Performance audit, Arizona's universities :Technology transfer programs

              Debra K. Davenport
Auditor General
Performance Audit
Arizona’s Universities—
Technology Transfer Programs
Performance Audit Division
May • 2008
REPORT NO. 08-02
A REPORT
TO THE
ARIZONA LEGISLATURE
The is appointed by the Joint Legislative Audit Committee, a bipartisan committee composed of five senators
and five representatives. Her mission is to provide independent and impartial information and specific recommendations to
improve the operations of state and local government entities. To this end, she provides financial audits and accounting services
to the State and political subdivisions, investigates possible misuse of public monies, and conducts performance audits of
school districts, state agencies, and the programs they administer.
The Joint Legislative Audit Committee
Audit Staff
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You may request them by contacting us at:
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Representative John Nelson, Chair Senator Robert Blendu, Vice Chair
Representative Tom Boone Senator Carolyn Allen
Representative Jack Brown Senator Pamela Gorman
Representative Peter Rios Senator Richard Miranda
Representative Steve Yarbrough Senator Rebecca Rios
Representative Jim Weiers (ex-officio) Senator Tim Bee (ex-officio)
Melanie M. Chesney, Director
Shan Hays, Manager and Contact Person
Elizabeth Shoemaker, Team Leader
Jennifer Auer
Christine Boerner
Karl Kulick
Jasmine Marin
Michael Sheldon
DEBRA K. DAVENPORT, CPA
AUDITOR GENERAL
STATE OF ARIZONA
OFFICE OF THE
AUDITOR GENERAL
WILLIAM THOMSON
DEPUTY AUDITOR GENERAL
2910 NORTH 44th STREET • SUITE 410 • PHOENIX, ARIZONA 85018 • (602) 553-0333 • FAX (602) 553-0051
May 22, 2008
Members of the Arizona Legislature The Honorable Janet Napolitano, Governor
Dr. Michael M. Crow, President
Arizona State University
Dr. Robert N. Shelton, President
University of Arizona
Dr. John D. Haeger, President
Northern Arizona University
Mr. Joel Sideman, Executive Director
Arizona Board of Regents
Transmitted herewith is a report of the Auditor General, a Performance Audit of Arizona’s
Universities—Technology Transfer Programs. This report is in response to Arizona Revised
Statutes (A.R.S.) §41-2958 and was conducted under the authority vested in the Auditor
General by A.R.S. §41-1279.03. I am also transmitting with this report a copy of the Report
Highlights for this audit to provide a quick summary for your convenience.
As outlined in their responses, Arizona State University, the University of Arizona, Northern
Arizona University, and the Arizona Board of Regents agree with all of the findings and
plan to implement all of the recommendations directed at each of them respectively.
My staff and I will be pleased to discuss or clarify items in the report.
This report will be released to the public on May 23, 2008.
Sincerely,
Debbie Davenport
Auditor General
Enclosure
cc: Mr. Fred Boice, President
Arizona Board of Regents
The Office of the Auditor General has conducted a performance audit of the
technology transfer programs at Arizona State University (ASU), the University of
Arizona (UA), and Northern Arizona University (NAU), pursuant to Arizona Revised
Statutes (A.R.S.) §41-2958. This audit was conducted under the authority vested in
the Auditor General by A.R.S. §41-1279.03 and is the first in a series of three
performance audits of the universities. The other two audits focus on capital project
financing and information technology security.
Technology transfer is the process by which universities move faculty inventions from
academic research labs to industry for further development so that new products
such as medicines, educational tools, electronic devices, safety equipment, and
health services can become available to the public. For example, Gatorade, one of
the most well-known technology transfer successes, was developed at the University
of Florida. Since 1973, Gatorade has brought more than $80 million to the university,
which has used the money to support research. However, this type of success is not
typical. According to literature, only one in 4,850 university technologies becomes a
big income producer for its institution.
Federal and state laws encourage university participation in technology transfer, and
the universities do so using somewhat different approaches for facilitating their
efforts. ASU and NAU contract with Arizona Technology Enterprises (AzTE), a limited
liability company whose sole member is the ASU Foundation, to administer their
programs, whereas UA uses an internal unit, the Office of Technology Transfer, to
perform this function.1, 2
This audit focused on three key areas of technology transfer efforts: disclosing
commercially viable inventions, marketing them to potential commercial partners,
and managing conflicts of interest that could arise in university-industry
collaborations.
Office of the Auditor General
SUMMARY
page i
1 The ASU Foundation is a nonprofit organization that supports ASU through fundraising and other efforts.
2 As of April 2008, NAU and AzTE were reevaluating their agreement, and NAU was considering obtaining some
technology transfer services from a different provider. According to NAU officials, they anticipate entering into a new
agreement with AzTE and/or another provider by the end of 2008.
Although performance varies, universities can take steps
to increase commercially viable invention disclosures
(see pages 17 through 32)
All three universities can work to increase the number of disclosures submitted by
university inventors. An invention disclosure is an inventor's official declaration to the
university that he or she has created an invention. Disclosures are key to a
technology transfer program's success because they constitute the pool of potential
technologies available for licensing to outside industry partners.
ASU has consistently compared favorably with its peer institutions in the number of
invention disclosures received.1 However, organizational transition and multiple
vacancies in 2007 within ASU’s technology transfer provider, AzTE, may have
reduced outreach to ASU's inventors. As these vacancies are filled, ASU should
ensure that AzTE takes the steps necessary to maintain organizational focus.
Inventors at UA have submitted a significantly lower rate of
disclosures compared to inventors at the university's peer
institutions. UA can strengthen its program by increasing
interactions between its Office of Technology Transfer (Office)
and university inventors, thereby improving the ability to identify
promising research and obtain disclosures. UA can also build on
the success of the approach taken in its Bio5 Institute, where a
staff member from the Office is stationed part-time. This staff
member helps inventors identify an invention's potential,
encourages them to disclose, and locates possible industry partners. In fiscal year
2007, the Bio5 Institute produced the highest number of invention disclosures at UA.
UA plans to replicate the model in its Optical Sciences department in fiscal year 2009.
Unlike ASU and UA, NAU is not a research-intensive university. As a result, it does
not produce many invention disclosures each year. However, NAU has departments
that conduct research with commercial potential, and it can work more closely with
its technology transfer provider to encourage disclosures so that the work of its
inventors can benefit the public.
Finally, the universities should consider implementing or expanding their use of
certain other improvements that experts have found can increase the quantity of
commercially viable invention disclosures submitted by university inventors. These
practices include:
􀁺􇩣 considering participation in technology transfer when making promotion and
tenure decisions;
State of Arizona
page ii
Research Expenditures and Disclosures
Fiscal Year 2006
University
Research
Expenditures Disclosures
UA $535 million 90
ASU $132 million 154
NAU $ 21 million 6
1 The Arizona Board of Regents has designated a list of peer institutions for each of the three universities based on
mission, research emphasis, and/or other factors. (See textbox in Introduction and Background, page 13, for more
information on board-approved peer institutions.)
􀁺􇩲 recognizing successful inventors through award ceremonies such as UA’s
Innovation Day; and
􀁺􇩥 educating inventors about the technology transfer process.
All three universities—particularly UA—should improve
aspects of marketing and all three should review their
negotiation practices (see pages 33 through 48)
The universities have some components of successful technology transfer marketing
programs discussed in the literature, but all three should improve their marketing
practices and encourage more industry-sponsored research. Successful technology
transfer requires not only that inventions be disclosed, but licensed to a partner and
brought into production. Licensing can stem from several types of efforts, including
marketing to potential commercial partners, enlisting companies to sponsor
research, or working with researchers and investors to build start-up businesses.
As with its work in disclosures, ASU's licensing activity has historically exceeded that
of its peers. AzTE's structure and comparatively larger resources allow for a
specialized and well-qualified staff who focus on developing relationships with
industry, and these staff are aware of marketing practices that are recommended by
industry experts. However, AzTE's vacancies in 2007 have hampered these efforts. To
better ensure future success, ASU should ensure that AzTE continues to rebuild and
strengthen its marketing program under its new leadership and staff.
UA's licensing activity has consistently fallen below that of its peers. With its smaller
though experienced and qualified staff, UA follows some recommended marketing
practices, such as Internet advertising and drawing on faculty contacts in industry.
However, UA could improve its evaluation of technologies' commercial potential and
increase its market research. To this end, UA secured a grant from the Kauffman
Foundation to invest in market research resources. UA should also increase its
industry contacts.
NAU, which uses AzTE to market technologies that NAU inventors develop, is
disadvantaged by its location far from AzTE staff. NAU should work with AzTE or
another technology transfer provider to ensure NAU's commercially viable
technologies are marketed effectively.
Beyond the marketing activities of AzTE and UA’s Office, all three universities should
also enhance their relationships with companies that provide research monies.
Industry-sponsored research, which can involve more than one office representing
the university, is an important way to transfer technology by directing research toward
industry-specific problems. However, some industry representatives and university
inventors auditors interviewed expressed concerns about prolonged negotiations
Office of the Auditor General
page iii
over the contract terms. Both ASU and UA have begun efforts to evaluate their
sponsored research programs; NAU is restructuring its research administration and
has hired a new vice president for research to build its research program. As part of
their efforts, ASU and UA should work with industry to identify concerns and needs
and to determine how the two sides can more effectively work together, and NAU
should take preventative steps to ensure streamlined coordination of industry
sponsorship. The universities should also develop ways to measure progress in
these collaborative efforts.
All three universities—particularly UA and NAU—need to
better manage conflicts of interest, and the Board should
establish minimum standards (see pages 49 through 59)
To a different extent, ASU, UA, and NAU should take steps to improve conflict-of-interest
management, and the Arizona Board of Regents (Board) should provide
better guidance to the universities. When participating in the technology transfer
process, inventors can develop financial relationships that may compete with their
university responsibilities. To ensure the integrity of research and protect university
interests, state law and federal regulations require universities to prevent or control
conflicts arising from university-industry collaboration.
ASU generally manages conflicts of interest adequately, although it could benefit
from some improvements. ASU identifies potential conflicts of interest and manages
the conflicts through management plans. However, auditors found that inventors did
not always carry out the actions called for in these plans. ASU could improve
implementation by better monitoring the plans.
UA needs to more effectively identify and manage conflicts of interest. Although UA
policies require faculty inventors to disclose substantial interests, these policies do
not adequately provide for ongoing identification and management of conflicts and
lack criteria for when to require management plans and what they should include. In
addition, the policies do not state who should be responsible for ensuring that
conflict-of-interest management plans are monitored. As a result, cases with potential
conflicts of interest continued without being monitored. UA has created a new
position, Assistant Vice President for Research Compliance and Policy, whose
responsibilities will include developing new conflict-of-interest policies for the
university. UA could improve conflict-of-interest management by (a) developing and
implementing policies and procedures that require initial and continuous
identification of conflicts of interest, (b) developing criteria for when to recommend a
conflict-of-interest management plan and what the plan should include, and (c)
clearly identifying responsibilities for the different aspects of the adopted policies to
include better coordination of university-wide conflict of interest management.
State of Arizona
page iv
Further, to address outstanding conflicts, UA should develop and implement a plan
to identify and manage existing potential conflicts of interest for inventors
participating in sponsored research.
NAU lacks comprehensive conflict-of-interest policies and procedures for adequate
management of conflicts of interest. In June 2007, NAU created the Office of the Vice
President of Research, whose responsibilities include managing research-related
conflicts of interest. According to university officials, NAU will develop more complete
conflict-of-interest policies following discussions all three universities are having with
the Arizona Board of Regents' General Counsel. The Board is considering updating
its own conflict-of-interest policies.
Because the universities inconsistently manage technology transfer conflicts of
interest, the Board should review its intellectual property and technology transfer
policies and establish minimum standards that each university has to meet in its
conflict-of-interest policies and procedures.
Office of the Auditor General
page v
State of Arizona
page vi
Office of the Auditor General
TABLE OF CONTENTS
continued
page vii
Introduction & Background 1
Finding 1: Although performance varies, universities
can take steps to increase commercially viable
invention disclosures 17
Inventors disclosing innovations key to technology transfer success 17
ASU has performed well but organizational change has limited its efforts 18
UA needs to improve disclosure activity 21
NAU should strengthen its technology transfer program 25
Improved incentives and inventor education could increase
disclosures at all three universities 25
Recommendations 28
Finding 2: All three universities—particularly UA—
should improve aspects of marketing and all
three should review their negotiation practices 33
Marketing important to technology transfer 33
ASU’s marketing programs appears historically strong and rebuilding
efforts are in progress 35
UA marketing efforts need improvement 39
More could be done to market NAU technology 43
Universities should review industry negotiation practices 44
Recommendations 46
TABLE OF CONTENTS
page viii
State of Arizona
Finding 3: All three universities—particularly UA and
NAU—need to better manage conflicts of
interest, and the Board should establish minimum
standards 49
Technology transfer can create conflicts of interest universities must
manage 50
ASU should better implement and monitor conflict-of-interest
management plans 50
UA needs to better identify and manage conflicts of interest 53
NAU should develop and implement more comprehensive conflict-of-interest
policies and procedures 56
Board should establish minimum standards for universities’ conflict-of-interest
policies and procedures 57
Recommendations 57
Appendix a-i
Bibliography b-i
Agency Response
continued
Office of the Auditor General
page ix
continued
Tables:
1 Total Research Expenditures
Of the Top 15 U.S. Public Universities
Fiscal Year 2006
(In Thousands)
(Unaudited) 3
2 Arizona Technology Enterprises (AzTE)
Schedule of Revenues, Expenses, Distributions, Repayments and Changes
in Net Assets
Fiscal Years 2006 through 2008
(Unaudited) 9
3 University of Arizona Office of Technology Transfer
Schedule of Revenues, Expenses, and Changes in Net Assets
Fiscal Years 2006 through 2008
(Unaudited) 10
4 Arizona State University and Peer Institutions’
Selected Disclosure and Licensing Information
Fiscal Year 2006 a-ii
5 University of Arizona and Peer Institutions’
Selected Disclosure and Licensing Information
Fiscal Year 2006 a-iii
Figures:
1 Arizona State University
Research Expenditures and Disclosure Activity
Fiscal Years 1996 through 2006
(Unaudited) 19
2 Arizona State University and Average of Peer Institutions’
Disclosures per $10 Million in Research Expenditures
Fiscal Years 1996 through 2006
(Unaudited) 20
TABLE OF CONTENTS
State of Arizona
page x
Figures:
3 University of Arizona
Research Expenditures and Disclosure Activity
Fiscal Years 1996 through 2006
(Unaudited) 22
4 University of Arizona and Average of Peer Institutions’
Disclosures per $10 Million in Research Expenditures
Fiscal Years 1996 through 2006
(Unaudited) 23
5 Arizona State University and Average of Peer Institutions’
Agreements per $10 Million in Research Expenditures
Fiscal Years 1996 through 2006
(Unaudited) 36
6 Arizona State University and Median of Peer Institutions’
Licensing Income per $10 Million in Research Expenditures
Fiscal Years 1996 through 2006
(Unaudited) 36
7 University of Arizona and Average of Peer Institutions’
Agreements per $10 Million in Research Expenditures
Fiscal Years 1996 through 2006
(Unaudited) 39
8 University of Arizona and Median of Peer Institutions’
Licensing Income per $10 Million in Research Expenditures
Fiscal Years 1996 through 2006
(Unaudited) 40
TABLE OF CONTENTS
concluded
The Office of the Auditor General has conducted a performance audit of the
technology transfer programs at Arizona State University (ASU), the University of
Arizona (UA), and Northern Arizona University (NAU), pursuant to Arizona Revised
Statutes (A.R.S) §41-2958. This audit was conducted under the authority vested in
the Auditor General by A.R.S. §41-1279.03 and is the first in a series of three
performance audits of the universities. The other two audits focus on capital project
financing and information technology security.
Technology transfer at Arizona's universities
Technology transfer is the process by which universities move inventions from
academic research labs to industry for further development so that new products
such as medicines, educational tools, electronic devices, safety equipment, and
health services can be made available to the public. Gatorade is one of the most well-known
technology transfer successes. In 1965, an assistant football coach at the
University of Florida asked a team of university physicians why his players were
suffering heat-related illnesses. The physicians determined that the fluids the players
lost through sweat and exercise were not being adequately replaced. The
researchers formulated a carbohydrate-electrolyte beverage that would replace the
key components lost by the football players. Since 1973, Gatorade has brought more
than $80 million to the university, which it has used to support research. However, this
type of success is not typical. According to a 2006 book on research administration,
only one in 4,850 university technologies becomes a big income producer for its
institution.1
Arizona's universities have achieved a wide variety of technology transfer successes,
as illustrated in the textbox on page 2. Although none have been as lucrative as
Gatorade, in each case valuable products and ideas have been licensed to
companies with the intent of transferring them to the marketplace, where they can be
used to benefit the economy, industry, and the public. The examples shown in the
textbox all generated revenue, but technology transfer can also offer other benefits.
For example, at UA a group of graduate students in the theater department
1 Weeks, Patricia Harsche. How to Organize a Technology Transfer Office. Elliott C. Kulakowski and Lynne U. Chronister,
Ed. Research Administration and Management. Sudbury, MA: Jones & Bartlett Publishers, 2006. 641-649
Office of the Auditor General
INTRODUCTION
& BACKGROUND
page 1
Federal funding agencies
cede ownership of new
inventions to the
universities and in
exchange, universities
commit to their
commercialization.
developed a program that uses drama to help children in grades K-6 improve their
reading and writing skills. The students created a nonprofit company in 2006 to
distribute the program to public schools. As of December 2007, 7 elementary
schools in two Pima County school districts had adopted the program. Their
students had written more than 2,100 stories, 185 of which were brought to life for
them by the 33 performing artists contracted by the nonprofit to do so. Another 5
middle and high schools participated in the nonprofit's new story-sharing curriculum.
Laws and research sponsorship encourage technology
transfer
Both federal and state laws encourage university participation in technology transfer,
and federal, state, and industry monies support the research that generates
transferable inventions. The 1980 federal Bayh-Dole Act encourages universities to
participate in technology transfer in order to increase the public benefit realized from
federally sponsored research. It created a process whereby federal agencies cede
ownership of new inventions to the universities and in exchange, the universities
commit to moving the technologies to the market for public use. In 1986, the Arizona
Legislature enacted A.R.S. §15-1635.01 to encourage industry sponsorship of
State of Arizona
page 2
Successful Technology Transfer Examples from Arizona's Universities
ASU—A professor of chemistry and biochemistry developed a method to determine the sequence of DNA that may result in
the creation of a commercial machine that can sequence the whole genome in 3 days with a low cost. Practical applications for
this sequencing method could include diagnosis and other types of DNA analysis that require accurate and high-speed results.
The technology was licensed to a life-science company committed to developing instruments for the high-speed sequencing
of single DNA molecules. The inventor's research team's discovery resulted in a $1.7 million grant from the National Institute of
Health received in October 2004 to continue their research. AzTE, on behalf of ASU, has received approximately $580,000 in
licensing revenues for this technology as of February 2008.
NAU—A professor in the Chemistry Department and a professor in the Physics and Astronomy Department developed a micro-sensor
with uses in detecting environmental pollutants, diagnostic medicine, robotics, and combating bioterrorism. Practical
applications for these micro-sensors could include equipping soldiers so they can detect the presence of nerve agents or
biological molecules that could be used in warfare or terrorist actions. The invention was licensed to a start-up company in
2006, and AzTE, on behalf of NAU, has received $200,000 in license revenues and stock options as of March 17, 2008.
UA—A professor of material sciences and engineering developed a process for producing a solar-grade silicon that can reduce
the cost of producing photovoltaics. The invention is the result of combined efforts by the UA professor and a professor from
Norway. Practical applications include developing less-costly solar panels for converting sunlight into electricity. The
technology was licensed to a start-up company in December 2007, and UA has received approximately $32,500 in
option/licensing fees and patent costs. With Science Foundation Arizona funding, the company purchased specialized
equipment necessary to study the patented silicon refining process in a pilot scale. As of February 2008, equipment is being
installed in the company's Tucson facilities, and pilot scale tests of the process are scheduled to begin in late spring.
research at the universities and the commercialization of faculty innovations. The
intent of the legislation was to foster a partnership between the public and private
sectors by encouraging the exchange of technological expertise and other valuable
information between private enterprise and the university system.
A combination of federal, state, and industry
monies pay for university research. Specifically,
the majority of UA's and ASU's research monies
come from federal agency grants, whereas in
fiscal year 2006, industry monies provided 6.1
percent and 7.4 percent, respectively, of the total
research expenditures at each university. In that
year, according to an Association of University
Technology Managers (AUTM) report, UA had
federal and industry research expenditures
totaling more than $301.6 and $32.6 million,
respectively. According to the National Science
Foundation, these expenditures, with other
funding sources, placed UA in the top 15 public
universities nationally for research expenditures,
as shown in Table 1. During fiscal year 2006, ASU
had federal and industry research expenditures
totaling approximately $112.9 and $9.7 million,
respectively. Finally, at NAU, which generally
emphasizes undergraduate education rather than
research, overall research expenditures totaled
approximately $21.2 million in the same fiscal
year.
In addition to federal and industry sponsorship monies, the universities receive state
monies that help support research. First, the Technology and Research Initiative Fund
(TRIF), administered by the Arizona Board of Regents (Board), provides monies to
the universities that can be used to invest in new technologies or support research
initiatives.1 Altogether, from fiscal year 2002 through January 2008, TRIF received
approximately $371.9 million. During fiscal year 2007, the universities' available TRIF
monies totaled approximately $104.3 million, including board awards of
approximately $71.8 million and monies carried forward from previous years. During
the same year, the universities' TRIF expenditures totaled approximately $77.3 million.
TRIF monies were used to support several university initiatives. For example, UA and
ASU used approximately $33 million for projects at two research institutes. In addition
to the TRIF monies, the Arizona Biomedical Research Commission granted state
monies totaling approximately $4.1 million, $513,000, and $237,000 to UA, ASU, and
NAU, respectively, during fiscal year 2007 for several research projects.
1 A.R.S. §15-1648 established the Technology and Research Initiative Fund (TRIF) to receive a portion of Proposition 301
revenues. Voters approved Proposition 301 in November 2000, increasing the State's sales tax by 0.6 percent and
dedicating a portion of the increase to help promote university research. The Board, the universities' oversight body,
administers TRIF monies and the universities submit funding requests. The Board makes awards to the universities based
on specific criteria.
Office of the Auditor General
page 3
1. University of Wisconsin—Madison $831,895
2. University of California—Los Angeles 811,493
3. University of Michigan—all campuses 800,488
4. University of California—San Francisco 796,149
5. University of Washington 778,148
6. University of California—San Diego 754,766
7. Ohio State University—all campuses 652,329
8. Pennsylvania State University 644,182
9. University of Minnesota—all campuses 594,877
10. University of California—Davis 573,002
11. University of Florida 565,491
12. University of California—Berkeley 546,035
13. University of Arizona 535,847
14. University of Pittsburgh—all campuses 530,162
15. University of Colorado—all campuses 512,794
The Technology
Research Initiative Fund
provides monies to the
universities to support
research activities.
Table 1: Total Research Expenditures
Of the Top 15 U.S. Public Universities
Fiscal Year 2006
(In Thousands)
(Unaudited)
Source: Auditor General staff analysis of National Science Foundation
data of total research and development expenditures of public
universities for fiscal year 2006.
In addition to the laws encouraging technology transfer, other policy and
legal requirements affect the program. First, under the Board's policy
statement 6-908, except for some excluded works, the Board owns all
intellectual property developed by university employees using university
resources, including those developed with federal or industry
sponsorship.1 Second, Article IX, Section 7, of Arizona's Constitution
prohibits state agencies, including the universities, from owning equity
in companies, which may be offered in payment for licensing an
invention.2 Finally, federal tax law restricts the amount of privately
controlled research allowed in buildings constructed using tax-exempt bond
proceeds. All of these requirements affect how the universities negotiate with industry
regarding intellectual property and collaborate with industry sponsors of university
research.
Technology transfer process
Although the universities have different models to facilitate the phases of technology
transfer, literature describes four common stages that universities generally follow.
Specifically:
􀁺􇩄 Disclosing an invention—The first step in the technology transfer process occurs
when a university inventor formally reports the creation of an invention through a
disclosure form. The disclosure of intellectual property to the institution is
necessary to reserve the legal rights to such discoveries prior to scientific
publication or public discussion.
􀁺􇩅 Evaluating the disclosure—University technology transfer offices typically
evaluate disclosures to determine if the invention is patentable and
commercially viable. Also, an initial market analysis is often performed at this
time to identify potential barriers to marketing the intellectual property.
􀁺􇩏 Obtaining a patent—Universities can obtain legal protection for the intellectual
property by seeking patents or copyrights. A provisional patent application
safeguards the invention for 12 months, during which universities must file a full
utility patent application to fully protect the invention. Copyright, rather than
patent protection, is sought for computer software code or other authored
technology.
􀁺􇩌 Licensing the technology—Once legally protected, the university works with an
industry partner to license the intellectual property and develop it into a
State of Arizona
page 4
Intellectual Property—Creative and
scholarly works, including materials,
devices, and processes, that may be
protected under a variety of mechanisms
including copyrights, patents, trade secrets,
trademarks, and plant variety protection.
Source: Arizona Board of Regents policy statement 6-908.
1 Excluded works include traditional publications, artistic works, academic software, and student works. Electronic
publications are evaluated on a case-by-case basis.
2 In 2004, Arizona voters were asked to decide on Proposition 102, a proposed amendment to the Constitution. If
approved, this proposition would have allowed state universities to legally accept equity in private organizations in lieu of
payments when licensing technologies. This measure failed by a vote of 48 percent to 52 percent.
commercial product. Alternatively, the inventor can create a new start-up
company to license the intellectual property from the university to develop the
invention. Although the financial terms of licensing agreements can vary, they
typically contain provisions for patent/legal fee reimbursement, development
milestone payments, and royalty payments. These royalties are typically divided
amongst the inventor, the inventor's department, and the university according to
university policy.
In carrying out this process, universities must also take care to avoid conflicts of
interest. Technology transfer encourages collaboration between university inventors
and companies that can lead to potential financial conflicts of interest. Specifically,
when participating in the technology transfer process, inventors can develop financial
relationships that may compete with their university responsibilities. To ensure
research integrity and protect university interests, state law, the Arizona Board of
Regents policy, and federal regulations require universities to prevent or control
potential conflicts that can arise from university-industry collaboration.
Organization and staffing
Nation-wide and in Arizona, universities use different
models and organizational structures to manage
technology transfer. As illustrated in the textboxes,
each model and structure has some unique
features. ASU and NAU adopted one model and
structure; UA uses another.
ASU and NAU use an external technology
transfer organization—ASU and NAU use
an external organization called Arizona
Technology Enterprises (AzTE) to manage their
technology transfer processes. AzTE was
established in 2003 as a limited liability company
whose sole member is the ASU Foundation,
which is a nonprofit organization that supports
ASU through fundraising and other efforts. AzTE's
responsibilities include soliciting and evaluating
invention disclosures, seeking patents,
negotiating licenses, and creating start-up
companies. As a separate legal entity, AzTE is not
bound by the constitutional prohibition on owning
equity and therefore can accept company equity
as payment for a license. As of fiscal year 2006,
AzTE's records indicate that it held equity in 1
NAU and 12 ASU start-ups.
Office of the Auditor General
page 5
The inventor can create
a new start-up
company to license
and develop the
invention.
Organizational Models for Technology Transfer
Offices
􀁺􇩉 In-house office—A university's technology transfer
office operates as an office within the university. This
model provides the least amount of independence from
university administration.
􀁺􇩅 External organization—A university uses either a for-profit
or not-for-profit freestanding organization with an
obligation to commercialize technologies arising from
university administration. This model allows for the
most independence.
Staffing models for technology transfer offices
􀁺􇩇 Generalist—A licensing officer oversees the
management of a technology from the lab to the market.
According to literature, the generalist model can be
more effective in serving faculty inventors, but it
requires each licensing officer to have a wide range of
expertise, including scientific knowledge and business
skills.
􀁺􇩓 Specialist—Specialized staff have dedicated marketing
personnel. This model can be more effective for
commercialization efforts because employees can focus
on tasks in which they have expert knowledge, but it can
hamper communication among staff, industry, and the
inventor.
However, the relationship between NAU and AzTE may be changing or
terminating. As of April 2008, NAU and AzTE were reevaluating their agreement,
and NAU was considering obtaining some technology transfer services from a
different provider. According to NAU officials, they anticipate entering into a new
agreement with AzTE and/or another provider by the end of 2008.
AzTE's primary mission focuses on "providing core services to ASU's faculty and
research enterprises in the following areas: (i) identification and development of
intellectual property, (ii) evaluation of invention disclosures from a legal and
commercial perspective, (iii) patent protection of inventions, where appropriate, (iv)
marketing and licensing activities, and (v) industry-university relations."
As of April 2008, AzTE had 16 full-time employees, and has
chosen to implement a specialist staffing model. AzTE has staff
responsible for working with university inventors and conducting
an initial evaluation, and other staff who specialize in business
development. Staff in April 2008 consisted of a Managing Director;
a Vice President of Venture Development responsible for helping
establish start-up companies; a Vice President for Business
Development in the physical sciences; two directors responsible
for developing and marketing physical science-related
technologies; a Senior Vice President for Business Development
in the Life Sciences and two directors responsible for developing
and marketing health-related technologies; a General Counsel, a
Senior Patent Counsel, and a Legal Assistant responsible for
preparing contracts, overseeing external patent lawyers, and
managing a technology-tracking database; a Director of
Operations; and Director of Finance and Administration, a
financial assistant responsible for monitoring contracts and
overseeing expenses, and two administrative assistants.
AzTE's employees include individuals with extensive experience in the private
sector and/or university technology transfer. In addition, all 6 members of the life
and physical science teams have advanced degrees related to their functions.
Compared to its peer institutions, AzTE has more licensing officials per $10 million
in research spending.1 During fiscal year 2006, ASU's peer institutions averaged
0.19 full-time licensing officials per $10 million in total research expenditures.
Meanwhile, AzTE had a total of 5 full-time licensing officers, or 0.38 licensing
officers per $10 million in research expenditures. AzTE also augments its
capabilities by using approximately 20 students per semester to help with market
research and through the ASU Technopolis program, a university technology
entrepreneurship program that helps AzTE develop management teams for start-up
companies.
UA uses an internal technology transfer organization—Like most of its
peer institutions, UA uses an in-house office to manage its technology transfer
1 See textbox in Introduction and Background, page 13, for more information on board-approved peer institutions.
State of Arizona
page 6
AzTE Staff
As of April 2008
􀁺􇩍 Managing Director (1)
􀁺􇩖 Vice President of Business Development (2*)
􀁺􇩖 Vice President of Venture Development (1)
􀁺􇩄 Director of Business Development (2*)
􀁺􇩄 Director of Intellectual Assets (2*)
􀁺􇩄 Director of Finance and Administration (1)
􀁺􇩄 Director of Operations (1)
􀁺􇩓 Senior Patent Counsel (1)
􀁺􇩇 General Counsel (1)
􀁺􇩌 Legal Assistant (1)
􀁺􇩁 Assistants (3)
􀁺􇩔 Total—16 staff
* These staff specialize in either physical sciences or
life/health sciences.
Source: AzTE 2008 organizational chart.
process. UA's Office of the Vice President for Research oversees a broad range of
research activities, including the Office of Technology Transfer (Office). The Office
has implemented what is closer to a generalist model. UA licensing officers are
responsible for evaluating invention disclosures, prosecuting patents, marketing
technologies, and negotiating licenses with existing and start-up companies.
According to university officials, the in-house organizational model allows for on-going
coordination with UA's priorities and easy development of services to meet
the changing needs of its faculty. Because it is part of the university, the Office is
bound by Arizona's constitutional prohibition against universities owning equity in
private companies. However, according to the Vice President for Research, UA has
established equity-like alternatives it can accept as payment for a license. For
example, such an equity-like instrument would permit the university to exchange it
in the future for cash under certain circumstances, such as the sale or
consolidation of the company or an initial public offering of stock in the
corporation.
The Office's mission is "to protect, manage, and transfer University of Arizona
intellectual property to benefit society, to expand public-private relationships, and to
further the University's mission." To accomplish its mission, the Office has developed
a program with the intent of balancing three goals: benefiting society, expanding
public-private relationships, and furthering the University's
mission.
As of April 2008, the Office had 10 full-time employees,
including 3.54 licensing officers. Other staff consist of a
Director, a Special Projects and Outreach Coordinator
responsible for complex agreements and faculty outreach, a
Program Coordinator responsible for federal compliance
and database management, a Patent and Intellectual
Property Specialist responsible for seeking legal protection,
a Senior Accountant, a Junior Accountant who helps
manage contract deliverables, and a receptionist. The Office
uses contracted outside patent attorneys to help office staff
obtain patents for UA technologies.
The Office's employees include individuals with private
sector and/or university technology transfer experience. In
addition, although the Office uses a staffing model that is closer to a generalist
model, its licensing officials have specialized knowledge related to their fields and all
but one have advanced degrees related to their functions. Compared to its peer
institutions, the Office has fewer licensing officials per $10 million in research
spending.1 During fiscal year 2006, UA's peer institutions averaged 0.20 full-time
licensing officials per $10 million in total research expenditures. Meanwhile, UA had
the equivalent of 4 full-time licensing officers, including a portion of other staff
responsible for some licensing duties, or 0.07 licensing officers per $10 million in
UA licensing officers are
responsible for
evaluating invention
disclosures, prosecuting
patents, marketing
technologies,
negotiating licenses,
and creating start-up
companies.
1 See textbox in Introduction and Background, page 13, for more information on board-approved peer institutions.
Office of the Auditor General
page 7
UA Office of Technology Transfer Staff
As of April 2008
􀁺􇩄 Director (1)
􀁺􇩓 Special Projects and Outreach Coordinator (1)
􀁺􇩐 Patent and Intellectual Property Specialist (1)
􀁺􇩄 Database Administration and Sponsor
Reporting (1)
􀁺􇩌 Licensing officers (3.54)
􀁺􇩓 Senior Accountant (1)
􀁺􇩊 Junior Accountant (.6)
􀁺􇩒 Receptionist and Office Support (1)
􀁺􇩔 Total—10 staff
Source: UA Office of Technology Transfer 2007 organizational chart.
research expenditures. In order for UA to reach the level of its peer institutions, it
would need approximately 7 more licensing officials. Similar to AzTE, the Office
augments its capabilities through partnerships and time-limited appointments. For
example, the Office uses four graduate students during different times of the year to
assist licensing staff. In addition, students from UA's McGuire Entrepreneurship
Program help the Office conduct market assessments of specific technologies.
Budget
AzTE (ASU and NAU)—As indicated in Table 2 (see page 9), AzTE's largest
source of revenue consists of service fees paid by ASU, which are intended to
cover most of AzTE's operating expenses. In fiscal year 2007, AzTE received over
$3.4 million from ASU. Royalty payments represent the second-largest source of
revenues during fiscal years 2006 and 2007, and totaled $3.1 million in fiscal year
2007. AzTE retains 15 percent of ASU royalty revenues and distributes the
remainder to ASU. In fiscal year 2007, AzTE distributed approximately $2.8 million
from the received royalties to ASU. Additionally, NAU pays AzTE administrative
fees totaling 25 percent of its royalty income. However, in fiscal year 2007, NAU
had no royalty income and therefore did not pay AzTE any administrative fees. In
addition to these revenues, AzTE also earns monies from the sale of equity
received as a form of licensing payment, and receives reimbursement from some
licensees for incurred legal patent expenses.
UA—As indicated in Table 3 (see page 10), the Office's largest revenue sources are
commissions and royalty payments from license agreements, which totaled
approximately $1.2 million in fiscal year 2007. Transaction privilege taxes (sales
taxes) from the Technology and Research Initiative Fund represent the second-largest
source of revenues, approximately $600,000 in fiscal year 2007. The Board
awarded these monies to UA to help the Office enhance UA's technology transfer
infrastructure. The Office used these monies to support its operating and patenting
costs. UA's support of the Office, the third-largest source of funding, totaled
approximately $500,000 in fiscal year 2007. Other university funding sources
include licensees' reimbursement of patenting costs and grants, including a grant
from the Kauffman Foundation to support a pilot project that allows the university
to market technologies.
Universities oversee receipt of licensing contract
deliverables
As part of this audit, auditors reviewed how the universities oversee technology
transfer licensing contract deliverables. After a university enters into a technology
licensing agreement, its responsibilities include ensuring that the licensee continues
State of Arizona
page 8
Office of the Auditor General
page 9
Table 2
2006
(Actual)
2007
(Actual)
2008
(Estimate)
Revenues:
Service agreement fees $3,448,475 $3,448,475 $4,640,099
Royalties 2,801,223 3,107,589 886,2442
Net investment return3 599,881 562,221 270,931
Licensee legal expense reimbursements 228,880 687,866 434,745
Option fees 119,700 61,779 60,000
Sponsored research fee 15,138 5,860
Other 10,500 28,600 578
Total revenues 7,223,797 7,902,390 6,292,597
Expenses:
Salary and benefits 1,732,469 2,321,723 2,407,373
Technology portfolio4 1,023,888 1,552,086 1,809,921
General and administrative 509,471 751,071 785,551
Arizona State University Foundation services 72,000 72,000 72,000
Total operating expenses 3,337,828 4,696,880 5,074,845
Net income available for distribution 3,885,969 3,205,510 1,217,752
Distributions:
Arizona State University 2,801,773 2,796,632 1,009,8532
Third parties5 193,206 314,787 24,7462
Success-based bonus pool to AzTE employees 312,066 325,119 32,5122
Total distributions 3,307,045 3,436,538 1,067,111
Net income (loss) 578,924 (231,028) 150,641
Repayments:
ASU Foundation capital contribution6 5,774
Arizona State University7 99,391 109,815 36,515
Total repayments 105,165 109,815 36,515
Net increase (decrease) in net assets 473,759 (340,843) 114,126
Net assets, beginning of year 523,077 996,836 655,993
Net assets, end of year $ 996,836 $ 655,993 $ 770,119
Table 2: Arizona Technology Enterprises (AzTE)1
Schedule of Revenues, Expenses, Distributions, Repayments, and Changes in Net Assets
Fiscal Years 2006 through 2008
(Unaudited)
1 AzTE’s legal name is Arizona Science and Technology Enterprises, LLC but it is known as Arizona Technology Enterprises or AzTE.
2 AzTE reported that it is difficult to predict new licensing agreements that will be made and result in revenue to AzTE; therefore, the fiscal
year 2008 royalty and distribution amounts are based on contractual minimum amounts as of February 4, 2008, and do not include any
new agreements that will be entered into during the remainder of fiscal year 2008.
3 Includes proceeds from the sale of equity received as a form of licensing payment.
4 Consists of patent prosecution and maintenance expenses related to the technologies AzTE maintains for ASU. Patent prosecution
expenses relate to expenses incurred during the patent application and review process. Maintenance expenses are costs incurred for
maintaining the technologies, such as collecting and monitoring the deliverables of licensing contracts.
5 Consists of distributions to third parties, such as NAU, the Arizona Biomedical Research Commission, and the Mayo Foundation, in
accordance with inter-institutional or licensing agreements.
6 Consists of the final payment to the ASU Foundation for repayment of capital start-up monies provided to AzTE.
7 Consists of a payment to ASU for repayment of start-up costs.
Source: Auditor General staff analysis of AzTE’s Pro Forma Statements of Activity for fiscal years 2006 and 2007; and financial information
provided by AzTE on February 4, 2008, for fiscal year 2008.
State of Arizona
page 10
2006 2007 2008
(Actual) (Actual) (Estimate)
Revenues:
Commissions and royalties $1,688,857 $1,223,130 $700,000
Sales taxes1 537,207 591,576 454,000
University support2 531,423 534,983 615,000
Patent cost reimbursements3 423,302 345,189 380,000
Government and private grants 172,817 48,000
Total revenues 3,353,606 2,694,878 2,197,000
Expenses:
Operating expenses:
Salary and benefits 896,973 931,273 1,004,000
Travel 29,770 17,578 15,000
Other operating 110,094 92,135 80,000
Equipment 33,451 2,581
Total operating expenses 1,070,288 1,043,567 1,099,000
Direct expenses:
Patenting and prototyping expenses4 480,851 636,630 600,000
Distribution to creators 696,691 722,568 375,000
Distribution to University of Arizona 603,313 358,400 340,000
Total direct expenses 1,780,855 1,717,598 1,315,000
Total expenses 2,851,143 2,761,165 2,414,000
Net increase (decrease) in net assets 502,463 (66,287) (217,000)
Net assets, beginning of year 1,494,740 1,997,203 1,930,916
Net assets, end of year5 $1,997,203 $1,930,916 $1,713,916
Table 3: University of Arizona Office of Technology Transfer
Schedule of Revenues, Expenses, and Changes in Net Assets
Fiscal Years 2006 through 2008
(Unaudited)
1 Consists of an allocation to the Office of sales tax monies authorized under Proposition 301, a 2000 voter-approved initiative.
2 Consists of an allocation of UA’s indirect cost recoveries from sponsored research activities, which is budgeted to the Office to help
pay for operating costs.
3 If required under the terms and conditions of the license or option agreements, the Office receives reimbursement for those patent
costs from its licensees.
4 Consists primarily of legal costs associated with perfecting intellectual property rights.
5 Approximately $905,000 and $650,000 of the net assets at June 30, 2007, and projected at June 30, 2008, respectively, related
primarily to the commissions and royalties revenue received or expected to be received by the Office that were not yet or will not be
distributed until after year-end. Holding these monies is necessary to allow for the finalization of contracts, calculations, disagreements
with inventors, or other outstanding factors. In addition, approximately $766,000 and $800,000 of the net assets at June 30, 2007,
and projected at June 30, 2008, respectively, was designated by policy to the Fund for Promotion of Research, which is administered
by the Vice President for Research.
Source: Auditor General staff analysis of information provided by the University of Arizona's Office of Technology Transfer and
Comptroller's Office for fiscal years 2006 through 2008.
to develop the technology and that the university receives the agreed-upon financial
compensation from the licensee. Licensing agreements include provisions that
require industry to submit reports to the university on technology development
progress and/or to compensate the university at specified due dates or milestones.
Auditors' review revealed the following:
􀁺􇩁 AzTE effectively monitors receipt of deliverables—AzTE's responsibilities include
monitoring and collecting licensing contract deliverables for both ASU and NAU.
Auditors conducted an in-depth review of 11 of 51 licensing contract files from
February 1994 through August 2007, including reading the contracts and
verifying the accuracy of contract and licensing data, and determined that AzTE
adequately ensured the receipt of licensing contract deliverables for both ASU
and NAU.
􀁺􇩕 UA's Office improving its monitoring of deliverables—During this audit, the Office
was making changes to improve its oversight of licensing contract deliverables
by improving the quality of the data used to monitor them. Auditors randomly
selected and conducted an in-depth review of 10 of approximately 300 licensing
contract files from October 1988 through October 2007, including reading the
contracts and checking the accuracy of contract and licensing data, and
determined that UA's database system lacked accurate information for 1 of the
10 files. However, this file was from the 1990s, when an outside entity was
managing contract deliverables for UA. The Office is in the process of reviewing
contract management data. As of November 2007, staff had reviewed 103 of the
Office's 208 active licensing contracts, including 7 of the 10 files auditors
randomly selected. The Director indicated that the Office plans to continue to
monitor the accuracy of its licensing contract data. Based on the improvements
made during the audit, auditors determined that the Office should be able to
adequately ensure the receipt of licensing contract deliverables in the future.
Scope and methodology
This audit focused on the technology transfer programs at ASU, UA, and NAU. It did
not address other mechanisms for transferring knowledge gained from university
research into the commercial sector for public use, such as publications and
presentations at academic conferences. These other mechanisms also make
university innovations public knowledge and allow others to expand on their work,
potentially leading to a commercial breakthrough.
The report presents findings and recommendations in the following areas:
􀁺􇩁 ASU has consistently outperformed its peers in number of disclosures
submitted, but UA’s inventors submit fewer disclosures than inventors from peer
Office of the Auditor General
page 11
institutions. Arizona’s universities can take steps to improve the quantity of
commercially viable invention disclosures by increasing interaction between
licensing officers and their respective university inventors, improving incentives
for participation, and providing further education about the technology transfer
process.
􀁺􇩁 All three universities—particularly UA—should improve aspects of their
marketing practices. The universities should also better integrate corporate-sponsored
research into their technology transfer missions and goals.
􀁺􇩔 To a different extent, each of the universities needs to take steps to improve its
management of conflicts of interest. The Arizona Board of Regents should
continue its efforts to develop a framework for managing conflicts of interest,
and the three universities—particularly UA and NAU—need to better manage
conflicts.
Auditors used several methods to study the issues addressed in this report, including
interviewing university officials, university inventors, and technology transfer
employees at each university. In addition, auditors reviewed applicable statutes and
ASU and UA databases used for tracking the status of their respective technologies,
and conducted limited work to understand database controls and test the
databases. Auditors used data supplied by AUTM to evaluate ASU's and UA's
technology transfer performance as compared to those of their board-selected peer
institutions for fiscal years 1996 through 2006 (see textbox, page 13).
Further, auditors used a number of other specific methods to develop information for
the report:
􀁺􇩔 To identify any organizational or structural barriers that may be affecting the
quantity of commercially viable invention disclosures submitted by university
inventors, auditors conducted focus groups at each university comprising
university inventors who had been active in technology transfer from fiscal years
2004 to 2007. Auditors also interviewed faculty who are conducting research
with commercial potential but have filed one or fewer invention disclosures. To
understand incentives offered to universities' inventors for their participation in
technology transfer and methods used to educate faculty about invention
disclosure, auditors reviewed royalty distribution practices, promotion and
tenure guidelines, and new-hire orientation material for each university and
select schools, colleges, and departments at each university known for high-disclosure
output. To identify other universities' incentives, and methods of
outreach, auditors reviewed literature (see Bibliography, page b-i through b-ii),
and interviewed officials from ASU's and UA's peer institutions (see textbox on
page 13 for peer list and which institutions responded to auditor inquiries). To
understand disclosure activities of the three Arizona universities and their board-selected
peer institutions, auditors analyzed AUTM data from fiscal years 1996
through 2006, including number of disclosures and research expenditures.
State of Arizona
page 12
􀁺􇩔 To determine efficient and effective technology transfer marketing practices,
including industry collaborations, auditors reviewed more than 40 articles and
books on the subject (see Bibliography, pages b-ii through b-vi). Auditors also
reviewed available ASU, UA, and NAU technology transfer-related mission
statements and marketing goals, and interviewed licensing officials, other
technology transfer staff, and sponsored research administrators at each
university to understand their marketing goals, processes, and tools. Auditors
obtained university inventors' perspectives on marketing during the inventor
focus groups described above. In addition, auditors obtained industry
perspectives by interviewing representatives of an aerospace company, a
semiconductor company, and a missile defense company, and a government
official involved with sponsoring biomedical research. To document licensing
activity, auditors analyzed data maintained by the universities and similar data
collected by AUTM.
Office of the Auditor General
page 13
Board-approved peers—The Arizona Board of Regents has designated a list of peer institutions for each of the three
universities. Each university's peers are comparable to the university based on mission, size, research emphasis, and/or
other factors. The Board and the universities use the peers to obtain benchmark information.
* Excluded from auditor data analysis because the institution does not report information to AUTM.
** NAU, like many of its peers, does not report information to AUTM; therefore, auditors did not analyze NAU's performance compared to
its peer institutions.
† Information for 2003 through 2006 includes data from the University of Nebraska Medical Center.
‡ Peer institution responded to auditors’ inquiries.
Source: Auditor General staff summary of information obtained from the Arizona Board of Regents Web site, January 2008.
ASU peer institutions UA peer institutions NAU peer institutions**
•University of Cincinnati •University of Florida‡ •California State University—Fresno
•University of Colorado—Boulder •University of Iowa‡ •University of Delaware
•University of Connecticut •Michigan State University •University of Central Florida
•Florida State University‡ •University of Michigan‡ •Ball State University
•University of Kansas •University of Minnesota •Oakland University
•University of Maryland—College Park‡ •Ohio State University •University of Minnesota—Duluth
•University of Nebraska—Lincoln†‡ •Texas A&M University •University of Montana
•Ohio State University •University of North Carolina—Chapel Hill‡ •University of Nevada—Las Vegas
•University of Oklahoma •University of Utah‡ •University of Nevada—Reno
•Rutgers University—New Brunswick •University of Virginia •University of North Dakota—Main
•Temple University •University of Washington‡ •Bowling Green State University—Main
•University of Texas—Austin •University of Wisconsin—Madison •Miami University—Oxford
•University of Washington‡ •University of California—Berkeley* •Ohio University—Athens
•University of California—Los Angeles* •University of Illinois—Urbana-Champaign* •University of Vermont
•University of Illinois—Chicago*‡ •University of Missouri—Columbia*‡ •George Mason University
•Old Dominion University
•University of Wyoming
􀁺􇩔 To determine the universities' conflict-of-interest management processes,
auditors interviewed officials from the offices of technology transfer, university
general counsel, sponsored research compliance, and grant and contract
accounting, as well as university department and college officials and conflict-of-
interest review committees. To evaluate the universities' conflict-of-interest
management processes, auditors reviewed the universities' conflict-of-Interest
policies, federal conflict-of-interest guidelines, and Arizona Revised Statutes
addressing conflicts of interest. Additionally, at ASU, auditors reviewed 15 out of
18 conflict-of-interest case files related to start-up companies. Specifically,
auditors reviewed case files from September 1993 through June 2007 based on
the dates that the university inventors (investigators) disclosed a potential
conflict of interest. At UA, auditors reviewed all 24 technology transfer-related
cases reviewed by the Institutional Review Committee (Committee) from
December 2006 to November 2007. This includes 1 additional case that the
Committee reviewed prior to this time but which contained a conflict that the
Committee was not adequately managing. At NAU, auditors reviewed two case
files related to start-up or licensing activity identified by reviewing Board
Technology Transfer reports for fiscal years 2004 through 2007 and an additional
case that the Interim Vice President stated that he handled himself. Finally, to
develop recommendations for conflict-of-interest management improvement,
auditors reviewed conflict-of-interest literature and interviewed a university peer
institution official.
􀁺􇩔 To assess the disclosure and licensing activity of ASU and UA as compared to
that of their peer institutions, auditors analyzed AUTM reports from 1996 through
2006 and evaluated this information in relation to the respective research
expenditures for each university (see Appendix, pages a-i to a-iii).
􀁺􇩔 To gather information for the Introduction and Background, auditors reviewed
Arizona's Constitution and statutes, fiscal year 2006 AUTM licensing survey
results, AzTE’s audited financial statements, and UA Office of Technology
Transfer financial information for fiscal years 2006 through 2008. To assess the
universities' monitoring of licensing contract deliverables, auditors analyzed two
random samples of licensing agreements. At ASU, the random sample included
10 licensing agreements from February 1994 through August 2007. The ASU
sample was selected from 51 active licensing agreements in AzTE's database.
At UA, a random sample of ten licensing agreements was obtained from
approximately 300 files maintained by the Office for October 1988 through
October 2007. An NAU licensing agreement was also selected and reviewed
from AzTE's database. To learn how AzTE and the Office ensure the accuracy of
their licensing contract data, auditors observed staff verifying the accuracy of
information in the database, interviewed staff, and obtained documents showing
that the review of contract deliverables in licensing agreements is in process. To
learn the process of monitoring deliverables, auditors interviewed AzTE and UA
staff and obtained term sheets, which the licensing officers use to record
deliverables upon the completion of licensing agreements.
State of Arizona
page 14
This audit was conducted in accordance with government auditing standards.
The Auditor General and staff express their appreciation to the Arizona Board of
Regents and its staff, and the universities' presidents, faculty, and staff for their
cooperation and assistance throughout the audit.
Office of the Auditor General
page 15
State of Arizona
page 16
Although performance varies, universities can
take steps to increase commercially viable
invention disclosures
All three universities can take steps to increase the quantity of commercially viable
invention disclosures submitted by their university inventors. As research
expenditures have increased at Arizona State University (ASU) and the University of
Arizona (UA), ASU has consistently outperformed its peers, whereas UA has fallen
below its peers in number of disclosures. Comparable data is not readily available to
assess Northern Arizona University’s (NAU) performance versus its peers. There are
specific actions each university can take to improve its disclosure activity, and there
are also general actions all three universities could take to help increase the quantity
of commercially viable invention disclosures. These actions include better educating
faculty about disclosure requirements and the disclosure process and incorporating
technology transfer activities in faculty tenure and promotion decisions.
Inventors disclosing innovations key to technology
transfer success
An invention disclosure, a key input to any technology transfer office, is an official
declaration by an inventor to the university that he/she may have developed a piece
of intellectual property. Disclosures are important to the success of a technology
transfer program because they constitute the pool of potential technologies available
for licensing to outside industry partners. Therefore, the success of a university
technology transfer program depends upon the university's ability to elicit these
disclosures.1 Inventors are required to disclose their discoveries to the academic
institution by both federal law and university policies. The 1980 Bayh-Dole Act
requires that public universities obtain written agreements from all employees (except
clerical and non-technical personnel) recognizing their obligations to report
inventions developed using federal research monies. Similarly, the Arizona Board of
Regents' (Board) policies encourage faculty researchers to undertake, receive
recognition for, and share in the revenue resulting from their creative endeavors.
Disclosures are key to
the success of a
technology transfer
program because they
constitute the pool of
potential technologies
available for licensing to
outside industry
partners.
1 See Bibliography, pages b-i through b-ii, for resources used to evaluate disclosure practices.
Office of the Auditor General
page 17
FINDING 1
Because the engine that powers university inventions is the amount of monies the
institution receives to conduct research, the number of disclosures divided by total
research expenditures is commonly used when comparing institutions. However,
some research monies are earmarked toward specific projects or disciplines that
may not yield a commercially viable discovery. In addition, the quality of disclosures
cannot be assessed based on the raw number of disclosures. Another measure, the
number of disclosures that result in licensing agreements, is the focus of Finding 2
(for an analysis of ASU and UA licenses, see pages 33 through 48).
ASU has performed well but organizational change has
limited its efforts
ASU has consistently compared favorably with its peer institutions in the number of
invention disclosures submitted to Arizona Technology Enterprises (AzTE), the
external organization that manages ASU's and NAU's technology transfer processes.
Nevertheless, organizational changes that occurred in 2007 within AzTE could lead
to a breakdown in the processes that have contributed to its success. Therefore, ASU
should ensure that AzTE takes the steps necessary to maintain its organizational
focus.
ASU disclosure rates higher than its peers—ASU is a research-intensive
institution, and receives a large amount of federal and industry monies to conduct
research. The School of Engineering and the Biodesign Institute are particularly
prolific in their research output (see textbox).1 During fiscal year 2007, ASU
received disclosures from 21 units, including units such as Chemistry and
Biochemistry and the School of Life Sciences. As shown in Figure
1 (see page 19), based on information ASU reported to the
Association of University Technology Managers (AUTM), from
fiscal years 1996 to 2006 ASU's research expenditures nearly
tripled. At the same time, the number of disclosures submitted per
$10 million spent for research grew from 7 to 11.7, a 67 percent
increase. In fiscal year 2007, ASU received 152 invention
disclosures, a decrease from the 154 received in 2006.2
1 The goal of the Biodesign Institute is to improve human health and quality of life through use-inspired biosystems,
research, and effective multidisciplinary partnerships.
2 Fiscal year 2007 data was obtained from the Board's technology transfer report. AUTM data on disclosures and research
expenditures for 2007 was not available at the time of this audit. Therefore, auditors were unable to compare ASU to its
peer institutions for 2007.
State of Arizona
page 18
ASU's Top Disclosing Research Units
Fiscal Year 2007
Disclosures
Unit Name Received
School of Engineering 68
Biodesign Institute 52
Chemistry and Bio-Chemistry 18
School of Life Sciences 7
* Many disclosures result from cross-disciplinary efforts and
therefore may be included in more than one unit's
disclosure count in this table.
Source: Auditor General staff analysis of FY 2007 Arizona Board of Regents
University Technology Transfer Report.
Compared to its peer institutions, ASU receives more disclosures from its faculty
researchers per $10 million in research expenditures.1 As shown in Figure 2 (see
page 20), from fiscal years 1996 to 2006 ASU's peer institutions averaged between
3.5 and 5.3 invention disclosures annually per $10 million in total research
expenditures. Literature indicates that universities typically receive 4.3 invention
disclosures for every $10 million in research expenditures.2 In fiscal year 2006,
ASU's peer group averaged 3.8 disclosures for every $10 million spent. Meanwhile,
from fiscal years 1996 to 2006, ASU never fell below 6.4 disclosures per $10 million
spent, and in fiscal year 2006 received 11.7 disclosures per $10 million spent.
AzTE's organization and processes promote participation in
technology transfer and help ensure that commercially viable
disclosures are submitted—Although many factors can affect disclosure
rates, AzTE's frequent interactions with inventors positively influence program
results with increased inventor participation and invention disclosures. The two
AzTE employees responsible for meeting with inventors both noted the
significance of this, stating that they will meet with the inventor to discuss the merits
of the invention both before and after the disclosure has been filed. ASU inventors
who participated in a focus group conducted as part of the audit noted that they
Since fiscal year 1996,
ASU has consistently
received more
disclosures per $10
million in research
expenditures than its
peer institutions.
Office of the Auditor General
page 19
$45.4
$131.8
7.0
11.7
0
2
4
6
8
10
12
14
$0
$20
$40
$60
$80
$100
$120
$140
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Number of Disclosures
Expenditures (In Millions)
Fiscal Year
Figure 1:
Research Expenditures Disclosures per $10 Million in Research Expenditures
Figure 1: Arizona State University
Research Expenditures and Disclosure Activity
Fiscal Years 1996 through 2006
(Unaudited)
Source: Auditor General staff analysis of research expenditures and number of disclosures presented in the
Association of University Technology Managers reports for Arizona State University and its peer institutions
for fiscal years 1996 through 2006.
1 See textbox in Introduction and Background, page 13, for more information on board-approved peer institutions.
2 Weeks, Patricia Harsche. How to Organize a Technology Transfer Office. Ed. Elliott C. Kulakowski and Lynne U. Chronister,
Research Administration and Management. Sudbury, MA: Jones & Bartlett Publishers, 2006. 641-652.
see employees from AzTE in their buildings "quite a bit" and have met with them
on occasion, with one inventor mentioning that an AzTE employee had contacted
him to discuss his research interest shortly after he had been hired at the university.
Since AzTE's organizational structure uses specialized positions, its employees
focus on specific tasks, such as soliciting disclosures. AzTE's licensing officials'
duties emphasize encouraging the inventor to disclose his/her invention, and
working with the inventor to ensure that the disclosure covers intellectual property
with commercial merit. Once a disclosure is submitted, AzTE also conducts an in-depth
commercial and technical evaluation to determine which technologies they
will commercialize and allocates resources accordingly (for more information on
AzTE's disclosure evaluation see Finding 2, pages 33 through 48).
Organizational changes may have limited AzTE's outreach—AzTE
underwent a significant organizational transition and experienced multiple
vacancies in 2007, and these factors may have reduced AzTE's outreach to ASU
and NAU inventors. Specifically, for 4 months during 2007, three of the four
marketing positions at AzTE were vacant, and there were no marketers assigned
to life-sciences technologies. One of AzTE's two licensing officials commented that
these vacancies required him to spend more time in the office and less time
"beating the bushes" by going into labs, attending conferences, and speaking at
research meetings trying to convince professors to disclose their inventions. AzTE
has taken steps recently to address position vacancies, including the hiring of
three new employees responsible for marketing technology and developing
industry contacts. According to AzTE officials, AzTE is on track to receive as many
disclosures in fiscal year 2008 as it received in fiscal year 2007.
State of Arizona
page 20
0
2
4
6
8
10
12
14
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Disclosures per $10 Million
Fiscal Year
Arizona State University Average of Peer Institutions
Figure 2: Arizona State University and Average of Peer Institutions’
Disclosures per $10 Million in Research Expenditures
Fiscal Years 1996 through 2006
(Unaudited)
Source: Auditor General staff analysis of research expenditures and number of disclosures presented in the
Association of University Technology Managers reports for Arizona State University and its peer institutions
for fiscal years 1996 through 2006.
AzTE's turnover appears to have also led to a breakdown of one important
process. Specifically, an official from one of ASU's most productive research units,
the Biodesign Institute, stated that AzTE no longer issues reports to directors
indicating the disclosure activity of their academic or research units per fiscal
quarter. In the past, these reports let the directors know if certain disciplines were
not performing at the levels they should be, and allowed them to address this by
providing additional assistance to the faculty in that field, making inventors less
dependent on AzTE personnel. Additionally, according to the Biodesign official, the
reports allowed him to determine AzTE's performance in working with inventors.
Officials from ASU's School of Engineering and School of Life Sciences also stated
that AzTE did not issue these quarterly reports to directors in their respective
disciplines. To increase the level of support inventors receive from their
departments, ASU should encourage AzTE to reinstitute the practice of providing
quarterly reports to deans and department chairs of research-intensive units to
keep them abreast of their unit's technology transfer activity. According to ASU
officials, ASU and AzTE plan to develop a list of deans, department chairs, and
center directors who will receive a quarterly report of invention disclosure activity.
UA needs to improve disclosure activity
UA does not compare favorably with its peer institutions in the number of invention
disclosures submitted to its Office of Technology Transfer (Office). In fact, the Office
receives a significantly lower rate of disclosures than its peer institutions. The quantity
of commercially viable disclosures the Office receives can be improved by ensuring
that licensing officers identify promising research and obtain disclosures. Further, UA
should replicate a program at one of its institutes that already promotes these
activities.
UA disclosure activity lower than peers'—Despite UA's
emphasis on research, its university inventors disclose
comparatively few inventions. In fiscal year 2006, UA was
among the top 15 public universities nationally in research
expenditures, according to the National Science Foundation
(see Table 1, page 3). In addition, UA has a medical school and
other research intensive-units, such as the Bio5 Institute (see
textbox), which add to UA's potential for generating invention
disclosures. From fiscal years 1996 to 2006, UA's research
expenditures nearly doubled, as shown in Figure 3 (see page
22), but the number of disclosures submitted per $10 million in
research expenditures decreased from 3.6 to 1.7, a 53 percent
decline. In fiscal year 2007, UA received 104 invention
disclosures, an increase from the 90 received in 2006.1
1 Fiscal year 2007 data was obtained from the Board’s technology transfer report. AUTM data regarding disclosures and
research expenditures for 2007 was not available at time of this audit. Therefore, auditors were unable to compare UA to
its peer institutions for 2007.
Office of the Auditor General
page 21
Bio5 Institute
Brings together scientists from five
disciplines—agriculture, medicine,
pharmacy, basic science, and
engineering—to treat disease, feed
humanity, and preserve livable
environments. Bio5 creates science,
industry, and education partnerships to
engage in leading-edge research, translate
innovations to the market, and to inspire
and train the next generation of scientists.
Compared to its peer institutions, UA receives fewer disclosures from its faculty
researchers per $10 million in research expenditures.1 As shown in Figure 4 (see
page 23), from fiscal years 1996 to 2006 UA's peer institutions averaged between
4.1 and 5.2 invention disclosures annually per $10 million in total research
expenditures, while UA never matched the peers' average during those years.
Similar to auditors' analysis, literature indicates that UA's disclosure rate is less than
that of other universities. According to a 2006 book on research administration and
management, universities typically receive approximately 4.3 invention disclosures
for every $10 million in research expenditures.2 In fiscal year 2006, UA's peer
institutions came close to this number, with an average of 4.1 disclosures per $10
million spent. However, at only 1.7 disclosures per $10 million spent in fiscal year
2006, UA was far below the 4.3 figure and the peer average. That year, UA received
90 invention disclosures. In order for UA to have reached the level of its peer
institutions, it would need to have received 220 disclosures.
Number of commercially viable disclosures submitted by UA
inventors can improve by increasing interactions between them
and licensing officers—Literature indicates that increased in-person
interaction between the Office and university inventors can lead to more
disclosures with commercial potential. According to a Connecticut study, which
State of Arizona
page 22
$268.9
$535.8
3.6
1.7
0
1
2
3
4
5
$0
$100
$200
$300
$400
$500
$600
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Number of Disclosures
Expenditures (In Millions)
Fiscal Year
Figure 3:
Research Expenditures Disclosures per $10 Million in Research Expenditures
Figure 3: University of Arizona
Research Expenditures and Disclosure Activity
Fiscal Years 1996 through 2006
(Unaudited)
Source: Auditor General staff analysis of research expenditures and number of disclosures presented in the
Association of University Technology Managers reports for the University of Arizona and its peer institutions
for fiscal years 1996 through 2006.
In fiscal year 2006, UA
received 1.7 disclosures
per $10 million in
research; its peers
averaged 4.1.
1 See textbox in Introduction and Background, page 13, for more information on board-approved peer institutions.
2 Weeks, Patricia Harsche. How to Organize a Technology Transfer Office. Ed. Elliott C. Kulakowski and Lynne U. Chronister,
Research Administration and Management. Sudbury, MA: Jones & Bartlett Publishers, 2006. 641-652.
examined 10 model technology transfer programs, successful universities have
close connections with inventors conducting commercially viable research and
identify inventions at very early stages.1 This practice promotes the number of
commercially viable disclosures university inventors submit to the technology
transfer offices. UA's peer institutions also cited the importance of this, with one
noting that the Office works with inventors prior to
technology disclosures to try to maximize the quality
of the disclosures by evaluating weak areas that
might be addressed in the lab.2 At UA, a senior
university official stressed that in order to increase the
quality and quantity of disclosures, the level of in-person
interaction between the Office and university
inventors must be increased.
Licensing officials from the Office visit university
inventors in their labs, but these visits usually occur
only after a disclosure has been submitted. Two
licensing officials stated that they do not typically visit
inventors in their office or lab prior to receiving a
disclosure. One official indicated that it was not
1 Palmintera, Diane. Report to the Connecticut Technology Transfer and Commercialization Advisory Board of the Governor's
Competitiveness Council. Washington, D.C.: Innovation Associates, 2004.
2 Auditors sent questions to 11 of UA's peer institutions; 7 responded to the inquiry.
Office of the Auditor General
page 23
0
1
2
3
4
5
6
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Disclosures per $10 Million
Fiscal Year
University of Arizona Average of Peer Institutions
Figure 4: University of Arizona and Average of Peer Institutions’
Disclosures per $10 Million in Research Expenditures
Fiscal Years 1996 through 2006
(Unaudited)
Source: Auditor General staff analysis of research expenditures and number of disclosures presented in the
Association of University Technology Managers reports for the University of Arizona and its peer institutions
for fiscal years 1996 through 2006.
UA's Top Disclosing Research Units
Fiscal Year 2007
Disclosures
Unit Name Received
Bio5 Institute 37
College of Medicine 31
Optical Sciences 26
School of Engineering and Mining 25
College of Science 7
* Many disclosures result from cross-disciplinary efforts and
therefore may be included in more than one unit's disclosure
count in this table.
Source: Auditor General staff analysis of FY 2007 Arizona Board of Regents
University Technology Transfer Report.
possible given the number of technologies they are responsible for. However,
several UA inventors who participated in an auditors' focus group stated that an
increased presence in the labs by the Office's employees would encourage more
participation in technology transfer and result in a higher number of disclosures.
One participant added that inventors feel that they have to "push" their inventions
toward the Office, instead of the Office "pulling" them from the labs.
A lack of adequate resources may limit the Office's ability to interact with university
inventors. As previously mentioned, the Office's licensing staff are tasked with
multiple activities for the technologies assigned to them. When compared to UA’s
peer institutions, the Office has fewer licensing officials per $10 million in research
spending.1 During fiscal year 2006, UA had a total of 4 full-time licensing officers,
or 0.07 licensing officers per $10 million in research expenditures. In order for UA
to reach the level of its peer institutions, it would need approximately 7 more
licensing officials (see Introduction and Background, page 7, for details). Because
the Office’s staffing levels appear to be lower than its peers’, UA should evaluate
whether its technology transfer program staffing levels are adequate and take
steps to increase program resources as needed.
Interactions between UA licensing officials and inventors could be improved by
replicating the model used in UA's Bio5 Institute in other departments that
emphasize commercially viable research. Under this model, a licensing official
from the Office is stationed part-time in the Institute. Though university inventors
are experts in their respective disciplines, literature notes that they may not always
realize the commercial potential of their work. At Bio5, the licensing official helps
inventors identify the potential of an invention, encourages them to disclose
inventions, and locates possible industry partners. A Bio5 inventor who
participated in an auditors' focus group explained that the licensing official has met
with him several times, discussed his research, and introduced him to potential
licensing partners. Another UA official recommended that this approach be taken
in two other areas: Optical Sciences and Engineering. In the Bio5 example, the
Office and the Institute share this employee's salary. The Office's Executive Director
explained that he has attempted to do something similar in Optical Sciences, but
the necessary funding was not available. However, according to university officials,
funding has been made available to implement this model in Optical Sciences
beginning in fiscal year 2009. To achieve the increased interactions reported by
Bio5 researchers and cited in literature, UA should encourage additional
appropriate research departments to work with the Office to share the expenses of
replicating this model.
1 See textbox in Introduction and Background, page 13, for more information on board-approved peer institutions.
State of Arizona
page 24
UA's focus group
members stated that
office employees'
increased presence in
the labs would result in
more disclosures.
NAU should strengthen its technology transfer program
Because NAU is not a research-intensive university it does not produce a large
number of annual invention disclosures. For example, in fiscal year 2006, when
NAU's research expenditures totaled approximately $21.2 million compared to
approximately $132 million at ASU and over $535 million at
UA, ten NAU inventors disclosed a total of six technologies
to AzTE. This was equivalent to 2.8 disclosures per $10
million in research spending. NAU, like many of its peer
universities, does not participate in the annual AUTM
licensing survey. Therefore, auditors did not compare NAU's
technology transfer activity to that of its peers. However,
NAU has units that conduct research with commercial
potential, such as the College of Engineering and Natural
Sciences and the School of Forestry. Therefore, it is
important for the university to encourage disclosure so that
the work of its inventors can benefit the public.
To promote disclosure activity, NAU should work to increase AzTE's on-campus
presence. According to university officials, AzTE does not have anyone with a
permanent assignment to work with inventors on the NAU campus, meet with them
to learn about their research, identify commercially viable inventions, and help them
decide if something could or should be disclosed. NAU inventors who participated
in an auditors' focus group stated that NAU should hire someone to occasionally stop
by the labs and discuss commercialization with researchers, since they were aware
of AzTE visiting NAU only once in 2007. However, university officials stated that NAU's
disclosure activity may not yet warrant a full-time technology transfer liaison.
Therefore, NAU should work with AzTE to develop a schedule for AzTE employees to
visit NAU's campus periodically throughout the year. Alternatively, NAU could assign
staff to assume some of these technology transfer responsibilities or contract all or
some of its technology transfer services to another provider. Any arrangement should
ensure that the level of interaction between NAU inventors and technology transfer
staff is increased.
Improved incentives and inventor education could
increase disclosures at all three universities
All three universities should consider certain improvements that could increase the
quantity of commercially viable invention disclosures submitted by university
inventors. Specifically, the universities should consider practices experts have found
in other model universities that are successful with technology transfer, including
appropriate promotion and tenure policies, informal recognition, and program
education.
Office of the Auditor General
page 25
NAU’s Disclosures by Research Unit
Fiscal Year 2007
Disclosures
Unit Name Received
College of Engineering and
Natural Sciences 3
School of Forestry 2
College of Arts and Letters 1
Source: Auditor General staff analysis of FY 2007 Arizona Board of Regents
University Technology Transfer Report.
Increased incentives could lead to more disclosures—According to
literature, university inventors’ participation in technology transfer is related to the
incentives they are offered. Royalty compensation to the inventor is required by
federal law, and all three universities provide this incentive. For example, ASU uses a
formula that allocates the first $10,000 of net royalty monies to the inventor—then
evenly distributes additional net royalties between the inventor, the inventor's lab, and
the university. However, the universities can increase their use of at least two other
incentives.
One incentive the universities can use more extensively to encourage disclosures
is considering technology transfer in promotion and tenure decisions. According
to the Connecticut study of 10 model university technology transfer programs,
credit toward tenure and promotion was a common incentive offered by
universities that are successful with technology transfer. In Arizona's universities,
some departments consider technology transfer activities in faculty evaluations
while others do not. For example, ASU's Department of Electrical Engineering
includes technology transfer in its evaluation criteria for tenure and promotion,
considering it an example of academic publication, but the Department of
Mechanical and Aerospace Engineering does not. Further, select university and
departmental guidelines for tenure and promotion at all three universities showed
varying degrees of professional recognition for participation in technology transfer.
Some university inventors that participated in auditors' focus groups at all three
universities expressed concern that participating in technology transfer is not
adequately built into the incentive structure for their evaluations, and there appears
to be no clear professional benefit for it. Therefore, they explained that faculty may
focus more on publishing their research than on working with the universities to
move their discoveries into the marketplace. This lack of recognition is not unique
to Arizona's universities—promotion and tenure at other universities is still largely
based on publications and research grants, not technology transfer activities.
However, if increasing participation in technology transfer is an organizational goal,
this reward structure is inconsistent with the objective. Therefore, to encourage
faculty participation in technology transfer, ASU and UA should encourage
research-intensive departments to consider including participation in technology
transfer in their guidelines for faculty promotion and tenure.
Informal recognition can also serve as an incentive to disclosing inventions. The
Connecticut study reported that informally, some universities made it common
practice to publicize the accomplishments of inventors in the local media. Also,
department or university-wide award ceremonies were held to acknowledge
successful researchers—a practice that was also highlighted by several peer
institutions. An official in ASU's School of Engineering cited the importance of these
ceremonies and noted that university inventors notice the work of their colleagues,
and if one of them has a plaque from AzTE on their wall, they will want one as well.
These acts also send a message to the larger academic community that
State of Arizona
page 26
Some successful
universities publicized
inventors'
accomplishments in the
local media and held
award ceremonies to
acknowledge
researchers'
achievements.
technology transfer is important to the university. UA's Office of Technology Transfer
hosts an annual innovator's reception and invites university inventors who have
been active in technology transfer to participate. In addition, according to the
Office Director, the Office holds an awards ceremony known as "UA Innovation
Day" for university inventors each spring. AzTE has also done this in previous
years, although in 2008 it chose to recognize inventors by giving them framed
copies of their patents instead. ASU and UA should continue to promote
participation in technology transfer by hosting similar events, and awarding
university inventors who excel in this process. NAU should consider this as an
inexpensive way of encouraging its faculty to disclose their intellectual property.
More faculty education about technology transfer could increase
quantity of commercially viable disclosures—ASU and UA peer
institutions noted the importance of educating faculty about technology transfer
and cited several approaches their technology transfer offices have taken to do so,
including hosting intellectual property workshops, attending departmental
meetings and orientation sessions, speaking with deans and department chairs,
and publishing a quarterly newsletter. A director of one of ASU's peer institutions'
technology transfer offices mentioned that his employees spend about one-third
of their time engaged in internal marketing activities such as those mentioned
above. In a 2003 survey of 62 technology transfer offices, researchers found that
educating and convincing faculty to disclose inventions is a major problem, and
that many office directors believe that substantially less than half of the inventions
with commercial potential are disclosed to their offices, in part because faculty are
not always aware of what should be disclosed.1
All three of Arizona's universities could better educate faculty. New university
inventors receive varying amounts of information about technology transfer
depending on their academic units. For example, one of UA's more productive
research units, the College of Optical Sciences, does not provide orientation
materials that explain technology transfer to new inventors. Likewise, university
inventors who participated in auditors' focus groups at all three universities
reported deficiencies in university and departmental policies regarding faculty
education about technology transfer. They stated that learning the technology
transfer process is largely the researcher's responsibility. They reported that the
universities provide minimal support or education to new faculty; as a result, faculty
have to seek out the information they require.
According to an official in the Biodesign Institute, in the past, AzTE has conducted
workshops on intellectual property management to introduce inventors to
technology transfer and AzTE's processes. However, these workshops stopped
occurring when AzTE management began to change in late 2006. Similarly, NAU
and UA have also held events such as these in the past, although officials cited
difficulty in generating a strong interest on campus for these workshops.
Additionally, representatives from UA's Office have spoken to inventors during
departmental meetings and said they would like to be invited to do this more often.
Office of the Auditor General
page 27
1 Jensen, Richard A., Jerry G. Thursby, and Marie C. Thursby. Disclosure and Licensing of University Inventions: 'The best
we can do with the s**t we get to work with.' International Journal of Industrial Organization 21, No. 9 (2003): 1271-1300.
The universities should identify the research units known for producing
commercially viable research, and then conduct workshops for the faculty in those
areas. In addition, the universities should also encourage their research-intensive
departments to invite technology transfer staff to speak during departmental
meetings on an annual basis.
Finally, to improve new faculty education about technology transfer, ASU, UA, and
NAU should proactively identify new faculty hires in research-intensive disciplines,
and inform their respective technology transfer providers and UA's Office of their
hiring so they can make initial contact. Department Chairs and the Sponsored
Research Office can also help identify inventors who are expected to conduct
research or have applied for or received federal research funds. Licensing officers
can then visit university inventors to discuss the benefits of participating in the
program, learn about the inventors' research activities, and start assessing the
commercial potential of the research. In addition, the universities should require
their respective technology transfer offices to develop a mechanism for informing
university inventors of the university's technology transfer process. One possibility
may be in the form of a technology transfer reference pamphlet, CD, or DVD to be
distributed to new employees and those inventors conducting research in areas of
high commercial potential. Among other things, the offices should include
information on the services that they offer, what is expected of the researcher, legal
matters related to intellectual property, and contact information, and should direct
the inventor toward the Office's Web site for further information.
Recommendations:
Arizona State University:
1. To increase the level of support researchers receive from their departments, ASU
should encourage AzTE to reinstitute the practice of providing quarterly reports
to deans and department chairs of research-intensive units to keep them
abreast of their units' technology transfer activity.
2. To encourage more faculty participation in technology transfer, ASU should:
a. Encourage its research-intensive departments to consider adding
participation in technology transfer into their professional evaluation
guidelines for faculty promotion and tenure.
b. Continue to promote faculty participation in technology transfer by hosting
annual recognition ceremonies and awarding university inventors who excel
in this process.
State of Arizona
page 28
3. To better educate faculty and increase their exposure to the technology transfer
process, ASU should:
a. Identify the departments known for producing commercially viable research
and encourage AzTE to conduct workshops for department faculty.
b. Encourage research-intensive departments to invite AzTE staff to their
meetings on an annual basis.
c. Proactively identify new university researchers in disciplines with high
commercial potential and notify AzTE of their hiring so that AzTE can make
initial contact.
d. Require AzTE to develop a mechanism for informing university inventors of
the university's technology transfer process. One possibility may be in the
form of a technology transfer reference pamphlet, CD, or DVD to be
distributed to new employees and those inventors conducting research in
areas of high commercial potential. Among other things, AzTE should
include information about the services that it offers, what is expected of the
researcher, intellectual property legal matters, and contact information, and
should direct university researchers to AzTE's Web site for further
information when required.
University of Arizona:
1. To help ensure that the Office of Technology Transfer can interact with inventors
as necessary, UA should evaluate whether its technology transfer program
staffing levels are adequate and take steps to increase program resources as
needed.
2. To increase the level of interaction between licensing officials and inventors, UA
should encourage appropriate research departments to work with the Office of
Technology Transfer to share the expenses of replicating the model used in the
Bio5 Institute.
3. To encourage more faculty participation in technology transfer, UA should:
a. Encourage its research-intensive departments to consider adding
participation in technology transfer into their professional evaluation
guidelines for faculty promotion and tenure.
b. Continue to promote faculty participation in technology transfer by hosting
annual recognition ceremonies and awarding university inventors who excel
in this process.
Office of the Auditor General
page 29
4. To better educate faculty and increase their exposure to the technology transfer
process, UA should:
a. Identify the departments known for producing commercially viable research
and encourage the Office of Technology Transfer to conduct workshops for
department faculty.
b. Encourage research-intensive departments to invite Office of Technology
Transfer staff to their meetings on an annual basis.
c. Proactively identify new university researchers in disciplines with high
commercial potential and notify the Office of Technology Transfer of their
hiring so the Office can make initial contact.
d. Require the Office of Technology Transfer to develop a mechanism for
informing university inventors of the university's technology transfer
process. One possibility may be in the form of a technology transfer
reference pamphlet, CD, or DVD to be distributed to new employees and
those inventors conducting research in areas of high commercial potential.
Among other things, the Office of Technology Transfer should include
information on the services that it offers, what is expected of the researcher,
intellectual property legal matters, and contact information, and should
direct university researchers to the Office's Web site for further information
when required.
Northern Arizona University:
1. To promote disclosure activity by increasing in-person interactions with faculty,
NAU should work with AzTE to develop a schedule for AzTE employees to visit
NAU's campus periodically throughout the year to meet with NAU inventors.
Alternatively, NAU could assign staff to assume some of these technology
transfer responsibilities or contract all or some of its technology transfer services
to another provider. Any arrangement should ensure that the level of interaction
between NAU inventors and technology transfer staff is increased.
2. To encourage more faculty participation in technology transfer, NAU should
consider hosting annual recognition ceremonies for their inventors who have
been active in technology transfer.
3. To better educate faculty, and increase their exposure to the technology transfer
process, NAU should:
a. Identify the departments known for producing commercially viable research
and then conduct workshops for department faculty.
State of Arizona
page 30
b. Encourage reseach-intensive departments to invite the technology transfer
provider to their meetings on an annual basis.
c. Proactively identify new university researchers in disciplines with high
commercial potential and notify its technology transfer provider of their
hiring so they can make initial contact.
d. Require its technology transfer provider to develop a mechanism for
informing university inventors of the university's technology transfer
process. One possibility may be in the form of a technology transfer
reference pamphlet, CD, or DVD to be distributed to new employees and
those inventors conducting research in areas of high commercial potential.
Among other things, NAU’s technology transfer provider should include
information on the services that it offers, what is expected of the researcher,
intellectual property legal matters, and contact information, and should
direct university researchers to the provider’s or NAU’s Web site for further
information when required.
Office of the Auditor General
page 31
State of Arizona
page 32
All three universities—particularly UA—should
improve aspects of marketing and all three
should review their negotiation practices
The universities have some standard components of technology marketing
programs recommended in licensing guides, but all three should improve their
marketing practices and encourage more industry-sponsored research. Arizona
State University (ASU) appears farthest along; it has generally licensed more
inventions than its peer institutions and received more licensing revenues, but staff
vacancies in its technology transfer firm have hampered marketing efforts for ASU
inventions. In contrast, the University of Arizona’s (UA) licensing activity generally falls
below its peer institutions' and UA should strategically increase its active marketing
efforts. Additionally, more could be done to market Northern Arizona University (NAU)
researchers' inventions. Finally, all three universities should build stronger
relationships and improve communications with industry to increase corporate-sponsored
research.
Marketing important to technology transfer
Successful technology transfer requires not only that inventions be disclosed, but
that they be licensed and brought into production in the marketplace. Some
inventions result from corporate-sponsored research. For these inventions,
companies that sponsor university research can provide a ready customer and the
technology transfer staff's role is to negotiate a favorable license agreement for the
university. For other inventions, universities need to actively seek out commercial
partners and enter into licensing agreements with those companies to develop
market applications for the inventions' public use. Besides transferring an invention
to an existing company, universities can work with researchers and investors to build
new businesses—called start-ups—based on the inventions.
To license and bring inventions into the marketplace, universities can follow practices
described by several practitioner books and articles that describe how practitioners
could market technologies to existing companies.1 Auditors used these books and
After disclosing an
invention, it is evaluated
and marketed to
companies that can
bring it into production.
Office of the Auditor General
page 33
FINDING 2
1 See Bibliography, pages b-ii through b-v, for resources used to evaluate marketing practices.
articles to evaluate the universities' technology marketing programs and determine
whether the programs incorporate the key components. Auditors summarized the
components into three areas:
􀁺􇩅 Evaluate the technology—Before marketing, universities should evaluate the
technology and create a plan to guide their marketing efforts. Using the
inventor's expertise, market data, and staff experience, they should assess
patent and commercial viability and identify which industry sectors may have an
interest in the technology. To begin marketing, universities protect most
technologies that appear to have commercial potential with a provisional patent
to establish ownership.
􀁺􇩃 Conduct market research—Universities should conduct research to identify
industry sectors that may have an interest in the technology, information
regarding companies active in those industries, and their business strategies,
capabilities, and key personnel. Business databases, patent searches, daily
news about technology licensing, and industry conferences are important
sources of information. The university inventor can be a particularly effective
source of companies to contact.
􀁺􇩎 Network with companies and promote the technology—Universities should
establish personal relationships with industry members through one-on-one
interaction, such as during trade shows and networking events. They should
contact these and other target companies identified during market research and
provide them with increasing levels of information about specific technologies.
Initial contact can be made by phone, fax, direct mail, or e-mail and the
university should eventually meet for face-to-face discussions and
demonstrations if industry interest warrants.
In addition to direct personal contact with company representatives, universities
commonly promote available technologies broadly through various forums,
including the university and technology brokerage Web sites. They can also
advertise more promising technologies through a press release, in trade
magazines, or at industry events.
Academic research on technology transfer emphasizes the importance of personal
contact—particularly by the inventor—in marketing, but other practices described
above are not as thoroughly researched, and the literature identifies other factors that
affect licensing success. Auditors reviewed research literature to determine if specific
components or practices were found to be effective. Several articles concurred on
the importance of the faculty inventor in licensing. For example, one concluded that
personal contact by the faculty inventor or technology transfer staff, targeted
marketing efforts, and a dynamic Web site were three of the most effective ways to
market technology.1 Few scholarly articles directly compared the effectiveness of the
recommended marketing methods described in practitioner books or articles.
Further, the literature identifies historical, institutional, and other factors that affect
1 Ramakrishnan, Chen and Balakrishnan. Effective Strategies for Marketing Biomedical Inventions: Lessons Learnt from
NIH License Leads. Journal of Medical Marketing 5, No. 4 (2005): 342-352.
State of Arizona
page 34
Research on university
marketing emphasizes
the importance of
personal relationships
with industry
representatives to
license inventions.
licensing success, such as how long the university's technology transfer office has
been in operation, the prestige of individual faculty inventors, whether the university
has a medical school, and the entrepreneurial culture established by university
leadership.
Marketing university technology presents several challenges. For example, the
inventions' commercial potential may not be immediately apparent, and they often
require additional monies and faculty participation to fully develop the technology.
This is one reason that universities incorporate other commercialization mechanisms,
such as industry-sponsored research and working with inventors to create start-up
companies, into their marketing programs. In addition, invention disclosures may
span several scientific fields, requiring licensing staff to work effectively with a variety
of specialized industries. Further, universities typically have multi-faceted missions
that may not align with conventional marketing goals. For example, when licensing a
technology, a university may be more interested in developing relationships with
industry to enhance students' experiences than in seeking revenues from
commercialization.
ASU's marketing program appears historically strong and
rebuilding efforts are in progress
ASU's licensing activity has historically exceeded that of its peers. The structure and
budget of its technology transfer office, Arizona Technology Enterprises (AzTE),
allows for a specialized and well-qualified marketing staff who are aware of
recommended marketing practices. However, AzTE staff indicated that vacancies,
which started in 2007, have hampered their practices. To better ensure future
success, ASU should see that AzTE continues to rebuild and strengthen its
marketing processes under its new leadership and staff.
ASU licensing activity fluctuates but still exceeds its peers’—According
to an annual survey of universities conducted by the Association of University
Technology Managers (AUTM), ASU license agreements have fluctuated in recent
years.1 The number of agreements rose significantly, from 3 to 28 agreements
between fiscal years 2003 and 2005. However, that number has been on the
decline, decreasing to 19 agreements in fiscal year 2006. According to an AzTE
official, the number of agreements decreased to 14 in fiscal year 2007.2
Despite the fluctuation, ASU has out-performed its peer institutions in most years
under consideration, as seen in Figure 5 (see page 36).3 Specifically, ASU entered
into 1.5 or more agreements per year per $10 million in research expenditures in 8
of 11 years between fiscal years 1996 and 2006. Peers, however, have rarely
entered into 1.5 or more agreements per $10 million spent.
ASU's licensing activity
has historically
exceeded that of its
peers.
1 License agreements include licenses and options.
2 AUTM data regarding licenses and research expenditures for fiscal year 2007 was not available at the time of the audit.
Therefore, auditors were unable to compare ASU to its peer institutions for that year.
3 See textbox in Introduction and Background, page 13, for more information on board-approved peer institutions.
Office of the Auditor General
page 35
As Figure 6 shows, ASU income from license agreements is also above its peers.
From fiscal years 1996 to 2006, ASU received approximately $107,000 to $254,000
in licensing income per year per $10 million in research expenditures, with the
amount steadily rising since fiscal year 2003. Peers have had less licensing
income, between $56,000 and $111,000 per $10 million spent each year, during
the same time period.
State of Arizona
page 36
0
1
2
3
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Agreements per $10 Million
Fiscal Year
Arizona State University Average of Peer institutions
$0
$50
$100
$150
$200
$250
$300
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Income per $10 Million (In Thousands)
Fiscal Year
Arizona State University Median of Peer Institutions
Figure 5: Arizona State University and Average of Peer Institutions’
Agreements per $10 Million in Research Expenditures
Fiscal Years 1996 through 2006
(Unaudited)
Source: Auditor General staff analysis of research expenditures and number of licensing and option
agreements presented in the Association of University Technology Managers reports for Arizona
State University and its peer institutions for fiscal years 1996 through 2006.
Figure 6: Arizona State University and Median of Peer Institutions’
Licensing Income per $10 Million in Research Expenditures
Fiscal Years 1996 through 2006
(Unaudited)
Source: Auditor General staff analysis of research expenditures and licensing and option income
presented in the Association of University Technology Managers reports for Arizona State
University and its peer institutions for fiscal years 1996 through 2006.
AzTE marketers are aware of recommended practices—At AzTE,
marketing responsibilities are split between staff who evaluate the initial market
potential of a technology and staff who specialize in developing relationships with
industry. An additional staff member facilitates the creation of start-up companies.
During fiscal year 2006, AzTE staffing levels appeared higher than the levels at
ASU's peers (see Introduction and Background, page 6, for details). AzTE's
structure and budget have allowed it to hire staff with private sector licensing
experience and business credentials who are dedicated to marketing. Due to
vacancies in key marketing positions during the majority of the audit, auditors were
unable to confirm AzTE's overall adherence to recommended practices.1 However,
licensing officials interviewed appear to be aware of marketing methods
recommended in practitioner literature. Specifically:
􀁺􇩍 Marketing starts with critical evaluation—According to AzTE's Web site and its
licensing officials, AzTE holds an Intellectual Property Review Meeting for most
technologies within 2 months of the disclosure to determine whether to focus
its marketing efforts on the specific technology. These sources indicated that
the decision involves science, business, and legal staff at AzTE and it is
supported by a scored assessment on 20 standard criteria such as the growth
rate of the market and its synergy with AzTE's technology portfolio. According
to an AzTE official, their process was developed in consultation with faculty
and what AzTE identified as best practice.
􀁺􇩍 Market research supplements first-hand knowledge—AzTE science staff are
primarily responsible for the initial market research, whereas marketing staff
have broader business development responsibilities. AzTE marketers
reported that they use company and industry information gained through past
experience to identify target companies and contacts. To supplement this,
AzTE has subscriptions to two market research database services and also
requests company suggestions from the university inventor on its disclosure
form. Approximately 20 ASU students per semester also help with market
research through an internship program called the Technology Ventures Clinic.
Further, in November 2007, AzTE hired two graduate-level students to assume
some higher-priority market research according to AzTE’s Director. AzTE is
considering other part- or full-time assistance, partly for additional market
research.
􀁺􇩍 Multi-media advertising is used—AzTE advertises technologies on its Web
site and also uses industry events to display promising technologies to a live
audience. AzTE is considering hosting a technology expo in San Francisco in
2008 focused on advertising ASU technologies to venture capitalists.
􀁺􇩉 Industry contacts are a high priority—According to AzTE's marketers, they
have personal business contacts gained through experience in private sector
licensing. They attend industry conferences and networking events where they
AzTE officials indicated
that their decision to
market a technology
involves their science,
business, and legal
staff.
1 Auditors interviewed one AzTE marketer who reported that he had been in his current position for 9 months at the time
of the interview and one marketer who reported that he had been with AzTE for approximately 2 months as a consultant
and 2 months as an employee at the time of the interview. Two additional marketers started at the end of the audit.
Office of the Auditor General
page 37
AzTE's marketers
indicated that they have
personal business
contacts gained through
experience in private
sector licensing.
can meet with companies to market technologies and develop new contacts.
The marketing staff contact industry members by phone or e-mail. One
marketer said he contacts 10 to 30 companies, starting with those where he,
a team member, or the faculty inventor has a personal relationship. He also
sets a target date to follow up with promising company partners if he has not
heard from them. A senior marketer said he tries to avoid "cold" calling
altogether. Inventors who participated in auditors' focus groups made positive
comments about AzTE's marketing efforts. For example, one inventor felt that
an AzTE marketer went above and beyond to identify seed funding for his
technology, and others appreciated the industry contacts they were able to
make through networking events that AzTE has held.
Vacancies have hampered marketing efforts—Although the AzTE officials
interviewed indicated that they use recommended marketing practices, they said
that staff shortages starting in July 2007 have affected the thoroughness of their
marketing efforts. Specifically, AzTE had vacancies in three of its four marketing
positions, lasting between 4 and 9 months. In addition, according to the Director
who assumed leadership 1 month after the previous director left, he has not been
in the office full-time to manage AzTE's day-to-day operations but has been
working with ASU's Office of the Vice President for Research and Economic Affairs
on issues of broader industry engagement, such as sponsored research. AzTE's
fiscal year 2008 license agreements are well below their historic levels, reaching
just five by mid-year according to an AzTE official. Other AzTE officials reported
that the market research used to support which technologies will be patented and
marketed has been less thorough than in the past. Further, AzTE officials estimated
that technology advertisements on its Web site are a year behind or the patent
status and contact information is outdated. As of November 2007, AzTE had 346
available technologies in its tracking database, but according to AzTE officials,
many had not been marketed or reassessed to determine if they still have market
potential. The only marketer assigned to physical science industries stated that he
is marketing approximately 30 technologies and believes another 30 to 40 in his
industry areas have commercial potential. According to a senior AzTE staff
member, less than 10 life science technologies were actively marketed between
July and November 2007, and AzTE was using a consultant for this work. However,
in November 2007 AzTE hired the consultant as a full-time employee.
AzTE has taken steps to fill vacancies and ASU should ensure that AzTE continues
to rebuild and strengthen its marketing practices. With two marketing positions
filled by January 2008, AzTE officials stated that they have started to evaluate and
prioritize technologies in the life sciences. They are also evaluating a different
division of responsibilities in the life sciences. A senior marketer in the physical
sciences started in April 2008, which brought AzTE to its former marketing staff
levels. In addition, the Director hired a Chief Operating Officer to manage day-to-day
activities beginning March 2008, which should free the Director to continue his
focus on engaging with industry. ASU should ensure that AzTE fully rebuilds and
strengthens its marketing program in accordance with recommended practices.
State of Arizona
page 38
UA marketing efforts need improvement
UA's licensing activity consistently falls below its peers'. UA appears to follow some
recommended marketing practices, such as Internet advertising and drawing on
faculty contacts in industry. However, UA should improve its evaluation of
technologies' commercial potential and increase its market research and industry
contacts. It should also determine whether staffing levels are adequate and increase
resources to the program as needed.
UA licensing activity falls below peers'—According to an annual survey of
universities conducted by AUTM, UA license agreements have remained constant
in recent years.1 After significant fluctuation in the 1990s, the number of
agreements UA executes has remained fairly steady, ranging from 23 to 28 per
year since fiscal year 2002. According to UA’s Office of Technology Transfer
(Office) Director, the number of agreements rose to 30 in fiscal year 2007.2
UA license agreements have been low when compared to its peer institutions.3 As
shown in Figure 7, during most of the past 11 years, UA has entered into less than
one agreement per $10 million in research expenditures, whereas on average, its
peer institutions have consistently entered into more than one agreement.
The number of UA
license agreements is
generally less than half
that of its peers’.
1 License agreements include licenses and options.
2 AUTM data regarding licenses and research expenditures for fiscal year 2007 was not available at the time of this audit.
Therefore, auditors were unable to compare UA to its peer institutions for that year.
3 See textbox in Introduction and Background, page 13, for more information on board-approved peer institutions.
Office of the Auditor General
page 39
0
1
2
3
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
Agreements per $10 Million
Fiscal Year
University of Arizona Average of Peer Institutions
Figure 7: University of Arizona and Average of Peer Institutions’
Agreements per $10 Million in Research Expenditures
Fiscal Years 1996 through 2006
(Unaudited)
Source: Auditor General staff analysis of research expenditures and number of licensing and option
agreements presented in the Association of University Technology Managers reports for the
University of Arizona and its peer institutions for fiscal years 1996 through 2006.
UA income from license agreements is also below its peers’, with peers often
earning more than 10 times as much licensing income as UA. As shown in Figure
8, from fiscal years 1996 to 2006, UA received between $9,400 and $31,600 in
licensing income per $10 million in research expenditures per year. By
comparison, its peer institutions received approximately $130,000 to $435,000 per
$10 million spent each year during the same period.
Start-up companies present a special challenge for UA. Specifically, the company
may offer an equity stake in its future profits in exchange for the right to license the
technology. However, the Arizona Constitution prevents public entities, including
the universities, from entering into these arrangements. Because ASU uses a
private corporation, AzTE, to perform its technology transfer function