# **Introduction**

This paper explores issues affecting technology commercialization of publicly funded research and development (R&D) in the Russian Federation. It focuses on public funding of R&D, because, despite the relatively large role played by the private sector, the bulk of R&D funding (66.5 percent) is provided by the government. Though improved innovation policies have led to the creation of a sizable number of research-based start-ups in the last three years (2009-2011), fine-tuning of policies is needed to scale up the emergence of such companies.

The Russian government has identified innovation policy as a key component for the country’s growth and has designed a set of policy instruments to incentivize the commercialization of research results. The efforts to improve the national innovation system include reforming the legal framework for intellectual property rights (IPR), providing public funds for venture capital, and targeting specific economic sectors and industries, while also increasing overall public participation in R&D expenditures.

A focus of the innovation policy has been the commercialization of research stemming from higher education institutions. Accordingly, almost all 973 start-up companies have started from university-based research. Nevertheless, only a third of universities perform research, and those universities only concentrate 6% of both R&D expenditures and number of researchers. Research institutes mostly from the Russian Academy of Sciences (RAS) are better endowed for research; receiving around 40% of resources, however less than 4 percent of the 468 research institutes affiliated with the RAS have initiated spinoffs.

Against this backdrop, this paper develops a novel framework to analyze the constraints and opportunities to scale up the number of spin offs from research funded with public money. The paper builds on the recent reviews of the Russian innovation system (OECD, 2011; UNESCO, 2010; New York Academy of Sciences, 2010). It updates those studies by reporting new evidence on the results of recent changes in the IPR legislation on the creation of research based companies and licensing of IP. As well as, this paper informs on the consistency between Russian technological specialization and the government’s sectoral priorities, while presenting unique new survey evidence on the characteristics and role of technology transfer offices in the commercialization process.

The framework to analyze the factors affecting technology commercialization is based on four strands of the innovation literature. First, the state of the research base of Russia’s innovation system including the governance of research institutions and the role of performance based budgeting is paramount to: assess the critical mass that may generate discoveries; incentivize commercialization efforts and increase the quality of research (Gianella and Tompson, 2007; OECD, 2003). Second, the availability of human capital for research, the quality of scientists and engineers and the resources at their disposal, as well as incentives for career development are key for increasing the likelihood to successfully bring research to the marketplace (Aldrigde and Audretsch, 2011). Third, the analysis framework relates to the vast literature on market failures for funding of ideas, especially in the early stage of the commercialization process (e.g. Branscomb and Auerswald, 2003). Finally, the IPR legislation is the frame that could incentivize commercialization by regulating the ownership and royalty distribution of publicly funded research (Phan and Siegel 2006). A close related topic is the role of technology brokers in licensing and start-up process (Litan et al 2007; Thursby et al 2001).

The paper is organized as follows: Section I describes the analytical framework as well as provides a review of the related literature. Section II assesses the factors affecting technology commercialization; especially those influencing the emergence of IP based start-ups. First, this section provides an overview of the Russian innovation system research base and shows that despite declining productivity of R&D investments and personnel, Russia has technological comparative advantage in certain sectors. As well, it illustrates the divergence between stated government priorities, allocation of resources among types of 4