Increasing the ROI from the Federal Labs

By Joseph Allen
May 23, 2018

The Administration is kicking off a series of public meetings as part of its “Return on Investment” initiative to increase the benefits that American taxpayers receive from funding $150 B annually in government supported R&D.  The National Institute of Standards and Technology (NIST) is heading the project and issued a request for information (Request for Information (RFI)) seeking ideas on how to improve the commercialization of resulting technologies.

One target is improving the performance of the federal laboratories. The payoff won’t come from new programs, increased funding or bold proclamations without adopting this mantra:

  • Management
  • Empowerment
  • Accountability

That might not get your pulse racing but before adding more superstructure we’d better check the foundation.  Something pretty fundamental seems amiss. Here’s the analysis of Secretary of Commerce Wilbur Ross:

Universities seem to be doing far better than the federal labs and can teach us a thing or two… Recent studies have shown that federally funded university research is about 5 times more likely to result in a licensed patent technology. And about seven times more likely to result in an active patent license. Universities received $1.78 billion in licensing revenue from their innovations in 2014.  In comparison, the total amount of royalties received from licensing government inventions was only $194 million in 2014… In that year universities receive $66 ½ billion for R & D while federal labs received $42 Billion.

Now if you do the math, universities received just over 50% of the R&D funding, but license nearly 10 times the value of technology.  One would imagine that the gap has widened even further, as university activity has exploded…

But the pattern has persisted long enough, and the math is so lopsided that it seems to me that there is a message in it.

A critical part of that message has been deciphered for awhile but ignored.  I co-chaired a group of external experts under President Obama’s “Lab to Market Summit.”  We were asked to review several innovative commercialization programs, perhaps with the expectation that we would call for more funding.  Instead, one of our panelists said: “That’s not the problem” which set off an intense discussion.  Here’s what we reported:

it is clear that technology commercialization is not always an agency priority despite two decades of supporting laws and Administration directives. There do not appear to be any real rewards for programs and individuals who take commercialization to heart, nor are there penalties for those who block the way forward. In any organization employees are not going to adopt new behavior when it is apparent that incentives and rewards do not match administrative directives. This leads to cultural barriers in the federal system from top management to bench scientists since technology transfer does not factor into performance reviews, promotions or funding allocations.  (emphasis added) Several universities have successfully reversed this culture by incorporating technology transfer as a factor for gaining tenure and promotion, and bringing on new hires, providing a good example for federal agencies and laboratories.

This is a management problem, not the lack of legal authorities.  The law makes technology transfer a laboratory mission. It allows labs to keep royalties to fund more research and to reward inventors.  It decentralizes technology management from Washington to the lab director.  That same formula ignited the explosion of activity at the universities which Sec. Ross touted.

Agencies have received numerous presidential pronouncements and departmental directives on the importance of technology transfer. Most recent was President Obama’s Accelerating Technology Transfer and Commercialization of Federal Research.  It’s goal was:

increasing the rate of technology transfer and the economic and societal impact from Federal research and development (R&D) investments. This will be accomplished by committing each executive department and agency that conducts R&D to improve the results from its technology transfer and commercialization activities. The aim is to increase the successful outcomes of these activities significantly over the next 5 years, while simultaneously achieving excellence in our basic and mission focused research activities.

Agencies were instructed to develop goals and metrics toward that end. But there was no oversight or enforcement so after a brief flurry of activity, nothing really changed.

Thus, the first word in the mantra is management.  Managing a government workforce that’s virtually guaranteed life time employment and set in its ways isn’t easy.  Many are suspicious of the private sector and see no need to change as long as tax dollars continue to flow. Bureaucrats know they can wait out the tenure of any Administration. They wait to see if political appointees have the stomach for implementing real reform or are just making speeches.

When I ran the Commerce Department’s Office of Technology Commercialization, Deborah Wince-Smith (who now leads the Council on Competitiveness) was our Assistant Secretary.  She made promoting tech transfer a priority so I invited John Preston, who headed MIT’s licensing office down to talk.

Before the enactment of the Bayh-Dole Act, MIT was not very successful at licensing. John was part of the management team that turned things around. He said: “Passion is the most important ingredient for successful commercialization. The inventor, management, and the partnering company must all share the passion for success. If one party doesn’t, the deal will fail.”

John handed us a paper listing the killers of passion:

  • Greed
  • Destructive criticism
  • Lawyers and committees
  • Bureaucracy and red tape

Bullets two through four were barriers we encountered daily. John said that lawyers, committees and procedures are like the brakes on a car. You need them at times but they can’t be in control.  The deal maker must be in the driver’s seat.  As soon as he left, Deborah taped the list to her door so it was the first thing any visitor (or Commerce staffer) would see.

At the time we had a lawyer we called “Dr. No” who routinely objected to any new initiative, thus making himself the center of the process.  When he played his usual tricks slowing down my projects, Deborah called us to her office one memorable day. She said: “Let’s understand each other. Joe’s responsible for making recommendations on tech transfer policies and after they’re approved seeing that they’re implemented.  Unless you can show me that we’re violating some law, get out of the way.”

That worked as long as Deborah and I remained at Commerce and we got a lot done. Once we left things went back to normal and Commerce’s leadership in tech transfer vanished.  I heard later that “Dr. No” won the Department’s top award for correcting a problem he’d created.

Thus, a key recommendation in our report to the Obama White House was there has to be effective, consistent management to “preclude or mitigate disruptive bureaucratic interference or inappropriate agency practices that discourage commercialization in federal programs.”  That’s not fun and it’s not easy. However, it’s essential. If innovators aren’t encouraged and protected they’re soon smothered by those whose power comes from creating more process. That recommendation– along with the rest of our report– was ignored.

The biggest complaint about federal laboratories is that it’s too hard to complete deals. Many labs have to run pending agreements through departmental procedures where the “killers of passion” lurk. Companies wonder what’s taking so long and are surprised when negotiated points come back altered.

So, the second word in the mantra is empowerment.   The Federal Technology Transfer Act gives deal making authorities to the federal lab, restricting headquarters micromanagement.  That requires empowering tech transfer officers  to do their job. They need the authority, skills and expertise, fueled by a sense of urgency, to get deals across the finish line.

One reason why universities outperform the labs is that many academic licensing officers come from the private sector.  They understand the pressures companies are under to complete agreements.  They understand that industrial partners assume tremendous risk commercializing federally-funded inventions.  Such insights are often missing in the government.

And that leads to the final word– accountability. It is not at all unusual for universities to overhaul their licensing offices, removing personnel.  If anyone in federal tech transfer has ever been fired for poor performance, I’m not aware of it.  On the other hand, government employees who are passionate about getting deals done are often regarded as trouble makers for pushing the bureaucracy beyond its comfort zone.  That results in passive/aggressive resistance. After realizing that much of the rhetoric about commercialization rings hollow, talented deal makers often leave.

In any effective system there have to be real rewards– and penalties– for performance. Those with the passion for success should be recognized, protected and promoted. Dead wood and obstructionists must be removed. Accountability doesn’t just apply to individuals.  Commercialization success (or lack thereof) should be considered when agencies submit their annual budget requests.  That would be an unmistakable sign that business as usual doesn’t cut it anymore.

There are many excellent ideas for improving the taxpayer’s return on investment in the federal laboratory system.  But if we’re not willing to do the basics of management, empowerment and accountability, taxpayers will continue to be short changed. Let’s hope this time it’s different.  If not, save those recommendations.  The next Administration will confront the same issue.

The Author

Joseph Allen

Joseph Allen is a Featured Contributor on IPWatchdog.com, and a 30-year veteran of national efforts to foster public/private sector commercialization partnerships, and author of numerous articles on technology management for national publications.

Joe served as a Professional Staff Member on the U.S. Senate Judiciary Committee with former Senator Birch Bayh (D-IN), and was instrumental in working behind the scenes to ensure passage of the historic Bayh-Dole Act. He is our resident Bayh-Dole expert, and will write frequently about Bayh-Dole and issues surrounding the commercialization of university research.

In 2008, Joe founded Allen & Associates, through which he offers consulting services assisting clients in technology transfer issues, including developing effective communication strategies with national policy makers.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 6 Comments comments. Join the discussion.

  1. Lost In Norway May 24, 2018 5:21 am

    Thank you for the article. I come from a university background and we had a lot of pressure to “get that technology out there”. Without such pressure, there just isn’t going to be much movement from current practice..

  2. Benny May 24, 2018 5:53 am

    ” Lawyers, committees and procedures are like the brakes on a car. You need them at times but they can’t be in control”

    I should print that out, frame it, and hang it on the wall of my office. Right next to the quote “Quality is in the work, not in the inspections”.

  3. Craig May 24, 2018 11:08 pm

    I work at a federal lab as a deal maker, which is technically called the Office of Research and Technology Applications (ORTA) under 15 USC 3710. There are huge differences in efficiency and effectiveness between agencies, and this is borne out in the annual reports available on the NIST website. (Actually, the most highly funded agencies seem to have the worst metrics.)

    Although agencies like to talk a big game, many have policies put forth by agency lawyers that are at odds with executive and congressional guidance, resulting in patent licensing rates that have plummeted to the 1970s levels (ie, pre-tech transfer statutes). Well-funded agencies with a centralized governance model seem to be the worst/least effective.

    For a simple example of differences of efficiency, look no further than comparing templates for Cooperative Research and Development Agreements (CRADAs). While legal scholars have noted CRADAs are among the lowest risk transactions the govt makes with the private sector, some agencies nevertheless force partners to grind through 20 or more pages of Byzantine terms and policies for the ‘privilege’ of collaborating with the lab. These partners aren’t even getting money from the lab; only collaborating. It’s not clear whether agency bureaucrats and lawyers like paper or just hate trees; but such inefficient policies/practices not only turns off businesses, they also turn off agency researchers who naturally seek alternative methods of collaboration, such as just quietly working with a partner without a CRADA. This then, of course, leads to a loss of govt IP rights that would otherwise have been available but for the inefficiency.

    Another big issue is the actual licensability of IP coming out of the labs. 40 years ago there was little competition and the labs were more at the cutting edge. Time has changed; today there’s a place called ‘Silicon Valley’ and a host of similar tech enclaves across the country. The value of patents in particular has eroded, while other forms of IP have increased. Still, in many cases and in many fields the labs are playing catch-up. The patents that are filed are just simply not ‘leading’ the field, but rather following and narrow. (You can patent a ham sandwich if your scope is narrow enough.)

    Bottom line is that:
    1) there needs to be full de-centralization of policies so each lab can do what is right for it. For example, an Air Force lab needs to be able to set its own policies, use its own tailored CRADA, license, etc, rather than follow/use only that authorized by centralized lawyers/policy makers. Same thing for the Navy, DoE, etc.
    2) deal makers need to be empowered. The ORTA statute requires it to be staffed with technically competent individuals that are part of the management development program. How many agencies/labs are actually following the law here?
    3) the lawyers need to be grounded. The govt is riddled with risk-averse lawyers that are themselves not practitioners (lacking an understanding of policy effects).
    4) many agencies need to be much more prudent about what they file on and patent. Whether an agency has in-house patent prosecutors (agents/attorneys) or farms it out, it costs taxpayer resources either way. Agencies/labs that farm out prosecution can more quickly adopt more judicious policies. Those that have overbuilt in-house prosecution need to keep patent agents/attorneys gainfully employed, but need to also nevertheless adopt more stringent filing criteria.
    5) new methods of measuring effectiveness need to be developed and reported, including how long it takes labs and agencies to execute licenses and CRADAs, and how much money it costs to maintain current patenting and tech transfer staff and fund their activities.

  4. Joe Allen May 25, 2018 9:58 am

    Craig: thanks for having the courage to post your comment. I hope you didn’t use your real name as several agencies are probably scouring their personnel records right about now

  5. Gene Quinn May 25, 2018 12:29 pm

    Craig @3-

    If you have any interest in writing an article or op-ed for publication on IPWatchdog, even anonymously, I’d be very interested in publishing your thoughts in your comment.

    -Gene

  6. Craig May 25, 2018 7:50 pm

    Thanks Joe,

    Lol. Don’t worry, the perceptions could be traced to most federal tech transfer practitioners worth their salt.

    Thanks Gene, for the suggestion and offer.

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