ACCORDING TO 2011 data supplied by University of Michigan officials to the Association of University Technology Managers (AUTM) and published by AUTM in its 2012 survey, U of M spent $1.23 billion dollars on research and earned $15.6 million in tech transfer revenue. That was good enough to earn the university the 23rd spot among the 157 universities which participated in the AUTM’s 2011 survey. However, between 2008 and 2011, tech transfer revenue earned by the University of Michigan declined by 40 percent. In 2008, U of M spent $875 million dollars on research expenditures and took in $25 million dollars in patent revenue. In 2011, U of M patent revenues dropped to $15.6 million dollars.

In response to questions about the falling revenues, University of Michigan Vice President of Communications David Lampe said in an email: “I want first to make it clear that the purpose of a university office of technology transfer is not to maximize income, but to help move ideas emerging from academia to the marketplace so that the public can benefit from research that has been largely publicly funded. Of course, revenues from our licensing operations are important and we work to get the best deals because they fund additional research and educational activities that encourage further innovation at the university, but they are secondary to the primary mission.”

In 1980 Congress passed a law which allowed universities ownership of patents arising from federally funded research. The results of that law have generally been seen as favorable by universities. U.S. institutions of higher education negotiate more than 4,000 patent licensing agreements each year and collect more than $2 billion a year in licensing revenue, according to data collected by the Association of University Technology Managers.

Royalties are most often split three ways — between the researchers, their academic department and the university’s general fund. It’s a financial arrangement that can seem very generous to the scientist but less advantageous to the school.

The Brookings Institution recently released the results of a new study which concludes, “The license-to-the-highest-bidder model has yielded high income for only a few universities. Most universities lose money on it.”

According to reporting by The New York Times, “Only a small number of universities consistently produce lucrative breakthroughs and collect the vast majority of the money. A blockbuster discovery can alter a university’s fortunes, like the patents on inserting foreign DNA into cells, which brought $790 million to Columbia University, or the patents leading to the drug Remicade, used to treat autoimmune diseases, from which New York University collected more than $1 billion. The vast majority of licensing deals yield little or no money, and for most universities the royalty returns are low. And the odds of finding the elusive game changer are small.”

David Lampe pointed out that, “it’s important to note that only a select number of new technologies are even appropriate for starting a new company, and there are only a very few of those concepts that may have the potential to turn into blockbuster opportunities in the marketplace. The vast majority of patented ideas—even those that inspire a startup—take substantial additional investments and R&D, and additional patents, before they find their way into a commercial product or process. And the ultimate value of the idea as it makes its way to practice depends on a wide variety factors.”

The University of Michigan is among those universities that participated in the AUTM survey which produced significantly less in tech transfer revenue than was spent on total research expenditures and tech transfer management.

While U of M tech transfer revenue placed the institution among the top 25 earners among the 157 colleges that voluntarily supplied data to the AUTM for its annual survey, U of M’s earnings paled in comparison to that of institutions at the top of the list.

For example, according to the AUTM’s 2012 survey, Northwestern University spent $494 million dollars on research in 2011 and took in $191.5 million dollars in licensing income, a return of almost 45 percent on its investment. New York University spent $430 million dollars on research expenditures and earned $142.2 million dollars in licensing income, representative of a similarly stellar return on the university’s investment in research.

The Brookings Institution report reveals, “In 2012, a year very much in line with the ten-year trends in this sector, the top 5% of earners (8 universities) took 50% of the total licensing income of the university system; and the top 10 percent (16 universities) took 70 percent, nearly three-quarters of the system’s income.” According to the AUTM’s 2012 survey, total income from patents topped $1.8 billion dollars while total research expenditures exceeded $55.07 billion dollars for the 157 universities surveyed.

The University of Michigan is by no means the institution in the AUTM’s survey with the lowest return on its research dollars spent in 2011. Johns Hopkins University Applied Physics Laboratory invested $1.07 billion dollars in research in 2011 and earned only $1.4 million dollars in patent revenue. Oregon Science and Health University spent $334 million dollars in research expenditures and earned no patent revenue in 2011.

The Brookings Institution report used “tech transfer office expenses information…and found that 130 universities did not generate enough licensing income in 2012 to cover the wages of their technology transfer staff and the legal costs for the patents they file. What is more, with 84% of universities operating technology transfer in the red, 2012 was a good year because over the last 20 years, on average, 87% did not break even.”

Walter D. Valdivia authored the Brookings Institution report. He suggests a solution to the dilemma is a model that the University of Michigan has already embraced: a “nurturing start-ups model.”

Walter Valdivia said: “There’s a growing understanding, more in some places than in others, that it can’t just be about revenue. It’s about creating an entrepreneurial environment, about taking advantage of the strengths in your university and your region’s economy, and if you do that the benefits will follow.”

From venture capital to management, the University of Michigan Start-Up Assistance program  provides a “wide range of services and activities are available to help in the launch and early development of companies based on our technology.”

However, the number of start-ups launched by the University of Michigan is small in comparison to other universities on the AUTM list that invested similar amounts for research as well as universities that invested significantly less. In 2008, U of M launched 13 start-ups. In 2011, U of M launched 11 start-up companies.

Carnegie Mellon University invested a total of $251.2 million in research expenditures in 2011 and launched 10 start-ups. The University of Illinois invested $941 million in research expenditures in 2011 and launched 20 start-ups.

Thanks to drops in student enrollment, cuts to government funding and increasing Congressional scrutiny of student debt and tuition increases, colleges are eager to find new streams of revenue.

There has long been a debate within higher education about whether faculty should be entrepreneurs and whether their research labs should double as business incubators. Again, according to reporting by The New York Times, “That approach has been embraced for years in some disciplines, notably computer sciences, and at some universities, like Stanford, which has converted work done within its walls into minority stakes in high-tech companies including Google.”

The highest licensing revenue earners have become a select club with a stable membership. Only 37 universities have been able to reach the top 20 of licensing revenue any given year over the last decade.

In 2008, University of Michigan was ranked number 16 in the AUTM survey, among the top 10 percent of universities that took in 70 percent of the total patent revenue from among the universities surveyed.

David Lampe, while not addressing this slide in the rankings, per se, argued that, “While our core royalty income has been down a bit recently, its trend has been steadily upward and we expect that upward trend to continue in the long term.”

Two of the nation’s top patent owners reside in Michigan: General Motors Company ranked 8th in the nation with 6,250 patents granted from 2007 through March 2012, and Ford Motor Company ranked 19th with 3,124 patents during that same period of time.

As of 2011, the University of Michigan led the state’s universities with 92 issued, ahead of Michigan State University which holds 42 patents. U of M also leads Ohio State University. However, the University of California system leads the pack with 343 patents issued and 58 start-ups.