Shaping the NSTC's IP Policy - PART I
Shaping the NSTC's IP Policy - PART I
Learning from Foreign Successes and SEMATECH’s Pitfalls
[Part II of this article series is available here.]
U.S. government officials are assembling the plane while it takes off as they decide how to build the National Semiconductor Technology Center (NSTC). This historic public-private partnership is funded to the tune of $8 billion under the CHIPS and Science Act of 2022, and the Commerce Department has remarkable discretion on how to shape critical aspects of the institution.
This discretion does not, however, extend to the NSTC’s intellectual property (IP) sharing model. The center’s funding sources, membership, and research agenda will limit the world of viable IP models officials can choose from. Critically, if officials choose IP models incompatible with the NSTC’s structure, they may jeopardize the whole endeavor.
This article is Part I of a two-part Chip Capitols series examining the future of IP in the NSTC. Today, we will:
Explain why IP sharing matters and how it works,
Connect public-private partnership (PPP) structure to IP sharing, and
Explore lessons learned from PPPs in Germany, China, Belgium, Japan, Taiwan, and the U.S.
Chip Capitols will be back in two weeks to apply these lessons of the past to the NSTC today. For more semiconductor research content, check out Chip Capitols’ last article on NSTC geography!
Why IP Sharing Matters and How It Works
Companies and universities will participate in the NSTC for one reason: intellectual property.
Participation requires paying membership dues, loaning out high-value researchers for NSTC projects, and exposing their existing IP to competitors. Though the U.S. government is funding the NSTC for the public good, companies will only contribute if they see a path to commercializing the NSTC’s innovations. There are a lot of different IP sharing tools the NSTC can use, and, after some brief context, this section will look at each model in turn.
Building Blocks: Purchased vs. Background vs. Foreground IP
Designing any public-private partnership’s IP sharing policy is a game of determining what qualifies as purchased, background, and foreground IP and allocating rights to each category.
Purchased IP is the most widely shared of the three. These are IP licenses that a consortium buys for the benefit of all members to use without any royalties or fees. Being entirely owned by the NSTC itself, this category would have the simplest and broadest IP sharing arrangements.
Background IP gets very sensitive very fast. This is technology a stakeholder owned prior to joining the NSTC. Once IP is identified as background material, limitations should trigger so it is only used in prescribed areas of NSTC work.
At the other end of the development chain, foreground IP covers innovations created through joint research in the NSTC. As we will see in the next subsection, the assignment of foreground IP rights varies significantly by the type of IP model a consortium adopts.
Models and Tools
Policymakers must pick IP models that facilitate commercialization of the NSTC’s research, but some IP policies will simply not be compatible with the NSTC’s membership and research output. Critically, if the center does not receive enough funding from the government, it may need to leverage IP tools to siphon revenue to itself.
An excellent 2021 paper by the Institute for Defense Analyses lays out the four most prominent IP models for PPPs. Later, we will see how these appear in research consortia around the world to lay a foundation for Part II’s analysis of the NSTC.
Public/Open Access: At the least restrictive end of the spectrum, consortia could make all IP open to the public by publishing results and not requiring licensing fees to implement findings. These are most common for PPPs focused on basic research.
Shared Limited to All Partners Only: Here, members have free access to any IP developed by the PPP through nonexclusive royalty-free licenses. Use may be limited, though, to “evaluative work” that does not solely benefit an individual firm’s priorities.
Shared Limited to R&D Collaborators: At the tightest end of the sharing spectrum, only members who participated in a specific technology’s development own the resulting IP. Access for other consortium members varies.
Exclusive Model: Some consortia license technology on an exclusive basis to third parties. These tend to occur in PPPs focusing on late-stage research, and such licenses are a significant source of income for those consortia.
Picking the IP Model Last
Not only do research consortia have different IP sharing models, but many consortia change their models over time. Why? Because consortia are not built around IP models. IP models are built around consortia.
Does a consortium receive a large or small share of its funding from the government? Does it have a homogenous or diverse membership? Does it focus on one stage of technological development or research the full stack? These factors all call for varying allocations of IP rights.
Funding (Large % Gov —> Small % Gov)
Consortia receiving a relatively large share of their annual budget from governments have much more flexibility to share their IP among members and the public, pushing them toward the public/open access camp. In contrast, consortia receiving a relatively small share of their funding from governments either have to own their IP for the associated royalty revenue or alternatively rely on membership fees. If a consortium decides to own its IP, then it is likely to rely on the exclusive model of licensing IP to third parties. Meanwhile, relying heavily on membership fees obliges a consortium to share limited IP rights to its members only as these companies would be loath to see outsiders free ride on their contributions.
Membership (Homogenous —> Diverse)
There are four distinct types of stakeholders that often join research consortia: start-ups, big industry, academia, and government. Each has different contributions to make to the consortium, as well as different needs regarding IP. Critically, the more diverse a consortium’s membership is, the more flexible it will need to be in its IP policy.
Start-ups in many ways have the least to contribute to consortia but the greatest ability to leverage a PPP to benefit societal innovation at large. Given that most of a start-up’s value is based on its IP, founders are naturally hesitant to share their background IP with other coalition members. Any leakage of core IP to well-established competitors could jeopardize their chances of receiving the next round of funding. Nonetheless, if consortia accommodate start-ups by not requiring them to share as much background IP, these small players can leverage the consortium’s purchased IP to commercialize their ideas more rapidly.
Big industry stakeholders bring significant IP to the table but want to ensure competitors do not free ride off their contributions. To that end, they often call for multiple tiers of membership that match IP rights to contribution levels. Also, though big companies are more willing than start-ups to share their background IP, they demand robust licensing frameworks to ensure their technology is not misused by competitors.
Academia differs from private sector members in that university IP often comes with limitations. Their background inventions are often funded by non-consortium sources, namely government grants, that regulate licensing terms, end-uses, and ownership transfers. A consortium must prevent members from inadvertently violating the rules around any background IP, but caution is especially due for universities’ contributions.
Agenda (Single Stage Dev —> Full Stack Dev)
Research consortia can focus on basic research, applied research, prototyping, or scaling. More often, though, they adopt an agenda spanning the research stack.
Basic research pursues fundamental advancements in core scientific disciplines, like physics and chemistry. This usually calls for a public/open access model, where people in and out of the consortium can apply research results to starkly different fields. Functioning as a public good, often only consortia with large government funding or broad memberships can afford to make their findings free.
Applied research leverages existing science to address immediate commercial needs. As a result, members worry about non-contributors free riding off the consortium’s work, calling for one of the two shared limited models. These often involve nonexclusive royalty-free licenses (NERFs) granting consortium members free but limited use of jointly developed IP.
Prototyping and scaling take applied research a step further by asking how to manufacture and commercialize an innovation. Here, consortia help companies prepare their already well-developed ideas for production and commercialization, so there is no question of sharing this IP with competitors. Consortia engaging in this end of the stack must use exclusive models that compensate the consortium via revenue shares and IP royalties.
In consortia that research more than one end of the technology stack, it becomes critical to categorize technology properly. Whether a specific research project qualifies as basic research, applied research, prototyping, or scaling determines who has access to the resulting IP. Historically, disagreements about where research outputs lie in the development stack undermine consortia’s cohesiveness and viability.
Patterns in History and Abroad
Public-private partnerships around the world feature different funding sources, memberships, and research agendas, offering fascinating illustrations of IP sharing in different settings.
In Germany and China, we see limited government funding and applied research focuses encourage the exclusive model. Meanwhile, generous government funding and diverse memberships in Belgium and Japan lead to shared limited and even public/open access models. Similar circumstances in Taiwan, however, led to a hybrid model. Critically for the NSTC conversation, the U.S.’s experience with SEMATECH shows the pitfalls of an IP policy inconsistent with consortium membership and funding.
🇩🇪 Germany – Fraunhofer Institute
Fraunhofer’s exclusive IP sharing is so closely tied to its business model that it could be mistaken for functioning as a private enterprise, not a public-private partnership. German federal and state governments only provide 30% of Fraunhofer’s over €2 billion annual budget, forcing the institution to raise most of its income through IP transfer and licensing. To that end, Fraunhofer owns all IP developed in its facilities, as well as part of IP developed in partnership with outside researchers.
Because Fraunhofer primarily deals with large companies wanting to implement technology, it relies on a relatively inflexible exclusive IP model. Its leadership stresses that “as a rule, property of title remains with us.” Such rigidity would not be possible if Fraunhofer had to share IP internally with members or allowed start-ups to leverage its background IP.
Lastly, while other German consortia do focus on basic research, Fraunhofer’s decidedly late-stage research agenda makes an exclusive IP model even more necessary. Fraunhofer not only conducts self-initiated late-stage research, but it also conducts contract research for individual clients who do not want the results licensed to competitors.
🇨🇳 China – National High-Speed Train Technology Center
Though not related to semiconductors, China’s public-private partnership for high-speed train technology established in 2016 operates under similar structural restraints as Fraunhofer, forcing it to adopt an exclusive IP model.
Because only a small share of its budget comes from the Chinese government, the National High-Speed Train Technology Center (NHSTTC) relies heavily on income from IP and membership fees. Drawing income from patents requires the NHSTTC to own the technology it develops and allows it to issue exclusive licenses to third parties. Private sector participants receive limited use of the center’s foreground IP in return for membership fees. However, these shared limited model characteristics are weakened when the NHSTTC licenses and transfers IP to third parties since the technology does not retain a competitive advantage available only to consortium participants.
The NHSTTC’s exclusive model is shaped significantly by its international membership. Chinese scholars warn that, because foreign firms have greater experience protecting their IP rights, P.R.C. companies are at a higher risk of losing their access to joint research results due to poor legal management. To guard against this, Chinese public-private partnerships like the NHSTTC are inclined to centrally own foreground IP so sufficient resources can be devoted to its legal defense.
🇧🇪 Belgium – Interuniversity Microelectronics Center (Imec)
Although Belgium’s Imec also only receives a small share –17%– of its funding from the Flemish government, other structural characteristics allow it to operate under a more open shared limited model.
On the funding side, readers will recall that consortia receiving limited funding from their governments have two options: seek IP revenue or lean on membership fees. Imec does the latter, relying on fees to fund its facilities. As a result, Imec neither requires members to share their background IP nor takes sole ownership of the center’s IP.
A diverse membership further encourages Imec’s shared limited model. Called the Imec Industrial Affiliation Program (IIAP), research partners in specific technical areas establish shared limited ecosystems where members receive rights to foreground IP proportionate to the background IP they contribute. This allows start-ups to participate despite having less IP to offer than established firms, whereas they would be repelled by the rigidity of Germany’s Fraunhofer or China’s NHSTTC.
Beyond its diverse membership, Imec’s wide research agenda requires different IP approaches depending on the stage of research. Early-stage research is less sensitive, so Imec shares these results with all fee-paying members. However, as technology climbs up the stack toward applied research, access is tightened to only members directly collaborating on the project. Imec rarely offers exclusive licenses as those would shortchange fee-paying members.
🇯🇵 Japan – Institute of Advanced Industrial Science & Technology (AIST)
Receiving nearly its entire budget from the government and working with a broad range of research partners, Japan’s AIST functions most closely to a public research organization.
About 75% of AIST’s over $700 million annual budget comes from government funding. Specifically, a large share of these funds are specifically commissioned to explore basic science. The results of these projects are often public, not needing a license, and Japan’s Science and Technology Agency has underscored the importance of open access to research in the information and communication technology (ICT) sector.
Beyond its public research, AIST does conduct joint research work with universities and companies partners, calling for some shared limited IP arrangements. In these partnerships, AIST follows a tact similar to that of Imec in welcoming partners to leverage background IP in return for joint ownership of foreground IP that can be nonexclusively licensed for limited purposes.
🇹🇼 Taiwan – Industrial Technology Research Institute (ITRI)
Receiving 65% of its nearly $700 million annual budget from the Taiwanese government, ITRI has a public orientation similar to Japan’s AIST, but it also has exclusive arrangements for later-stage R&D.
As most of its R&D projects use funds from the Ministry of Economic Affairs, ITRI’s IP model is obliged by Taiwan’s Basic Law of Science and Technology to be fair, open-access, and non-exclusive. Like Germany’s Fraunhofer and China’s NHSTTC, ITRI itself owns the IP it develops. In contrast to those exclusive models, however, partners collaborating with ITRI on basic research projects are not expected to commit significant background IP or fees, and in return for participation they receive shared limited use of the R&D results.
In addition to its government-sponsored basic research work, ITRI also pursues later-stage projects and commissioned work requiring exclusive IP models. When companies commission ITRI to solve specific problems, the consortium must offer exclusive licenses giving clients full competitive advantage over the technology they purchased.
🇺🇸 United States – SEMATECH
History is also valuable when it teaches us what not to do. As with the consortia discussed above, SEMATECH’s funding, membership, and research agenda pointed to a limited world of viable IP models. Unfortunately, the model it ultimately adopted was inconsistent with its overall structure and contributed to the consortium’s ultimate disintegration.
In its heyday, SEMATECH received nearly half of its $233 million annual budget from the U.S. government, with the remainder provided by membership fees. Originally, its IP model meshed nicely with this funding structure –Only member firms could license joint research results for an initial two years, then all U.S. firms could license at a nominal royalty. This was essentially a shared limited first stage, compensating member firms’ fees, followed by a public/open access stage in acknowledgement of U.S. taxpayers’ nearly equal financial support. This model also conformed with SEMATECH’s original research agenda of helping member companies develop their core competency of advanced chip manufacturing.
Unfortunately, a change in research agenda in the early 1990’s also forced a change in IP policy that conflicted with SEMATECH’s funding and membership structures. The consortium shifted its focus upstream from the manufacturing process to manufacturing equipment. On the IP side, SEMATECH began allowing non-member companies to license its technology immediately after development (removing members’ previous 2-year head start). Although this more public IP model was a boon for the U.S. semiconductor manufacturing equipment industry, chipmakers at the core of SEMATECH’s membership grew concerned that their membership fees were no longer yielding the same competitive advantages as before. One by one, member firms abandoned SEMATECH, and eventually the consortium itself got absorbed into a research lab at the State University of New York.
Lessons Learned and Looking Ahead
Our goal in this Part I article was to highlight how IP interacts with a research consortium’s broader structure.
When nations build public-private partnerships, they naturally have different goals in mind. There is nothing wrong with having a stronger focus on applied technology like in China or on basic science like in Japan. Different countries may also need to link different members of their technology ecosystems, and they will find their own funding models to make these partnerships possible.
As readers digest this article in the lead up to Part II, however, I urge you to appreciate that some policy decisions are not truly a choice. Sometimes the work of policymaking is simply to draw the inevitable conclusion from a set of givens. A consortium’s IP sharing model is not a choice but a determination of what its funding, membership, and agenda demand. Next time, we will examine the National Semiconductor Technology Center’s givens to determine what IP model fits it best.
[This discussion continues in Shaping the NSTC’s IP Policy - Part II.]