Cooperative R&D: Federal Efforts to Promote
Industrial Competitiveness

Wendy H. Schacht
Specialist in Science and Technology Policy
November 4, 2009
Congressional Research Service
7-5700
www.crs.gov
RL33526
CRS Report for Congress
P
repared for Members and Committees of Congress

Cooperative R&D: Federal Efforts to Promote Industrial Competitiveness

Summary
In response to the foreign challenge in the global marketplace, the United States Congress has
explored ways to stimulate technological advancement in the private sector. The government has
supported various efforts to promote cooperative research and development activities among
industry, universities, and the federal R&D establishment designed to increase the
competitiveness of American industry and to encourage the generation of new products,
processes, and services.
Collaborative ventures are intended to accommodate the strengths and responsibilities of all
sectors involved in innovation and technology development. Academia, industry, and government
often have complementary functions. Joint projects allow for the sharing of costs, risks, facilities,
and expertise.
Cooperative activity covers various institutional and legal arrangements including industry-
industry, industry-university, and industry-government efforts. Proponents of joint ventures argue
that they permit work to be done that is too expensive for one company to support and allow for
R&D that crosses traditional boundaries of expertise and experience. Such arrangements make
use of existing, and support the development of new, resources, facilities, knowledge, and skills.
Opponents argue that these endeavors dampen competition necessary for innovation.
Federal efforts to encourage cooperative activities include the National Cooperative Research
Act; the National Cooperative Production Act; tax changes permitting credits for industry
payments to universities for R&D and deductions for contributions of equipment used in
academic research; and amendments to the patent laws vesting title to inventions made under
federal funding in universities. Technology transfer from the government to the private sector is
facilitated by several laws. In addition, there are various ongoing cooperative programs supported
by various federal departments and agencies.
Given the increased popularity of cooperative programs, questions might be raised as to whether
they are meeting expectations. Among the issues before Congress are whether joint ventures
contribute to industrial competitiveness and what role, if any, the government has in facilitating
such arrangements.

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Cooperative R&D: Federal Efforts to Promote Industrial Competitiveness

Contents
Collaborative R&D: Background and Rationale .......................................................................... 1
Joint Industrial Research ....................................................................................................... 1
Industry-University Cooperative Efforts................................................................................ 2
Federal Laboratory-Industry Interaction ................................................................................ 3
Federal Initiatives in Cooperative R&D....................................................................................... 3
Issues.......................................................................................................................................... 7
Development......................................................................................................................... 8
Manufacturing ...................................................................................................................... 9
Defense vs. Civilian Support ................................................................................................. 9
Access by Foreign Firms..................................................................................................... 10
Direct vs. Indirect Support .................................................................................................. 11

Contacts
Author Contact Information ...................................................................................................... 11

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Cooperative R&D: Federal Efforts to Promote Industrial Competitiveness

Collaborative R&D: Background and Rationale
In response to concerns over competition from foreign firms, the U.S. Congress has increasingly
looked for ways the federal government can stimulate technological innovation in the private
sector. This technological advancement is critical in that it contributes to economic growth and
long term increases in our standard of living. New technologies can create new industries and
new jobs; expand the types and geographic distribution of services; and reduce production costs
by making more efficient use of resources. The development and application of technology also
plays a major role in determining patterns of international trade by affecting the comparative
advantages of industrial sectors. Since technological progress is not necessarily determined by
economic conditions, it can have effects on trade independent of shifts in macroeconomic factors
that may affect the marketplace.
Joint ventures are an attempt to facilitate technological advancement within the industrial
community. Academia, industry, and government can play complementary roles in technology
development. While opponents argue that cooperative ventures stifle competition, proponents
assert that they are designed to accommodate the strengths and responsibilities of these sectors.
Collaborative projects attempt to utilize and integrate what the participants do best and to direct
these efforts toward the goal of generating new goods, processes, and services for the
marketplace. They allow for shared costs, shared risks, shared facilities, and shared expertise.
The lexicon of current cooperative activity covers various different institutional and legal
arrangements. These ventures might include industry-industry joint projects involving the
creation of a new entity to undertake research, the reassignment of researchers to a new effort,
and/or hiring new personnel. Collaborative industry-university efforts may revolve around
activities in which industry supports centers (sometimes cross-disciplinary) for research at
universities, funds individual research projects, and/or exchanges personnel. Cooperative
activities with the federal government might include projects that use federal facilities and
researchers, federal funding for industry-industry or industry-university efforts, or financial
support for centers of excellence at universities to which the private sector has access.
There are many different types of cooperative arrangements. The flexibility associated with this
concept can allow for the development of institutional and organizational plans tailored to the
specific needs of the particular project. Issues of patent ownership, disclosure of information,
licensing, and antitrust are to be resolved on an individual basis within the general guidelines
established by law governing joint ventures.
Collaborative ventures can be structured either “horizontally” or “vertically.” The former involves
efforts in which companies work together to perform research and then use the results of this
research within their individual organizations. The latter involves activities where researchers,
producers, and users work together. Both approaches are seen as ways to address some of the
perceived obstacles to the competitiveness of American firms in the marketplace.
Joint Industrial Research
Traditionally, the federal government has funded research and development to meet mission
requirements; in areas where the government is the primary user of the results; and/or where there
is an identified need for R&D not being performed in the private sector. Most government support
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is for basic research which is often long-term and highly risky for individual companies; yet
research can be the foundation for breakthrough achievements which can revolutionize the
marketplace. Studies have shown that inventions based on R&D are the more important ones.
However, the societal benefits of research tend to be greater than those that can be captured by
the firm performing the work. Thus the rationale for federal funding of research in industry.
The major emphasis of legislative activity has been on augmenting research in the industrial
community. This focus is reflected in efforts to encourage companies to undertake cooperative
research arrangements and expand the opportunities available for increases in research activities.
Collaboration permits work to be done which is too expensive for one company to fund and also
allows for R&D that crosses traditional boundaries of expertise and experience. A joint venture
makes use of existing, and supports development of new resources, facilities, knowledge, and
skills.
The concentration on increased research as a prelude to increased technological advancement was
based upon the “pipeline model” of innovation. This process was understood to be a series of
distinct steps from an idea through product development, engineering, testing, and
commercialization to a marketable product, process, or service. Thus increases at the beginning of
the pipeline—in research—were expected to result in analogous increases in innovation at the
end. However, this model is no longer considered valid. Innovation is rarely a linear process and
new technologies and techniques often occur that do not require basic or applied research or
development. Most innovations are actually incremental improvements to existing products and
processes. In some areas, particularly biotechnology, research is closer to a commercial product
than this conception would indicate. In others, the differentiation between basic and applied
research is artificial. The critical factor is the commercialization of the technology. Economic
benefits accrue only when a technology or technique is brought to the marketplace where it can
be sold to generate income and/or applied to increase productivity.
In the recent past, it was increasingly common to find that foreign companies were
commercializing the results of U.S. funded research at a faster pace than American firms. In the
rapidly changing technological environment, the speed at which a product, process, or service is
brought to the marketplace is often a crucial factor in its competitiveness. The recognition that
more than research needs to be done has lead to other approaches at cooperative efforts aimed at
expediting the commercialization of the results of the American R&D endeavor. These include
industry-university joint activities, use of the federal laboratory system by industry, and industry-
industry development efforts where manufacturers, suppliers, and users work together.
Industry-University Cooperative Efforts
Industry-university cooperation in R&D is one important mechanism intended to facilitate
technological innovation. Traditionally, universities perform much of the basic research integral
to certain technological advancements. They are generally able to undertake fundamental research
because it is part of the educational process and because they do not have to produce for the
marketplace. The risks attached to work in this setting are fewer than those in industry where
companies must earn profits. Universities also educate and train the scientists, engineers, and
managers employed by companies.
Academic institutions do not have the commercialization capacity available in industry and
necessary to translate the results of research into products and processes that can be sold in the
marketplace. Thus, if the work performed in the academic environment is to be integrated into
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goods and services, a mechanism to link the two sectors must be available. Prior to World War II,
industry was the primary source of funding for basic research in universities. This financial
support helped shape priorities and build relationships. However, after the war the federal
government supplanted industry as the major financial contributor and became the principal
determinant of the type and direction of the research performed in academic institutions. This
situation resulted in a disconnect between the university and industrial communities. Because
industry and not the government is responsible for commercialization, the difficulties in moving
an idea from the research stage to a marketable product or process appear to have been
compounded.
Efforts to encourage increased collaboration between the academic and industrial sectors might
be expected to augment the contribution of both parties to technological advancement. Company
support for research within the university provides additional funds and information on the
concerns and direction of industry. For many companies, access to expertise and facilities outside
of the firm expands or complements available internal resources. Yet, such cooperation should not
necessarily be seen as a panacea. Oftentimes, collaborative ventures fail because of various
factors including conflicting goals, differing research cultures, and financial disagreements.
Federal Laboratory-Industry Interaction
The federal government can share its extensive facilities, expertise, knowledge, and new
technologies with partners in a cooperative venture. In certain cases, the government laboratories
have scientists and engineers with experience and skills, as well as equipment, not available
elsewhere. The government also has a vested interest in technology development. It does not have
the mandate or resources to manufacture goods but has a stake in the availability of products and
processes to meet mission requirements. In addition, technological advancement contributes to
the economic growth vital to the health and security of the nation.
Collaboration between government laboratories and industry is not, however, just a one way
street. In several technological areas, particularly electronics and computer software, the private
sector is more advanced in technologies important to the national defense and welfare of this
country. Interaction with industry offers federal scientists and engineers valuable information to
be used within the government R&D enterprise.
Federal Initiatives in Cooperative R&D
The cooperative venture concept is not new. In the early 1970s, the National Science Foundation
established its Industry-University Cooperative Research Centers program. The Electric Power
Research Institute, a research organization supported by the electric power utilities, has been in
operation since 1973. In the private sector, the Microelectronics and Computer Technology
Corporation (MCC), which performed research for its member firms prior to its dissolution, and
the Semiconductor Research Corporation (SRC), which funds research in universities, were
created in the early 1980s. The difference today is the number of projects and the scope of
legislative activity designed to promote cooperative ventures.
Faced with pressures from foreign competition, the government’s interest appears to be
expanding beyond that of funding R&D, to meeting other critical national needs including the
economic growth that flows from new commercialization in the private sector. While
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acknowledging that the commercialization of technology is the responsibility of the business
community, in the past several years the government has attempted to stimulate innovation and
technological advancement in industry. These activities often involve the removal of barriers to
technology development in the private sector, thereby permitting market forces to operate and the
provision of incentives to encourage increased innovation related efforts in industry. Cooperative
R&D efforts are a part of both these trends.
To address competitiveness concerns associated with joint research and to encourage companies
to participate in this work which is typically long-term, risky, and often too expensive for one
company to finance, Congress passed the National Cooperative Research Act (P.L. 98-462) in
1984. This legislation clarified the antitrust laws and requires that the “rule of reason” standard be
applied in determinations of violations of these laws; that cooperative research ventures are not to
be judged illegal “per se”. It also eliminated treble damage awards for those research ventures
found in violation of the antitrust laws if prior disclosure (as defined in the law) has been made.
In addition, the act made some changes in the way attorney fees are awarded to discourage
frivolous litigation against joint research ventures without simultaneously discouraging suits of
plaintiffs with valid claims. Between 1985 (when the law went into effect) and 2003, over 900
joint ventures have filed with the Justice Department.1
The provisions of the National Cooperative Research Act were extended to joint manufacturing
ventures by P.L. 103-42, the National Cooperative Production Amendments Act of 1993. These
provisions are only applicable, however, to cooperative production when the principal
manufacturing facilities are “located in the United States or its territories, and each person who
controls any party to such venture ... is a United States person, or a foreign person from a country
whose law accords antitrust treatment no less favorable to United States persons than to such
country’s domestic persons with respect to participation in joint ventures for production.”
Additional collaborative work was facilitated by the Advanced Technology Program (ATP) at the
Department of Commerce’s National Institute of Standards and Technology which was created by
the Omnibus Trade and Competitiveness Act of 1988 (P.L. 100-418).2 Prior to its replacement in
FY2008 by the Technology Innovation Program, ATP provided seed funding, matched by private
sector investment, to companies or consortia comprised of universities, companies, and/or
government laboratories for the development of generic technologies that have broad application
across industrial sectors. As of the end of 2007 when the program was terminated, 824 projects
had been funded representing approximately $1.6 billion in federal financing matched by $1.5
billion in financing from the private sector.3 Of these projects, approximately 28% were joint
ventures.
The Technology Innovation Program (TIP) that replaced ATP, while similar in intent to promote
high-risk R&D that would be of broad-based economic benefit to the Nation, operates somewhat
differently but still encourages joint ventures.4 Funding under TIP is limited to small and
medium-sized businesses whereas grants under ATP were available to companies regardless of

1 National Science Board, Science and Engineering Indicators 2006, available at http://www.nsf.gov/statistics/seind06/
c4/c4s5.htm#fn38.
2 See CRS Report 95-36, The Advanced Technology Program, by Wendy H. Schacht
3 National Institute of Standards and Technology, Historical Statistics on ATP Awards/Winners, available at
http://www.atp.nist.gov/eao/statisticshtm
4 See CRS Report RS22815, The Technology Innovation Program, by Wendy H. Schacht
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size. In the Advanced Technology Program, joint ventures were required to include two separately
owned for-profit firms and could include universities, government laboratories, and other research
establishments as participants in the project but not as recipients of the grant. Under TIP, a joint
venture may involve two separately owned for-profit companies but may also be comprised of
one small or medium-sized firm and a university. A single company was able to receive up to $2
million for up to three years under ATP; under TIP, the participating company (which must be a
small or medium-sized business) may receive up to $3 million for up to three years. In ATP, small
and medium-sized companies were not required to cost share (large firms provided 60% of the
total cost of the project) while in TIP there is a 50% cost sharing requirement which, again, only
applies to the small and medium-sized businesses that are eligible. There were no funding limits
for the five-year funding available for joint ventures under ATP; the TIP limits joint venture
funding to $9 million for up to five years. The Advisory Board that was created to assist in the
Advanced Technology Program included industry representatives as well as federal government
personnel and representatives from other research organizations. The Advisory Board for the
Technology Innovation Program would be comprised of only private sector members. In January
2009, nine awards were announced for “new research projects to develop advanced sensing
technologies that would enable timely and detailed monitoring and inspection of the structural
health of bridges, roadways and water systems that comprise a significant component of the
nation’s public infrastructure.” According to TIP, $42.5 million in federal money is expected to be
matched by $45.7 in private sector support.
Additional laws have attempted to facilitate industry-university cooperation. Title II of the
Economic Recovery Tax Act of 1981 (P.L. 97-34) provided, in part, a temporary 25% tax credit
for 65% of all company payments to universities for the performance of basic research.5 Firms
were also permitted a larger tax deduction for charitable contributions of equipment used in
scientific research at academic institutions. The Tax Reform Act of 1986 (P.L. 99-514) kept this
latter provision, but reduced the credit for university basic research to 20% of all corporate
expenditures for this work over the sum of a fixed research floor plus any decrease in non-
research giving.
The 1981 Act also provided an increased charitable deduction for donations of new equipment by
a manufacturer to an institution of higher education. This equipment must be used for research or
training for physical or biological sciences within the United States. The tax deduction was equal
to the manufacturer’s cost plus one-half the difference between the manufacturer’s cost and the
market value, as long as it does not exceed twice the cost basis.
While never made permanent, the research tax credit has been extended numerous times and
changes have been made to certain provisions. The tax is currently scheduled to expire at the
close of calendar year 2009.
Amendments to the patent and trademark laws contained in P.L. 96-517, commonly referred to as
the “Bayh-Dole” Act, also were designed to foster interaction between academia and the business
community.6 This law provides, in part, for title to inventions made by contractors receiving
federal R&D funds to be vested in the contractor if it is a university, not-for-profit institution, or a

5 See CRS Report RL31181, Research and Experimentation Tax Credit: Current Status and Selected Issues for
Congress
, by Gary Guenther
6 See CRS Report RL32076, The Bayh-Dole Act: Selected Issues in Patent Policy and the Commercialization of
Technology
, by Wendy H. Schacht and CRS Report RL30320, Patent Ownership and Federal Research and
Development (R&D): A Discussion on the Bayh-Dole Act and the Stevenson-Wydler Act
, by Wendy H. Schacht
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small business. Certain rights to the patent are reserved for the government and these
organizations are required to commercialize within a predetermined and agreed upon time frame.
Providing universities with patent title is expected to encourage licensing to industry where the
technology can be manufactured or utilized, thereby creating a financial return to the academic
institution. University patent applications and licensing have increased since this law was
enacted.
Many cooperative industry-industry or industry-university programs are supported and/or
organized by the federal departments and agencies. These include, but are not limited to, the
National Science Foundation’s Engineering Research Centers, the approximately 40 Industry-
University Cooperative Research Programs, and the more recent Science and Technology
Centers. The Department of Defense supports various Centers of Excellence, as does the Federal
Aviation Administration.
While most legislative activities are intended to facilitate technological advance across industries,
there have been several efforts to provide direct assistance for cooperative ventures in a particular
industry. These initiatives are based, in part, on national defense and economic security concerns
over specific technologies that are, or are perceived as, potentially critical to a wide range of
businesses. Among the joint ventures, funded primarily by the Department of Defense (DOD),
have been SEMATECH (a joint private sector semiconductor manufacturing research effort
which is now privately financed) and the National Center for Manufacturing Sciences which also
receives support from the Department of Energy, the Department of Transportation, and the
Environmental Protection Agency. In addition, DOD supported the Software Engineering Institute
and the Department of Energy assists in the FreedomCar initiative that, among other things,
encourages joint R&D between federal laboratories and private firms leading to
commercialization.
Cooperation between industry and the federal R&D enterprise is another facet of the effort to
increase industrial competitiveness through joint ventures. The federal government will spend an
estimated $143 billion for research and development in FY2008 to meet the mission requirements
of the federal departments and agencies. This has led to many technologies and techniques, as
well as to the generation of knowledge and skills, which may have applications beyond their
original intent. To foster their development and commercialization in the industrial community,
various laws have established institutions and mechanisms to facilitate the movement of ideas and
technologies between the public and private sectors.
The Stevenson-Wydler Technology Innovation Act (P.L. 96-480), as amended by the Federal
Technology Transfer Act (P.L. 99-502) and the Department of Defense FY1990 Authorizations
(P.L. 101-189), provided, in part, a legislative mandate for technology transfer from the federal
government to the private sector, established a series of offices in the agencies and/or laboratories
to administer transfer efforts, provided incentives for federal laboratory personnel to actively
engage in technology transfer, and created new contractual means for industry to work with the
laboratories including cooperative research and development agreements (CRADAs). P.L. 104-
113, the National Technology Transfer and Advancement Act, addressed existing policy with
respect to the dispensation of intellectual property under a CRADA by amending the Stevenson-
Wydler Act. P.L. 106-404, the Technology Transfer Commercialization Act, made changes in
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existing practices concerning patents held by the government to make it easier for federal
agencies to license such inventions to the private sector for commercialization.7
To further promote cooperative research and development among universities, government, and
the private sector, changes in the patent laws were made by P.L. 108-453. the CREATE Act.8 The
legislation amended section 103(c) of title 25, United States Code, such that certain actions
between researchers under a joint research agreement will not preclude patentability.
A program of regional Centers for the Transfer of Manufacturing Technology (now part of the
Manufacturing Extension Partnership effort) to facilitate the movement to the private sector of
knowledge and technologies developed under the aegis of the National Institute of Standards and
Technology was established by the Omnibus Trade and Competitiveness Act.9 In addition, the law
required that NIST provide technical assistance to state technology extension programs in an
effort to improve private sector access to federal technology. Government-industry collaboration
is further encouraged by a provision of the FY1991 National Defense Authorization Act (P.L.
101-510) that amends the Stevenson-Wydler Act to allow government agencies and laboratories
to develop partnership intermediary programs to augment the transfer of laboratory technology to
the small business community.10
Cooperative work between small companies and federal laboratories leading to the
commercialization of new technology is the intent of a pilot activity created by the Small
Business Development Act of 1992. The Small Business Technology Transfer (STTR) program
provides funding for research proposals that are developed and executed collaboratively between
a small firms and a scientist in a research organization. Extended several times, the program was
scheduled to sunset at the end of FY2009. However, it has been temporarily extended until April
30, 2010.11
Issues
It is not yet known whether federal support of cooperative ventures signals a long-term
commitment to the development of technology. However, given current concerns over the federal
budget, it is unlikely that large sums of government money will be forthcoming for such efforts in
the future. Yet, other actions may reflect federal interest in the process of technological
advancement. The use of the extensive government R&D system, with its expensive state-of-the-
art facilities, can provide both academia and industry with resources that may be beyond their
financial ability. And despite the often short-term focus of budget decisions, federal funds and
non-monetary contributions to cooperative ventures may be leveraged by contributions from state
and local agencies and the private sector.

7 See CRS Report RL33527, Technology Transfer: Use of Federally Funded Research and Development, by Wendy H.
Schacht
8 See CRS Report RS21882, Collaborative R&D and the Cooperative Research and Technology Enhancement
(CREATE) Act
, by Wendy H. Schacht
9 See CRS Report 97-104, Manufacturing Extension Partnership Program: An Overview, by Wendy H. Schacht
10 See CRS Report RL33528, Industrial Competitiveness and Technological Advancement: Debate Over Government
Policy
, by Wendy H. Schacht
11 See CRS Report 96-402, Small Business Innovation Research (SBIR) Program, by Wendy H. Schacht
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If the proliferation of programs is any indication, state and local jurisdictions have been in the
forefront of cooperative endeavors. Many state and local economic development activities focus
on increasing innovation and the use of technology in the private sector. Instead of competing for
companies to relocate, many of these jurisdictions now see additional benefits accruing from the
creation of new firms and the modernization of existing ones through the application of new
technology. Various states and localities are attempting to foster an entrepreneurial climate by
undertaking the development and support of a variety of programs to assist existing high
technology businesses, to promote the establishment of new companies, and to facilitate the use
of new technologies and processes in traditional industries. While these efforts vary by state and
locality, many of them include industry-university-government cooperation. Several
congressional proposals for increasing cooperative ventures built upon existing state and local
activities in these areas.
Proponents of cooperative work argue that certain benefits are associated with joint ventures. The
increased popularity of this concept, and expanding federal support for this approach, however,
might suggest some questions be raised to assess whether cooperative ventures are meeting
expectations. It might be expected that an increasing number of industries and/or companies will
come to the federal government for assistance in supporting cooperative R&D activities. Despite
opposition by some to what has been described as “picking winners or losers,” various sectors of
the government have chosen to provide funding for cooperative ventures in specific industries
while requiring that the private sector generate matching funds. At the same time, there are
programs and policies that attempt to facilitate cooperative efforts across industry in general.
Decisions might need to be made whether one approach is better than the other, or if both should
continue.
If part of government policy is to respond to individual industry requests for assistance, Congress
may opt to consider developing procedures to select between industries and/or companies
competing for limited federal funds. Can, and should, federal guidelines be established? In
addition, is it possible to determine at this time what type of cooperative ventures are the most
effective and efficient? Is there, in fact, one best model or should each venture be tailored to the
specific situation? And finally, what are the implications of these decisions for policymaking in
Congress?
Development
As noted above, innovation is a dynamic process that can involve idea origination, research,
development, commercialization, and diffusion throughout the economy. However, it is not a
linear process and an innovation may occur without developing through these steps. In fact, most
innovations are actually incremental changes in existing goods and services in response to unmet
market needs. The most crucial factor is the availability or use of the technology or technique in
the marketplace.
In the recent past, the commercialization and diffusion of products and processes often stood out
as significant problems in terms of the ability of U.S. industries to compete. Firms in several
other countries, particularly Japan and the East Asian newly industrializing countries, have been
successful in commercializing the results of R&D. In various instances, this was research initially
performed in the United States, as evidenced by the VCR and semiconductor chips. Basic
research and the pursuit of science are done successfully in the United States as indicated, in part,
by the number of Nobel prizes awarded to Americans. However, excellence in science does not
necessarily assure leadership in world markets. It has been noted that the United States was the
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world’s premiere economic power in the 1920s when this nation was far from being in the
forefront of science. Instead, market leadership is significantly affected by the development and
application of technology to make the goods and services the consumers want to purchase.
Thus, questions may be raised as to whether programs and policies encouraging increased
cooperative research, without concomitant efforts to facilitate the development and
commercialization of technologies and techniques, can be effective mechanisms to increase the
competitiveness of American industry. Do we need to know more about how to encourage the
application of the research resulting from joint ventures in the manufacture of products and
processes and in the delivery of services? Do these cooperative activities include mechanisms to
facilitate the effective and timely transfer of the results back to the companies where they can be
developed into goods for the marketplace? Since the major portion of the costs associated with
bringing out a new product occur at the development and marketing stages, not in the research
phase, should there be additional government incentives to encourage companies to spend funds
for commercialization in addition to research?
Manufacturing
It is in the manufacturing arena where American companies appear to be the most vulnerable to
foreign competition. Process technologies (those used in manufacturing) can significantly lower
the costs of production and increase the quality of goods and services. In Global Competition, the
President’s Commission on Industrial Competitiveness (under former President Reagan)
concluded that “... competitive success in many industries today is as much a matter of mastering
the most advanced manufacturing processes as it is in pioneering new products.”
The costs associated with the development and purchase of new manufacturing equipment are
high. This is particularly true for the 350,000 small companies which make up a major segment of
the manufacturing community. Several of the cooperative efforts supported by the federal
government address these manufacturing concerns. The Manufacturing Technology program of
the Department of Defense, the advanced manufacturing initiatives in the Department of Energy,
and the Manufacturing Extension Centers operated by the National Institute of Standards and
Technology, although all different, are examples of government activities devoted to facilitating
the development of new manufacturing techniques and their use in industry.
Considering the importance of manufacturing, the existing cooperative programs may not be
sufficient to increase the competitiveness of American industry. Are there more effective types of
joint ventures? Cooperative efforts, where resources could be pooled and the equipment shared,
may be one way to improve the manufacturing capability of U.S. firms, large or small. Will joint
manufacturing prove to be a viable option? Should existing cooperative manufacturing programs
in certain agencies be expanded or should new efforts in other departments be developed? Should
one government agency have the lead in policy determinations; if so, the question remains in
which federal department should the responsibility be vested?
Defense vs. Civilian Support
Many of the industries interested in cooperative ventures with federal financial support have
approached the Department of Defense and, to a lesser extent, the Department of Energy’s
Defense Programs because these agencies have the greatest amount of available resources and/or
funding. They also tend to have the expertise to operate large-scale programs and maintain close
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ties with certain industrial sectors which could be encouraged to increase cooperation. In
addition, both DOD and DOE have a vested interest in the availability of certain technologies
which could be provided by a healthy domestic commercial market. However, questions remain
whether sponsorship of certain cooperative ventures by DOD and the Department of Energy’s
defense-related programs will lead to increased commercialization in the civilian marketplace.
Critics argue that defense spending is not an effective mechanism to increase industry’s ability to
innovate and develop new technologies. Much of the research and development in the defense
arena may be too specialized, overdesigned, and/or too costly to have value for commercial
markets. The R&D also tends to concentrate on weapon systems and other defense hardware
rather than on process technologies that are often necessary to improve manufacturing
productivity. One reason cited for the competitive problems of the machine tool industry was its
focus on defense needs rather than on the commercial market which is larger in the aggregate.
On the other hand, the U.S. commitment to military R&D has contributed to a favorable balance
of trade in the defense and aerospace industries. In the SEMATECH effort, the purpose of DOD
support was to facilitate the commercial development of technologies with critical defense
applications. The companies involved in SEMATECH were experienced semiconductor
manufacturers and were knowledgeable about the markets’ needs and operations. Thus, although
the initial work performed by this semiconductor consortium may have been partially funded by
the Defense Advanced Research Project Agency, it was designed to result in new products and
processes in the civilian marketplace where both defense and commercial demand can be met.
SEMATECH now operates without direct federal financing.
The issue of cooperative work between the Defense Department and the private sector leading to
commercial technologies was addressed in the former Technology Reinvestment Project and was
part of the more recent Dual-Use Partnership Project. The Department of Energy has been
expanding cooperative R&D activities in Defense Program laboratories in conjunction with an
increase in all DOE collaborative efforts with industry. Decreased technology transfer budgets
may impeded this effort, but several DOE defense laboratories are actively pursuing joint
ventures with industry.
Access by Foreign Firms
With worldwide communications systems, it is virtually impossible to prevent the flow of
scientific and technical information. What is critical to competitiveness is the speed at which this
knowledge is used to make products, processes, and services for the marketplace. However, it
appears that many foreign firms are willing and able to take the results of research performed
both in the United States and their own countries and rapidly make high quality commercial
goods. Many of these companies are purchasing American businesses or establishing U.S.
subsidiaries to access American expertise. With the increased activity in research consortia,
particularly those with federal support, questions might be asked as to whether or not foreign
companies should or could be barred from access to the results. A larger issue is how to define an
“American company.” Is it determined by majority ownership, manufacturing, location, value
added to the U.S. economy, or by some other definition? In addition, since technology is most
effectively transferred by person-to-person interaction, would cooperative activities between
American industry and foreign firms produce an outflow of information which could be used to
increase competitive pressures?
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Cooperative R&D: Federal Efforts to Promote Industrial Competitiveness

Direct vs. Indirect Support
Government efforts to facilitate cooperative ventures have included both indirect supports and
direct federal funding. Indirect measures include such things as tax policies, intellectual property
rights, and antitrust laws that create incentives for the private sector. Other initiatives included
government financing (on a cost shared basis) of joint efforts such as the now terminated
Advanced Technology Program and the Manufacturing Extension Partnership program. In the
past, participants in the legislative process generally did not make definite (or exclusionary)
choices between these two approaches. However, recently these activities have been revisited. For
example, efforts to eliminate the Advanced Technology Program, funding for flat panel displays,
and agricultural extension reflected concern over the role of government in developing
commercial technologies and generally resulted in reductions of direct federal financing for such
public-private partnerships. It remains to be seen what approach will be taken by the 111th
Congress as it makes budget decisions that may affect the future of cooperative R&D.

Author Contact Information

Wendy H. Schacht

Specialist in Science and Technology Policy
wschacht@crs.loc.gov, 7-7066




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