MIT study shows invention licensing has significant impact on economy

A paper from the MIT Licensing Office measuring the effects of licensing of university inventions on the economy is the first to document that university licensing stimulates investment and promotes jobs even before sales of licensed products.

The paper, published in the Journal of the Association of University Technology Managers, used investment information gathered directly from MIT licensees. Based on a rough but very conservative extrapolation to the entire university licensing community, it calculates that at least $2 billion to $5 billion per year has been invested into the economy through these licensing companies, even before the first products are sold.

Using the figure published in 1994 by the US Census Bureau that one research and development job costs $125,000, one can estimate that university-based technology transfer supports at least 20,000 to 40,000 jobs annually, again even before the first sale of products.

A previous estimate of the economic effect of university-based technology licensing was made based only on royalty income to all US universities reported to the Association of University Technology Managers. This resulted in an estimate of $17 billion in annual product sales, and 137,000 jobs.

Adding together the pre-production figure with the post production figures, the paper says, puts the economic impact of university licensing well in the range of $20 billion per year, plus contributing well over 150,000 jobs per year to the US economy.

Focusing on just the 205 active, exclusive patent licensees which formed the basis of the MIT case study, the researchers calculated that nearly $1 billion has been invested into the economy through these licensing companies toward the commercialization of MIT inventions, supporting the employment of more than 2,000 jobs over an average of four and a half years.

According to Lori Pressman, a technology licensing officer who initiated the study, these numbers are actually an underestimate of what will be the full impact of these MIT licenses on the economy, since the average age of the licenses is less than five years (4.6 years), and most of these companies do not yet have a product on the market. "Since previous studies have shown that it takes about eight years on the average for companies with a licensed invention to get to sales of a product, the full impact of licensed is surely underestimated by this study," she said.

Ms. Pressman said the MIT research team plans to get back to these companies at a later stage, for example in five years.

The MIT case study was done by asking MIT's licensees to self-report the amount of money invested within their companies to bring licensed products to market. As university technology is typically embryonic, this pre-production investment is evident years before earned royalties on product sales, Ms. Pressman said.

"Therefore," she said, "as large-scale university licensing is a recent phenomenon (the MIT licenses in the study were an average of 4.6 years old, and our program is one of the more mature ones), and as a prior study showed that it takes about eight years after an invention is first disclosed for it to start earning royalties, the pre-production investment should be the `tip of the iceberg' of investment and jobs to come as the technology moves through the development stages into commercial production."

The data were collected and analyzed for groups of licensees in the physical and biological sciences. The data were also analyzed according to whether the licensees were start-ups, small entities, or large entities.

In the MIT case study, licenses in the biological sciences induced, on average about twice the investment as licenses in the physical sciences. "Another interesting finding in the MIT case study," Ms. Pressman said, "is that although only 35 percent of the licenses in the study were granted to start-ups, they accounted for 77 percent of the investment and 70 percent of the jobs. The induced investment calculated for all licenses in the MIT study (combined physical-science and biotech, combined start-up, small entity and large entity) is $1 million per license per year."

"These rough but dramatic estimates illustrate that while the cumulative effect of licensing within universities is of the order of magnitude of several hundred million dollars per year, the cumulative effect outside of the academic institutions is of the order of magnitude of several (tens of) billion(s of) dollars per year," she said. "More complete data should result in higher estimates."

Ms. Pressman said the particular method used in the study should provide an excellent blueprint for universities to track the economic impact of their efforts to move academic research results outside of the ivory tower for the practical benefit of society.

"These results dramatically demonstrate the success of the 1980 federal policy change which gave universities the right to own and the responsibility to license the inventions made on campuses that have received federal research funding," Ms. Pressman said.

She added that this was done as a federal law requires, "to promote the utilization of inventions arising from federally supported research or development, to encourage maximum participation of small business firms, to promote collaboration between commercial concerns and nonprofit organizations, to ensure that inventions made by nonprofit organizations and small business firms are used in a manner to promote free competition and enterprise, and to minimize the costs of administering policies in this area."

Other authors of the study included Lita Nelsen, who heads the Technology Licensing Office, Dr. Sonia K. Guterman, Irene T. Abrams and David Geist.

A version of this article appeared in MIT Tech Talk on November 1, 1995.

Topics: Innovation and Entrepreneurship (I&E), Industry

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