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Saturday December 20, 2014
Posted: Aug 28, 2014

Fact checking LePage on R&D, MTI and innovation

The Startup Line — News and insight about Maine’s entrepreneurs and innovators
Gov. Paul LePage speaking at the Casco Bay Tech Hub: "I believe in the R, D & C."
Gov. Paul LePage speaking at the Casco Bay Tech Hub: “I believe in the R, D & C.”

Gov. Paul LePage appeared out of his comfort zone a few times during a presentation he made Tuesday night at the Casco Bay Tech Hub in Portland.

While he took the opportunity to cover many of his routine campaign talking points, he also ventured into less familiar territory, such as high-tech industries and crowdfunding, and made some comments about Maine’s technology landscape that left some people scratching their heads and sent me on a fact-checking mission.

Unprompted by a question from the audience, he talked about the Maine Technology Institute. He must have known he’d be asked about the organization, given that he fired its president, Bob Martin, a matter of days ago. The administration has said only that the firing was related to a personnel issue. Without specifically mentioning Martin, LePage said MTI needs to shift its focus.

“MTI … is very very important to me,” LePage said. “But let me tell you about what’s different with my looking at it than in the past. Maine has been investing in R&D for 25, 30 years — not to the extent it should, but it has been. The problem is most of the money — once you sit down and look at where all the money’s gone — it’s gone to universities for development of products and R&D. The problem is we have like 37 patents on a shelf and when the money goes to universities you come out with a product that goes on a shelf but it never goes to commercialization. So my efforts is trying to get a culture change. Instead of doing R&D, let’s look at people that have a product and that need to take it from R&D to commercialization. That’s what we need. That’s where the real risk is at. That’s where the entrepreneurs really shine.”

I’ll include brief audio clips from his talk throughout the post. The following one is his comment above.
The blog post continues below this brief audio clip

Fact check No. 1: Has the majority of MTI funds gone to universities?

LePage mentioned several times during his talk that the majority of MTI’s funds go to universities. It’s a claim that deserves clarification.

Since the Maine Legislature founded MTI in 1999, the organization has invested more than $178 million in roughly 1,500 companies, according to its own data.

Contrary to what LePage said publicly, the vast majority of that has not been funneled to the University of Maine, in particular, or universities in general, according to Martin, MTI’s former president.

“The university has received less than 6 percent of MTI’s funding of grants and loans since 1999,” Martin wrote to me in an email. “It would be incorrect to assert that the university has received the majority of MTI’s funding.”

However, LePage’s claim has some validity.

The money that MTI invests in Maine ventures comes from two sources — an annual appropriation from the Legislature, and research and development bonds. MTI administers the Maine Technology Asset Fund, or MTAF, a $53 million bucket of money created by the passage of voter-approved R&D bonds in 2007 and 2009.

LePage was referring to MTAF bond money when he claimed the majority of MTI funds went to universities, according to Doug Ray, the director of legislative affairs and communications at the Maine Department of Economic and Community Development.

“Of the $53M in voter approved funds in the program, a majority (just under $30M) went to the university system for research,” Ray wrote to me in an email.

Martin acknowledges that a significant portion of MTAF money went to universities through a competitive grant process, but figures it was roughly 45 percent of the total MTAF bonds, so not a majority.

Let’s break it down, shall we?

The University of Maine in Orono received $23,538,499 from MTAF, according to MTI data. That represents 44.4 percent of the $53 million total.

However, if you include two awards totaling $5,533,929 that went to the University of New England, which is not part of the University of Maine System, and a $96,800 award to the University of Maine in Presque Isle, the percentage of MTAF bond money that went to universities in general was 55 percent.

So, it appears both Martin and LePage are correct. Martin is correct if only looking at the University of Maine in Orono. LePage would be technically correct if including all universities. However, LePage’s comments are misleading when he says the majority of MTI funds go to universities rather than making clear he’s discussing MTAF bond money only.

That 55 percent, however, isn’t a surprising figure. The voter-approved bonds that created the MTAF were designed from the beginning to help build Maine’s capacity for R&D and commercialization efforts. Since the University of Maine in Orono is the premier research campus in the state, it’s not out of the ordinary for a good portion of those funds would make their way there.

‘What I believe in is the R, D & C’

I had a chance to ask the governor to clarify his position on R&D funding for entrepreneurs. He returned to his talking point that he believes more focus needs to be placed on commercialization (listen to the clip below).

“What I said was there are 37 patents that are sitting at the university, sitting there, that all it needs to do is someone to come in and to move them forward,” he said. “But over the years we keep going back to the bond market and we give more R&D money and the R&D money goes back to the university. The university will never commercialize. That’s my problem.”

When I followed up to clarify his position on the state’s role in providing R&D funds, he said:

“What I believe in in the R, D & C.”

Listen for more.
The blog post continues below this brief audio clip

Fact check No. 2: The “37 patents”

So what about LePage’s comments about commercialization efforts and the “37 patents” the University of Maine has sitting on a shelf collecting dust?

The University of Maine System has 77 patents assigned to it, according to Jake Ward, who oversees innovation and economic development for the University of Maine in Orono. Of that number, more than a third are jointly owned with a private business or have a commercial license agreement or license options, Ward said. Others are associated with ongoing research projects funded by both public and private dollars. He couldn’t say how many were just sitting there collecting dust, but it’s not a stretch to understand that some are unused and that’s where LePage got his figure.

But should it matter?

“The University of Maine has patents that are still in the R&D stage, patents that are licensed, and patents that have not been successful, just like many other companies and universities,” Ward said.

The existence of a patent does not guarantee a successful business. A patent for an invention or process with no market demand is not worth much, so insisting that it just takes some extra effort to take those unused patents off the shelf and turn them into profitable ventures is a stretch. In fact, Richard Maulsby, currently the associate commissioner for innovation development at the U.S. Patent & Trademark Office, told Businessweek in 2005 that only a tiny portion of patents are actually capable of producing a successful business.

“There are around 1.5 million patents in effect and in force in this country, and of those, maybe 3,000 are commercially viable,” Maulsby told the magazine. “It’s a very small percentage of patents that actually turn into products that make money for people.”

Ward doesn’t dispute that commercialization is important, but said it’s a marathon, not a sprint.

“Maine is making good progress considering the fact that Maine’s activities in commercialization really only started around the 2000 time-frame,” he said. “The University of Maine and the state of Maine are relatively new at this compared to decades of activities in many other states. Collectively we are still trying to grow the entrepreneurial and innovation culture in the state and that includes not just the inventors and entrepreneurs, but all the business support such as legal, accounting, investment that comes along with this. The state of Maine needs to partner to accelerate commercialization. Many of the recent efforts such as the Blackstone initiative are targeted at just that. But there is no silver bullet and collaborations and partnerships are what will get us there.”

MTI does not fall down when it comes to helping businesses turn ideas into marketable products. The organization’s rate of commercialization of portfolio companies was 36 percent during its 2012 fiscal year, which ended on June 30, 2012, according to MTI’s 2013 annual report. In its 2013 fiscal year, the commercialization rate increased to 39 percent. The report acknowledges that that rate needs to increase.

“Over the next two years, our goal is to move 50 percent of our portfolio ventures to market with sustainable sales revenues,” the report says.

Don Gooding, director of the Maine Center for Entrepreneurial Development, said MTI is actively working on improving commercialization of university-based technology, also known as “tech transfer.”

“The good news is that MTI is actively pursuing a program out of something called the Innovation Center for the Rockies, which directly addresses the very hard problem of tech transfer. The problem is as much matching business people with technologists, and that’s what this organization does. They match 1,500 seasoned technologically business executives with university researchers and from that find a very small number of technologies that could be used for the basis of launching companies,” Gooding said following LePage’s talk. “If you’re far from the process it does seem frustrating, but it really does come down to the difficulty of matching the people.”

Jeff Marks, executive director of E2Tech, thinks the governor is on the right track with his emphasis on commercialization.

“It’s easy to give funding and resources for R&D, but it’s more difficult to help those companies get over the valley of death and actually commercialize their product and service,” Marks said following the presentation. “It sounds like he recognizes a need to have a vision and plan to get over that valley of death to commercialization.”

I wasn’t the only one who asked LePage to clarify his position on the state’s role in supporting entrepreneurs with R&D funds. John Voltz, VP of business development at Cerahelix in Orono, asked LePage to elaborate on his position on MTI and R&D. Here’s that exchange (this one’s a little longer at 4:32):

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