          Do you believe the National Science Foundation (NSF) 
        has a role to play in the ``innovation ecosystem'' beyond its 
        traditional role of supporting basic research? If so, what is 
        that role? What changes or recommendations, if any, do you have 
        regarding NSF's portfolio of technology transfer and 
        university-industry collaboration related programs?

Mr. Keith L. Crandell

          Please provide a brief overview of ARCH Venture 
        Partners, including a description of how the company interacts 
        with researchers and identifies investment opportunities, the 
        stage within the ``innovation ecosystem'' at which the company 
        becomes engaged, and the company's role in the development and 
        commercialization of a research discovery.

          What are the challenges to increasing the transfer of 
        knowledge and technology from university researchers to the 
        private sector? How do the barriers to commercialization vary 
        across geographic region?

          Are there best practices, training, or policies that 
        should be put in place at universities, Federal agencies, and 
        industry to facilitate the commercialization of federally 
        funded research? What recommendations, if any, would you offer 
        to university technology transfer offices to improve the 
        commercialization of their researchers' discoveries? Are there 
        training and/or educational opportunities that are missing at 
        universities that would benefit entrepreneurial minded 
        scientists and increase commercialization?

          Do you believe the National Science Foundation (NSF) 
        has a role to play in the ``innovation ecosystem'' beyond its 
        traditional role of supporting basic research? If so, what is 
        that role? What changes or recommendations, if any, do you have 
        regarding NSF's portfolio of programs that promote knowledge 
        and technology transfer through university-industry 
        collaboration or other means?

Mr. Neil D. Kane

          Please provide a brief description of Advanced 
        Diamond Technologies, Inc., including a description of the 
        research and activities supported by the National Science 
        Foundation. Based on your experience forming start-up companies 
        around university developed technologies, what are the 
        challenges to increasing the transfer of knowledge and 
        technology from university researchers to the private sector?

          Are there best practices, training, or policies that 
        should be put in place at universities, Federal agencies, and 
        industry to facilitate the commercialization of federally 
        funded research? What recommendations, if any, would you offer 
        to university technology transfer offices to improve the 
        commercialization of their researchers' discoveries? Are there 
        training and/or educational opportunities that are missing at 
        universities that would benefit entrepreneurial minded 
        scientists and increase commercialization, including access to 
        mentors and advisors from the private sector?

          Do you believe the National Science Foundation (NSF) 
        has a role to play in the ``innovation ecosystem'' beyond its 
        traditional role of supporting basic research? If so, what is 
        that role? What changes or recommendations, if any, do you have 
        regarding NSF's portfolio of programs that promote knowledge 
        and technology transfer through university-industry 
        collaboration or other means, including NSF's Small Business 
        Innovation Research & Small Business Technology Transfer 
        programs?
    Chairman Lipinski. This hearing will now come to order.
    Good morning and welcome to today's Research and Science 
Education Subcommittee hearing. The big smile you may see on my 
face this morning is not only because I am passionate about 
this issue but because the Chicago Blackhawks won the Stanley 
Cup last night for the first time in my lifetime, so I am very 
happy about that. But I didn't get as much sleep as I would 
usually like to, but here we are this morning. It is going to 
be a very good hearing and so there are going to be no problems 
at all keeping me awake and attentive.
    This morning we are taking an in-depth look at how we turn 
new knowledge and technologies created at our universities and 
colleges into products, companies and jobs. I am particularly 
excited about this topic because of my experience as a 
university professor and my recognition that America's 
international competitiveness and economic growth will 
increasingly depend on successful technology transfer from lab 
to marketplace. At a time when we are increasingly asking the 
question, where will new American jobs come from, we need to be 
looking more closely at how we can best help our universities, 
filled with the world's best researchers, how we can best help 
them continue to be economic engines that power America's 
future.
    Let me begin by making one point clear: Our competitors 
have noticed how well our system works, and many are trying to 
imitate it. Countries like China and members of the European 
Union are now investing heavily in their own R&D programs. 
Combined business and government spending on R&D in China, for 
example, has been increasing by almost 20 percent a year over 
the past decade, and China has already overtaken Japan as the 
number two publisher of scientific articles. They are 
determined to move up the value chain, and we need sustained 
investments and smart policies if we want to remain the world 
leader in science and technology.
    Two weeks ago we took a big step forward when the House 
passed the America COMPETES Reauthorization Act. This bill 
includes substantial new investments in basic and applied 
research, a skilled STEM workforce, the kind of public-private 
partnerships that facilitate technology transfer, and in 
research infrastructure, including mid-scale research 
instrumentation and university infrastructure, which was a 
special focus of mine in developing the bill. Included in the 
COMPETES Act is my five-year reauthorization of the National 
Science Foundation [NSF], whose primary mission is supporting 
fundamental research and developing STEM professionals across 
almost all disciplines of science and engineering. This bill 
would double NSF funding, much of which would go to our 
colleges and universities.
    In discussing technology transfer programs, it is important 
to remember that although innovations often begin with these 
kinds of Federal investments, the path from the lab bench to 
the marketplace is anything but straightforward. It depends on 
a complicated network of private companies, scientists, 
universities, venture capitalists, startups and entrepreneurs. 
It also depends on luck, timing and, to some extent, location.
    Some universities have more successful tech transfer 
offices. Some scientists are better prepared or more inclined 
to engage with the business community. And some parts of the 
country have cultivated networks of entrepreneurs and venture 
capitalists who know how to turn an idea into a product that 
can transform our everyday lives.
    According to a survey by the Association of University 
Technology Managers, the number of academic invention 
disclosures filed, the number of U.S. patent applications 
filed, and the number of university spin-off companies formed 
have all grown significantly over the past few years. But the 
survey also indicates a wide range of success across our 
academic institutions, with licensing income varying from 
nearly nothing to almost $800 million. In order to strengthen 
the current system and improve the return on Federal research 
spending, it is imperative that we gain a better understanding 
of this process from multiple perspectives.
    I am interested in hearing from today's witnesses about 
best practices or policies that can improve the technology 
transfer process, and the appropriate role of the National 
Science Foundation in supporting such efforts. I also hope to 
hear your thoughts on the role of regional networks, how we can 
improve collaboration between scientists, entrepreneurs and 
venture capitalists, and how we can better track and quantify 
the impact of both technology transfer activities and research 
spending. Finally, I would like to learn what impact the 
recession is having on the creation of new startups, and to 
hear the witnesses' ideas on how we can make sure that American 
discoveries turn into American companies and American jobs.
    I thank all the witnesses for being here and look forward 
to your testimony.
    [The prepared statement of Chairman Lipinski follows:]
             Prepared Statement of Chairman Daniel Lipinski
    Good morning and welcome to today's Research and Science Education 
Subcommittee hearing. This morning we are taking an in-depth look at 
how we turn the new knowledge and technologies created at our 
universities and colleges into products, companies, and jobs. I am 
particularly excited about this topic because of my experience as a 
university professor and my recognition that America's international 
competitiveness and economic growth will increasingly depend on 
successful technology transfer from lab to marketplace. At a time when 
we are increasingly asking the question ``where will new American jobs 
come from?'', we need to be looking more closely at how we can best 
help our universities--filled with the world's best researchers--
continue to be economic engines that power America's future.
    Let me begin by making one point clear: Our competitors have 
noticed how well our system works, and many are trying to imitate it. 
Countries like China and members of the European Union are now 
investing heavily in their own R&D programs. Combined business and 
government spending on R&D in China, for instance, has been increasing 
by almost 20% a year over the past decade, and China has already 
overtaken Japan as the number 2 publisher of scientific articles. They 
are determined to move up the value chain, and we need sustained 
investments and smart policies if we want to remain the world leader in 
science and technology.
    Two weeks ago we took a big step forward when the House passed the 
America COMPETES Reauthorization Act. This bill includes substantial 
new investments in basic and applied research, a skilled STEM 
workforce, the kind of public-private partnerships that facilitate 
technology transfer, and in research infrastructure--including mid-
scale research instrumentation and university infrastructure, which was 
a special focus of mine in developing this bill. Included in the 
COMPETES Act is my five-year reauthorization of the National Science 
Foundation, whose primary mission is supporting fundamental research 
and developing STEM professionals across almost all disciplines of 
science and engineering. My bill would double the NSF funding, much of 
which would go to our research colleges and universities.
    In discussing technology transfer programs, it is important to 
remember that although innovations often begin with these kinds of 
Federal investments, the path from the lab bench to the marketplace is 
anything but straightforward. It depends on a complicated network of 
private companies, scientists, universities, venture capitalists, 
startups, and entrepreneurs.
    It also depends on luck, timing, and location.
    Some universities have more successful tech transfer offices. Some 
scientists are better prepared or more inclined to engage with the 
business community. And some parts of the country have cultivated 
networks of entrepreneurs and venture capitalists who know how to turn 
an idea into a product that can transform our everyday lives.
    According to a survey by the Association of University Technology 
Managers, the number of academic invention disclosures filed, the 
number of U.S. patent applications filed, and the number of university 
spin-off companies formed have all grown significantly over the past 
few years. But the survey also indicates a wide range of success across 
our academic institutions, with licensing income varying from nearly 
nothing to almost $800 million. In order to strengthen the current 
system and improve the return on Federal research spending, it is 
imperative that we gain a better understanding of this process from 
multiple perspectives.
    I'm interested in hearing from today's witnesses about best 
practices or policies that can improve the technology transfer process, 
and the appropriate role of the National Science Foundation in 
supporting such efforts. I also hope to hear their thoughts on the role 
of regional networks, how we can improve collaboration between 
scientists, entrepreneurs, and venture capitalists, and how we can 
better track and quantify the impact of both technology transfer 
activities and research spending. Finally, I'd like to learn what 
impact the recession is having on the creation of new startups, and to 
hear the witnesses' ideas on how we can make sure that American 
discoveries turn into American companies and jobs.
    I thank all the witnesses for being here and look forward to your 
testimony.

    Chairman Lipinski. The Chair will now recognize Dr. Ehlers 
for an opening statement.
    Mr. Ehlers. Thank you, Mr. Chairman, and I apologize to you 
and the audience for being a bit late. I was in a meeting which 
much to my surprise turned out to be related to this issue. I 
was meeting with David Brooks, the columnist for the New York 
Times, and one of the brightest lights, I think, not only at 
the New York Times but in the American press, and he was 
discussing issues related to this and how the research is done 
and uncovered the educated but not highly educated individuals 
in America do not see the need for doing research for really 
trying to develop ideas that are found that way, it just should 
sort of happen naturally with the economic system we have, and 
failing to recognize the need for everyone to participate in 
those ideas. And that has direct bearing on what we are talking 
about today.
    In today's hearing, I am very anxious to learn about 
partnerships between universities and industry and how the 
National Science Foundation is supporting these relationships. 
I have also been an advocate ever since I got here of the 
research and development tax credit to encourage industries to 
engage in research, and I find it a travesty that the best I 
have been able to obtain is year-by-year increases or tax 
rates. Most bean counters and corporate executives cannot make 
long-term decisions or judgments based on an annual phenomenon 
and so we really should work on that as well.
    I understand that the Technology and Innovation 
Subcommittee of this committee will be undertaking a 
comprehensive review of both the Bayh-Dole Act and the 
Stevenson-Wydler Technology Innovation Act later this year, and 
I hope that this subcommittee will work closely with the other 
subcommittee on this series of hearings since we should always 
be considering the value of commercialization to comprehensive 
STEM education provided at our universities. It may even be 
appropriate to consider some joint Subcommittee hearings 
dependent on context.
    I suspect that most university partnerships are 
overwhelmingly fruitful relationships, but I think we need to 
be mindful of some of the unintended consequences as well. 
While they are in school, students should be able to explore 
the scientific process, and universities must establish 
standards for these partnerships that protect students from 
being transformed into cheap labor for industry. It is my hope 
that the witnesses testifying before us today, and I am pleased 
to have such a distinguished panel here, that the witnesses 
will offer this Committee insight into ways to improve 
university-industry technology transfer partnerships and to 
explore the appropriate Federal role.
    I look forward to the testimony of each of the members of 
our panel. I thank all of you for being here.
    But I also want to add a comment of former Speaker Newt 
Gingrich, who is always a strong supporter of scientific 
research and technology, and he has repeatedly said in his 
speeches during the last few years that his greatest mistake as 
Speaker of the House was doubling NIH allocation for research 
while not also doubling the NSF allocation, and I totally agree 
with him. I fought for it at the time. I am sorry that I did 
not succeed. But I hope that in the future we will adequately 
improve the National Science Foundation budget so that the 
partnerships we are examining today have a greater chance of 
success.
    With that, Mr. Chairman, I yield back. Thank you.
    [The prepared statement of Mr. Ehlers follows:]
         Prepared Statement of Representative Vernon J. Ehlers
    In today's hearing I hope to learn about partnerships between 
universities and industry, and how the National Science Foundation is 
supporting these relationships.
    I understand that the Technology and Innovation Subcommittee will 
be undertaking a comprehensive review of both the Bayh-Dole Act and the 
Stevenson-Wydler Technology Innovation Act later this year. I hope that 
the Research and Science Education Subcommittee will work closely with 
the other subcommittee on this series of hearings, since we should 
always be considering the value of commercialization to comprehensive 
STEM education provided at our universities. It may even be appropriate 
to consider some joint subcommittee hearings depending on context.
    I suspect that most university-partnerships are overwhelmingly 
fruitful relationships, but I think we need to be mindful of some of 
the unintended consequences as well. While they are in school, students 
should be able explore the scientific process, and universities must 
establish standards for these partnerships that protect students from 
being transformed into cheap labor for industry.
    It is my hope that the witnesses testifying today will offer this 
Committee insight into ways to improve university-industry technology 
transfer partnerships and to explore the appropriate Federal role. I 
look forward to the testimony of our distinguished panel, and I thank 
them for being here.

    Chairman Lipinski. Thank you, Dr. Ehlers.
    If there are Members who wish to submit additional opening 
statements, your statements will be added to the record at this 
point.
    [The prepared statement of Mr. Carnahan follows:]
           Prepared Statement of Representative Russ Carnahan
    Mr. Chairman, thank you for holding today's hearing on improving 
technology transfer. While the focus of today's hearing is technology 
transfer from universities, another important part of this discussion 
is the role that non-profits play in this process.
    In my home state of Missouri, we have a medical research facility 
that illustrates the critical role organizations can play in advancing 
medical findings and driving success in a community. The Stowers 
Institute for Medical Research is a state-of-the art research facility, 
which has been located in Missouri since November 2000. Stowers was 
founded by a former WWII veteran and has grown to a $1.7 billion 
facility, which employees over 200 scientists, researchers, technicians 
and support staff - all dedicated to preventing and curing diseases. 
And, I believe it's fair to say we would all like to see Stowers--and 
organizations like Stowers--be more successful in their pursuits.
    With this in mind I'm pleased to report that Rep. Clever has taken 
a role in helping organizations find a new and improved path to finding 
cures. This important legislation, H.R. 3443, would correct 
inconsistencies in the tax code so organizations can take steps beyond 
scientific discovery, without threatening their non-profit status or 
business models.
    In closing, I'd like to thank the members of the panel for their 
participation in today's hearing. I hope that we can continue our 
efforts to improve tech transfer and by doing so, promote innovation 
and ensure U.S. economic competitiveness in the future.

    At this time I would like to introduce our witnesses. Dr. 
Tom Peterson is the Assistant Director for the Directorate of 
Engineering at the National Science Foundation. Ms. Lesa 
Mitchell is the Vice President of Advancing Innovation at the 
Ewing Marion Kauffman Foundation. Mr. Mark Crowell is the 
Executive Director and Associate Vice President for Innovation 
Partnerships and Commercialization at the University of 
Virginia. Mr. Wayne Watkins is Associate Vice President for 
Research at the University of Akron. Mr. Keith Crandell is the 
Co-founder and Managing Director of ARCH Venture Partners. ARCH 
Venture Partners is unique in the Midwest for really going in 
and finding those who are doing exactly what we are talking 
about today, going from the university bench and bringing those 
products to the market. And finally we have Mr. Neil Kane, who 
is the President and Co-founder of Advanced Diamond 
Technologies, Inc. [ADT]. ADT is the world leader in 
development of diamonds for industrial electronics, energy and 
medical applications, and Mr. Kane is also former Executive 
Director of the Illinois Technology Enterprise Center at 
Argonne National Lab, an entrepreneur in residence with 
Illinois Ventures.
    I welcome our witnesses, and as you should know, you will 
each have five minutes for your spoken testimony. Your written 
testimony will be included in the record for the hearing. When 
you all have completed your spoken testimony, we will begin 
with questions. Each Member will have five minutes to question 
the panel.
    So we will start right now with Dr. Peterson.

     STATEMENTS OF THOMAS W. PETERSON, ASSISTANT DIRECTOR, 
    DIRECTORATE FOR ENGINEERING, NATIONAL SCIENCE FOUNDATION

    Dr. Peterson. Thank you, Chairman Lipinski, Ranking Member 
Ehlers and distinguished Members of the Subcommittee. Thank you 
for the opportunity to testify on the process by which 
knowledge and technology are transferred from the academic 
institutions to the private sector. I am Tom Peterson, the 
Assistant Director for the Engineering Directorate at the 
National Science Foundation.
    As NSF's investments in basic research and education bear 
fruit, we support the translational research as part of our 
investment portfolio to show the best stewardship of the funds 
with which we are entrusted. In a recent survey conducted by 
the independent Science Coalition, fully one-third of the 
companies they studied started with the help of federally 
funded research depended on research supported by the National 
Science Foundation. Our success stories in improving tech 
transfer, then, are built both on programs with long histories 
at NSF as well as through new programs designed to expand our 
capabilities to contribute to the innovation ecosystem.
    In my written testimony, I provide in some detail 
descriptions of a wide range of NSF programs focusing on the 
important task of facilitating the commercialization of NSF-
funded research. In the short time I have with you this 
morning, I will give you a sampling of those programs and some 
specific examples of successful transfer of research discovery 
to the marketplace.
    The Engineering Research Centers, established in 1985, or 
the ERCs, constitute the flagship engineering centers program 
at NSF. From 1985 through 2009, ERCs have produced 1,700 
invention disclosures, 625 patents, 2,100 patent and software 
licenses, and have spun off 142 firms. Most importantly, they 
have produced more than 10,000 graduates at all levels who are 
truly the best means for tech transfer.
    In the 1990s, the Engineering Research Center on Data 
Storage Systems at Carnegie Mellon developed a nickel aluminum 
underlayer that is the primary technology behind high-capacity 
storage devices in laptops, MP3 players and other consumer 
electronics. More recently, the ERC for Collaborative Adaptive 
Sensing in the Atmosphere at U. Mass Amherst developed a more 
sensitive radar network for detecting low-altitude weather 
phenomena, thereby adding valuable minutes to the warning time 
at the onset of tornadoes.
    The Industry/University Cooperative Research Centers, or I/
UCRCs, is the oldest centers program and it consists of small 
interdisciplinary groups of faculty and students focusing on 
industry-relevant research. Currently, there are 52 active I/
UCRCs and this highly leveraged program has established over 
1,000 industry connections to about 150 different universities. 
The I/UCRC for Engineering Logistics and Distribution at the 
University of Arkansas, for example, works with Walmart and has 
developed logistics software that has resulted in a more than 
four percent reduction in inventory costs.
    NSF's Small Business Innovation Research [SBIR] and Small 
Business Tech Transfer [STTR] programs, designed to increase 
the commercial application of federally supported research 
results, has produced over 1,000 high-tech small businesses 
since the Congressional legislation that began the program in 
1982.
    I conclude my testimony this morning with one final example 
of NSF basic research which has found its way into the 
marketplace. In the early 1990s, we supported an Engineering 
Research Center on Optical Electronic Computing Systems at the 
University of Colorado and Colorado State University. That 
center was led by a brilliant and energetic professor named 
Kristina Johnson, who developed a line of 3D imaging components 
for scientific and industrial applications, and with 
colleagues, spun out some of the ERC's innovations with support 
from NSF's STTR program into a company called ColorLink in 
Boulder, Colorado. In 2007, that company was acquired by RealD 
Cinema out of Beverly Hills, and in the hands of filmmakers, 
the ERC technology was the basis for the blockbuster film 
``Avatar,'' which introduced to a worldwide audience a new 
generation of 3D cinematic experience. In fact, the film won a 
2009 Academy Award for visual effects based in part on this 
innovative 3D technology. By the way, that Professor Johnson, 
who helped develop the technology, now serves as the Under 
Secretary for Energy in the Department of Energy.
    In summary, the Engineering Directorate takes very 
seriously its responsibility to show leadership within the NSF 
in bridging basic research discovery to market 
commercialization. Our research portfolio is a balance of 
support for basic research as well as these translational 
research areas which constitute and contribute vitally to 
innovation. Equally important, by maintaining a healthy 
connection with business and industry through translational 
research activities, we further enhance our basic research 
portfolio through new ideas generated by our industry partners. 
In short, it is beneficial to both our academic researchers and 
to the marketplace that we continue to foster these strong ties 
between NSF and the real world.
    Mr. Chairman, that concludes my remarks and I will be happy 
to answer any questions.
    [The prepared statement of Dr. Peterson follows:]
                Prepared Statement of Thomas W. Peterson
    Chairman Lipinski, Ranking Member Ehlers, and distinguished members 
of the Subcommittee, I am Tom Peterson, Assistant Director for the 
Engineering Directorate (ENG) at the National Science Foundation (NSF). 
Thank you for the opportunity to testify on NSF's perspective of the 
process by which knowledge and technology are transferred from academic 
institutions to the private sector and on the best practices and 
policies to facilitate the commercialization of federally funded 
research.
    The National Science Foundation is the Nation's premier mission 
agency for promoting fundamental research and education in science and 
engineering across the board. Additionally, however, programs within 
the National Science Foundation help to foster and encourage the 
translation of new knowledge generated through basic research into 
processes, products and methodologies with significant economic or 
societal impact. Programs with an innovation component are supported 
across the Foundation, which plans to invest more than $400 million in 
center and partnership programs in fiscal year (FY) 2011. Within NSF, 
the Directorate for Engineering is the natural focus of innovation-
related efforts. Engineering research in general focuses on discovering 
how basic scientific and engineering principles work as well as how 
they can be harnessed for practical ends.
    The term ``innovation'' can often be subject to innovative 
definitions, but for our purposes we define innovation as the 
conversion of fundamental discoveries into new commercial products and 
processes. It has long been recognized that there is a gap between 
``discovery'' (produced by fundamental and applied research in 
universities) and the design/development work in industry that yields 
new products. This gap is often referred to as ``the Valley of Death''. 
If there is a long research pathway needed to translate academic 
discoveries into industrial products, and if industry is not willing to 
invest in that pathway, the academic discoveries sit on the shelf and 
the opportunity for new products and new industries is lost. While 
other countries have not had the United States' capacity to produce new 
discovery through fundamental research, many are better at translating 
and implementing those discoveries (whether their own or ``imported'') 
into commercial products. This ``translational'' phase of research is 
where the U.S. has an opportunity to improve.

1. Describe how the National Science Foundation fosters the transfer of 
                    knowledge and technology from U.S. universities to 
                    the private sector.

    The NSF has developed a strategy utilizing a combination of the 
Foundation's experience, existing programs and new initiatives to speed 
the generation of useful discoveries and their effective penetration 
into industry. By so doing, these discoveries can yield high-value 
products and processes, new businesses and even new industries, greatly 
expanded employment opportunities, and a more technologically advanced 
workforce widely distributed across the U.S.
    Successful innovation demands research that is most often 
characterized by several distinct features:

          It is technology- and often engineered-systems 
        motivated

          It requires the integration of multiple disciplines

          It is developed in collaboration with industry or 
        other practitioners.

    Several large, ENG-funded programs existing within the NSF embody 
these features and are already successfully producing translational 
research that results in innovation in industry.

Existing ENG Resources

    Engineering Research Centers (ERCs)--Engineering Education & 
Centers (EEC) Division: Established in 1985, this is the flagship 
engineering centers program at NSF, with more than $67 million planned 
for FY 2011. The 54 ERCs formed to date have literally changed the 
culture of academic engineering by supporting cross-disciplinary teams, 
strategically focused on joining discovery with research that advances 
enabling and engineered systems technology, in partnership with 
industry. Currently, 15 ERCs are within the ten-year window of NSF 
support, and the majority of ERCs who have `graduated' are still in 
operation. Their education programs start with pre-college students and 
teachers and continue through practicing engineers.
    A primary driver for the establishment of the ERCs program by the 
NSF was to facilitate the transfer of knowledge and technology 
developed out of the ERCs' research on next-generation engineered 
systems to U.S. industry. This focus on innovation was and still is at 
the heart of the ERC-industry partnership. That partnership has yielded 
rich dividends.
    The third generation of ERCs (Gen-3), funded since 2008, are even 
more directly focused on bridging the innovation gap through 
partnerships with small firms and groups dedicated to entrepreneurship. 
The very structure of the Gen-3 ERCs establishes a culture of discovery 
and innovation by requiring from each ERC:

          Guiding strategic vision for transforming engineered 
        systems and the development of an innovative, globally 
        competitive and diverse engineering workforce

          Strategic plans for research, education, and 
        diversity to realize the vision

          Cross-cultural, global research/education experiences 
        through partnerships with foreign universities

          Strategic, discovery & systems motivated cross-
        disciplinary research program, including small firms engaged in 
        translational research

          Education program strategically designed to produce 
        creative, innovative engineers by engaging students in all 
        phases of the innovation process

          Long-term, focused pre-college partnerships to bring 
        engineering concepts to classroom & increase enrollment in 
        engineering

          Innovation partnerships with member firms and 
        organizations dedicated to stimulating entrepreneurship and 
        speeding technological innovation

          Cohesive and diverse cross-disciplinary leaders and 
        team, management systems

          Multi-university configuration, cross-institutional 
        commitment to facilitate and foster the cross-disciplinary 
        culture, diversity, and mentoring

    Funded jointly by NSF, universities, and industry, collectively 
these large centers have resulted in commercialized products and 
processes whose value is estimated to significantly exceed ten billion 
dollars; and they have produced more than 10,000 graduates at all 
levels who are in great demand by industry.
    The story of ERC innovations is updated periodically and posted at 
http://showcase.erc-assoc.org.
    Industry/University Cooperative Research Centers (I/UCRCs)--
Industrial Innovation & Partnerships (IIP) Division: Formed in 1972, 
the I/UCRC program is the oldest centers program at NSF. It has 
survived because it is a model that works: small interdisciplinary 
groups of faculty and students focusing on industry-relevant and 
mutually agreed-upon research. Industry and other agencies provide the 
majority of the support--7 to 8 times the NSF investment, which is 
planned at $10 million for FY 2011. Currently there are 43 I/UCRCs. 
They can be funded by NSF for three five-year periods, with a reduced 
level in the second and third periods. I/UCRCs also have a long history 
of producing technological advances with billions of dollars of 
economic value and some 4000 MS and Ph.D. graduates who are highly 
sought by industry because of their industry-relevant experiences.
    Emerging Frontiers in Research and Innovation (EFRI)--The EFRI 
Office was established in 2006 to provide ENG with a rapid-response 
capability for focusing on important emerging areas of research. Each 
year, interdisciplinary initiatives are funded in areas that represent 
transformative opportunities, potentially leading to new research areas 
for NSF, ENG, and other agencies; new industries or capabilities that 
result in a leadership position for the Nation; and/or significant 
progress on a recognized national need or grand challenge. EFRI awards 
support small teams of interdisciplinary investigators for four years. 
Focus areas for FY 2009 are BioSensing & BioActuation: Interface of 
Living and Engineering Systems; and Hydrocarbons from Biomass. The 
topics for FY 2010 are Science in Energy and Environmental Design: 
Engineering Sustainable Buildings; and Renewable Energy Storage. EFRI 
plans to invest $31 million in FY 2011 research areas.
    Partnerships for Innovation (PFI)--IIP Division: Begun in 2000, the 
PFI program promotes innovation by forming partnerships between 
academe, the private sector, and local, regional, or Federal 
Government. The program activities include generation of new ideas 
through research; transformation of new ideas into new goods, 
businesses, or services to society; building infrastructure to enable 
innovation; and education/training of people to enable/promote 
innovation. More than a thousand partnerships have been formed since 
the beginning of the PFI program. To date, 157 PFI grants have been 
awarded; currently there are 51 PFI projects. These are funded for 2 to 
three years, after which they are sustained by the partners or other 
stakeholders. Their outputs include innovation in all its forms: 
knowledge and technology transfer, product commercialization, start-up 
formation, workforce development, and education in the innovation 
enterprise in academia at all levels and in industry. NSF has requested 
$7 million for PFI in FY 2011.
    Various NSF-wide programs, in which ENG participates, also 
explicitly and effectively foster this kind of industry-collaborative 
research. They include:

          Grant Opportunities for Academic Liaison with 
        Industry (GOALI)--this proposed $4-million FY 11 investment 
        promotes university-industry collaboration by supporting 
        academic fellowships/traineeships in industry, industrial 
        practitioners on campus, and industry-university team research.

          Small Business Innovation Research (SBIR)/Small 
        Business Technology Transfer (STTR)--this proposed $143-million 
        FY 11 investment stimulates technological innovation by 
        strengthening the role of small business in meeting Federal R&D 
        needs, increasing the commercial application of federally 
        supported research results, and fostering participation by 
        socially and economically disadvantaged and women-owned small 
        businesses.

          National Nanotechnology Initiative (NNI)--a 
        government-wide program established in 2001 to coordinate 
        Federal nanotechnology R&D the NSF investment in NNI for FY 
        2011 is planned at $399 million. One of its goals is to foster 
        the transfer of new nanotechnologies into products for 
        commercial and public benefit through academic researcher 
        collaboration with industry. The ENG Senior Advisor for 
        Nanotechnology is one of the key architects and leaders of NNI.

    These illustrate the extent of participation by ENG in university 
industry partnerships. There are a few other such programs distributed 
at other parts of NSF that are referenced in the next section.

2. How is NSF planning to implement the new ``innovation ecosystem'' 
                    component of the Partnerships for Innovation (PFI) 
                    program proposed for the FY 2011 budget?

    The ENG directorate at NSF is fortunate to have, in its FY 2011 
budget, proposed increases in support for partnership programs 
contributing to innovation. These proposed increases are most welcomed. 
In developing plans that demonstrate good stewardship of these 
anticipated additional funds, and mindful that the total requested 
increase in FY 2011 is $12 million, we have studied means by which we 
can build on the existing strengths of NSF support, rather than trying 
to `start from scratch' with new programs. This is not meant to 
represent a `business as usual' approach, and as can be seen from our 
proposed plans, new and unique initiatives are proposed. Rather, we are 
trying support concepts that will provide the most rapid evidence of 
success, and that means building on programs in the community that have 
already demonstrated propensity and talent towards market innovation. 
That is, we intend to support those members of the community who have 
shown an interest and an ability to take the fruits of basic research 
and translate those fruits into societal benefit. Our investment is 
designed to engage more faculty and students in innovation, to increase 
the commercial impact of innovative technologies, and to build regional 
connections for the innovation ecosystem.

New and Emerging Initiatives

    Focused additional effort for the innovation ecosystem is being 
directed by the ENG directorate using both reallocated dollars from our 
base budget as well as the proposed additional support in FY 2011 
budget for partnerships for innovation.
    At a recent workshop held to elicit input from experienced PFI 
grantees and other members of the community, NSF was encouraged to 
consider investments in:

          Undergraduates as inventors and innovators

          Open participation in innovation and entrepreneurship 
        from community colleges through the four-year universities and 
        on into Graduate institutions

          Leveraging of existing small business strengths over 
        and above the spin-off model

          Supporting innovation process models that create 
        small groups of collaborators across diverse sectors

          Incentivizing universities to support an innovation 
        culture and its role on societal impact

    In response to the clear need to improve American innovation and 
speed the translation of discovery into industrial products, a number 
of new initiatives are already being developed or planned that will 
integrate the efforts of the EEC Division, the IIP Division, and/or the 
EFRI Office.
    Innovation Fellows: Planned by the EEC Division for FY 2011, this 
program will support cohorts of engineering undergraduates to pursue an 
innovation-focused Ph.D. graduate program that includes summer 
internships in industry.
    Industry Postdoctoral Fellows: In partnership with The American 
Society for Engineering Education, the EEC Division plans to expand the 
Innovation Fellows program to include 40 grants per year to 
postdoctoral students for innovation-focused work in industry, the 
costs of which are shared between industry and NSF. EEC piloted this 
activity in FY 2010.
    Industry-defined Fundamental Research: This pilot initiative, begun 
in FY 2010, is being developed within the IIP Division in response to a 
proposal from The Industrial Research Institute (IRI). IRI will invite 
its members, other professional society members, and university 
partners to examine possible research thrusts that are fundamental and 
that could have a transformative economic impact on an industry or 
sector. These research areas will then feed into the research programs 
of the other divisions of ENG.
    University-Industry Collaboration to Advance Discovery: This 
initiative, under study by the EFRI Office, will accelerate innovation 
based on the transformational research already funded by EFRI by 
providing incentives to industry researchers to partner with EFRI 
grantees. It is envisioned as a GOALI-like exchange between the 
academic researchers and potential industrial adopters and refiners of 
the technologies developed. As a first attempt to implement this idea, 
the FY 2010 EFRI Solicitation allows industry researchers to serve as 
co-PIs on a research project defined as a GOALI project.
    SBIR/STTR and ERC Supplement Opportunity for Collaborations (SECO): 
This collaboration opportunity, piloted in FY 2010, seeks to form 
partnerships between small businesses and ERCs that will leverage NSF's 
investments in SBIR/STTRs and ERCs to speed innovation. The SBIR/STTR 
program stimulates entrepreneurship in this country through government 
support for research in small business. These small firms often need 
additional research to commercialize their products. The agility of 
small companies to respond to market conditions and opportunities has 
the potential of providing substantial commercialization advantages. 
The Engineering Research Centers program creates a culture in 
engineering research and education that links discovery to 
technological innovation through transformational fundamental and 
engineered systems research in order to advance technology and produce 
engineering graduates who will be creative U.S. innovators in a 
globally competitive economy.
    These partnerships are expected to lead to one or both of the 
following outcomes:

          ERC generated research will be more quickly 
        translated into the marketplace through collaboration with an 
        SBIR/STTR awardee or small R&D firm.

          The capability of an SBIR/STTR awardee or small R&D 
        firm to achieve its product goals will be strengthened through 
        the research capacity of an ERC.

Assembling an ``Innovation Ecosystem'' in NSF

    These current and prospective programs constitute a portfolio of 
innovation-oriented programs within ENG that, together, address: (1) 
large research universities as well as smaller teaching-oriented 
institutions serving diverse populations; (2) large groups and small 
groups of faculty as well as individual researchers, at one or multiple 
institutions; (3) multidisciplinary research foci from fundamental 
through proof-of-concept; and (4) education of engineering students in 
an industry-oriented, systems-research-focused environment.
    The elements of this portfolio thus comprise a collective ecosystem 
for generating innovation in U.S. industry through NSF support. Other 
programs within ENG and throughout NSF also comprise natural elements 
of this ``innovation ecosystem'' and bring resources explicitly to bear 
in the effort to complete the building of this ecosystem. Among the 
largest of these programs are:

          Science and Technology Centers (Office of Integrative 
        Activities)

          Materials Research Science and Engineering Centers 
        (Division of Materials Research)

          Nanoscale Science and Engineering Centers 
        (Foundation-wide)

          Expeditions in Computing (Directorate for Computer & 
        Information Science & Engineering).

    The key characteristics of the ecosystem and each of its component 
elements must be:

        1.  The university research is explicitly driven by industrial 
        needs (not near-term but clearly defined mid- to longer-term 
        needs), ranging across the full spectrum of industrial sectors 
        and company sizes from start-ups to Fortune 500 companies.

        2.  Faculty are involved along a continuum from fundamental 
        discovery-oriented research to beyond the proof-of-concept 
        phase, working with industry at all stages, and with faculty at 
        all points along the continuum aware of how their work 
        contributes to the whole. (System-wide communications and 
        annual grantee conferences will be needed.)

        3.  Through a concerted focus on NSF-funded translational 
        research in collaboration with industry, the handoff of 
        technology to industry moving into industrial development will 
        be smoother--the ``Valley of Death'' is bridged--resulting in 
        rapid, efficient innovation.

    Numerous options are still under consideration for support in order 
to better translate basic research discoveries into marketable products 
and processes. The 2011 Budget Request provides $12 million for two 
proposed ``innovation partnerships''. One will focus on supporting the 
individual entrepreneur, through a ``Technology Translation'' plan. The 
other will focus on supporting entrepreneurial--and typically 
interdisciplinary--teams and building regional innovation communities 
through a ``Center Connection'' plan. While details of each plan 
continue to be addressed, Table I below provides a comparative summary 
of both approaches.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


3. How is NSF supporting knowledge transfer through its education and 
                    training programs?

    Since the mid-1980s, when concerns about U.S. industrial 
competitiveness were widespread, it has been widely believed that 
baccalaureate programs in the Nation's engineering schools have tended 
to produce engineers who, while well prepared in engineering science, 
need more experience with technological advancement and 
interdisciplinary teamwork; who need more training before they can meet 
the basic needs of industry. Many large corporations find that they 
must provide significant training beyond on-the-job experience. 
Traditional engineering students obtain little practical experience in 
their educations. Furthermore, although industrial employers place high 
value on teamwork, most graduating engineers traditionally have had 
limited experience in working in teams. ERCs are designed to produce 
graduates who excel in these areas, where traditional graduates fall 
short. The centers try to bring to engineering education a new culture 
based on goal-oriented values, complementing the theoretical science-
based education long predominant in academic engineering. Those 
involved in the ERCs have come to recognize that education may actually 
be the centers' most important means of contributing to the Nation's 
global competitiveness. ERCs devote much energy and resources to 
``spreading the culture'' through education, and to creating an 
environment conducive to this new kind of education. ERC education 
programs are a primary means of achieving the overall goal of culture 
change in engineering education, and in academic engineering generally. 
They encourage that change by articulating the ERC ideals, making 
opportunities available to implement the ideals, and facilitating the 
use of those opportunities.
    This is particularly important in engineering, where discoveries 
made at universities have the potential for a more direct realization 
in the form of commercially useful products and processes. One of the 
three ``guiding goals'' of the Engineering Research Centers, for 
example, is ``to educate a globally competitive and diverse engineering 
workforce from K-12 on.'' This goal is pursued in several ways: by 
making education a core part of the center's strategic plan; by 
integrating fundamental research with engineering practice and 
incorporating it in the curriculum; by involving industry directly in 
the education process; by including students at all levels, from 
undergraduate through postdoctoral, on research teams; and by 
encouraging innovation and entrepreneurship.
    Engineering Research Centers have proven their capacity to produce 
graduates who are more effective in industry as innovators and leaders 
of cross-disciplinary teams. The Gen-3 ERCs have an additional 
challenge: to develop education programs in which students learn how to 
be even more creative and innovative through explicit training in 
product design, entrepreneurship, and working in collaboration with 
start-up firms carrying out translational research. The ERC pre-college 
programs engage both teachers and students in engineering research 
projects carried out in an innovation ecosystem (an ERC) in partnership 
with industry. Overall, it represents an effort on the part of the ERC 
program to establish a comprehensive system of engineering education 
that produces a large and diverse cadre of engineers primed for global 
leadership in innovation.
    The PFI program has spawned several innovation-enabling education 
and training models. Precollege programs at tribal colleges attract and 
train high school students in hands-on engineering problem solving 
skills. The program offers a combined engineering and business 
bachelor's degree tailored to industry needs, providing mentorships to 
budding entrepreneurs and helping assess market potential. It also 
serves to cross-fertilize collaboration across engineering, business, 
medicine, law and other colleges, thereby fostering a true innovation 
culture.

4. Beyond NSF's traditional role of supporting basic research, what is 
                    the unique role of the agency relative to 
                    universities and to the private sector in promoting 
                    regional innovation and strengthening U.S. economic 
                    competitiveness?

    In a study conducted by the Pennsylvania State University under NSF 
support(3), leaders from government, industry, and 
universities convened to consider issues and develop alternatives for 
action aimed at more effectively leveraging university research for 
United States industrial competitiveness and economic growth. More than 
120 leaders from government, industry, and universities explored 
problems and proposed solutions from the perspective of five key 
industry sectors. As might be imagined the five focus groups discussed 
a wide range of issues and identified a multitude of problems and 
potential solutions. At the same time, a limited number of common issue 
areas were identified across the groups. Specifically, four major issue 
areas were consistently identified representing fundamental barriers to 
more effective leveraging of university research for industrial 
competitiveness and growth:

          Insufficient industry engagement in university 
        research

          Restrictive intellectual property management policies

          Inadequate resources for technology commercialization

          Low flow of talent across industry-university 
        boundaries

    Many potential solutions to these and other issues were suggested 
and strenuously debated in the focus groups. A number of the solutions 
suggested to address the above four core issue areas stand out, either 
because of the consistency with which they were advocated or because 
they represent especially unique and creative approaches. These stand-
out solutions for each of the above core issues are highlighted below.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    NSF involvement in support of innovation and industry-university 
partnerships goes beyond programs exclusive to the NSF. We have 
partnered with many governmental agencies in a number of activities 
focused specifically on the support of innovation.
    For example, the NSF has been an active participant in the inter-
agency working groups focusing on the development of regional 
innovation clusters (RICs). It is one of the partnering agencies 
participating in the ``Energy Efficient Building Systems Regional 
Innovation Cluster'' initiative, also called an Energy-RIC or E-RIC, an 
effort involving the Departments of Energy, Commerce and Labor, NIST, 
EDA and SBA as well as NSF in an interagency working group focusing on 
the stimulation of Regional Innovation Clusters. NSF has had 
representation on this working group since its inception.
    Additionally, in March of 2010, the Office of Science and 
Technology Policy (OSTP) and the National Economic Council (NEC) issued 
a Request for Information (RFI) about ideas and best practices for 
Proof of Concept Centers (POCCs). POCCs have seen some success in 
supporting early stage technologies by providing seed funding and 
expert assistance in the path toward commercialization. This RFI 
resulted in well over one hundred responses from entrepreneurs, 
industry and universities. Important issues about how to measure 
success and lessons learned are now being assembled and reviewed. These 
``voices from the field'' will serve as the basis for a set of 
recommendations for how the Federal Government can help spur a culture 
of innovation among the various stakeholders.
    And, NSF along with NIH is partnering with EDA/DOC in the ``i6 
Challenge'', which is designed to encourage and reward innovative ideas 
that will accelerate technology commercialization in a regional 
innovation ecosystem. Through supplemental funding NSF SBIR/STTR 
grantees will participate in this innovation ecosystem.
    The requested FY 2011 budget for NSF will enable the innovation 
ecosystem to leverage the strengths of American universities through 
connections with industry, and these connections may then foster 
regional ``engines of innovation'' in any arena of advanced 
technology--whether it be new approaches to energy generation and use, 
advanced information technologies, cyber security, or bioengineering. 
By encouraging and accelerating knowledge transfer from universities to 
industrial partners, NSF programs (such as the Engineering Research 
Center program) can help bring the technology to the marketplace. The 
ultimate goal is to extend America's historical reputation for ``Yankee 
ingenuity'' to a new recognition as ``a nation of innovators.'' The 
economic benefits of this enhanced innovation will be distributed more 
evenly across companies of all sizes, types, and geographic locations 
in the U.S. as well as a broader spectrum of Americans. And it will 
produce graduates who are capable of continuing the ``Innovation for 
Prosperity'' envisioned here out into the future to sustain our 
Nation's technological leadership and economic vitality for generations 
to come.

5. How does the NSF assess the long-term economic impact of both its 
                    knowledge and technology transfer programs and of 
                    its basic research programs?

    Perhaps the most challenging aspect of supporting the translation 
of basic research ideas and concepts into the market place is 
assessing, specifically, how relevant and productive our investments 
have been. The reasons for this are manifold and include:

          Often the `lead-time' between the basic research 
        discovery and the marketable product or process is significant. 
        Commercialization rarely takes place in the early stages of 
        support for basic research, and hence a `cause and effect' 
        between support for basic research and the subsequent 
        development of a commercial product cannot be established by 
        simply taking a `snapshot' assessment of an individual grant or 
        contract. The Science of Science and Innovation Policy (SciSIP) 
        program in the NSF Directorate for Social, Behavioral and 
        Economic Sciences attempts to study this very complex question.

          The development of new product areas (for example, 
        cell phones, or iPods) result not from one single research 
        discovery but from an entire portfolio of research projects. 
        Hence, the relationship is less a relationship between a 
        product and one individual project and much more a relationship 
        between a product and support for a research portfolio, 
        distributed over both time and university principal 
        investigator.

    All that being said, however, our partnership portfolio (which 
includes the Engineering Research Centers (ERC), the Industry/
University Cooperative Research Centers (I/UCRC), the Partnerships for 
Innovation (PFI) program, the Grant Opportunities for Academic Liaison 
with Industry (GOALI) program, and the small business (SBIR/STTR) 
program) is the most heavily assessed portfolio in the ENG directorate 
and, with the possible exception of education programs in the EHR 
directorate, the most heavily assessed portfolio in the entire NSF. 
Those assessment instruments include examining the breadth and depth, 
and specificity, of industry partnerships, the numbers of start-ups and 
small businesses spun out, the numbers of invention disclosures, 
patents generated and jobs created by NSF supported work. While those 
analyses are not necessarily conducted annually, they are conducted 
with regularity, often involving outside contractors. Even the National 
Academies have been involved, for example, in the evaluation of our 
SBIR program. Example statistics from those analyses include:

          From 1985 through 2009, ERCs have produced 1,701 
        invention disclosures, had 624 patents awarded, granted 2,097 
        patent and software licenses, spun off 142 firms, and have 
        produced more than 10,500 graduates at all levels.

          The highly leveraged I/UCRC program has established 
        over one thousand industry connections to about 150 
        universities. In addition to millions of dollars in direct 
        investment by these industries to support university research, 
        they have invested significantly to move translational research 
        into the market place. One of the most effective means of 
        technology transfer has been through undergraduate, graduate 
        and postgraduate students who are then hired by industry from 
        these centers. Industry finds these students to be `industry 
        ready' to make early contribution and in fact many of them come 
        back to become the industry sponsors at these centers.

          Over one thousand high tech small businesses have 
        been supported by the NSF SBIR/STTR program since the 
        congressional legislation in 1982. In-depth analysis has shown 
        that these firms create jobs at the rate of approximately eight 
        percent and impact the economy with revenue growth at 
        approximately 18 percent. About 40 percent of firms have strong 
        collaboration with universities with half of their technologies 
        coming directly from universities.

          Since the inception of the GOALI program in early 
        1980s, about one hundred university-industry collaborations are 
        established each year. The PFI program started in 2000 and has 
        contributed thousands of public and private innovation 
        partnerships for universities ranging from Foundations, K-12 
        school systems, technical professional organizations, small 
        businesses and Fortune 500 industries.

Summary

    The Engineering directorate takes very seriously its responsibility 
to show leadership within the NSF in translational research, bridging 
the important step from basic research discovery to market 
commercialization. Our research portfolio is a balance of support for 
basic research as well as these translational research areas, which 
contribute vitally to innovation. And, importantly, in maintaining a 
healthy connection with the business and industry community through 
translational research activities, we further enhance our basic 
research portfolio with new ideas generated by our industry partners. 
In short, it is a benefit to both our academic researchers and to the 
marketplace that we continue to foster these strong ties between ENG 
and the real world.
    Mr. Chairman, this concludes my remarks. I would be happy to answer 
any questions.

References

(1) United States Census data, U.S. Bureau of Economic Analysis NEWS, 
        May 12, 2010, U.S. Department of Commerce, Washington, D.C.

(2) National Science Board, Science and Engineering Indicators 2010, 
        National Science Foundation, Arlington, Va.

(3) Leveraging University Research for Industrial Competitiveness and 
        Growth, Final Draft Report of findings and recommendations, The 
        Pennsylvania State University, November 2009. A National 
        Science Foundation Partnerships for Innovation Sponsored 
        Project, NSF Project Number 0650124.

                    Biography for Thomas W. Peterson
    Dr. Thomas W. Peterson is assistant director for Engineering at the 
National Science Foundation (NSF). Prior to joining NSF, he was dean of 
the College of Engineering at the University of Arizona. He received 
his Bachelor of Science from Tufts University, his Master of Science 
from the University of Arizona and his doctorate from the California 
Institute of Technology, all in Chemical Engineering. He has served on 
the faculty of the University of Arizona since 1977, as head of the 
chemical and environmental engineering department from 1990 to 1998, 
and as dean from 1998 until January 2009.
    During his service as dean, Peterson was a member of the Executive 
Board for the Engineering Deans' Council of ASEE and was vice-chair of 
EDC from 2007 to 2008. He has served on the board of directors of the 
Council for Chemical Research and on the Engineering Accreditation 
Commission (EAC) of the Accreditation Board for Engineering and 
Technology (ABET). He was one of the founding members of the Global 
Engineering Deans' Council, and at Arizona made global education 
experiences a high priority for his engineering students. He is a 
fellow of the American Institute of Chemical Engineers and a recipient 
of the Kenneth T. Whitby Award from the American Association for 
Aerosol Research.
    The ENG Directorate at NSF provides critical support for the 
nation's engineering research and education activities, and is a 
driving force behind the education and development of the nation's 
engineering workforce. With a budget of approximately $640 million, the 
directorate supports fundamental and transformative research, the 
creation of cutting-edge facilities and tools, broad interdisciplinary 
collaborations, and through its Centers and Small Business Innovation 
Research programs, enhances the competitiveness of U.S. companies.

    Chairman Lipinski. Thank you, Dr. Peterson.
    Ms. Mitchell.

   STATEMENTS OF LESA MITCHELL, VICE PRESIDENT OF ADVANCING 
          INNOVATION, EWING MARION KAUFFMAN FOUNDATION

    Ms. Mitchell. Chairman Lipinski and Members of the 
Subcommittee, thank you for this opportunity to testify before 
the Subcommittee focused on the role of improving technology 
commercialization of government-funded research and how it can 
play as a driver in economic growth and job creation.
    If there is a silver lining to the economic crisis our 
country now faces, it is that policymakers and academics, as 
well as citizens, are now paying tremendous attention to job 
creation and economic growth. For far too long, the sources of 
job creation have been taken for granted. The Ewing Marion 
Kauffman Foundation is one of the largest funders of economic 
research focused on innovation and entrepreneurship, and we 
welcome the renewed focus on these issues generally, as well as 
the more narrowly focused conversation we will be having today 
on technology commercialization.
    In my testimony today, I will highlight three main policy 
proposals and can review the Kauffman Foundation's current 
thinking on best practices in technology commercialization. 
First, we call for an increase in the transparency of research 
resulting from federally funding through the creation of an 
``innovation exchange.'' Secondly, we encourage Federal 
agencies funding research to become more involved with driving 
university-specific improvements in technology 
commercialization. While we would agree that we have done well 
and other countries are following our lead, we also believe 
that we could do better. While we are very supportive of Bayh-
Dole as good policy, we believe it has not been consistently 
implemented and that we need to look at opportunities for 
market forces to help that process. Thirdly, we call for an 
increase in funding allocations for proof-of-concept centers 
and commercialization education programs through Federal 
agencies funding research.
    It has long been known that universities play an important 
role in economic growth, dating back to the 1800s when land-
grant universities were created to provide skilled people and 
new research knowledge for a growing economy. The way we 
perceive and manage this role has changed, however. 
Universities now are expected to generate growth, rather than 
merely sustain or support it. They accomplish this through 
generating new knowledge, producing graduates, and licensing 
innovations, or actually in many cases creating new companies. 
Federal funding of research provides a critical base for most 
of these applications. Most federally funded university 
research is already supported precisely because it promises to 
contribute to a government mission such as health, national 
defense, energy production or environmental protection. In the 
life sciences in particular, most research is conducted 
squarely in what Princeton University political science 
Professor Donald Stokes termed ``Pasteur's Quadrant,'' where 
research is both scientifically valuable and also immensely 
practical. We would argue that most efforts to increase 
commercialization can be achieved at relatively small marginal 
cost and can occur in ways that benefit both science and 
society. There is no single model for success.
    We have highlighted in my remarks and in my detailed 
testimony some basic elements, but they may need to be applied 
in different ways, as the Chairman alluded to previously. What 
works best at each university may depend on its research 
strengths, the nature of the related industries, the nature of 
the regions, big cities, rural communities, et cetera, and 
other variables. The only common thread is the need for a well-
developed ecosystem of innovation. In high-growth regions with 
highly entrepreneurial universities, the following tend to be 
true of the faculty: they have frequent and extensive contact 
with private industry, which attunes them to thinking in terms 
of practical value creation while enabling them to share their 
expertise. High-growth regions operate with university policies 
that encourage such activities, rather than laboring against 
policies that draw barriers between the academic and commercial 
realms. Magic bullets may score occasional hits, but ecosystems 
flourish with many pathways to the commercialization market.
    We call on you to increase the transparency of research 
resulting from Federal funding through the creation of an 
``innovation exchange,'' to encourage Federal agencies funding 
research to become involved in institution-specific technology 
commercialization effectiveness reviews, and lastly to increase 
funding allocations for proof-of-concept centers and 
commercialization education programs.
    Thank you for your invitation to present to the Committee 
today.
    [The prepared statement of Ms. Mitchell follows:]
                  Prepared Statement of Lesa Mitchell
    Chairman Lipinski and Members of the Subcommittee:
    Thank you for this opportunity to testify before the Subcommittee 
focused on the role that improving technology commercialization of 
government-funded research can play in driving economic growth and job 
creation. If there is a silver lining to the economic crisis our 
country now faces, it is that policymakers and academics, as well as 
citizens, are now paying tremendous attention to job creation and 
economic growth. For far too long, the sources of job creation have 
been taken for granted. The Ewing Marion Kauffman Foundation has been 
interested in economic growth through the mechanisms of innovation and 
firm formation, and we welcome the renewed focus on these issues 
generally, as well as the more narrowly focused conversation we will 
have today on technology commercialization.
    In my testimony today, I will highlight three main policy proposals 
and review the Kauffman Foundation's current thinking on best practices 
in technology commercialization. First, we call for an increase in the 
transparency of research resulting from Federal funding through the 
creation of an ``Innovation Exchange.'' Second, we encourage Federal 
agencies funding research to become more involved with driving 
university-specific improvements in technology commercialization. 
Third, we call for an increase in funding allocations for proof-of-
concept centers and commercialization education programs through 
Federal agencies funding research.

The Role of Universities

    It has long been known that universities play an important role in 
economic growth, dating back to the 1800s when land-grant universities 
were created to provide skilled people and new research knowledge for a 
growing economy. The way we perceive and manage this role has changed, 
however. Universities now are expected to generate growth, rather than 
merely sustain or support it. They accomplish this through generating 
new knowledge, producing graduates, and licensing innovations--or 
actually creating new companies. Federal funding of research provides a 
critical base for most of these activities.
    Universities' primary goals are, and should continue to be, the 
discovery and dissemination of new knowledge. But at the same time, 
universities are not monasteries. New knowledge for its own sake does 
not benefit human beings; it must be applied to real-world problems and 
challenges, and when this is done, the results must be disseminated to 
society. In market economies, dissemination often is best accomplished 
when innovations are commercialized, for it is the commercial infusion 
of human and financial capital that enables innovations to ``scale,'' 
and thereby encourage economic growth.
    Federal funding of university research has resulted in numerous and 
important commercial applications. For example, consider the list of 
the fifty most important innovations and discoveries funded by the 
National Science Foundation in its first fifty years, according to the 
NSF itself in 2000. Although this ``Nifty Fifty'' list includes some 
huge basic advances--such as the discovery that the universe is 
expanding at an accelerating rate--much of the list consists of 
innovations that have been commercialized, or that have become 
platforms for many commercial products and services that are widely 
used today: barcodes, CAD/CAM software, data compression technology 
used in compact discs, and perhaps most significant of all, the 
Internet (which the NSF funded along with DARPA, the Department of 
Defense research agency). A recent Information Technology and 
Innovation Foundation report found that universities and Federal 
laboratories have become more important sources of the top 100 
innovations over the last thirty-five years. In 1975, private firms 
accounted for more than 70 percent of the R&D 100 (R&D Magazine's 
annual list of the 100 most significant, newly introduced research and 
development advances in multiple disciplines), but by 2006, academia 
was responsible for more than 70 percent of the top 100 innovations.
    Despite the significant social and economic contributions of 
university commercialization, there has been much discussion about 
polluting the waters of basic research with market principles, saying 
that an increased commercialization focus will negatively impact 
funding of basic research. Most of this concern comes out of a mythical 
view of the linearity of the innovation process. It is nearly 
impossible to draw lines around research activities and to predict 
which of them are ``basic'' and which ``applied.'' But regardless of 
this enduring myth, I am not here today to advocate for a shift of 
research dollars out of basic research and into applied activities. 
Most federally funded university research is already supported 
precisely because it promises to contribute to a government mission, 
such as health, national defense, energy production, or environmental 
protection. In the life sciences, in particular, most research is 
conducted squarely in what Princeton University political science 
professor Donald Stokes termed ``Pasteur's Quadrant,'' where research 
is both scientifically valuable and also immensely practical. We would 
argue that most efforts to increase commercialization can be achieved 
at relatively small marginal costs and can occur in ways that benefit 
both science and society.

In Search of Improved Pathways

    The Kauffman Foundation has funded research focused on 
understanding the multiple pathways in which innovations are most 
effectively created and disseminated to the market, and we are not 
alone in recognizing the significance of this issue. In February 2010, 
Department of Commerce Secretary Gary Locke convened a meeting at the 
National Academies to open a dialogue with university and industry 
leaders focused on improving commercialization practices. On May 6 of 
this year, the Kauffman Foundation co-hosted the White House Energy 
Innovation Summit, which also focused on developing and accelerating 
new pathways to market--in this case, for energy innovation. And it is 
not just the Administration speaking out on this issue; university 
presidents and industry leaders are calling for new models and a review 
of practices in this arena. According to Arizona State University 
President Michael Crow, we must first design and implement new models 
of higher education to achieve the levels of connectivity, 
transparency, and speed of technology commercialization necessary to 
accelerate the innovation pipeline.\1\
---------------------------------------------------------------------------
    \1\ Summary Report of the White House Energy Innovation Conference, 
May 7, 2010.
---------------------------------------------------------------------------
    There is much to applaud in the current system of Federal research 
support and commercialization, but like any system or process, it can 
be improved. Indeed, the innovative process itself requires a constant 
lookout for ways to do better. We must remember that most technology 
commercialization programs on university campuses are relatively young 
in their tenure and, as such, can learn from the dissemination of best 
practices and the curtailing of operations that have inefficient scale 
potential. But before we get to best practices and issues of scale, I 
want to discuss several Federal policy steps that could be taken to 
support improvement efforts on individual campuses.
    First, federally funded research results must become more 
transparent and accessible. Open dissemination of research can 
significantly break down barriers that exist between public and private 
researchers. Many existing academic and intellectual property 
protection norms do not support sharing the knowledge gained through 
federally funded research; this should be revisited. We need more 
efforts like the Public Library of Science (PLOS), which is a nonprofit 
organization of scientists and physicians committed to making the 
world's scientific and medical literature a freely available public 
resource, and the recent Yale Law School roundtable on ``Reproducible 
Research: Data and Code Sharing in Computational Science.'' It is 
critically important to bring together legal, computational, life 
sciences, and scholars of other disciplines to propose frameworks and 
action steps that will enable access to future research, 
commercialization, and replicability.
    As we move from discussing research to what could be considered 
innovations resulting from the research, separate platforms and 
standards for openness should be considered. The Federal Government 
should create an ``Innovation Exchange'' mechanism in the United 
States. Specifically, we believe the Federal Government should 
implement policy that requires all universities receiving Federal 
funding to allow the outcomes of their research to become immediately 
accessible through a centralized clearinghouse. With experience, the 
Innovation Exchange platform can become a strategic advantage for 
entrepreneurs and companies, and therefore, support an accelerated 
economic recovery and growth.
    Foundations are unique in that we pilot projects than can better 
humankind. Indeed, the Kauffman Foundation has studied and funded 
potential models of the Innovation Exchange like the iBridge Network 
(www.ibridgenetwork.org), which is currently a host site for more than 
100 universities and 12,000 innovations. The iBridge Network was 
created to reduce the transaction barriers of commercialization and 
facilitate sharing across researchers, institutions, and non-profit and 
for-profit entities, while also shortening cycle time for 
commercialization transactions. The iBridge Network is an example of 
how pooling the pockets of knowledge that are currently held at 
individual campuses and creating transaction marketplaces that span 
traditional geographic boundaries can lead to more social benefit. The 
iBridge Network was not intended as a final solution; as such, the 
Kauffman Foundation would be willing to provide all previous knowledge 
and intellectual property available to an appropriate not-for-profit or 
government entity that would be assigned the responsibility of managing 
an Innovation Exchange.
    Second, we need to encourage the engagement of Federal agencies 
funding research in university-specific evaluations of the effectives 
of the technology commercialization processes and policies as it 
relates to the disciplines and departments that receive Federal 
funding. This review will be helpful in determining if departments and 
professors are advocates of institutional-specific changes to current 
technology commercialization practices. While university ownership of 
innovations, as specified in the Bayh-Dole Act, is a starting point for 
commercialization, to-date it has been an unfunded mandate and one 
specifically focused on licensing. Bayh-Dole does not specify the 
entire ecosystem required for commercialization. Elsewhere we have 
conceptualized some changes that could occur at the individual 
institution level such as allowing a free and competitive market in 
technology licensing. While allowing individual faculty or departments 
to choose their commercialization agents may not be a necessary 
requirement at every institution, like other free markets, an open 
system could dramatically speed up the commercialization of new 
technologies, ultimately benefiting consumers--in the United States and 
around the world--more rapidly. A free market directive also would 
likely lead university technology licensing offices (TLOs) to 
specialize or turn to outside agents with the appropriate expertise. A 
university might drop its TLO altogether, but continue to earn 
licensing revenues--less the fees charged by outside TLOs or agents. 
Federal agencies funding research need to be active in reviewing 
institution-specific technology commercialization practices from a 
discipline-specific perspective and driving adoption of new, more 
radical approaches at underperforming institutions. Performance should 
first be measured by innovations moved to the market, not revenue 
generated.
    Increased funding to proof-of-concept centers and commercialization 
training/mentoring programs is the third area of policy relevance we 
see before the Committee. We know from individual-level studies of how 
technology commercialization practices change, that adoption of new 
practices is a person-to-person endeavor in most successful cases. If 
your mentor was good at technology commercialization, your graduate 
school advisor, or your current chair, then you are much more likely to 
engage in commercialization activities yourself. Unfortunately, most 
commercialization education programming is not systematic and hinges on 
the quality of ``mentoring'' received, or more accurately, how 
successful the mentors have been in building out commercial social 
networks. MIT Professor Robert Langer is the classic case study here, 
having mentored hundreds of graduate students and junior faculty who 
have been associated with his lab and gone on to significant commercial 
success.
    The National Science Foundation has been the main Federal agency 
to-date to provide commercialization education funding. While we 
applaud NSF's efforts, commercialization education needs to be 
ubiquitous (which it is not). The Department of Energy and the National 
Institutes of Health should require all principal investigators and 
graduate students who receive Clinical & Translational Science Awards 
(CTSA) or ARPA-E grants to participate in an approved commercialization 
program that would provide grantees access to detailed knowledge about 
intellectual property, market analysis, funding, and firm formation 
models.

Best Practices and Scale

    Now that I have covered some of our specific policy 
recommendations, let me turn to the topic of best practices and scale. 
I bring up scale because I think one of the emerging understandings of 
the technology commercialization process is that individual 
institutions face enormous hurdles in recognizing and supporting 
commercialization efforts across all academic disciplines. Indeed, this 
is a challenge that I would argue can be addressed by developing 
industry-specialized or discipline-specific TLOs, which will enable the 
TLOs to gain scales of efficiency in licensing. It also could mean that 
smaller research institutions would be best suited to consider regional 
or technology commercialization consortia rather than the maintenance 
of their own TLOs. Wisconsin implemented a similar statewide model a 
number of years ago, and both California and North Carolina have 
experimented with a variety of cross-university collaborations through 
their public university systems.
    At many universities, a TLO becomes the de facto control center for 
the innovation strategy of the whole university. Faculty, who make 
inventions or discoveries, work through the licensing office, which is 
charged with a multitude of tasks--from determining commercial 
viability to patenting, licensing, and earning revenue. Many, but not 
all, of these offices are under-resourced for such a large agenda, and 
are in a constant push-pull based upon competing university priorities. 
In working with universities to address these topics, we learned of an 
underlying issue that may pose a greater concern: a tendency to focus 
on patenting and licensing to the neglect of other modes of innovation 
due to the competing concerns.
    High-profile success stories have led us all to think of patentable 
technologies as the universities' primary form of innovative ``output'' 
to the economy, and of licensing as the main means of commercial 
diffusion. In fact, as innovation scholars have pointed out, 
universities have a range of valuable outputs--from ``information,'' or 
knowledge, to human capital--and there are many possible pathways for 
diffusing them into the market: through consulting engagements, through 
non-patent-based startups, or simply through networking entrepreneurial 
students and faculty.
    We see evidence that these outputs and pathways, if well-
cultivated, can provide a significant new source of entrepreneurial 
outcomes in addition to patenting and licensing. For instance, many MIT 
students and alumni are prolific entrepreneurs and, in a program that 
serves them called MIT Venture Mentoring, the majority of the mentored 
companies do not hold intellectual property from MIT. Most of the 
companies either are based on new business models to meet a need in a 
market, or they are software companies, which tend to rely less on 
patents. A replica of this model has been implemented in St. Louis, New 
Haven, and Toronto with some early visible success. Other areas, such 
as business plan competitions and industrial affiliate programs, show 
great potential impact, although they have not been studied much to-
date. Patenting and licensing are certainly important, but a brighter 
future awaits universities and regions that, supported by resources 
across the campus and from a local entrepreneurial community, can tap 
the whole spectrum of innovation. As for incubators, there are times it 
makes sense to bring fledgling firms together to share lab facilities 
and services, and there can be synergies from the interaction. But, in 
too many cases, the incubator also is a real estate project that has to 
make real estate sense. If wet labs are needed, they can drive the 
costs quite high, and if filling the space becomes a concern that 
trumps serving the entrepreneurs, much of the value is lost. There are 
examples of successful incubators in places like St. Louis and Madison, 
Wisconsin; however, there are many more examples of failures. We should 
continue to learn from the successful incubators, while also 
considering new models.
    One such new model, the proof-of-concept center, is seeing success, 
both as an incubator of early-stage ideas and as a way to provide 
students and faculty an opportunity to experience commercialization in 
a real sense. Proof-of-concept centers do not require shared physical 
space, but instead provide funds and expert assistance for early-stage 
innovators to test commercialization potential.
    Many universities will be best served in expediting the 
transactional part of the processes in which they are involved. Here, 
``express licenses'' are an emerging best practice. New examples of 
standardized licensing agreements, such as the University of North 
Carolina at Chapel Hill's Carolina Express License Agreement or the 
University of Hawaii's, bypass customized negotiations with the 
university, which can take considerable time with unpredictable 
results, in favor of clear, transparent, and timely license agreements.
    The Carolina Express License Agreement is an example of how 
universities and entrepreneurs can streamline collaborations to 
facilitate the formation of new companies and jobs. The Carolina 
Express License Agreement was developed by a committee of UNC faculty 
entrepreneurs, venture capitalists, attorneys, and UNC's Office of 
Technology Development as a way to shorten the cycle time in which 
federally funded inventions move from lab to market in the form of a 
startup. Founders or entrepreneurs interested in starting a company can 
choose the Express License, which outlines provisions for company 
ownership, future revenue payments, and other common sticking points 
that can slow down commercialization. By creating a standardized 
licensing agreement, UNC departs from current commercialization 
guidelines issued by the Association of American Universities, which 
states that all technologies arise under unique circumstances and 
therefore require a customized licensing process. We must maintain 
universities' intellectual property rights while recognizing that 
technologies, innovations, and intellectual property are a small 
portion of what it takes to start an entrepreneurial venture.

A Call for Commercialization Education

    The critical role that federally funded research plays in our 
economy is compromised because faculty, graduate students, and 
postdoctoral researchers do not have a base-level understanding of the 
commercialization process. The more than 48,000 postdoctoral 
researchers at United States institutions are at the forefront of new 
discoveries, but few have an opportunity to develop the entrepreneurial 
skills necessary to move their innovations from the lab to the market. 
With the aim of cultivating entrepreneurs from among the postdoctoral 
community, the Kauffman Foundation developed the Entrepreneur 
Postdoctoral Fellowship program to educate and train scientist-
founders, who will create the high-growth technology companies of 
tomorrow. In our initial year, thirteen of the nation's top scientific 
postdoctoral scholars were selected to learn how to evaluate their 
research for commercial potential and the process to take promising 
research forward to commercialization. Each Fellow has a business 
mentor, a customized experience, and intensive entrepreneurship 
workshops at the Kauffman Foundation, where they have the opportunity 
to network and learn from each other and from entrepreneur experts.
    This is an area where Federal agencies funding research could 
become involved. Indeed, NSF's rapidly expanding Professional Science 
Master's Program ``prepares graduate students for careers in business, 
industry, nonprofit organizations, and government agencies by providing 
them not only with a strong foundation in science, technology, 
engineering, and mathematics (STEM) disciplines, but also with research 
experiences, internship experiences, and the skills to succeed in those 
careers.'' Until the Professional Science Master's programs take off 
and we see a reduction in the number of postdocs, the funding of more 
commercialization opportunities specifically aimed at postdocs would 
seem prudent.
    The National Science Foundation has consistently expanded its 
efforts to encourage university and industry partnerships, and classic 
programs such as the Small Business Innovation Research grants. The 
Engineering Research Centers have been a cornerstone of the NSF 
portfolio and continue to be a wonderful source of basic research and 
corresponding commercial outcomes. Industry/University Cooperative 
Research Centers (I/UCRC) Program remains a relatively small but 
critical part of NSF's investments and is an increasingly important 
support mechanism linking new businesses with universities. The 
Kauffman Foundation and the National Academies have funded a myriad of 
studies to evaluate the effectiveness of the Small Business Innovation 
Research (SBIR) program. Simply stated, the SBIR program--specifically 
at the NSF--is a model program being replicated around the world. That 
being said, it is important to note that all SBIR programs do not have 
the same management infrastructure and capabilities. In the last two 
years the NIH has done a very good job of modifying the management of 
its SBIR program that today resembles the best practices of the NSF 
SBIR program.

The Case of Life Sciences

    Thus far I have talked about technology commercialization broadly, 
and I now want to look specifically at one area--the life sciences--as 
it is an area of unique concern for me. A recent Newsweek cover story 
\2\ summarized some of the main issues here very well, including:
---------------------------------------------------------------------------
    \2\ http://www.newsweek.com/2010/05/15/desperately-seeking-
cures.html

          From 1996 to 1999, the U.S. Food and Drug 
        Administration approved 157 new drugs. From 2006 to 2009--the 
---------------------------------------------------------------------------
        agency approved 74.

          From 1998 to 2003, the budget of the NIH doubled, to 
        $27 billion, and is now $31 billion.

    The frustration around the slow pace of discovery to marketplace in 
biomedical research cannot all be attributed to the role of the 
university but, due to the significant role of the NIH in funding 
university research in this area, it should be considered. The ``valley 
of death'' between a basic discovery and the stage at which drug 
companies are willing to invest in the development of a compound is 
stopping many potentially high-impact innovations from reaching the 
marketplace. In this valley, academic scientists have few incentives to 
participate because academic publications and tenure processes aren't 
supportive of the difficult and sometimes tedious testing work that is 
necessary to determine toxicity of a compound in animal subjects. 
Indeed, even some of the more informal disincentives of academia, which 
bias against publishing negative results, discourage researchers from 
working with compounds closer to human consumption.
    Another challenging factor in drug development today is the fact 
that large drug companies have reduced their workforces by more than 
90,000 employees in the last year as they change strategies on testing 
and development, choosing to outsource these functions more to biotech 
firms. But biotech firms are often undercapitalized and the recent 
recession has not helped the situation. According to industry 
officials, the major source of funding for these activities in recent 
years, venture capitalists, have become much more reticent to support 
early-stage testing and translation service.
    Getting new treatments and cures to patients more quickly is the 
goal of a unique life science proof-of-concept model that draws support 
from higher education, philanthropy, and industry experts to move 
medical innovations from the lab to the market. Earlier in this 
testimony we recommended the funding of proof-of-concept centers, two 
of which we evaluated in a report released in 2008. Since that time, 
the Kauffman Foundation sought to replicate the model with our own 
funding to prove the benefit of the model at a university that did not 
have the budget of an MIT or University of California-San Diego. The 
Institute for Advancing Medical Innovation, established at the 
University of Kansas with funding from the Kauffman Foundation, will 
focus on education and research that advances medical innovations, 
ultimately accelerating the number and quality of new drugs, medical 
devices, and drug-medical device combinations from the bench to the 
bedside. The grant earmarks funding for the Institute for Pediatric 
Innovation, which funnels its drug development work through a 
partnership with KU, Kansas City's Children's Mercy Hospital, and 
Beckloff Associates Inc. The Institute is guided by an advisory board 
of independent experts and staffed by experienced drug development and 
medical device leaders to create an unprecedented collaboration of 
resources and processes to support the Institute. The Kauffman 
Foundation grant includes seed funds for up to twenty-four proof-of-
concept projects per year. Based upon the recommendations from its 
advisory board, the Institute may progress with a varying number of 
projects from year-to-year. In addition to its impact in the medical 
field, the Institute for Advancing Medical Innovation serves as a 
national model for how philanthropy, industry, and universities can 
collaborate to advance university innovations in life sciences.
    These types of university, industry, philanthropy, and advocacy 
group collaborations have the potential to change the way in which 
basic discoveries are brought to market. I am particularly excited to 
see how these seeds of cooperation are being encouraged as a result of 
a large increase in funding in the recent healthcare legislation that 
will provide $500 million to the Cures Acceleration Network at NIH for 
such collaborations this year. However, the Wall Street Journal has 
reported that companies that are partially owned by tax-exempt 
organizations (like universities) will not be eligible for funding.\3\ 
This exclusion of companies that likely have university equity seems 
like a counterproductive measure that will be a disadvantage to many 
startup firms that are based on university technologies.
---------------------------------------------------------------------------
    \3\ http://online.wsj.com/article/
SB20001424052748703559004575256303965700876.html

Conclusion

    There are no single models for success. We have highlighted some 
basic elements here, but they may need to be applied in different ways. 
What works best at each university may depend on its research 
strengths, the nature of the related industries, the nature of the 
region (big city, rural, etc.), and other variables. The only common 
thread is the need for a well-developed ecosystem of innovation. In 
high-growth regions with highly entrepreneurial universities, the 
following tend to be true of the faculty: They have frequent and 
extensive contacts with private industry, which attune them to thinking 
in terms of practical value creation while enabling them to share their 
own expertise. High-growth regions operate with university policies 
that encourage such activities, rather than laboring against policies 
that draw barriers between the academic and the commercial realms. 
Magic bullets may score occasional hits, but ecosystems flourish with 
many pathways to the commercial market.
    We call on you to increase the transparency of research resulting 
from Federal funding through the creation of an ``Innovation 
Exchange,'' to encourage Federal agencies funding research to become 
involved in institution-specific technology commercialization 
effectiveness reviews, and, lastly, to increase funding allocations for 
proof-of-concept centers and commercialization education programs.
    Thank you for the invitation to present to the Committee today.

Supplementary Materials

Academics or Entrepreneurs? Entrepreneurial Identity and Invention 
        Disclosure Behavior of University Scientists--http://
        www.kauffman.org/uploadedFiles/George-Gerard.pdf

Assessing Risk and Return: Personalized Medicine Development & New 
        Innovation Paradigm--http://www.kauffman.org/research-and-
        policy/assessing-risk-and-return.aspx

A Critical Role for the Modern Research University--http://
        portal.acm.org/
        citation.cfm?id=1017754&dl=GUIDE&coll=GUIDE&CFID=93187681&CFTOKE
        N= 74979519

Commercializing University Innovations: Alternative Approaches--http://
        ssrn.com/abstract=976005

Developing University-Industry Relations: Pathways to Innovation from 
        the West Coast--http://books.google.com/books?id=-
        N-jM0Au4HgC

Entrepreneurial Impact: The Role of MIT--http://www.kauffman.org/
        newsroom/mit-entrepreneurs.aspx

Finding Business Idols: A New Model to Accelerate Start-Ups--http://
        www.kauffman.org/entrepreneurship/finding-business-idols.aspx

The Future of the Research University: Meeting the Global Challenges of 
        the 21st Century--http://www.kauffman.org/Details.aspx?id=5758

The HBR List: 10 Breakthrough Ideas for 2010--A Faster Path from Lab to 
        Market: Removing the technology licensing Obstacle.--http://
        hbr.org/2010/01/the-hbr-list-breakthrough-ideas-for-2010/ar/1 
        (not a complete article, must subscribe)

The Impact of Academic Patenting on the Rate, Quality, and Direction of 
        (Public) Research Output--http://www.nber.org/papers/w11917

In tough times, personalized medicine needs specific partners--http://
        www.nature.com/nm/journal/v14/n12/full/nm1208-1294.html Newton

The Knowledge Filter and Economic Growth: The Role of Scientist 
        Entrepreneurship--http://www.kauffman.org/uploadedfiles/
        scientist-entrepreneurs
        -audretsch.pdf

Measuring Knowledge Spillovers: What Patents, Licenses and Publications 
        Reveal About Innovation Diffusion--http://ssrn.com/abstract--
        id=1598495

Measuring the Social Value of Innovation: A Link in the University 
        Technology Transfer and Entrepreneurship Equation--http://
        books.google.com/books?id=jEU5YwGSUU4C

Moving Innovations to Market--http://www.kauffman.org/advancing-
        innovation/moving-innovations-to-market.aspx

New Standard Licensing Agreement Expedites University Startups, 
        According to Kauffman Foundation Paper--http://
        www.kauffman.org/advancing-innovation/new-standard-licensing-
        agreement-expedites-university-startups.aspx

Proof of Concept Centers: Accelerating the Commercialization of 
        University Innovation--http://www.kauffman.org/advancing-
        innovation/accelerating-commercialization-of-university-
        innovation.aspx

Should Universities Be Agents of Economic Development?--http://
        www.usinnovation.org/files/ASTRABriefsSummer08.pdf

Technological innovation: generating economic results--http://
        books.google.com/books?id=zHHUr0TzZIcC

University entrepreneurship and technology transfer: process, design, 
        and intellectual property--http://books.google.com/
        books?id=nhAxMRjUELgC

University entrepreneurship: a taxonomy of the literature--http://
        citeseerx.ist.psu.edu/viewdoc/
        download?doi=10.1.1.121.7880&rep=rep1&
        type=pdf

                      Biography for Lesa Mitchell

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    Lesa Mitchell is a vice president with the Kauffman Foundation.
    She has been responsible for the Foundation's frontier work in 
understanding the policy levers that influence the advancement of 
innovation from universities into the commercial market and the new 
relationships between philanthropy and for profit companies. Under 
Mitchell's leadership, the Foundation is defining and codifying 
alternative commercialization pathways, and identifying new models to 
foster innovation. Mitchell was instrumental in the founding of the 
Kauffman Innovation Network/ iBridge Network, the Translational 
Medicine Alliance, the National Academies-based University-Industry 
Partnership and leader in the replication of innovator-based mentor 
programs across the U.S. In addition, Mitchell serves on the boards of 
the Regenerative Medicine Foundation and the University of Kansas 
Institute for Commercialization.
    Prior to joining Kauffman, Mitchell spent twenty years of her 
career in global executive roles at Aventis, Quintiles, and Marion 
Laboratories and ran an electronic clinical trials consulting business 
in support of global pharmaceutical clients.

The Kauffman Foundation

    The Ewing Marion Kauffman Foundation (www.Kauffman.org) works with 
partners to encourage entrepreneurship around the world. The Kauffman 
Foundation is working to further understand the phenomenon of 
entrepreneurship, to advance entrepreneurship education and training 
efforts, to promote entrepreneurship-friendly policies, and to better 
facilitate the commercialization of new technologies by entrepreneurs 
and others that have great promise for improving the economic welfare 
of the world.
    The Foundation works with leading educators and researchers 
nationwide to create awareness of the powerful economic impact of 
entrepreneurship, to develop and disseminate proven programs that 
enhance entrepreneurial skills and abilities, and to improve the 
environment in which entrepreneurs start and grow businesses.

    Chairman Lipinski. Thank you, Ms. Mitchell.
    And now we will move on to Mr. Crowell.

STATEMENTS OF W. MARK CROWELL, EXECUTIVE DIRECTOR AND ASSOCIATE 
VICE PRESIDENT, INNOVATION PARTNERSHIPS AND COMMERCIALIZATION, 
                     UNIVERSITY OF VIRGINIA

    Mr. Crowell. Thank you. Chairman Lipinski and Ranking 
Member Ehlers, thank you for the opportunity to testify before 
the House Science and Technology Subcommittee on Research and 
Science Education. My name is Mark Crowell. As of about two 
weeks ago, I am the Executive Director and Associate Vice 
President for Innovation Partnerships and Commercialization at 
the University of Virginia. I took this job because I believe 
U.Va. is at the forefront of research universities in advancing 
an institution-wide innovation agenda, and I intend to share 
and help lead U.Va.'s vision for transforming the way ideas 
flow from universities to the world.
    I am a 23-year member of the technology transfer profession 
and previously led programs at the Scripps Research Institute 
in La Jolla and Palm Beach, at Duke, at North Carolina State 
University and at the University of North Carolina at Chapel 
Hill, and Mr. Chairman, I am a Tar Heel basketball fan, just to 
get that out of the way. During 2005, I also served as 
President of the Association of University Technology Managers, 
or AUTM, a global organization of more than 3,500 technology 
transfer professionals.
     In my 23 years of experience, I have witnessed the 
technology transfer profession evolve from a function of 
secondary importance into a key component of the teaching, 
research, public service and engagement missions of the 
university. The technology transfer function of the 1980s and 
much of the 1990s was largely reactive, non-market driven and 
completely separate from concepts like regional economies and 
innovation ecosystems. Let me stress, I believe this is 
yesterday's news and that these perceptions should no longer 
guide public policy. Fast-forward, in fact, through the 1990s 
to today and the profession and practice is markedly different.
    As I will outline via some best-practice examples, 
technology transfer offices are sophisticated business and 
innovation development engines, and the people who run them are 
highly skilled and come from a broad array of fields. Yes, we 
still have administrative responsibilities but most of us are 
nerve centers on our campuses for innovation partnerships and 
commercialization, and are key parts of our regional innovation 
economies.
    The impact of these efforts is especially easy to see in 
regions acknowledged to be leaders in technology-based economic 
development. The example I know is Research Triangle Park, but 
similar stories are available or are evolving in other regions 
where research universities are ramping up their innovation and 
partnership activities. My written statement contains much more 
detail about Research Triangle Park and the way in which it 
evolved during the 1990s and early 2000s as an innovation and 
entrepreneurial hotspot, with impressive growth in company 
launches, new jobs and other indicators, and it documents the 
parallel and dramatic investments in academic technology 
transfer during this period as well as the impact of a regional 
licensing consortium serving three of the research universities 
there.
    As noted, the scale and focus of academic technology 
transfer translational research and business development 
initiatives have evolved in numerous ways. A partial list of 
best practices includes the following: one, startup company 
development activities. According to AUTM's most recent survey, 
almost 600 universities spin-offs were formed in 2008 alone.
    Two, entrepreneurship training for students and faculty are 
now part of the academic landscape, or as the former chancellor 
of UNC Chapel Hill indicated, they are part of the weave and 
fabric of the institution. Working with partners like the 
Kauffman Foundation, or regional innovation partners like the 
Council for Entrepreneurial Development, or CONNECT, 
entrepreneurship education and training activities are 
available for post-docs, graduate students, undergrads, faculty 
and others.
    Three, critical pre-seed and seed capital resources and 
networks are being launched. It is well documented that 
institutional venture capital has moved further downstream and 
that a vast gap exists between early-stage university 
technology and marketplace investment opportunities. At the 
University of Virginia, as an example, we recently held our 
second annual U.Va. Venture Summit. In each of its first two 
years, the U.Va. Venture Summit attracted venture capital funds 
managing more than $15 billion. In the first year, each of the 
eight U.Va. companies presenting received funding.
    Four, proof-of-concept and translational research programs 
are becoming commonplace best practices. Again, an example from 
the University of Virginia is the Wallace Coulter Foundation 
Translational Research Partnership, which funds a project 
manager and about eight projects per year. Results from this 
activity indicate that there have been 20 new patent 
disclosures per $1 million invested and that 50 percent of 
funded projects over the first four years have moved to a 
commercial license within two years, all metrics that greatly 
exceed traditional academic research metrics. U.Va. officials 
attribute the success of the Coulter project to the high-touch 
involvement of a diverse project review board that involves 
industry personnel, investment capital and others.
    At the University of Virginia, we strongly believe that 
enhanced Federal funding by NSF and others for proof-of-concept 
and translational research initiatives, similar to these 
examples, will lead to the harnessing of what economist Paul 
Romer calls ``the countless discoveries required for economic 
growth'' by linking the people that make them with other 
participants in innovation ecosystem.
    I thank you for the opportunity to be here today and I look 
forward to answering your questions.
    [The prepared statement of Mr. Crowell follows:]
                 Prepared Statement of W. Mark Crowell
    Chairman Lipinski and Ranking Member Ehlers, thank you for the 
opportunity to testify before the House Science and Technology 
Subcommittee on Research and Science Education on the important topic 
of enhancing technology transfer in order to more effectively translate 
research discoveries from the lab to the market.
    My name is Mark Crowell. As of about two weeks ago, I am the 
Executive Director and Associate Vice President for Innovation 
Partnerships and Commercialization at the University of Virginia. I 
believe that the University of Virginia is at the forefront of research 
universities in advancing an institution-wide innovation agenda that 
works across traditional silos and boundaries, that embraces outward-
facing partnerships, and that is committed at every level to leveraging 
its innovation capacity and to translating its research discoveries for 
the public good and for economic development impact. Indeed, I joined 
U.Va. to share and help lead the university's vision for transforming 
the way ideas flow from universities to the world. If future 
generations are to enjoy peace, prosperity, and a clean and sustainable 
environment in this nation, there is nothing more important than long-
term investments in research universities, because research 
universities are the innovation engines of the United States.
    I am a 23-year member of the technology transfer profession. Prior 
to joining the University of Virginia, I was the Vice President for 
Business Development at The Scripps Research Institute in La Jolla, 
California, and Palm Beach, Florida. From 1987 until 2008, I led the 
technology transfer, economic development and industry research 
programs at Duke University (1987-1992), North Carolina State 
University (1992-2000), and the University of North Carolina at Chapel 
Hill (2000-2008). I also served as President of the Association of 
University Technology Managers, or AUTM, during 2005, and still serve 
on the Board of Directors of the AUTM Foundation, AUTM's fund-raising 
and business development arm. AUTM is a global organization of more 
than 3,500 technology transfer professionals and is dedicated to 
promoting and supporting technology transfer through education, 
advocacy, networking and communication.
    In my 21+ years of experience in Research Triangle Park, North 
Carolina, I witnessed the technology transfer profession evolve from a 
function of secondary importance into a key component of the teaching, 
research, public service, and engagement missions of the region's 
universities. In the early days of my career, this activity was largely 
about counting invention disclosures, filing patents when the 
university could afford to do so, avoiding risks, and hoping for 
financial windfall while praying your institution and your faculty 
avoided making front-page news as a result of various conflicts. 
Concepts of market pull, entrepreneurship, translational research, 
proof-of-concept funding, and equity stakes were not yet part of the 
vernacular of the technology transfer scene. The technology transfer 
function of the 1980s and much of the 1990s was largely reactive, non-
market driven, and completely separate from concepts like regional 
economies and innovation ecosystems. Let me stress, however--this 
description is the ``old mythology'' of university technology transfer 
and these perceptions do not reflect the current reality. Government 
policy today should not be guided by outdated perceptions of the past.
    Fast forward through the 1990s to today and the profession--and 
practice--is markedly different. Technology transfer offices in 
research universities are sophisticated business and innovation 
development engines, and the people who run them are highly skilled and 
come from a broad array of fields. Yes, we still deal with invention 
reports, patent filings, conflict of interest management, and 
government reporting--but we also write business plans, raise and 
administer proof-of-concept and pre-seed capital funds, network with 
entrepreneurs, train faculty and students in entrepreneurship, partner 
with private companies and non-profits to leverage the innovation 
capacity of our institutions, develop research parks, and help recruit 
the best and brightest faculty and students to our campuses and retain 
them at our institutions.
    As a result of the changes and evolution highlighted above, the 
innovation and technology transfer functions operating in research 
universities are an increasingly important component of regional 
economies. They play critical roles in developing the innovation 
ecosystems needed to support, nurture, grow and retain the 
entrepreneurial companies that will be the primary source of wealth 
creation and new jobs in today's knowledge economy. The impact can 
already be seen in regions acknowledged to be leaders in technology-
based economic development. The example I know best is Research 
Triangle Park, but similar stories are available or are evolving in 
other regions where research universities are ramping up their 
innovation and partnership activities.
    Research Triangle Park was launched in 1959. In its first thirty 
years of life, the economic development model followed successfully by 
RTP's leaders was the old-fashioned ``big game hunt'' model--i.e., 
identifying and recruiting corporate headquarters, government agencies, 
or major divisions of existing companies. Notable successes in RTP 
during this time period were IBM, Glaxo, Burroughs Wellcome, and the 
National Institute of Environmental Health Sciences. By 1989, there 
were 60 firms and 30,000 employees; most of the firms were medium to 
large-sized companies or divisions of companies. Despite this success 
in company attraction, there was very little technology transfer 
infrastructure in the region's universities during this period--and 
very little in the way of a start-up pipeline or entrepreneurial 
culture.
    From the mid 1980s through the mid 1990s, investments in the 
technology transfer infrastructure in RTP were increased. The three 
universities launched, or rejuvenated, their on-campus technology 
transfer operations, and in 1987 came together to operate the jointly-
governed Triangle Universities Licensing Consortium to market and 
license technologies developed at the three institutions. Concurrently, 
the state launched or increased its investment in technology-based 
economic development agencies like the North Carolina Biotechnology 
Center--which then initiated programs to partner with local 
universities to facilitate technology transfer and business development 
mechanisms and resources. The Council for Entrepreneurial Development, 
a non-profit RTP-based organization whose mission is ``to identify, 
enable and promote high growth, high impact companies and to accelerate 
the entrepreneurial culture of the Research Triangle and North 
Carolina,'' was founded during this period as well.
    The investment in technology transfer infrastructure and in a 
regional innovation ecosystem paid enormous dividends for the region's 
economy. By 2002, RTP had more than 150 firms--two and a half times the 
number just 13 years earlier--and RTP jobs totaled more than 45,000, a 
50% increase from 1989. 52% of these companies had less than 10 
employees, and 86% had fewer than 250 employees. About one-third of the 
firms in RTP are, in fact, start-up companies. It appears that the RTP 
of today is actually RTP II--a second generation research park with a 
much more robust innovation and entrepreneurial base of economic 
activity than the first version of RTP, or RTP I--whose foundation was 
built upon a theory and practice of economic development (``big game 
hunting'') no longer seen as viable or effective in generating jobs and 
investment. The growth and evolution of RTP from 1989 to 2002 from a 
corporate headquarters destination to a start-up hotspot was likely the 
result of a confluence of a number of factors--but there is no doubt 
that the enhanced attention on technology transfer and commercializing 
research discoveries contributed significantly to the park's evolution 
into a business model which is much more sustainable than that followed 
previously.
    As technology transfer and innovation management within academic 
institutions have become more important regionally and more ingrained 
into the missions and role of the research university, the scale and 
focus of technology transfer have changed in numerous ways. As noted 
earlier, the practice of technology transfer still involves the basic 
invention management, patenting and licensing functions which have 
always been part of the technology transfer operation. But the 
following are examples of sophisticated educational, financing, and 
business development functions now seen in many such operations:

        1)   Start-up company formation and support--Innovation 
        management professionals in universities increasingly 
        participate in dynamic business development activities. 
        According to AUTM's most recent survey, 595 new companies were 
        formed in 2008 alone. Start-up companies often are the best 
        means to champion the translation and commercialization of an 
        early stage discovery, as well as to create regional economic 
        impact. University personnel increasingly seek partnerships 
        within their innovation ecosystem (e.g., science and 
        engineering faculties, business and law schools, local 
        entrepreneurial support organizations, venture capital firms, 
        economic development agencies, regional innovation centers and 
        incubators, and so forth) in order to form, launch, and nurture 
        the development of start-up companies.

        2)  Translational research, entrepreneurship and innovation 
        training (and experiential learning) for students and faculty 
        across the institution--At the University of Virginia, we, like 
        many universities, hold business plan competitions as well as 
        ``business concept'' competitions (focusing on pre-commercial 
        innovation assessment and translation). We also offer a course 
        in BioInnovation that spans engineering, business, biology, 
        architecture, and medicine. In addition, post doctoral 
        researchers were brought into the technology transfer offices 
        at Scripps and at UNC for 9 month internships to begin to grow 
        a pipeline of academic scientists who are trained in 
        translational research, business development and transactional 
        aspects of commercialization--and to enhance the number of 
        well-trained scientists with business development expertise 
        needed to sustain and grow innovation ecosystems. Similarly, 
        monthly seminar series with networking social events are found 
        at U.Va. and UNC and offer a venue to bring together faculty, 
        postdocs, graduate students, and the local entrepreneurial and 
        business development communities in ways which catalyze 
        relationships, networks, and business development 
        opportunities. With support from the Kauffman Foundation, an 
        exciting course sequence called ``Launch the Venture'' was 
        created in UNC's Kenan-Flagler School of Business--co-sponsored 
        and co-taught by personnel in the technology transfer office--
        to expose would-be faculty entrepreneurs to a sophisticated and 
        highly successful course sequence designed to teach and 
        implement the steps necessary to build investment-worthy 
        business plans around technologies and services suitable for 
        the development of new companies.

        3)  Pre-seed and seed capital--It is well documented that 
        institutional venture capital has moved further downstream in 
        the technology development continuum and that early stage ideas 
        emerging from academic laboratories find it increasingly 
        difficult to attract pre-Series A investment capital necessary 
        to form a company, attract management, and conduct the early 
        stage development necessary to advance a technology 
        aggressively toward commercialization. At the University of 
        Virginia, we recently held our second annual U.Va. Venture 
        Summit. In each of its first two years, the U.Va. Venture 
        Summit has attracted venture capital funds managing - in the 
        aggregate - more than $15 billion. 100% of the eight U.Va. 
        companies presenting in year one of the Venture Summit received 
        funding. In another approach, in the late 1990s, NC State 
        University formed ``Centennial Venture Partners'' with $10 
        million from the university's endowments to invest in start-up 
        companies affiliated with the university. Over a period of 
        almost three years, Centennial Venture Partners invested in 
        about 15 university-affiliated companies - and those companies 
        leveraged Centennial's $10 million to bring in more than $140 
        million in follow-on funding. Other institutions across the 
        country are developing their own approaches to access, raise, 
        partner, or bootstrap early stage sources of risk capital so 
        critical to the creation of entrepreneurial ventures.

        4)  Proof of concept and translational research initiatives--
        The University of Virginia has built several very successful--
        and culture changing--models for proof of concept investments 
        and scale-up for commercialization. A primary example is the 
        Wallace H. Coulter Foundation Translational Research 
        Partnership, which funds (for about $1 million per year) a 
        project manager and about eight projects per year at around 
        $100,000 each. Results from this activity indicate that there 
        have been twenty new patent disclosures per $1 million 
        invested, and that 50% of funded projects (over the first four 
        years) have moved to a commercial license deal within two 
        years. Both measures far exceed the standard ``metrics'' for 
        the commercialization of academic research. Several other 
        similar initiatives are funded at U.Va. and generate similar 
        outcomes and success. U.Va. officials attribute the success of 
        these initiatives to the involvement of a very diverse review 
        board, in-person reviews with the research teams, milestone 
        driven projects, frequent reporting, the ``will to kill'' 
        projects or re-direct funds if insurmountable obstacles occur, 
        dedicated translational research project managers, and 
        excellent networking in the venture capital and private 
        sectors. Again, similar initiatives are increasingly seen at 
        other institutions around the nation, including a Center for 
        Integrative Chemical Biology and Drug Discovery at UNC-Chapel 
        Hill that partners with basic scientists at UNC to take their 
        drug target discoveries, seeking to de-risk and accelerate the 
        lead identification, proof-of-concept, and optimization 
        process, thereby enhancing licensing and commercial potential.

    The areas outlined above are not an exhaustive inventory of the 
many sophisticated and critical core strategies implemented by 
university technology transfer officials in seeking to translate basic 
research discoveries and innovation into products and services, but 
they do provide a good overview of many of the key ``best practices, 
policies and initiatives'' that are key to fueling our innovation 
economy. They are examples of initiatives that are critical in enabling 
universities to partner more effectively with industry--and in ensuring 
that there are pathways for the commercialization of basic research 
discoveries and innovations so that economic growth, job creation, and 
social good can occur.
    At the University of Virginia, we believe that economic and social 
well-being in the next global era will be achieved via an evolving 
paradigm that causally links knowledge creation, innovation, 
commercialization, societal advancement, and human dignity. We agree 
with economist Paul Romer, who noted that ``no amount of savings and 
investment, no policy of macroeconomic fine-tuning, no set of tax and 
spending initiatives can generate sustained economic growth unless it 
is accompanied by the countless large and small discoveries that are 
required to create more value from a fixed set of resources.'' These 
principles were a focal point in the recent NSF Partnerships for 
Innovation (PFI) grantee conference, titled ``Innovation Ecosystems for 
the Creative Economy,'' organized by the University of Virginia and led 
by Thomas Skalak, U.Va.'s Vice President for Research.
    We also believe strongly that enhanced Federal funding by NSF and 
others for proof-of-concept and translational research initiatives of 
the types described in this statement will lead to the harnessing of 
what Romer calls the ``countless discoveries'' by linking the people 
that make them with other participants in the innovation ecosystem to 
accelerate innovation, to enhance wealth creation, and to advance 
societal good. Given the degree to which universities are increasingly 
acknowledged to be the platform for innovation for America and the 
world, we believe that this enhanced Federal investment in proof-of-
concept research is essential to our national innovation ecosystem.
    To be more specific, we certainly fully support the President's 
proposed FY 2011 Budget Request for $12 million for a new ``NSF 
Innovation Ecosystem'' component within the Partnerships for Innovation 
program. But we believe much more investment is needed in order to 
ensure that proof of concept initiatives--examples of which are 
highlighted in this statement--are in place and accessible to capture 
and translate the innovations emanating from universities nationwide. 
We urge funding at levels much higher than that noted above--and 
suggest that perhaps 0.5-1.0% of the NSF budget (and other agencies as 
well) be allocated to this need. This funding could take the form of 
Translational Research Supplemental Awards, or de novo Translations 
Concept Grants available for good ideas even if not based on another 
Federal grant. This funding should be accessible to universities in all 
regions--because talent and innovation exists everywhere. We believe 
the review process for such funding should be high-touch and market 
focused, with corporate partner input and development milestones being 
key components for initial and ongoing funding. We are pleased to note 
that these recommendations were supported in the ``wrap-up'' portion of 
the recent PFI conference on ``Innovation Ecosystems'' organized by 
U.Va.
    The University of Virginia is committed to an innovation agenda 
that seeks to create and leverage pathways, partnerships, resources, 
and strategies for translating its intellectual capital into products 
and services that benefit society, generate economic growth and wealth 
creation, and enhance the research and educational experience of its 
students and faculty. A key component of success in this agenda is our 
ability to enter into robust, outward facing, high-engagement 
partnerships with key industry, venture capital, and related entities. 
These partnerships are local, regional, commonwealth-wide, national, 
and global--and we seek out and engage in such partnerships in 
fulfillment of our mission and our commitment to our students, faculty, 
sponsors, and society. We also see clearly our role in the innovation 
ecosystem which must be sustained and grown in order to support 
economic development. Like other universities, we are a critical source 
of ideas, knowledge, and discoveries--and in a knowledge economy, this 
is the raw material that fuels the economy. We are good at producing 
ideas and innovations--and we wish to partner with companies that are 
good at productizing, manufacturing, marketing, and distribution.

                     Biography for W. Mark Crowell
    Mark Crowell is Executive Director and Associate Vice President for 
Innovation Partnerships and Commercialization at the University of 
Virginia. His university-wide responsibilities include innovation 
management, commercialization, new business development, industry 
partnerships, translational research initiatives, and venture capital 
relations.
    Prior to joining U.Va., Mark was Vice President for Business 
Development at The Scripps Research Institute in La Jolla, CA, and 
Jupiter, FL, where he was responsible for technology transfer, business 
development, biopharmaceutical relationships, and new venture creation. 
Over the past 23 years, Mark has extensive experience in technology 
licensing, start-up company formation, seed capital development, 
innovation-based economic development initiatives and planning, and 
research campus planning.
    Earlier in his career, Mark spent 8-1/2 years as Associate Vice 
Chancellor for Economic Development and Technology Transfer at the 
University of North Carolina at Chapel Hill, after holding similar 
positions at North Carolina State University (1992-2000) and Duke 
University (1987-1992). During the past 22 years, the technology 
transfer programs Mark has directed--UNC, NC State, and Duke--have 
helped to launch more than 135 start-up companies and numerous products 
and services. In North Carolina, Mark served on the Boards of key 
economic development and entrepreneurial support agencies, including 
the North Carolina Biotechnology Center, the Council for 
Entrepreneurial Development, the Research Triangle Regional 
Partnership, and the Orange County Economic Development Commission.
    Mark has led many public-private collaborations, including a major 
initiative to work with Alexandria Real Estate Equities, Inc., to 
launch an 85,000 square foot business accelerator--the Carolina 
Innovation Center--at UNC. Another highlight includes co-founding a 
U.S. $10 million seed fund at NC State University (in partnership with 
the NC Technology Development Authority). Mark also had extensive 
involvement in planning and managing the widely acclaimed Centennial 
Campus, a 1200+ acre research campus at NC State University.
    Mark was the 2005 President of the Association of University 
Technology Managers (AUTM) and is the founding President of the newly 
launched AUTM Foundation. Currently, Mark serves as Chair of BIO's 
Technology Transfer Committee and as a member of the Board of Directors 
of CONNECT in San Diego. He has extensive national and international 
speaking, consulting, and management experience related to technology 
transfer and innovation-based economic development, and has been 
instrumental in forging international research and innovation transfer 
partnerships on behalf of UNC and of Scripps. His consulting and 
advisory activities have included a number of U.S. and international 
academic and policy groups and associations, including the National 
Science Foundation, the American Association for the Advancement of 
Science (AAAS), the National Academies of Sciences, the World 
Intellectual Property Organization, the Los Alamos National Laboratory, 
and many others.

    Chairman Lipinski. Thank you, Mr. Crowell. And even though 
you are a Tar Heels fan, I apologize for getting your name 
incorrect the first couple times.
    Now I will move on to Mr. Watkins.

   STATEMENTS OF WAYNE WATKINS, ASSOCIATE VICE PRESIDENT FOR 
                 RESEARCH, UNIVERSITY OF AKRON

    Mr. Watkins. Chairman Lipinski, Ranking Member Ehlers, 
Members of the Subcommittee, I am Wayne Watkins. I am the 
Associate Vice President for Research at the University of 
Akron and Treasurer of the University of Akron Research 
Foundation. We very much appreciate this invitation to submit 
written testimony and to highlight a couple of our observations 
and recommendations.
    Observation one: The innovation effectiveness of 
universities is a function of university leadership at all 
levels demonstrating that they are committed to innovation. It 
is a function of quality research. It is a function of having 
porous boundaries and boundary-spanning strategies between 
universities and industries. It is a function of providing the 
full range of innovation expertise and services, not just 
patent procurement and licensing. It is also a function of 
effective education and training related to innovation.
    Observation number two: Technology transfer offices are 
increasing, providing multiple innovation services. They must 
be flexible for each specific situation. The model for 
congregating and deploying a full range of innovation expertise 
and services established at the University of Akron 
demonstrates the capacity of a mid-sized public university to 
foster innovation. I might mention one of our more rewarding 
initiatives is that of designating and hosting passionate and 
savvy industry retirees as university research foundation 
senior fellows, who as volunteers bridge the boundaries, the 
cultures, the technologies between universities and industry. 
The senior fellows, as fully integrated members of the 
university technology transfer team, reach into the university 
and reach out to industry to train, make connections, identify 
challenges, find opportunities and find resources.
    Observation number three: We very much appreciate the role 
of government in our innovation ecosystem. The government best 
contributes to innovation by being the major sponsor of basic 
and applied research, by providing an effective patent system 
that rewards novel inventions and provides for rapid public 
disclosure of inventions. The government further contributes to 
innovation effectiveness by supporting a business environment 
that encourages investment and innovation-related risk taking, 
and one that minimizes regulation and other burdens to only 
that which is essential. The government also best contributes 
by providing appropriate commercialization infrastructure 
support.
    Recommendations: First, the government should fund the 
experimentation of, and the development of, sustainable and 
effective innovation expertise congregators and service 
providers on a multi-institutional and regional basis, and in 
some cases focus on specific technologies or specific markets 
such as energy or advanced materials.
    Two: The government should expand its use of 
commercialization grants, particularly where the markets alone 
do not adequately incentivize the commercialization. The SBIR, 
with the concept of supplemental grants, is an excellent 
example and an excellent program.
    Three: The government should expect the recipients of 
Federal research funding to promptly make public the invention 
disclosures after the intellectual property protection is 
secured, and that has to be balanced with industry's need for 
proprietary and for keeping things confidential. The government 
should also expect that recipients of Federal research funding 
have effective innovation and commercialization capacity. 
However, to be effective, we need to realize that they are 
situation specific and each environment has to respond to their 
own resources and their own situations.
    As universities, however, we really need to be the ones to 
demonstrate our expertise and our effectiveness in translating 
knowledge into products and services. Notwithstanding that our 
research universities have served the citizens of the United 
States long and well, we are at risk, given the financial 
crises and related economic downturn, the growing international 
competition and our waning educational attainment performance. 
Thus, as a country, we must leverage all available resources, 
and especially our Nation's universities, in concert with 
industry and the government to transform our national 
competitiveness through innovation.
    To that end, our universities need to continuously reinvent 
themselves to be increasingly relevant and to be primary 
drivers of innovation. Conventional thinking that universities 
are incapable of effective innovation and marketplace relevance 
is wrong. Likewise, any thought that universities, industry or 
government alone will drive innovation is wrong. All three 
sectors are essential. All have room for improvement and thus 
we must help each other. There is tremendous latent capacity 
for innovation in our society that needs to be unleashed, and 
we believe appropriate rewards from the Federal Government will 
help universities and businesses become innovation proficient 
as we seek to inspire, develop and send to the markets the 
innovations that improve our quality of life and our economic 
security. Thank you.
    [The prepared statement of Mr. Watkins follows:]
                 Prepared Statement of Wayne H. Watkins
    Chairman Lipinski, Ranking Member Ehlers, Members of the 
Subcommittee, I am Wayne Watkins, Associate Vice President for Research 
at The University of Akron, and Treasurer of the University of Akron 
Research Foundation. Thank you for allowing me to testify and to share 
a perspective on university roles in our country's innovation ecosystem 
and specifically about university technology commercialization, 
university industry collaboration, and the University of Akron Research 
Foundation (UARF) model for improved knowledge and technology transfer 
from academic researchers to the private sector. Universities, across 
the spectrum, have the capacity to be powerful contributors to 
innovation and economic development through knowledge (intellectual 
asset) creation, transfer, and implementation. In support of the 
innovation mission of universities, the following testimony is provided 
in response to the questions of the House Subcommittee on Research and 
Science Education of the House Committee on Science and Technology.
    University-based technology transfer, commercialization, and 
university-industry collaborations are generating growing interest in 
academia, corporations, and government. These powerful innovation 
processes and relationships are ways for academic institutions to 
disseminate knowledge and share assets, for corporations to accelerate 
the commercialization of innovations, and for the Nation to leverage 
its valuable resources to reinvigorate the economy and create jobs. The 
escalating interest, in part, also stems from the recognition that 
academic institutions play a growing central role in regional and 
national economic development. The scientific and technological assets, 
and know-how emanating from universities, Federal laboratories, medical 
and other research institutions, form a powerful base that can usher in 
a new, globally competitive era in U.S. knowledge based manufacturing 
and transformational technology.
    As the innovation ecosystem evolves and new technologies emerge, it 
is prudent to consider the policies, incentives, and structures that 
best accelerate innovation by enhancing university-industry 
collaborations and by optimizing commercialization of university 
innovations.
    If the United States is to remain a leading player in the global 
innovation economy, we must develop an educated workforce that is more 
responsive to global technological challenges, and accelerate the rate 
at which we translate research and intellectual assets into economic 
assets. The simultaneous challenges arising from the U.S. economic 
downturn and growing international competition demand that we leverage 
all economic resources available to the United States, especially the 
nation's research institutions and industries.

1) What types of education, training, and services are offered by The 
                    University of Akron to professors, postdoctoral 
                    fellows, and graduate students interested in the 
                    commercialization of their research discoveries?

    Each year new faculty members receive instruction on research and 
technology transfer processes and support at an orientation session 
sponsored by the Vice President for Research. The University of Akron's 
Office of Technology Transfer team and the University of Akron Research 
Foundation (UARF) Senior Fellows meet with select research teams 
including the professors, postdoctoral fellows, and graduate students 
regarding their specific research programs where they discuss, and are 
instructed on, commercialization opportunities, strategies, processes, 
conflicts of interest management, industry collaboration opportunities, 
mentoring opportunities, new enterprise creation, access to funding 
opportunities, and development services/support and related topics. In 
addition the Office of the Vice President for Research hosts social 
events for inventors throughout the year that promote valuable 
interdisciplinary networking. The University of Akron's Office of 
Technology Transfer and the UARF Senior Fellows teams also participate 
periodically in department faculty and staff meetings and with the 
university faculty senate. Courses are taught on entrepreneurship and 
intellectual property management for graduate students. A new 
experiential learning course is under development called the Akron EMS-
LaB Research Experience which is an integrated multidisciplinary 
biomedical research experience including student team members 
representing engineering, medicine, sciences and supported by law and 
business (EMS-LaB) students, and local area hospital clinicians. Under 
the EMS-LaB program, graduate student teams are formed around 
technology opportunities and work on a project over a two year period 
leading to a commercial business opportunity.

2) What are the challenges to increasing the transfer of knowledge and 
                    technology from university researchers to the 
                    private sector and what are the key elements of 
                    successful university industry collaboration?

    Challenge #1--As innovation outcomes are dependent on a continuing 
stream of world leading researchers, innovators, and scholars, the 
United States must continue to improve the quality, accessibility, and 
performance of its higher education systems and institutions to achieve 
a sustainable status as the leading source and nurturer of the world's 
innovations. Educating, developing, identifying, recruiting, and 
supporting the leading innovators is the primary challenge to 
increasing the knowledge and technology flowing from the universities 
to the private sector and vice versa. Thus universities and governments 
need to address education performance improvement as well as access and 
costs. Visa and immigration issues need resolution to insure the United 
States benefits from the top innovators globally.
    Challenge #2--Sufficient and sustained basic and applied research 
funding to qualified innovators to support leading edge research and 
development remains a continuing challenge to driving the downstream 
commercialization. The majority of research funding at U.S. 
universities comes from Federal agencies. Such funding is the primary 
source for innovations that result in technology and entrepreneurial 
activity spinning-out of universities. Research funding is the 
``lifeblood'' for future innovations, and accelerates advancements in 
knowledge-based manufacturing and technology enterprises that keep the 
U.S. globally competitive. We also must insure that research funding 
reflects national competitiveness strategies while providing sufficient 
funding to a range of science and technology disciplines, and 
reflecting emerging trends in inter-disciplinary research. Increased 
Federal funding for improving the innovation processes at academic 
institutions should be considered.
    Challenge #3--Innovation does not respect individual institutional 
or state boundaries. Federal funding is structured to address 
individual institutions and states. As we clearly see in cluster 
development, growing clusters often involve connections between 
multiple institutions and multiple communities. Federal funding could 
be better aligned with this regional and multi-institutional approach. 
State funding practices also tend not to account for the regional 
nature of cluster development and states should be encouraged and 
incentivized to cooperate in research, innovation, and 
entrepreneurship, across state boundaries. As we increasingly face 
global competition, it may be time to rethink boundaries and funding 
that is traditionally tied to these boundaries.
    Challenge #4--University leadership with expertise and strategic 
commitment to establishing innovation supporting universities is 
essential and remains a continuing challenge. The strategic perspective 
and leadership of the university president, in particular, is a major 
factor in the innovation effectiveness of an institution. My transfer 
to The University of Akron was a direct result of the innovation 
related expertise and leadership of its president, Dr. Luis Proenza. 
University governing boards and others that influence the hiring of 
university presidents, including faculty, labor representatives, and 
community members, need to be appropriately attuned to the need for 
leadership that is innovation savvy and capable of leading university 
culture adaptations for improved innovation performance. Likewise the 
collective leadership of the institution including provosts, vice 
presidents, deans and department chairs as well as the informal 
leaders, impact the innovation effectiveness of the institution. There 
are excellent examples of leaders that move the university's culture to 
be more accommodating and celebratory of innovation related activity by 
recognizing and rewarding innovation, commercialization, and industry 
collaboration as well as by encouraging entrepreneurial activity. 
Institutional support may be demonstrated by the institution's faculty 
hiring and promotion decisions that reward work with industries and 
technology transfer. Some academic institutions now give credit toward 
tenure for entrepreneurial and commercialization activities. These 
incentives along with recognition and royalty sharing to the inventors, 
and their research programs, are effective ways to encourage faculty to 
engage in commercialization. Federal policy should recognize and 
support these strategies.
    Challenge #5--Creating porous boundaries and effective boundary 
spanning strategies between universities and industry for their mutual 
benefit. Strategies of effective university-industry interaction and 
collaboration include:

        A.  Establishing flexible organizational structures that foster 
        industry university collaboration such as university-related 
        research foundations. Private non-profit research foundations 
        have been established at universities for a wide variety of 
        reasons many of which touch on technology transfer. Such 
        organizations typically allow decisions to be made with greater 
        flexibility and on an accelerated industry friendly time frame. 
        They also allow standard corporate contractual provisions, such 
        as indemnities. They typically allow for hiring of personnel 
        independent of university human resource policies. Foundations 
        often hold equity in university start-up companies, which is 
        problematic for public universities in states with 
        constitutions that preclude state ownership of private 
        companies. Thus, while foundations vary significantly, they 
        provide the mechanisms to assist corporations that often do not 
        understand how to enter or navigate inside academic 
        institutions. Moreover, many academic institutions are not 
        structured to interact with corporations other than attracting 
        corporate donations and sponsored research. It may be 
        appropriate for university legal offices to act more like a 
        business legal office, if not deferring to a university-related 
        research foundation, to provide the contract administration and 
        related legal services. Some institutions have instituted 
        corporate liaison offices as a single-point-of-contact that 
        assist corporations navigate the relationships. It also sends a 
        message to the corporate community that the institution is open 
        to doing business and is ``private-sector friendly''.

        B.  Securing the services of industry experienced professionals 
        in university research administration, technology transfer, and 
        outreach positions. Many institutions of higher education are 
        finding improved innovation effectiveness by hiring senior 
        level professionals in their technology licensing and outreach 
        positions that have successful industry experience or 
        significant understanding and appreciation for the same and who 
        are attuned to the nature and perspectives of the academic 
        community. Universities need to better understand the value to 
        companies of both technology and talent creation that results 
        from collaboration. The Federal Government would be well-served 
        to encourage universities through grant making to engage 
        innovation professionals with extensive senior level industry 
        experience.

        C.  Identifying and connecting with industry partners that 
        have: 1) an appreciation for universities and their nature, 2) 
        flexibility in contracting to accommodate university 
        limitations or core characteristics; and 3) sufficient 
        expertise, culture, capital, and commitment to support 
        innovation and technology commercialization originating from 
        academic institutions.

                i.  Corporate culture influences the extent to which 
                corporate researchers engage with university 
                researchers. Corporations differ considerably regarding 
                their interaction with external research organizations. 
                Just as some universities view corporations as 
                adversarial in forming research alliances, some 
                corporations also view universities as adversarial in 
                negotiating licensing agreements. It is essential that 
                corporations have leaders, who understand and practice 
                the innovation imperative. Corporate and university 
                representatives participating in University Industry 
                Demonstration Partnership (UIDP) workshops voiced an 
                emerging trend among industry to work with fewer 
                universities, primarily to reduce transaction costs and 
                relationship development efforts. By doing so, 
                corporations could miss commercialization opportunities 
                from potentially valuable research being conducted at 
                smaller institutions or from those outside of selected 
                geographical areas.

                ii.  Corporate identification of university 
                intellectual property involves a wide range of 
                activities from internal or contracted ferreting to 
                personal relationships between researchers. Many 
                universities also have established web-accessible 
                databases populated with available technologies and 
                there are emerging national databases that now combine 
                individual university web databases. Marketing outreach 
                by university technology transfer offices to match 
                their intellectual property with known industry needs 
                in an open innovation mode is growing in effectiveness.

                iii.  Personal relationships between researchers may 
                still be the best source for technology transfer and 
                commercialization. While there are many ways for 
                companies to identify relevant university research, 
                many believe that no method substitutes for personal 
                interaction. Faculty research professionals, who meet 
                at conferences and through less formal channels, 
                provide a natural conduit for technology transfer and 
                commercialization.

                iv.  University and corporate expectations frequently 
                differ as to speed of research and development as well 
                as the university researchers' right-to-publish. 
                Corporations seek accelerated commercialization and 
                intellectual property protection, while universities 
                focus on teaching and knowledge dissemination. 
                Effective partnerships respect the differences and 
                balance the inherent conflicts.

                v.  Small businesses often encounter additional 
                barriers in accessing university and Federal laboratory 
                research. Except for entrepreneurs, who are recent 
                alumni or who have other personal connections with the 
                university, startups and small firms often have 
                difficulties accessing research at major universities, 
                and even more difficulty accessing Federal laboratory 
                research due to the costs of relationship development 
                and costs of access. Consortia that allow graduated 
                fees according to size are but one method that 
                facilitates greater access to researchers by small 
                businesses.

        D.  Corporations, universities, and other research institutions 
        can benefit by engaging in asset sharing programs. Value 
        creation is based on strategic and creative use of assets 
        available to an organization. Such assets may include human 
        capital (leadership, technical, administrative), information 
        sources (libraries), intellectual property (know-how, patents, 
        copyrights, trademarks,) equipment, and facilities, among 
        others. As corporations continue to become leaner and focus on 
        core capabilities, academic and other research institutions are 
        expected to increasingly perform corporate functions.

        E.  Corporate open innovation and limited open innovation. 
        Corporations are performing less internal R&D and increasingly 
        sourcing innovations from outside their organization. Some are 
        engaging in open innovation, while others are sourcing 
        technology and expertise among a few strategically-selected 
        partners. Corporations and innovation organizations including 
        higher education institutions, hospitals, and others need to 
        consider policies, programs, procedures, and organizational 
        structures to maximize the societal benefit from open sourcing.

        F.  Enhancing corporate ability to identify and exploit growing 
        intellectual property portfolios. With growing intellectual 
        property portfolios in industry, academic institutions, 
        research organizations, and government, there is a 
        corresponding increase in potential or existing intellectual 
        property that has not yet been recognized or fully exploited. 
        Some contract research organizations in the United Kingdom have 
        been successful in commercializing innovations that are not 
        central to the core contracted research, and they have 
        negotiated the right-to-own and commercialize those tertiary 
        innovations. Strategies need to be developed in the United 
        States that more effectively identify untapped and latent 
        innovations.

        G.  Manufacturers may not be benefitting from commercialization 
        activities to the extent that other types of corporations 
        benefit. Advancing U.S. manufacturing involves incorporating 
        the most advanced innovations and processes to be able to 
        compete internationally. Yet manufacturers do not appear to 
        have the same types of partnerships and interaction with 
        academic institutions, particularly research universities. 
        Federal programs such as the National Institute for Standards 
        and Technology Manufacturing Extension Partnership (MEP) have 
        focused on ``the fundamentals'' and are just beginning to 
        recognize the value of technology transfer activities.

        H.  Appropriate roles for inventors in commercialization need 
        to be established on each specific situation. University 
        inventors often want to play a significant role in the 
        commercialization of their innovations. When the innovation is 
        used to form a start-up company, the inventor may want to 
        become the business leader or CEO, and when the inventions are 
        licensed, the inventor often wants to play a consulting role in 
        adapting their inventions for commercial use. But faculty 
        inventor's often do not have the skills to be strong 
        entrepreneurs and business leaders and, from a business 
        commercialization standpoint, the inventor's continuing 
        presence may not always be preferable. Further, from the stand 
        point of an investor in a startup, the innovator's role as CEO 
        often is generally not advisable. Universities need to be 
        sensitive to corporate expectations in setting up 
        commercialization strategies relative to the roles for 
        inventors in start-ups and licensing arrangements.

        I.  A typical university receives less than 15% of its research 
        funding from industry. Yet the innovation rewards of 
        university-industry research are often significant. Federal 
        financial support for industry sponsored research would pay 
        significant economic development and innovation dividends. We 
        also find that industries are increasingly entering into 
        research agreements with universities outside of the United 
        States. A National Academies report cited ease of collaboration 
        and access to faculty expertise as two reasons for increasing 
        partnerships with international institutions over domestic 
        institutions. The cost and transfer of intellectual property 
        rights are other reasons that U.S. companies frequently sponsor 
        research at international institutions. U.S. universities need 
        to become the preferred providers based on their specific value 
        proposition. Domestic institutions, with government 
        facilitation, need to have research and innovation services of 
        sufficient quality to earn preferred provider status. Recently 
        five international technology transfer groups including the 
        Association of University Technology Managers (AUTM), based in 
        the United States, formed the Alliance for Technology Transfer 
        Professionals to professionalize and promote technology and 
        knowledge transfer on a global basis. Through the alliance, 
        internationally recognized standards and practices may help 
        level the playing field.

        J.  Universal ``master'' agreements may encourage corporate 
        engagement in university research and commercialization. 
        Several universities and university systems are implementing 
        broad research agreements, and implementing simpler, 
        standardized agreements to expedite commercialization, reduce 
        inconsistencies, and increase clarity and transparency. There 
        are, however, no guarantees that industry will accept such 
        efforts. The University Industry Demonstration Partnership 
        (UIDP) ``TurboNegotiator'' platform is a tool intended to 
        reduce time and improve consistencies.

        K.  Fair value market pricing for university research services. 
        Universities price their industrial research services on a cost 
        reimbursable basis that charges for the actual time of those 
        working directly on projects, other direct costs, and an 
        overhead (indirect cost) component for facilities and 
        administration cost recovery. This pricing method is a 
        carryover from Federal grants. The method may restrict the 
        university's flexibility to price services in a way that 
        provides fair compensation for intellectual property that may 
        have value unrelated to the actual cost of the research. The 
        practice causes universities to later seek the value of the 
        intellectual property through licenses, the uncertainty of 
        which is problematic for the industrial partner. Universities 
        and industry should consider fair-market-value pricing of 
        research rather than cost reimbursable methodology as an 
        additional mechanism for flexible university industry 
        collaboration.

        L.  Student and faculty development

                i.  University-industry collaborations provides 
                important experiential and cross learning opportunities 
                for students and post-docs that should be encouraged. 
                Professors should be encouraged to obtain industry 
                experience to assist in the collaborations and in 
                teaching the value of university-industry 
                collaborations.

                ii.  Graduate science and engineering students should 
                be trained as more than just future university faculty 
                since only approximately 10% of post-docs become 
                university faculty. Students can learn how to be 
                effective industrial scientists or entrepreneurs in 
                graduate school particularly as they interact with 
                private industry during their graduate studies. More 
                internship programs at the graduate level should be 
                encouraged and incentivized.

                iii.  Personnel exchanges and internships remain some 
                of the strongest relationship building tools that 
                mutually benefit research institutions and 
                corporations. Experiential learning through personnel 
                exchange programs, internships, and other forms are key 
                knowledge and technology transfer tools. Internships in 
                startups and venture capital companies, and exchange 
                programs between industries, universities, Federal 
                laboratories, and research institutions, particularly 
                in cross-discipline areas, are building blocks for 
                accelerated commercialization of research institution 
                innovations. Such experiences also help to fiscally 
                support the future work force and help to minimize the 
                student's loan debt.

                iv.  Universities can provide a primer for faculty on 
                understanding how to work with the private sector. 
                Universities can provide support for faculty 
                collaboration with industry by encouraging faculty to 
                make disclosures, training faculty to work with 
                industry and encouraging industry-funded research. 
                Universities should consider tenure criteria that 
                reward industrial outreach and technology 
                commercialization. Universities should provide 
                mentoring for principal investigators (PIs) services by 
                connecting experienced entrepreneurial PIs with 
                inexperienced PIs.

                v.  Many future entrepreneurs come from medicine, 
                science, and engineering. Thus, it is important that 
                entrepreneurship education--classes, boot camps, 
                business plan competitions, etc.--are directed to these 
                groups. In addition, entrepreneurship education to 
                students in community colleges and in the primary and 
                secondary education programs will stimulate interest 
                for future entrepreneurial opportunities.

        M.  Universities can facilitate the optimization of university-
        industry collaboration and commercialization by considering 
        alternatives to traditional royalty agreements. What works for 
        one industry or university might not work for another, so 
        flexibility is critical. Universities should consider when 
        appropriate, the ``Fair Return Inquiry'' model wherein the 
        university and the potential corporate partner collaboratively 
        seek out and determine what should be a fair return to the 
        university, if there is a successful commercialization of the 
        intellectual property. Such a model may lead to more 
        philanthropy and may shorten negotiation times significantly.

        N.  Universities can improve relationships with industry by 
        pursuing strategic on-going partnerships rather than 
        transaction-based interactions. Both must work on developing 
        mutual trust and improving points of entry to the university to 
        increase access to faculty and technology transfer offices.

        O.  Universities should consider a buyout of faculty time to 
        devote to outreach and innovation when appropriate and as 
        resources permit. Also, leaves-of-absence may provide needed 
        flexibility for researchers to accelerate promising commercial 
        inventions and spawn start-ups; however, leaves-of-absence can 
        also sap some of the ``best and brightest'' researchers from 
        teaching and other research-related duties. Thus, academic 
        communities, Federal laboratories, and other research 
        institutions should carefully consider and encourage, where 
        appropriate, leave-of-absence programs.

        P.  Metrics that capture the value of innovation, technology 
        transfer, commercialization, and entrepreneurial activities are 
        needed to better understand and support effective tools and 
        methods. Without effective metrics, it is difficult to ``make 
        the case'' for funding and for selecting as well as replicating 
        best practices. Several organizations such as the Association 
        of Public and Land-grant Universities (APLU), are currently 
        working on developing metrics. The Federal Government should 
        consider sponsoring the development of metrics.

        Q.  Innovation is increasingly multi-disciplinary and 
        characterized by everexpanding, inter-connecting fields. A 
        couple of decades ago, few would have predicted the 
        intersection between biology and computer science 
        (bioinformatics). Fields that were once distinct are rapidly 
        becoming integrated. Yet Federal funding has been slow to 
        address the ever evolving face-of-research. Federal funding 
        should effectively address and promote multi-disciplinary 
        approaches to innovation and commercialization. At The 
        University of Akron, a new Integrated BioSciences Program at 
        the graduate level has proved particularly effective at driving 
        cross disciplinary collaboration.

        R.  Forming start-ups, based on university innovations, 
        requires a different set of tools than licensing innovations. 
        Forming startups requires entrepreneurial and business 
        development expertise in addition to traditional patenting and 
        licensing knowledge. Many technology transfer offices (TTOs) at 
        academic institutions are not prepared to handle the formation 
        of startups. For those academic institutions that have centers 
        of entrepreneurship, TTOs may refer innovators to the centers, 
        but too often TTOs and entrepreneurship centers operate in 
        different departments and do not effectively coordinate. This 
        is also true for TTO coordination with university incubators 
        and research parks. Where senior level individuals with 
        business experience are part of the TTO organization, start-up 
        support is significantly improved.

        S.  The role of entrepreneurial infrastructure and services. 
        Most major research institutions have at least an affiliated 
        incubator, and larger institutions often have research parks. 
        While the presence of the physical infrastructure itself sends 
        a message that the institution and community are serious about 
        growing entrepreneurs, the physical assets are only as good as 
        the services that they provide. Such services include 
        validating and assessing technology, providing access to 
        investment capital, business strategy and development 
        assistance, mentoring, interim CEO services, networking 
        including exposure to potential partners and customers, among 
        others.

        T.  Both universities and industry should minimize the 
        inconsistencies and ambiguities that hinder relationships. In 
        the case of universities, changing administrations, where 
        perhaps one president has emphasized pro-business 
        relationships--the next may say such business relationships are 
        not important, can hamper the development of long-term 
        university-industry partnerships. Thus, there exists a need to 
        embed pro-business relations within the university strategy and 
        culture. In the case of industry, corporate policy and 
        structures often change including strategies to interact with 
        universities, creating a similar need to embed pro-university 
        relations within the corporate culture.

        U.  Small-businesses have less capacity to sustain the 
        transaction costs of working with universities. Thus, efforts 
        to level the playing field by reducing university-related 
        transaction costs to small businesses would enhance the 
        innovation system. Some university equity participation in the 
        small business may be considered.

        V.  Systemic appreciation for the societal value of university-
        industry collaboration includes improved education of all 
        students regarding the roles of innovation, entrepreneurship, 
        and intellectual capital. Universities should consider required 
        courses at both the graduate and undergraduate levels with 
        selected innovationrelated modules, such as creative thinking, 
        innovation, entrepreneurship, intangible asset management, and 
        academic-industry collaboration, among others.

        W.  Alumni offer a tremendous untapped resource. Some 
        universities have tapped alumni to serve on business advisory 
        boards, participate in business competition panels, invest in 
        university-based start-ups, act as CEOs-in-residence, and 
        entrepreneurial mentors. These activities should be expanded 
        and encouraged.

    Challenge #6--Available and appropriate capital for the 
commercialization of university research results remains a continuing 
challenge, particularly through the ``valley-of-death'' portion of the 
research to commercialization continuum. The Small Business Innovation 
Research (SBIR) and the Small Business Technology Transfer (STTR) 
programs are effective and valuable, yet insufficient relative to 
demand and scope, in providing funding for commercialization of R&D in 
emerging areas. The SBIR/STTR programs are extremely important vehicles 
for commercializing innovations arising from research at universities 
and other institutions. While ``commercialization'' has been an 
increasing emphasis in the program, there have been only modest 
legislative changes to support actual commercialization activities. 
SBIR/STTR awardees are restricted in their use of funds for marketing 
studies, export analyses, etc. Some agencies including the Department 
of Defense (DoD), the National Science Foundation (NSF), and the 
Department of Commerce (DoC) have embarked on additional, but limited, 
commercialization assistance. State programs also provide assistance to 
SBIR applicants and gap-funding.
    There are several effective models emerging in various regions of 
the United States. In our northeastern Ohio area, we have found success 
with:

        A.  The UARF's angel capital network, where the costs of our 
        hosting the events over five years was approximately $50,000, 
        has resulted in follow-on funding in the presenting enterprises 
        in excess of $55 million;

        B.  The Lorain County Community College Innovation Fund, which 
        uses donations, supplemented with state funds, to award grants 
        of $25,000 and $100,000 to emerging companies; and

        C.  The student run venture fund being formed at the University 
        of Akron that will invest donations received in companies 
        selected by the students. The fund is considered an evergreen 
        fund as returns go back to the fund for future investments.

    Acceleration funds within academic institutions provide a promising 
commercialization tool. There are a number of successful programs (MIT, 
USC, Georgia Tech) designed to accelerate university research to 
market, mainly through seed funding and extensive mentoring. Linkages 
with institutional and external resources--(such as high-functioning 
incubators) that take emerging technologies to the next levels of 
commercialization--provide an even greater chance of success.
    Challenge #7--The need for government to establish and maintain 
business friendly policies and to sponsor programs that enable private 
sector commercialization of intellectual assets.
    The United States government plays a significant role in the 
nurturing of academic innovation. The priorities for the U.S. 
government related to university innovation should be:

        A.  To promote innovation and competitiveness as a critical 
        national priority and to promote the essential and recognized 
        roles of universities and industry in the same.

        B.  To provide strong and sustained Federal basic and applied 
        research funding. Research that is not market driven does 
        produce unanticipated beneficial discoveries. Nevertheless, 
        merely increasing basic research funding will not necessarily 
        result in greater economic development unless there is follow-
        on funding for translational research.

        C.  To have a strong patent system that rewards novel 
        inventions and protects against patents that lack novelty or 
        otherwise stifle innovation. Also, encourage discussion on a 
        potentially improved patent system that rewards early 
        disclosure as a means of accelerating and reducing the cost of 
        innovation.

                i.  The current patent reform efforts are appreciated 
                and needed. However, to further accelerate innovation, 
                the Government should with economists, inventors, 
                innovators and industrialists, consider an improved 
                intellectual property system appropriate for the 21st 
                century that fosters the public good with more 
                immediate disclosure of inventions.

                        a)  As an example, consider a patent system 
                        that rewards immediate disclosure of inventions 
                        on-line, which publication also serves as the 
                        equivalent of patent filing for determination 
                        of patent priority if the law becomes ``first-
                        to-file.'' Such efforts would reduce initial 
                        research and development costs by reducing 
                        duplication of efforts as well as increase and 
                        accelerate innovation. It would cause some 
                        pause in the inventor community which seeks to 
                        maintain developments confidential as long as 
                        possible for competitive purposes. The balance 
                        should be reconsidered in light of current 
                        technology that makes information 
                        instantaneously available worldwide and the 
                        need to accelerate innovation.

                ii.  A related option is to transform the patent system 
                so that it functions not only as a means to obtain 
                proprietary protection but also serves as an on-line 
                idea management system. Increasingly, organizations and 
                countries will compete based on the speed at which they 
                can discover, develop and implement ideas for new 
                products and services. To compete at this level, 
                organizations must efficiently tap into the creativity 
                of all sources. They must also be adept at focusing 
                employees' creative energies around key societal and 
                business issues, gathering and evaluating ideas 
                efficiently, and quickly identifying those with the 
                greatest bottom-line potential for implementation. Idea 
                management technology is an emerging type of software 
                that enables enterprises to solicit targeted ideas from 
                multiple groups, such as employees, gather ideas into a 
                centralized online database, share ideas to foster 
                further ideation and innovation and to provide 
                structured processes for evaluating ideas for 
                enterprise and societal impact potential. As innovation 
                grows in importance as a competitive advantage, idea 
                management systems are poised to become a catalyst that 
                can help countries and companies compete at levels 
                never before possible.

        D.  A corollary to the idea management system is to have a 
        central location for data collection, best practices, testing, 
        and exchange of ideas in innovation and entrepreneurship. There 
        is currently no one Federal agency or department that is 
        responsible for policies and programs on innovation and 
        entrepreneurship. The recently established Department of 
        Commerce (DOC) Office of Innovation and Entrepreneurship is a 
        start but lacks funding to pursue many key functions--data 
        collection; cross-agency coordination; identification, 
        analysis, and replication of best practices; testing of 
        promising innovation pilots, et cetera.

        E.  The Bayh-Dole Act, which allows university ownership of the 
        inventions resulting from federally-funded research, has 
        contributed to the formation of some of the nation's top 
        technology firms. The United States government should continue 
        the policy of grantee ownership and control of intellectual 
        property, funded by the Federal Government. The Bayh-Dole Act 
        is sound in principle as it aligns commercialization incentive 
        and control in the institutions that create the inventions. It 
        is problematic to separate equitable ownership interests in 
        technology commercialization with the control of the 
        technology.

        F.  Establish financial rewards and funding for experimental 
        and pilot programs such as regional proof-of-concept centers, 
        innovation centers, and multiinstitutional innovation services 
        providers. Not all universities have the resources nor 
        sufficient research, technology, and related expertise to 
        sustain an innovation services team. Also, such funding would 
        allow for experimentation of specialized teams focused on 
        specific technology or market areas, such as advanced 
        materials, energy or medicine. The University of Akron, as a 
        midsize state university, could be an excellent case study for 
        Federal assistance for a regional technology transfer office, 
        noting that each such office would have its unique set of 
        challenges and resources, its unique regional economy, and its 
        unique expectations for results by state and local investors 
        and sponsors. Best practices are dependent on these local 
        considerations.

        G.  There are effective Federal programs that support 
        university-industry collaborative research, and technology 
        transfer and commercialization. Programs such as the Technology 
        Innovation Program (TIP) at the National Institute of Standards 
        and Technology (NIST) promote not only university-industry 
        collaboration but also multi-institutional, inter-disciplinary 
        R&D and commercialization. The Industry/University Cooperative 
        Research Center (I/UCRC) program at NSF is a successful, long-
        standing program that focuses on the development and 
        commercialization of university-industry R&D with the provision 
        that the industry must provide major support to the center at 
        all times. However, these programs are limited and under-
        funded. Some new programs, such as Advanced Research Projects 
        Agency-Energy, (ARPA-E) at the Department of Energy (DoE), also 
        have the potential of promoting successful multi-institutional, 
        university-industry collaboration. Continuation and expansion 
        of effective programs, particularly for technology as it 
        progresses through the valley-of-death including SBIR, STTR, 
        and TIP, are appropriate.

        H.  Tax incentives, such as the corporate research and 
        development (R&D) tax credit, may encourage corporations to 
        invest in R&D and also may encourage them to invest in adaptive 
        research to commercialize innovations from research 
        institutions. Since R&D expenditures in many corporations have 
        been declining, and since the cost of adapting innovations 
        stemming from research institutions can be high, the use of tax 
        incentives to promote the full range of research may be 
        increasingly significant. In addition tax credits could be 
        considered for intellectual property investment, capital 
        formation, and industry funding of university research. Also, 
        the Tax Reform Act of 1986 limits industry-sponsored research 
        in university facilities financed by tax-exempt bonds, thus 
        hindering university-industry partnerships. As the tax 
        provision does not generate revenue, reform would not reduce 
        tax revenues.

        I.  Develop sustainable programs to assess nascent university 
        and Federal laboratory technology and make it presentable and 
        easily understood by investors and entrepreneurs.

        J.  International Traffic in Arms Regulations (ITAR) and visa 
        reform could ensure that inappropriate items are not on the 
        ITAR list and would ensure that innovators are allowed entry 
        into the United States.

        K.  The Federal Government should establish conflict of 
        interest policies and support state and university conflict of 
        interest policies that permit, rather than prohibit, conflicts 
        to the extent they foster innovation and provided the conflicts 
        are managed to eliminate one's influence over a public asset 
        for one's personal gain.

        L.  The government should support efforts to identify and 
        disseminate metrics and best practices related to university-
        affiliated innovation.

        M.  Consider better coordination and synergy between Federal 
        agency programs and universities. As there are reportedly 260 
        Federal programs related to economic development, an increase 
        in awareness and coordination of programs should improve 
        effectiveness. Federal programs that address commercialization, 
        university-industry collaboration, and innovation-related 
        areas, are spread across multiple agencies including NSF, DoE, 
        DoD, DC. SBA, and others. These programs historically have not 
        been well coordinated within agencies or between agencies 
        leading to less-the-optimal leveraging. Some programs are 
        duplicative and, at the same time, there are gaps between 
        programs.

        N.  As most states have programs to promote innovation and 
        entrepreneurship, including university-industry collaboration 
        and technology commercialization, the government should 
        consider awards to effective state and university innovation 
        models. States have a wide range of programs aimed at 
        leveraging university and other research institutions' R&D for 
        economic development. These programs involve investments in 
        university research, university-industry collaborative 
        projects, entrepreneurship, infrastructure (incubators, 
        research parks), SBIR assistance, mentoring, etc. Many of these 
        programs have been effective in supporting the 
        commercialization of university technologies and spawning 
        start-ups. Because of the economic crisis, some long-standing 
        successful programs may be threatened. States have a wide range 
        of programs that support commercialization and 
        entrepreneurship. Federal programs should be aligned in a 
        manner that is supportive of state efforts and that effectively 
        leverage state programs.

3) Are there unique challenges faced by mid-sized universities such as 
                    ours in the commercialization of federally funded 
                    research?

    Yes in addition to the challenges enumerated above that are 
generally common to all institutions of higher education, there are 
unique challenges faced by mid-sized universities.
    Challenge #1--With a few exceptions, such as the University of 
Akron, many mid-sized universities often lack the economies-of-scale 
and thus the expertise in technology transfer, university-industry 
collaborations, and new enterprise developments, that allow them to be 
effective as true engines of innovation. Contrast that with larger 
universities that likely have sufficient research size to merit a 
qualified and effective team of innovation service providers, yet may 
not have the experience and the necessary wherewithal for effective 
innovation. To overcome the barriers related to inter-institution 
relationships, the Federal Government should consider rewards for 
multi-institutional innovation support teams. Such would encourage new 
models that otherwise may not be pursued and would improve the return 
on the investments, as well as link local communities. There are many 
possible mid-sized state universities capable of being a true economic 
hub for populated urban regions.
    Challenge #2--A related challenge is that of being ineligible for 
selected Federal programs because an institution is not a prior award 
winner. As an example, the NSF Partnership for Innovation program 
required any new applying universities to co-apply with prior award 
winners, which effectively precluded many universities from proposing 
although otherwise meritorious. This seems contrary to the principle of 
rewarding innovation based on merit.

4) University of Akron Specific Questions:

    a. Are there best practices or policies implemented by the 
University of Akron that could serve as a model for other universities 
interested in increasing the commercialization of federally funded 
research?

    b. Specifically what is the role of the University of Akron 
Research Foundation?

    c. How is The University of Akron engaged in local, state and 
regional innovation initiatives?

    Most universities focus their innovation efforts on technology 
transfer and industry sponsored research. The University of Akron has 
developed strong programs in both technology transfer and industry 
sponsored research, however The University of Akron has adopted a more 
robust model that provides significantly more innovation related 
services and programs as a part of the university's strategic plan.

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]


    The University of Akron adopted several practices and policies that 
could serve as a model for other universities seeking to increase their 
commercialization effectiveness and in building regional innovation 
capacity. As best practices and policies are usually situation 
specific, each institution needs to consider and respond to its own 
regional circumstances, since as the communities grow, so does the 
wealth creation to that community. Nevertheless, many of the University 
of Akron practices are transferable. The coordinated University of 
Akron and University of Akron Research Foundation (UARF) model has been 
particularly successful for supporting innovation in the northeastern 
Ohio region of ca. four million residents and 80,000 companies with 
employees. UARF was formed as a boundary spanning structure for 
industry and the university.
    UARF's characteristics and strategies, which could be considered 
best practices include:
    Best Practice #1--Carefully assess university and community 
resources and periodically consider how such resources could be used, 
reconfigured and reallocated for mutual benefit.

        A.  Libraries--Several regional companies donated their library 
        holdings to The University of Akron, thus increasing university 
        holdings--a positive for academic metrics. In most cases, the 
        books remained at the corporate facilities. The University 
        assumed management of the libraries and provided library 
        services to the companies for fees, which resulted in overall 
        cost reductions and improved services to the companies and a 
        strong lasting repository for future researchers with the 
        community.

        B.  Buildings and laboratories. UARF occupies excess laboratory 
        space at a regional corporate technology center to operate a 
        chemical pilot plant facility for paying customers, who need 
        occasional scale-up and pilot facilities. The landlord company 
        also uses the pilot plant as payment for the facility and 
        agreed to open up its unused office and lab space to emerging 
        companies in return for equity. From their perspective, it 
        provides a first look at the company for potential acquisition.

        C.  Equipment sharing--Companies donated equipment to the 
        University of Akron which is available to the community after 
        academic needs are met; all parties benefit as do future 
        companies since it reduces start-up costs.

        D.  UARF is developing people sharing and co-location programs 
        so there is increased collaboration among academicians, 
        students, and professionals from many unexpected areas. We 
        believe such a program is necessary to complete our portfolio 
        of programs for long-term fiscal success. We wanted to have 
        more industry scientists and engineers involved in the academic 
        world and vice versa. We recently instituted a productive 
        Visiting Scientist Program to complete some new technology 
        development.

        E.  Patents and other intellectual property pooling--In our 
        discussions with industry, we also look for non-core 
        intellectual property that UARF can either bundle with its 
        intellectual property or otherwise assist in the exploitation.

    Best Practice #2--Create an Appropriate Organization Structure. The 
State of Ohio does not allow public universities to hold equity in a 
private (start-up) business and until 2001, would not allow faculty to 
hold equity in their start-ups. Ohio would not allow technology 
transfer and research contracts to be made without university board of 
trustee approval and would not allow a contract with an indemnity 
clause wherein the university would indemnify the sponsor for the 
mistakes of the university. Thus, a university-related research 
foundation was formed to facilitate university technology transfer, to 
administer industry contracts with the university, and to house our 
outreach efforts. The new research leadership team formed in 2001 
included Dr. George Newkome, Vice President for Research, Associate 
Vice President for Research Ken Preston and myself. Dr. Newkome and Mr. 
Preston came from the University of South Florida and I had recently 
arrived from Utah State University. All of us had been involved with 
university-related research foundations and knew of the benefits that 
would be achieved if we could successfully communicate the value to 
stakeholders. A research foundation provided us with a more 
entrepreneurial organization to respond to industry opportunities and 
needs. UARF is allowed to hold equity, provide indemnities to private 
research sponsors, and to enter into agreements under foreign 
jurisdictions. UARF was formed as a not-for-profit 501(c)(3), with a 
corporate charter to benefit the university. We invited board members, 
who had passion for the community and for driving the university's 
impact on economic competiveness. The majority of the directors are not 
university personnel, thus increasing community trust and 
understanding. We chose directors that have a perspective of investing 
resources for an expected long-term benefit. UARF entered into an 
agreement with The University of Akron allowing UARF to participate and 
administer all of the University of Akron industry-sponsored research 
agreements as well as projects that a state university could not take. 
UARF essentially functions as the University's fiscal agent. UARF 
receives all funding, pays the direct costs to the university, 
allocates the facilities and administrative costs (indirect costs or 
F&A) portion to the university units as per policy, including the 
department, college, research offices and others, and keeps the balance 
to be used for the benefit of the University, as determined by UARF 
directors. UARF also acts as the fiscal agent on licensing agreements, 
receiving funds, and allocating them to stakeholders as per university 
policy, including the inventors, their research programs, the chairs 
and deans. The remaining amounts likewise are used for the future 
growth of The University of Akron's research related programs as 
determined by the UARF directors.
    Best Practice #3--UARF's designation and hosting of outstanding 
industry retirees as UARF Senior Fellows and UARF Entrepreneurs-in-
Residence, who, as volunteers assist the research foundation in 
establishing a culture of innovation within the university and span the 
boundaries between academia and industry. While UARF provides them 
modest preapproved expenses, the Senior Fellows are not employees of 
either the University or UARF. As such, they are eligible to receive 
compensation from emerging enterprises, including equity. They have 
become drivers of entrepreneurship within UARF and with industry 
collaborators in the Akron community.
    We were fortunate to initially find two kindred spirits in Barry 
Rosenbaum and Gordon Schorr, who were completing their industry careers 
and were willing to invest their time, talents, and network in 
fostering innovation, particularly at that critical and fragile 
interface of industry and academia. They, in turn, have recruited 
additional experienced, like-minded individuals to join their team. 
These talented people appreciate and are being educated on academic 
culture while helping the academy learn to better interface with 
industry. UARF provides them with a title, a computer, a telephone, an 
email address, some expense money and the unfettered opportunity to be 
connected to emerging enterprises, where they can negotiate equity 
positions without the conflicts of interest inherent with those who are 
employees of The University of Akron or its research foundation. They 
do not receive a salary from The University of Akron or UARF. The 
majority of their efforts are provided pro bono. They do, however, 
underwrite some of their efforts with innovation services contracts 
with Fortune 500 companies. We turned this well qualified group loose 
with our full support. They became responsible for:

        A.  Providing assessment, innovation, and ideation services to 
        regional companies

        B.  Being the primary drivers and interim executives for 
        several spin-off companies

        C.  Advising start-ups

        D.  Providing on-site innovation services for innovation campus 
        tenants.

        E.  Linking faculty expertise and programs with regional 
        companies

        F.  Pursuing an early stage pre-seed investment fund

        G.  Identifying, developing, and securing a multi-million 
        dollar sponsored program for The University of Akron.

    As free agent entrepreneurs, the volunteers are free to explore the 
environment as appropriate.
    In addition to senior fellows, we have entrepreneurs-in-residence, 
one of whom is also a part-time employee of the chamber of commerce. 
This shared personnel mechanism improves the cooperation with the local 
chamber of commerce. The entrepreneurs-in-residence also support the 
senior fellows with the opportunities emerging at private sector--
university interface.
    Currently UARF receives donated time and effort from the senior 
executives in excess of five full-time equivalents.
    The senior fellows formed and now lead with UARF's sponsorship, the 
successful ARCHAngels Investor Network, which consists of approximately 
500 members and meets quarterly to consider investments in pre-
qualified companies. Over half of the 55 companies presented have 
received subsequent investment funding and the culture of 
entrepreneurship in the Akron community has risen significantly. See 
Infra. p 26 Best Practice #14.
    Open innovation. Our senior fellows conceptualized and implemented 
with UARF support, open innovation seminars for regional companies to 
assist the area's traditional manufacturing companies in the 
development of business opportunities. We now see a major trend to 
finding ideas and inventions from any source possible. As universities, 
we need to determine how we fit in and facilitate increased interactive 
and collaborative innovation. We have approximately 100 business 
leaders, policy makers and innovators, who meet to discuss and practice 
open innovation annually.
    Best Practice #4--Promote innovation internal to the university 
with innovation teams made up of university personnel and UARF Senior 
Fellows. The teams meet with colleges and departments to introduce 
research services, technology commercialization, and university 
outreach. UARF celebrates innovation success by having created an 
Inventors Wall of Fame, by financial sharing of license revenues with 
inventors, and by hosting social networking receptions. The quarterly 
meetings build trust and camaraderie and are a way of educating our 
inventor community of opportunities to contribute to our industrial 
base. In addition, research showcase events are hosted as are ideation 
sessions with faculty on research and development topics specific to 
the faculty, including potential industrial collaborations. 
Interdisciplinary research and project specific teams are formed at 
both the faculty and student level.
    Best Practice #5--Provide innovation services external to the 
university. University personnel and UARF Senior Fellows teams provide 
a range of innovation services to enterprises including large, medium, 
small, and start-up companies:

        A.  Technology validation,

        B.  Technology and commercialization advisory boards,

        C.  Products and services ideation and market opportunity 
        assessments,

        D.  Business formation services and bookkeeping,

        E.  Shared office space, equipment and personnel,

        F.  Intellectual property procurement and management services 
        including confidentiality agreements, patent procurement, 
        freedom to operate assessments, licensing services, among 
        others,

        G.  Leadership mentoring interim CEO services, and linking to 
        internship and student support teams,

        H.  Formation and hosting of an angel capital network Akron 
        Regional Change Angels (ARCHAngels) in support of emerging 
        enterprise capital development and formation of a student led 
        venture fund.

    Best Practice #6--Build the infrastructure and trust necessary for 
an effective licensing and technology commercialization program.
    A first step was to update the university's intellectual property-
related policies. We made several modifications the most significant of 
which were the designating of the research foundation as the fiscal 
agent for licensing and the revising of the royalty sharing. After 
patent costs are reimbursed, 40% goes to the inventors and 10% to their 
research programs.
    Thus, as we like to say, 50% is of direct benefit to the inventors. 
The remaining 50% is shared with the department, college, and UARF for 
long-term fiscal viability.
    We experienced substantial growth in disclosures and patent 
applications as well as significant royalty revenue growth. We spent 
considerable time with faculty inventors in order to fully understand 
the technology opportunity and then developing an appropriate 
commercialization strategy. As a result, we have 61 technologies now 
either licensed or optioned to license.
    Best Practice #7--Increase research funding and specifically 
industry-driven research. We approached companies to seek a 
comprehensive understanding of their specific challenges and 
opportunities. UARF representatives would declare: ``We have an 
assignment for you. Give us a challenge! What can we do to help make 
you more successful?'' One company was interested in having experts 
help them source and exploit emerging technology. We formed a team of 
UARF experts, primarily from retired industry personnel, to provide 
such innovation services. The R&D managers of the company now have 
their annual meeting at The University of Akron and we report to them 
on our innovation service efforts and we learn about their unique 
challenges and opportunities. Our team meets periodically with them at 
their various world-wide locations. The effort resulted in the 
formation of a joint venture start-up company to develop a new product, 
which was conceived in the process. The model provides for UARF to 
receive funds from sponsors with the services performed by university 
personnel. We experienced overall research funding increases. There are 
115 active industry sponsored research agreements and the number is 
increasing. The key to the growth seems to be the careful understanding 
and the thoughtful consideration of the challenges and needs of the 
sponsors.
    Best Practice #8--Identify and adapt excess office and lab space 
for use by emerging enterprises--We had noticed a ``for lease'' sign on 
two four story buildings adjacent to campus, in an area targeted by The 
University of Akron and the City of Akron for revitalization. We 
approached the owners and within a year, purchased the properties 
forming the nucleus of the Akron Innovation Campus, where we now have 
18 tenants, house our UARF outreach efforts, and use the remainder of 
the space for several of our supported emerging companies. We charge 
competitive rates on standard leases, although on occasion we have 
provided space to emerging enterprises in exchange for equity. It 
created a location for university related innovation activity and the 
real estate becomes a nice visual promotion vehicle for our efforts 
within our community.
    Best Practice #9--Support the formation of new enterprises 
including university-based start-ups. Overall, we have formed or 
supported the formation of 35 companies. Of those supported, not all 
are licensees of University of Akron technology and not all are spin-
outs by AUTM's definition. Some were formed to facilitate access to 
SBIR and STTR funds. We formed one to demonstrate our commitment to 
action within 48 hours of our first in-person meeting with two 
international companies that wanted to form a joint venture with a 
visible U.S. presence. We also had an interim management group 
designated.
    For Akron Polymer Systems Inc., we formed a university/faculty 
spin-off company to manufacture a compound already licensed to an end-
user, who needed product. We had the scientific expertise in the 
faculty inventor and his graduate students. They are now a company of 
about 15 employees, many of whom are graduates of The University of 
Akron polymer program and importantly, are staying in the Akron area.
    As another example of our outreach activity, we pursued licensing 
discussions with an out-of-state company, which led to the formation of 
an Ohio affiliate company to develop and exploit ceramic filtration 
technology. The move was not a requirement of the license, but the 
company saw value in the linkages and infrastructure that we had 
created at The University of Akron and moved to Akron.
    Best Practice #10--Encouraging student development--UARF has made 
connections resulting in over 120 assistantships with local business. 
UARF has also provided scholarships to selected programs and is 
currently pursuing a student run seed capital fund as well as a women's 
angel network.
    Best Practice #11--Regional alliances--Recently, we entered into 
agreements wherein UARF personnel are made available to provide 
technology transfer and innovation services to other regional 
institutions, which for a variety of reasons do not have the critical 
mass to have a full technology transfer and innovation services group. 
Thus, we provide technology transfer services as needed to Cleveland 
State University, Youngstown State University and Lorain County 
Community College. We are also in discussion with local hospitals and 
companies to assist them with technology transfer and intellectual 
property management services. We formed the Ohio Research Foundation, 
as a non-University of Akron focused entity, to provide innovation 
services to regional partners.
    Best Practice #12--We have been successful in developing and 
teaching intellectual property management courses primarily to law 
students. We plan to expand it to the science, engineering, and 
business disciplines. We are now working with the National Council on 
Entrepreneurial Tech Transfer to teach webinars on technology 
commercialization.
    Best Practice #13--We formed an innovation fund with our regional 
higher education partner, Lorain County Community College. The 
Innovation Fund provides capital to University of Akron spin-off and 
other emerging technology-based businesses. The Innovation Fund is 
supported by a network of higher education, government and economic 
development partners to nurture a technology-based entrepreneurial 
environment for wealth creation and job growth in Northeast Ohio. The 
Innovation Fund provides modest awards (up to $100,000) to promising 
technology-based start-ups. Recipients of Innovation Fund awards are 
required to provide an entrepreneurial educational experience to 
students and faculty of the partnering higher education institutions. 
The Innovation Fund is financially supported by the State's Third 
Frontier Program as well as partner support and philanthropic 
contributions from corporations, foundations, and individuals. 
Contributions to the Innovation Fund are tax deductible, due in a great 
part to the requirement for recipients to provide an educational 
opportunity for students, so critical to the development of the next 
generation of leaders in the community. The inclusion of this 
requirement qualified the initiative for a landmark private letter 
ruling issued by IRS in 2006 that deemed the initiative as charitable 
and, therefore contributions are tax deductible.
    Best Practice #14--The UARF Senior Fellows formed and provide the 
leadership for the ARCHAngel (Akron Regional CHange Angel) Investor 
Network, a regional forum for introducing angel investors to promising 
market-driven, technology-based, and investment seeking companies in 
Northeast Ohio. The network, formed in 2005, is sponsored by the 
University of Akron Research Foundation and focuses on companies that 
leverage the region's strengths in health care, information 
technologies, polymers and other advanced materials. The quarterly 
meetings introduce prescreened companies to network members who are in 
a position to make cash as well as sweat-equity investments. The 500 
plus members of the ARCHAngels network provide wisdom, guidance, 
executive services, personal energy, and passion to the companies and 
to the entrepreneurial programs in the region. The network is building 
a vibrant culture of technology innovation in this historic 
manufacturing region. As many as 80 students from regional colleges and 
universities attend quarterly meetings as part of their courses in 
entrepreneurship and many students find mentors and student projects 
within the ARCHAngels initiative.
    The ARCHAngels leadership team is represented by universities, 
enterprise accelerators and facilitators, local government, private 
companies, professional service providers, and investment partners. 
UARF's cost of hosting the ARCHAngel events over five years has been 
approximately $50,000 and has preceded the subsequent investment in the 
presenting enterprises in excess of $55 million. In a sense, it is a 
thousand-to-one return! The country would be well-served if this model 
could be replicated and expanded across its many innovation and 
technology regions.
    Best Practice #15--Constant reinventing and seeking new areas for 
innovation capacity development is a best practice. As an example, we 
believe that an emerging best practice will be that of cooperative 
innovation support teams among institutions of higher education and 
national laboratories. The University of Akron and UARF personnel 
recently met with national lab representatives regarding emerging 
technologies. We recognize that such relationships have significant 
innovation potential. We look forward to the next chapters!

5) Do you believe the National Science Foundation (NSF) has a role to 
                    play in the ``innovation ecosystem,'' beyond its 
                    traditional role of supporting basic research? If 
                    so, what is that role? What changes or 
                    recommendations, if any, do you have regarding 
                    NSF's portfolio of technology transfer and 
                    university-industry collaboration related programs?

        A.  The National Science Foundation could play more of a role 
        in ``translational'' activities provided resources are in 
        addition to, and not diverted from, existing NSF programs. NSF 
        would need to develop a new type of review system specific to 
        translational proposals as the current peer review system and 
        peer reviewers are not appropriate to make determinations about 
        whether a particular discovery has commercial potential. The 
        NSF should not get into ``translational'' activities merely by 
        adding some type of new regulatory requirement onto existing 
        grants mechanisms. NSF should consider regional proof-of-
        concept centers and should reward effective and innovative 
        model regional research and commercialization centers. NSF 
        should not prescribe the model, but rather allow regions to 
        experiment with models that best suit their needs and their 
        environment and that leverage existing community and state 
        programs. The key is to not simply give more money to the large 
        universities but rather to create a network of universities 
        that are regional hubs for job and wealth creation. Adding more 
        money to the rich will be less effective in enhancing the 
        innovation capacity of a region than an investment in a 
        regional network that includes proven innovation service 
        providers. We would also recommend that NSF support education 
        and research on the overall topics of innovation and 
        entrepreneurship.

        B.  The NSF Grant Opportunities for Academic Liaison with 
        Industry (GOALI) promotes university-industry partnerships by 
        making project funds or fellowships/traineeships available to 
        support an eclectic mix of industry-university linkages. 
        Special interest is focused on affording the opportunity for 
        faculty, postdoctoral fellows, and students to conduct research 
        and gain experience in an industrial setting. Industrial 
        scientists and engineers bring industry's perspective and 
        integrative skills to academe and interdisciplinary university-
        industry teams to conduct research projects. GOALI seeks to 
        fund transformative research that lies beyond that which 
        industry would normally fund. It is of value and should be 
        fully supported and expanded.

        C.  The Industry & University Cooperative Research Program (I/
        UCRC) is also of value. Centers are established to conduct 
        research that is of interest to both the industry and the 
        university with which it is involved, with the provision that 
        the industry partner must provide major support to the center 
        at all times. The centers rely primarily on the involvement of 
        graduate students in their research projects, thus developing 
        students, who are knowledgeable in industrially relevant 
        research.

        D.  The NSF SBIR/STTR Program also is of high value to the 
        innovation ecosystem and merits increased funding. The NSF 
        Small Business Innovation Research (SBIR) and Small Business 
        Technology Transfer (STTR) Programs support high-quality 
        projects on important scientific, engineering, or science/
        engineering education problems and opportunities that could 
        lead to significant commercial and public benefit, if the 
        research is successful. In order to make the SBIR/STTR programs 
        more effective, an increased portion of funding should be 
        available to awardees to purchase commercialization and 
        business development services including, but not limited to, 
        marketing, export development, and other critical elements 
        needed to reach the market place.

        E.  The Partnership for Innovation (PFI) program has been a 
        success, particularly in breaking down barriers. PFI promotes 
        innovation by bringing together colleges and universities, 
        state and local governments, private sector firms, and 
        nonprofit organizations. These organizations form partnerships 
        that support innovation in their communities by developing the 
        people, tools, and infrastructure needed to connect new 
        scientific discoveries to practical uses.

    The goals of the PFI program are to stimulate the transformation of 
knowledge created by the national research and education enterprise 
into innovations that create new wealth, build strong local, regional, 
and national economies, as well as improve the national well-being; 
broaden the participation of all types of academic institutions and all 
citizens in NSF activities to more fully meet the broad workforce needs 
of the national innovation enterprise; and catalyze or enhance enabling 
infrastructure necessary to foster and sustain innovation in the long-
term.
    Current and any proposed NSF programs and initiatives should be 
wellcoordinated with related programs--both innovation and economic 
development programs--in other agencies. These include current programs 
in the Department of Commerce such as NIST and EDA as well as the SBA 
and DOE programs. These programs need to be reviewed and better aligned 
to ensure maximum leverage and efficiencies.
    We appreciate, Mr. Chairman, this opportunity to share our story 
and our perspective on university roles in our country's innovation 
ecosystem. Enabled and effective higher education research institutions 
will be major contributors to our well being and our economic security.
    Thank you.

                     Biography for Wayne H. Watkins
    Wayne H. Watkins serves as Associate Vice President for Research at 
The University of Akron and as Adjunct Professor and Intellectual 
Property Fellow at The University of Akron School of Law. He serves as 
Treasurer and directs the operations of the University of Akron 
Research Foundation, a regional innovation and wealth creation services 
organization. Mr. Watkins directs The University of Akron programs in 
intellectual property management, emerging enterprise creation and 
support, technology based economic development, and university-industry 
collaborations. Mr. Watkins is Immediate Past President of the 
University Economic Development Association, a national organization 
supporting universities in economic development and innovation. Prior 
to his roles at the University of Akron in Ohio, Mr. Watkins served as 
Director of the Research and Technology Park and the Office of 
Technology Commercialization at Utah State University in Logan, Utah. 
He has served as vice president and corporate counsel of a diversified 
business holding company and was the administrator of the Utah 
Innovation Center. He currently serves on several boards of directors 
of technology and foods related companies and served ten years as a 
member of the North Logan City Council. Mr. Watkins has taught courses 
in Intellectual Property Management, Technology and Innovation, 
Business Policy, and Global Business. Mr. Watkins has been a frequent 
presenter at symposia on intellectual property and innovation including 
seminars hosted by the World Intellectual Property Organization. Mr. 
Watkins has degrees in mechanical engineering (B.S.M.E.), business 
(M.B.A.), and law (J.D.).

    Chairman Lipinski. Thank you, Mr. Watkins.
    Mr. Crandell.

   STATEMENTS OF KEITH L. CRANDELL, CO-FOUNDER AND MANAGING 
                DIRECTOR, ARCH VENTURE PARTNERS

    Mr. Crandell. Chairman Lipinski, Ranking Member Ehlers and 
Members of the Subcommittee, my name is Keith Crandell and I am 
Co-founder and Managing Director of ARCH Venture Partners, an 
independent seed and early-stage venture capital fund. I am 
especially pleased to be here today as a resident of Hinsdale, 
Illinois, testifying before my neighbor, Congressman Lipinski, 
who resides in nearby Western Springs. ARCH got our start, my 
partners and I, by being the managers of an innovative 
commercialization effort out of the University of Chicago and 
Argonne National Labs that was spawned following the passage of 
the Bayh-Dole Act in the 1980s. My partners and I had, 
basically, the rights to the technology at the University of 
Chicago and Argonne put into this subsidiary of the University 
of Chicago, which was chartered to start new companies from the 
research there. We raised a small venture capital fund from 
financial investors of $9 million, did 12 companies with that, 
ultimately took four public, sold four, wrote off four. The 
successes from that first fund include the EveryDay Mathematics 
Company, which is the number one math curriculum in the United 
States today, Nanophase Technologies, which The Economist lists 
as the first nanotechnology company, and then Aviron, which 
does the cold-adapted flu vaccine that is sprayed into the 
noses of children to vaccinate them against various diseases.
    I am pleased to be here today to share with you some 
thoughts on how to improve the technology transfer of 
breakthrough ideas and technologies from our Nation's research 
institutions. Venture capital plays a critical role in the 
innovation lifecycle by identifying and investing in promising 
ideas, entrepreneurs and companies. Often these companies are 
formed from ideas and entrepreneurs doing work in universities, 
industry and government laboratories. Many would never see the 
light of day were it not for venture investment.
    The historic impact on the U.S. economy, in terms of jobs 
created and innovation from venture capital investment, is 
significant. According to a 2009 study conducted by Global 
Insights, companies that were started with venture capital 
since 1970 accounted for 12.1 million jobs, or 11 percent of 
the private sector employment, and almost $3 trillion in 
revenue in the United States in year 2008. Former venture-
backed companies like FedEx, Genentech, Microsoft, Google and 
Apple were once small ideas tucked away in a lab or a living 
room, and that is where tomorrow's great innovations will be 
coming from.
    Technology commercialization effectiveness differs greatly 
from one research institution to another, but there are three 
primary functions most technology transfer offices perform. The 
first is record keeping and compliance, and I think most 
universities can adequately carry out that function. The second 
is patenting and licensing. I think too often the staffs in the 
technology transfer offices do not have the resources necessary 
to gain full knowledge of how research can be translated into 
commercial applications for specific patents, and as a result, 
poorly drafted patent claims can result, in which case you can 
have a great innovation but a very narrow patent, and that 
stifles innovation.
    Second, I think in the past ten years licensing agreement 
templates have been published, which simplify the licensing 
process quite a bit. However, these agreements still take too 
long to negotiate from a startup company's viewpoint. The 
startup cannot get to the real work of hiring management, 
product development and raising capital until it secures its 
license and knows its economic terms.
    The third and most critical commercialization function is 
forming and spinning off startups based on those patented and 
licensed innovations. Unfortunately, this tends to be a 
particularly difficult and thankless task, since university 
tech transfer offices are too often not given enough resources 
and skilled personnel needed to perform the job, nor are they 
recognized for the value they contribute to an organization 
that is designed first and foremost to serve faculty and 
students.
    Successful new company formation requires three basic 
components to be brought together: leading researchers with 
breakthrough ideas, successful entrepreneurial managers and, 
lastly, experienced seed and early-stage investors. These 
interdisciplinary teams of scientists, managers and investors 
have been the hallmark of successful high-growth companies. 
Some areas like Silicon Valley have an abundance of all three 
components, but other regions that may have excellent research 
lack the other parts of the systems. In those regions where 
venture capital and entrepreneurial talent are scarce, a much 
heavier burden is placed on the commercialization staff to spin 
off companies.
    There are several principles that define successful 
commercialization processes. I will briefly touch on these. 
There is more detail in my written testimony. The objective 
commercialization metrics are of critical importance. My sense 
is that counting things that are the easiest to count, such as 
visits or invention disclosures, are not particularly 
indicative of the success of commercialization efforts. I think 
those metrics should focus on things such as capital raised and 
jobs created. I think there needs to be an enhancement in the 
resources that are focused on the leading scientists. I will 
call it the top one percent, since historically this is where 
the breakthroughs have come from. I think pure scientists with 
successful entrepreneurial experience make the best judges of 
those efforts. I think researchers need to be able to fully 
participate in the entrepreneurial process without unnecessary 
encumbrance from archaic conflict-of-interest policies. The 
standard of conduct for scientists involved in entrepreneurial 
activities should be actual conflict, not the appearance of 
conflict, as is the standard in some institutions today, 
primarily the national lab system. If you go with the 
appearance-of-conflict standard, it allows mid-level managers 
with programmatic responsibilities to quash the entrepreneurial 
activity by pointing to less than substantive violations of 
those standards.
    We would like to see an improvement in encouraging 
exclusive licenses. I think 25 years after the Bayh-Dole Act, 
it is absolutely clear that in order to raise capital, you need 
to have the ability to cut exclusive licenses with a minimal 
amount of time to getting those completed, and that is still an 
area that needs work.
    And then finally, I would like to say that we would like to 
see the SBIR program not disqualify investor-backed companies 
from applying for grants. I think this is particularly damaging 
to companies seeking capital that are in remote geographies 
where it is harder to attract investor capital.
    The National Science Foundation: their sponsored research 
has played an important role in innovation ecosystems. NSF is 
highly regarded by the seed and early-stage venture capital 
groups because of their long-term view interdisciplinary 
research and careful program selection and rigorous peer 
review.
    The NSF could take a more active catalytic role in 
encouraging commercialization in several ways. First, the 
Foundation can help expand the innovation ecosystem, 
particularly in those geographic regions that possess topflight 
research that I discussed earlier, but lack the seasoned 
entrepreneur and investor components necessary to complete the 
transfer process. The NSF should fund the formation of public-
private partnerships at these research institutions to focus 
exclusively on identifying startup opportunities and assembling 
interdisciplinary teams required to build innovation into 
successful high-growth companies. The NSF may be uniquely 
suited to facilitate this partnership because of its deep 
relationships with leading scientists, many of whom have had 
successful startups emerge from their labs.
    Second, the NSF can rethink the artificial separation of 
basic and applied research. To paraphrase an entrepreneurial 
chemist from Argonne National Labs some years ago, there are 
plenty of great basic research problems with commercial 
significance, if you are looking for them. The point here is, 
if generating an eventual commercial application is the desired 
goal of basic research, or one of them, then it makes sense to 
design the programs to allocate resources to identify, 
investigate and validate the commercial implications of basic 
research from the very beginning. It is simply never too early 
to start this complementary commercial investigation process.
    I would like to conclude my testimony by reiterating that 
the innovation ecosystem in the United States remains the envy 
of the world. It has harnessed the brilliance of our 
researchers, the ingenuity of our entrepreneurs and the savvy 
of our investors. However, it is a frail ecosystem, and as 
members of this unique public-private partnership, we must do 
everything we can to remove and mitigate those challenges to 
the system that are under our control. Thank you.
    [The prepared statement of Mr. Crandell follows:]
                Prepared Statement of Keith L. Crandell

Introduction

    Chairman Lipinski, Ranking Member Ehlers, and members of the 
Committee, my name is Keith Crandell and I am co-founder and managing 
director at ARCH Venture Partners, an independent, seed and early stage 
venture capital firm. ARCH focuses on commercializing the breakthrough 
ideas of leading academic researchers in the fields of life science and 
physical science. We do this by developing these innovations into 
products and building industry-leading companies to bring them to the 
marketplace. Since our formation in 1986, we have been founders or 
leaders in the first round of venture capital investment in more than 
120 companies.
    ARCH, whose name is derived from The Argonne National Laboratory/ 
University of Chicago Development Corporation, was formed to 
commercialize innovations from the namesake university and laboratory, 
which the university owns and operates. Prior to ARCH, very little 
commercialization of research had taken place at either institution. In 
our first five years, we raised a $9 million fund and used it to found 
12 companies. Successes from this initial batch include The EveryDay 
Learning Company, developer of the number one reform elementary 
mathematics curriculum in the U.S., Aviron, developer of the cold-
adapted, nasal aerosol flu vaccine for children, and Nanophase 
Technologies which The Economist has identified as the very first 
nanotechnology company.
    Overall, the founders' equity in those initial 12 start-up 
companies and the licenses ARCH completed during that time have 
generated over $30 million. Currently, ARCH Venture Partners is 
investing its seventh fund.
    In addition to my responsibilities as a venture investor, I am a 
former director of the National Venture Capital Association (NVCA), of 
which my firm is a member. Based in Arlington, VA., the NVCA represents 
the interests of more than 425 venture capital firms in the United 
States. These firms comprise more than 90 percent of the venture 
industry's capital under management.
    It is my privilege to be here today to share with you, on behalf of 
the venture industry, our perspective on how we can improve the 
transfer of breakthrough ideas and technologies from research 
institutions to entrepreneurs and investors who can build them into 
products and companies and bring them to the marketplace.

The Role of Venture Capital in the Innovation Life Cycle

    I would like to share a brief overview of the role of venture 
capital (VC) in the innovation life cycle. For decades, the venture 
capital industry has dedicated itself to finding the most innovative 
ideas and bringing those ideas to market. Venture capitalists raise 
money from institutional investors and their firm partners for the 
express purpose of identifying and investing in the most promising 
ideas, entrepreneurs, and companies. We only choose those with the 
potential to grow exponentially with the application of our expertise 
and venture capital investment. Often these companies are formed from 
ideas and entrepreneurs doing work in university and government 
laboratories--or even someone's garage. Many of these ideas would never 
see the light of day were it not for venture investment.
    Once a VC has identified a promising opportunity, he conducts 
thorough due diligence on the entrepreneur or scientist, the technology 
on which the opportunity is based, and the potential market. For a 
venture capitalist to invest in a new idea, the discovery must be 
proven at least to a reasonable point. Often times, the venture 
capitalist will delay an investment until further research or 
commercial validation is successfully completed. Put another way, most 
venture capitalists invest in applied research--not basic research. For 
those discoveries that have moved through the basic research process or 
have a functioning product which passes muster with their firm, we make 
an investment in exchange for equity ownership in the business. Often 
at this point, no company has been formed to manufacture and market the 
product, so the VC takes a lead role in establishing one. Venture 
capitalists also generally take a seat on the company's board of 
directors and work very closely with management to build the company 
and bring the innovation to market.
    The innovation process is long and characterized by significant 
technological, market, and entrepreneurial risk. A venture capitalist 
typically holds his venture investment in an individual company for at 
least 5-10 years, often longer, and rarely much less. During that time 
he continues to invest follow-on capital in those companies that are 
performing well; he may cease follow-on investments in companies that 
do not reach their agreed-upon milestones. The ultimate goal is what 
VCs refer to as an exit--which is when the company is strong enough to 
either go public on a stock exchange or become acquired by a strategic 
buyer at a price that ideally exceeds our investment. At that juncture, 
the venture capitalist ``exits'' the investment, though the business 
continues to grow and innovation continues to take place.
    The nature of our industry is that many companies do not survive, 
yet those that succeed can do so in major ways. Our asset class has 
been recognized for building a significant number of high-tech 
industries including the biotechnology, semiconductor, online 
retailing, and software sectors. Within the last several years, the 
venture industry has also committed itself to funding companies in the 
clean technology arena. This includes renewable energy, power 
management, recycling, water purification, and conservation. Many of 
the young companies that we fund serve as the de facto R&D pipeline for 
larger corporations as, in many cases, the technology of venture-backed 
start-ups is usually far more advanced than the product-line extensions 
that receive priority in a corporate R&D environment. This phenomenon 
is especially true in the life sciences and software sectors, where 
venture-backed companies are regularly acquired for their technology 
and intellectual property. We believe this dynamic will ultimately 
become the reality in the energy and clean tech sectors as well. My 
partners and I are extremely proud of the work that we do each day 
because we are creating the future.
    Historically, venture capital has differentiated the U.S. economy 
from all others across the globe in terms of job creation and 
innovation. According to a 2009 study conducted by the econometrics 
firm IHS Global Insight, companies that were started with venture 
capital since 1970 accounted for 12.1 million jobs (or 11 percent of 
private sector employment) and $2.9 trillion in revenues in the United 
States in 2008. Such companies include historic innovators such as 
Genentech, Intel, FedEx, Microsoft, Google, Amgen, and Apple. These 
companies have brought to market thousand of innovations that have 
improved and, in the case of the life sciences sector, actually saved 
millions of lives. It is almost inconceivable that these monumental 
advances were once small ideas tucked away in a lab or a living room. 
But we assert that the next great innovation is today an idea waiting 
somewhere. We are committed--along with the government--to finding and 
funding it. Our country's future depends on it.

The ARCH Methodology

    ARCH Venture Partners works with leading researchers at the 
earliest possible point in their work to identify breakthrough ideas. 
We then evaluate market potential and technical risk, develop 
intellectual property strategy and bring in experienced entrepreneurial 
advisors with relevant industry and technology experience. In fact, our 
ability to integrate proven and successful technologists and 
entrepreneurs from previous ARCH portfolio companies into subsequent 
generations of start-ups and introduce them to existing networks of 
contacts is one of the most valuable things ARCH brings to the table.
    In addition to assisting in product development and strategy, ARCH 
also works with its portfolio companies to recruit managers and board 
members, identify corporate partners, increase awareness of non-equity 
sources of financing from governmental agencies, and develop an overall 
business strategy. Periodically, ARCH partners have stepped into 
operating roles in portfolio companies in the roles of executive 
chairman of the board or interim CEO to enable continued progress even 
when management changes have been required.
    As part of this process, ARCH actively solicits participation from 
other investors--a practice that venture capitalists call 
``syndication.'' This considerably strengthens the financial position 
of the company by helping to insure that it can access capital until it 
achieves positive cash flow. Just as importantly, participation from 
additional investors provides extra reserves of expertise, experience 
and contacts for the company to tap as it grows.
    Finally, ARCH shares its considerable experience in the initial 
public offering process and in trade sales--the two most common 
outcomes, or ``exits,'' for successful venture-backed start-ups--with 
its portfolio companies to make these processes more efficient and 
maximize the value of their exits for all stakeholders.
    ARCH does not expect researchers to become the chief executives of 
the start-ups their innovations spawn. In fact, we have found that they 
prefer to stay in their laboratories and continue their groundbreaking 
research while serving as advisors, consultants, and board members to 
the start-up. The consensus of the founders and investors is almost 
always to recruit top entrepreneurial talent to lead the start-up full 
time as soon as possible.
    Challenges Facing Knowledge and Tech Transfer from Universities to 
the Private Sector
    The technology transfer process at leading universities can be 
broken down into three primary and interrelated functions: record 
keeping and compliance, patenting and licensing, and spinning off 
start-ups based on those patented innovations.
    Most universities have adequate programs in place to carry out 
record-keeping and compliance. In some cases, this function also 
includes raising technology transfer awareness broadly in the 
university community.
    The second function concerns the management of the university's 
patent portfolio and the completion of license agreements for both 
established and start-up companies. Currently, the quality of the 
patenting process varies greatly from university to university. 
Constrained resources at the technology transfer office, a lack of 
commercial application knowledge by those who staff it, and an 
unwillingness to aggressively defend broader claims by the person who 
filed the patent can lead to challenges for start-ups interested in 
commercializing the innovation. In some cases, groundbreaking 
innovations have received only narrow patent coverage. Start-ups are 
particularly vulnerable to these vagaries of the system because patents 
offer one of the few advantages a small company has against larger, 
stronger, and more established competitors. While some standard 
licensing agreement templates have considerably simplified the license 
agreement process for university offices in recent years, many 
universities continue to spend too much time negotiating them. This is 
wasted time for start-ups because they cannot begin the process of 
attracting management and investment or start product development until 
the license is complete and the economic terms are known.
    The third and most important function focuses on spinning off high-
potential start-up companies based on their patented and licensed 
innovations. This is the most critical step in the commercialization 
process, but it can be a difficult, frustrating, and potentially 
thankless task for the technology transfer staff involved.
    Sadly, university technology transfer offices often function as 
second-class citizens in bureaucracies designed primarily to serve the 
faculty, educate students, and handle institutional administration. As 
a result, these offices frequently lack resources and have difficulty 
attracting, retaining, and motivating the level of talent required to 
facilitate rapid and efficient commercialization. While universities 
often reward top faculty for generating outstanding research or 
garnering grant funding, they rarely ever reward transfer officers for 
their commercialization efforts--no matter how heroic. In fact, the 
researchers themselves maintain a role and ownership incentives in a 
start-up, but the technology transfer executives typically do not 
receive a similar ownership incentive--even when they essentially help 
found the company. Sometimes, the only way they can get this stake is 
to leave the university.
    The role of the ``start-up'' staffer is further complicated by a 
heightened degree of negative scrutiny--``fish bowl'' effect, of 
sorts--often present at public institutions. It works like this: if a 
start-up is successful, the staffer may be blamed for giving away the 
lab's ``crown jewels'' for too little economic value or charged with 
favoritism toward the successful group after the fact. If a start-up 
fails, critics assail the staffer for the tremendous time and effort 
that yielded nothing. If the staffer believes a leading scientist's 
innovations cannot commercially justify his efforts, he may incur the 
wrath of a powerful faculty member. Instead of providing motivating 
incentives, this dynamic discourages talented staffers from giving 
their best effort and hurts the commercialization process.
    The fish bowl effect raises another troublesome challenge: conflict 
of interest, and how to deal with it. It should be understood that the 
type and size of conflicts of interest arising from the 
commercialization process are not always predictable. Commercialization 
involves human beings moving with incomplete information into unknown 
territory. These conflicts should be managed not from expectations of 
zero defects, which is impossible and counterproductive, but from one 
of exemplary disclosure, oversight, review and management of conflicts 
when they arise.

Technology Transfer and Geographic Variance

    Let me set aside the acute challenges at the university transfer 
office and speak more generally about the transfer process. Successful 
transfer, or spin off systems require three basic components: 1) 
leading researchers with breakthrough ideas, 2) successful 
entrepreneurial managers and, 3) experienced and successful seed and 
early stage investors. These interdisciplinary teams of scientists, 
managers, and investors have been a hallmark of successful high growth 
companies in the United States for decades.
    In Northern California and in the Boston area, these three 
components exist in abundance across a number of different fields and 
industry sectors. Outside of these well-established venture capital 
hubs, some regions have assembled these components for single industry 
sectors. Examples include the medical devices sector in Minneapolis, 
MN, biotechnology in Seattle, WA, and communication technology in 
Austin, TX.
    Throughout most of the rest of the United States, many academic 
institutions have leading researchers with breakthrough ideas. The 
other two critical components--experienced and successful entrepreneurs 
and seed and early stage investors--remain in short supply. In many 
cases, those who are on the scene are not coordinating their creative 
activity. The critical challenge for these geographies is to round out 
these other two components so that they can assemble the high-
performance, interdisciplinary teams I described earlier.

Best Practices and Recommendations for Effective Commercialization

    The process of commercializing technology is a system with many 
interdependent parts. It also tends to work differently at universities 
than it does at the national laboratory system. Despite these 
differences, there are a number of principles and practices for success 
that stretch across the commercialization spectrum. I originally 
developed these to share with the Department of Energy for improving 
their process of technology commercialization at the national labs, but 
I think they are relevant to our discussion today.

        1)  Insistence on Objectivity and Transparency in 
        Commercialization Reporting. The improvement of the technology 
        commercialization process should begin with improved annual 
        metrics that accurately reflect start-up company activity. 
        Institutions should focus on tracking economic value created, 
        capital raised and jobs created, instead of counting, invention 
        disclosures, licenses, patents, and CRADAs (cooperative 
        research and development agreements). These latter metrics are 
        at best indirect and incomplete measures of technology 
        commercialization. Tracking near-term cash is also problematic, 
        as it creates an incentive in the lab to overload pre-revenue 
        start-ups with large licensing fees--which strip the start-up 
        of precious dollars needed to advance the commercialization of 
        the technologies.

        2)  Assembly of Capable Commercialization Teams: Each 
        institution should assemble a cadre of successful experienced 
        entrepreneurial managers, venture capitalists, and 
        entrepreneurial researchers to share their best practices, 
        network, and experience with the next generation of 
        researchers. Successful early stage companies do this when they 
        organize business and scientific advisory boards to gain 
        insights in development efforts and to suggest ideas to 
        overcome challenges. Adopting this practice at the technology 
        commercialization office level starts this essential process 
        even earlier.

        3)  Focusing Commercialization Resources on Breakthrough Ideas. 
        The creation of new companies based on breakthrough ideas from 
        leading scientists involves a small percentage of the research 
        talent at a given institution (the top one percent). 
        Entrepreneurial services, funding, and support should be 
        focused on the top scientists with the breakthrough ideas. We 
        have found that peer scientists with successful entrepreneurial 
        experience make the best judges.

        4)  Make Time for Researcher Consulting. Top scientists 
        (perhaps called Commercial Fellows) should be allocated at 
        least one day per week for consulting with start-ups. This 
        practice is typical at leading private research universities 
        but less common at the national labs.

        5)  Adopt Common Sense Conflict of Interest Policy. Researchers 
        should be able to fully participate in the entrepreneurial 
        process without unnecessary encumbrance from archaic conflict 
        of interest policies. The standard of conduct for scientists 
        involved in entrepreneurial activity should be ``actual 
        conflict''--not the ``appearance of conflict'' standard in 
        place at some institutions today. The appearance standard 
        allows mid-level managers with program responsibilities to 
        quash entrepreneurial activity (e.g., veto researchers' ability 
        to provide consulting to start-ups, serve on boards or advisory 
        boards, and take equity stakes) by merely pointing to less-
        than-substantive violations of the standard. Procedures and 
        policies for handling actual conflicts (such as the well-
        established disclosure, oversight and review process at many 
        universities) should be put in place to afford the 
        commercialization-oriented researcher the fullest opportunity 
        to participate in the commercialization process, as well as due 
        process and the opportunity to appeal conflict determinations 
        to objective authorities outside the lab's direct chain of 
        command.

        6)  Ensure Investor and Entrepreneur Access to Leading Lab 
        Researchers. Investors and entrepreneurs should have the 
        ability to ``walk the halls'' of research institutions, meet 
        scientists, attend seminars, build relationships, and discuss 
        ideas and opportunities with lead researchers. This already 
        happens today at the best research universities, but it should 
        happen everywhere--including non-classified areas of the 
        national labs.

        7)  Improve the Intellectual Property Protection and Practices. 
        Encourage exclusive licenses based on performance and embrace 
        the notion that intellectual property licensed to investor-
        backed start-ups will likely need to be exclusive in order to 
        attract investment capital. This practice is already in place 
        at the top research universities, and should expand to all 
        commercialization-focused institutions.

        8)  Streamline the license negotiation timeline. As I mentioned 
        earlier, time is precious for start-ups. The licensing process 
        should be completed in 90 days. The time and effort used to 
        extract a license from a university or national lab is wasted 
        when the real challenges the new company faces are building a 
        business or attracting capital or management or developing a 
        product or finding a customer. Often universities and 
        laboratories require the approval of too many separate quasi-
        independent entities.

        9)  Improve the Breadth and Commercial Relevancy of Patent 
        Claims. There is too much emphasis on counting quantity and not 
        enough on the quality and commercial importance of the patent 
        claims made by universities and labs. Claims should be filed 
        with an eye toward the eventual needs of the companies to whom 
        the institution plans to license them.

        10)  Investor backed companies should be allowed to more fully 
        compete and participate in the SBIR program as they did prior 
        to 2003. SBIR provide a need source of capital to 
        entrepreneurial companies and disqualifying entrepreneurial 
        companies that take investor capital from participating in the 
        SBIR program makes the new company less likely to seek the 
        capital it needs to commercialize innovations and create jobs 
        and economic value. This is particularly damaging to 
        entrepreneurial companies seeking capital in remote 
        geographies.

Roles for the National Science Foundation in the Innovation Ecosystem

    Basic research sponsored by the National Science Foundation (NSF) 
is highly regarded by seed and early stage venture capital groups 
because of the NSF's long-term view, interdisciplinary research 
approach, careful program selection, and rigorous peer review. NSF also 
generally involves top researchers and their research programs are 
highly original in nature. These characteristics provide a strong basis 
for a new start-up companies.
    In addition to continuing to fund such research, I believe the NSF 
can play a number of important roles within the innovation ecosystem in 
the U.S.
    First, the foundation can help expand the innovation ecosystem--
particularly in those geographic regions that possess the top-flight 
research component I discussed earlier but lack the seasoned 
entrepreneur and investor components necessary to complete the transfer 
process. The NSF should fund the formation of public-private 
partnerships at these research institutions to focus exclusively on 
identifying start-up opportunities and building the interdisciplinary 
teams required to build innovations into successful, high-growth 
companies. The NSF may be uniquely suited to facilitate these 
partnerships because of its relationships with leading scientists, many 
of which have had successful start-ups emerge from their labs. The 
public-private partnership model also addresses the ``fish bowl'' 
challenge for technology transfer officers because the partnership does 
not report to the administration of the university or lab and can also 
act as an advocate for the entrepreneurial scientist on the conflict of 
interest issues.
    Second, the NSF can rethink the artificial separation of basic and 
applied research. To paraphrase an entrepreneurial chemist from Argonne 
National Laboratory some years ago: there are plenty of great basic 
research problems with commercial significance--if you are looking for 
them. The point is this: if generating an eventual commercial 
application is one desired goal of basic research, then it makes sense 
to design the program architecture to allocate incremental resources to 
identify, investigate, and validate the commercial implications of 
basic research from the very beginning. It's simply never too early to 
start this complimentary investigation process. It can help inform the 
direction of more applied research, strengthen intellectual property, 
and provide a platform to interest entrepreneurs and seed capital. This 
is a particularly acute problem in physical science research where, for 
example, new innovations in materials science can have diverse 
applications spanning everything from drug delivery to computer 
displays to aerospace.
    For these reasons, it's better to make a scientist fully aware of 
the real potential and constraints for a commercially relevant 
breakthrough and lay the groundwork for a start-up early on, rather 
than ask him to perform basic research in a commercial information 
vacuum for years and then, after the program is complete, try to 
retrain him as an entrepreneur and begin the process of commercially 
validating the innovation.
    Finally, the NSF could encourage leading researchers to include 
summaries of these commercial investigations of their work and what 
paths those applications could take when submitting their work for 
publication. On a parallel track, the foundation could encourage 
leading academic journals to ask for or even require such summaries.

Conclusion

    I'd like to conclude my testimony by reiterating that the 
``innovation ecosystem'' in the U.S. remains the envy of the world. It 
has harnessed the brilliance of our researchers, the ingenuity of our 
entrepreneurs, and the savvy of our investors to power economic growth, 
save countless lives, and change the way we live those lives each day. 
However, it is a delicate system steeped in risk and beset by 
challenges in today's economic environment.
    As members of this unique public-private partnership, we must do 
everything we can to remove or mitigate those challenges to the system 
that are under our control. Encouraging and adopting the best practices 
for knowledge and technology transfer at universities and the national 
labs that I outline in this testimony would move us in the right 
direction. So, too, would increasing the role of NSF in those ways that 
I've described.
    This brings me to a larger point: The Federal Government has played 
a vital role in the success of the U.S. innovation model through 
innovation-friendly policies and incentives. Now, however, many foreign 
governments have begun to emulate these policies and create innovation 
ecosystems of their own. If successful, these competing ecosystems 
could draw talent and resources away from ours. To maintain our 
innovation advantage, we must rededicate ourselves to what made our 
system successful and address those areas that pose the greatest 
threats. This means increasing support for basic R&D, improving math 
and science education, supporting high-skilled immigration and patent 
reform, and improving access to capital through forward-thinking tax 
policies. Without action on these fronts, the United States may find 
itself in the unfamiliar role of innovation backwater--rather than the 
destination of choice for the world's most gifted researchers and 
entrepreneurs.
    I want to personally thank you for the opportunity to discuss these 
important issues with you today. And to thank you for your service to 
our country in your capacity as Members of Congress.

                    Biography for Keith L. Crandell
    Keith Crandell is a Co-Founder and Managing Director of ARCH 
Venture Partners, a 24 year-old seed and early stage venture capital 
partnership with offices in Chicago, Austin, San Francisco and Seattle. 
ARCH Venture Partners is currently managing its seventh fund and 
focuses on core technology spin-outs from universities and other 
research organizations in the United States.
    Mr. Crandell serves as a Director of the National Venture Capital 
Association and is a member of the Governmental Affairs Committee. He 
also has been active with the IVCA since inception, recently serving as 
Chairman. Since 2004 he has served as Chairman of the Advisory Board of 
the Treasurer's Fund, a fund-of-funds focused on Illinois private 
equity partnerships.
    Prior to ARCH, Mr. Crandell worked with Hercules, Inc., a specialty 
chemical and polymer company. He holds an M.B.A. from The University of 
Chicago, an M.S. in Chemistry from the University of Texas at 
Arlington, and a B.S. in Chemistry and Mathematics from St. Lawrence 
University.

    Chairman Lipinski. Thank you, Mr. Crandell.
    Mr. Kane.

STATEMENTS OF NEIL D. KANE, PRESIDENT AND CO-FOUNDER, ADVANCED 
                   DIAMOND TECHNOLOGIES, INC.

    Mr. Kane. I am Neil Kane, President and Co-founder of 
Advanced Diamond Technologies. I would like to thank Chairman 
Lipinski, Ranking Member Ehlers and the other Members of the 
Committee for the opportunity to speak today.
    In the last 15 years, I have been founder or startup 
executive in six university spin-offs and I have been 
associated with many more. As the Executive Director of the 
Entrepreneurship Center at Argonne National Laboratory, our 
charter was to mine Argonne's portfolio of research projects 
and identify those that were the best candidates for launching 
startup businesses. I later became Entrepreneur-in-Residence 
for the venture arm of the University of Illinois where for 
three years I helped start businesses based on research 
conducted there. Through these experiences, and the four years 
since then that I have been full-time CEO of Advanced Diamond 
Technologies, I have encountered every small business and tech 
transfer issue there is.
    Advanced Diamond Technologies is a nanotechnology company. 
We literally turn 50 cents worth of natural gas into $500 worth 
of diamond in our plant near Chicago. We don't make jewelry, 
but the diamond that we make is used in a variety of industrial 
applications, such as highly durable bearings, electronics such 
as timing chips for phased-array radars for the military, and 
medical devices like heart pumps. Notably, all of the products 
that we manufacture today and export were the subject of SBIR 
awards. We are building domestic manufacturing capacity and 
creating highly skilled jobs. In fact, three-quarters of our 16 
employees have advanced degrees, and as has been noted already 
by Chairman Lipinski, I should point out that not surprisingly, 
our most serious competition comes from China. Not only are 
their costs lower there, as everybody understands, but their 
government is also funding advanced technologies like ours much 
more aggressively than the U.S. is today.
    As I have persevered through some of the challenges 
encountered when transferring technologies from universities or 
Federal labs, the major issues that I have identified are these 
four. Number one, as you have already heard from others, the 
transaction costs of executing licenses is too high. Number 
two, professors or career researchers who are integral to the 
success of startups sometimes face institutional impediments 
that inhibit their participation--conflicts of interest and 
other types of things. These same professors or career 
researchers, while obviously highly intelligent, lack business 
experience, and that needs to be addressed. In every startup 
that I have been a part of, some or all of the key research was 
conducted by a foreign-born student. These graduate students or 
post-docs are then prohibited from working in the companies 
that they spin off due to immigration restrictions. This 
reduces the chance of success for the company, and also 
deprives the community of the opportunity to employ a highly 
skilled worker. When it comes to job creation, these are the 
easiest jobs to create.
    And finally, funding the Valley of Death, the gap that 
exists between applied research on the one hand and commercial 
traction on the other. This continues to be an enormous 
challenge for most commercially oriented technology businesses. 
And in response, I offer these five recommendations to address 
these issues.
    Number one: The Bayh-Dole Act should be modified so that 
all patent licenses executed under its purview are made 
publicly available. In the era of transparent government, I 
will call this the License Agreement Sunshine Act. By doing so, 
and making licenses exposable to the public, it will lower 
transaction costs by making licensing terms and conditions more 
standardized, and notably, as you have heard from Mr. Crandell, 
it will also dramatically shorten negotiations.
    Number two: Create an entrepreneurial special duty 
assignment for researchers in Federal laboratories, to give 
them the chance to properly transfer their technology and 
skills without sacrificing their professional tenure or salary.
    Number three: Make universities provide business skills to 
STEM students. Large companies can offer training like the one 
that I got when I began my career with IBM, but small 
businesses cannot afford to do so. Horizontal skills like 
project management, budget, written and verbal communications, 
presentation skills and basic sales skills are valuable 
regardless of career choice. Better-rounded technical workers 
will earn higher salaries regardless of location, and I can 
tell you firsthand that all of the employees that we have had 
in my companies who haven't survived, it has usually been due 
to their horizontal skills and social skills, not their 
technical skills.
    Number four: Increase the limits on SBIR and STTR awards 
and collapse the approval times. Sometimes it takes up to nine 
months, and these are cycles that startup companies cannot 
tolerate.
    And number five: Modify the SBA [Small Business 
Administration] size standards to reflect the needs of very 
small businesses. As you know, the SBA defines a small business 
as one with less than 500 employees. My company, with 16 
employees, doesn't have very much in common with companies that 
have 450 or 500 employees. The SBA needs to recognize and 
define programs appropriate for businesses with less than 50 
employees, much like other Federal legislation does.
    In conclusion, we at Advanced Diamond Technologies are 
developing important new technologies, generating good jobs and 
exporting products today specifically because of the taxpayer 
investments in basic and applied research, augmented by the 
availability of SBIR funding through NSF. Tech transfer is an 
investment in our innovation economy, and I encourage you to 
implement the changes I have proposed to stimulate this 
activity. Thank you.
    [The prepared statement of Mr. Kane follows:]
                   Prepared Statement of Neil D. Kane
    I'd like to thank Chairman Lipinski, Ranking Member Ehlers and the 
other members of the Committee for the privilege and honor to speak to 
you today. I represent on today's panel the perspective of the start-up 
company founder who has launched several businesses based on federally 
funded research performed at Federal labs or at universities.
    Advanced Diamond Technologies (ADT), a company I co-founded in late 
2003 with Dr. John Carlisle and Dr. Orlando Auciello, both scientists 
at Argonne National Laboratory, is a company that turns natural gas 
(methane) into diamond. They're the technical founders and I'm the 
``business guy''. You may remember from your freshman chemistry class 
that diamond is a form of carbon. Methane, a hydrocarbon, is comprised, 
as you might suspect, of hydrogen and carbon. At the right temperature 
and pressure, in a process very much like the ones used to make 
semiconductors, we can strip away the hydrogen, rearrange the carbon 
atoms, and literally turn 50C worth of a commodity gas into several 
hundred dollars worth of diamond. The diamond we manufacture has a wide 
variety of commercial uses, described later, and isn't used for 
jewelry. Today we have 16 full time employees which include five Ph.D.s 
and seven master's degrees . . . that is, 3/4 of our company have 
advanced degrees. We are working to build a manufacturing facility for 
carbon materials in our plant near Chicago that will be a model for 
what 21St century manufacturing will look like.
    We are a nanotechnology company because we control the properties 
of diamond on almost an atomic scale . . . even though the products we 
make are very much macroscopic. What makes us unique is that our 
diamond, known commercially as UNCD, is very smooth. It is smooth 
because it consists of individual diamond grains that are nanometers in 
size. We formed ADT around the vision that if we could take the world's 
hardest material, which has a dizzying array of beneficial electronic, 
physical and biological properties, and make it smooth, reproducible 
and affordable, then the number of uses for it would grow tremendously.
    Our company, and the jobs it has created, would not exist were it 
not for the basic and applied research that the Department of Energy 
(DOE) funds at Argonne National Laboratory. The foundational 
technology, which we licensed in the form of a portfolio of about 15 
patents, began as a research project at Argonne in 1992 supported by 
DOE's Basic Energy Sciences (BES). Later the Industrial Technologies 
Program in the DOE's Office of Energy Efficiency and Renewable Energy 
(EERE) provided core funding for applied R&D to develop the technology 
as a low friction, energy saving coating for industrial components. We 
are the beneficiaries of this research, which in total is about $15 
million. In return for giving us the exclusive right to use these 
patents, Argonne receives ongoing royalties from commercial sales of 
the products incorporating the technology and also is a significant 
equity holder.
    With our innovations, diamond can be used to make game changing 
products like:

          Bearings and seals for industrial equipment that last 
        tens of times longer than current components while saving 
        energy by running cooler due to diamond's low friction 
        properties

          High performance wireless communication chips for 
        secure military communications and phased-array radars

          Biocompatible coatings for implantable organs like 
        artificial retinas

          Electrodes that can neutralize toxins, carcinogens 
        and heavy metals in industrial waste water

          Durable nanoprobes for atomic-scale imaging and nano-
        manufacturing

          Wearable sensors for real-time detection of 
        biological warfare agents

          Coatings for heart pumps that change the standard of 
        care from temporary devices for patients awaiting heart 
        transplants to permanent devices that won't form blood clots, 
        thus allowing patients to live with them for years as an 
        alternative to heart transplants

          And the list goes on.

    Although we are still a small company, our products are being sold 
around the world today. We've taken the basic research performed over 
15 years ago and are now turning it into exports that help improve the 
balance of trade and the competitiveness of the U.S. economy. Along the 
way we've been recognized globally for our innovation. More importantly 
we are creating jobs and building manufacturing capability in the U.S. 
that will strengthen our future industrial tax base.
    My experience with technology transfer is by no means limited to 
Advanced Diamond Technologies. As Entrepreneur-in-Residence for 
Illinois Ventures, I was part of the startup team for four other 
university spinoffs, three of which have gone on to raise tens of 
millions of dollars of venture capital and collectively employ over 100 
people in areas as broad as printed electronics and micro-inverters for 
photovoltaic systems. Through this effort I've negotiated license or 
option agreements at the University of Illinois, University of 
Wisconsin, Northwestern University, University of Pennsylvania and 
Oklahoma State University in addition to Argonne. When I managed the 
entrepreneurship center at Argonne, I used to sit in on the licensing 
meetings at The University of Chicago.
    The National Science Foundation's SBIR/STTR program (referred from 
now on as the SBIR program) has had a profoundly positive impact on 
ADT's ability to bring products to market and create jobs. The SBIR 
program has provided funding to allow us to bring the technology out of 
the laboratory and develop it for commercial applications. Our 
technology was meritorious for its potential but was not ready for 
prime time when we licensed it from Argonne. The road from the lab to 
the marketplace, we have learned, is a long one for complex 
technologies.
    In June 2004, before we had any external funding, we received our 
first Phase I SBIR to develop diamond-coated seals for industrial 
pumps. This vote of confidence got our company started and was the 
catalyst that secured our first angel financing about a month later. 
Today, after a follow-on Phase II award and IIB supplement, we're 
selling diamond-coated mechanical seal faces globally and are just 
beginning to enter our growth phase. We've gotten one more Phase II and 
have several more Phase I projects in process that we hope will lead to 
future products. All told we've received commitments of about $3.3 
million in NSF grants, with approximately 10% of those funds going to 
university collaborators to support graduate students. Most of the 
products we are selling commercially today were once the subject of NSF 
SBIRs or STTRs, and each of the Phase II awards we have received is now 
generating commercial sales.
    During the same interval we've raised approximately $6 million from 
investors. The SBIR grants have allowed us to bring the technology to a 
level of maturity to make our investment proposition palatable to 
private investors since we have to compete for their money against the 
array of other investment opportunities available to them. We don't 
request grant funds just to do contract R&D. All of the grant proposals 
we have written have been targeted toward doing the translational work 
necessary to convert great science into great products.
    There are many ways to transfer technology into the commercial 
realm, and my remarks are confined to doing so through the creation of 
startup entities. Through my experiences starting companies based on 
university or Federal lab research, I've noticed a number of 
challenges:

          Good researchers are often not good business people, 
        yet

          The researchers are needed in the company at its 
        founding to ensure that the technology is properly transferred 
        to the commercial realm. In addition to the professors, in each 
        company I've been involved with, the graduate students or post 
        docs coming out of the research program had a prominent role on 
        the founding technical team. In some cases this has been 
        hampered by immigration issues (discussed later).

          The transaction costs of executing licenses from 
        universities and Federal laboratories are too high, and I've 
        seen deals go awry due to ``deal fatigue''. Imagine deep-
        pocketed investors interested in starting a company who walk 
        away because they couldn't secure rights to the technology on 
        reasonable (in their eyes) license terms. It has happened. In 
        my experience the institutions always underestimate the time 
        and money needed to turn their innovations into commercial 
        products.

          The researchers have no calibration about what they 
        can expect in terms of equity and compensation for 
        participating in getting a company formed. The fear among the 
        researchers that they're not getting treated fairly has, 
        perhaps surprisingly, been one of the biggest impediments in 
        getting companies started. War stories are abundant and anyone 
        who has done this at least once has at least one story to tell.

          Institutional constraints on researchers make the 
        process difficult. The researchers (often professors) have to 
        pursue this as an extra-curricular activity. When we got ADT 
        started, my co-founders at Argonne, although they started the 
        company with the full cognizance of management, had no 
        incentives to do so except their equity participation in the 
        company. At the same time, there was no relief for the things 
        they were measured on, like publications, and thus they 
        essentially had two jobs for quite some time. They each came 
        away with a piece of the company, but their achievements in 
        getting the company started were not recognized in their 
        professional trajectories at Argonne. I've heard stories of 
        tenure-track professors at universities say that they can't 
        participate in a company right now as it would harm their 
        ability to get tenure. Get tenure first, they figure, and then 
        start a company.

    Despite all this, I've learned over the past ten years that the 
real challenge is not transferring the technology out of the 
laboratory--it's transferring the technology into the marketplace. If 
we do everything right except get products to market, we've 
accomplished nothing. A professor friend of mine said, ``When the 
technology leaves the lab, it's 5% done.''
    The cost, time and expertise needed to turn great science into 
great products is where a gap really exists. This is referred to as the 
``valley of death'', a term often attributed to Ranking Member Ehlers. 
The ``valley of death'' is the chasm that exists between basic research 
(often funded by NSF) and the private financing which becomes available 
once the technology has proven commercial potential. We've closed this 
gap by using SBIR programs to de-risk the technology to a point where 
we can attract private capital.
    Some of our products have gone through several years' worth of 
qualification testing by our large customers, and these are very 
expensive activities to fund because the marketing and development 
expenses are incurred in the present whereas the payoff, in the form of 
sales, will happen in the future. Today we sell diamond-coated 
mechanical seals for pumps, such as those used on Navy ships. Even 
though we've got the product ready today, the Navy will need to go 
through at least a year of qualification testing before our products 
could be used on their ships.
    DOE's EERE has created a program called the Technology 
Commercialization Fund that is geared toward these types of development 
activities, further bridging the ``valley of death'', and it expressly 
excludes scientific research. I encourage the Committee to review this 
program. The TCF has allowed us to bring a new type of diamond bearing 
product to market, leveraging work that was funded by an NSF SBIR, 
which leveraged basic and applied science originally conducted at 
Argonne, which was augmented by private financing (the TCF program 
requires cost sharing). We have a large international customer poised 
to order over a million dollars of new product in the next 12-24 months 
as a result.
    The SBIR/STTR programs are among the most important programs for 
stimulating entrepreneurship and they are the envy of governments 
around the world. The programs should be expanded, and the dollar 
amounts should be raised. Agencies like the Environmental Protection 
Agency have paltry SBIR budgets compared to NSF and the Dept. of 
Defense, yet environmental issues ranging from clean water to 
environmental damage in the Gulf of Mexico are top U.S. priorities. The 
SBIR program is a great way to unleash the creativity and innovation of 
U.S. researchers in a competitive process to address these national 
issues. Compared to many other government programs the cost is 
insignificant, yet the potential return is quite high-because it's an 
investment in America's competitiveness, not an expense.
    With my experience in starting many companies, I've formulated a 
number of principles, or best practices, that have become part of my 
startup template:

          The scientific team (professors, researchers) must 
        have equity participation in the startup companies in return 
        for their cooperation to ensure successful knowledge transfer. 
        Their ownership should have a vesting schedule that is 
        conditioned on their active involvement.

          Researchers need trusted counsel to advise them 
        otherwise the process gets bogged down by them feeling they're 
        getting a raw deal. The earlier these advisors are identified, 
        the better.

          To be able to attract private capital, the licenses 
        to the intellectual property need to be exclusive even if they 
        are for a limited field of use.

          The people that make it work and create the value--
        the employees of the company--should share in the fruits of 
        their work. The founding technology is a critical element, but 
        it often is not worth much until the employees develop it.

          Even if the company is able to attract SBIR funding, 
        some private capital is still needed for the company to 
        prosper. Said another way, you can't build a company if your 
        only source of funding is the government.

    My recommendations to tech transfer offices:

          Their institutions must have sabbatical programs to 
        permit technical founders to work in the company to transfer 
        the knowledge but have a job to come back to. In two of the 
        companies I've started, tenured professors (or equivalent) have 
        left their positions to join the companies they helped form. 
        This was good for the companies, but it is unclear if it was 
        desirable for the institutions.

          Make licensing terms and conditions more transparent 
        to lower transaction costs and facilitate company formation. 
        Each institution should publish its standard agreements along 
        with stated expectations for critical deal terms and conditions 
        (such as exclusivity and royalty rates). While some worry about 
        giving up a technology too cheaply, the reward will be 
        recognition as an easy place to do business. With that 
        recognition will come more startups, more economic development 
        activity in their communities, more job opportunities for 
        graduates and more wealthy alumni not to mention lower overhead 
        in the tech transfer office.

          The universities should view tech commercialization 
        as being consistent with the career advancement of their 
        faculty. Is it ill-advised to have tenure committees look to a 
        researcher's record of creating economic wealth from his or her 
        work as part of the criteria?

          Although all universities offer some type of training 
        to their faculty about startup formation, I've not seen any 
        that address the cultural differences between being a faculty 
        member and being a member of a startup team, yet most of the 
        friction I've seen occurring among startup team members is due 
        to these issues. Matters of collaboration, confidentiality, 
        competition, market focus and subordination are all critical 
        for career researchers to understand. Not all academics may 
        want a role in a startup, but if they take that role, since 
        many other careers and investment dollars will be at stake, 
        they should know what is expected of them. I've seen too many 
        examples where the expectations were unmet, causing major 
        problems, because they were not clearly explained at the 
        outset.

          Additionally, since startup companies provide great 
        career launch pads for graduate students with subject matter 
        knowledge in the technology, I've often found that these grad 
        students (or post docs) lack the horizontal skills that are 
        necessary to succeed in a commercial company. I'm an advocate 
        for universities providing training to students in non-
        traditional academic areas such as: time management, project 
        management, budgeting, non-technical writing, presentation 
        skills and basic sales skills. While technical acumen is 
        paramount, the success or failure of these individuals in the 
        startup companies, in my experience, is almost entirely due to 
        their soft skills.

    NSF, due to its historical role as the funding source for science 
and engineering, has an opportunity to influence practices at 
universities and thereby stimulate the ``innovation ecosystem''. NSF 
should:

          Create a framework whereby each university publishes 
        its license template and financial expectations for license 
        agreements. Right now it's an opaque process where the 
        university always has the advantage due to their knowledge of 
        what others have paid for their technologies.

          Encourage universities to recognize tech 
        commercialization as an important adjunct to basic research 
        whose aims are not in opposition to basic research.

          Shorten the review cycle for SBIR/STTR proposals. The 
        current times are not compatible with the life cycles of small 
        businesses.

          Take a leadership role in stimulating the 
        commercialization of basic research. NSF does a great job at 
        supporting basic research, and the SBIR program is integral to 
        helping translate research into small businesses. But there's 
        another step missing . . . that of bringing products to market. 
        NSF funds cannot be used for commercialization. There's a need 
        for the government to provide additional funding sources to 
        allow early-stage companies to get over the ``valley of 
        death''. Doing so is not corporate welfare. Rather it helps to 
        ensure that the taxpayers get a return on their initial 
        investment in basic research.

          Encourage universities to provide training in the 
        non-technical, horizontal skills described above.

    Other recommendations to the Committee

          Rather than seeing themselves as stewards of public 
        property, due to the Bayh-Dole Act, universities have to come 
        to believe that innovations developed with Federal funds are 
        theirs. I suggest modifying Bayh-Dole to require that any 
        license agreements executed for subject technologies become 
        publicly accessible. This should be legislatively mandated. 
        Universities will vigorously oppose it, but it will level the 
        playing field and reduce transaction costs across the board. 
        This action will dramatically shorten the time needed to get 
        companies formed and licenses executed. From the university or 
        Federal lab standpoint, the public contract should change from 
        ``the government funded it but we own it,'' to ``if we want to 
        profit from retaining title to the intellectual property which 
        was funded by the taxpayers, then we have to be willing to tell 
        the taxpayers what we charged them for it.''

          Lower the size standards for SBIR/STTR. Today the 
        limit is 500 employees and that's set by the Small Business 
        Administration. Any company with 500 employees is a going 
        concern that has over $30 million in annual revenue . . . and 
        probably much more . . . whose ability to fund research and 
        product development is much different than companies with less 
        than 50 employees that are still not profitable. The needs of 
        startups are different than companies with hundreds of 
        employees, and the SBA needs to create segregated programs that 
        reflect these differences.

          Encourage the SBA to create a Micro Business 
        Administration--the MBA--to focus on the constituency described 
        above. Small businesses are the source of most net job creation 
        in the U.S., but for startup companies based on federally 
        funded research to get big, they need programs that are 
        appropriate for their fragile state when they are embryonic.

          A tax policy that favors investing in small 
        businesses. In some states, like Illinois did recently, tax 
        credits are available for qualified investments in startups. 
        This needs to be part of Federal tax policy.

          A major impediment to our getting started was the 
        risk to the inventors of leaving their positions in a Federal 
        lab and joining the company. There was no program whereby they 
        could join the company for a period of time and then return to 
        their position. A sabbatical program for Federal laboratory 
        employees who start companies based on their research is 
        something this Committee can make happen. It will lower the 
        career risk for the scientific founders and ensure higher 
        probability of technical success.

          An overwhelming majority of the technical 
        professionals who have applied for jobs with us are foreign 
        students without permanent work visas. The policy of educating 
        foreign students and sending them home against their desires 
        when they graduate doesn't make sense on any level. Others have 
        proposed the ``earn a degree, get a work visa'' program, and I 
        wholeheartedly endorse this. The Startup Visa initiative is a 
        twist on this theme, and it also makes good sense. Current 
        immigration policy limits our ability to attract the best and 
        brightest into U.S. companies. What's worse is that we 
        nonsensically will educate anyone only to then deprive them of 
        their desire to ply their trade in the U.S., and we demand that 
        they grow the economies and competitiveness of their home 
        countries.

    I know of one instance where a foreign student graduated with a 
Ph.D. and he was offered a position in a startup company that was based 
on his thesis work. But the company couldn't get a work visa for him 
because the H1-B quotas had been exceeded. So his thesis advisor, who 
was the founder of the company, had to get him a research position at 
the university to keep him in the country until the H1-B visas opened 
up. Needless to say this activity created manifest conflicts of 
interest all around. An enlightened immigration policy would eliminate 
these kinds of behaviors.

Summary

    My company is developing important new technologies and generating 
good jobs today because of taxpayers' investments in basic research 
augmented by the availability of SBIR funding from NSF to refine that 
technology. Our success benefits many facets of the U.S. economy--its 
tax base, its exports and its global competitiveness. But with advanced 
technologies, it can often take years, even under the best of 
circumstances, to secure commercial success. I encourage this Committee 
to see tech transfer as an investment in the economy, not an expense, 
and to implement the changes needed to stimulate this investment.

                       Biography for Neil D. Kane
    Neil Kane is president and co-founder of Advanced Diamond 
Technologies, Inc., a firm he founded in 2003 by licensing technology 
from Argonne National Laboratory (U.S. Dept. of Energy). Mr. Kane is 
the former co-Executive Director of the Illinois Technology Enterprise 
Center at Argonne and Entrepreneur in Residence with Illinois Ventures, 
LLC. In these roles he was founding CEO of several startup companies 
based on university or Federal laboratory research. He has closed 
multiple rounds of venture capital from various sources and has secured 
numerous SBIR/STTR and other government contracts and awards.
    Earlier he was Regional Business Development Manager for Microsoft 
Corporation in Chicago. In this role he identified, negotiated and 
closed a $25 million equity investment. He began his business career at 
IBM where he was the liaison to Andersen Consulting (later Accenture) 
and helped create the strategic business alliance between IBM and 
Accenture that became the model for the industry. In this capacity he 
earned membership into IBM's Golden Circle. He began his career as a 
manufacturing engineer in IBM's San Jose, California disk drive 
facility where he designed robotic tooling.
    He holds a Bachelor of Science degree in Mechanical Engineering 
from the University of Illinois at Urbana-Champaign (high honors) and a 
Masters of Business Administration from The University of Chicago. He 
has attended graduate school at the Australian Graduate School of 
Management at The University of New South Wales in Sydney and did 
further graduate study in Japan on a scholarship from the Japan 
External Trade Organization (JETRO). He was named a 2007 Technology 
Pioneer by the World Economic Forum and attended their annual meeting 
in Davos, Switzerland in 2007 and 2008. In 2007 he received recognition 
from the National Science Foundation for Outstanding Entrepreneurship, 
and in 2009 he was named a ``Mover & Shaker'' by Frost & Sullivan.

    Chairman Lipinski. Thank you, Mr. Kane, and I am sure we 
would have--I would have known by now if you were related to 
Patrick Kane, who scored the game-winning goal last night, so I 
assume you are not.
    Mr. Kane. Unfortunately not.
    Chairman Lipinski. But, you know, that could be a good 
selling point that maybe you could try to use back home.
    Mr. Kane. It is nice to see jerseys with Kane on them all 
over Chicago.
    Chairman Lipinski. I think they are all for you.
    Before we begin questioning, the one thing I wanted to 
mention, that Mr. Crandell raised this issue about the 
exclusion of startup companies in SBIR that involve venture 
capitalists. The House bill did not exclude venture 
capitalists. The Senate bill does, and that is a battle that we 
have still ongoing there, but I wanted to put that out there, 
and I never miss an opportunity to tweak the Senate for 
something they are doing wrong.
    But with that, I am going to first recognize for five 
minutes Ms. Fudge.
    Ms. Fudge. Thank you, Mr. Chairman, and I thank all of you 
for being here today and sharing your expertise. It was very 
interesting to hear your views.
    I happen to be from Ohio as well, and I am fortunate to 
represent Case Western Reserve University, one of the Nation's 
top research institutions, and what you are talking about today 
is of particular interest to Case and to myself. So my first 
question for any of the panelists: the Kauffman Foundation has 
recommended that university tech transfer would be improved if 
university inventors and not technology transfer offices 
controlled the patent licensing. Do you agree or disagree? 
Anyone.
    Mr. Watkins. I will start. We have tremendous respect for 
the Kauffman Foundation and we agree with them on 99.9 percent 
of everything they do. I think it is problematic when the 
ownership of a property and the control of a property are 
separated, so I think there ought to be flexibility in terms of 
how the technologies are commercialized, and Kauffman makes a 
good point, but making it mandatory I think is problematic.
    Ms. Fudge. Thank you. Okay.
    My second question is for Ms. Mitchell. Are the Kauffman 
Foundation's efforts to improve the efficiency of academic tech 
transfer based upon data-driven assessment of existing 
intellectual property portfolios at any given institutions, and 
if not, wouldn't a data-driven approach be better?
    Ms. Mitchell. Unfortunately you can't prove a negative, as 
the economists that we both fund and employ would tell me, so 
our data is based upon many economists, including well-noted 
individuals like Paul Romer and others that we have funded, 
understanding and looking at outcomes for the economy based 
upon the amount of research inputs.
    As I noted when we began here this morning, there is no 
question on our part that the United States has done a 
phenomenal job of capitalizing on university innovation. We are 
also in a period of economic crisis and recovery and we think 
that this is an opportune time for us to revisit, and as we 
have heard from entrepreneurs like Mr. Kane and Mr. Crandell, 
who have tried to commercialize technologies, the Kauffman 
Foundation--as you know, entrepreneurs really don't have a 
voice, they don't have lobbyists, so we are unfortunately the 
home of every entrepreneur in the country who has tried to 
license technologies from universities. And while there are 
unbelievable, wonderful stories about innovations that have 
made it to the market, there are an equal number of unfortunate 
stories of long transaction times, as we have heard from Mr. 
Crandell and Mr. Kane, and unfortunately many, many, many cases 
of mishaps where patenting has not occurred appropriately or 
broadly enough, and in fact those technologies sit on the 
shelves of our universities today. So our goal is to help 
economic recovery through looking at the models that are out 
there today and looking for new pathways to the market.
    Ms. Fudge. Thank you.
    Dr. Watkins, your institution is part of a major regional 
economic initiative focused upon research and subsequent 
commercial transfer. How confident are you that downstream 
economic impacts, such as those projected by Austin 
Bioinnovation Institute, will be met, and can you elucidate a 
bit about the rationale employed to calculate these 
projections?
    Mr. Watkins. That is a great question. We are tremendously 
enthused about the potential of the Austin Bioinnovation 
Institute. Just briefly, it is a consortium made up of three 
local hospitals, the University of Akron and a related medical 
school, the Northeastern Ohio Universities Colleges of 
Medicine. And I guess no model is proven until we go through 
with it but I think the thing that is most impressive to me 
about the model of the Austin Bioinnovation Institute is the 
people that are involved. This is a business where it is 
people-driven. It is people that create the success. I spent 
the last two weeks working with the Institute on a particular 
proposal, and to see the ideas come forward, I am very 
confident that we will see results. Now, I think the different 
models have to be reviewed. The universities are 
institutionalized. They are long term. We hope the Institute is 
there long term. But I think all these things need to be sorted 
out over time, but we are very confident about having that kind 
of relationship and having that type of expertise.
    Ms. Fudge. Thank you very much. Even though you are not 
from my district, you are close enough, so welcome. Thank you.
    Mr. Watkins. Thank you.
    Ms. Fudge. Thank you, Mr. Chairman. I yield back.
    Chairman Lipinski. Thank you, Ms. Fudge.
    I recognize Dr. Ehlers for five minutes.
    Mr. Ehlers. Thank you, Mr. Chairman.
    I have very little in the way of questions. This is one of 
those panels that did so well at describing a situation, you 
answered most of my questions during your testimony. I do want 
to thank you for your work and your testimony. I am frankly 
encouraged by what I heard.
    When I first got to the Congress, I was assigned by Speaker 
Newt Gingrich to try to clarify United States science policy, 
and so over the course of a year or two I produced a booklet 
basically labeled ``Toward a Good Science Policy,'' since 
writing a science policy would take a lot more time than I 
wished to devote to it, but it stimulated a good discussion. 
But probably one of the things we did was publicize the concept 
of the `Valley of Death,' and it seems to me that what most of 
you have done is either tried to bridge the Valley of Death or 
fill it up so that you can stroll across it, and I commend you 
for that. It is a very good thing.
    One thing I am interested in, based on the work I have done 
on this--it seems to me that the American workers tend to be 
more innovative than the workers of other countries. By this, I 
am talking about the line workers who, when given something to 
work on to try to develop to eventually manufacture, often come 
up with good ideas that can reinforce or mesh with the ideas 
that the basic researchers have done. And when you are a Member 
of Congress, you get invited to tour many different factories. 
I have not had the privilege or the benefit of touring 
factories in other countries, but is my impression right that 
America does better than most countries at the basic bench 
level, the industrial worker level, in contributing to the 
development of ideas, turning them into practical solutions and 
so forth, or is that just my wishful thinking? Any comments?
    Mr. Crandell. I will jump in.
    Mr. Ehlers. Mr. Crandell.
    Mr. Crandell. Thank you. You know, it is my sense that 
small, focused, entrepreneurial groups that are at risk have 
really been the hallmark of successful innovation, and I think 
that continues in small companies. I think in larger companies 
where there tend to be more bureaucratic layers, they no longer 
embrace or look for the heroic effort, they look for a standard 
process which is eminently repeatable, and to some degree I 
think that is understandable. So in my experience, this 
paradigm of the small, focused group that is really interested 
in the best ideas, sort of a true meritocracy, is alive and 
well. I think we need to do all the things we can to make those 
sorts of teams come together, and I think that is really where 
the solution lies to this commercialization challenge from the 
national labs and from the universities, to continue to enhance 
the things that make that innovation in small groups succeed. 
Thank you.
    Mr. Ehlers. Ms. Mitchell.
    Ms. Mitchell. Yes. The data would show that the United 
States in the past has done a better job than other companies 
in terms of start and growth of new firms, and that job growth 
is literally based upon firms that are less than five years 
old.
    That being said, while we are looking, in most cases, at 
data that are three to five years old, I think it is extremely 
important, and I believe that Chairman Lipinski made comments 
to this in his opening remarks, it is extremely important to 
understand that our friends in China and India and other 
countries across the world--we have over 18,000 people who come 
through the Kauffman Foundation every year, and I can tell you, 
almost every leadership member of Singapore, of China, and of 
India have been to the Kauffman Foundation and talked to us 
about economic growth through new firm formation, job growth, 
and entrepreneurship. And they are rapidly implementing 
policies that will work in order to support that, so I don't 
think that we should sit on our laurels relative to our ability 
to create new firms relative to technologies in our labs.
    Mr. Ehlers. Thank you. Dr. Peterson, you testified that a 
key element of assembling an innovation ecosystem is that the 
university research should be explicitly driven by industrial 
needs. How is this an appropriate venue for NSF to fund, 
because your mission is so fundamentally basic research as 
opposed to applied research? Could you clarify that for me, 
please?
    Dr. Peterson. Yes. I would be happy to. First of all, I 
think it is important to state that the NSF's mission is, as 
you correctly point out, first and foremost the focus on 
support for basic research in science and engineering. Even 
within the engineering directorate, which has probably more 
substantial interactions with industry than any of the other 
directorates, we would not argue that point at all.
    But there is an element of our portfolio, investment in 
those kinds of research activities that take the discoveries 
from--that were generated from basic research, and conduct 
research to the next level that would perhaps provide more 
evidence of potential marketability and commercialization, that 
we feel is an important element of our portfolio.
    That is not to take away from investments in basic 
research, nor is it to redirect support or move the mission, 
the primary mission of the Foundation away from its fundamental 
mission of supporting basic research. But particularly for 
directorates like engineering--and by the way, I think it is 
not just engineering but other directorates as well, that have 
an important social contract with industry or 
commercialization--in the education arena, for example, there 
are applications that are developed through research and 
education that are important for school districts and 
interactions throughout the country, so I think having that 
capability is an important part of the NSF portfolio.
    Mr. Ehlers. Thank you. My time has expired. I yield back.
    Chairman Lipinski. We will get back to that a little later 
maybe in my questioning.
    The Chair will now recognize Dr. Baird for five minutes.
    Mr. Baird. I thank the Chairman, and I thank our witnesses. 
This is a fascinating topic, and I commend the Chairman for 
raising this issue. It is something that we have talked a fair 
bit about in this committee.
    I met with a lot of entrepreneurs in academia and the 
private sector, and particularly in academia one of the things 
that has come out is the--and as a former department chair I 
sure see this--the internal reward structure within academia is 
antithetical to innovation development in the practical world.
    And by that I mean, you publish a paper, which is--you give 
it a conference that no one listens to, and then it sits on a 
shelf and makes no difference at all in the world. But you get 
tenure, and once you got tenure, you can then teach your 
students to publish papers that you can present at conferences, 
and you make no difference in the world except that you get a 
nice salary and summers more or less off.
    I don't think that is very constructive to our economy to 
have such bright people doing meaningless things, and I won't 
make it as a university professor again, but my question is 
isn't there some fashion in which we can seriously look at the 
reward structure for innovation within the university setting, 
and is there a way--Mr. Watkins, you have extensive 
recommendations in your documents, Mr. Kane, all of you. But I 
am particularly interested, is there some way to sort of 
leverage this, either explicitly or implicitly, meaning, can we 
not urge universities to say, if you have got a really bright, 
typically young entrepreneurial faculty member, that they may 
fail in their endeavor, but if I had a choice of presenting one 
meaningless paper or really vigorously digging into an 
alternative energy source that could transform the world, pick 
B and reward B.
    Our culture in universities is the opposite of how high 
tech gets going. So I am going to throw that out there. There 
is some allusion to this in some of your comments, but I think 
we really need to push this.
    So let me put it out and see what we can do with it.
    Ms. Mitchell. Thank you, Mr. Baird. I am really happy to be 
here today. I would like to note, in my testimony I have a 
quote from Michael Crow. The Kauffman Foundation was asked to 
co-host a summit at the White House, an energy innovation 
summit with the Department of Energy and a few other energies, 
and I can tell you this was a topic of vigorous discussion and 
agreement in that meeting. And Michael Crow, the President of 
the Arizona State University, was quoted as saying, ``We must 
first design and implement new models of higher education to 
achieve the levels of connectivity, transparency, and speed of 
technology, commercialization to accelerate the innovation 
pipeline,'' which would include, obviously, changing our 
incentive system as well.
    As you mentioned, not only do we not reward innovative 
faculty members for commercialization through tenure, but we 
also don't reward this in most Federal agencies relative to 
funding. And I would like to use that to go back to a comment 
to address Mr. Ehlers. You know, there seems to be--and this 
was much of a discussion at our innovation summit--there seems 
to be this longstanding myth of basic and applied research that 
many--most industry leaders, and Nick Donofrio, the former head 
of technology at IBM, addressed this at our meeting, would tell 
you is in most cases not reality. And we would love to fund 
research that would help, essentially, identify the fact that 
there are a significant amount of innovations in the 
marketplace today that came from what one would consider very 
basic research.
    Mr. Baird. I think that is true. I want to--but my guess--I 
think that is true, but my belief is that those things happen 
because some really energetic, committed entrepreneurial 
faculty do things in spite of----
    Ms. Mitchell. Correct.
    Mr. Baird. --the university reward structure, not because 
of it, and I would like it to be a `because of' thing.
    Mr. Watkins, you come from this background, and Mr. Kane, 
you have got some, and we will get to Dr. Peterson, because I 
think NSF may have a way to leverage this. They have got a lot 
of money to give out, and maybe you could encourage people to 
do this.
    Mr. Watkins. The key is leadership, and change is difficult 
in an academic environment, and there are many things we do not 
want to change about an academic environment.
    Nevertheless, and I don't speak for all of higher education 
on this point, but having said that, I fully agree. We are 
seeing examples, although they are few and far between, of 
institutions where people have received tenure, have been 
promoted based on an entrepreneurial or a service component in 
addition to their research and teaching component, and we think 
this is significant.
    Again, it is people driven, it is leadership driven, and we 
have seen some great examples in some departments where they 
are really recognizing this, but you are right. We have a long 
ways to go, and it is a culture change, a culture adjustment is 
probably the better phrase, that needs to occur, and it is 
going to be dependent upon leaders as well as faculty. Faculty 
control their own destiny. Administrators don't, and so as the 
faculty become more aware, as we teach and train and make them 
more aware of what this innovation system is all about, we 
think it will come. It is just too slow for me.
    Mr. Baird. It is way too slow given the problems we face, 
and my experience also, and that of many entrepreneurs, is that 
the faculty who sit on the tenure review committees are often 
jealous of the applied people and actually penalize rather--it 
is not only do we not reward them. We may actually penalize 
them.
    Mr. Kane or Mr. Crandell.
    Mr. Kane. Thank you. I will give you very--three very brief 
anecdotes that amplify that point.
    When we started Advanced Diamond Technologies, my two co-
founders were scientists at Argonne, and even though the 
efforts that we underwent to get the company started were done 
with the full cognizance of management, their efforts were not 
recognized in their career trajectories. So in effect, they had 
two jobs for the duration of the amount of time that it took to 
get the company off the ground.
    Ultimately, one of them, who was a real high-potential 
scientist at Argonne, quit to join our company full time, as he 
then deemed that professional opportunity to be better than 
staying in career research, and it is unclear to me whether 
that was a good outcome for Argonne or not.
    I know of a tenured professor at a Big Ten university who 
started a company and is now leaving, also to join that 
company, and I know of another professor who was on the tenure 
track at a Big Ten university who had some very promising 
technology, and when I went to approach him, was basically 
told, leave that guy alone until he gets tenure, because we 
don't want to distract him with a start-up company.
    Mr. Baird. Thank you. QED [quod erat demonstrandum].
    Mr. Crandell. Maybe just to add a little bit to Neil's 
testimony in that I think these issues are solvable at large, 
private research universities by providing start-up incentives 
to faculty that are interested in spinning companies off. They 
can own a piece of it, they can usually sit on the Boards of 
Directors, they can serve as advisors, they can stay at the 
university and continue to do great research.
    I think at public universities there is more of what I 
would call a fish-bowl effect, which is--gets a little bit to 
jealousy, but I think also to issues of hindsight, the 20/20 
rule, where sometimes the problems of success from a conflict 
of interest standpoint are much more severe than the problems 
of failing quietly.
    And then I would say it is most severe in my opinion in the 
national lab system, where it is extremely difficult for a host 
of reasons, including conflict of interest, handling very 
thorny IP issues, and then the notion of holding equity in a 
startup which you spin off are still very, very difficult 
problems to solve and take an extraordinary amount of time to 
work through.
    Chairman Lipinski. Thank you, Dr. Baird. My experience, and 
I probably shouldn't go too much into this, but I was going to 
say, my experience even in political science certainly mirrors 
what Dr. Baird was speaking of and the idea also that someone 
would--there is a stigma to being too recognized in the popular 
press and ever getting your hands dirty by ever doing anything 
that had anything to do with real government or politics.
    So I think it is a university, academia-wide issue, and I 
think it is going to take a real effort to try to change the, 
you know, change the environment.
    So with that I will--the Chair will recognize Mr. Bilbray 
for five minutes.
    Mr. Bilbray. Thank you very much, and Mr. Chairman, I just 
got to say as a layman that the Doctor's explanation of 
academia and the way it functions almost makes me start 
understanding quantum physics because obviously a bunch of very 
intelligent people doing nothing is the--a parallel opposite 
universe from what we see here in Congress too often, so I 
think that I am going to miss Brian's enlightenment on this 
committee in the future.
    I think that there was some discussion here that I would 
like to get around to, and one of the things I want to clarify 
on is Mr. Watkins used the term `government' generically, and 
we do that all the time here. In fact, I will tell you 
something. That is one thing I am upset with my Republican 
colleagues in talking about government as if all government is 
the same, and there isn't a separation in this country, which 
is, I think, one of our great, unique advantages we have.
    But when you were talking about government, were you mostly 
talking about the Federal Government and every once in awhile 
talking about state or----
    Mr. Watkins. That is correct.
    Mr. Bilbray. Okay. I just wanted to make sure we clarify 
that because I think we, especially in this town, have a 
problem with being so generic we forget about many of the 
universities are being financed by state governments and the 
essentials in there.
    One thing that I really feel strongly about is that we 
don't look at what we are doing right and what we are doing 
wrong, and I get into this, Mr. Kane, you know, government 
always throws money at situations, and we threw tons of money 
at Mr. Langley when he was going to develop flight, and his 
planes kept falling into the Potomac, which is kind of--is an 
academic exercise on one side. And I think that when we talk 
about the mix, what is, you know, practical science 
applications, some people might have thought that the Wright 
brothers' study in their wind tunnel with laminar flow was some 
abstract thing that may not have had a practical application, 
but I think history has proven that was the difference--not the 
amount of resources, but the type of research that was done 
that made one program successful and the other one with massive 
amounts of government effort was very unsuccessful.
    The question I have to you, though, is that you talked 
about the importation of those minds that we may be able to use 
as a natural resource. Do you have any idea what kind of 
numbers, annually, we would need to bring in--change our visa 
policy to be able to reflect that need?
    Mr. Kane. I am afraid I really don't have those numbers, 
but I will respond by sharing with you a strong sentiment that 
the government's perspective needs to change from picking 
winners to knowing that by stimulating scientific research, it 
is also stimulating the private sector to compete with those 
companies.
    And so in the case of the example that you gave, and I am 
not familiar with the work that Langley did, but arguably if he 
created competition which spurred the Wright brothers on, then 
it was probably a wise investment and I----
    Mr. Bilbray. No. He had connections in the House and the 
Senate that was able to get him that--but go ahead.
    Mr. Kane. Well, I have made my point. I--if I may----
    Mr. Bilbray. We shouldn't pick winners and losers, and that 
is one problem we have got to be very careful of here is giving 
into the pressures of lobbying rather than allowing the system 
to work, allowing science to work.
    Mr. Kane. I learned authoritatively the other day, and 
perhaps Dr. Peterson can comment further on this, that in the 
SBIR programs at NSF, where we often compete, as you might 
expect, there is a lot of focus right now on creating 
technologies for clean water and water remediation, and we 
learned the other day that NSF rejected 70 proposals in the 
SBIR program for clean water technologies because they didn't 
think that they would be competitive in the commercial 
marketplace.
    So NSF is doing its job in ensuring that----
    Mr. Bilbray. My question is, getting back on this other 
issue about our visa policy, would 5,500 scientists help in the 
process? Would that make a major impact on the effort?
    Mr. Crandell. Maybe I can jump in a little bit. I am a past 
director of the National Venture Capital Association, and I 
think that the number is really a couple hundred thousand of 
the top scientific talent that----
    Mr. Bilbray. Annually?
    Mr. Crandell. Yeah.
    Mr. Bilbray. Okay. That gives me a lot, because right now 
we have a program that is left over from the '40s called the 
lottery system where we are actually just accepting people in 
based on a lottery, which I think any reasonable person would 
say really doesn't reflect the realities now. A 1940 program 
design, we have had a lot of changes, and to be able to 
continue that while we continue to deny access to high-tech 
scientists I think are real important.
    So I just ask that--appreciate the fact that we have been 
able to back this up. And Mr. Chairman, I would just like to 
point out that when we talk about governments and the 
obstruction, we have problems, too. My scientists at Scripps 
and UC System developed algae strains for the production of 
fuel, clean fuel, which can be used for sewage treatment, too, 
which most people don't talk about, but they had to pack up and 
leave California and create the manufacturing capabilities out 
of state because it wasn't legal to produce it under our 
regulations.
    And thank God that there wasn't somebody around for the 
Wright brothers to ask them what kind of permits they had to 
fly airplanes over the dunes at the time, but there is a lot of 
these kind of things that we need to work on. And hopefully the 
Federal Government can lead at helping science move along and 
also challenge our--the other forms of government to 
participate and be part of the answer rather than being part of 
the problem.
    Thank you very much, Mr. Chairman. I yield back.
    Chairman Lipinski. Okay, Mr. Bilbray. The Chair will 
recognize himself now for five minutes.
    I want to make sure I make the point--we like to joke a bit 
about the--what is going on at our universities, but there 
certainly are the incredibly intelligent people doing a lot of 
great work at our universities, and it is not all--Mr. Baird 
talked about the--everyone knows, everyone who has been 
involved knows that at these conferences, all these papers, you 
know, most of them aren't going to produce something really 
incredible.
    But there are some that will, and part of that is part of 
the whole research endeavor. So it is not just a question this 
is--it is not just that this is all hopeless. We have a lot of 
great people doing a lot of great work, and it is how do we 
better, first of all, incentivize the research towards things 
that we will be contributing to our society, to our economic 
growth, and then what we are talking about here especially, 
where do we go from there to give the best opportunities, 
create the best environments where these will, you know, we 
will spur economic growth and rate, you know, products, jobs, 
companies.
    So I want to start with, I think, Mr. Kane and Mr. 
Crandell. Mr. Crandell talked a little bit about this already, 
but I want to ask if you could provide us with some insights in 
to how you identify promising investment opportunities and 
develop relationships with academic researchers.
    And the second part of that, how do you think the NSF can 
help facilitate more interaction between researchers and 
entrepreneurs and, you know, we are also talking, of course, 
venture capitalists. So start with Mr. Kane.
    Mr. Kane. Thank you, Mr. Chairman. The second part of your 
question, which I think was directed to me, was how can NSF 
facilitate more interactions with entrepreneurs and stimulate 
start-up businesses. Did I get that right?
    Chairman Lipinski. Yes.
    Mr. Kane. Thank you. I addressed some of that in my written 
testimony, and I will reiterate it here. First, I think that 
NSF needs to be a catalyst for encouraging the development of 
business skills among STEM students. I know that that may not 
sound as though it is the primary mission, but I have observed 
firsthand in all of the companies that I have been involved 
with that the lack of what I will call `horizontal' or `soft' 
skills among technical students coming out of school is a major 
impediment not only to their professional success, but 
ultimately to the success of the companies that get formed. 
That is number one.
    Number two, I do think that NSF has a mission and perhaps a 
voice in government to encourage university policy, as has 
already been discussed, to make sure that efforts that faculty 
undergo to help start businesses is not viewed neutrally or 
negatively on their tenure track or professional trajectories.
    I think if we do those two things, coupled with many other 
efforts that have been discussed here, I think you would remove 
the stigma, such as it were, among academics, from pursuing 
startup businesses and instead have that activity be encouraged 
by the Administration and have it be consistent with academic 
meritocracy. And if you did that, I think there would be quite 
an explosion in new businesses.
    Mr. Crandell. Fair enough. I would perhaps make a couple of 
quick observations, and thank you, Chairman, for the 
opportunity to speak on this.
    Fundamentally, companies are built around people. Even 
though we have been talking about patents and technologies, you 
need to find a way to find--to develop these teams of 
scientists that have breakthrough ideas, of entrepreneurs that 
are excellent managers, and of investors that are--that know 
enough about the things that they are investing in to be 
comfortable putting money behind those individuals, to build 
these efforts.
    So in order--in our experience at ARCH we backed, I think 
in the last 25 years, over 120 companies; the vast majority are 
university- or national lab-related. I will say, 
parenthetically, it is certainly not the easiest way to make a 
living, but it is what we know how to do, so that is what we 
are doing.
    You know, it is a critical element to get the people that 
have the money and have entrepreneurial skills into the labs 
and develop those relationships with the leading scientists, 
and, again, in my view, the easiest place to start is to look 
for the centers of excellence, the places where individual 
universities or research are at a global scale, and you can 
develop your own indexes to do that. You can look at 
publications, you can look at the size of programs, you can 
look at awards that faculty have won to triage the broad group 
of faculty at a university, and maybe identify the 10 or 15 
that you really--that really have the big ideas.
    And then we spend a considerable amount of time talking to 
those individuals and having them tell us about the future, and 
then we look to build companies along the thrust lines that 
they tell us about. And then we have to go out and try and 
validate that with industry, and all that sounds probably very 
complicated and involved, and it is, and it may take six months 
or a year, and it takes some level of resources on what I would 
term very, very high-risk capital, to take the time and the 
effort to run down and understand the constraints that an 
industry application would impose on a breakthrough. So much of 
it is walking the halls, trying to spend time with the people 
that are the leaders, trying to identify them early.
    Second, we spend a considerable amount of time looking for 
that validation because you clearly do not want to invest a ton 
of money and then hope it all works out. Our `hope' model has 
been largely invalidated. And the last part would just be that 
we need to be able to capture strong, intellectual property in 
order to enable that type of capital to come together, and that 
means the more you know about the industry application, the 
earlier, the better patent applications, the better, you know, 
are probably going to result.
    Chairman Lipinski. Mr. Crowell.
    Mr. Crowell. Thank you, Mr. Chairman, for allowing me to 
take a quick crack at that from the university perspective.
    I certainly agree with the comments from my panel, co-panel 
members and Congressman Baird and others about the importance 
of things like tenure policy and incentivizing faculty 
participation, rewarding success, and particularly impact in 
the tech transfer and innovation arena.
    But at the same time I will also say that those types of 
things are the subject of policies and cultures and histories 
that are awfully hard to influence. It doesn't mean we 
shouldn't try, but we really need to keep after that.
    What I think--responding to your question about what the 
NSF could do, from my perspective, is really focus on this 
translational proof of concept space. I think they do a great 
job of funding basic research, as does NIH and other Federal 
agencies. Where we really need to, I think, roll up our shirt 
sleeves and go elbow to elbow is to partner with the academic 
scientists, the technology transfer personnel, regional, local 
venture capitalists, entrepreneurs, and industry 
representatives so that we can have a very high-touch, high-
contact interactive process to be sure that we are taking 
science that really does have commercial and market potential 
and bringing the types of expertise together to be sure that 
the follow-on work is actually relevant to getting it out.
    That is, I think, an area of great need, and one where the 
NSF, through initial programs and PFI, the I/UCRCs, some of the 
programs that Dr. Peterson mentioned, have already started to 
create that sort of an environment. At the end of the day, 
creating an ecosystem within the university is really what I am 
talking about, in order to make it easy for faculty to 
participate, for them to see this as a logical part of their 
scholarly and intellectual endeavors.
    And I believe that the rewards and the recognition from 
that will follow in due course.
    Chairman Lipinski. Thank you.
    Ms. Mitchell. As I mentioned in my introductory remarks, we 
absolutely agree relative to proof of concept centers. One 
thing I would definitely want to underscore, and I think the 
NSF is one agency that has absolutely started to do this, but 
it needs to be done in a much bigger way--the Kauffman 
Foundation over the last five years has funded and worked 
collaboratively with entrepreneurs and venture capitalists in 
developing commercialization education programs, both in the 
energy space as well as in the biomedical device and the 
biotechnology area and has reached out to what we thought were 
university graduate students across the country that might be 
interested in this.
    What was amazing to us is that the interest level was at 
the level of the faculty who are being asked to teach their 
students about commercialization but didn't understand 
commercialization themselves. And while we are a foundation, we 
don't have enough money to afford educating all university 
faculty across the country in science and engineering, as well 
as graduate students, and it is a trickle-down effect.
    And so I believe if we are interested in commercializing 
science at the level of our universities, we need to develop 
broad commercialization education programs, and frankly, I 
wouldn't even use the word--there was a wonderful woman that 
teaches in the Stanford Medical School that told me that she 
has been teaching a class there for six years, and her class is 
in the medical school, and she tells them, what I want to teach 
you is opportunity, recognition, and analysis, so that if 
something in the lab strikes you as market relevant, you have 
the skills to know how to analyze that and go out and find the 
closest entrepreneur that can help you take that to the 
commercial marketplace.
    Chairman Lipinski. Thank you. Dr. Peterson, do you have 
something to add there?
    Dr. Peterson. Well, if you would like me to----
    Chairman Lipinski. Since we are speaking about the NSF.
    Dr. Peterson. Right. Yeah. My resume is up to date, and it 
may need to be after I answer some of these questions, but let 
me say, first of all, as the head of an engineering directorate 
and as a former engineering dean, I certainly am very 
sympathetic and, I think, understanding and appreciative of the 
importance of the entrepreneurial activities of faculty.
    And I do believe that through many of the programs that 
have been talked about here today, programs that I have 
mentioned at NSF, we are providing a culture and an environment 
in which those sorts of contributions are recognized and 
rewarded. And I can only say, it has been, in my experience, 
that at least within communities like the engineering 
community, contributions to entrepreneurship are recognized.
    I think there is a long--universities have a long ways to 
go with regard to, say, parity of understanding and 
appreciation for those contributions to the same level you 
would for other research endeavors, but I do think we have made 
some progress.
    I also think it is important to point out that even for 
those who perhaps don't believe that there is a mission at all 
for basic research, and I certainly don't subscribe to that, 
and I am sure not all--any of you do, either, but even if you 
accept that as a premise, there have been many important 
commercially-viable ideas that have been developed through pure 
serendipity. Research concepts that were going in one direction 
and resulted in fantastic contributions for commercial 
application in quite a different direction. And I don't think 
you are going to get that without the support for basic 
research and science and engineering.
    Chairman Lipinski. Dr. Ehlers, do you want to----
    Mr. Ehlers. If you would yield me some time, I would like 
to just make a few comments.
    Chairman Lipinski. I certainly will yield.
    Mr. Ehlers. Especially picking up on what Dr. Peterson just 
said. The Langley example, which my colleague from California 
gave, I noticed some puzzlement in the audience about what it 
was, but Mr. Langley was trying to build an airplane, and I am 
not quite sure why he launched it over the Potomac. I guess he 
was confident it would fly, but it plunked.
    That could be regarded as a failed experiment, but when I 
was at Berkeley I remember when Luis Alvarez was trying to 
investigate something by watching cosmic rays go in through 
the--he was trying to locate a tomb in a pyramid by looking at 
the cosmic rays which went through and trying to find it, and 
he didn't, and newspapers said, isn't it terrible to not find--
not get a result? He said, no, I got a result. I now know where 
it isn't.
    And that is similar with the Langley case. His experiments 
proved how you should not build an airplane, and I think most 
of us who have worked on experimental science have uncovered 
that.
    I don't have the same dim view that my colleague from the 
West Coast has about the results. I actually enjoyed all the 
experiments I did. I learned something from all of them, and I 
am convinced the world is a better place because of them. Even 
if, though, there are only five other people besides me who 
understand the results.
    But, in fact, you learn a great deal by experiments that 
fail. I recall I spent four months on one experiment and 
discovered that it simply could not be done because of the 
characteristics of that particular material.
    So I think failure makes science fun, because when 
something doesn't work, it is very frustrating, but trying to 
find out why it doesn't work is, indeed, very important to the 
advancement of science, and so I always take up the defense 
against laymen who, well, particularly, what was the Senator's 
name who had the Golden Fleece Award? A number of those 
projects were very good projects, and I--you never know what 
you are going to learn in science, and you never know what 
potential commercial experiments you can perform with it that 
would really be productive, in fact, profitable.
    One great example is when AT&T was trying to establish a 
link across the Pacific Ocean to communicate by telephone to 
Asia, and they built this immense magnet because they were 
going to have the world's biggest transmitter, and it failed. 
However, E. Lawrence across the bay in Berkeley was looking for 
a great magnet, so he went over, so he went over and said, may 
I borrow your magnet. He did and produced the first large-scale 
synchrotron.
    So virtually every failure has a good side to it, and as 
long as the researcher still gets paid for it, I think it is a 
good thing.
    Thank you.
    Chairman Lipinski. Thank you, Dr. Ehlers.
    The Chair will now recognize the Chairman of the Full 
Committee, Mr. Gordon.
    Chairman Gordon. I thank you, Chairman Lipinski. This has 
been a very good hearing. This is an important hearing, and I 
don't want to be late. My daughter just graduated from third 
grade, so that is why I am late today, but it no--it doesn't 
take anything away from this important hearing.
    Dr. Peterson, could you tell me a little bit about the STAR 
METRICS, what you are doing there, and--or anyone else that 
might have some interest in that. Where does it stand, where is 
it going? I know there is a lot of information, you know, and 
how hopeful are you that you really can bring this, you know, 
together.
    Dr. Peterson. In the social, behavioral and economic 
sciences directorate, one of the primary program officers is 
focusing on this particular issue Foundation-wide. It is 
broader than that activity. In addition to that, there are a 
number of ongoing activities looking at evaluation and 
assessment throughout the Foundation, looking at not only the 
metrics in this program but also other metrics.
    I think we have within, particularly within the 
directorates like engineering, we have been pretty good at 
evaluating programs that have industrial ties or other 
activities but perhaps not as good at evaluating long-term what 
the overall outcome of our investments have been in certain 
specific areas of fundamental research, and so we are looking 
at ways that we could do this in a more organized and 
quantitative fashion.
    Chairman Gordon. I think as we go forward, obviously, if we 
are going to maintain our lead technologically, you know, if my 
third-grade daughter and Brian's twins are not going to inherit 
a national standard of living less than their parents, then we 
are going to have to continue to invest. We are going through a 
difficult time right now in terms of dollars available, and so 
I think that we need this kind of research that would let us--
show us that the dollars are invested wisely.
    And if something isn't paying off, then we need to go 
somewhere else. And I was at an inter-parliamentary meeting on 
this last week, and there are some parliamentarians from the EU 
that are very interested in this, too, and doing something on a 
joint basis.
    So does anyone else want to add to this, and could you also 
tell me a little more about what kind of timeframes that you 
have?
    Dr. Peterson. Yeah. Actually, let me say that we also are 
collaborating with the activities in the UK and EU in general 
on this, and let me just articulate one challenge to this 
process, and this is not meant to excuse lack of progress or 
anything like that but just to kind of explain what some of the 
challenges are. I think we are all in agreement that we really 
do want to get a better grasp on just what we have accomplished 
globally in our investments and specific research areas, not 
just with respect to commercialization but with respect to 
advancing any particular research field.
    One of the challenges, however, is that oftentimes, 
particularly when you are looking at commercialization, you 
don't really see the fruits of those developments until long 
after the support for that particular project has come and 
gone. Sometimes it takes 10 or 15 years for certain commercial 
products to develop from the basic research ideas.
    So you can do assessment and evaluation while the--for 
example, while NSF is supporting projects or continuing 
projects, or you can take an historic look back at the ensemble 
of programs that you have supported and try and determine how 
your investments have paid off in that respect.
    So those are the two challenges that we are trying to face.
    Chairman Gordon. Yes. I mean, I am a little skeptical of 
just being able to get your arms around it, and we certainly 
don't want to, I mean--I hope when I say `skeptical' it is not 
that I don't want to see success, but I think it is going to be 
very difficult, and we don't want to get into a situation where 
we are disincentivizing basic research for the more applied 
research, where those metrics will be easier.
    Dr. Peterson. Right. No. I think that is exactly right, and 
as I said, we understand that it is perhaps easier to make 
those kinds of evaluations when you can look at quantitative 
specifics like patents or licenses or companies spun out and so 
forth and perhaps not as easy on the basic research side, but 
nonetheless just as important.
    Chairman Gordon. So what is your timeframe, and are you 90 
percent or 20 percent optimistic about being able to accomplish 
this?
    Dr. Peterson. Congressman, could I get back to you on that? 
I can tell you where we stand right now with regard to our 
activities in the engineering directorate. We have an 
evaluation and an assessment group that is going to deliver a 
report to us this summer, and I do know that Julia Lane and her 
colleagues working on the STAR METRICS Program have similar 
timeframes. Whether that is sort of an interim report or an 
interim result or a final report, I am not sure, but I would be 
happy to get a specific answer to that question for you and get 
back to you.
    Chairman Gordon. Does anyone else want to give a quick 
response there?
    Thank you, Mr. Chairman.
    Chairman Lipinski. Thank you, Chairman Gordon.
    I am going to officially start a second round of questions 
here, and the Chair recognizes Dr. Baird.
    Mr. Baird. Thank you, Mr. Chairman.
    I just want to underscore, I am well versed in basic 
research and the importance of that. I have studied the history 
of science, taught science research methods. You know, Feynman 
has got this great thing about the pleasure of finding things 
out and this wonderful personal anecdote of trying to figure 
out the rate--the relationship between the rate at which a 
plate was spinning and its wobble, and that led to some 
fundamental physics. I get it.
    But I have also seen too many times where the application--
when you ask, so what, the explanation comes as 
rationalization, not as reasoning, and it is, well, I guess you 
could, and somebody has done a line of research, and they 
haven't really thought about the applications.
    We have got a $13 trillion debt, $1.3 trillion to $1.5 
trillion deficit, the climate is overheating, the oceans are 
acidifying, we have got energy challenges, we have got 
healthcare challenges, drug-resistant diseases, et cetera, et 
cetera, and the public is paying taxes for this.
    Now, we have got to fund basic research. I am passionate. I 
have defended it at the risk of my career, quite literally, on 
the Floor of the House in the face of negative earmarks by our 
friends on the other side of the aisle.
    So I get it, but the community has to change its 
perspective as well, and I want to drill down on this a bit. 
Has anyone done a content analysis, and maybe Ms. Mitchell, 
this is germane to your work, a content analysis of the tenure 
and promotion criteria of major universities as incorporating 
the themes we are addressing here? In other words, look at 
them, read them. Do they give you any credit for doing this 
stuff?
    Ms. Mitchell. No, I don't believe that analysis has been 
done. I do know that there are at least two universities over 
the last couple of years that have changed their tenure 
requirements. Unfortunately, I don't know that we are even 
going to see an outcome from that. I mean, my fear of adding 
patents as a component of tenure is that it could lead us to 
down the road of over-patenting inappropriately.
    Mr. Baird. Yes. I am not saying you add it as a mandatory 
thing. What I am trying to say is you get some flexibility to 
this process so that if somebody spends a couple of years 
working on an actual, applied, and it doesn't have to be 
commercial by the way, because I am a big believer in 
supporting non-profit entrepreneurial efforts which are 
excluded now from our SBIR money and shouldn't be, but it is 
the applied, the bench work that goes beyond the basic 
research.
    So I just want to urge us to try to see what we can do on 
that, and maybe there are some best practices that have really 
spawned some successes.
    The second thing I want to ask about is, so we have got the 
basic NSF model, which is as good as there is in the world, and 
we have done some great stuff with that. But it has been 
mentioned a little bit, so what is the logical next sequence? 
You know, if you were to--if this were a manufacturing process, 
and I know it doesn't work like manufacturing, blah, blah, 
blah, but you still have to have a sequence where something 
starts here and it gets to here.
    And we talk about the Valley of Death in terms of capital, 
but what about the Valley of Death in terms of intellectual 
structural assistance, and some of you have alluded to it.
    My point would be, let us suppose NSF gives a grant to some 
bright, energetic person, they do some basic research, and then 
they have, whatever, the opportunity analysis, that was a 
felicitous phrase somebody used earlier, what is next? What do 
we have, structurally, that is next so that we would say to 
them, once you do this, you go here, and that can lead you to 
here.
    Dr. Peterson. Let me just give you a very brief answer with 
regard to what is next as far as NSF is concerned. You have 
heard in a number of the testimonies this morning that there 
sometimes is a disconnect between the technology and the 
entrepreneurship of the faculty, and the ability of that 
faculty member's institution to support the potential 
commercialization.
    I don't believe NSF is in a position of making wholesale 
changes in investments and tech transfer offices and legal 
aspects and so forth in intellectual property offices. But what 
we can do is recognize that as part of the criteria for next 
steps in support, one looks not only at the technical content 
and the technical strength, but also the university's capacity 
to handle these kinds of entrepreneurial activities.
    So in other words, there would be review of both the 
technical strength as well as the university structure. So we 
haven't fully formed the criteria for this kind of a 
solicitation, but I can tell you that is going to be an 
important element, if the FY 11, budget is approved for us, 
going forward in our partnerships for innovation, where we--we 
are a component of that. We will look to support institutional, 
center-like activities. Again, not to provide money for, you 
know, lawyers or tech transfer officers and so forth, but to 
make a clear statement that from the point of view of NSF, it 
is equally important to have strong technical background as 
well as institutional support for this kind of activity.
    Mr. Baird. Excellent point. I have got to run in just a 
sec. Can I ask the Chair for a 30-second indulgence?
    When we passed the America COMPETES Act out of this 
committee a few weeks back, there was an amendment offered that 
would have said the following. I am reminded of Mr. Kane's 
testimony. The amendment said none of the money authorized by 
the program, which included National Science Foundation, ARPA-
E, et cetera, could go to anybody who was not a United States 
citizen, let alone a legal resident.
    I am just asking. Good idea or bad if you want to stimulate 
the American economy? We will just go down--Dr. Peterson.
    Dr. Peterson. Very bad idea.
    Mr. Baird. Ms. Mitchell.
    Ms. Mitchell. Very bad idea.
    Mr. Baird. Mr. Crowell.
    Mr. Crowell. Very bad idea.
    Mr. Baird. Mr. Watkins.
    Mr. Watkins. Bad.
    Mr. Baird. Mr. Crandell.
    Mr. Crandell. Bad.
    Mr. Baird. Mr. Kane.
    Mr. Kane. Ditto.
    Mr. Baird. Thank you very much. I just would insert that 
for the record. Thank you, Mr. Chairman.
    I concur by the way. We had the vote, so we had the votes. 
In this case we had the votes. We defeated the amendment, but 
it would have been destructive to so much. Thank you.
    Chairman Lipinski. Thank you, Dr. Baird. I think I knew 
where you were on that one before you said that but I am really 
looking forward to your new career here to completely remake 
the American university system.
    Mr. Baird. Countless universities are looking for me.
    Chairman Lipinski. Thank you. I just want to--I will 
recognize myself for five minutes and see how--I don't want to 
keep this going for too much longer, although there is--this 
has just been a wonderful opportunity, and I would like to 
continue this, and we will see what we can do formally and 
informally to continue this discussion.
    But I want to--the question I wanted to--one thing I just 
wanted to make sure, I wanted to ask here, is a number of you 
have voiced concerns over the ability of institutions to 
attract and retain the necessary level of expertise, you know, 
talking about universities, within an institution's technology 
transfer office.
    I have just anecdotally, and I haven't even--I have not 
looked into this, and it is something I have often asked but 
haven't really dug into it. I have noticed that so many more 
universities seem to be having a technology transfer office. 
And my understanding of it is that these vary tremendously in 
what exactly they do.
    In some ways it seems like it's just sort of the--it is a 
fad in some ways, because I think that there is an 
understanding--fad not in a bad way, but universities are 
seeing other universities do this, and they also see the 
opportunity to make money in this, and this is not a bad thing, 
but I think we need to be focusing on how to do this correctly.
    And one thing I want to ask for is, do you have any 
suggestions on how we can incentivize, increase the recruitment 
of qualified individuals to an institution's technology 
transfer office? I mean, specifically Mr. Crowell and Mr. 
Watkins and Ms. Mitchell I wanted to ask about that.
    What in general can be done? What makes a good technology 
transfer office?
    Mr. Crowell. Yeah, I would like--thank you very much for 
that wonderful question, and obviously it is a subject that is 
near and dear to my heart.
    I think your observation is correct that more and more 
universities are getting into the technology transfer business. 
You mentioned one reason was that many presidents or perhaps 
Boards of Trustees see the opportunity to make money. Let me 
add one more, and that is, many are being pressured to do it 
because their governors, their legislators, their regional 
economic development entities are really wanting to partner 
with the universities, no matter how large or small and no 
matter how intense the research infrastructure may be, in order 
to capitalize on the innovation capacity that exists there.
    So there is a real push to create a resource, and not just 
the major research universities but regional and very small 
universities. In North Carolina I think most of the 16 campuses 
of the UNC system, for example, now have a technology transfer 
office. Those research budgets range from $750 million a year 
to less than $10.
    So you might argue that each one doesn't need one, but when 
a brilliant idea comes up at the university with $10 million, 
what are you going to do to get it out?
    Specifically with respect to the training and attraction 
and retention of really good people in the field, whether you 
are talking about a large, well-established program or a 
relatively new one, there are a number of resources certainly 
available. There are certification programs; there is the 
Licensing Executive Society; more and more business schools are 
teaching courses related to product commercialization, 
intellectual property management. Sort of the key concepts and 
key principles that a qualified technology transfer officer 
needs to know. There are certification programs starting to 
appear. There is a certified licensing professional process 
underway within just the last few years seeking to bring a 
level of some common practice, if you will, and common levels 
of ethics and understanding and of competence and experience, 
if you have those initials after your name.
    Those programs are quite new, but I think it is an effort 
that is underway to perhaps address a problem or concern that 
is underpinning the question that you have asked.
    Your question about what makes a good technology transfer 
professional--I think the slate is absolutely wide open on that 
issue. I have been in the field 23 years, as I mentioned. I 
have seen--some of the best people have come out of science 
with no business background. Others have come out of MBA 
programs where they had to learn enough science to succeed. The 
fact is that there are a large number of skills and functions 
and attributes necessary to manage IP, to negotiate deals, to 
assess value, to understand markets, to interact within the 
innovation ecosystem to bring value and results to the process, 
and I think a `one size fits all' or a specific prescription on 
where those people come from is probably not wise or not 
available.
    So thank you.
    Ms. Mitchell. I would just like to comment here. Mr. 
Crandell being on the panel and also having a rich history in 
venture capital, the role that a venture capitalist takes is 
looking at very early stage technology and trying to determine 
the market relevance and bringing it to market, and that is not 
dissimilar to the role that our current technology licensing 
offices take.
    And Mr. Crandell in his role, and I would assume the 
expertise of many of the people on his staff and the amount of 
money that they probably are paid in the free market is 
significantly different. And that is why I will refer back to 
comments in my testimony--is that we at the Kauffman Foundation 
believe that there should be a free market directive and that 
would lead university technology licensing officers to 
specialize, or in many cases turn to outside agents with 
appropriate expertise.
    In some cases the university might not need to, other than 
for administrative reasons, have their technology licensing 
office, but could continue to earn licensing revenues and less 
the fees charged to outside TLOs [Technology Licensing 
Offices]. Federal agencies funding research need to be active 
in reviewing these institution-specific technology 
commercialization practices somewhat similar that we--what we 
just heard here, but most importantly I think--and this 
discussion happened a little bit earlier but not to the degree 
that it should--is how do we measure the performance of that 
office, and I think that needs to drive, you know, what kind of 
people we need to be doing, completing this role.
    And I would put forward that performance should first be 
measured by innovations moved to market, not revenue generated, 
and that we really need to address this question of how are we 
evaluating the outcomes and measuring the outcomes of 
university innovation in addition to the kind of people that 
are in this role.
    Thank you.
    Chairman Lipinski. Thank you. May I add one quick remark? I 
have encountered many licensing offices, and what I can tell 
you is that irrespective of the background, the tech transfer 
officers who seem to be most successful are the ones who are 
able to earn the trust of the professors.
    The ones who, when the professors think that they are 
acting in their best interests and are easy to work with, et 
cetera, those are the ones who are successful. When the 
professors are hostile to the process, it doesn't matter what 
the qualifications are of the tech transfer officer.
    Chairman Lipinski. Thank you. Mr. Watkins.
    Mr. Watkins. I would echo the concept of trust there. It is 
absolutely essential. But when I started in this business in 
the mid '80s, I attended what was called the Society of 
University Patent Administrators, for the one year, and that 
kind of shows where this industry began. We were administrators 
of patents. That evolved into AUTM, the Association of 
University Technology Managers, and the question is what does 
it go to next. And I think there is another generation that is 
emerging that really has to do with more of a full service, we 
are calling it, kind of an innovation service provider, and it 
does much more than just the licensing, but it looks at the 
resources, it looks at what is happening in the community and 
the industries with the technologies, and then has ideation 
sessions and figures out how best to deal with those.
    My experience is the best technology transfer professionals 
are those who have had experience in industry, had experience 
in developing and commercializing technology, have experience 
in the universities where they appreciate that culture. They 
have had touch with venture capital and often times you don't 
find all that in one person or you need to bring them in.
    And so I think that is why a model similar to what we have 
done, of bringing in the community resources and the retirees, 
has really leveraged our internal talent to where I think we 
can be more effective.
    So I am very excited about the future of this industry, but 
I think we have come a long ways, and we have a good way to go, 
but I am very hopeful.
    Chairman Lipinski. Thank you. Any other----
    Mr. Crandell. Maybe put a finer point on one aspect of 
this, and that is that, you know, commercialization or 
technology commercialization is a broad term, and in the 
context of a university or a national lab there are many 
relatively routine administrative functions that I think that 
compensation structures and the incentives are probably 
adequate for today, in part because these functions get 
performed.
    It is not to say they can't be improved, but if you look at 
the best university licensing operations, they do get these 
things done in reasonable periods of time and make good choices 
on things like patent claims.
    The crux of it, in my opinion, to really take the 
commercialization process and increase it by a multiple, is 
focused around a little bit more difficult challenge, which is 
the one of starting companies out of university research. 
Starting companies, period, is an incredibly difficult task. 
Starting companies out of universities is even more difficult, 
and if you are good at that, you are going to create a huge 
amount of value, and if you don't want to be rewarded or if 
psychic utility is the thing that you are chasing, then you may 
stay in that position forever.
    Most individuals that have families, that hope to increase 
their wealth over time, are going to look for market rate 
compensation.
    So I don't think we have to change the entire compensation 
structure of the commercialization effort, at least that 
wouldn't be the first step in my mind, or to study it. I think 
we need to look at the folks that are doing the incredibly 
heroic efforts to help pull these companies together to make 
these teams of entrepreneurs, scientists, and investors, and we 
need to find a way to get those up to market rates in order to 
help the process be as sustainable and productive as possible.
    Thank you.
    Chairman Lipinski. Thank you, and with that I want to thank 
all the witnesses for their testimony today. I know I could 
stay here all day, but I don't think we will be doing that. The 
record will remain open for two weeks for additional statements 
from the Members and for answers to any follow-up questions the 
Committee may ask of the witnesses.
    And at that the witnesses are excused, and the hearing is 
now adjourned.
    [Whereupon, at 12:08 p.m., the Subcommittee was adjourned.]
                              Appendix 1:

                              ----------                              


                   Answers to Post-Hearing Questions




                   Answers to Post-Hearing Questions
Responses by Ms. Lesa Mitchell, Vice President of Advancing Innovation, 
        Ewing Marion Kauffman Foundation

Questions submitted by Chairman Daniel Lipinski

Q1.  The need for gap or proof of concept funding has been identified 
as one of the barriers to increasing the commercialization of 
university-based research discoveries. What is the appropriate role of 
the National Science Foundation in proof of concept funding? If NSF 
were to provide proof of concept funding, how would such funding differ 
from and complement the grants it awards through the Small Business 
Innovation Research program?

     Specifically, a number of organizations have recommended the 
establishment of university-based proof of concept centers. Is this an 
appropriate funding mechanism for NSF to pursue, or is this more 
appropriate for other agencies that perform mission-specific applied 
research? If so, which agencies should be involved in the establishment 
of proof of concept centers and how should the funding be structured?

A1. Proof of concept (POC) resources (include project management, 
external boards and actual funding to support a project) are needed 
pre-firm formation and preferable when a technology still lie within 
the university. POC resources are important at this stage as they will 
not only allow the technology to be exploited while still within the 
confines of a not for profit but they will also provide graduate 
students actual commercialization experience as a critical component of 
their education.
    The National Science Foundation is uniquely positioned to manage 
this model as a pilot. Their productive experience defining and 
managing Engineering Research Centers uniquely qualifies them to 
provide over site to what could be considered a pilot program. That 
being said, all Federal agencies provide research funding should be 
supporting POC models to enable translation of the research funded into 
the commercial market.
                   Answers to Post-Hearing Questions
Responses by Mr. W. Mark Crowell, Executive Director and Associate Vice 
        President, Innovation Partnerships and Commercialization, 
        University of Virginia

Questions submitted by Chairman Daniel Lipinski

Q1.  The need for gap or proof of concept funding has been identified 
as one of the barriers to increasing the commercialization of 
university-based research discoveries. What is the appropriate role of 
the National Science Foundation in proof of concept funding? If NSF 
were to provide proof of concept funding, how would such funding differ 
from and complement the grants it awards through the Small Business 
Innovation Research program?

     Specifically, a number of organizations have recommended the 
establishment of university-based proof of concept centers. Is this an 
appropriate funding mechanism for NSF to pursue, or is this more 
appropriate for other agencies that perform mission-specific applied 
research? If so, which agencies should be involved in the establishment 
of proof of concept centers and how should the funding be structured?

A1. Quoting from my testimony before your Committee, ``at the 
University of Virginia, we fully support the President's proposed FY 
2011 Budget Request for $12 million for a new ``NSF Innovation 
Ecosystem'' component within the Partnerships for Innovation program. 
But we believe much more investment is needed in order to ensure that 
proof of concept initiatives . . . are in place and accessible to 
capture and translate the innovations emanating from universities 
nationwide.'' We urge funding at levels much higher than that noted 
above--and suggest consideration that 0.5-1.0% of the NSF budget (and 
other agencies as well) be allocated to this need. We suggest that this 
funding take the form of Translational Research Supplemental Awards, or 
even de novo Translational Concept Grants available for good ideas even 
if not based on another Federal grant.
    We also feel strongly that this funding should be accessible to 
universities in all regions and not just in selected regional 
settings--because talent and innovation exist everywhere. We thus 
support the concept of ``democratizing innovation.'' We believe the 
review process for such funding should be rigorous, market-focused and 
``high-touch'', with corporate partner input and development milestones 
being key components for initial and ongoing funding. We feel strongly 
that the same kind of rigorous review process employed with extramural 
research grant applications could be brought to bear with respect to 
Translational Research Supplemental Awards, or Translational Concept 
Grants. We are pleased to note that these recommendations were 
supported in the ``wrap-up'' portion of the recent NSF PFI conference 
on ``Innovation Ecosystems'' organized by U.Va.
    We also support the concept of incorporating into the review 
process for NSF grants--especially those focusing on or leading to 
translational research--an assessment of the technology transfer and 
innovation management capacity of university applicants. Relevant 
review criteria should be developed which reflect input and best 
practices derived from interactions with senior and successful 
technology transfer practitioners, investors, entrepreneurs, corporate 
business development officers, patent attorneys, and others, and care 
should be taken to coordinate the development and utilization of such 
criteria with the numerous efforts underway among research funding 
agencies and higher education associations to develop meaningful 
metrics for research and innovation impact.
    We do not offer this suggestion as a substitute for the current 
SBIR and STTR funding initiatives. Such awards, of course, are provided 
to small business concerns which, in turn, are eligible to collaborate 
in their research activities through a sub-contract to universities. 
SBIRs/STTRs are, of course, later stage awards simply by virtue of the 
requirement that the applicant must be a small business concern. The 
proof-of-concept funding recommended in this discussion would be aimed 
at--and restricted to--pre-company and pre-commercial research 
projects. It is related to SBIR/STTR initiatives in that we would hope 
that successful proof-of-concept projects would lead to high quality, 
high impact SBIR/STTR applications, but criteria should be developed 
for any proof-of-concept funding to indicate that such funding is 
intended for proving technical feasibility, market assessment, and 
commercial potential of basic research discoveries.
    More than at any time in the past, university research provides the 
pipeline of innovation for America and the world. Accordingly, Federal 
investment in basic, or ``discovery'' oriented research, as well as in 
research that moves ideas into proof-of-concept work (``translational 
research''), is essential to the national and global economy. We feel 
strongly that there is no alternative other than for the government to 
support this critical investment in the innovation pipeline. University 
ideas are a small but essential step on the path to final 
commercialization, and the private sector provides the vast share of 
development and scale-up work to push new ideas to the marketplace. 
However, the first steps along the pathway from basic research, to 
translational or proof-of-concept research, to development, and finally 
to product introduction are a critical and unmet focal point for 
Federal funding--without it, our national pipeline for innovation will 
run dry, leaving future generations with fewer possibilities for 
economic success.
                   Answers to Post-Hearing Questions
Responses by Mr. Wayne Watkins, Associate Vice President for Research, 
        University of Akron

Questions submitted by Chairman Daniel Lipinski


Q1.  The need for gap or proof of concept funding has been identified 
as one of the barriers to increasing the commercialization of 
university-based research discoveries. What is the appropriate role of 
the National Science Foundation in proof of concept funding? If NSF 
were to provide proof of concept funding, how would such funding differ 
from and complement the grants it awards through the Small Business 
Innovation Research program?

     Specifically, a number of organizations have recommended the 
establishment of university-based proof of concept centers. Is this an 
appropriate funding mechanism for NSF to pursue, or is this more 
appropriate for other agencies that perform mission-specific applied 
research? If so, which agencies should be involved in the establishment 
of proof of concept centers and how should the funding be structured?

Response to part 1 of the question:

A1. The primary role of the National Science Foundation (NSF) should 
continue to be supporting education and research across all fields of 
science and technology by creating and maintaining the infrastructure 
that leads to discoveries. NSF brands itself as ``where discoveries 
begin.'' Supporting discovery is NSF's most critical role and should 
remain its primary focus.
    A proof of concept of an idea is generally considered a milestone 
on the way to a fully functioning prototype. Notwithstanding, there are 
different meanings for the phrase ``proof of concept'' in general usage 
today:

        1.  There is a narrow but important portion of the technology 
        discovery to commercialization continuum, where it becomes 
        necessary to prove the concept of an invention or an idea. 
        ``Proof of concept'' in this instance is the development of an 
        idea or lab concept only to the point of a prototype capable of 
        being demonstrated, tested or otherwise evaluated for its 
        further commercial potential. This proof of concept is to prove 
        the validity of the idea or concept. It is to demonstrate the 
        efficacy of the technology. It is not to effectuate 
        commercialization.

        2.  The ``proof of concept center'' phrase as used by the 
        Kauffman Foundation, refers to an organization that ``provides 
        seed funding to university-based early-stage research,'' and 
        also ``performs services such as market research, mentoring, 
        business-plan development, and commercial connections to 
        entrepreneurial faculty and students.'' [See http://
        www.genomeweb.com/biotechtransferweek/kauffman-study-proof-
        concept-model-can-supplement-support-academic-tech-transfer] 
        Such use of the phrase ``proof of concept'' includes a full 
        range of commercialization activities beyond mere proving of an 
        invention concept. Thus it is important to clarify one's 
        intended meaning when using the phrase ``proof of concept.'' 
        The Kauffman Foundation also references the von Liebig Center 
        at the University of California San Diego and the Desphande 
        Center at the Massachusetts Institute of Technology as leading 
        ``Proof of Concept centers.'' These programs are more in the 
        nature of full technology commercialization centers, the latter 
        definition. Although the ``proof of concept'' phrase captures 
        significant portions of the discovery commercialization 
        process, I believe it is insufficient. Thus, the House 
        Committee and NSF may consider the phrases ``discovery 
        commercialization'' or ``innovation services,'' rather than'' 
        proof of concept.'' Discovery commercialization components 
        beyond ``proof of concept'' include:

                a)  Invention and product development

                b)  Scale-up and manufacturing process development,

                c)  Capital and financing,

                d)  Entrepreneurial expertise development and 
                acquisition,

                e)  Deal structure and licensing,

                f)  Technology and commercialization advisory boards 
                and leadership mentoring of key employees.

                g)  Business formation and operation services including 
                accounting and bookkeeping,

                h)  Shared office space, equipment, and personnel,

                i)  Intellectual property assessment, procurement and 
                management services

    The commercialization of technology, (the broader definition of 
proof of concept,) resulting from federally funded research should be 
performed by the research organizations that develop the inventions and 
should not be performed by the Federal Government. Commercialization is 
not an appropriate governmental role, and commercialization should not 
be dependent on Federal funding (other than for the funding of the 
underlying basic research). The research organizations, with 
appropriate support from the private sector and state and regional 
organizations are better structured and equipped to commercialize 
inventions. The Federal Government and its processes are relatively too 
bureaucratic, and less capable of ongoing improvement adjustments, to 
effectively provide innovation and commercialization services.
    Notwithstanding, funding for prototype development (that is the 
narrow definition of ``proof of concept)'' is presently considered to 
be beyond the purview of Federal ``research'' funding. Yet, prototype 
development is usually too early stage and too risky to generate 
interest from angel, venture capital, foundation, and typical state and 
local economic development funding sources. Some research organizations 
provide such funds internally. Accessing funding for this narrow 
definition of proof of concept is a significant challenge in the 
discovery to commercialization continuum. The Federal Government should 
consider providing funds for such ``proofs of concept''. Our experience 
at the University of Akron suggests that a prototype under this 
definition can typically be constructed for $10,000 or less. There is 
no need for additional personnel, programs, or facilities--only funding 
for the actual proof of the idea or concept.
    I propose that the Federal Government fund a five year experiment, 
to be administered by one of the agencies, (preferably Department of 
Commerce Economic Development Agency) by providing block grants to 
multiple regions of the country, to be further distributed as grants 
based on merit to universities, hospitals, and other not for profit 
research organizations, for the narrow definition of proof of concept 
(prototype or sample development). Each region would be responsible for 
tracking the impact of the grants. Metrics could include: product 
introductions to the market, patents, licenses, follow-on funding 
generated, licensing revenues, new companies formed, and jobs. The 
sponsoring Federal agency would periodically assess the effectiveness 
of the program to determine the appropriateness of continuing and/or 
modifying the program. According to the traditional Carnegie listings, 
there are approximately 200 public and private research institutions 
identified as having high or very high research activity. Perhaps 20 
regional Proof of Concept Associations could be established, each 
comprising ten such Carnegie institutions, along with other 
institutions, hospitals and individuals located within their region. 
Each association would have an annual budget of $1 million, funded by 
one or more Federal agencies. Each association would be volunteer-
operated with team members having at least bio-medical, engineering and 
science expertise. Simple two-page requests for prototype funds between 
$10,000 and $25,000 would be reviewed bi-monthly and approved by a 
volunteer committee of regional experts from academe, industry and 
retired business executives. The funding would provide 40 to 100 
concept ideas annually from each region, to be carried forward to the 
prototype stage, and capable of being commercially evaluated by the 
traditional angel and venture capital investment communities. This will 
result in 800 to 2000 prototypes per year of the best concepts 
nationally, vetted by professionals, to be made available for 
evaluation and commercialization by the traditional business 
communities.
    Alternatively, such services could be administered by the Economic 
Development Agency of the Department of Commerce using the existing six 
EDA regions with perhaps $2.5 million per region per year.
    As an example, Dr. Joseph Kennedy of The University of Akron 
College of Polymer Science and Polymer Engineering recently developed a 
new polymer. Dr. Kennedy is a prolific inventor with more than 100 
patents, including the original bio-compatible polymer, which is the 
basis for many medical devices that are compatible with human tissue. 
Industry interest in the new polymer was insignificant as they had no 
product to evaluate, only the theory. The University of Akron Research 
Foundation agreed to pay for production of a few samples for a cost of 
approximately $10,000. Industry immediately became interested once they 
had actual material to test. An offer to license resulted. It is this 
type of funding that is elusive.

Response to part 2 of the question:

        A.  How proof of concept funding would differ from SBIR grants.

           SBIR grantees are limited to qualifying small businesses. 
        The eligible grantees for proof of concept funds should be 
        higher education institutions, hospitals, and other not-for-
        profit research related organizations. Funds would be used to 
        prove the validity of an idea or concept, the narrow proof of 
        concept definition, rather than discovery commercialization.

        B.  How proof of concept funding would complement SBIR grants.

           Funding for a regional proof of concept model would support 
        the SBIR grants program by increasing the number and quality of 
        innovations ready to be licensed to the business community from 
        higher education and hospitals. This would be consistent with 
        and complementary to the current SBIR program funding.

Response to part 3 of the question:

        A.  Should NSF pursue funding university-based proof of concept 
        centers?

           NSF should not pursue funding of discovery 
        commercialization.

           However, NSF may pursue funding proof of concept 
        associations (prototype and invention validation as opposed to 
        full commercialization) if it is determined that EDA or NIST is 
        not in a position to fund such proof of concept associations.

        B.  Or, is funding university-based proof of concept centers 
        more appropriate for other agencies that perform mission-
        specific applied research?

           If the decision is to federally fund proof of concept 
        associations, then NSF and NIH (to include the medical 
        innovations) are the agencies that best cover the range of 
        scientific inquiry that leads to commercialization activity. 
        Notwithstanding, Department of Commerce EDA is the preferred 
        Federal agency because efforts leading to commercialization are 
        more consistent with its mission.

Response to part 4 of the question:

        A.  Which agencies should be involved in the establishment of 
        proof of concept centers?

           If it is determined that Federal funding is appropriate for 
        proof of concept associations, then, the Department of Commerce 
        and possibly NIST would be the preferred agencies. Funding 
        commercialization support services is more consistent with 
        their missions and it is important to not dilute the focus of 
        NSF in supporting the discovery infrastructure.

        B.  How should the funding be structured?

           Funding for proof of concept, as opposed to 
        commercialization, should be provided through block grants to 
        regional associations that distribute the grants based on merit 
        to qualifying universities and hospitals.

    Thank you.
                              Appendix 2:

                              ----------                              


                   Additional Material for the Record


  Comments from CONNECT Submitted by Representative Brian P. Bilbray

[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]

  Statement of Susan Hockfield, President, Massachusetts Institute of 
                            Technology (MIT)
    The following written statement for the record is submitted to the 
House Science and Technology Committee, Subcommittee on Research and 
Science Education, in regard to its June 10, 2010 hearing entitled 
``From the Lab Bench to the Marketplace: Improving Technology 
Transfer.''
    This written statement provides a description of the Massachusetts 
Institute of Technology's (MIT) technology transfer practices and 
``Innovation Ecosystem,'' offered in the hope they may prove 
informative to the Subcommittee and a useful model for others. This 
discussion is drawn from a filing on May 26, 2010 in response to a 
Request for Information from the Office of Science and Technology 
Policy and the National Economic Council in the Executive Branch.
    In 1861, an act of the Massachusetts State Legislature launched MIT 
and charged the Institute with the ``development and practical 
application of science in connection with arts, agriculture, 
manufactures, and commerce.'' The MIT motto, mens et manus--mind and 
hand--underscores our distinctive commitment to serving society through 
the practical fruits of university research.
    Our history also teaches us, however, that--without expert guidance 
and support--the path from laboratory discovery to world-ready product 
can be long, circuitous and frustrating. Brilliant scientists and 
engineers may know next to nothing about protecting their intellectual 
property or starting and managing a business; even breakthrough 
technologies can languish without funding at sufficient scale or a 
clear vision of their application. With its longstanding focus on 
problem solving and its constructive relationship with industry, MIT 
has long instilled in students and faculty an entrepreneurial attitude; 
in recent decades, we have also worked to provide the practical tools 
and advice to help their entrepreneurial ventures succeed. The result 
is an ``innovation ecosystem'' that helps good ideas traverse the 
``valley of death'' to reach the distant heights of market success, and 
it has served us so well that we believe it may provide useful examples 
for others.
    Based in part on MIT's experience, and after consultation with 
those involved with technology transfer across the Institute, this 
statement will focus on three areas:

          Specific suggestions for changes in Federal policies, 
        recommended targets for additional funding, and ideas regarding 
        certain areas of technology transfer that may require 
        additional focus;

          A detailed description of MIT's Innovation Ecosystem, 
        along with recommended best practices for fostering 
        commercialization and diffusion of university research; and

          The critical role the Bayh-Dole Act plays in the 
        successful commercialization of federally-funded research.

I. Recommendations

    I believe the following recommendations for government action would 
encourage increased investment in basic research, enhance the impact of 
federally funded research, and improve the process of transferring 
research in the lab to commercialization by the private economy. In 
Section II, I provide an in-depth description of MIT's Innovation 
Ecosystem, which provides additional details and best practices to 
support several of these recommendations.

          Implement Model Innovation Centers. Implement ten 
        pilot model innovation centers across the U.S. at research 
        universities to develop, document, and assist in nationwide 
        dissemination of ``best practices'' for encouraging innovation 
        and entrepreneurship by students, faculty, staff and alumni. 
        These centers, similar to MIT's Deshpande Center (described 
        below), would engage in a variety of activities including 
        making connections to industry and capital; educating and 
        mentoring; creating ties to regional businesses; providing 
        grants or seed money; and connecting faculty and students. 
        These centers would also disseminate best practices and form 
        the nucleus of a community amongst U.S. universities enhancing 
        innovation. The Administration is seeking modest initial 
        funding for such an effort in its Fiscal Year 2011 budget 
        request for the National Science Foundation; this requires 
        expansion.

          Support On-Campus Mentoring Services. Support 
        expansion and escalation of mentoring services based on the 
        proven MIT Venture Mentoring Service model (described below) at 
        research universities across the U.S. Additionally, support 
        formation of an Innovation Mentoring Consortium that would 
        enable the sharing of knowledge, experiences, and best 
        practices amongst mentoring organizations to enhance 
        effectiveness and further increase innovation output.

          Add Technology Transfer Costs to Indirect Cost Pool. 
        Many schools, particularly in the current economic climate, 
        lack funding to build a patent portfolio and hire the staff to 
        create successful technology transfer offices. Many existing 
        offices are now facing cutbacks. Allowing technology transfer 
        costs (e.g., patents and staff) to be included in the indirect 
        cost pool for federally funded research (and perhaps excluded 
        from the administrative cost cap) could provide schools with 
        the resources to bolster and build their Technology Licensing 
        Office (TLO) programs.

           At the same time, Federal programs (including at the 
        Departments of Energy and Agriculture) are increasingly asking 
        for ``matching funds'' from non-profit universities for applied 
        research. This is a very detrimental move in the wrong 
        direction, and these cost-sharing policies should be reversed. 
        University funding streams, unlike those in the private sector, 
        do not have a profit pool that could be allocated to such 
        sharing.

          Promote Policies that Encourage Entrepreneurship. 
        Encourage government and universities to examine their rules 
        and regulations to eliminate barriers to responsible faculty/
        staff entrepreneurship. Medical schools and teaching hospitals 
        have especially high potential for entrepreneurship that could 
        benefit society broadly, while also contributing to economic 
        growth, consistent with high standards of integrity. In those 
        institutions, policies that strongly promote openness of 
        relationships, appropriately overseen by senior faculty 
        committees, can ameliorate the potential problems that arise 
        from the needed medical faculty connections to biomedical 
        industry.

          Host Technology Innovation Fairs. Federal R&D 
        agencies should consider holding bi-annual technology 
        innovation fairs that bring groups of outstanding university 
        inventors together with supporting government agencies, 
        companies, venture capital (VC) firms, and financial 
        institutions in emerging technology sectors. The inaugural 
        Advanced Research Projects Agency-Energy (ARPA-E) Energy 
        Innovation Summit could provide a very useful model.\1\
---------------------------------------------------------------------------
    \1\ ARPA-E Energy Innovation Summit (http://arpa-e.energy.gov/
ConferencesEvents/tabid/69/vw/3/ItemID/12/d/20100301/Default.aspx)

          Support Small Firm/University Collaborations. 
        Encourage research agencies, where appropriate, to adopt the 
        Defense Advanced Research Projects Agency (DARPA)-hybrid model 
        for a portion of their funding as part of their R&D portfolios. 
        This approach provides awards for collaborative efforts 
---------------------------------------------------------------------------
        involving small firms and university researchers.

          Examine How to Attract More Venture Capital 
        Investment. Conduct an examination of the factors that induce 
        Venture Capital firms (VCs) to invest in early-stage 
        technologies. Typically, VCs only invest in physical-science-
        based technologies when they are near commercialization, and 
        they invest in very few startups during economic downturns. We 
        need to consider what factors are leading to the decrease in VC 
        investment rates. If these issues are studied and better 
        understood, incentive systems could be devised to influence 
        these trends.

          Encourage SBA Investment in New Technology Startups. 
        Examine the policies of the Small Business Administration (SBA) 
        to be sure that adequate emphasis is placed upon new businesses 
        with high growth potential (i.e., ``gazelles ''). In 
        particular, there should be an explicit focus in agencies' 
        administration of the Small Business Innovation Research (SBIR) 
        Program for new technology startups and new business recipients 
        that will accelerate technology implementation.

          Enhance and Add Tax Credit Programs to Encourage 
        Technology Transfer. In addition to improving some of the 
        structural problems in the research and development (R&D) tax 
        credit and making it permanent, provide additional credit for 
        funding for collaborations between industry and university 
        researchers to accelerate technology transfer. Also consider 
        dropping the incremental feature of the current credit, so it 
        rewards significant, sustained R&D investments by firms.

          Provide Post-Degree Visas. Foreign-born immigrants 
        have an unusually strong record of starting firms and 
        bolstering our science talent base. This has long been an 
        historic competitive advantage for the U.S. that few nations 
        have been able to match. In order to preserve this strength, 
        the U.S. should award five-year, post-degree visas to all 
        foreign students in accredited university programs in STEM and 
        management fields. These special visas should be converted 
        easily into green cards, and their holders fast-tracked to U.S. 
        citizenship if they continue employment in U.S. science and 
        technology-based research and enterprises, or if they start 
        their own U.S.-based companies.

II. The MIT Innovation Ecosystem

    MIT takes a holistic and comprehensive approach to entrepreneurship 
and innovation that spans from education to business connections to the 
commercialization of university research. MIT's Innovation Ecosystem 
serves the entire MIT community, including students, researchers, 
faculty, staff, alumni, and members of the local business community. 
This ecosystem is founded on the concepts of: 1) nurturing and 
mentoring potential entrepreneurs; 2) pursuing patent protection for 
technological innovations resulting from MIT research to foster 
commercial investment in bringing such innovations to the marketplace 
to benefit the public; 3) engaging deeply with the surrounding business 
and VC community; 4) integrating entrepreneurship and innovation across 
all schools and departments; and 5) focusing on long-term 
relationships, rather than short-term gains.
    The success of MIT's model is outlined in a 2009 Kauffman 
Foundation report that describes the Entrepreneurial Impact of MIT,\2\ 
and documents the development of its Innovation Ecosystem. The report 
estimates that living MIT graduates have founded approximately 25,800 
active companies, which employ approximately 3.3 million people and 
generate estimated annual world revenues of approximately $2 trillion--
producing the equivalent of the world's 11th-largest economy.
---------------------------------------------------------------------------
    \2\ Roberts, E. and Eesley, C; Entrepreneurial Impact: The Role of 
MIT; The Kauffman Foundation, February 2009 (http://www.kauffman.org/
research-and-policy/mit-entrepreneurs.aspx)
---------------------------------------------------------------------------
    As these numbers suggest, MIT's most important contribution to the 
innovation economy stems from the education that MIT provides to its 
students, who are the inventors and entrepreneurs it educates and 
inspires. The richest source of innovation is a deep understanding of 
fundamental science and engineering, which MIT has instilled in its 
students for decades. However, I also believe that MIT's 
entrepreneurial success flows in part from a number of initiatives that 
over the past fifteen years have created an Innovation Ecosystem 
centered on our campus and spilling into the surrounding region as 
well. As each of its components has taken shape and expanded over the 
years, the bonds between them have strengthened to form a true 
ecosystem that is imbued with MIT's culture of innovation and 
entrepreneurship. Although a host of additional factors strengthen our 
ecosystem, below I detail its main components:

        A.  The Technology Licensing Office

        B.  The Deshpande Center for Technological Innovation

        C.  The Entrepreneurship Center

        D.  The Venture Mentoring Service

        E.  Innovation Prizes

        F.  The Industrial Liaison Program

        G.  Cross School/Cross Disciplinary Initiatives

A. The Technology Licensing Office \3\
---------------------------------------------------------------------------
    \3\ About the TLO (http://web.mit.edu/tlo/www/about/)
---------------------------------------------------------------------------
    MIT'S Technology Licensing Office (TLO) has a successful track 
record that spans decades of helping MIT faculty and researchers with 
patenting, licensing, and starting firms that build upon technology 
developed at MIT. In Fiscal Year (FY) 2009, MIT received 153 U.S. 
patents (second in the U.S. after the combined total of the ten 
universities in the University of California system) and filed 231 new 
U.S. patent applications. Approximately 20 to 25 new companies spin out 
of MIT each year.
    MIT's TLO aims to benefit the public by moving results of MIT 
research into societal use via technology licensing, through a process 
that is consistent with academic principles, demonstrates a concern for 
the welfare of students and faculty, and conforms to the highest 
ethical standards. This process benefits the public by creating new 
products and promoting economic development. It also helps MIT:

          show tangible benefits of taxpayers' support for 
        fundamental research;

          attract faculty and students;

          encourage industrial support of research;

          create discretionary revenue to support education and 
        research;

          produce new job opportunities for graduates; and

          contribute to economic development locally and 
        nationally.

    While the TLO fosters commercial investment in the development of 
discoveries through licensing of intellectual property, MIT's TLO does 
not focus on short-term gains from licensing revenues. Rather, it 
focuses on the importance of building long-term relationships with 
companies, whether established firms or startups. This long-term 
approach has encouraged the development of an innovation cluster 
surrounding the Institute. Within easy walking distance of MIT, one can 
find some 150 biotech and pharmaceutical companies, a host of 
Information Technology (IT) and robotics firms, and now an emerging 
energy cluster.
    In MIT's view, the following practices contribute to a successful 
TLO:

          Operate with a consistent mission that guides its 
        activities, for example ``impact not income'' or ``license as 
        many technologies as possible, rather than focusing on income 
        from a few.''

          Be visible--particularly to the faculty--and have 
        explicit senior administration support. Technology transfer 
        should be seen as an important mission of the university.

          Encourage rational expectations, especially when it 
        comes to expected income from licensed technologies.

          Develop and communicate clear and simple policies--
        concerning publication, Intellectual Property (IP) ownership, 
        conflict of interest, and promotion criteria--that are 
        consistently followed by senior management.

          Work closely with the Office of Sponsored Programs 
        with respect to IP to align sponsored research contracts with 
        University policy and TLO mission.

          Encourage improved awareness in the academic 
        community about creation of IP, its value, and implications.

          Provide sufficient financial support to the TLO to 
        build a patent portfolio, with sufficient administrative 
        support for licensing officers.

          Engage a talented, well-trained TLO staff, with 
        positive staff retention. Candidates with business experience 
        are preferable, as well as those with a real understanding of 
        academic goals and principles.

          Work closely with and be responsive to the needs of 
        faculty and students. The staff should be easy to contact and 
        offer prompt follow-up.

          Develop strong relationships with the outside 
        business community, including investors, lawyers, companies, 
        etc., through participation in industry conferences and 
        networking, and through recruiting volunteers from the business 
        and technical community to help in mentoring, judging, speaking 
        at the university, etc. Encourage informal contacts between 
        business community and faculty. This includes a strong 
        engagement with regional technology clusters.

          Minimize ``review and approval'' outside the TLO to 
        streamline the process; delegate authority downward to complete 
        transactions promptly.

          Develop and track relevant metrics such as the number 
        of invention disclosures per million dollars of research; 
        number of licenses; number of startups; and, if applicable, 
        amount of industry-sponsored research. Licensing income is a 
        poor measure of success.

B. The Deshpande Center for Technological Innovation \4\
---------------------------------------------------------------------------
    \4\ About The Deshpande Center (http://web.mit.edu/deshpandecenter/
)
---------------------------------------------------------------------------
    University faculty and researchers are unlikely to be trained or 
skilled in forming companies and commercializing technologies, which 
can a major barrier in the technology transfer process. When it comes 
to recruiting investors, many also need help bridging the gap between 
basic research and a valid proof of concept. Equally important is 
reducing the technology and market risk so investors feel comfortable 
committing the resources to develop the technology outside of the 
university. To confront these issues, another fundamental component of 
MIT's Innovation Ecosystem has become the Deshpande Center for 
Technological Innovation. Established in 2002 with an initial donation 
by Jaishree and Desh Deshpande, the Deshpande Center is a Proof of 
Concept Center (POCC) that increases the impact of MIT technologies in 
the marketplace. Today, the Center depends on the financial and 
professional support of successful alumni, entrepreneurs, industry and 
investors to provide sustainable funding for innovative research and 
the expert guidance to help it reach the marketplace.
    The Deshpande Center supports focused translational research whose 
data can convince investors of an innovation's technical feasibility. 
The Center allows faculty and students to move from an idea and 
invention, through the innovation process, to a prototype product. It 
also fosters entrepreneurship and innovation among MIT faculty and 
students by providing early assistance and guidance to those with great 
ideas who are interested in commercializing them. It's a boot camp for 
innovators--they learn how to do milestone-focused research, understand 
market opportunities and needs, and are matched with mentors from 
industry and their specific technology field. The Center also connects 
them to resources in the external ecosystem including VCs and angel 
investors.
    Since 2002, The Deshpande Center has funded more than 80 projects 
with over $10 million in grants--a process that involved more than 200 
faculty and students and more than 100 volunteers. Twenty projects have 
spun out of the center into commercial ventures, collectively raising 
more than $180 million in outside financing and employing more than 200 
people. Supporting projects across a wide range of emerging 
technologies (including biotechnology, biomedical devices, information 
technology, new materials, tiny tech, and energy innovations), the 
Deshpande Center achieves its mission through several programs 
including Grant Programs, Catalyst Program, Innovation Teams (i-Teams), 
and holding special events.
    The Deshpande Center Ignition Grant Funding (up to $50,000 per 
grant) enables researchers and their students to pursue new avenues of 
market-driven research and participate in partnerships and programs 
that will help accelerate the commercialization process. Supporting 
work done by MIT faculty and in MIT research labs, these grants target 
novel, enabling, and potentially useful ideas in all areas of 
technology.
    Innovation Grant Funding (up to $250,000 per grant) benefits 
projects that have progressed beyond their earliest concept stages--
projects that have established proof of concept and identified a 
research and development (R&D) path and IP strategy. Ultimately, each 
grant will help a project build a package around the new technology 
that includes these elements to bring to VCs or companies that might 
invest in its technology.
    The Catalyst Program brings together volunteers from the business 
community and MIT innovators to identify the best way to maximize 
market impact. ``Catalysts'' are a highly vetted group of individuals 
with experience relevant to innovation, technology commercialization, 
and entrepreneurship; they serve as mentors to faculty and student 
research teams. In their role as Catalysts, they provide individual 
contributions to the Center and do not represent any company interests.
    The i-Teams Course is an educational collaborative effort between 
the Deshpande Center and the MIT Entrepreneurship Center (outlined 
below), where multiple research projects from within MIT are selected 
each semester to allow students to evaluate their commercial 
feasibility and develop go-to-market strategies. The Deshpande Center 
also hosts a variety of events throughout the year to bring together 
MIT innovators and the surrounding ideas and business communities.

C. MIT Entrepreneurship Center \5\
---------------------------------------------------------------------------
    \5\ About the Entrepreneurship Center (http://
entrepreneurship.mit.edu/mission.php)
---------------------------------------------------------------------------
    MIT graduates start between 200-400 companies per year, and 
approximately 20 to 25 of these are started through the MIT TLO. The 
remaining spring to life because MIT students have acquired excellent 
skills in recognizing and commercializing other innovations. The MIT 
Entrepreneurship Center (E-Center) looks to develop precisely this in-
depth grasp of the process in MIT students.
    Proposed in 1990 by the then Dean of the MIT Sloan School of 
Management as a center to support entrepreneurship across the five 
Schools at MIT, the E-Center creates great value for it stakeholders by 
connecting technologists and business people and fostering an 
environment that helps them accelerate the creation of new companies 
together. Within MIT's decentralized Innovation Ecosystem, the E-
Center's programs help instill in students the skills and attitudes it 
takes to succeed as entrepreneurs.
    The E-Center also builds alliances between MIT entrepreneurs and 
local corporate and venture capital leaders, building a community of 
academic, government, and industry leaders focused on entrepreneurial 
ventures. MIT uses the E-Center to connect with regional technology 
clusters in such areas as biotechnology, energy, and robotics. As part 
of its mission to train successful entrepreneurs who will drive the 
global high-tech economy, the E-Center also partners with institutions, 
companies, and individuals in other regions of the world interested in 
innovation-based entrepreneurship.
    Home to many of the world's leading researchers on innovation-based 
entrepreneurship and the development of entrepreneurial ecosystems--
including Professors Ed Roberts, Fiona Murray, Scott Stern, Antoinette 
Schoar, Michael Cusumano, and Matt Marx--the E-Center is also a center 
for rigorous research.
    The following is a sampling of E-Center initiatives, programs, and 
activities that aim to educate students in entrepreneurship, nurture 
their development, leverage MIT's network to accelerate their growth, 
and celebrate their entrepreneurial efforts and successes.

Educate

          The E-Center coordinates more than 50 classes each 
        year involving more than 20 faculty, which educate thousands of 
        students in the basic skills of entrepreneurship.

          These include for-credit classes and non-credit 
        classes that may be introductory, skill-specific, or sector-
        specific. Current classes are primarily geared at the graduate 
        level, with growing undergraduate participation.

Nurture

          The center provides physical facilities for students 
        to meet other students, brainstorm ideas, and get projects off 
        the ground, including a space designed like a start-up, with 
        telephones, IT systems and common space to promote informal 
        dialogue.

          Through the E-Center's Entrepreneur-in-Residence 
        (EIR) program, students benefit from honest broker advice and 
        support at the very earliest stages of venture creation from 
        people who have founded companies before. Conducted through 
        office hours, this service complements the more extensive 
        mentoring support offered by the Venture Mentoring Service 
        (VMS) or the Catalysts in the Deshpande Center once a project 
        has developed to a more mature stage.

          To help students apply what they learn in the 
        classroom, the E-Center uses its facilities, staff, contacts, 
        and IT services to actively support the many clubs and 
        activities related to entrepreneurship, including the MIT $100K 
        Competition; the MIT Clean Energy Prize; the MIT 
        Entrepreneurship Club; the MIT Venture Capital and Private 
        Equity Club; the MIT Energy Club; the MIT Sales Club; the Sloan 
        Women in Management Club; the MIT Sloan Energy & Environmental 
        Club; the MIT Sloan Biomedical Business Club; and the MIT 
        Entrepreneurship Review.

          The E-Center helps organize and sponsor a speaker 
        series on entrepreneurship. This year, for example, the series 
        focused in part on entrepreneurial opportunities in U.S. 
        natural gas.

Network

          Believing that learning emerges from interactions 
        with others and that entrepreneurs' capacity to get things done 
        depends on the number and quality of their contacts, the E-
        Center actively seeks to build for its stakeholders a broad 
        community of meaningful contacts.

          Networking occurs through formal receptions twice a 
        year as well as through specific topic-focused conferences 
        (e.g., Venture Capital, Energy, Private Equity, Sports 
        Analytics, Sales, Biotech).

          In January of each year, the E-Center organizes and 
        runs a one-week study tour of Silicon Valley to allow students 
        to meet entrepreneurs, funders, and government representatives. 
        Other informal tours or treks are organized based on demand.

          The E-Center also promotes less formal interactions 
        through brown bag luncheons with entrepreneurs and drop-by 
        visits when people are in town. Students often find the 
        greatest value in these informal interactions.

Celebrate

          The E-Center actively seeks to celebrate examples of 
        entrepreneurial risk taking and success through a series of 
        awards--the McGovern Award, the Anderson Fellows, the Heller 
        Award, the Monosson Award--available to our students, faculty 
        and/or alumni.

          The E-Center also encourages and fully supports the 
        celebratory aspects of activities such as the MIT $100K 
        Competition, the MIT Clean Energy Prize and other awards and 
        recognition by the student clubs.

          To generate positive exposure, especially with the 
        community of MIT entrepreneurs, the E-Center will be launching 
        a ``Digital Shingle Project'' to give instant visibility to 
        students and alumni who start companies through special 
        displays at the center and, more importantly, on our web site.

          This year, the E-Center launched the MIT 
        Entrepreneurship Review, a prestigious student-run organization 
        that produces an on-line publication that promotes and 
        highlights thought leadership in the community and beyond. It 
        also offers visibility and positive recognition for recent 
        ``success story'' firms.

D. Venture Mentoring Service \6\
---------------------------------------------------------------------------
    \6\ About the Venture Mentoring Service (http://web.mitedu/vms/)
---------------------------------------------------------------------------
    Many discoveries and inventions never make it to market because 
researchers lack the necessary knowledge, skills, and access to 
resources. The MIT Venture Mentoring Service (VMS) addresses this gap 
by providing MIT students, alumni, faculty, and staff with powerful 
advisory resources to both increase successful outcomes and accelerate 
the commercialization of university innovations.
    The MIT VMS harnesses the knowledge and experience of volunteer 
alumni and other business leaders to help prospective entrepreneurs in 
the university community bring their ideas and inventions to market. 
Entrepreneurs receive practical education through a hands-on, team 
mentoring process that builds a trusted long-term relationship. MIT VMS 
offers its services without charge.
    This un-biased, hands-on mentoring has proven effective in helping 
scientists and engineers who are passionate about their ideas learn how 
to be entrepreneurs--how to conceive of and perfect their products and 
services, identify markets, build business organizations, and seek 
funding. For potentially game-changing innovations, this process may 
take five to seven years or even more before a company and product are 
truly launched.
    Furthermore, VMS's innovative experiential learning process is more 
efficient than traditional institutional approaches because it 
leverages university resources and the collective knowledge and 
capacity of a large pool of highly qualified volunteer mentors who 
commit many thousands of hours of time each year.
    Since its launch in 2000, more than 1,400 entrepreneurs involved in 
nearly 800 ventures have enrolled in VMS mentoring. Of these, more than 
130 have advanced to become real operating businesses. Currently, more 
than 175 ventures are participating (and we continue to enroll between 
5 and 10 new ventures each month). Collectively, these ventures have 
raised more than $700 million in investments, grants, and other 
support--funding that flowed largely to employees, contractors, 
suppliers, and service providers in our community. Through mentoring 
and program leadership, MIT VMS mentors have contributed an aggregate 
of more than 60,000 hours of volunteer time.
    Because the VMS model has attracted interest worldwide, we have 
sought to share with others the knowledge that VMS has gained, through 
an active outreach program including presentations, workshops and 
customized training. To date, 12 universities and economic development 
organizations have instituted programs based on the MIT VMS model.
    Leaders from VMS participating organizations estimate that their 
VMS training likely saved them from one to three years in start-up 
time. Although these programs have only been in place for a few years, 
hundreds of ventures and entrepreneurs have enrolled and participated 
in mentoring programs based on MIT VMS practices.

E. Innovation Prizes
    In addition to the initiatives detailed above, a number of prizes 
at MIT spur students and faculty to explore difficult problems, 
including the MIT $100K Entrepreneurship Competition\7\ and The MIT 
Clean Energy Prize.\8\
---------------------------------------------------------------------------
    \7\ About the $100K prize (http://www.mit100k.org/)
    \8\ About the MIT Clean Energy Prize (http://www.mitcep.org/)
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    The X PRIZE Lab @ MIT \9\, founded in 2007 through the Deshpande 
Center, partners with the X PRIZE Foundation to engage leading thinkers 
in pinpointing areas ripe for breakthrough innovation. MIT students and 
faculty explore the strengths of prize philanthropy with academic rigor 
and the excitement of the X PRIZE model helps engage youth in the 
world's biggest challenges.
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    \9\ About the X Prize Lab @ MIT (http://www.xprize.org/education-
initiatives/x-prize-lab-mit)

F. Industrial Liaison Program/Office of Corporate Relations \10\
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    \10\ About the ILP (http://ilp-www.mit.edu/
display-page.a4d?key=H1)
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    MIT has long held that breakthrough research hinges on open, 
consultative dialogue. The Office of Corporate Relations' Industrial 
Liaison Program (ILP) was established in 1948, making MIT the first 
academic institution with a formal program designed to nurture 
university/industry collaboration. For six decades, the ILP has 
connected member companies with the latest research developments at MIT 
and enabled industry to support the Institute's research and 
educational activities. Industry-sponsored research at MIT totaled $116 
million in FY 09, or 16% of all MIT research funding.
    For companies interested in pursuing significant, multi-year, 
multi-disciplinary involvement with MIT, the ILP provides 
professionally coordinated access to MIT experts, research facilities, 
and information resources to help them bring innovations to market. 
Each ILP member is assigned an Industrial Liaison Officer (ILO) who 
consults regularly with the corporate member to match their needs with 
relevant MIT faculty and resources. Having earned the respect and 
responsiveness of MIT faculty and armed with a deep understanding of 
the given industry, the ILO is ideally positioned to be an effective 
advocate for the member's needs and goals within MIT. By creating 
connections with the right MIT people and programs, the ILO helps 
members:

          stay abreast of new technology developments

          gain insight into a variety of issues related to 
        their core business units

          learn about--and exploit--new opportunities

          anticipate changes in the marketplace

          sustain growth and profitability

    Connections with established firms, such as those cultivated 
through the ILP, are also an important part of MIT's Innovation 
Ecosystem.

G. Cross School/Cross Disciplinary Initiatives
    Our Innovation Ecosystem has grown most recently through two major 
cross-school, cross-disciplinary initiatives:
    Established in September 2006, the MIT Energy Initiative (MITEI) 
\11\ aims to help transform the global energy system to meet the needs 
of the future and to build a bridge to that future by improving today's 
energy systems. It connects all five MIT schools and numerous 
departments and has built an energy research portfolio of approximately 
$250 million for the next five years, including participation from a 
number of major companies in collaborative industry-Institute research 
projects.
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    \11\ About MITEI (http://web.mit.edu/mitei/)
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    MITEI also undertakes major cross-school, cross-disciplinary policy 
studies on energy issues, including such noted reports as ``The Future 
of Nuclear Power,'' ``The Future of Coal,'' and ``The Future of 
Geothermal.'' Five more major energy policy studies are now under way. 
MITEI's policy efforts also help inform research directions. These 
cross-cutting, multi-disciplinary efforts have enlisted some 200 
researchers and multiplied the opportunities for energy research 
advances.
    MIT's second major cross-school, cross-disciplinary initiative is 
taking shape through the new David H. Koch Institute for Integrative 
Cancer Research, which builds on MIT's earlier Center for Cancer 
Research, founded by Nobel Laureate Salvador Luria. Soon to be housed 
in a state-of-the-art research building, the Koch Institute capitalizes 
on the convergence of the life, engineering, and physical sciences as a 
strategy for achieving medical breakthroughs.
    Researchers from these fields will collaborate to target five areas 
of research at the intersection of biology, engineering and physical 
sciences, including: (1) defining the specific vulnerabilities of 
cancer cells by creating a complete ``wiring diagram'' of the key 
pathways that allow cancer cells to keep dividing and remain alive; (2) 
engineering entirely new nanotechnology paradigms for cancer treatment; 
(3) understanding how tumors evade immune recognition and developing 
methods to overcome these avoidance mechanisms, including more 
effective anti-cancer vaccines and other forms of immunotherapy; (4) 
using powerful new engineering tools to dissect the molecular and 
cellular basis for metastasis; and (5) shifting the curve of cancer 
diagnosis and prevention to earlier and earlier stages using advances 
such as genomics, novel imaging agents, and micro-scale monitoring 
devices.\12\
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    \12\ About the Koch Institute (http://web.mit.edu/ki/about/
index.html)
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    Such collaborative, cross-disciplinary, cross-school initiatives 
appear to be generating significant new opportunities for major 
research advances in the energy and life science fields. Not 
incidentally, both initiatives include a conscious focus on technology 
transfer.

III. University Role in Commercialization of Research

    University discoveries have set the seeds of numerous new 
industries in the United States. We saw this with the emergence of the 
Information Technology (IT) and biotech industries, where universities, 
including MIT, played a central role. We are also beginning to see the 
initial signs of such growth in a new energy sector. In Massachusetts, 
approximately 90 new energy firms represent an emerging new cluster for 
the New England economy. A growing number stem from MIT's major energy 
initiative noted above.
    Much of the success of these and other clusters can be attributed 
to the Bayh-Dole Act of 1980 (BDA), which gave universities the right 
to retain the patents--and therefore to license the technologies--
developed from federally funded research. Although I understand it is 
not an issue in this Committee's jurisdiction and not a subject of this 
hearing, I do want to note, because of its importance, that some now 
advocate modifying the Bayh-Dole Act (BDA) to curtail university rights 
to intellectual property stemming from Federal research dollars. I 
believe this move could gravely damage technology transfer by hampering 
universities' commercialization efforts.
    The BDA was intended to encourage the formal transfer of 
university-generated research results to the public. The MIT technology 
transfer system is based on decades of day-to-day experience on the 
ground with entrepreneurs, VCs, and small companies. This experience is 
exceptionally valuable to faculty, who would be much less willing or 
able to negotiate the highly complex and often expensive path to 
commercialization without support from an experienced TLO office and 
supporting ecosystem.
    University technology transfer offices are also quite aware of 
their duties and obligations to the public good and to the U.S. 
government, which has invested its resources in their research, and are 
therefore in the best position to be neutral, objective, and unbiased 
advocates of federally funded inventions with clarity, consistency, and 
transparency of policies and practices. Finally and very importantly, 
the proposed change to BDA would remove a key incentive for encouraging 
universities to promote economic clusters that are so important to 
local, regional, and national economic growth.

A New Survey of Best Practices
    That being said, there are certainly practices that can be adopted 
by MIT and other universities to improve the performance of their TLOs. 
I have listed above what we have found to be our ``best practices'' for 
technology transfer, and many major universities have adopted similar 
rule sets. The university associations concerned with technology 
transfer have also attempted to broadcast the most successful 
university approaches, which require continual updating to keep pace 
with ongoing economic developments.
    I have charged a group at MIT to survey and understand the current 
forces and trends in university-industry technology transfer. This 
group will not only review MIT's policies, procedures, and practices 
related to technology transfer and industrial sponsorship of research, 
but also identify best practices by reviewing similar policies, 
procedures, and practices at peer institutions. The survey will also 
solicit input and ideas from the MIT community and outside individuals 
in both the private and public sectors. The results of this survey will 
be recommended changes, if any, to MIT's policies, procedures, or 
practices to enhance, simplify, and accelerate technology transfer and 
to enable the formation of beneficial strategic partnerships with 
industry while preserving MIT's fundamental values and principles. When 
this report is completed, I would be pleased to forward it to the 
Administration.
    In closing, I would like to underscore two points. University 
technology transfer has come a long way since the BDA was passed, 
delivering remarkable advances for our society. Improvements certainly 
can be made in technology transfer. But the Bayh-Dole Act provides a 
critical foundation for university-based Innovation Ecosystems, and it 
should continue to do so.
    I want to express MIT's appreciation for Congress' recognition of 
the importance of technology transfer to local, regional, and national 
economic growth. I hope you find this statement useful in identifying 
possible recommendations to improve technology transfer. MIT's faculty 
and staff stand ready to assist you in your efforts.

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