(FORTUNE Magazine) – FOUR high-browed Ph.D.s solemnly carried out their assignment: Redesign a coffee maker. They belong to the Center for Industrial Innovation on the wind- swept campus of Rensselaer Polytechnic Institute (RPI) in Troy, New York. Wait a minute. A university designing a coffeepot? What's going on here? Why would a distinguished institution of higher learning put aside thoughts of quarks and quasars to play with something so pedestrian? The answer is that RPI took on the project in exchange for a $116,000 fee from Norelco, one of the big-name corporate supporters of the innovation center's manufacturing productivity unit. Founders like IBM and Alcoa contributed up to $500,000 apiece; affiliates, including Timex, General Dynamics, and Norelco, pay $40,000 a year. All have the right to hang around the productivity unit, one of three research groups at the center. They get an early look at what the scientists are doing -- and they can woo the best students at the same time. They can also hire the center for proprietary research, as Norelco did. In that case the result was a coffee maker with snap fasteners instead of screws to make manufacturing easier, and with added features to entice the consumer. Academe and industry, long disdainful antagonists, have discovered that they need each other badly. Some colleges have always had ties to business, but the connection has never been so close as it is today. Nothing seems likely to slow what a recent National Academy of Sciences report described as a ''virtual explosion over the past several years in the number and variety of university-industry alliances.'' For universities, association with business means research funds above all. The government continues to be the predominant source, but federal spending has leveled off at $6.5 billion of the $14.2 billion spent annually on university research. Industry added only $600 million last year, but its support has tripled since 1980. Universities also benefit from the up-to-date equipment business can donate, the extra income professors and graduate students can earn, and the stimulation of doing research that moves rapidly into the marketplace. One buzzword of the new alliance is ''technology transfer,'' which means turning research into products. ''Tradition has it that science to be good has to be so pure as to be useless,'' argues Cornell President Frank H. T. Rhodes. ''It's not so.'' Says Wesley Posvar, president of the University of Pittsburgh: ''Serendipitous academic research typically takes ten to 15 years -- or forever. There's no reason why it should be so protracted.'' < While universities are the more ardent partners, companies also have good reason to get cozy. Says Herbert I. Fusfeld, head of RPI's Center for Science and Technology Policy: ''Many corporations are realizing they can no longer be self-sufficient technically.'' High-tech companies, for example, find that the time lag between pure research and product has shrunk so much that they need to be where the pure research is performed. ''We need a window on innovation,'' says James P. Baughman, who supervises management development for General Electric. ''When someone yells 'Eureka' at RPI or Stanford, we'll hear it.'' Explaining why his company has given Cornell's supercomputer center about $30 million, including use of an IBM 3090-400, John Daily, who manages IBM's Academic Information Systems, says: ''This puts us in a highly visible environment where the performance of IBM's best can be tested by the best people from all over the country.'' Business-university alliances also improve both the local economy and the competitiveness of U.S. industry. But they have been a long time coming. For universities, alliances raise troublesome questions about academic freedom, the purity of research, and the amount of professors' time and energy that should go into off-campus activities. Companies worry that their secrets will leak out on gabby campuses. At Carnegie Mellon University in Pittsburgh, IBM invested more than $25 million in a sophisticated network (called Andrew, after the university's two founders) that connects every conceivable place on campus where a terminal might be used -- 10,000 rooms in all. At first IBM insisted on security passes for the Information Technology Center that runs the system because it contained the powerful new RT PCs, which had not then been unveiled. Now that the RT is public, the normal free access of a university has been restored. As the industry-university marriage evolves, such problems increasingly seem more theoretical than real. Considering the animosity toward business that students and faculty felt in the 1960s, which survives in the form of South Africa divestment protests, universities and industry have come together with remarkably little outcry. Qualms about academic purity may have been eased in part by the discovery that a professor can get rich by turning entrepreneur. Some 3,000 science and engineering professors own stock in companies that are based on their own research, and a number have become multimillionaires. Today's entrepreneurial university can provide a framework for the whole life cycle of a business. Suppose an undergraduate finds a subject that excites him. He becomes a graduate student and makes a discovery. The university helps him write a business plan, acquire a patent, and raise seed money. He takes his first steps in the university's incubator building for newly hatched entrepreneurs, moves to the university's research park when sales pick up, and improves his product in the university labs. Finally he succeeds, making a fortune. Naturally, he becomes a generous benefactor of the school. ALONG WITH RPI, the University of Pittsburgh and its neighbor, Carnegie Mellon, have pushed the business alliance further than most. Lalith Kumar, a 28-year-old native of India, is one of the entrepreneurs nurtured at Carnegie Mellon. As a doctoral student in the early 1980s, he studied supercritical fluid extraction, the science of separating the compounds of a fluid by using precise high pressures. He wanted to apply the technology commercially and found that by using it to analyze chemicals he might develop a market. While continuing to work for the Ph.D. that he finally got in 1985, he co-founded Suprex Corp. and moved rent-free into an old commercial garage that Carnegie Mellon had turned into a business incubator. ''We needed inexpensive space to survive,'' says Kumar. ''Sometimes we couldn't even pay the engineer.'' The university also invested $20,000. Faculty members helped with fund raising and scientific advice. On the strength of $2.3 million in venture capital, Kumar moved to Pitt's new 85-acre U-Parc research center a year ago. He hopes to reach $2 million in sales this year. In their newfound worldliness, universities are offering sophisticated inducements to get more support from industry. Each college has its own combination of deals. Here are the choices a company might have: -- THE RESEARCH PARK. Universities with acreage to spare look enviously at the pioneering Stanford Research Park, established in 1951 and a key ingredient in the growth of Silicon Valley. Now fully developed, the park has yielded Stanford $2.1 million annually on average for the past 30 years, counting substantial prepayments on leases. Some parks, like Princeton's Forrestal Center, are treated simply as real estate investments available to any tenant; others, like RPI's, are open only to companies doing research that complements the university's. University research parks are breaking out all over. In 1983 there were a scant dozen. Today there are 80. Pitt got U-Parc ready-made last year as a result of Chevron's acquisition of Gulf Oil. Chevron gave the university Gulf's research center 14 miles from Pittsburgh, complete with 55 buildings and research equipment. Pitt has already signed up 36 tenants. Still, only a handful of new parks will reach the status of Stanford's, according to Reginald W. Owens, a park development consultant and president- elect of the new Association of University Research Parks. He argues that it takes a great research institution to create a major park, and even those that reach for success on a small scale will need ''the ultimate in amenities.'' Good transportation is crucial too. ''Without an airport, you're dead,'' he says. Cornell's modest park, with only a small airport next door, is unlikely to blossom. Even under the best of conditions, parks mature slowly. Few produce much income for their academic landlords. The University of Utah's park, with 56 tenants, has never topped $500,000 in annual rentals. But parks do wonders for the surrounding community. Each professional researcher adds about $125,000 a year to a local economy, says RPI's Fusfeld. North Carolina's Research Triangle, bounded by three major universities (Duke at Durham, the University of North Carolina at Chapel Hill, and North Carolina State at Raleigh), employs 9,000 Ph.D.s. -- AFFILIATES. MIT set the pattern in 1948 by establishing a program that gives companies access to the university for a fee. Today MIT has 300 affiliates, including one-third of the FORTUNE 500 companies that do serious scientific research. MIT's affiliates pay $10,000 to $100,000 a year, depending on their size. In return, their executives can attend seminars, get advance word of scientific papers, and even call professors to discuss problems. Sometimes professors visit companies. For a fee, corporations can send their own scientists to work in MIT labs. The program, administered by a 50-person industrial liaison office in Cambridge and a branch in Tokyo, raised a good chunk of the $38 million that industry contributed in 1986 to MIT's $256-million research budget. Today it would be hard to find a university without an affiliate program. Fees can range up to the $250,000 a year charged by Carnegie Mellon's Magnetics Technology Center. At Cornell's new Theory Center, which houses the IBM 3090-400 supercomputer, affiliates pay $100,000 a year each. The Corning Glass Works' contribution entitles the company to send one of its top scientists, Michael P. Teter, to do research in the Theory Center. He spends a couple of days a week at Cornell working on such fundamental problems as three-dimensional fluid flow modeling of the glassmaking process. He says the supercomputer enables him to work out simulations in three months that would take 20 years in the arcane world of glassmaking. More important than the supercomputer, says Teter, are insights he gets from access to half a dozen of the world's top mathematicians and physicists, including the center's director, Nobel laureate Kenneth G. Wilson. -- PARTNERSHIPS. Universities and corporations sometimes go beyond mere affiliation to merge forces in joint ventures. When Monsanto wanted to expand from chemicals into biotechnology in 1982, it signed a joint research agreement with Washington University, a neighbor in St. Louis that is strong in biology. Monsanto will pay the university $62 million over 8 1/2 years. Hundreds of Monsanto and university scientists are working on some 30 projects that show promise of pushing the results of basic research rapidly into the market. The partnership has already started clinical tests on several products. At least one of them -- synthetic atrial peptides, like the protein fragments produced naturally by the heart to regulate blood pressure -- may be on sale by the end of the decade. Washington University scientists synthesized the atrial peptides; Monsanto's purified them and produced more for tests. The university will own the patents, but Monsanto will have exclusive rights to them. GERMANY'S Hoechst AG, the world's fourth-largest chemical company, provides all of the support for the molecular biology department at Massachusetts General Hospital in Boston, a teaching hospital for Harvard's medical school. Hoechst spent $10 million to build the department's labs and offices, equipped them for another $1.5 million, and provides the entire $6-million annual operating budget. The department does no directed research for Hoechst and would resist any request to do so, says its chief, Howard M. Goodman. But it sure can help. Hoechst has a new herbicide called Basta that leaves no residue but kills crops and weeds alike. As often happens in the business-university alliance, Hoechst's practical problem spurred the Harvard scientists into solving a theoretical problem: They did the basic thinking about genetic engineering that will help make desirable plants immune to the herbicide. Now Hoechst scientists are applying those theories to create resistant strains of corn and beets. Most important to Hoechst, Harvard gives it a window into molecular biology, a field in which it feels weak. Hoechst has the right to assign four scientists to the lab and to have company scientists and executives get regular briefings. -- PATENTS. Academics used to think it was wrong to take out patents to profit from inventions that they felt should be freely available to the public. This altruism was dented in the 1970s by the recognition that companies are unwilling to invest much in unprotected inventions. Besides, why should universities give up an extra source of income? Most now have patent offices and require professors to assign rights to their inventions to the university, unless the government has financed the work. The professor and the college split any income. Stanford hopes to beat all records with some 80 licenses taken out on the university's recombinant DNA patent, one of the most scientifically exciting and financially promising inventions of recent decades. Stanford almost missed that golden goose. When Stanley Cohen of Stanford and Herbert Boyer of the University of California at San Francisco discovered the key to genetic engineering in the 1970s, they delivered a paper making their work public. In the academic tradition, they did not file for a patent. The university's news director, Robert Beyers, spotted a newspaper account of their research and took it to the office of technology licensing. The university filed for a patent just before expiration of the one-year period after which their ideas would have been in the public domain. In five years, says Niels Reimers, head of the office of technology licensing at Stanford, that patent will be worth more than $10 million a year. Genentech, the company created by the patent, is even more valuable. Boyer put $500 into the company ten years ago and today owns shares worth $105 million. Reimers says his staff of 13 evaluates about three discoveries a week and licenses about one out of eight. He expects revenues to reach $6 million this year. Despite such bonanzas, ''most patents are junk,'' says RPI President Daniel Berg. Harvard's patent office, opened in 1977, took in a meager $200,000 last year. Still, many colleges figure that if they build up their bank of patents and more research becomes salable, income will increase substantially. -- EQUITY PARTICIPATION. If professors' equity in their companies can be worth millions, why don't universities take a piece of the action? A few do, but most feel the risk of conflict of interest is too great. Says Cornell's Frank Rhodes: ''If a university has equity in the companies of its faculty members, that makes the university less than impartial in promotions, support, and so forth.'' Harvard President Derek Bok aroused his faculty to fury in 1980 when he tried to get the university a 10% stake in Genetics Institute Inc., a biotechnology company founded by Harvard professors Mark Ptashne and Tom Maniatis. Bok backed off. Other institutions, among them Carnegie Mellon, Washington University, and the University of Utah, are willing to take positions either directly or through foundations they control. By now equity participations and other questions of academic integrity are pretty well covered by rules worked out with much windy discussion but remarkably little controversy. Professors have long been allowed to work off campus one day a week, usually as consultants, and the rule now extends to academic entrepreneurs. They can put in that day as board members or consultants at their own companies, but if they want to be line executives they must quit or go on leave. One big problem for companies that want to hang on to competitive secrets is universities' commitment to publishing research results. Most universities will not undertake secret or proprietary research for companies, and if they do, they insist on the right to publish -- though not immediately. Some will wait a month; Carnegie Mellon permits a three-month delay if a company insists. Since academic journals are notoriously slow anyway, the lag is immaterial. By having an early look at the research, the companies get all or most of the head start they need. RESERVATIONS about the university-business alliance seem strongest at well- endowed liberal arts colleges and scarce at technically oriented schools that have to scramble for money. At rich old Princeton, the new dean of engineering, Hisashi Kobayashi, has begun to encourage mingling with industry. Even so, he is cautious. ''The atmosphere is different here,'' he says. ''Our traditional strength lies in scholarly work and publishing rather than running around developing products and starting companies. If we emphasized industrial | collaboration too much, the atmosphere of the university would change.'' These are honeymoon days for the new alliance. ''There's no downside to it that I could discern,'' says David Gardner, president of the University of California system and head of the University of Utah for ten years as it built exceptionally close relations with business. But problems will surely surface. Some universities will see their research parks fail; others may find they have strayed uncomfortably far from teaching and disinterested research. But the relationship plainly offers a way to get the fruits of invention into the economy faster and better, which cannot help but make the U.S. more competitive. Carnegie Mellon President Richard M. Cyert believes that universities cooperating with industry could act as an informal answer to Japan's vaunted Ministry of International Trade and Industry (MITI), the powerful government-business partnership that has done so much for Japan. By and large, that American odd couple, colleges and commerce, looks to be a lasting union.