Effective Partnering_ a Report to Congress on Federal Technology Partnerships

8/8/2019 Effective Partnering_ a Report to Congress on Federal Technology Partnerships

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1Effective Partnering: A Report to Congress on Federal Technology Partnerships

OFFICE OF TECHNOLOGY POLICY

EFFECTIVE PARTNERING:

A REPORT TO CONGRESS ON

FEDERAL TECHNOLOGY PARTNERSHIPS

Richard J. Brod y, Ph.D.

Project Director

U.S. Departm ent of Commerce

Office of Technology Policy

April 1996


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TABLEOF CONTENTS

PAGE

FOREWORD ............................................................................................. 5

CHAPTER 1: EXECUTIVE SUMMARY ......................................................... 7U.S. Technology Policy After World War II ........................................7

Imp act of Foreign Com petition .............................................................8

Changing Env iron ment for Defen se R&D ..........................................8

Rise of Local an d State Partn ersh ip Program s ................................... 9

Rise of Fed era l Partner ship Programs ................................................. 9

Find ings ..................................................................................................12

Recom mendations ................................................................................14

CHAPTER 2: FEDERAL TECHNOLOGY POLICY, 19501980 ..................... 17Dual Thrusts: Basic Research and Mission R&D..............................17

Commercial Impacts from Basic Research, Mission Research,

an d Procu rements ...........................................................................18

The Rise of Global Competition and Its Imp lications for

Fed eral Techn ology Policy ............................................................20

CHAPTER 3: TECHNOLOGY PARTNERSHIPSAN D THE EMERGENCE

OFA NEW PARADIGMFOR ECONOMIC GROWTHAN D

COMPETITION, 19801995 ............................................................. 23The Role of States an d Priva te Sector Grou ps ..................................23

Federal Technology Legislation: Leveraging Mission R&D ...........25

Federal Technology Legislation: Direct Comp etitiveness

Program s ..........................................................................................30

Federal Technology Legislation: Dual-Use Partnerships for

Defen se .............................................................................................32

The New Parad igm for Improved U.S. Compet itiveness ............... 33

CHAPTER 4: FINDINGS .......................................................................... 37Partnership Programs and U.S. Comp etitiveness ...........................37

Partnerships and Govern ment Mission R&D ..................................39

Sup port for Federal Program s ............................................................40Partnersh ip Programs, Pu blic Policy, and the Business

Clim ate for Inn ovation .................................................................. 45

Measu rin g Success ................................................................................47

A New Paradigm ..................................................................................56

CHAPTER 5: RECOMMENDATIONS ......................................................... 65Make Partn ership Op portu nities More Accessible and Easier

to Identify ........................................................................................65

EFFECTIVE PARTNERING: A REPORT TO CONGRESS

ON FEDERAL TECHNOLOGY PARTNERSHIPS


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4 Effective Partnering: A Report to Congress on Federal Technology Partnerships


Be a Better Partn er: Improve Speed , Flexibility, and

Pred ictab ility ...................................................................................69

Help Small Businesses Secure Necessary Business and

Financial Advice from State Program s and Private

Sector Sources .................................................................................73

Furth er Increase the Private Sector Role in Project

Defin ition and Selection ................................................................73

Shift to Com mercial Financial Managem ent Practices ...................74

Continue Developing an Integrated System of Measuring

Program Resu lts ..............................................................................76


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FOREWORD

During the past 15 years, successive Congresses and Presidents haveintrodu ced a range of policies and p rogram s designed to increasethe effectiveness of government mission research and development and

enhan ce U.S. technology-based economic growth . These policies and

programs include the following:

n Licensing of federal patents;

n Cooperative research and developm ent agreements;

n The Small Business Innovation Research pr ogram;

n The Advan ced Technology Program ; and

n The Manufacturing Extension Partn ership.

Taken as a wh ole, these policies and programs represent a grad ual

evolution from the historic mod elin wh ich govern men t is the principal

customer for federa lly sup ported technologyto inclusion of a new

parad igm app ropriate to this era of dynamic comm ercial markets and

global comp etition. In this parad igm, governm ent is a partner with the

private sector in d eveloping and dep loying new commercial technologiesthat fulfill mission objectives and enhance U.S. industrys market

strength.

Extensive consultation w ith the p rivate sector confirm s that th ese part-

nership p olicies and programs, in combination w ith incentives for capital

formation and regulatory reforms that red uce risk, are impor tant in

stimulating technological innovation an d imp roving U.S. comp etitive-

ness.

This report an alyzes this historic transition and describes best p ractices of

the new paradigm across the range of program s. It also offers recommen-da tions for further improv ing the effectiveness of present and future

public-private partnerships.

Graham R. Mitchell

Assistant Secretary of Commerce for Technology Policy


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CHAPTER 1: EXECUTIVE SUMMARY

Since 1980, successive Congresses and Presidents have established a setof policies and programs designed to imp rove the effectiveness ofgovernm ent m ission research and enhan ce U.S. technology-based eco-

nom ic grow th. These efforts began w ith mechanisms d esigned to maxi-

mize the comm ercial impact of federa l investments in research and

developm ent. Over time, how ever, the policy focus shifted to include

new programs that seek to enhan ce directly the comp etitiveness of U.S.

indu stry. This shift represents a fund amen tal chan ge in the philosoph y

un derlying U.S. technology p olicy.

We began, in th e years following World War II, with informa l processes

of technology d iffusion, based on the assu mp tion that technologies

developed in the course of federal missions wou ld more or less auto-

matically find use in th e pr ivate sector. In the early 1980s, in an effort to

meet mission objectives more cost-effectively and to leverage more fully

the economic impact of mission Research & Development (R&D), the

government introduced n ew p rograms, based on a mod el of actively

encouraging commercialization of va luable federal technologies. The

new est technology p artnersh ips, introd uced in the late 1980s, are based

on a new p aradigm in wh ich the government is a partner with the pri-

vate sector in developing an d d eploying new technologies in a global

economy.

This report analyzes this historic transition, explores the effectiveness of

federal technology par tnership p rogram s in meeting their goals, and

offers recommend ations for furth er imp roving the effectiveness of

public-private technology partnerships.

A comp rehensive review of all federal technology partn ership progr ams

is beyond th e scope of this rep ort. Rather, the r eport focuses on the

history and developm ent of several key mechanisms for pu blic-private

R&D partnerships.

U.S. Technology Pol icy After World War II

Through out m uch of the postWorld War II period, the U.S. government

add ed significantly to the worlds science and technology base throu gh a

two-par t strategy of sup porting basic scientific research and pu rsuing th e

science and technology missions of federal agen cies and dep artments.

Fueled by the cold w ar and the space race, federal R&D spen ding rose

dram atically. By 1964, U.S. governm ent R&D investments exceeded the

The newest technology

partnerships are based on

a new paradigm in which

the government is a

partner with the private

sector in developing

and deploying new

technologies in aglobal economy.


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civilian, d efense, and indu strial R&D investments of all other d eveloped

countries combined .

U.S.based corporations, by virtue of their global commercial dom inance

in technology-based ind ustries, benefited especially from the enormous

amoun t of federally sponsored basic research and mission R&D. The

American economy benefited from federal R&D throu gh an informal

process referred to as spin-off, in wh ich th e results of federally fund ed

research were diffused and app lied in the pr ivate sector.

U.S. indu stry continues to reap the comm ercial benefits of these invest-

men ts in federal R&D. The p resent technical and competitive strength of

the U.S. aerospace, information, compu ting, and biotechnology ind us-tries is du e to a significant degree to sustained gov ernm ent sup port for

science and technology research over several postwar d ecades.

Impact of Foreign Competition

Dur ing the 1970s and 1980s, however, m any foreign comp etitors in-

creased their technical capabilities and challenged U.S. commercial

dom inance in both foreign and dom estic markets, wh ich led to enor-

mou s U.S. job losses and economic dislocation. In this n ew environm ent,

the U.S. economy benefited less from traditional processes of public-

private technology development and diffusion.

There were at least three reasons for this phenom enon. First, as the

technical sophistication of our ma jor comp etitors grew, they too were

able to approp riate the outpu t of U.S. governmen t basic and mission

research, which redu ced the relative imp act of these pu blic investmen ts

on Am erican econom ic comp etitiveness. Second, trad itional mechanisms

of technology tran sfer, developm ent, and diffusion took too long in an

era of accelerating pr ivate sector prod uct developm ent. And th ird, as

foreign R&D increased, U.S. governm ent R&D rep resented a d eclining

wor ld sha re. For all these reasons, U.S.based corporations and the U.S.

economy benefited less than they had previously from federally sup -ported basic research and from technologies resulting from govern men t

mission investments.

Changing Environment for Defense R&D

Dur ing the 1970s and 1980s, the federal govern men ts trad itional ap -

proach to R&D also became less effective in m eeting governm ents ow n

needs. Postwar military R&D and procurement had spawned technolo-

gies such as comp uters, semicond uctors, and jet engines. However,

U.S. industry continues

to reap the commercialbenefits of these

investments in federal

R&D. The present

technical and competitive

strength of the U.S.

aerospace, information,

computing, and

biotechnology industries

is due to a significant

degree to sustainedgovernment support for

science and technology

research.


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because of expan ding military specifications and the crush of an increas-

ingly cumbersome federal procurement system, m ore and more commer-

cial firms walled off their defense prod uction or refused to do business

with th e Depar tmen t of Defense (DoD) altogether. As a result, DoD came

to rely on an increasingly isolated d efense ind ustrial base.

This segregation of defense and commercial firms occur red at a time

when the defense industry was gradually losing its unchallenged posi-

tion of technological leadership. The new technologies most critical to

Americas military adv antagesoftwar e, comp uters, semicondu ctors,

telecommunications, advanced materials, and manufacturing technolo-

gieswere increasingly being d riven by fast-growing commercial de-

man d, not by m ilitary dem and . To preserve U.S. military sup eriority,DoD had to find a w ay to exploit the ad vanced technologies and efficient

prod uction capabilities of commercial indu stry.

Rise of Local and State Partnership Programs

Faced with economic decline an d job losses, some state an d local govern-

ments, together with numerous private sector and academic organiza-

tions, began to bu ild diverse partnerships and programs to p romote

economic growth an d job creation. Over time, these program s increas-

ingly focused on the econom ic potential of technology. In the 1960s,

some governments promoted technology-based economic growththrou gh m echanisms such as Nor th Carolinas Research Triangle com-

plex. Ohios Thomas Edison Program and Pennsylvanias Ben Frank lin

Partnership Program were introd uced in the 1980s. Through th ese pro-

gram s and others, states created netw orks of technical training an d

academic programs, fostered new businesses throu gh incubators,

supported new technologies through grants, and diffused information

about m anu facturing technologies throu gh extension program s. States

also integrated federal laboratories, un iversities, indu stry consortia, and

test centers into state economic developm ent strategies. These new

partnerships and programs brought together sources of new technology,

insights about new m arkets, and the funding and managem ent needed tobring success in th ose mark ets.

Rise of Federal Partnership Programs

By 1980, there was w idespread concern about the effectiveness of govern-

men t m ission research and declining U.S. technology-based comp etitive-

ness. These concerns were the impetu s for new app roaches to federal

technology policy in th e 1980s and 1990s.

Partnerships and

programs brought

together sources of new

technology, insightsabout new markets,

and the funding and

management needed to

bring success in those

markets.


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The initial federal technology legislation of the 1980s was resp onsive to

the same concerns about comp etitiveness that drove state program s. The

new legislation w as also motivated by th e belief that trad itional federal

policiesinvestment in basic and mission research withou t d irect regard

for comm ercial imp act and w ith reliance on informal mechanisms of

spinning off technologies to the pr ivate sectorwere not maximizing the

commercial potential of the results of federally spon sored r esearch.

Many pu blic and private sector officials believed tha t federal laboratories

and agencies had developed many technologies and processes that had

commercial value but w ere languishing on the shelf, wh ich red uced the

value of these technologies for achieving agency m ission goals.

In add ition, through this and su bsequent legislation, policymakers began

to add ress the ways in which increased emph asis on commercializing

federal technologies and th e establishmen t of R&D partnersh ips with th e

private sector could imp rove th e efficiency of m ission-related research.

This new app roach to R&D partnerships had p articular application in

the d efense sector, wh ere R&D critical to na tional security w as being

dr iven increasingly by comm ercial market forces. In th is environment,

par tnerships could h elp both civilian an d m ilitary agencies better meet

technology needs by exploiting commercial technologies and mar kets to

meet the governm ents own needs.

In the 1980s, legislation and executive ord ers granted firms and un iversi-

ties irreversible and exclusive patent rights to federally d eveloped

technologies, promoted small business involvement in technology

developm ent and diffusion, and coord inated technology policies across

agencies, amon g other prov isions. Licensing of federal p atents and

pu blic-private technology pa rtnership s offered agencies a w ay to accom-

plish their mission objectives m ore efficiently. In ad dition, throu gh these

laws and policies, Congress and successive presidents sought to leverage

fully th e value to society of tax d ollars invested in m ission-related R&D.

While these policies were an imp rovement, they did n ot maximize the

governm ents potential for fostering technology-based economic growth.

Merely encouraging th e commercialization of governm ent m ission R&D

did not fully meet the needs of the private sector in respond ing to global

competition.

In the late 1980s and early 1990s, Congress created tw o p rogram s d e-

signed to enh ance U.S. competitiveness directlythe Ad vanced Technol-

ogy Program (ATP) and th e Manu facturing Extension Partn ership (MEP),

described below . These initiatives are private sectorled technology

development and deployment p rograms to speed technology diffusion

Legislation and executive

orders granted firms and

universities irreversible

and exclusive patent

rights to federally

developed technologies,

promoted small business

involvement in

technology development

and diffusion, and

coordinated technology

policies across agencies.


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and develop longer term , high-risk technologies that will prov ide w ide-

spread benefits to the U.S. economy but th at w ould n ot otherw ise be

developed in a competitive time frame, if at all. These direct comp etitive-

ness programs are governed by a new parad igm for public-private

technology par tnerships in wh ich the governm ent and private sector are

par tners in developing and dep loying new technologies. For example, in

ATP, the pr ivate sector joins in cost-shared partn erships w ith the govern-

men t to imp rove Am erican technological competitiveness.

The federal governm ent now ad ministers the following p artnership

policies and programs to increase the effectiveness of mission research

and prom ote technology-based economic growth an d U .S. comp etitive-

ness:

n Licensing of federal patents;

n Cooperative research and developm ent agreemen ts (CRADAs);

n The Small Business Innova tion Research p rogram (SBIR);

n The Adv anced Technology Program (ATP); and

n The Manu facturing Extension Partner ship (MEP).

Licensing and SBIR are active spin-off programs designed to leverage the

commercial impact of federal R&D investments. CRADAs join the gov-

ernm ent an d indu stry in m utu ally beneficial joint civilian research. An

add itional p rogram , Technology Reinvestment Project (TRP), launched to

mak e defense prod ucts cheap er to buy, sup ported defense efforts throu gh

the d evelopment of d ual-use technologies that exploit the rap id rate of

innovation an d the m arket-driven efficiencies of comm ercial indu stry.

ATP and MEP are direct competitiveness programs in w hich the govern-

men t and private sector work jointly to raise the level of technology u sed

by U.S. firms and to d evelop cutting-edge technologies and processes.

Through th ese two programs, the federal governm ent facilitates the

developm ent of prom ising yet unp roved technologies that would not

otherw ise be developed in a comp etitive time frame, if at all.

Although th ese program s represent only a sma ll fraction of the federal

R&D bud get, they leverage mon ey in the pu blic and p rivate sectors,

causing an economic imp act far larger than that suggested by the pro-

gram bud gets alone. Moreover, they are the only mechanisms focused

specifically on p roviding a bridge betw een the federal R&D investment

and the efforts of the private sector to rema in globally comp etitive. These

Through these programs,

the federal government

facilitates the develop-

ment of promising yet

unproved technologies

that would not otherwise

be developed in a

competitive time frame,

if at all.


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relatively sma ll investments in federal pa rtnerships p lay a central role in

increasing th e efficiency of governm ent m ission research and safegua rd -

ing the countrys prosperity.

Findings

This study, conducted w ith the supp ort of an interagency working group,

began w ith a series of round table discussions with p rivate sector and

academ ic par ticipants in federal technology progr ams. The stud y sug-

gests the following:

Technology partnerships play an import ant role in fostering

U.S. competit iv eness.Although the p rimary responsibility for maintaining U.S. competitive-

ness lies with th e pr ivate sector, pu blic R&D investments hav e long had

a large imp act on the p rivate sectors ability to innova te and market new

technologies. The p ast several d ecades of experience with p ublic-private

technology developmen t and d iffusion policies have taugh t us that

federal technology programs contribute to U.S. comp etitiveness by

n maximizing the comm ercial impact an d value to society of public

investments in government-fun ded basic research and m ission-

related R&D, and

n work ing in par tnership w ith the private sector to develop high-

risk enabling technologies and speed their diffusion.

Technology part nerships enhance the effect iv eness of gov ernment

mission-related R&D.

With the explosive grow th of cutting-edge R&D performed by commer-

cial firms, U.S. agencies can n o longer d epend solely on intern al mecha-

nisms for meeting governm ent m ission requirem ents. By joining

strateg ically with the p rivate sector, U.S. agencies gain access to and

leverage adv anced commercial technologies, private sector produ ction

efficiencies, and larger m arkets, enabling the governm ent to fulfill itsmission requirements more effectively and at a lower cost.

The U.S. private sector st rongly supports federal technology partnership

programs.

Private sector sup port is broad -based. Both large and small comp anies

and a w ide range of indu stries support an array of federal programs.

Private sector partn ers perceive partn ership programs to be a small but

Both large and small

companies and a wide

range of industries

support an array of

federal programs.


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critical part of the U.S. science and technology infrastructure. This sup-

port has been clearly documen ted throu gh surveys, academ ic stud ies,

roun dtable discussions with p rivate sector representatives, and p rivate

sector app eals for expansion of these program s.

Federal t echnology partnerships are part o f a larger set of priva te sector

priorities for stimulating innovation and competitiveness.

In ad dition to leveraging federal R&D and catalyzing long-term, high-

risk research, the U.S. private sector has called for other govern men t

actions to improv e the bu siness clima te, especially through reform of

federal tax and regulatory policies. The goal of these technology p olicy

related p roposals is to redu ce the high costs and technical risks that can

impede innovation, through changes in federal regulations and produ ctliability law s, new incentives for capital formation, and other initiatives.

The Clinton adm inistration strongly sup ports p olicy measures to make

the business climate m ore condu cive to innovation, provided th ese

changes balance other importan t policy goals, includ ing environm ental

protection, public health an d safety, and the interests of consum ers,

man ufacturers, and sellers, and respect the important role of the states

in the federal system.

Technology part nership programs benefit t he U.S. economy

in a variety of w ays.

Some benefits of these partn erships accrue imm ediately in term s ofprofits, jobs, and n ew p rod ucts, while others (such as catalyzing imp or-

tant long-term R&D areas) may require years to d evelop. Moreover, some

benefits are easily measured wh ile others, such as the prom otion of

business and R&D synergies, are m ore d ifficult to qu antify. The active

spin-off and defense d ual-use p rogram s offer significant benefits, in

increasing th e efficiency of governmen t m ission research and contribut-

ing to U.S. commercial growth . In contrast, ATP and MEP focus exclu -

sively on an d h ave the greatest p otential for promoting technological

innovation, econom ic growth, and U.S. comp etitiveness. Interim da ta for

all types of program s are qu ite positive, showing significant sh ort-term

impacts for active spin-off programs and d emon strating that defensedu al-use and direct technology p rogram s are fulfilling their milestones

and rema in on track for long-term su ccess. While the measu remen t of

program results presents a d ifficult challenge, the ad ministration has

emp hasized the n eed for greater accoun tability in the op eration of these

programs and is designing new systems to measure program inputs and

outputs.

The Clinton

administration strongly

supports policy measures

to make the business

climate more conducive

to innovation, provided

these changes balance

other important policy

goals.


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Gov ernment agencies are adopt ing a new paradigm for t echnology

partnerships.

Government agencies are experimenting with and adopting a n ew m odel

of public-private p artnership in wh ich the p rivate sector is recognized as

the governments partner in cost-shared technology development and

diffusion p rogram s. This paradigm enables agencies to fulfill their

missions more effectively and enhan ces the imp act of federal R&D

par tnerships on the U.S. economy. Direct comp etitiveness programs, such

as ATP and MEP and the defense du al-use TRP program , which were

designed according to the principles of the new p arad igm, are draw ing

strength and sup port throu gh their interactions with the private sector.

In add ition, new pa rad igm principles of service and imp roved account-

ability have improved the op erations of the older programs that enh ancethe efficiency and commercial impact of govern men t m ission R&D.

Recommendations

Although ind ividual federal agencies have already m ad e significant

progr ess in imp roving the effectiveness of programs and incorp orating

many features of the new p arad igm, an opp ortun ity exists to learn from

the best p ractices across all agencies. To the extent perm itted by agency

missions, the agencies should take the following actions:

Make partnership opportunities more accessible and easier to identify.

n Disseminate information on federal research p rojects, expertise,

and intellectual prop erty through both pu blic and private means.

n Serve as a catalyst to prom ote ma tching of new technologies de-

veloped in programs with sources of capital and other supp ort.

n Increase public-private exchanges of scientific and technical

personnel.

n Use participation in and su pp ort of indu stry consortia and otherum brella organizations as a means of ensur ing broad p rivate sec-

tor access to par tnership op portu nities.

Ensure effecti ve protection of int ellectual property .

n Use panels of ind ustry rep resentatives to help id entify the com-

mercial potential of agency research and inventions as early as

possible.


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n Use procedur al options und er the patent laws to secure ad di-

tional time to collect pr ivate sector ad vice and ensure that

app ropr iate protection is sough t.

Be a bett er partner: improve speed, flexibilit y , and predictabi lit y .

Make administration of partnership agreements more responsive to industry

needs.

n Use whatever form of fun ding agreem ent provid es the agency

with maximu m flexibility to adop t commercial practices in struc-

turing the agreement.

n

Direct agencies to use, w here av ailable, other transactions orcomparable au thority p ermitting th e greatest p ossible flexibility

in the terms of collaborative research agreements.

n Increase the speed w ith which the agencies fun d p artnerships

once they are agreed to.

n Where ap prop riate, use the exceptional circum stances au thor-

ity of the Bayh-Dole Act to perm it ind ustry to ow n or control the

rights to inventions resulting from federal fund ing, including

inventions of su bcontractors.

Make partnership agreements easier to negotiate.

n Use state and local econom ic developm ent organ izations,

indu stry associations, and other intermediary organizations

as partners, providing an um brella under which individu al

businesses can p erform collaborative research.

Make partnership agreements more predictable.

n Seek pu blic-private agreement on the basic principles for partner -

ship agreements.

n Build on these principles to give un iform agreement terms,

wh ere possible, and to make negotiations faster and ou tcomes

more predictable.

n In the case of CRADAs, agree to give private sector partn ers the

option of an exclusive license to inventions developed by federal

agency emp loyees in connection with the par tnership.


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Help small businesses secure necessary business and financial advice

from st ate programs and priva te sector sources.

n Work with state and federal agencies to increase the supp ort

available to small businesses and others wh o need to impr ove

their comp etence in the comm ercialization of new technologies.

Further increase the private sector role in project definition and selection.

n Seek pr ivate sector views on th e por tions of the mission research

agend a with greatest commercial potential.

n Use this continuing source of gu idance as a basis for selecting

technology areas in w hich partnersh ip opp ortun ities will be

offered u nder the p artnership p rograms.

Shift to commercial financial management practices.

n Wherever possible, eliminate Federal Acquisitions Regulations

Part 31 accounting requ irements for p rivate sector p articipan ts in

research pa rtnerships in favor of comm ercial practices.

n Review accounting procedu res in all other p rogram s with the

objective of minimizing special stand ard s imposed on p rivate

sector p articipan ts and following comm ercial practices moreclosely.

Continue developing syst ems to measure program results.

n Work in collaboration with other agen cies and with interested

private sector parties to identify app ropr iate measures of effec-

tiveness for the typ es of research partn erships in w hich the

agency p articipates.

n Ask the N ational Science and Technology Cou ncil or other ap pro-

priate organ ization to lead an interagency effort to coordinateagency measurement systems into a comprehensive measure-

men t system for all federal p artnersh ip efforts.


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CHAPTER 2: FEDERAL TECHNOLOGY POLICY, 19501980

Dual Thrusts: Basic Research and Mission R&D

During the tw o d ecades following World War II, federal science andtechnology policy had two strategic thrusts. The first was sup portfor basic science: research withou t imm ediate p ractical ap plication, but

wh ich expand s our u nd erstand ing of the basic principles of natu re. The

fund ing p rovided by the National Science Foun dation (NSF) to scientists

and un iversities is a good examp le of such sup port.

The second strategic thru st was th e sup port of science and technology to

fill public needs as a rticulated by Congress and carried out by U.S.governm ent agencies and dep artments. Often called mission research

because it was p erformed to furth er the various agency missions, this

research, both basic and app lied, focused on produ cing know ledge,

prod ucts, or services of direct use to th e agency fund ing it. The d evelop-

men t of adv anced w eapon s technologies for the Department of Defense

(DoD) and tools used by the N ational Weather Service are two examp les

of mission research.

Magnifying an d often intertwined w ith basic and mission research w ere

the p rocurement activities of the federal govern men t. With its large

pu rchasing ability and often cutting-edge need s, the federal governmentcould play the role of the valued first customer in buying n ew technol-

ogy. By procuring these prod ucts, the federa l government sup ported the

developm ent of technologies that were at first expensive but w ould

ultimately provide imp ortant p rodu cts and services at affordable prices.

As illustrated in figure 1, governm ent research and developm ent (R&D)

fund ing pattern s have changed to reflect emp hasis on different missions.

Until 1960, the govern ments primary ob jective for R&D was d efense.

The space bud get expand ed rap idly in the 1960s but d eclined signifi-

cantly in the 1970s. Energ y R&D peaked in the late 1970s, and health

R&D has grown steadily throughou t the era to approxima tely one-thirdof total civilian R&D tod ay. Moreover, althou gh defense an d civilian

investments w ere rou ghly equa l between 1965 and 1980, defense expen-

d itures accelerated rap idly in th e 1980s: in 1993, military R&D accounted

for app roximately 59 percent of total R&D investments.

With its large purchasing

ability and often cutting-

edge needs, the federal

government could play

the role of the valued

first customer in

buying new technology.

By procuring these

products, the federal

government supportedthe development of

technologies that were at

first expensive but would

ultimately provide

important products and

services at affordable

prices.


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Figu re 1. Federal R&D Funding for

D efen se and Civil ian Functions , 19401994

Commercial Impacts from Basic Research, Mission Research,

and Procurements

Federal investments in basic and mission research advan ced the state of

know ledge in science as well as the missions of agencies and dep art-

men ts. These investmen ts also contributed to U.S. competitiveness

du ring the postwar d ecades through an informal spin-off process in

wh ich the results of federally fund ed research found uses in the private

sector. Federal research flowed to the p rivate sector along many p aths,

includ ing pu blished r eports of research results, private sector perfor-mance of federally fund ed r esearch, commu nications between federa lly

fund ed an d comm ercially oriented researchers, comm ercial hiring of

persons formerly engaged in federa lly fun ded research, and governm ent

procurement of advan ced equipment that met the technical requirements

of DoD, the N ational Aeronau tics and Space Ad ministration (NASA), and

the Departm ent of Energy.


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During the p ostwar p eriod, private firms used federal technologies to

create new indu stries. For examp le, federal R&D p rogram s, particularly

those in d efense, supp orted important ad vances in fundam ental knowl-

edge of comp uter architecture, software languages, and d esign that

found app lications in both the civilian and defense sectors of the emerg-

ing indu stry (see box 1). In th e aerospace ind ustry, d efense-related re-

search sup ported the developm ent and r efinement of jet engines,

aluminum airframes, civilian airliners such as the Boeing 707, and

commu nications satellites.

There were thr ee primary reasons for the significant comm ercial imp act

of federal R&D investments d ur ing this p eriod. First, defense research

and developm ent (and federal R&D generally) set the direction for wor ldresearch by virtue of its large size and cutting-edge nature. In 1964, U.S.

defense R&D alone was tw o-thirds as large as all governmen t and indu s-

trial research and developm ent, both civilian and military, performed by

German y, France, the United Kingdom , Italy, Swed en, and Japan com-

bined. When the U.S. governments civilian R&D is ad ded to that of

defense, federal R&D investments exceeded those of all other developed

countries (see figure 2).

Box 1. Technology Dif fusion in ActionThe field of semiconductors is an exam ple of the significant comm ercial

impact of government-sponsored R&D. The U.S. government played a

primary role as the first customer for the semicondu ctor ind ustry. The w ill-

ingness and ability of the governm entespecially DoD an d NASAto

become the first major customer for these new integrated circuit (IC) prod-

ucts allowed the U.S. semicond uctor indu stry to improve p rodu ction capa-

bilities and equipm ent and redu ce manu facturing costs. In fact, the federal

govern men t was the only custom er for U.S.-made ICs un til 1964. While this

early supp ort was born of agency mission research and p rocurement

primarily NA SAs efforts to put a man on the m oonit ultimately led to

the d evelopm ent of todays comm ercial semicond uctor indu stry.

The software ind ustry is another example. From th e earliest years of thepostw ar era, private indu stry has been respon sible for a great deal of inno-

vation in software; but in the 1960s, ind ustrial software innovation d rew on

research and m anp ower sup ported by federal governm ent fun ds. Defense-

related spend ing on software w as aimed at creating a found ation for soft-

war e R&D, training, and technology developmen t. Of the 45 major

adv ances in comp uter software that originated in th e United States be-

tween 1950 and 1980, 18 were fun ded by the federal governm ent. These

adv ances later provid ed imp ortant benefits to the comm ercial software

industry.

During the postwar

period, private firms usedfederal technologies to

create new industries.

For example, federal

R&D programs

supported important

advances in fundamental

knowledge of computers.


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Figure 2. Total U.S. R&D Domi nates Total

Foreign R&D, 19611970 (1987 Dollars)

Second, lacking stron g comp etitors, U.S. firms d ominated dom estic and

wor ld markets and w ere therefore ideally positioned to capitalize on the

fruits of federal R&D. Althou gh foreign firms had access to the same

know ledge abou t federal research, throu gh a rticles in scientific journ als,

conferences, and th e like, most foreign companies were r ebuilding after

World War II and were u nable to match the investments of U.S. firms in

technology development, deployment, and manufacturing. Moreover,

U.S. firms also benefited from contracts for the d evelopmen t of defense

prod ucts that had both military and civilian uses. Under these circum-

stances, opportunities to commercialize mission R&D went to U.S.based

firms, giving them an ad ded comp etitive advantage.

Third, the d evelopmen t times, diffusion p rocess, and prod uct life cycles

in federal civilian mission research were comp arable to the dev elopment

times and product life cycles in commercial R&D, which facilitated

diffusion of new technologies to the private sector and made it easier totransfer technologies from the p ublic to the private sector.

The Rise of Global Competition and Its Implications

for Federal Technology Policy

The relative size and impact of U.S. governm ent R&D investments

d iminished in the 1970s (see figure 3). While U.S. research fun d ing, and

the federal d ollars that constituted its single largest comp onent, actually

U.S. firms dominated

domestic and world

markets and were ideally

positioned to capitalize

on the fruits of federalR&D.


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Figu re 3. Foreign R&D Surpasses U.S. R&D

(1987 Doll ars)

increased in constant d ollars, an explosion of civilian research throu gh-

out the w orld resulted in the Un ited States having a smaller share of the

world wid e research effort in the 1990s than it h ad in the 1960s. Almost all

of this foreign R&D w as condu cted in the p rivate sector to create com-

mercial prod ucts. Not on ly did the increased technological sophistication

of foreign rivals begin to erod e the comp etitive ad vantage en joyed by

U.S. firms, but their soph istication also allowed th em to make u se of the

results of federally fund ed basic research, which w ere available to the

entire world . When a new idea w as described in a scientific journ al or at

a conference, it enhanced technology developm ent globally, not just in

the Un ited States.

The comm ercial impact of federal R&D investments d ur ing this period

was also diminished by an other aspect of the new competitive environ-

ment: the gradual shortening of product development times. In the

postWorld War II years, both federal research and p rocurem ent andcommercial R&D w ere characterized by fairly long d evelopmen t cycles.

How ever, in the past few d ecades, commercial prod uct developm ent

times have shrunk. By the 1980s, federal and private sector cycles had

wid ely diverged, and the technology transfer process itself add ed time.

The results of agency m ission research were not reaching th e commercial

sector fast enough to hav e as large an imp act on produ ct developm ent as

they had before.


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Dur ing the 1970s and 1980s, the federal govern men ts trad itional ap -

proach to R&D also became less effective in m eeting governm ents ow n

needs. Postwar military R&D and procurement had spawned technolo-

gies such as comp uters, semicond uctors, and jet engines. However,

because of expan ding military specifications an d the crush of an increas-

ingly cumbersome federal procurem ent system, more an d more comm er-

cial firms wa lled off their defense prod uction or refused to d o business

with DoD altogether. As a result, DoD came to rely on an increasingly

isolated defense indu strial base.

This segregation of defense and commercial firms occurred at a time

when the defense industry was gradually losing its unchallenged posi-

tion of technological leadership. The new technologies most critical toAmer icas military ad vantagesoftware, comp uters, semicondu ctors,

telecommunications, advanced materials, and manufacturing technolo-

gieswere increasingly being d riven by fast-growing comm ercial de-

mand , not by military d eman d. To preserve U.S. military sup eriority,

DoD had to find a w ay to exploit the ad vanced technologies and efficient

prod uction capabilities of commercial indu stry.

By 1980, there was w idespread concern about the effectiveness of gov-

ernm ent m ission research and declining U.S. technology-based competi-

tiveness. These concerns w ere the imp etus for new ap proaches to federal

technology policy in the 1980s and 1990s, based on the conviction tha tAmerica needed new government m echanisms and processes to enhance

mission research and help improv e U.S. comp etitiveness. The h istory

and current statu s of these policies is the subject of the rem ainder of this

report.


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CHAPTER 3: TECHNOLOGY PARTNERSHIPSAN DTHE

EMERGENCEOFA NEW PARADIGMFOR ECONOMICGROWTHAN D COMPETITION , 19801995

Since 1980, the federal governm ent h as d eveloped more active p oliciesand a new parad igm for the development and deployment of technol-ogy. Initially, the government d eveloped p rogram s to increase the effi-

ciency and more fully leverage the comm ercial impact of mission

research and d evelopment (R&D). Over time, however, Congress and th e

executive branch created new programs, based on a new parad igm in

wh ich the government and p rivate sector are partners in developing and

dep loying new technologies. While these programs rep resent only a

sma ll fraction of Amer icas total investm ent in R&D, they leveragemon ey in the pu blic and p rivate sectors, causing an econom ic imp act

far larger than that su ggested by the p rogram bu dgets alone.

The Role of States and Private Sector Groups

Federal technology pa rtnerships grew in tand em w ith efforts at the state

level to prom ote technological innovation throu gh p ublic-private part-

nerships. In fact, some of the first and most successful public sector

efforts w ere un dertak en at the state an d local levels. The U.S. indu strial

dow ntu rn tha t resulted from the rise of global competition had a m ajor

impact on many local economies and qu ickly captu red th e attention of

state governments. States whose economies were most dependent on

man ufacturing suffered the greatest declines in emp loyment, wages, and

tax revenu es. Many states quickly p erceived the imp ortance of technol-

ogy to their economies and began to develop new app roaches to technol-

ogy developm ent and d iffusion as par t of their broader economic

developm ent p olicies.

For examp le, North Carolinas Research Triangle comp lex, formed in the

late 1960s in p artnership with the states m ajor u niversities, brought in

billions of dollars in n ew investm ent and created thou sand s of jobs.

Partly as a result of this success, Nor th Carolina has an u nem ploymen t

rate 2 percent below th e national average. A more common u se of tech-

nology as an element of economic development strategy is reflected in

Ohios Thomas Edison Program and Pennsylvanias Ben Franklin Part-

nership Program, both foun ded in 1983. To encourage research and

developm ent p rojects, these p rogram s offer financing, technical assis-

tance, and access to valuable assets such a s sup ercompu ters. Table 1 lists

the states that spen d th e most to fund science and technology (S&T)

programs, overall and per capita.

While these programs

represent only a small

fraction of A mericas

total investment in

R&D, they leveragemoney in the public and

private sectors, causing

an economic impact

far larger than that

suggested by the program

budgets alone.

Some of the first and

most successful public

sector efforts wereundertaken at the state

and local levels.


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Table 1. Top 15 States in Science and Technol ogy Program

Spend ing (Overall and per Capita), FY94

Per Capita

State Overall Spending State Spending

North Carolina $37.5 million Alaska $15.45

Pennsylvania 34.1 million Connecticu t 8.37

Texas 30.0 million Nebraska 5.69

Georgia 29.9 million North Carolina 5.65

Connecticu t 27.5 million Delaware 5.39

Ohio 27.5 million South Dakota 5.32

New York 22.9 million Georgia 4.61

New Jersey 20.3 million Kansas 4.48

Michigan 14.1 million Hawaii 4.16

Maryland 12.7 million Montana 3.72

Florida 12.6 million Pennsylvania 2.87

Kansas 11.1 million North Dakota 2.79

Virginia 10.4 million Maryland 2.65

Nebraska 9.0 million New Jersey 2.63

Alaska 8.5 million Ohio 2.53

Source: Chris Coburn, editor, Partnerships: A Compendiu m of State and Federal

Cooperative Technology Programs, Columbus : Battelle Press, 1995.

State programs sou ght to harness both local and federal resources with

great creativity. States networked their training and acad emic program s

into centers of excellence. They fostered new businesses by creating

incubators and supported new technologies through grants. They dif-

fused information abou t man ufacturing technologies through extension

progr ams an d integrated existing technology resources such as federal

laboratories, un iversities, indu stry consortia, and test centers into state

economic development programs. These partnerships with economic

developm ent programs were pa rticularly effective in reaching sma ll

business comm un ities, providing a link between those businesses and

the sources of new technology. The d epth and bread th of state experiencewith these programs illustrates state sup port for public-pr ivate partner-

ships to enhan ce technology-based economic growth .

The success of these state program s provided imp ortant lessons on

governm ent technology policy. State and local projects demon strated th at

new n etworks of partnerships and p rograms could sup plement tradi-

tional methods of technology development and deployment. More

imp ortant, these partnerships brou ght together sources of new technol-


23/72



ogy, insights about new m arkets, and the fund ing and m anagement

needed to bring success in global mar kets.

Federal Technology Legislation: Leveraging Miss ion R&D

The evolution of federal civilian technology p olicy has been a gradu al

process (see figu re 4). As discussed above, in the first decad es following

the war , the federal governm ent pu rsued a de facto technology policy of

sup port for basic and m ission research. This policy assum ed th at tech-

nologies developed by the governm ent in the course of condu cting basic

and m ission-related research wou ld lead as needed and m ore or less

autom aticallyto comm ercial produ cts and services. Federal r esearch

did n ot seek direct comm ercial imp act and little attention was pa id tochanges in indu stry and in the world that w ere und ermining the ability

of U.S.based firms to u se federally d eveloped technologies comp eti-

tively. Consequ ently, desp ite some success in the 1960s and early 1970s,

this spin-off model of innovation became less and less effective in meet-

ing the technology d eman ds of the comm ercial marketp lace. The model

also discoun ted th e potential of emp loying or learning from commercial

technologies and research meth ods to improv e the effectiveness of gov-

ernm ent mission research.

By the late 1970s, there w as d issatisfaction w ith federal policies on

paten ting the scientific and technical know ledge resulting from missionresearch. Many p rivate and pu blic officials believed that the federal

Figure 4. Evolutio n of Technolog y Partnerships, 19801995

These partnershipsbrought together sources

of new technology,

insights about new

markets, and the funding

and management needed

to bring success in global

markets.


24/72



laboratories possessed valuable scientific and technical know ledge

created in the p ursu it of agency missions that could b e quickly commer -

cialized, benefiting both the agencies and the genera l economy. How -

ever, bu sinesses w anted exclusive licenses to federal technology to

protect their investments in commercialization, and m any agen cies

granted only nonexclusive licenses. This arran gemen t discouraged

technology diffusion to the private sector and jointly beneficial R&D

projects.

The lack of a u niform p olicy amon g agencies for ow nership of inventions

was another ma jor d ifficulty. The p rivate sector faced a comp lex maze of

paten t policies that w ere often inconsistent from agen cy to agency, and

sometimes even within the same agency. In 1980, at least 24 differen tpatent policies were in effect in the federal agencies. The lack of a uni-

form federal paten t policy presented a formid able barrier to public-

private cooperation and was a par ticularly large obstacle to sma ll

businesses and un iversities, wh ich lacked the legal staffs necessary to

wend their w ay through the p atent negotiation maze.

In 1980, Congress began a n ew era in federal technology policy w ith the

enactment of legislation to bolster the commercial impact of federal R&D

investments by more actively spinning off federa l technologies to the

private sector. Since then, several laws have add ressed obstacles to

increasing governm ent R&D efficiency and commercializing federaltechnology (see box 2). In the p rocess, a new paradigm for pu blic-private

technology partnerships has emerged.

The first p iece of federal legislation d esigned to leverage th e economic

imp act of federal R&D spending w as the Stevenson-Wydler Technology

Innovation Act of 1980 (Stevenson-Wydler). Stevenson-Wydler granted

broad auth ority to the Departm ent of Comm erce to enhance technologi-

cal innova tion for comm ercial and pu blic pu rposes . . . includ ing a strong

national policy sup porting d omestic technology transfer and utilization

of the science and technology resources of the federal govern men t. In

ad dition to leveraging the economic imp act of federal R&D investments,Stevenson-Wydler directed the federal governm ent to cond uct a wide

range of research and cooperative activities to assess and improv e

Amer ican technological comp etitiveness.

Based on the p remise that federa l laboratories contained commercially

valuable technology that wou ld m ake U.S. firms m ore competitive,

Stevenson-Wydler requ ired each federal laboratory to establish an office

to identify and transfer comm ercially viable technologies to the pr ivate

sector. These Offices of Research and Techn ology Ap plications (ORTAs)

In 1980, Congress began

a new era in federaltechnology policy with

the enactment of

legislation to bolster the

commercial impact of

federal R&D invest-

ments. Since then,

several laws have

addressed obstacles to

increasing government

R&D efficiency andcommercializing federal

technology. In the

process, a new paradigm

for public-private

technology partnerships

has emerged.


25/72



wou ld assess the comm ercial potential of R&D un der w ay at each labora-

tory and disseminate information on federally own ed or originated

technologies, prod ucts, processes, and services.

The University and Small Busi ness Patent Procedure Act of 1980

(know n as Bayh-Dole, after its sponsor s, Senators Birch Bayh [D-IN]

and Bob Dole [R-KS]) was passed to r eform govern men t p atent p olicy.

Of the 28,000 federal patents sitting on the shelf at that time, fewer than

5 percent had been licensed. Anoth er group of federal p atentsthose

the federa l governm ent had p ermitted single companies to holdhad

achieved a m uch h igher rate of licensing (from 25 to 30 percent). The d ual

pu rpose of Bayh-Dole was to allow some federal contractors to patent

their federa lly fund ed inventions and to allow federal agencies to grantexclusive licenses to their technology in ord er to m ake it more attractive

to bu sinesses. Preference in agen cy licensing was given to small bu si-

nesses and u niversities, and the law requ ired as well that prod ucts sold

in the United States embodying the invention be man ufactured su bstan-

tially in the Un ited States. Universities, which per form a large por tion of

federal research, have been p articularly successful in licensing inventions

pu rsuan t to this author ity. In the years since passage of the Bayh-Dole

Act, research collaborations between u niversities and indu stry have

Box 2. Major Federal Technology Legislation, 19801992

n Stevenson-Wyd ler Technology Innovation Act of 1980 (P.L. 96-480)

n Univer sity and Small Business Patent Proced ur e Act of 1980

(P.L. 96-517)

n Small Business Innovation Developmen t Act of 1982 (P.L. 97-219)

n National Cooperative Research Act of 1984 (P.L. 98-462)

n Jap anese Techn ical Litera tu re Act of 1986 (P.L. 99-382)

n Federal Techn ology Tran sfer Act of 1986 (P.L. 99-502)

n Om nibu s Trad e and Comp etitiveness Act of 1988 (P.L. 100-418)

n

National Institute of Stand ard s and Technology Au thorization Act forFY 1989 (P.L. 100-519)

n Na tional Comp etitiveness Technology Transfer Act of 1989

(P.L. 101-189)

n Defense Conversion, Reinvestment and Transition Assistance Act of

1992 (P.L. 101-510)

n Small Business Techno logy Tra nsfer A ct of 1992 (P.L. 102-564)


26/72



increased substantially, and u niversity research plays an imp ortant role

in the dev elopment of new technologies in m any sectors.

Stevenson-Wydler an d Bayh-Dole were th e result of the belief that fed-

eral laboratories hold valuable technological assets and that th ose assets

should be used n ot only for pu rsuing an agencys mission but also to

imp rove th e comp etitive position of U.S. firms. This recognition of the

governm ents role in comp etitiveness and its responsibility to help U.S.

firms with user-friend ly program s was a first step into the new p arad igm

of federal-private p artnersh ips. As Senator Dole stated d uring floor

debate on the bill, The almost adv ersarial relationship tha t now exists

between business and government m ust be replaced by a true and

genu ine partner ship in wh ich the governm ent will act as imp resario inbringing indu stry and un iversities together with n ew fields of knowl-

edge an d th eir practical imp lementation.

A second step into the new parad igm of pu blic-private partnership w as

taken with the Small Business Innovation Development Act of 1982,

the law that created th e Small Business Innovation Research p rogram

(SBIR). Studies had concluded that small businesses in the United States

were th e engine of economic growth, but th ey received on ly a very small

share of federal R&D fund s. Congress hoped to ensure that m ore federa l

R&D fund s wen t to small businesses by pu tting the SBIR program in

place in govern men t agencies and large federa l laboratories.

Und er SBIR, now reauth orized u ntil the year 2000, each govern men t

agency and federal laboratory with m ore than $100 million in extram ura l

research fund s is required to set aside a p ercentage of those fund s to be

aw ard ed competitively to small businesses. The p ercentage was initially

set at 0.2 percent in 1983 and rose increm entally to 2 percent by 1995. In

1997 the rate is sched uled to rise to 2.5 percent.

SBIR is a three-phase program adm inistered ind epend ently by each of

the 11 participating agencies. Agencies invite eligible small businesses to

prop ose innov ative ideas that m eet the specific research and develop-men t need s of the federal govern men t. SBIR proposals are comp etitively

selected and accepted only in response to specific solicitations of the

par ticipating agencies.

Phase I of the p rogram prov ides fund ing to evaluate the scientific and

technical merit and feasibility of an idea. Und er Ph ase II, projects with

the most p otential are funded to further develop the prop osed idea for

one or tw o years. During Phase III the innovation is brough t to market

throu gh p rivate sector investment an d su pp ort. Phase III is to be con-


27/72



du cted with non-SBIR and usu ally non-federal fun ds. When ap prop riate,

Phase III may involve follow-on p rodu ction contracts with a federal

agency.

Total annu al aw ard s of $693 million w ere allocated th rou gh SBIR in 1994;

aw ard s are an ticipa ted to increase to $1 billion by 1997. While these

award s are substan tial, they place no additional burd en on taxpayers, as

they m erely set aside a portion of agencies R&D bud gets app ropr iated

to meet mission requirements. The benefits of the award s, however, have

been substan tial, as evidenced by the thou sand s of small firms th at SBIR

has enabled to un dertak e research p rojects, create new an d inn ovative

technologies, and sell comp etitive produ cts to the w orld.

Although still closely tied to agency missions, SBIR was a further step in

the d evelopmen t of the new p ublic-private parad igm. While Bayh-Dole

and Stevenson-Wydler both sough t to maximize the value of past R&D

investments, SBIR was d esigned to encourage the agen cies to make

investments in mission research w ith the objective of enh ancing U.S.

commercial competitiveness.

The Federal Technology Transfer Act of 1986 authorized cooperative

research and development agreements (CRADAs) between federal

laboratories and p rivate firms, consortia, and state govern men ts. This

was the last ma jor p iece of legislation d esigned to leverage the economicimpact of federal investm ents in m ission R&D. CRADAs allow federal

and private sector scientists and technologists to w ork closely together in

developing a technology for governm ent mission and comm ercial uses.

A later amend ment, the National Competitiveness Technology Transfer

Act of 1989, expan ded the d efinition of federal laboratory to includ e

governm ent-owned , contractor-operated facilities (GOCOs). Since most

of the GOCOs are und er Departm ent of Energy (DOE) man agemen t and

have tr emend ous capabilities, this chan ge allowed DO E to greatly in-

crease its cooperative work with th e pr ivate sector.

CRADAs built in par t on th e experience of the National Aeronau tics andSpace Adm inistration (N ASA). The Space Act of 1958 auth orized NASA

to enter into an d perform contracts, leases, cooperative agreem ents, and

other transactions with the private sector wh en app ropr iate or necessary

to agency work. Accordingly, since its inception, NASA has been

par tnering with indu stry for the developm ent of new technologies with

both comm ercial and mission app lications. NASA currently enters into

three major types of par tnerships w ith indu stry: (1) un fund ed coopera-

tion and / or assistance; (2) public sup port involving the u se of NASA

fund s; and (3) cost-sharing of good s or services for d irect governm ent

The benefits of the

awards have been

substantial, as evidenced

by the thousands of small

firms that SBIR has

enabled to undertake

research projects, create

new and innovativetechnologies, and sell

competitive products to

the world.


28/72



benefit. NASA has u sed th ese flexible par tnership agreements to focus on

collaborative opp ortun ities tha t en han ce U.S. technological comp etitive-

ness by stimulating knowledge transfer, innovation, and understanding;

leveraging U.S. R&D efforts an d resources; and increasing the comm er-

cialization of NASA techn ology.

The developm ent of CRADAs in the 1980s represented a further expan-

sion of the u se of federal research to bolster comp etitiveness. While SBIR

auth orized the u se of some m ission research fun ds for commercially

prom ising p rojects by small businesses, CRADAs made m ore of the

resources of the federal laboratories available to all U.S. firms. Although

national security concerns p revent th e open ing of all federal S&T re-

sources to private indu stry, CRADAs significantly expand ed p rivatesector access.

Federal Technology Legislation: Direct Competitiveness

Programs

Thus, Congress created m echanisms for making research more efficient

wh ile maximizing the economic value to society of governm ent fund s

already invested in pu rsuit of agency missions. However, throu ghou t the

1980s, Congress and the executive bran ch remained concerned over the

continuing erosion of U.S. technological and manu facturing prow ess.

By late in the d ecade it had become evident th at the coun trys ability tocommercialize new technology often fell short of competitive and market

demands.

The U.S. private sector h as been un derinvesting in critical long-run R&D

in part because investmen ts of this type often d o not make good bu siness

sense for any ind ividual comp any for several reasons:

n Appropriability. The generic nature of m uch n ecessary R&D

makes it difficult for companies, especially those of small or

mod erate size with narrow prod uct portfolios, to captu re the

benefits necessary to justify their investm ent. In the case of fast-grow ing know ledge-based technologies that have hu ge R&D

investment requ irements but relatively low p rod uction costs,

it is particularly d ifficult for an individu al compan y to p rotect

its intellectual p roperty rights.

n Risk. U.S. investors focus on h igh short-term retu rns and are

reluctant to supp ort longer term research programs w ith uncer-

tain outcomes. In an environm ent in w hich R&D projects mu st

compete for capital with shorter term , lower r isk nontechnology


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ventu res, the perceived dow nside risks of failure a re often too

great to sup port th e necessary R&D investment, despite large

expected benefits from the technology developm ent.

n Expense. The systems integration an d financial requiremen ts of

technology development are often beyond th e resources of a

single compan y or even a single indu stry.

In the Omnibus Trade and Competitiveness Act of 1988, Congress

enacted two program s to help correct the national problem of und er-

investment in imp ortant technologies. Separa ting them selves comp letely

from m ission research, the Ad vanced Technology Program (ATP) and th e

Manu facturing Extension Partnersh ip (MEP) were designed solely toimpr ove the competitive position of U.S. firms. The MEP does th is by

prov iding small man ufacturers access to newer technologies, prod uction

meth ods, and m anu facturing expertise. The ATP does this via shared

fund ing to accelerate the d evelopmen t of high-risk enabling technologies.

ATP, the first program created by th is law, is designed to act as a catalyst

in the d evelopmen t of high-risk technologies that hav e broad app lication

and the p otential for large economic imp act. A technology may be

und erfund ed because the ap propriable returns are too un certain for

private investors, the technical risk is too large, or the time to d evelop

the technology is too long. ATP overcomes these obstacles by co-fund ingfirms to develop technologies. ATP fun ding m ay not be u sed as a su bsti-

tute for research investmen ts that wou ld otherw ise be mad e by U.S.

firms, nor is fun ding to be used to d evelop prop rietary prod ucts. The

pu rpose of the program is to encourage work on r esearch that is in the

countrys long-term interest bu t that, for various reasons, the p rivate

sector is unable to supp ort.

The second program, MEP, assists sma ll and med ium-sized m anu factur-

erswho rep resent abou t 95 percent of all U.S. man ufacturing establish-

men ts. This progr am is a nationw ide netw ork of affiliated, locally based

man ufacturing extension centers.

MEP was motivated by the recognition that m ost U.S. manu facturer s are

slow to adop t new technologies and app roaches. To increase the speed

with which manufacturers, especially small and medium-sized firms,

adop t new technologies, a manu facturing extension network consisting

of 60 centers in 42 states and Puerto Rico was established to provid e a

range of hand s-on technical assistance to comp anies. These centers help

man ufacturers assess their cur rent technology needs and comp etitive

position, iden tify necessary changes in compan y opera tions, and define


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and implement comp any-specific technology and business projects. The

centers emph asize the use of app ropr iate technologies and r ely on

outreach by field ag ents to offer on -site advice and assistance.

ATP and MEP have gone farthest of any of the new p artnership p ro-

grams in exploring the dimensions of the new public-private paradigm.

The pu rpose of these program s is to add ress directly, not as an offshoot

of another federal mission, the technological challenges facing the U.S.

private sector. Substan tial private sector inpu t is allowed. The m ission of

these programs is competitiveness.

Federal Technology Legislation: Dual-Use Partnerships

for Defense

In 1990, Congress established a m echanismthe d ual-use technology

par tnershipto enable the Dep artment of Defense (DoD) to exploit

ad vanced commercial technologies to meet military needs. The Defense

Conversion, Reinvestment, and Transition A ssistance Act of 1992 an d

the resulting Techn ology Reinvestm ent Pr oject (TRP) significantly ex-

pan ded this app roach. Unlike ATP and MEP, TRPs mission was not

increased indu strial competitiveness or econom ic grow th, although th e

progr am contributed to both of those goals ind irectly. Rather, TRP illus-

trated the ap plication of partn ership p rinciplescost-sharing, merit-

based awar ds, and exclusive licensingto achieve the federalgovernm ents ow n mission objectives.1

TRP par tnerships allowed DoD to leverage the potential adv antages of

ad vanced commercial technologiesperformance and afford abilityto

meet d efense need s. DoDs aim w as twofold: first, to speed the d evelop-

men t of an emerging comm ercial technology so that a self-sustaining

market develops sooner rather than later; and , second, to ensure that the

technology develops in such a way as to simultaneou sly meet comm er-

cial need s and military requ irements, e.g., for technological robustness or

interoperability.

For example, one TRP pa rtnership is presently blazing the trail in

mu ltichip mod ule (MCM) technology. By rep lacing separate comp onents

with a single mod ule, MCMs allow electronic systems to achieve faster

performance, greater reliability, lower p ower consum ption, and low er

prod uction costs. The military n eeds MCMs for activities ranging from

1 Second t o None: Preserving A mericas M ilitary A dvantage Through Dual-Use

Technology, National Econom ic Cou ncil, National Secur ity Coun cil, and O ffice

of Science and Technology Policy (February 1995).

ATP and MEP have gone

farthest of any of the new

partnership programs in

exploring the dimensions

of the new public-private

paradigm.


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precision gu idance of advanced w eapon ry to real-time signal processing

for intelligence app lications. On the comm ercial side, MCMs open the

door to a vast range of new and improved p rodu cts, includ ing global

positioning systems, real-time en gine controllers for autom obiles, and

digital signal p rocessors for speech and images in telecomm un ications.

A high-performan ce du al-use man ufacturing base for MCMs can provide

the found ation for U.S. military an d commercial leadership in informa-

tion technology well into th e twen ty-first centu ry.

In some areas, dual-use partn erships help d evelop commercial applica-

tions for ad vanced military technologies as a way to lower the cost to

DoD. To illustrate, a few year s ago, DoD pursu ed m icrow ave monolithic

integrated circuit (MIMIC) technology as a strictly military dev elopment,but th e high cost prohibited wid espread use of the devices. MIMICs are

adv anced gallium arsenide semicondu ctors used for military rad ar. DoD

now encourages MIMIC contractors to pu rsue comm ercial app lications

in collision-avoidance systems for automobiles, satellite communica-

tions, and air traffic control signal processing. The payoff to defense

is the world s best rad ar at a lower cost by leveraging commercial

production.

DoD recently restructured TRP to increase the involvement of the mili-

tary services and th ereby encourage more rapid insertion of dual-use

technologies into defense weap on systems. The new p rogram is calledthe Dua l-Use App lication Program .

The TRP mechanism is yet another asp ect of a new app roach to technol-

ogy partnership programs. This mechanism combined elements of the

earlier p ublic-private p artnership s (such a s exclusive licensing) with

elements of th e later federal p artnership s (ATP-style cost-sharing).

Where licensing an d CRADAs aim to m aximize th e benefit to society

of mission r esearch and ATP and MEP focus solely on long-term U.S.

competitiveness, TRP attemp ted to p ursu e an agency mission, the mis-

sion of DoD, via the mark et mechanism.

The New Paradigm for Improved U.S. Competitiveness

By the late 1980s, a new paradigm of technology p olicy had developed .

In contrast to the enhanced spin-off programsenhancements that made

it easier for the private sector to commercialize the results of mission

R&Dthe government developed new public-private partnerships to

develop an d d eploy advanced technologies. As described above, these

new programs (which accoun t for only a small fraction of federal invest-

men ts in technology) incorporate features tha t reflect increased influence

These new programs

incorporate features that

reflect increased influence

from the private sector

over project selection,

management, and

intellectual property

ownership.


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from th e p rivate sector over project selection, managem ent, and intellec-

tual prop erty own ership. Along with increased inpu t, private sector

par tners also absorb a greater share of the costs, in some cases paying

over h alf of the p roject cost.

The new parad igm has several advantages for both government and the

private sector (see figure 5). By treating th e pr ivate sector as a par tner in

federal programs, governm ent agencies can better incorporate feedback

and focus p rogram s. Moreover, the private-sector-as-partner ap proach

allows the governm ent to measure w hether the p rograms are u ltimately

meeting their goals: increasing research efficiencies and effectiveness and

developing an d d eploying new technologies. Finally, rather th an relying

on technology-push by the federal government, these programs usemarket-pull to prom ote innova tion, increasing the p robability that the

targeted technologies w ill be successfully comm ercialized.

Key elements of the new paradigm includ e the following:

n Maximizing the return on federal and private sector R&D in-

vestment. Government should evaluate technology partnerships

for their econom ic as w ell as technical merit, partn ering w ith the

private sector in areas of mu tual technology need s. By focusing

on p rojects w ith a h igh poten tial for economic grow th, job cre-

ation, and im prov ements in th e qua lity of life for Am ericans,

Figure 5. The N ew Paradigm: Federal

Technology Partnerships


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government can fulfill its responsibility to maximize societal

good, and industry can m aximize its return on investment.

n Making government a better partner with the private sector.

Governm ent shou ld imp rove the speed , flexibility, and p red ict-

ability of its program s. Faster, more flexible, and r eliable

programs will be better able to respond to technology dev elop-

men t opportu nities as they arise.

n Increasing the private sector role in project defin ition, se lec-

tion, and management. Economic growth an d jobs result from

comm ercialization of R&D, which is the role of the p rivate sector.

Therefore, private sector need s mu st be met to the greatest extentpossible when establishing research directions an d selecting

projects.

n Conducting programs on a cost-shared basis. Cost-sharing in

pu blic-pr ivate programs is critical, because it h eightens the p ri-

vate sector p artners stake in the project, encouraging selection of

projects with th e best comm ercialization poten tial and p romoting

strong p rivate-sector comm itment to success. Cost-sharing en-

sures that the p rivate sector partner h as bought into the pr ogram.

nLimiting the length of participation. New p aradigm programsshould continu e to limit p roject life to a short term (one to three

years). Projects that cannot gen erate full private sector sup port

by the end of this period fail, freeing governm ent resources for

use in other, more promising areas.

By focusing on projects

with a high potentialfor economic growth,

job creation, and

improvements in

the quality of life for

Americans, government

can fulfill its

responsibility to

maximize societal good,

and industry can

maximize its returnon investment.


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CHAPTER 4: FINDINGS

In the prep ara tion of this repor t, the Office of Techn ology Policy (OTP)collected information from ag encies, ind ustry, and academ ia concern-ing the experience and lessons learned from federal technology par tner-

ship pr ograms. This process provided b road ly useful insights into the

evolution and cur rent opera tion of these program s. From this informa-

tion, OTP has d raw n findings, presented below, about the effectiveness of

the p artnership s in accomp lishing their goals. OTP has a lso formu lated

recommend ations for further refinement of federal technology partner-

ships. These recomm end ations are presented in chap ter 5.

Partnership Programs and U.S. Competitiveness

Governm ent plays an imp ortant role in fostering comp etitiveness and

technology-based economic grow th. Although th e prim ary resp onsibility

for ma intaining U.S. competitiveness lies w ith the private sector, pu blic

research and d evelopmen t (R&D) investmen ts have long had a large

impact on the private sectors ability to innova te and market new tech-

nologies. The p ast several d ecades of experience with p ublic-private

technology diffusion p olicies have taugh t u s that federa l technology

programs contribute to U.S. competitiveness by

n maximizing the commercial imp act and value to society of taxdollars invested in basic research and governm ent mission-

related R&D, and

n encouraging the government to w ork in partnership w ith the

private se

Documents

Effective Partnering_ a Report to Congress on Federal Technology Partnerships