11/26/2012 01:06 pm ET Updated Jan 26, 2013

Increasing US Competitiveness: Building a New Relationship Between Business and Academia

For several decades, the standard of living in the United States has been sustained by the new products, services, and businesses that have resulted from leading-edge research and development. Unfortunately, competitive cost-cutting has forced the elimination of all but the shortest term research and development programs in the private sector, and our corporate laboratories, once a remarkable catalyst for economic development, have all but vanished. At the same time, corporate competitors in Europe, Asia, and elsewhere have actually increased their research and development efforts to the point where many are now superior in quality and productivity to those in the U.S. As a result, the U.S. may soon find that the majority of the new ideas for products and services that result in economic growth are, for the first time in modern history, generated in other parts of the world.

Do we have any competitive advantages that we could bring to bear on this problem? Well, our institutions of higher education in the U.S. are still without question the finest in the world, and they possess, in the aggregate, a reservoir of intellectual talent and creativity unmatched anywhere else. American graduate students, moreover, are still the most cost-effective R&D labor force anywhere, and with much of faculty salaries typically paid by our colleges and universities for instructional services, the costs of adding their intellectual firepower to R&D projects is minimal. In addition, many colleges and universities have laboratory assets that would be prohibitively expensive for most companies to reproduce.

So why haven't U.S. corporations adopted colleges and universities as their corporate R&D centers? Why aren't more technology-based companies incubating their new product concepts at universities?

Well, from my perspective, both academia and the corporate sector are to blame. On the academic side, I see several factors that work against our own best interests in this area:

1. The "Gatorade factor" -- A very small number of colleges and universities in the U.S. have reaped financial windfalls via intellectual property developed by their faculty, and this dream of significant financial return has led colleges and universities to demand intellectual property rights and subsequent royalty payments from the corporate sector with such vigor that many collaborative projects are terminated by the lawyers before they even begin. University faculty and administrators typically have no idea of what it takes to move an idea to the point where it can be turned into a new product or service for which there is commercial demand, and this naiveté makes negotiations with academia over IP and royalty issues an exercise in frustration for many companies. It is time, I think, for our colleges and universities to remember that they are public-service, non-profit organizations whose primary role is to serve society. This customary demand by colleges and universities that they own intellectual property rights on research projects brought to them and funded by corporations frequently results in the research never being funded at all. In this case both parties have lost a real opportunity to work together on projects with the potential for real economic development returns to the nation.

2. The "give us the money and we'll work on something related to your interest" factor -- university faculty are usually looking for support for their own ideas, not those of others, and that causes many corporate executives to wonder whether their problem will actually be the focus of corporate sponsored research progams in academia.

3. The "fund me for three years and I'll give you a progress report" factor -- Academic timescales are typically much longer than corporations can tolerate, especially when they are under competitive pressure from abroad. Companies are not in business to fund Ph.D. dissertations. They have specific questions that need answers and they need them in a timescale of a year or less.

On the corporate side, there are also a few negative factors at work:

1. The "next quarter's bottom line" factor -- it's amazing to me to still hear people question Toyota's multi-year, billion dollar commitment to hybrid vehicle development, a commitment U.S. and European auto companies were unwilling to make because of the long lead-time that was necessary before any profits could be realized. This was a technology, by the way, that was pioneered in the U.S.

2. The "we'll buy any new technology we need" factor -- corporate acquisitions and mergers are consuming untold dollars in legal costs without adding any really new intellectual assets to our inventory. These funds could be better used to fund technology R&D to help maintain a position of technological leadership.

3. The "we won't pay overhead" factor -- many companies who have internal overhead rates of over 100 percent on internal corporate R&D projects refuse to acknowledge the very real costs that universities must bear to support research and development projects and balk at paying overhead rates at academic institutions that are typically 50 percent or less.

So we're both to blame. How do we move forward? How do we exploit our unfair advantage and make the U.S. once again the preeminent center of research and innovation that results in the best ideas for new products and services?

Well, imagine, if you will, a group of colleges and universities that decide to make their faculty and staff, graduate and undergraduate students, and facilities available to companies to carry out short and medium term corporate research and development projects at low cost and without the usual intellectual property fights that usually derail such efforts. Imagine a new relationship between business and academia in which hundreds of companies discover that they can once again afford to do new product research and development, while identifying future employees at the same time.

Imagine if companies were able to submit candidate short-term (~ 1 year) R&D projects to a central receiving point where the projects are matched up with qualified faculty and students at one or more of the participating colleges and universities. One or more graduate students, under the supervision of a faculty member and a corporate representative, might be assigned to work on each project as a thesis problem. Faculty and students who sign up for such projects would therefore have a real interest in the problem, and the ongoing interaction between the faculty, students, and corporate representatives would be of benefit to all three groups. Suppose, in addition, that the participating colleges and universities agree to accept a modest up-front payment, to be shared by the students, faculty, and the institution, in return for relinquishing any IP rights associated with the work to the sponsoring company.

Can this kind of arrangement work to re-energize our corporate R&D programs? I believe that the answer is yes, but only if business and academia join together to craft template agreements in which all parties see real benefits to their organizations as a result of the collaboration. At Rochester Institute of Technology, working together with several corporate representatives, we have developed a template agreement in which the university agrees to a different kind of research relationship with an interested company. The research budget includes the costs of faculty and student time, equipment and supplies, access to university facilities, university overhead, and a modest payment in lieu of any future university intellectual property claims associated with the work. Proposed projects come from either corporations or university faculty, and projects are accepted when a match between the company's research needs and university capabilities is evident. Participation by all parties (companies, universities, and faculty and students) is voluntary.

Since at the time of the agreement no intellectual property has been developed, the up-front payment for IP rights paid by the company is really a kind of insurance policy that reassures them that if significant IP results from the work then they will own it. The university, which rarely sees economic returns from funded research, gets the payment in any case, and many faculty and student researchers are eager to get the bird-in-the-hand payment rather than a dream of possible returns many years later. Such a program assumes that the university does not already own significant intellectual property in the area of the participating company's interests. If previous work by university faculty and students has resulted in university-owned patents or copyrighted work prior to the agreement with the corporation, a more traditional licensing agreement covers that part of the work and any new intellectual property generated is covered by the template agreement.

Several companies are currently sponsoring research projects at RIT under this program, including Johnson & Johnson, Harris RF, Varian Semiconductor, Moog Aerospace and Intel. To date, more than 34 contracts have been signed under the new template agreement.

Clearly, such arrangements can benefit both industry and academia. Although it is probably not a good thing in general to have the private sector dictate the intellectual directions that our colleges and universities take, much university research undertaken today is of a very basic nature and there are benefits to be gained by connecting more of this activity with real world needs. If universities and colleges are to become the economic engines in their communities that they aspire to be, then their research and development activities need to be focused, at least in part, on projects that have the potential to lead to new products and services.

Let's get on with it. Our future economic prosperity may well depend on our success in exploiting one of our last competitive advantages -- our institutions of higher education and the extraordinary research and development assets that they represent.