Heinz 1
Partnership Intermediary Agreements: A Policy Option For Innovation Orchards
Brett Heinz
Massachusetts Institute of Technology Washington Office
April 2016
Table of Contents
1. Introduction3
1.1 Darwinian Sea3
1.2 Innovation Orchards4
2. Partnership Intermediary Agreements5
2.1 Stevenson-Wydler Act5
2.2 Statutory Definition5
2.3 Benefits6
3. Case Studies7
3.1 N-STEP7
3.2 TechLink8
3.3 ATIP Foundation9
4. Other Policy Options10
4.1 CRADA10
4.2 DOE Strategic Partnership Projects (“Work for Others”)11
4.3 Cyclotron Road and ARL Open Campus Initiative12
5. Conclusion14
1. Introduction
Innovation is of central importance toeconomic growth. Constant innovation allows for the emergence of new technological developments that provide for a better world in everything from energy to healthcare, transportation to computing, defense to communication. Indeed, the standard Solow-Swan model used by economists considers increases in productivity produced by “technological change” to be the primary driver of economic growth.[1]Subsequent research has confirmed and further developed upon this basic understanding.[2]However, there are barriers to the type of processes that makeinnovation possible.
1.1 The Darwinian Sea
Among the steps necessary for technological innovation are government support for early stage research, discovery, and invention and private sector support for the later processes of development and production. However, there also exists an intermediary step of “early-stage technology development,” where “product specifications appropriate to an identified market are demonstrated, and production processes are reduced to practice and defined, allowing estimates of product cost.” This step of the process lacks reliable support from either the public or private sector, resulting in a “Darwinian Sea” separating the process of discovery from the process of invention.[3]This Darwinian Sea has a bottlenecking effect on innovation, keeping numerous scientific discoveries with commercial potential trapped at the point of early-stage technology development and allowing relatively few to go on and reach the market.
Others have elaborated on the causes of this “innovation gap” in the energy sector, highlighting a lack of access to capital, the large amount of time needed for development, the difficulty of manufacturing new inventions, and a lack of human capital resulting from the deficiency of capital needed to attract bright minds to these projects.[4]These problems and the gap that they create pose a serious difficulty, as they have the potential to slow or even halt the commercialization of new inventions, thus preventing the full exploitation of their potential benefits.
1.2 Innovation Orchards
To address this issue, MIT President L. Rafael Reif has proposed the creation of “innovation orchards.”[5] Because our “our [modern] highly optimized, venture-capital-driven innovation system is simply not structured to support complex, slower-growing concepts that could end up being hugely significant,” he says, we need to create new institutions that can “help [our] bottled-up new-science innovators deliver their ideas to the world.”[6] These institutions — innovation orchards — would be supported by “the public, for-profit and not-for-profit sectors” and work to,
provide what universities alone cannot: the physical space, mentorship and bridge-funding for entrepreneurs to turn new science into workable products, up to the point that they meet venture capital’s five-year threshold for the journey from investment to an impact on the market.[7]
While there are already numerous “incubators” around the country for startups, these generally provide low cost office space and advice for early stage startups. An “innovation orchard” would take an incubator approach, but move to the next stage: offer advanced technologies, equipment, and know-how to startups for the scale-up process closer toward actual production.
Fortunately, there are already some U.S. experiments and pilots emerging along similar lines, with available space, technology, and mentorship for science-based startups. One experiment, Cyclotron Road, is adjacent to the Lawrence Berkeley National Laboratory, as discussed below. This model suggests that our network of national laboratories could provide technology, equipment, and know-how support for “innovation orchard” approaches. Since these labs are often not fully utilized assets, as federal R&D is declining due to budget sequestration, the “orchards” idea of linkups with startups offers an opportunity, in economic terms, for higher capital asset utilization.[8]
The federal government operates 43 Federally Funded Research & Development Centers (FFRDCs) in 18 states.[9] FFRDCs are public-private partnerships between government agencies and private institutions that function as independent laboratories aimed at providing for government R&D needs.[10] By their nature, such institutions have a wide range of resources that could benefit technology startups, including equipment, technical knowledge, experienced personnel, and a general environment conducive to innovation. Thus, one potential option for the creation of “innovation orchards” is to create agreements providing access to the resources within FFRDCs to the entrepreneurs stuck in the early stages of the innovative process but getting ready to scale-up toward advanced prototyping, demonstration, testing, and pilot production.
Such an arrangement does not only exist as a hypothetical. The creation of partnership intermediary agreements, a number of which have already been established, is an underutilized policy option that has the potential to serve as the legal platform upon which innovation orchards can be established, with ties to FFRDCs. This report will describe what partnership intermediary agreements are, review some case studies of those currently in existence, and then briefly review some alternative policy options for the creation of innovation orchards linked to FFRDCs.
2. Partnership Intermediary Agreements
2.1 Stevenson-Wydler Act
The Stevenson-Wydler Act, passed in 1980, was the first of a number of pieces of legislation passed in the 1980s to promote technology transfers between government and private industry.[11] Specifically, the law encouraged greater participation on the part of national laboratories in this process.[12] Section Three of the law states among its purposes the goal of “stimulating improved utilization of federally funded technology developments, including inventions, software, and training technologies, by State and local governments and the private sector.”[13] One way that the law sought to accomplish this goal was through the authorization to establish agreements with “partnership intermediaries,” thus establishing the statutory foundation for what we now know as partnership intermediary agreements.
2.2 Statutory Definition
Under the Stevenson-Wydler Act, any federal laboratory or non-laboratory FFRDC may,
enter into a contract or memorandum of understanding with a partnership intermediary that provides for the partnership intermediary to perform services for the Federal laboratory that increase the likelihood of success in the conduct of cooperative or joint activities of such Federal laboratory with small business firms, institutions of higher education..., or educational institutions...; and pay the Federal costs of such contract or memorandum of understanding out of funds available for the support of the technology transfer function…[14]
In this situation, a “partnership intermediary” is defined as,
an agency of a State or local government, or a nonprofit entity owned in whole or in part by, chartered by, funded in whole or in part by, or operated in whole or in part by or on behalf of a State or local government, that assists, counsels, advises, evaluates, or otherwise cooperates with small business firms, institutions of higher education…, or educational institutions..., that need or can make demonstrably productive use of technology-related assistance from a Federal laboratory, including State programsreceiving funds under cooperative agreements entered into under section 5121(b) of the Omnibus Trade and Competitiveness Act of 1988.[15]
In other words, a partnership intermediary (PI) is an organization that is either set up by or in someway sponsored by a state or local government to work with small businesses and academic institutions and that “need[s] or can make demonstrably productive use of” the technological resources within an FFRDC.[16] Under a partnership intermediary agreement (PIA), an FFRDC can create a contract with a PI allowing them access to the laboratories with the goal of facilitating cooperation with small businesses and academic institutions.[17]
2.3 Benefits
While they do not provide for the “bridge-funding” necessary “to turn new science into workable products,” Partnership Intermediary Agreements do provide for the “physical space,” equipment access, and “mentorship” that an innovation orchard needs in order to be successful.[18] In this sense, they, in effect, replace capital with space: instead of providing the funding that tech startups need to purchase access to the technology infrastructure and technical knowledge necessary to move past early-stage technology development, it provides them with those resources directly. Interestingly, this may be a richer and more supportive space for startups, providing direct access to technology and collaborative expertise, rather than venture-funded substitutions for them. It may indeed serve as a superior model.
Organizationally, PIAs provide for an impartial, objective environment for different parties to cooperate within. The PI functions as a neutral, third party organization working to maximize benefits for both the laboratory and the entrepreneurs and that “neither charge[s] companies for their services nor ha[s] a financial interest in the technology transfer agreements that they facilitate,” making it easy for them to broker the terms of agreement and mediate any conflicts that arise.[19] This allows for reduced friction among the different parties, facilitating smoother relationships and more efficient work.
Another major benefit of PIAs are their flexibility on both ends. On the government side, because a “federal laboratory” is defined elsewhere in Title 15 of the U.S. Code as “any laboratory, any federally funded research and development center, or any center established under section 3705 or 3707 of this title that is owned, leased, or otherwise used by a Federal agency and funded by the Federal Government, whether operated by the Government or by a contractor,” the authority to sign a PIA is given to both government owned, government operated (GOGO) labs and government owned, contractor operated (GOCO) labs.[20]
On the Partnership Intermediary side, any “nonprofit entity owned in whole or in part by, chartered by, funded in whole or in part by, or operated in whole or in part by or on behalf of a State or local government” can be a PI.[21] Because PIs can be established as such by being“chartered” or being “funded in whole or in part by… a State or local government,” public universities are eligible to create PIs.[22]Examples of PIAs between public universities and FFRDCs include Montana State University’s TechLink and New Mexico Institute of Mining and Technology’s Technology Transfer Support Group.[23]Other kinds of publicly-chartered institutions may qualify as well. For example, although not considered a traditional “public” university because it is privately supported, MIT, a federal land grant university, also appears to qualify: it was chartered by the Massachusetts state legislature under Chapter 183 of the Acts of 1861 to serve non-profit, public purposes, indicating that it qualifies as a “nonprofit entity… chartered by… a State… government…”[24]
We will now explore three PI case studies, developed through three different federal agencies (NIST, DOD, and the Department of Agriculture), that show the wide range of tech transfer and collaborative activities that PIAs can support.
3. Case Studies
3.1 N-STEP
The NIST - Science and Technology Entrepreneurship Program (N-STEP) is a PIA established as a partnership between the National Institute of Standards and Technology (NIST), a federal government agency, and the Maryland Technology Development Corporation (TEDCO), a technology transfer-
focused PI established by the Maryland state government.[25]NIST operates a major and noted federal laboratory in Gaithersberg, Maryland. Those who can apply to N-STEP are “Guest Researchers, researchers previously employed by NIST, and current employees nearing the end of their term employment at NIST” that are “interested in independently pursuing further translational research and development of technologies specifically related to NIST’s mission” so as to commercialize them.[26] TEDCO goes through the applicants and grants “competitive, merit-based translational research and development funding awards” to those with the most promising proposals.[27] The awardees are required to “participate concurrently in existing entrepreneurial training activities.”[28]
The PIA contains a number of other cooperative activities as well. TEDCO and NIST’s Technology Partnerships Office work together to find “small businesses and educational institutions that have an interest in licensing and commercializing NIST’s Inventions” and conduct negotiations “toward reaching a License Agreement.”[29] The two also work together in helping those interested to gain access to NIST’s lab resources, organizing promotional meetings, publicizing NIST inventions with a potential for commercialization, and other forms of outreach to institutions and individuals involved in the process of commercializing new technologies.[30]
3.2 TechLink
TechLink is a PI originally created by Montana State University in 1996 that works with the Department of Defense (DOD).[31] It describes its “primary activity” as “marketing new inventions from Department of Defense labs and facilitating license agreements with industry for these inventions.”[32] TechLink’s structure is complicated: it is overseen by the DOD’s Office of Technology and Transition (OTT); located within Montana State University’s Office of Research, Creativity and Technology Transfer; and its PIA is managed through the Air Force Research Laboratory at Wright-Patterson Air Force Base.[33]
Several other PIs have similar structures (PIs overseen by OTT and PIA’s run by the Air Force Research Laboratory) and receive government funding. These PIs are all included within a network known as theOTT Partnership Intermediary Network (OTTPIN).[34] However, “TechLink is the only agency-wide partnership intermediary that is directly funded by DoD.”[35]
Around 2001, TechLink’s institutional focus shifted away from “increasing… technology transfer activity with companies in the Northwestern USA” to “increasing the number and quality of DoD’s licensing agreements with industry.”[36] As a result, it went from facilitating three licensing agreements in 2001 to facilitating 31 in 2007. With a staff of only seven licensing specialists, TechLink accounted for over a third of all licensing agreements with the DoD.[37] A recent research study has estimated that, from 2000-2014, the agreements facilitated by TechLink resulted in $4.38 billion dollars in national economic output and created 23,677 jobs with an average annual wage of $62,466.[38]
3.3 ATIP Foundation
The Agriculture Technology Innovation Partnership (ATIP) Foundation is a 501(c)(3) organization run by eight different economic development organizations (one of which is TEDCO), each in different states.[39] The goal of the ATIP Foundation is to coordinate the efforts of the various PIs that work with the Department of Agriculture (USDA) to,
enabl[e] collaboration… around seven critical centers: 1. Expedite the transition of USDA technologies from USDA labs and research institutes into the commercial sector. 2. Increase the use of agriculture technology discoveries that meet the needs of emerging markets. 3. Seek funding for research, training, and product development to support the technology needs of the Agriculture industry and efforts to adopt and commercialize new techologies. 4. Develop industry access to utilize USDA research and research facilities, as well as other USDA funded research. 5. Create sustainable communities by promoting regional innovation clusters, supported by USDA research outcomes. 6. Host regional events co-sponsored with USDA, showcasing technologies available for licensing, and facilitating adoption of research outcomes. 7. Provide for the development of the skilled workers needed to sustain the growth of the industry.[40]
As such, the ATIP Foundation is not a PI itself, but an association of several different PIs. They have engaged in two different public-private partnerships: a cooperative effort between the USDA’s Agricultural Research Service (ARS), the International Life Sciences Institute North America, and ATIP to update the USDA’s National Nutrient Database with privately-held data from the food industry; and a program wherein ATIP provides funding for long-term land management research being jointly conducted by the ARS and land grant universities.[41]
The ATIP Foundation serves as an example of the way that partnership intermediary agreements can serve as the foundation upon which a greater research community can be established. By functioning as a consortium of partnership intermediaries, ATIP creates a cooperative environment with indirect access to a variety of government research institutions and technology entrepreneurs. A similar set-up could be used to create a network of partnership intermediaries (each serving as their own individual innovation orchard) to overcome the Darwinian Sea.
4. Other Policy Options
A number of other models and policy options are available aside from partnership intermediary agreements to create “innovation orchard”-type linkages between startups and federal laboratories. While many are useful and offeropportunities for learning, none appear themselves as promising for the establishment of innovation orchards throughPIAs.
4.1 CRADA
A Cooperative Research and Development Agreement (CRADA) is a “comprehensive legal [agreement] for the sharing of personnel, equipment, funding, and intellectual property rights in joint government-industry research.”[42] CRADAs can be made with other government agencies (local, state, and federal), private companies, foundations, universities, or individuals.[43] In such an agreement, both parties share the costs of R&D and have the ability to negotiate the licensing of any inventions that come out of it.[44] These arrangements are fairly common: in 2005, the DOD alone had more than 2,000 CRADAs.[45]
CRADAs do have some potential as a tool for creating innovation orchards, as they allow technology entrepreneurs access to the resources possessed by national laboratories. For this reason, many PIAs, including the examples of N-STEP and TechLink, contain within them the option for the government agency involved to enter into a CRADA with businesses identified by the PI.[46] However, there are also a number of issues with CRADAs that would prevent them from being enough to form innovation orchards on their own.
Los Alamos National Laboratory is home to a number of CRADAs. When 63 individuals from the lab and 59 individuals from the private companies that they were in a CRADA agreement with were asked in 1998 what the biggest obstacles to the process of entering a CRADA were, the majority of both groups chose “complicated administrative procedures.”[47] More than 40% of each group also identified “the lengthy time period to establish a CRADA” as one of the major obstacles.[48] According to other research, “CRADA negotiations take about two to four months when no complicated issues are raised. However, when legal [or technology] complications arise, negotiations often last from four to six months and in some instances from twelve to eighteen months.”[49] Because “time spent in planning joint R&D [is charged] to a laboratory's overhead account… lab researchers often spend their own time working on a CRADA.”[50]