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The problems of technology transfer
0172-2190,81!04 0167-05 SO2.00/0 Pergamon International Information Corp. 0 1981 CECjWIPO
world Patent In/ormotion. Vol. 3, No. 4, pp. 167-171, 1981. Printed in Great Britain
The Problems of Technology Transfer Dr. rer. nat. Immanuel Franke, Generalbevollmtichtiger Direktor i. R. der Siemens Aktiengesellschaft
Summary
Some figures for comparison from the corresponding period :
The following discourse represents a speech given by the Author at a meeting of the Directorate-General Information Market and Innovation of the Commission of the European Communities held on June 10, 1981 in Luxembourg.
Electrical industry Europe : DM 289 milliard DM 303 milliard Electrical industry USA : DM 1025 milliard Electrical industry world : All measures for promoting scientific/technological information and their dissemination, or for promoting innovation, whether they are financed publically or by private industry, cannot be dealt with separately from the actual transfer conditions for technology.
The Author demonstrates the fundamental and practical difficulties which are opposed to the urgently desirable transfer of technology (an information market promoting innovation). The second part of his statement concerns the problem of transferring technological/scientific results of government-supported research to industry, so that it can be exploited industrially and commercially.
Therefore, I should not like to outline my views on the significance of a satisfactory technology transfer without firstly pointing out to you, taking our firm as an example, the extraordinarily high costs which are necessary in order to maintain a technological position or lead which will allow innovations intended to bring about commercial success.
The Directorate-Genera1 ‘Information Market and Innovation’ of the Commission of the European Communities invited me to a symposium intended to examine the transfer and evaluation of scientific and technological information, and charged me with the task of expounding the opinion of an industrialist on technology transfer. This topic relates to very varied technologies ; technologies which are so different that it is not possible for one individual to form an independent judgement. Moreover, it also involves legal and political questions. I can speak to you on this general topic of the transfer of scientific and technological information only if I make this speech in accordance with this theme and put forward opinions which arise from practical experience in one industry. Therefore, I speak to you from my experience which I have been able to gain in almost twenty years with a large enterprise in the electrical industry, the Siemens Aktiengesellschaft.
In a worldwide turnover of our firm of DM 32 milliard. the cost of research and development amounted to approximately DM 3.1 milliard, i.e. a good 9”, of turnover. In view of the fact that in the broad spectrum, which I have already mentioned, there are areas which may be considered to be conventional and are not subject to sudden development, the costs of the actual peak technologies (you may imagine them as such) are considerably higher than 9”,. To these costs it is necessary to add approximately another DM 200 million for the further education of technical staff. The pure costs of research and development are thus about DM 15 million per working day. No fewer than 30 000 workers, plus 3000 abroad, are employed in the field of research and development. It may be of interest that about 2/3 of the development costs were spent on new, high-risk developments, i.e. for future security, and about l/3 on the further development of existing products and systems, i.e. adaptation to market requirements etc.
The electrical industry is now a key industry covering a wide sector : data processing, telecommunications, the entire sphere of power technology, from power generation and distribution to power consumption, and finally also electromedical technology belong thereto. I speak from experience with a firm which operates in private industry, employs over 340000 workers, of which about 110 000 are abroad, and has foreign business of a good 50%. I thus believe that the views which I shall put forward have been formed on a relatively broad basis and are certainly typical for the German economy in respect of their export-orientated nature.
This expenditure is an essential basis for the existence of an enterprise with foreign business of a good 509~, since the rate of innovation must stand firm in the face of worldwide competition. In order to illustrate the huge expenditure on research and development with another figure, which I believe is probably the most impressive, I would like to state the following :
In 1980, Siemens had a turnover of DM 32 milliard. 167
I. Franke
168
Whereas we thus spend more than DM 3 milliard (with furthereducation costs even 3.3. milliard) on technological further development, i.e. for the basis of innovation, in the same period we spend only DM 2.2 milliard, of which 700 million abroad, on all investments in our enterprise, i.e. for buildings, machinery etc. Especially increase in more than continuous
remarkable is the fact that the rate of research and development in our firm has doubled in the last decade. Innovation is a task, product life is constantly diminishing.
These figures clearly illustrate the paramount importance which is attached to the acquisition of technological know-how and the conversion thereof into practical application in present-day industry. The figures quoted by me are by way of example. In principle, they may be projected for many innovationintensive industries, with the necessary differences according to the trade. Accordingly, the principal investment of these industries no longer lies in property and equipment but in acquiring by their own efforts the technology required for their own works, for their associated companies at home and abroad, and also for cooperation with governmental institutions. Please keep this fact especially in mind in the course of the following discussions on the priority given to the technological level and technology transfer in modern industry. In this context, it should be of interest that we receive only a relatively insignificant covering contribution towards research and development costs by way of revenue from patent licences and, above all, from contracts on technology transfer. Of course, on the one hand, this is in line with our general licensing policy: we do not consider ourselves as a commercial enterprise for patent licenses or technical know-how. On the other hand, so as not to give rise to any misconceptions, I wish to emphasize that the revenue from contracts with our associated companies contributes to a considerably lesser extent to licence revenue than would correspond to the scope of the contracts concluded with these companies. I consider this to be an unsatisfactory situation and a regrettable development which, above all, concerns our companies in thirdworld countries. You are all aware that in most developing countries no payments are possible for technology transferred in a parent/subsidiary relationship. In other words, this means that an enterprise which, by technology transfer. is engaged in the development of industry in the third world has to do this at the cost of competitiveness on its home market, since sales on the home market have essentially to bear the costs of research and development. Countries with a large home market have an immediate advantage over us here. Now a word on the expectancy of success of the resources devoted to research and development. One renowned
industrial
research
institute
is of the
opinion that about 607; of research and development projects undertaken lead to a technical result, that about 30% are put into production and only about 10% bring about commercial success. Here I would like to stress that this is an extremely optimistic assessment ; other institutions give considerably lower chances of success. This is also an important part of the background which we have to bear in mind when discussing problems of technology transfer. Now, we do not only have to consider the research and development costs. An industry which grants licences has to bear quite considerable additional costs for the commencement of manufacture, besides investment and losses often lasting for years until market penetration of a new product is achieved. I believe that all these figures quoted by me make it evident that for industry and the economic system as a whole the acquisition, evaluation and transfer of scientific and technological information are of fundamental importance and any obstruction of this trade constitutes serious interference with the economic system, namely with international competitiveness, job security, income and the stability of currency. Therefore, innovation is only possible if the economic basis is secure. Ladies and gentlemen, I now take the liberty of adding some general thoughts on the topic under consideration. In essence, technology transfer is composed of three parts, i.e. the forwarding of the technical documentation, the training of staff and making available production equipment. These three phases of technology transfer respectively increase by one order of magnitude in their duration and financial cost. Technology transfer is not only a question of granting patent licences. As stated, these constitute only a limited part of ever-increasing flow of technological transfer which, predominantly, is supplied by the industrially developed countries. We have already become almost accustomed, in the context of the keyword ‘technology transfer’, to thinking of the relationship industrial&d countries/developing countries. It is indisputable that great problems are still to be overcome in relation to these groups of countries. In my opinion. it is also vital for us to make available to the countries of the third world methods and means which are suited to improving the economic and industrial structures in these countries. However, with regard to this serious and demanding problem it should not be forgotten that the exchange of technology between the industrialised nations is just as necessary, above all, to the Western world as the exchange with the developing nations. The complexity and the dynamics of technological progress compels even enterprises of any size in the technologically highly developed nations to exchange their knowledge among one another in licensing or cooperation agreements. In view of the figures quoted by me at the outset concerning research and development costs, the necessity of this type of technology transfer imposes itself
The Problems
between
enterprises
in industrial&d
of Technology
nations.
We have established that technology transfer is necessary. It is also desired by enterprises in the industrial&d and developing countries. I am convinced that all these firms have a vital interest in a transfer of technology which is free from obstructions and limitations. In my view, this is a logical consequence of the fact that anyone acquiring something by their own efforts, particularly if it involves a product of intellectual effort, should endeavour to find an exchange and application so as to be reimbursed for the resources required for its acquisition. Only in this active handling of technological knowledge is there given the prerequisite for further progress. The free exchange of technological knowledge is theoretically possible. In practice, however, it merely remains an ideal, since all types of national red-tape increasingly obstructs this exchange. Ladies and gentlemen, expectations in technology transfer and its possibilities could be sadly disappointed if all interested parties do not reach an understanding that certain rules are to be observed. Allow me to emphasize the following with regard to the relationship with the developing countries: When an enterprise decides to transfer technology, it must be certain of receiving an equivalent therefor in one form or the other. I have already mentioned previously that in this connection, for example, the situation in a parent/subsidiary relationship is highly unsatisfactory. It is primarily the task of a politician to seek ways and means of breaking down prejudices. I am convinced that industry in the Western world will do its utmost, also in the future, to make its contribution. Purely from the point of view of private industry, it is definitely in our interests for these countries to become industrial&d. One has only to consider the high volume of trade between industrialised nations and the low volume between an industrial&d country and a country still in the course of development. The developing nations would harm themselves if they were to impose on potential technology suppliers conditions which would not enable the suppliers to make the profits required for the continuation of research and development. Furthermore, I wish to add the following: The transfer of technology will only be able to meet in future the expectations placed thereon, if the parties to a technology-transfer contract remain in a position to establish the essential terms of such a contract with sole responsibility. In my view, in this connection, three essential points have to be considered : We are often confronted by attempts to burden the technology supplier with the risk of the economic SUCCESS of a technology transfer. If one real& how complicated the procedure of technology transfer is, the acceptance of the risk of success far exceeds the
Transfer
169
entrepreneurial risk which the supplier is able to bear. I do not wish to imply that the supplier should bear no risk at all. My plea at this point is for a reasonable sharing of the risks. One-sided arrangements to the debit of the supplier must, in my opinion, necessarily lead to a reduction in technology transfer, an undesirable outcome for both sides. The second point concerns the remuneration. This must be reasonable. In my view, the parties themselves must decide on the adequacy and not national authorities or ministries. The parties are not only competent, but take responsibility for success and also take the consequences, in the event of failure. Therefore, I consider to be rather naive those national regulations which are already widely applied nowadays and which provide for maximum limits of remuneration, irrespective of the nature and value of the technology. Please remember my previous comments regarding our expenditure on research and development. commencement of manufacture and market penetration. The third point concerns the fact that many countries only authorise contracts, if the recipient of the technology is offered the possibility of marketing its products without territorial limitation, even in the country of the technology supplier and in countries which represent its traditional sales territory. The consequence of this must then be a decrease in technology transfer. Only theorists can expect that unrestricted export decontrol will stimulate competition here. One must be fully aware of the fact the recipient is receiving proven technology. Its production methods will be substantially similar or identical to those of the technology supplier. with the result that any technical competition between the parties will be excluded in practice. Competition is concentrated on price competition which, of course, the technology recipient can much better withstand than the supplier, because (as already explained) the recipient comes into possession of the technology in a financially much more favourable manner than the supplier. I have already told you previously of how great the success rate of research and development expenditure is. The recipient does not run the risk of setbacks, since he is able to choose proven technology. A lot more could be said on this topic; however, my set time limit prohibits me from further detailed reflections. Nevertheless. I do not wish to leave the topic of developing countries without pointing out with respect thereto that the UN conference on an international code of conduct for technology transfer broke down in April this year. In spite of this. such a code of conduct has already been converted into national law and practised by many developing countries. What legal position have we in the European munity which naturally is of great interest because of its practical importance?
Comto us
170
I. Franke
When one is involved on a large scale with problems of research and development, and it is necessary to consider how the research and development activity should be organ&d more advantageously, one also encounters the question of whether one should not cooperate with other firms, in view of the research costs which are enormous in some cases. However, upon studying the legal admissibility, one encounters the known decision by the Commission in the case of Henkel-Colgate. The decision related to research cooperation in the sphere of detergents. In the arguments in support of the decision, the Commission stated that the announced agreement would result in the parties to the contract arrivingjointly and simultaneously at their aim, namely of SO further developing and improving quality and applicability that they would clearly stand out against the products of competitors. The Commission argued that, because of the joint evaluation of research results, the parties to the contract would have the possibility of introducing on to the market the competitive method of production improved by individual research, which would be effective for the purpose of achieving an advantage over the other. I consider this decision to be too narrow since, in my opinion, sufficient allowance has not been made for economic necessities. Perhaps, the Commission’s decision in the case of Vacuum Interrupters, of 11 th December 1980, signifies a change in the Commission’s decision practice. In this decision the Commission approved an agreement on joint research in the field of vacuum interruptors and, in doing so, appreciated in particular the economic advantages of such cooperation. The second point that I should like to consider is the fact that no territorial sales limitation should be agreed in the case of know-how licencesin the EC. I regard this to be a serious point, since I believe that it must lead to a know-how supplier definitely having to consider whether, as a result of a technology-transfer contract with a party in the EC, he will not attract a competitor who will impair the product sales necessary for financing the supplier’s research and development projects. In principle, this corresponds to the objection which I have already expressed in connection with territorial limitations in contracts with enterprises from developing countries, with the difference perhaps that, with a party in the EC, the financial terms can be negotiated on a more personal basis. Now a few words on the important problem of exploiting the results of publicly supported research. The interest shown by industry in the optimum exploitation of the results of publicly supported research cannot be less than the interest which it has in the exploitation of its own research and development results. Certainly, it is also necessary for the public authorities to endeavour to evaluate the results, i.e. to seek a follow-up study for the public research support since the tax funds spent are very considerable (reck-
oned in milliards). A great abundance of results of this research is present in reports, patents etc., which are administered and even partly stored in data banks. Nevertheless, I have the impression (and I do not think I am alone in this) that the flow to the potential user does not yet function satisfactorily. The symposium will no doubt consider in detail the difficulties of making the data available and of transfer. However, I wish to make a number of points, as I see them, on the problem of utilising the results of publicly supported research, without claim to any completeness : The taxpayer is entitled to expect that an efficient exploitation of the results is sought. Industry should also take this question very seriously in its own. wellunderstood interests. Where do the difficulties lie? Above all in two points: Experience has shown that research and development results are often too abstract and, therefore, it is not at all possible to estimate the risks for the expense to be incurred and for possible production etc. ; frequently, there is not even a prototype in existence. Small and medium-sized industries in particular are afraid (sometimes to an exaggerated extent) that they will not achieve any returns for their outlay and investment until the production stage is reached, since in many countries it is often difficult, for legal and administration reasons, to obtain exclusive rights. Even if (as mentioned initially) at an optimistic estimate, only 1O”,, of the individual research and development costs of industry lead to commercial success, a higher degree of efficiency cannot be expected for publicly supported research. since in this case additional losses are to be expected in the transfer to industry. We should not allow ourselves to be discouraged by today’s still low success rate, but we should follow up and support all endeavours which could lead to an improvement of the utilisation of research and development results from research projects of public authorities. However, we do not believe that any costly, special administrative structures should be newly established. The efficiency of existing institutions has proven to be too low. The National Technical Information Service in the USA, for example, with 450 employees and with an available supply of about 20 000 patents was able to grant in 1979 only 8 non-exclusive licences and 1 exclusive licence. It would seem prudent to proceed cautiously and to examine new concepts (limited by time and relevance) with respect to their practical suitability. When necessary. new structures should be established only when practical success is accompanied by justifiable expenditure. I trust that my statements have demonstrated the enormous part played by intellectual property in a modern industry. The free transfer of technological/
171
The Problems of Technology Transfer scientific information, i.e. an information market, is essential for the vitality of the economy. Any barriers which obstruct this free information market, for whatever reasons in Europe or with respect to third-world countries, are at the expense of the innovativeness of industry. If one considers the progress which nonEuropean countries have made technologically in the last decades, one wonders whether we can allow ourselves such rules and regulations. Likewise, it is necessary to utilise better than hitherto the results of publicly supported research. I thank the Directorate-General
and Innovation’ for giving me the opportunity to demonstrate the vital interest which European industry has in technology transfer in all directions, between public authorities and industry, between industries of highly industrialised countries, as well as between these latter and the industries in the developing countries (in brief in a free information market governed by economic laws). I do not wish to be misunderstood. Every market requires market controls and requires standards, but not general prohibitions, in this case general transfer prohibitions with exemption authorisations.
‘Information Market
4
world Patent In/ormotion. Vol. 3, No. 4, pp. 167-171, 1981. Printed in Great Britain
The Problems of Technology Transfer Dr. rer. nat. Immanuel Franke, Generalbevollmtichtiger Direktor i. R. der Siemens Aktiengesellschaft
Summary
Some figures for comparison from the corresponding period :
The following discourse represents a speech given by the Author at a meeting of the Directorate-General Information Market and Innovation of the Commission of the European Communities held on June 10, 1981 in Luxembourg.
Electrical industry Europe : DM 289 milliard DM 303 milliard Electrical industry USA : DM 1025 milliard Electrical industry world : All measures for promoting scientific/technological information and their dissemination, or for promoting innovation, whether they are financed publically or by private industry, cannot be dealt with separately from the actual transfer conditions for technology.
The Author demonstrates the fundamental and practical difficulties which are opposed to the urgently desirable transfer of technology (an information market promoting innovation). The second part of his statement concerns the problem of transferring technological/scientific results of government-supported research to industry, so that it can be exploited industrially and commercially.
Therefore, I should not like to outline my views on the significance of a satisfactory technology transfer without firstly pointing out to you, taking our firm as an example, the extraordinarily high costs which are necessary in order to maintain a technological position or lead which will allow innovations intended to bring about commercial success.
The Directorate-Genera1 ‘Information Market and Innovation’ of the Commission of the European Communities invited me to a symposium intended to examine the transfer and evaluation of scientific and technological information, and charged me with the task of expounding the opinion of an industrialist on technology transfer. This topic relates to very varied technologies ; technologies which are so different that it is not possible for one individual to form an independent judgement. Moreover, it also involves legal and political questions. I can speak to you on this general topic of the transfer of scientific and technological information only if I make this speech in accordance with this theme and put forward opinions which arise from practical experience in one industry. Therefore, I speak to you from my experience which I have been able to gain in almost twenty years with a large enterprise in the electrical industry, the Siemens Aktiengesellschaft.
In a worldwide turnover of our firm of DM 32 milliard. the cost of research and development amounted to approximately DM 3.1 milliard, i.e. a good 9”, of turnover. In view of the fact that in the broad spectrum, which I have already mentioned, there are areas which may be considered to be conventional and are not subject to sudden development, the costs of the actual peak technologies (you may imagine them as such) are considerably higher than 9”,. To these costs it is necessary to add approximately another DM 200 million for the further education of technical staff. The pure costs of research and development are thus about DM 15 million per working day. No fewer than 30 000 workers, plus 3000 abroad, are employed in the field of research and development. It may be of interest that about 2/3 of the development costs were spent on new, high-risk developments, i.e. for future security, and about l/3 on the further development of existing products and systems, i.e. adaptation to market requirements etc.
The electrical industry is now a key industry covering a wide sector : data processing, telecommunications, the entire sphere of power technology, from power generation and distribution to power consumption, and finally also electromedical technology belong thereto. I speak from experience with a firm which operates in private industry, employs over 340000 workers, of which about 110 000 are abroad, and has foreign business of a good 50%. I thus believe that the views which I shall put forward have been formed on a relatively broad basis and are certainly typical for the German economy in respect of their export-orientated nature.
This expenditure is an essential basis for the existence of an enterprise with foreign business of a good 509~, since the rate of innovation must stand firm in the face of worldwide competition. In order to illustrate the huge expenditure on research and development with another figure, which I believe is probably the most impressive, I would like to state the following :
In 1980, Siemens had a turnover of DM 32 milliard. 167
I. Franke
168
Whereas we thus spend more than DM 3 milliard (with furthereducation costs even 3.3. milliard) on technological further development, i.e. for the basis of innovation, in the same period we spend only DM 2.2 milliard, of which 700 million abroad, on all investments in our enterprise, i.e. for buildings, machinery etc. Especially increase in more than continuous
remarkable is the fact that the rate of research and development in our firm has doubled in the last decade. Innovation is a task, product life is constantly diminishing.
These figures clearly illustrate the paramount importance which is attached to the acquisition of technological know-how and the conversion thereof into practical application in present-day industry. The figures quoted by me are by way of example. In principle, they may be projected for many innovationintensive industries, with the necessary differences according to the trade. Accordingly, the principal investment of these industries no longer lies in property and equipment but in acquiring by their own efforts the technology required for their own works, for their associated companies at home and abroad, and also for cooperation with governmental institutions. Please keep this fact especially in mind in the course of the following discussions on the priority given to the technological level and technology transfer in modern industry. In this context, it should be of interest that we receive only a relatively insignificant covering contribution towards research and development costs by way of revenue from patent licences and, above all, from contracts on technology transfer. Of course, on the one hand, this is in line with our general licensing policy: we do not consider ourselves as a commercial enterprise for patent licenses or technical know-how. On the other hand, so as not to give rise to any misconceptions, I wish to emphasize that the revenue from contracts with our associated companies contributes to a considerably lesser extent to licence revenue than would correspond to the scope of the contracts concluded with these companies. I consider this to be an unsatisfactory situation and a regrettable development which, above all, concerns our companies in thirdworld countries. You are all aware that in most developing countries no payments are possible for technology transferred in a parent/subsidiary relationship. In other words, this means that an enterprise which, by technology transfer. is engaged in the development of industry in the third world has to do this at the cost of competitiveness on its home market, since sales on the home market have essentially to bear the costs of research and development. Countries with a large home market have an immediate advantage over us here. Now a word on the expectancy of success of the resources devoted to research and development. One renowned
industrial
research
institute
is of the
opinion that about 607; of research and development projects undertaken lead to a technical result, that about 30% are put into production and only about 10% bring about commercial success. Here I would like to stress that this is an extremely optimistic assessment ; other institutions give considerably lower chances of success. This is also an important part of the background which we have to bear in mind when discussing problems of technology transfer. Now, we do not only have to consider the research and development costs. An industry which grants licences has to bear quite considerable additional costs for the commencement of manufacture, besides investment and losses often lasting for years until market penetration of a new product is achieved. I believe that all these figures quoted by me make it evident that for industry and the economic system as a whole the acquisition, evaluation and transfer of scientific and technological information are of fundamental importance and any obstruction of this trade constitutes serious interference with the economic system, namely with international competitiveness, job security, income and the stability of currency. Therefore, innovation is only possible if the economic basis is secure. Ladies and gentlemen, I now take the liberty of adding some general thoughts on the topic under consideration. In essence, technology transfer is composed of three parts, i.e. the forwarding of the technical documentation, the training of staff and making available production equipment. These three phases of technology transfer respectively increase by one order of magnitude in their duration and financial cost. Technology transfer is not only a question of granting patent licences. As stated, these constitute only a limited part of ever-increasing flow of technological transfer which, predominantly, is supplied by the industrially developed countries. We have already become almost accustomed, in the context of the keyword ‘technology transfer’, to thinking of the relationship industrial&d countries/developing countries. It is indisputable that great problems are still to be overcome in relation to these groups of countries. In my opinion. it is also vital for us to make available to the countries of the third world methods and means which are suited to improving the economic and industrial structures in these countries. However, with regard to this serious and demanding problem it should not be forgotten that the exchange of technology between the industrialised nations is just as necessary, above all, to the Western world as the exchange with the developing nations. The complexity and the dynamics of technological progress compels even enterprises of any size in the technologically highly developed nations to exchange their knowledge among one another in licensing or cooperation agreements. In view of the figures quoted by me at the outset concerning research and development costs, the necessity of this type of technology transfer imposes itself
The Problems
between
enterprises
in industrial&d
of Technology
nations.
We have established that technology transfer is necessary. It is also desired by enterprises in the industrial&d and developing countries. I am convinced that all these firms have a vital interest in a transfer of technology which is free from obstructions and limitations. In my view, this is a logical consequence of the fact that anyone acquiring something by their own efforts, particularly if it involves a product of intellectual effort, should endeavour to find an exchange and application so as to be reimbursed for the resources required for its acquisition. Only in this active handling of technological knowledge is there given the prerequisite for further progress. The free exchange of technological knowledge is theoretically possible. In practice, however, it merely remains an ideal, since all types of national red-tape increasingly obstructs this exchange. Ladies and gentlemen, expectations in technology transfer and its possibilities could be sadly disappointed if all interested parties do not reach an understanding that certain rules are to be observed. Allow me to emphasize the following with regard to the relationship with the developing countries: When an enterprise decides to transfer technology, it must be certain of receiving an equivalent therefor in one form or the other. I have already mentioned previously that in this connection, for example, the situation in a parent/subsidiary relationship is highly unsatisfactory. It is primarily the task of a politician to seek ways and means of breaking down prejudices. I am convinced that industry in the Western world will do its utmost, also in the future, to make its contribution. Purely from the point of view of private industry, it is definitely in our interests for these countries to become industrial&d. One has only to consider the high volume of trade between industrialised nations and the low volume between an industrial&d country and a country still in the course of development. The developing nations would harm themselves if they were to impose on potential technology suppliers conditions which would not enable the suppliers to make the profits required for the continuation of research and development. Furthermore, I wish to add the following: The transfer of technology will only be able to meet in future the expectations placed thereon, if the parties to a technology-transfer contract remain in a position to establish the essential terms of such a contract with sole responsibility. In my view, in this connection, three essential points have to be considered : We are often confronted by attempts to burden the technology supplier with the risk of the economic SUCCESS of a technology transfer. If one real& how complicated the procedure of technology transfer is, the acceptance of the risk of success far exceeds the
Transfer
169
entrepreneurial risk which the supplier is able to bear. I do not wish to imply that the supplier should bear no risk at all. My plea at this point is for a reasonable sharing of the risks. One-sided arrangements to the debit of the supplier must, in my opinion, necessarily lead to a reduction in technology transfer, an undesirable outcome for both sides. The second point concerns the remuneration. This must be reasonable. In my view, the parties themselves must decide on the adequacy and not national authorities or ministries. The parties are not only competent, but take responsibility for success and also take the consequences, in the event of failure. Therefore, I consider to be rather naive those national regulations which are already widely applied nowadays and which provide for maximum limits of remuneration, irrespective of the nature and value of the technology. Please remember my previous comments regarding our expenditure on research and development. commencement of manufacture and market penetration. The third point concerns the fact that many countries only authorise contracts, if the recipient of the technology is offered the possibility of marketing its products without territorial limitation, even in the country of the technology supplier and in countries which represent its traditional sales territory. The consequence of this must then be a decrease in technology transfer. Only theorists can expect that unrestricted export decontrol will stimulate competition here. One must be fully aware of the fact the recipient is receiving proven technology. Its production methods will be substantially similar or identical to those of the technology supplier. with the result that any technical competition between the parties will be excluded in practice. Competition is concentrated on price competition which, of course, the technology recipient can much better withstand than the supplier, because (as already explained) the recipient comes into possession of the technology in a financially much more favourable manner than the supplier. I have already told you previously of how great the success rate of research and development expenditure is. The recipient does not run the risk of setbacks, since he is able to choose proven technology. A lot more could be said on this topic; however, my set time limit prohibits me from further detailed reflections. Nevertheless. I do not wish to leave the topic of developing countries without pointing out with respect thereto that the UN conference on an international code of conduct for technology transfer broke down in April this year. In spite of this. such a code of conduct has already been converted into national law and practised by many developing countries. What legal position have we in the European munity which naturally is of great interest because of its practical importance?
Comto us
170
I. Franke
When one is involved on a large scale with problems of research and development, and it is necessary to consider how the research and development activity should be organ&d more advantageously, one also encounters the question of whether one should not cooperate with other firms, in view of the research costs which are enormous in some cases. However, upon studying the legal admissibility, one encounters the known decision by the Commission in the case of Henkel-Colgate. The decision related to research cooperation in the sphere of detergents. In the arguments in support of the decision, the Commission stated that the announced agreement would result in the parties to the contract arrivingjointly and simultaneously at their aim, namely of SO further developing and improving quality and applicability that they would clearly stand out against the products of competitors. The Commission argued that, because of the joint evaluation of research results, the parties to the contract would have the possibility of introducing on to the market the competitive method of production improved by individual research, which would be effective for the purpose of achieving an advantage over the other. I consider this decision to be too narrow since, in my opinion, sufficient allowance has not been made for economic necessities. Perhaps, the Commission’s decision in the case of Vacuum Interrupters, of 11 th December 1980, signifies a change in the Commission’s decision practice. In this decision the Commission approved an agreement on joint research in the field of vacuum interruptors and, in doing so, appreciated in particular the economic advantages of such cooperation. The second point that I should like to consider is the fact that no territorial sales limitation should be agreed in the case of know-how licencesin the EC. I regard this to be a serious point, since I believe that it must lead to a know-how supplier definitely having to consider whether, as a result of a technology-transfer contract with a party in the EC, he will not attract a competitor who will impair the product sales necessary for financing the supplier’s research and development projects. In principle, this corresponds to the objection which I have already expressed in connection with territorial limitations in contracts with enterprises from developing countries, with the difference perhaps that, with a party in the EC, the financial terms can be negotiated on a more personal basis. Now a few words on the important problem of exploiting the results of publicly supported research. The interest shown by industry in the optimum exploitation of the results of publicly supported research cannot be less than the interest which it has in the exploitation of its own research and development results. Certainly, it is also necessary for the public authorities to endeavour to evaluate the results, i.e. to seek a follow-up study for the public research support since the tax funds spent are very considerable (reck-
oned in milliards). A great abundance of results of this research is present in reports, patents etc., which are administered and even partly stored in data banks. Nevertheless, I have the impression (and I do not think I am alone in this) that the flow to the potential user does not yet function satisfactorily. The symposium will no doubt consider in detail the difficulties of making the data available and of transfer. However, I wish to make a number of points, as I see them, on the problem of utilising the results of publicly supported research, without claim to any completeness : The taxpayer is entitled to expect that an efficient exploitation of the results is sought. Industry should also take this question very seriously in its own. wellunderstood interests. Where do the difficulties lie? Above all in two points: Experience has shown that research and development results are often too abstract and, therefore, it is not at all possible to estimate the risks for the expense to be incurred and for possible production etc. ; frequently, there is not even a prototype in existence. Small and medium-sized industries in particular are afraid (sometimes to an exaggerated extent) that they will not achieve any returns for their outlay and investment until the production stage is reached, since in many countries it is often difficult, for legal and administration reasons, to obtain exclusive rights. Even if (as mentioned initially) at an optimistic estimate, only 1O”,, of the individual research and development costs of industry lead to commercial success, a higher degree of efficiency cannot be expected for publicly supported research. since in this case additional losses are to be expected in the transfer to industry. We should not allow ourselves to be discouraged by today’s still low success rate, but we should follow up and support all endeavours which could lead to an improvement of the utilisation of research and development results from research projects of public authorities. However, we do not believe that any costly, special administrative structures should be newly established. The efficiency of existing institutions has proven to be too low. The National Technical Information Service in the USA, for example, with 450 employees and with an available supply of about 20 000 patents was able to grant in 1979 only 8 non-exclusive licences and 1 exclusive licence. It would seem prudent to proceed cautiously and to examine new concepts (limited by time and relevance) with respect to their practical suitability. When necessary. new structures should be established only when practical success is accompanied by justifiable expenditure. I trust that my statements have demonstrated the enormous part played by intellectual property in a modern industry. The free transfer of technological/
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The Problems of Technology Transfer scientific information, i.e. an information market, is essential for the vitality of the economy. Any barriers which obstruct this free information market, for whatever reasons in Europe or with respect to third-world countries, are at the expense of the innovativeness of industry. If one considers the progress which nonEuropean countries have made technologically in the last decades, one wonders whether we can allow ourselves such rules and regulations. Likewise, it is necessary to utilise better than hitherto the results of publicly supported research. I thank the Directorate-General
and Innovation’ for giving me the opportunity to demonstrate the vital interest which European industry has in technology transfer in all directions, between public authorities and industry, between industries of highly industrialised countries, as well as between these latter and the industries in the developing countries (in brief in a free information market governed by economic laws). I do not wish to be misunderstood. Every market requires market controls and requires standards, but not general prohibitions, in this case general transfer prohibitions with exemption authorisations.
‘Information Market
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