Forging the future the Fraunhofer way

By Catherine Jewell, Communications Division, WIPO

Fraunhofer is Europe’s largest applied research organization. Its research institutes are pushing the envelope on innovation in a dizzying array of fields, including health, security, communications, energy and the environment. From fat-free sausages to the audio and video compression technologies that allow us to listen to music on the go, and from better biopsies for breast cancer patients to solar panels – it holds the world record for solar panel efficiency – Fraunhofer’s research touches the lives of millions, and in many different ways.

Alexander Kurz, Executive Vice President for Human Resources, Legal Affairs and Intellectual Property (IP) Management, explains what drives innovation at Fraunhofer and how IP supports it.

Can you give us an idea of the scope of Fraunhofer’s activities?

As an applied research organization, our core mission is to ensure our research has practical application by, for instance, bridging the gap between university and industry. Fraunhofer is made up of 69 research institutes located across Germany and employs around 24,500 staff to work on its wide-ranging research portfolio. We shape technology, design new products and improve production methods and technology in health, communications, security, energy and the environment. We are committed to doing real research for real people. That involves solving existing problems and opening up new vistas for technological development. In that sense, you could say we are in the business of forging the future.

How is Fraunhofer funded and who are your main partners?  

As a non-profit organization, Fraunhofer operates under a unique funding model. Thirty percent of our budget – what we call our base funding – comes from federal and state (Länder) government grants. And 70 percent is generated through research with industry, revenues from IP and publicly financed research projects. This forces our researchers to undertake their work with an entrepreneurial spirit. In 2016 Fraunhofer worked with a budget of around EUR 2.1 billion.

In terms of our collaboration with industry, we work with the smallest of businesses – for example, a Bavarian butcher to develop fat-free sausage – and the largest of corporations, including automotive or consumer electronics companies. But the bulk of our partners – around 60 percent of them – are small and medium-sized enterprises (SMEs). These companies are the backbone and “hidden champions” of innovation in Germany.

But we also have very strong links with academia. Many of our scientists actually hold professorships in universities across the country. This creates many opportunities for cross-fertilization: they share the latest Fraunhofer research with their students, and many of their students do their academic research in our institutes.

We have IP framework agreements with around 180 German universities. This allows us to maximize the impact of our work across the country. The agreements simply state that all relevant parties need to be made aware of any new inventions so that an appropriate IP strategy, including royalty arrangements, can be worked out. In general, if a researcher uses Fraunhofer’s facilities, Fraunhofer will own the IP. Otherwise, we develop a partnership agreement that sets out the contribution made by each party and equivalent royalty payments upon successful commercialization. These negotiations are not always easy. Fraunhofer handles all aspects of the patenting and commercialization process and covers all the related costs. Of course, when it comes to our work with industry partners we use contracts to sort out IP matters and royalty payments. These are always hotly debated.

Our strong links with academia and our base funding give us the scientific freedom and scope to develop our own internal research portfolio for new areas of socially relevant technological research that are not yet fully on the radar screens of our industry partners. This is not the case in our contract work, where our research goals are predefined. Our base funding is, in fact, the soil on which everything grows. It enables us to remain creative and competitive. Large companies have their own R&D facilities, so they will only use our expertise if we are better and more original or if we have expertise in a field they cannot cover. So this side of our business is critical to our long-term success.

Have you ever quantified the economic impact of Fraunhofer’s work?

Yes, although this is scientifically quite difficult to do, we evaluate the impact of our work periodically. Key findings from the most recent study show that Fraunhofer’s work generates significant economic welfare and financial returns to society. They also highlight the way in which we support the development of innovation ecosystems through, for example, training PhD students and encouraging the formation of startups. These small companies are part of Fraunhofer’s incubation framework which links into and complements regional incubators that are already in place.

Who identifies promising inventions and how are new research priorities established?

In the first instance the researchers themselves, but we have a structured process in place for evaluating the patentability and commercial potential of inventions. Fraunhofer’s IP department is responsible for this and for developing appropriate IP strategies in partnership with the institutes. The need to generate 70 percent of our income means researchers consciously look for opportunities to apply or commercialize their research results. We work hard to develop an IP-oriented mindset among our staff.

In terms of how we protect our inventions, WIPO’s Patent Cooperation Treaty is a cornerstone of our IP business. It provides a great deal of legal security and gives us additional time to find the optimal commercial partner and the most appropriate market for our inventions. It is an excellent way to establish IP rights internationally. That’s why we use it.

As for identifying new research priorities, we monitor the technology landscape to spot emerging developments. And, of course, where we can we try to set the trends. This has been the case with our research on audio and video compression technologies and renewable energy, for example. But anything we do has to align with Fraunhofer’s mission. In Fraunhofer, it is great having an idea but it is even better when that idea has practical application and generates a return. That is, in fact, what attracts many researchers to work with us.

We also use a variety of internal strategic devices to trigger innovation. For example, if we decide to stimulate research in specific areas such as deep machine learning or artificial intelligence, we make a proportion of our base funding available and the institutes apply for it through an internal competitive bidding processes. We also use certain performance indicators as a basis for allocating base funding among the institutes. These mechanisms are proving very effective in promoting collaboration among our different institutes, which is very important, but can be challenging.

What role does IP play in your organization?

IP is central to our business model. Legally speaking, we need IP to have the exclusive right to exploit our technology, but once acquired, these rights can be used in many different ways. Fraunhofer’s IP portfolio demonstrates our market orientation, strengthens our position in the research market and makes us attractive to industry. IP also allows us to generate additional revenues. Although we have had some success with MP3 and other audio and video compression technologies, it can be difficult to make money from a patent. Sometimes we don’t succeed, but fortunately on other occasions we do.

Fraunhofer currently holds 30,000 active patents and around 7,000 patent families covering most areas of our research work. We also register around 60 trademarks per year and hold around 700 active trademarks. Our portfolio is managed by 60 IP experts employed in Fraunhofer’s central IP department in Munich who work very closely with IP managers at each of our 69 institutes. 

Our IP has to add value and ensure we are visible and attractive in the research market, and we have to be able to generate revenue from it.

Generally, in any collaboration we work hard to generate the IP. If we find solutions for industry, we negotiate different licensing options, including exclusive licenses, but, as a rule, property of title remains with us. This approach supports our pre-competitive research and improves our market position. The foreground know-how we develop today becomes part of our background IP portfolio – the sum of all our know-how and IP – tomorrow.

What is Fraunhofer’s take on technology transfer?

We support technology transfer and the development of innovation ecosystems in a variety of ways. Our mission is to bring innovation into application, so all channels of technology transfer are relevant to us. One pathway is through contract research. Currently, we have around 10,000 active projects delivering results to our industry partners. Another is through patenting and technology licensing, and a third is through spin-offs. We set up and farm out Fraunhofer technology to around 25 spin-offs every year, with 90 percent of them still operating after five years. We also hold shares in a number of them. This side of our business also generates additional revenues through the contract work we do with them and when they are bought out by larger companies we cash in our shares. Yet another, often underestimated, pathway is employment mobility. Every year, around 900 scientists leave Fraunhofer. Many of them to take up leading jobs in industry.

But technology transfer is not without its challenges. For example, motivating people to become entrepreneurs is not always easy. It is a risky business and not in everyone’s DNA. This is not helped by the generally risk-averse culture that exists in Europe along with the stigma that comes with business failure. A product may fail in the market for many reasons that are totally unrelated to its technical merits or quality. Generally, when we talk about innovation we tend to focus exclusively on the success stories, and forget that failure is an integral part of scientific research. Many people enable the development of new technologies because they identify what does not work. These are the unsung heroes of innovation. We need to change this mentality and adopt a more positive and realistic approach to innovation and business development.

What does the future hold for Fraunhofer?

There are some very exciting new areas on Fraunhofer’s radar. These range from cognitive robotics and artificial intelligence-based systems to deep machine learning and neuromorphic chips, possibly the next disruptive technology in computing, and from smart materials and additive manufacturing to genome-editing. The application of many of these technologies will involve big societal changes and also raise important ethical concerns. If we are to take full advantage of their huge potential benefits – and there are many – we need a social contract. We need experts from across the board to be involved in the process of shaping this new world. But this has always been the case with science and technology.

In the last 10 years our staff numbers and turnover have increased significantly, but going forward our main objective is not growth as such; our overriding focus is to come up with new and improved innovations and technologies.

So in the future we will continue to develop our research and IP portfolios in line with the needs and demands of the evolving technology landscape. Ten years ago, it was enough to develop a technology; today our partners also want a system. That means that we have to adopt a more interdisciplinary approach and become more flexible and agile in the way we work. It also means we have to explore how new innovation approaches, such as open innovation and coworker spaces, can complement existing research practices. 

Why is it important for you to have an international strategy?

Fraunhofer has a number of international partnerships with research institutes and innovative companies. Our core business, science and research, is global, and innovation is global. If you want to collaborate with the best in the world, you cannot stop at the border. 

What is the secret of Fraunhofer’s success?

We work hard to ensure our mission is not diluted. Everything we do has to support our mission and our business model. I think it boils down to strategy, effective indicators, and – the most important factor – dedicated people.