Successful Factors for Commercializing the Results of Research and Development in Emerging Economies A Study of ITRI in Taiwan

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1

Successful Factors for
Commercializ
ing
the Results of
Research and
Development

in Emerging Economies


A Study of ITRI in Taiwan

Paul C. B. Liu

, William Kuang
-
Wei Chueh
**
, M
e
ng
-
Yo
G
er
***

Abstract



T
he Association of University Technology Managers (AUTM)

uses

a number of
benchmarks for

judging
success

in commercializing
R&D

result
s
,
such as

the
number
s

of patents applications

filed
, patents issued,

licensing contracts, royalty
income,

start
-
up companies

and job

creation.
Measured against these benchmarks,

most Asian counties are
not
doing well.


Our
research

has found

that the following conditions are extremely important for
successful R&D commercialization in
emerging economies

by examining the
successful story of
the

Industrial Technology Research Insti
tute (ITRI) in Taiwan
:
(1)
a clear policy of intellectual property commercialization in the organization

(2)
a
clear incentive and punishment structure toward inventions and infringement

(3)

a
professional team of intellectual property commercialization ex
perts as well as the
provision of continual training

(
4
)

a successful platform to match the demand and
supply side of technology market.




Keyword: Commercialization, Industrial Technology

Research Institute (ITRI)
,
Technology

Policy, Intellectual Propert
y Management








Paul C. B. Liu, Ph. D.,
Professor

and Director, Graduate Institute of Intellectual Property, College of
Commerce, National Chengchi University.

**

William Kuang
-
Wei Chueh is a Ph. D. candidate in Graduate Institute of Technolog
y and
Innovation,
National

Chengchi
University

and LL.M candidate at Columbia University School of Law.

***

Meng
-
Yo Ger is a Ph. D. candidate in Graduate Institute of Technology and Innovation,
National

Chengchi
University
.


2

1

Introduction

Since the 19
th

century, the continual discussion

in the international community

regarding how to protect industrial right and intellectual property
gradually

resulted in
a good number of international treaties

which formed th
e basis of the intellectual
property law in each country
.

However, i
n
the current

era of knowledge economy,
people

more than ever realize that

a
successful model of knowledge management
is
more than legal protection. It
requires
a
good control over the who
le process from the
initiation of a

new

idea to the final commercialization.
(Polanyi
, 1962
)


Speaking of the theories and practices of intellectual property management, it is
impossible to ignore the development in United State for the past decades. Start
ing
early 1980

s, United States enacted a number of intellectual property related acts
which
required

relevant authorities to

put

into practical use

the stock of intellectual
property

frozen


in government agencies and universities. The most prominent one

of them is Bayl
-
Dole Act which
has served

the
foundation

to establish cooperative
relationship among universities, industries and research institutes

since its entry into
force
.

(Liu

&

Hung,

2002
)

The U.S. model later turned out to be a huge success in
19
90

s. After that, more and more countries tried to follow this model. For example,
Japan

s effort in
introducing


Universities Technology Licensing Office Act


was
widely believed to be a copycat of the Bayl
-
Dole model
1
.

It shall be noted that the so calle
d U.S. model has its own historic and cultural
background
. The implementation of this model in other country may not necessarily
bring the same favorable result. On the very contrary, it may turn to the other side and
bring

opposite effects. Take Taiwan fo
r example, although Taiwan claimed itself to be
one of the leading high
-
tech and OEM economies in the world, the unique advanced
educational, industrial and macro
-
economics structure made Taiwan unable to

import


the U.S. model directly. The U.S. model ha
d

to be largely tailored to fit
Taiwan

s unique situations.

In the past, Taiwan

greatly relied on governmental power to establish large
-
scale
national

research institute

which not only engaged in high
-
tech research and
development but also played an impor
tant role in nurturing high
-
tech managers as
well as
creating a platform for start
-
ups, licensing activities and trans
-
organization
cooperation
2
.
As time went by, it was observed that the macro environment of
technology transfer failed to coordinate well e
ach player in the value chain. The
traditional large research institute was also asked to transform into a self
-
sustained
entity. In the transformation age, the Industrial Technology Research Institute (ITRI)



1

The full name of the act is

L
aw promoting Technology Transfer from Universities to Industry


which is an
extension

to


The Science and Technology Basic Law


enacted in 1995.

2

T he most prominent start
-
up companies under such model are TSMC (
Taiwan Semiconductor
Manufacturing Company
)

and UMC
(United

Semiconductor Manufacturing Company
).


3

in Taiwan was one of the most successful cases
in Taiwan. This paper tries to present
the way in which ITRI transform
ed

into its current success in order to show the
possible essential factors for the success of intellectual property commercialization in
emerging economies.

The traditional factors beli
eve to underlie intellectual property
success are presented in part 2. In part 3, the development of ITRI in this decade is
described followed by a brief conclusion in part 4.


2

Relevant

factors
regarding

intellectual property commercialization

2.1
U.S.
Bay
h
-
Dole Act and
Technology Transfer Legislation

Since United States passed Bayl
-
Dole Act in 1980, the previously idle stock of
research results out of government subsidies was g
iven much more attention.
The
most important
breakthrough

of Bayl
-
Dole Act
wa
s its authorization to give the title
of research results to the contractors who
receive

subsidies from federal government.
Under such mechanism, u
niversities
, acting on their own

self
-
interest as well as legal
requirement,

started

to
retrieve value from a good number of research results that
possess
ed

market value

aggressively
. Although the concept
to
impos
e

on universities
the
active
role of intellectual property management was n
ot first invented by
Bayl
-
Dole Act, it
represented a new experiment to
encourage

universities to best play
intellectual property management with a

legal


requirement.


2.2 Intellectual property

management


Management is one of the most important scien
ces in the 20
th

century. Great
scholars of classic school including

Frederick
Taylor
,

Henri Fayol
,

Max Weber
, etc,
gradually developed a number of essential building blocks for management science.
Nowadays, people generally believe that the most import
sub
jects

in business
management refer to production management, marketing, human resources
management, finance management and research and development management.
Compared with the sound development of the first four areas mentioned above,
research and develo
pment management tended to
receive

comparatively
less attention,
especially in Asian countries.


Back to the year of 1974, Schumpeter mentioned that innovation
was

an
important source of excessive
economic

profit. Nevertheless, Schumpeter failed to
expl
icitly point out that a sound intellectual property protection serve
d

the
necessary

condition for bringing innovation into economic profit. Although enterprises may
work hard to bring new technolog
ies

of production efficien
cy

and niche
into existence,
the
existing advantage will soon be erased by copying or reverse engineering

from the
competitors
,
absent a sound mechanism of intellectual property protection.



After the wide
recognition the importance

of intellectual property

protection
,

4

people gradually

found that legal protection did not automatically result in
commercial success.

A

complete set of intellectual property management shall
integrate

resea
rch and development management,
marketing, human resources
management, finance and tax management and s
o on. Most importantly, the
consideration of an effective business model

which finally generates the profit

shall
not be independent from the whole management process.



2.3 Professionals


training

One of t
he most
prominent

obstacle observed in intellectu
al property
management refer
red

to lack of well
-
qualified professionals.
Especially in Asian
countries whose educational
system was

not well fit to nurture inter
-

and
trans
-
disciplinary professionals, this
became

a more serious problem.

Tak
e

Taiwan for
ill
ustration;

the fact that
there
were

few trans
-
disciplinary legal professionals in
Taiwan

brought

a negative effect over the patent application process.


Although

some

big enterprises themselves c
ould

select and train their own patent
attorneys or other
sup
porting

technicians
3
,
small and medium size enterprises m
ight

not be able to self
-
nurture those well
-
qualified professionals.

I
t
was

also observed that technician
s

with little concept of intellectual property
laws m
ight

unknowingly use others


patented tec
hnology and even trademarks. Their
hard work finally resulted in countless intellectual property litigations

with huge
damages claims
.

Faced with the forgoing
difficulties
, the solution to them is quite simple and
straightforward
-

re
-
education


that

brings

the employees with sufficient and correct
legal background. While a number of enterprises may not be able to afford such
training expenses, the government shall consider
providing

adequate ways of
re
-
education as a public good.



2.4
Market informat
ion provision

The
indispensable

part of sound intellectual property protection lies in a sound
database available to search for pre
-
existing technologies and information. For
example, a good patent map may not be possible without a complete and informative

database.

A sound database not only plays a role of infringement prevention, it also acts as
a basis for value determination
i
n the market. Without such information, the
innovation rent mentioned by Schumpeter may not come
out of

air.


2.5
Taiwan

s
expe
rience




3

For example, Foxconn, TSMC, Acer are noted for internal intellectual property trainings.


5

The forgoing four paragraphs

being said
, it is apparent that legal infrastructure,
management, educational training and market
access

serve the most important
factors in intellectual property commercialization.
In Taiwan, the forgoing concepts
wer
e transformed into a Pearl Structure (Figure.1).















Venture
Capital

IPR

Technology
Tranfer

Research&

Development

Entrepre
-

neurs

Multi
-

National

Start
-
Up

Companies

SEMs

Capital

Market

Knowledge
-
Based

Innovation

Industries

Academic

Government

R&D

Instituti
on

Figure 1. IPR Pearl Structure and
The Gap of Practiced Theories



More often than not, a good theory is distant from perfect practices. Take the
pearl chart for example, the link among
different

sectors
could

not

be

established
overnight
.
Judging from the recent development

in Taiwan
, it is fair to assert that one
of the main difficulties lied in the gap among different actors in the inner circle
. Since
t
he academic, government, institution and industries each had their own standing and
v
iewpoints, the huge
disparity

predicate
d

the unsatisfactory efficiency of the final
results. For other actors surrounding the inner circle, there was no uniform
coordinating mechanism which reduce
d

the possibility for them to become an integral
system. The

lack of successful coordinating mechanism often resulted in a sharp
disagreement among the government, the academic and venture capital in the outside
circle. Those being said, the commercialization of intellectual property in Taiwan
indeed faced tremendo
us difficulties.

Nevertheless, there were still few successful cases in Taiwan,
the most prominent
one of which was the
Industrial Technology Research Institute

(ITRI).

In case that the
macro environment was not well established, how ITRI reached its curre
nt success
merit
s

further attention.
This paper thus tries to illustrate
the efforts by ITRI in the
hope that
ITRI

s model could shed a light to other countries and institutes with

6

similarity.


3. A
s
tudy of ITRI

3.1
B
ackground of ITRI


ITRI was compose
d of the former three research institutes, industrial
research

institute, metal research institute and mining research institute under the control of
Ministry of Economic Affairs

in Taiwan
. It has long been

located in Hsinchu City,
where there
are

two
majo
r

universities, Ching
-
Hwa
University
and Chao
-
Tung
University

whose main academic focus lie

on science and technology.



As

the economic situation and technology need constantly changed
,
ITRI
established a number of search organizations to echo the

rapi
d change
, such as
Electronics Research and Service Organization
,
Biomedical Engineering Center
,
Center for Aerospace and System Technology
,
Environmental, Safety and Health
Technology Developement

and so on.

Since its foundation in 1973, ITRI has long relied on government grant
s to
support its research and development activities. But recently, ITRI has already been
able to finance its own expenses out of the value of intellectual property created
itself
4
.
It is a clear manifestation of the success of intellectual property managem
ent.



3.2

ITRI

s
historic
efforts in intellectual property management


In order to
fully understand the successful development of ITRI, it is necessary
to have an overlook at ITRL

s response to an era of knowledge economy in different
stages.

3.2.1
The

period prior to

199
5

Even before the Science and Technology
Basis
L
aw

(Taiwanese version of Bayl
Dole Act)
was adopted

in
1999
, the efforts of ITRI already brought forth a good
number of successful start
-
ups.
(
Please refer to
Table
.
1

for a detailed list
)

N
otwithstanding the remarkable success, those new start
-
ups also
took

away a
tremendous amount of resources insides ITRI such as technology and important
human capital.

Such
phenomenon

was highly relevant to the structure of IRTI

at that time
. Since
the bu
dget of ITRI was
then
mainly supported by the government, those new start
-
up
companies were viewed as
a symbol of economic
development

achievements
. People
then did not really care whether ITRI got the due reward from the start
-
ups
. It is
therefore
imagina
ble

that the reward was pretty limited in number. The fact that
well
-
trained human resources in ITRI transfer
red

to private company soon after they



4

For relevant information please refer to:
v
http://www.itri.org.tw/chi/about/annual_reports/fy92/annual2003c
-
4
-
3.pdf
, viewed on 09/01/2005.


7

had access to the latest technology was taken for granted.


Table 1
the

Important
IC Companies from ITRI Start
-
up

Start
-
Up

year

The name of Company

Gov.
Fund

Employees

F
rom ITRI

IPO

year

Capital
*

2005

1980

United Microelectronics Corp.(UMC)

Yes

31

1985

6,472

1982

Syntek Semiconductor Ltd


3

1991

92

1986

Princeto
n Technology Corp.


4

2001

51

1987

Taiwan Semiconductor
Manufacturing Company (TSMC)

Yes

150

1994

8,105

1987

Silicon Integrated Systems Corp(SIS)


5

1997

445

1987

Winbond Electronics Corp.


36

1995

1,405

1988

Taiwan Mask Corp.(TMC)

Yes

72

1995

119

198
9

Weltrend Semiconductor, Inc


8

2000

72

1994

Vanguard International
Semiconductor Corporation(VIS)

Yes

333

1998

525

* Unit: Million USD


3.2.2
The
warm up

period from 1995
-
1999

After 1995, ITRI little by little realized that importance of intellectual property

management
. A great amount of attention was draw
n

to establish a management
system based on contracts. Articles stating that every service invention
of ITRI

s
employees shall be
entitled

to ITRL were formally incorporated into the employment
contracts. ITRI also inflicted contractual burden over its employees that without
authorization, any employee shall not disclose or license any technology owned by

ITRI.


3.2.3
The period from 2000

The forgoing description shows that ITRI paid due attention to intellectual
property management even before the Science and Technology
Basis law

went into
effect. Therefore, the passage of the law did not bring any burde
n to ITRI
.

I
nstead,
ITRI

s took advantage of the deregulation and transformed it into due incentive for
further invention. The achievements
that the number of patents and inventions sharply
increased
during this period
are

shown in Figure

2
.


8


1146
766
821
862
960
537
559
548
447
381
368
277
274
178
78
59
37
27
15
735
441
488
523
521
289
326
328
291
229
223
188
186
134
51
41
20
14
8
0
200
400
600
800
1000
1200
1400
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
Patents

Inventions

STBL age

W
arm up
age

Start up

TSMC

Pre STBL age

Figure.2 The numbers of patents and inventions in three
ages
of ITRI


Apart from the apparent increase in the number of patent, the
number

of
technology transfer and industry service increases as well (Table.2). If the year 2000
is used as a benchmark, the numbers
after 2000
are generally larger
. This

is

a c
lear
manifestation of ITRI

s success in the warm up period as well as the power of the
Science and Technology
Basis
L
aw
.

Table.2 the numbers of technology output in ITRI


98


99


2000

01


02


03


04


Patents Awarded

559

537

960

862

821

776

1146

Tech.
Transferred

361

353

471

337

414

520

712

Services to
Industry
(companies)

25,410

27,825

42,646

30,427

25,812

25,846

27,282






3.3
C
urrent backdrop and
ITRI

s
in
ner
regulations


Although the Science and Technology Basis
L
aw sy
mbolized the initiation of
Taiwan

s version of Bayl
-
Dole Act, the importance of the law lie
d

in the exclusion of
the application of Government Property Management Act which is an
inadequate

burden for intellectual property transfer.

Another policy reform
right after the passage of the Science and Technology

9

Fundamental Law lied in the
transformation

of independent research institute
s

such as
ITRI.
The new policy asked those research institutes to finance themselves in a short
run, which pressed them to pay

more attention to their own stock of previous and
current intellectual property and to wisely get value from them.
These two relevant
developments drove ITRI further to devote itself to intellectual property management
and commercialization.

Having a clo
se look at the current intellectual property management rules
issued
by ITRI, it shows that IT
RI
has
built up a system based on rewards to individual
inventor. If the technology in question has a chance be commercialized, the inventors
can share a
reasonab
le

portion of the royalty income.

A good intellectual property management not only deals with profit creating.
Apart from educating its employees and
explicitly

ruling that employees shall keep
the confidentiality of their new inventions, ITRL established

a peer supervision
system to monitor employees


act and thus protect its own trade secrecy. On the other
hand, ITRI started to actively license its current technology and filed litigation against
those who used ITRI

s intellectual property
without

being l
icensed. By these steps,
ITRI generated remarkable revenue from licensing.


3.4 Intellectua
l property management structure

3.4.1
The establishment of technology licensing office

The various research units inside ITRI can be viewed as intellectual property
creating units. Because the great number of technologies has reached economy of
scale, ITRI established technology transfer office in charge of legal affairs,
information provision, and patent
prosecution
. ITRI

s current organizational chart can
be depicte
d as
Figure
.3).


Board of
Directors

Chairman

President


Executive
Vice President


Vice President

Research & Service Organization
about professional
technology (12 units)

Nanotechnology Research Center (NTRC)

Industrial Economics Knowledge Center (IEK)

Creat
ivity Laboratory (CL)

ITRI College (IC)

Technology Services Center (TSC)

Technology Transfer Center(TTC)

Information Technology Service Center (ISC)

Administrative Services Center (ASC)

Accounting Resource Center (ARC)

Figure.
3
The
The
framework for IR m
anagement in ITRI


10


3.4.2
Information network for

intellectual property

commercialization

As far as the demand side is concerned, i
n order to

give ITRI

s inventions

a
quick access to product commercialization,
a good control of t
he supplier

s
information is paramount. To echo such need,
Industrial Technology Intelligence
Services

was set up to provide the information of market analysis, technology analysis
and patent survey.

As far as the supply side is concerned, in order to hav
e a good control over its
curre
nt technology development, ITRI
established a platform for invention disclosure.
Even though ITRI has some ed
ge
-
cutting technology, if the markets

fail to know that,
the important invention may turn out to be useless.

Neverth
eless, ITRI is a huge
organization with numerous research centers. It is important to place an integral
information gathering system for every unit in ITRI.

The overall information
management structure of ITRI

s technological marketing can be illustrated
in
Figure.4.

Technology Producer Technology Demander


The bulletin for Technology

Populace

The Database of Technology

The members

Technology

Reveal


Technology Requester

Negotiated Price

The Center of Incubation in
ITRI

To Confirm Commercialization and Market Information

Successful
Start
-
up

Figure.
4
the Information
m
anagement for
t
echnology
m
arketing in ITRI

Information Management




By the successful functioning of the matching system, the supply and demand
side of technology market can easily meet at a far less transaction cost. It could be one
of the important reason
s

underlying

ITRI

s success over these years.


3.5 Professional
d
evelopment

Since ITRI has viewed itself as a
professional

research and development institute,

11

it has long been devoted to further professional training. For example, ITRI highly
encouraged its employee to act
ively participate in relevant seminars in order to
accustom them to the latest technology development. Besides, since most seminars
have a diversity of audience ranging from research institute to market. It also forms a
platform for the exchange of market
information. The growing trend of seminar
attendance can be illustrated in Table.3.

Table.
3
the numbers of
professional
t
raining
in ITRI


98


99


2000

01


02


03


04


Conferences
Sessions

914

1,104

1,463

933

956

1,136

n/a

Conferences and
Training Programs

(attendees)

60,567

82,225

96,900

78,336

9
0,
594

94
,
534

114,315



The continuing emphasis on intellectual property management was also
incorporated into the professional training.
Intellectual property trai
nings sometimes
took the form of weekly or monthly regular training and sometimes

were initiated
after certain important legal or business development.

Apart from the enhancement of general understanding, successful intellectual
property management also r
equires

experts


in this area

to take charge of important
decisions
.

A number of well recognized exerts of intellectual property management in
Taiwan were recruited to join ITRI, such as DR.
Yeou
-
Gong Hsu
, Dr. Pan
-
yao Wang,
Dr. Alxe Fan and the former Chi
ef Legal Office in Foxxcomm, Mr.
Y.P. Jou
. Th
is
could also be taken as a substantial improvement to the line
-
up of ITRI

s professional
expert.


3.6 Summary

In a nutshell, ITRI

s experience shows us a good control over the whole process
of R&D management, d
isclosure, intellectual property protection and
commercialization within a sound environment of incentive structure and information
exchange platform.
If any construct or linkage in the system
fails to
function
, the final
performance will absolutely be neg
atively affected.
The overall structure of IRTL

s
intellectual property management can be diagramed as
Figure.5
.


12


Commercialize

Protect

Disclose

IPR

Flow

The System of IPR value added

The System of IPR Education

Service Invention Management

The System of Motivation

Figure.5 The Successful Intellectual property commerciali
zation


R&D



4. Conclusion
-

the implication of ITRI

s successful experience

As a successful model of intellectual property

commercialization in Taiwan
where the macro technology transfer environment is still under development, ITRI

s
success sheds a light on other research institute o
r
big enterprises in similar conditions.
The most important factors underlying ITRI

s success

can be summarized as
(1)
a
clear policy of intellectual property commercialization in the organization

(2)
a clear
incentive and punishment structure toward inventions and infringement

(
3
)

a
professional team of intellectual property commercialization exp
erts as well as the
provision of continual training

(
4
)

a successful platform to match the demand and
supply side of technology market.


Another
important

character

of ITRI lies in the fact that it was viewed as a quasi
government sector in the past. There
fore, it seemed strange for a government like
research institute to file litigations against the general people.
This unique scenario
hugely hampered the development of intellectual
property management. The
experiences

of ITRI show that such a distorted be
lief shall be altered.

The strategy of
active licensing not only benefits the industry, but ITRI itself also maintain
s

a
successful management and a stable cash inflow. This
shall be

another important
implication ITRI can bring to other government sponsore
d research institutes.