Print this chapter (2.2MB)
Technology Linkages: Contract R&D, Public-Private Partnerships, and Industrial Alliances
Increasingly, industrial innovation involves a combination of R&D performed internally and a host of activities with external partners (Adams 2005, pp 131–3). Technology activities or transactions with external partners (such as contract R&D and technology alliances) may reduce costs, expedite projects, or complement internal capabilities, but they may also present strategic and management challenges compared to inhouse R&D (Cassiman and Veugelers 2002). At the same time, firms are likely to benefit more from a combination of innovation strategies than from any single tool.
At the macro level, a systems approach to innovation recognizes the importance of cross-sector linkages between R&D performers and users involving different levels of knowledge (e.g., scientific findings, technological practices) and goals (e.g., commercialization, public health, or student training). Public policies in the United States and other advanced economies, concerned with enhancing the prospects of technology-based economic growth, have evolved to address the many dimensions of industrial innovation. In the United States, several policies have facilitated R&D collaboration among industry, universities, and federal laboratories (see sidebar "Major Federal Legislation Related to Cooperative R&D and Technology Transfer").
This section discusses trends affecting selected indicators of industrial technology linkages—contracted-out R&D, industrial technology alliances, and federal technology programs—including the following key findings:
- The average annual growth rate of contracted-out R&D from 1993 to 2003 was double the growth rate of inhouse company-funded R&D, after adjusting for inflation, indicating an increasing role for external sources of technology. For manufacturing companies, contracted-out R&D grew almost three times as fast as R&D performed internally.
- Industrial technology alliances worldwide reached an all-time annual peak in 2003 with 695 alliances. These alliances involve mostly companies from the United States, Europe, and Japan that focus to a large extent on biotechnology and information technology products, services, or techniques. Alliances involving only U.S.-owned companies have represented the largest share of alliances in most years since 1980, followed by alliances between U.S. and European companies.
- Public-private partnerships include a combination of joint funding, collaborative activities, or procurement policies. For example, federal agencies participated in a total of 2,936 cooperative research and development agreements (CRADAs) with industrial firms and other organizations in FY 2003, up 4.3% from a year earlier, but still below the 3,500 peak in FY 1996. DOD and DOE executed three-fourths of CRADAs in FY 2003; HHS participated in another 9% of the total.
- Federal programs focused on small firms or on early-stage technologies have been in place in the United States since the 1980s. The Small Business Innovation Research (SBIR) program and its sister program, the Small Business Technology Transfer Program (STTR), set aside a portion of existing federal R&D funds for small businesses. From FY 1983 to FY 2003, SBIR has awarded over $15 billion to 76,346 projects in areas such as computers and electronics, information services, materials, energy, and life sciences. DOD and HHS combined have provided between 60% and 80% of total annual SBIR funds since the program's inception. The Advanced Technology Program (ATP), housed at DOC's National Institute of Standards and Technology, was created to promote the development and commercialization of generic technologies through a competitive process on a cost-share basis with industry. Through FY 2004, ATP has awarded 768 projects with a combined funding of $4.37 billion involving over 1,500 participants; these include startups, established companies, and universities.
In 2003, R&D-performing companies in the United States reported $10.2 billion (including $5.2 billion reported by manufacturers) in R&D contracted out to other domestic companies, compared with $183.3 billion in company-funded R&D performed internally, according to NSF's Survey of Industrial Research and Development (appendix table
A comparison between contracted-out and inhouse R&D expenditures over time provides an indication of the importance of external R&D sources in a global competitive environment characterized by rapid technological developments, demands for innovative products, and cost and time constraints. The average annual growth rate of contracted-out R&D from 1993 to 2003 (9.4%, after adjusting for inflation) was about double the growth rate of inhouse company-funded R&D (4.9%). For manufacturing companies, contracted-out R&D grew almost three times as fast as R&D performed internally, after adjusting for inflation. In 2003, the ratio of contracted-out R&D to inhouse R&D was 5.7% for the aggregate of all industries, compared with 3.7% in 1993 (appendix table
Chemical companies reported $2.8 billon in contracted-out R&D in 2003, of which $2.7 billion was reported by pharmaceuticals and medicines (appendix table
Industrial technology alliances are one of several tools aimed at the codevelopment of new products or capabilities. Firm-specific drivers for R&D collaboration include cost and risk reductions afforded by pooling resources, as well as strategic or long-term considerations regarding the acquisition of innovation capabilities or entry into new product markets (Miotti and Sachwald 2003; Sakakibara 2001). Other factors include the increased complexity and industry-relevance of scientific research, especially in sectors such as biotechnology, and the policy environment, notably anti-trust regulation and intellectual property protection. In the United States, restrictions on multi-firm cooperative research were loosened by the National Cooperative Research Act (NCRA) in 1984 (Public Law 98-462) after concerns about the technological leadership and international competitiveness of American firms in the early 1980s. More recently, federal patent and trademark law was amended in order to facilitate patenting inventions resulting from collaborative efforts across different companies or organizations. R&D collaborations share a number of challenges with other business collaborations, including management and coordination issues, and they also present unique issues due to the rising strategic value of innovation in an increasingly knowledge-based economy (Narula 2003).
Trends in the number of R&D technology alliances being formed provide an indication of firms partnering to develop and subsequently exploit new technologies. NSF funds two databases on technology alliances with different sources and scope: the Cooperative Research (CORE) database and the Cooperative Agreements and Technology Indicators database, Maastricht Economic Research Institute on Innovation and Technology (CATI-MERIT). CORE records U.S. alliances registered at the U.S. Department of Justice pursuant to the National Cooperative Research and Production Act (NCRPA). CATI-MERIT covers domestic and international technology agreements and is based on public announcements, tabulated according to the country of ownership of the parent companies involved.
Registered U.S. Cooperative Research Agreements
There were 22 industrial R&D alliances newly registered in 2003, according to the CORE database, for a total of 913 registered agreements since 1985. Fifteen percent (133 of 913) of these alliances involved a U.S. university as a research member, whereas 12% (111 of 913) included a federal laboratory. The number of newly registered alliances has declined annually in 5 of the last 7 years since the 1995 peak (figure
The CORE database now provides the industrial distribution of alliances based on the NAICS code for 446 of the 524 alliances from 1994 to 2003 (appendix table
Domestic and International Technology Alliances
According to the CATI-MERIT database, new industrial technology alliances worldwide reached an all-time peak in 2003 with 695 alliances. These alliances involve mostly companies from the United States, Europe, and Japan focusing to a large extent on biotechnology and information technology products, services, or techniques (figure
Alliances involving only U.S.-owned companies have represented the largest share of alliances in most years since 1980, followed by alliances between U.S. and European companies (figure
The apparent attractiveness of U.S. companies as global R&D partners has been attributed to the comparative advantage of the United States in certain high-technology sectors (Miotti and Sachwald 2003). At the same time, foreign direct investment by U.S. MNCs and overseas R&D by their foreign affiliates (see "R&D Investments by Multinational Corporations" in this chapter) have increased the pool of potential U.S.-owned R&D partners available internationally.
Public-private partnerships involve cooperative R&D among industry, universities, and government laboratories. They can facilitate technology transfer from the research laboratory to the market in support of both public agency mission as well as technology-based regional or national economic growth (NRC 2003). Partnerships may include a combination of joint funding, collaborative activities, or procurement policies ranging from formal R&D agreements between industrial companies and government laboratories, to research or science parks, to programs targeted for small firms and/or early-stage technologies. This section reviews CRADAs and other federal technology transfer indicators, the SBIR program, and the ATP.
Federal Laboratory Technology Transfer and CRADAs
Federal laboratories, whether run by federal agencies themselves or by contractors, represent a key component of the U.S. innovation system both for federal missions such as defense, health, and energy, and as a source for industry-relevant knowledge (Crow and Bozeman 1998). Technology transfer refers to the exchange or sharing of knowledge, skills, processes, or technologies across different organizations. Federal technology transfer statutes apply to federally owned or originated technology (see sidebar "Major Legislation Related to Cooperative R&D and Technology Transfer").
CRADAs are one of several technology-based industry- government collaboration tools available in the United States. Federal laboratories entering into CRADAs with industrial firms and other organizations may share personnel, services, or facilities (but not funds) as part of a joint R&D project with the potential to promote industrial innovation consistent with the agency's mission. Private partners may retain ownership rights or acquire exclusive licensing rights for the developed technologies.
Simple CRADA counts offer a limited but illustrative window for viewing overall trends and agency participants. Data on these and other federal technology transfer activities are available from the DOC, pursuant to federal technology transfer statutes (U.S. DOC 2004). The 10 agencies reporting data were DOC, DOD, DOE, DOI, the Department of Transportation, the Environmental Protection Agency, HHS, NASA, USDA, and the Department of Veterans Affairs. Available metrics indicate substantial federal technology transfer activities, especially by agencies with the largest intramural and FFRDC R&D budgets.
Federal laboratories participated in a total of 2,936 CRADAs in FY 2003, up 4.3% from a year earlier but still below the 3,500 peak in FY 1996 (figure
DOE, DOD, HHS, and NASA topped metrics for inventions disclosures, patents, and invention licenses (table
Differences in R&D funding structure (intramural versus extramural funding) and the R&D character of work across agencies may drive the agency distribution of these indicators. For example, the same four agencies had the largest FY 2003 intramural and FFRDC R&D budgets among all reporting agencies (table
Science and Technology Programs
Programs focused on small firms or on early-stage technologies have been in place in the United States since the 1980s. The intangible and uncertain nature of R&D projects presents financing challenges, even within large companies. Small or new technology-based firms are known to have additional financing constraints given the early stage of their technologies, compared to activities closer to market applications by larger or established companies (Bougheas 2004; Branscomb and Auerswald 2002). At the same time, the economic role of startups, corporate or university spinoffs, and technology-based entrepreneurship has been increasingly recognized in the United States and in other R&D-intensive economies (Gilbert et al. 2004).
Small Business Programs. Federal agencies participating in the SBIR program reserve a portion of a their extramural R&D budget for awards to small businesses (U.S. Code Title 15, Section 631). SBIR was created by the Small Business Innovation Development Act of 1982 (Public Law 97-219) and was last reauthorized in 2000 through September 2008. Statutory goals include increasing the participation of small firms and companies owned by minorities or disadvantaged individuals in the procurement of federal R&D, and the promotion of technological innovation through commercialization of federally funded projects. The 1992 SBIR reauthorization bill stipulated a stronger emphasis on the technology commercialization objectives of the program (Cooper 2003; NRC 2004). As of FY 2004, a total of 11 federal agencies participate in the program, including the new Department of Homeland Security (see sidebar "The New SBIR Program at the Department of Homeland Security").
SBIR's sister program, the STTR, was created in 1992 to stimulate cooperative R&D and technology transfer involving small businesses and nonprofit organizations, including universities and FFRDCs. SBIR and STTR are administered by participating agencies and coordinated by the Small Business Administration.
According to the SBIR statute, federal agencies with extramural R&D obligations exceeding $100 million must set aside a fixed percentage of such obligations for SBIR projects. This set-aside has been 2.5% since FY 1997. To obtain this federal funding, a small company applies for a Phase I SBIR grant of up to $100,000 for up to 6 months to assess the scientific and technical feasibility of ideas with commercial potential. If the concept shows further potential, the company can receive a Phase II grant of up to $750,000 over a period of up to 2 years for further development. In Phase III, the innovation must be brought to market with private-sector investment and support; no SBIR funds may be used for Phase III activities.
Through FY 2003, SBIR has awarded over $15 billion to 76,346 projects. Funded technology areas include computers and electronics, information services, materials, energy, and life sciences applications. In FY 2003 the program awarded $1.67 billion in R&D funding to 6,224 projects (figure
STTR involves cooperative R&D performed jointly by small businesses and nonprofit research organizations and is also structured in three phases. As of FY 2003, five federal agencies with extramural R&D budgets exceeding $1 billion participate in the program: DOD, NSF, DOE, NASA, and HHS. Starting in FY 2004, the required set-aside rose from 0.15% to 0.3%, compared with a 2.5% set aside for SBIR. From FY 1994 to FY 2003, STTR awarded over $640 million to 3,422 projects. In FY 2003, the five participating agencies awarded $92 million, of which DOD and HHS represented a combined 80% (appendix table
The Advanced Technology Program. The ATP, housed at DOC's National Institute of Standards and Technology (NIST), was established by the Omnibus Trade and Competitiveness Act of 1988 to promote the development and commercialization of generic or broad-based technologies. The program provides funding for high-risk R&D projects through a competitive process on a cost-share basis with private-company participants. ATP projects are classified in five major technology areas: biotechnology, electronics, information technology, advanced materials and chemistry, and manufacturing, and applications span from nanotechnology, health, and energy to assistive technologies.
Through FY 2004, ATP has awarded funds for 768 projects with a combined funding of $4.37 billion, about equally split between the program and its participants. The projects have involved over 1,500 participants, which include established companies and startups as well as universities and other nonprofit institutions, organized as single company efforts or joint ventures (appendix table
 In this section, the term contract R&D is used generically to denote a transaction with external parties involving R&D payments or income, regardless of the actual legal form of the transaction. Data in this section cover R&D contract expenses paid by U.S. R&D performers (using company and other nonfederal R&D funds) to other domestic companies. Data on contract R&D expenses by domestic companies that do not perform internal R&D or that contract out R&D to companies located overseas are not available.
 Three-fourths of contracted-out R&D paid by pharmaceutical companies was performed by other private companies. The balance was performed by universities and colleges, other nonprofit organizations, and other organizations. Further analysis for other industries is precluded by large amounts of undistributed contract R&D expenses.
 For conceptual, policy, and measurement issues regarding indicators of technology alliances, J.E. Jankowski, A.N. Link, and N.S. Vonortas, Strategic Research Partnerships: Proceedings From an NSF Workshop , NSF 01-336 (Arlington, VA: National Science Foundation, 2001); and B. Bozeman and J.S. Dietz. 2001. Strategic research partnerships: Constructing policy-relevant indicators, Journal of Technology Transfer 26:385–93.
 Further, industrial technology alliances have been found to be countercyclical, whereby companies turn to partners to leverage scarce or more costly investment opportunities in the face of a slower economy (Brod and Link 2001; Link, Paton, and Siegel. 2002; Vonortas and Hagedoorn 2003).
 The amendment was instituted by the Cooperative Research and Technology Enhancement (CREATE) Act of 2004 (Public Law 108-453) and applies to patents resulting from joint research as long as the claimed invention is within the scope of a written contract, grant, or cooperative agreement and made by or on behalf of the parties to the agreement.
 To gain protection from antitrust litigation, the statute requires firms engaging in research joint ventures in the United States to register these agreements with the Department of Justice. Trends in the CORE database are illustrative only since the registry is not intended to be a comprehensive count of cooperative activity by U.S.-based firms. No data on alliance duration or termination date are available. This database is compiled by A.N. Link, University of North Carolina-Greensboro.
 CATI-MERIT is a literature-based database that draws on sources such as newspapers, journal articles, books, and specialized journals that report on business events. It includes business alliances with an R&D or technology component such as joint research or development agreements, R&D contracts, and equity joint ventures. Agreements involving small firms and certain technology fields are likely to be underrepresented. Another limitation is that the database draws primarily from English-language materials. No data on alliance duration or termination date are available. This database is maintained by J. Hagedoorn, MERIT, the Netherlands.
 Furthermore, the decision to enter into an R&D agreement is separate from the decision to register. Using CORE data from 1985–98, Link et al. (2002) found that registrations were inversely related to the U.S. business cycle and global market shares, used as proxies for conditions that may impact the perceived antitrust climate and the strategic decision to register.
 See Hagedoorn (2002) for summary of CATI alliances since 1960 and Hagedoorn and van Kranenburg (2003) for a detailed statistical characterization of the data. For analytical purposes, data referring to alliances established in more recent decades are considered more reliable given the increased coverage of R&D agreements in the public sources of the database (see Vonortas and Hagedoorn 2003).
 Some alliances may be classified in more than one technology. The vast majority of the alliances have been formed as contractual or nonequity alliances since the late 1990s (Appendix table
 Federal laboratories are facilities owned, leased, or otherwise used by a federal agency [15 USC 3710a(d)(2)]. They include, for example, intramural laboratories (e.g., the laboratories owned by NIH's National Cancer Institute) and government-owned contractor-operated laboratories such as some of DOE's FFRDCs. For general information on FFRDCs see footnote 5 and appendix table
 Other types of collaboration include patent licensing, technical assistance, materials and other technical standards development, and use of instrumentation or other equipment.
 Other data of interest include CRADA-specific agency and industry funding, nature of joint activities, R&D outputs, and industrial impact. For empirical results on some of these indicators from one-time surveys or selected laboratories see Adams, Chiang, and Jensen (2003) and Bozeman and Wittmer (2001).
 Data for FY 1999 and beyond may not be comparable with prior years because of methodological changes in data collection and processing.
 Data are for active traditional CRADAS: those legally in force under the authority of 15 U.S. Code Sec. 3710a at any time during the fiscal year. NASA collaborative R&D agreements under the National Aeronautics and Space Act of 1958 are not included. "Traditional" CRADAS are those involving collaborative R&D, in contrast with "nontraditional" CRADAs or those established for special purposes such as material transfer or technical assistance.
 Note that the latter indicators are not limited to CRADA activity.
 At the same time, basic research is also an important component of industry collaborations with federal labs. See J. Rogers and B. Bozeman. 1997. Basic research and the success of federal Lab-industry partnerships, Journal of Technology Transfer 22(3):37–48.
 The 2000 reauthorization bill (Public Law 106-554) also requested that the National Research Council conduct a 3-year SBIR study at five federal agencies with SBIR budgets exceeding $50 million (DOD, HHS, NASA, DOE, and NSF). The study is currently in progress. See NRC (2004) and http://www7.nationalacademies.org/sbir/index.html.
 Title I of the Small Business Research and Development Enhancement Act, Public Law 102-564.
 STTR was created by Small Business Technology Transfer Act of 1992 (Title II of the Small Business Research and Development Enhancement Act, Public Law 102-564). It was last reauthorized by the Small Business Technology Transfer Program Reauthorization Act of 2001 (Public Law 107-50) through FY 2009.
 Public Law 100-418; 15 U.S. Code Section 278n.