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State policies in promoting the commercialization of government funded… 12 STATE POLICIES IN PROMOTING THE COMMERCIALIZATION OF GOVERNMENT FUNDED RESEARCH AND DEVELOPMENT RESULTS Dr. Nguyen Quang Tuan National Institute for Science and Technology Policy and Strategy Studies Abstract: In recent years, the commercialization of scientific research and technological development (R&D) results (hereinafter referred to as commercialization) has received due attention of the Party and State. In reality, though it has achieved success, to some extent, in specific cases, commercialization or transfer of R&D results into production, life in our country in general is still a very difficult task. This study is to discuss some policy solutions to promote the commercialization of R&D results. Keywords: Commercialization of research results; Technology development; R&D; Policies; Mechanisms. Code: 14082901 1. Commercialization of research and development results and experience of some countries in the world In this paper, commercialization of R&D results is interpreted as the conversion of R&D results into production and life (Siegel et al., 1995; Goyal, 2006). Commercialization is a complex process, undergone through many different stages from formation of the research idea to successful introduction of the research results in market. Figure 1 is a simulation of the commercialization process as such. For successful commercialization, all the stages involved in the process needs to be successful, failure at any stage could lead to failure of the whole process. For example, it is hard to imagine that a bad research idea could lead to successful commercialization. Idea Idea assessment Development and Experimentation Proposal Support Finish Figure 1. The process of commercialization of R&D results Source: Goyal, 2006 However, a good idea does not necessarily lead to successful commercialization. Dhewanto et al., (2009), through their study on JSTPM Vol 3, No 3, 2014 13 Australia indicated that about 100 ideas would produce 10 development projects, out of which only one or two can be profitable. The idea which had been identified by the authors was an outcome of the study with a minimum cost. These authors also said that even in England and the US there was about half of the money that businesses spent on R&D projects never reached the market. This finding was consistent with many other studies (Figure 2). That is why Governments of many countries/ territories around the world have promulgated policies to support and promote the commercialization of R&D results. Figure 2. From ideas to successful commercialization projects Source: Rourke, 1999; Hindle, 2004 The intervention of the State to commercialization has been mentioned by researchers at least for more than a half century back. To demonstrate the need for the State’s intervention in commercialization, Arrow (1962) explained that the free market was not a favorable nature for technology transaction, especially technology was as the result of R&D. Without property rights protection, it would not be feasible to sell information in an open market, where any buyer can also reproduce and sell that information at negligible costs. This is one of the fundamental reasons for the State to be concerned of the market of R&D results. To promote the transfer of R&D results from universities into enterprises, in 1980, the Government of the United States enacted the Bayh-Dole Act (Bayh-Dole act 1980). This Act gave universities and small businesses in the United States the ownership of inventions created from studies using the State budget. According to the report of the US Government Accounting Office submitted to US Congress on 07th May 1978, prior to the Bayh-Dole Act came into effect, the accumulated number of protected patents owned by US Government was 28,000 titles, but only less than 5% of these patents was commercialized. Since the promulgation of this Act, American universities had accelerated the establishment of institutions for service and technology transfer to commercialize their research results. Bayh-Dole Act was considered to be a far-reaching impact on the commercialization of R&D results of American universities. It was therefore indicated by Ashley 14 State policies in promoting the commercialization of government funded… (2004) that "Bayh-Dole Act 1980 was the most inspiring act in the United States over the past half century" (p. 93). Stevenson-Wydler Act 1980 of the United States on technology innovation required Federal laboratories be responsible for technology transfer activities; Federal laboratories must allocate a certain percentage of funding for technology transfer, establishment of Office of Research and Technology Applications (ORTA) and each ORTA must have at least one permanent full-time staff to be in charge of the coordination and promotion of technology transfer. The Stevenson-Wydler Act also requested that the head of the agency or laboratory pay initially for the author or co-author of the original patent US$ 2,000 plus at least 15% royalty for a patent license, but it could not exceed US$ 100,000 a year for a patent. This amount was increased to US$ 150,000 under the National Technology Transfer and Advancement Act of 1995. In US laboratories, the rate of royalties distributed to scientists was from 15%, as minimum, up to 40% of the value of the licensed technology (Table 2), depending on specific sectors. Most of the laboratories of the US Ministry of Defense operate under the guidance of this Ministry, i.e, paying for inventors US$ 2.000 plus 20% royalties for technology license, but it could not exceed US$ 150,000 a year for a patent. Table 2: Share of royalties of some US laboratories Laboratories Proportion of royalties shared to inventors Commander of the naval and space war systems 40% National Laboratory of Lawrence Livermore 35% National Laboratory of Lawrence Berkeley 35% Agricultural Research Service Laboratory 25% Air Force Research Laboratory 20% Laboratory of Department of Health and Human Services National Northwest Pacific Laboratory 15 - 25% 15% Source: Hughes et al., 2011 In 1982, the US Congress passed the Small Business Innovation Development Act and the Program on Small Business Innovation Research (SBIR) was officially launched. The 1982 SBIR program specified that all departments and agencies of the US Government having research programs outside university with funding over US$ 100 billion, must create SBIR program of their own with an allocation of fund of 0.2% of their total budget for research. In 1987, this fund allocation for SBIR increased to JSTPM Vol 3, No 3, 2014 15 1.25%. In 1992, the Small Business Innovation Development Act was replaced by the amended Act on Research programs for Small business innovation where the rate for SBIR rose to 1.5%. Since 1997, agencies must set aside 2.5% of their research funding for SBIR. With such a requirement of funding for R&D in businesses, SBIR program became the largest program of technological innovation in the United States. The success of SBIR program in the United States has created spillover effects to many countries around the world such as Japan, Korea, Taiwan, Malaysia… For example, according to Branstetter and Sakakibara (1998), the Japanese research consortia in high-tech industries received an average of two thirds of the expenditure of research projects from the government of Japan. Some projects can be fully funded by the Government. The above authors also said that businesses involved in the research consortia had spent more money on R&D compared to those not involved in the consortia. It could be seen that the Japanese government's support contributed a lot to the promotion of business to make investment in technological innovation. With respect to the case of Malaysia, Chandran (2010) mentioned that the Malaysian government had issued many incentive mechanisms and policies to encourage the participation of private sector in R&D. Financial incentives include the exemption of corporate income tax for those enterprises being recognized as pioneer business or the double deduction for R&D expenditure and some other favourable financial policies. Also according to Chandran (2010), the Government of Malaysia established the Industrial Research and Development Grant Scheme (IGS) with an initial budget of 100 million RM1 to promote market oriented R&D projects. The Commercialization of Research and Development Fund (CRDF), Technology Acquisition Fund (TAF) were established in 1997 to accelerate and upgrade the domestic technological capability development. CRDF and TAF received initial government grant of RM 63 million and RM 118 million RM respectively. In the 7th, 8th and 9th five-year plan these figures were increased to RM 110 million and RM 250 million respectively for these two funds. With the effort made by the Government of Malaysia, the commercialization of R&D results of this country has obtained a certain progress. Some S&T organizations have achieved success in commercializing their research results, namely University of Putra Malaysia, University of Sains Malaysia and a number of other S&T institutions. However, according to Chandran (2010), in general the level of 1 1 Malaysian Ringgit (RM) was about US$ 0.32; RM 100 million was equivalent to 32 million US dollars. 16 State policies in promoting the commercialization of government funded… commercialization of R&D results of the public research program in Malaysia was not high. A survey to 5,232 research projects in public research institutes and universities carried out during the 6th and 7th fiveyear plan of Malaysia showed that 14.1% of the research projects was considered as having potential commercialization and only 5.1% of the surveyed projects was successfully commercialized (Chandran, 2010). Also according to Chandran (2010), there existed many causes of the limited commercialization of R&D results in Malaysia, including shortage of seed money, lack of venture capital for commercialization, poor cohesion between universities, research institutes and enterprises, low capacity of enterprises to absorb new knowledge and technology. 2. An overview of the current status of commercialization of R&D results using State budget in Vietnam Table 3: Summary of survey questionnaires Number of research themes Survey questionnaire scale Number of responses received Machine manufacturing 427 97 14 + (12) Chemical technology and chemical industry 113 55 7 + (14) Agriculture and forestry 360 117 14 + (31) Fisheries 135 31 4 + (11) Total 1035 300 39 + (68) Field of research Source: Results of the research theme: Number of responses collected Nguyen Quang Tuan, 2013 To assess the status of commercialization of R&D results using the State budget, the author of this paper together with a research team has collected a list of all research projects at national, ministerial level completed in the period 2005 - 2010, archived at the National Agency of Science and Technology Information. Among applied research projects, the research team chose 04 fields to survey i.e., machine manufacturing, chemical technology and chemical industry, agriculture and forestry, and fisheries (Table 3). In line with the above field study, the researchers used Excel to randomly select 300 research projects and sent questionnaires by post to host agencies/institutions in charge of scientific research themes. The number of randomly selected research themes of each field is shown in Table 3. After sending questionnaires to host agencies/institutions, the research group continued to contact them to confirm that the questionnaires was sent to JSTPM Vol 3, No 3, 2014 17 correct addresses. During the 03 month period, representative members of the team regularly contacted by phone with the agencies/institutions with a view to increasing the number of responses. Finally, there were 39 written responses officially received by the research group. After receiving 39 responses, the researchers continued to contact with the agencies/institutions by phone and email to collect additional information regarding the actual status of commercialization of the results of research projects. Apart from 39 written responses received, 68 personal interviews were implemented at institutions in charge of research projects, bringing the total number of surveyed research projects up to 107. The number of host research institutions answered the questions by phone and email was shown in parentheses in Table 3. However, the quality of responses to the questionnaire by phone was not as expected. Anticipated the difficulty in studying the current situation of commercialization of R&D results in Vietnam, the research team, while collecting additional information over the phone, just concentrated on one question, i.e., “Could you tell us the form in which the results of your research project have been transferred?”. Number of research project 12 10 8 6 4 2 0 Patent applies to Research Domestic Trade the production of agreements with Agreement business enterprises Direct sale Agreement Licensing of Trade agreement providing S&T patent protected with foreign services country Created S&T enterprises Figure 3: Some modalities of commercialization of R&D results Source: Nguyen Quang Tuan, 2013 There were 193 research projects, in total, not sending response in any form (neither directly by post nor by phone or email) for many different reasons: some agencies did not provide phone numbers of the project leaders, some others said that they did not know the project leader’s address and phone number as it was not the requirement because the agency was just interested in receiving the research results; in some cases it was said that project leaders had retired or moved to other assignment for a long time, that why the agency could not contact them for information of concern, in some 18 State policies in promoting the commercialization of government funded… extreme cases, agencies said they were no longer interested in the research project as it had been evaluated, satisfactorily accepted by the acceptance panel and it was now considered completed and closed, no more to say about the project. Regarding the transfer of research results directly to the production, out of 107 research projects (Figure 3), 10 said that there were inventions/utility solutions created by their research project been applied in production and business. A surprising thing was that 6 out of 10 projects did not remember or could not specify the destination of their research results when were asked about the business address where the research results had been applied. It was noted that out of the 04 projects having patent or solution applied in production, two failed to reach the market and other two could not determine their economic efficiency after being introduced into practice. Some project leaders said that based on the results of their research, they had reached agreement with businesses so as to conduct further research or provide advisory services to them in order to further improve the technology transferred. Results of direct transfer of technology into production showed that the rate of successful commercialization in the surveyed fields was not high. Out of the 107 accepted research projects, only 01 project was commercialized in the form of establishment of a startup S&T enterprise. Unfortunately, during the survey the researchers failed to collect relevant information on the status of this enterprise. Some previous studies also showed the rate of research results that could be potentially commercialized. For instance, Nguyen Lan Anh (2003) commented that in the agricultural sector "only 10% of the research budget was effectively used" (p.12). Meanwhile, Ho Duc Viet (2006) believed that the rate of commercialized R&D results in our country could be from 1215%. This study showed that the rate of commercialization of 107 projects did not likely exceed 10%. It was observed that this figure was constant in recent years. The status of commercialization described above was due to many different causes. The most notable causes mentioned by project leaders were: (1) lack of funding for experimental research and perfection of technology; (2) Lack of State policy to promote the commercialization of R&D results; (3) lack of investment by venture capital; (4) lack of support from the host organization; and (5) the technological need of enterprises is low (Figure 4). The commercialization rate of research projects in the surveyed especially the rate of successful commercialization was very low. world, it was very popular that commercialization was undertaken form of technology licensing and creation of S&T enterprises, but fields, In the in the it was JSTPM Vol 3, No 3, 2014 19 not the case for our country because the majority of research projects could not create new technologies with breakthrough character. So it was hard to find out a typical commercialized project to replicate for the economy as a whole. Figure 4: Factors hindering the commercialization of research results Source: Nguyen Quang Tuan, 2013 3. Current status of incentive policies to promote the commercialization of R&D results in Vietnam In respect of the ownership of R&D results, it was clearly stipulated in the Law on Technology Transfer in 2006: “The State gives the technology ownership to R&D institutions which have produced R&D results obtained by using the State budget, unless otherwise stipulated by laws" (Article 40). However, the Law on Science and Technology in 2013 stipulated that "Minister of Science and Technology (MOST) is the representative owner over the results of scientific and technological tasks at national level. Line ministers, heads of ministerial-level agencies, agencies of the government, other central state agencies, Chairpersons of provincial people's committee are representative owners of the results coming from S&T tasks at ministerial, provincial level, and approved by themselves" (Article 41). Thus, there is difference between the two laws developed by the MOST. In this respect, it is very necessary to make adjustment of these two laws for consistency and synchronization. In view of commercialization, it was noted that no one who directly involved in commercialization could be representative owner of R&D results funded by State Budget as stipulated in the Law on Science and Technology. In order for commercialization, representative owners will have to further delegate the ownership to S&T institutions concerned just like the Bayh-Dole Act of the United States or Law on Technology Transfer of Vietnam. For that reason, the Law on 20 State policies in promoting the commercialization of government funded… Science and Technology 2013 has provision that representative of state ownership “has full jurisdiction to hand over all or part of the ownership or right to use of the R&D results created using the State budget in line with the Government's regulations applied to institutions performing S&T tasks”. Law on Science and Technology 2013 defines the responsibility for application of R&D results (Article 44), which says: “Organizations and individuals in charge of performing S&T tasks shall have direct responsibility for or participation in the application of R&D results in production, life under R&D contracts following the requirement and instruction of the demand side, except in force majeure cases". Responsibility of organizations and individuals in the application of S&T achievements stated in the Law on Science and Technology 2013 is similar to the provision of the Stevenson-Wydler Act 1980 of the United States applied to Federal Laboratories. The difference here is that Vietnam has not had a specific policy to enforce the provision of their Law on Science and Technology. To promote the commercialization of R&D results using the State budget, the Law on Technology Transfer allows enterprises to use assets owned by the State as mortgage for technology transfer transaction (Article 41). Organizations and individuals have the right to transfer technology, use technology as capital contribution to technology investment projects (Article 43). With regard to distribution of income gained from technology transfer which was supported by the State budget, Article 42 of the Law on Technology Transfer specified: (1) Collectives and individuals creating technology shall be entitled with a percentage of the selling price of the products produced by the technology within a maximum of ten years, if the host organization of R&D by itself uses the technology in production; (2) Collectives and individuals creating technology shall be entitled with 20% to 35% of the revenue earned from the transfer of technology contract; and (3) After paying remuneration to collectives and individuals creating technology, the technology owner shall use the remaining 50% of income for further investment in scientific research and technological development, 50% for infringe benefits or bonuses. The Law on Science and Technology 2013 also stipulates that profit from the application of R&D results can be considered as a shared capital in investment, quote “Profits obtained from the use or transfer of right to use, transfer or shared capital earned by the application of R&D results using State budget shall give to the technology JSTPM Vol 3, No 3, 2014 21 authors at least 30%”. Once again, these two laws above should be adjusted to become consistent to each other. In addition to the state regulations related to commercialization of R&D results as mentioned above, the government has also issued a number of mechanisms and policies such as Decree No. 115/2005/ND-CP on the autonomy, self-responsibility mechanism applied in public S&T institutions, i.e “S&T organizations shall be granted with business registration permit; be allowed to realize joint-venture production with organizations and individuals at home and abroad; direct export, import technologies and products in the fields of competence of S&T institutions in pursuance with law provisions; be allowed to participate in bidding to perform contract of manufacturing and supply of goods and services consistent with their fields of competence" (Article 6). The government has also promulgated incentive policies to support S&T enterprises. For example, S&T enterprises are granted with the use of IP right or the State-own S&T results; are exempt of tax or enjoy reduction of corporate income tax; eligible costs are applied when calculating taxable income for R&D activities as well as production, service activities involved under the competence of the R&D institution and in line with the prevenling provisions of law; be exempt from the registration fee applied for land use rights, house ownership; and can enjoy preferential policies for getting investment credit of the Development Bank of Vietnam, the Fund for Science and Technology Development and other funds as prescribed by law to implement investment projects in production... (Decree No. 115/2005/ND-CP and Decree No. 80/2007/ND-CP). In general, the state agencies have recently made constant efforts to promulgate mechanisms and policies to promote the commercialization of R&D results. The provisions of laws already touched upon various important aspects such as responsibilities of organizations and individuals in the commercialization process, measures to ensure the transfer of intellectual property, distribution of benefits gained from the commercialization of intellectual property. However, there were still many difficulties when applying these provisions in practice due to some provision were too general, in the meantime specific policies needed for the deployment of provisions of law had not been issued. Some regulations are not positively encouraging commercialization activities (for example, provisions on benefit sharing in the Joint Circular No. 93/2006/TTLT/BTCBKHCN, Article 17 of the Law on Corporate Income Tax regarding the establishment of funds for S&T development in enterprises, etc.)