Industrial Competitiveness and Technological
Advancement: Debate Over Government
Policy
Wendy H. Schacht
Specialist in Science and Technology Policy
November 5, 2009
Congressional Research Service
7-5700
www.crs.gov
RL33528
CRS Report for Congress
P
repared for Members and Committees of Congress
Industrial Competitiveness and Technological Advancement
Summary
There is ongoing interest in the pace of U.S. technological advancement due to its influence on
U.S. economic growth, productivity, and international competitiveness. Because technology can
contribute to economic growth and productivity increases, congressional attention has focused on
how to augment private-sector technological development. Legislative activity over the past 25 or
more years has created a policy for technology development, albeit an ad hoc one. Because of the
lack of consensus on the scope and direction of a national policy, Congress has taken an
incremental approach aimed at creating new mechanisms to facilitate technological advancement
in particular areas and making changes and improvements as necessary.
Congressional action has mandated specific technology development programs and obligations in
federal agencies. Many programs were created based upon what individual committees judged
appropriate within the agencies over which they had authorization or appropriation
responsibilities. However, there has been recent legislative activity directed at eliminating or
significantly curtailing many of these federal efforts. Although, for the most part, this approach
has not been adopted, the budgets for several programs have declined.
The proper role of the federal government in technology development and the competitiveness of
U.S. industry continues to be a topic of congressional debate. Current legislation affecting the
R&D environment have included both direct and indirect measures to facilitate technological
innovation. In general, direct measures are those which involve budget outlays and the provision
of services by government agencies. Indirect measures include financial incentives and legal
changes (e.g., liability or regulatory reform; new antitrust arrangements). As the 111th Congress
develops its budget priorities, the manner by which the government encourages technological
progress in the private sector again may be explored and/or redefined.
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Contents
Technology and Competitiveness ................................................................................................ 1
The Federal Role in Technology Development ............................................................................ 1
Legislative Initiatives and Current Programs ............................................................................... 4
Increased R&D Spending...................................................................................................... 5
Industry-University Cooperative Efforts.......................................................................... 6
Joint Industrial Research ................................................................................................. 8
Commercialization of the Results of Federally Funded R&D........................................... 8
Different Approach?............................................................................................................ 11
Contacts
Author Contact Information ...................................................................................................... 12
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Industrial Competitiveness and Technological Advancement
Technology and Competitiveness
Technological advancement in U.S. industry often has been supported by congressional initiatives
over the past 25 or more years. This approach has involved both direct measures that concern
budget outlays and the provision of services by government agencies (such as the now terminated
Advanced Technology Program (ATP) and the Manufacturing Extension Partnership (MEP) of
the National Institute of Standards and Technology) and indirect measures that include financial
incentives and legal changes. Many of these efforts, however, have been revisited over the past
several congresses. Indirect strategies such as tax policies, intellectual property right protection,
and antitrust laws to promote technological advancement and increased government support for
basic research appear to have been favored over direct federal funding for private sector
technology commercialization initiatives.
Interest in technology development and industrial innovation increased as concern mounted over
the economic strength of the nation and over competition from abroad. For the United States to be
competitive in the world economy, U.S. companies must be able to engage in trade, retain market
shares, and offer high quality products, processes, and services while the nation maintains
economic growth and a high standard of living. Technological advancement is important because
the commercialization of inventions provides economic benefits from the sale of new products or
services; from new ways to provide a service; or from new processes that increase productivity
and efficiency. It is widely accepted that technological progress is responsible for up to one-half
the growth of the U.S. economy, and is one principal driving force in long-term growth and
increases in living standards.
Technological advances can further economic growth because they contribute to the creation of
new goods, new services, new jobs, and new capital. The application of technology can improve
productivity and the quality of products. It can expand the range of services that can be offered as
well as extend the geographic distribution of these services. The development and use 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 also can be influenced by advances in science, the
organization and management of firms, government activity, or serendipity—it can have effects
on trade independent of shifts in macroeconomic factors. New technologies also can help
compensate for possible disadvantages in the cost of capital and labor faced by firms.
The Federal Role in Technology Development
In the recent past, American companies faced increased competitive pressures in the international
marketplace from firms based in countries where governments actively promote commercial
technological development and application. In the United States, the generation of technology for
the commercial marketplace is primarily a private sector activity. The federal government
traditionally becomes involved only for certain limited purposes. Typically these are activities
which have been determined to be necessary for the “national good” but which cannot, or will
not, be supported by industry.
To date, the U.S. government has funded research and development (R&D) to meet the mission
requirements of the federal departments and agencies. It also finances efforts in areas where there
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is an identified need for research, primarily basic research, not being performed in the private
sector. Federal support reflects a consensus that basic research is critical because it is the
foundation for many new innovations. However, any returns created by this activity are generally
long term, sometimes not marketable, and not always evident. Yet the rate of return to society as a
whole generated by investments in research is significantly larger than the benefits that can be
captured by the firm doing the work.1
Many past government activities to increase basic research were based on a “linear” model of
innovation. This theory viewed technological advancement as a series of sequential steps starting
with idea origination and moving through basic research, applied research, development,
commercialization, and diffusion into the economy. Increases in federal funds in the basic
research stage were expected to result in concomitant increases in new products and processes.
However, this linear concept is no longer considered valid. Innovations often occur that do not
require basic or applied research or development; in fact most innovations are incremental
improvements to existing products or processes. In certain areas, such as biotechnology, the
distinctions between basic research and commercialization are small and shrinking. 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 or applied to
increase productivity. Yet, while the United States has a strong basic research enterprise, foreign
firms appear equally, if not more, adept at taking the results of these scientific efforts and making
commercially viable products. Often U.S. companies are competing in the global marketplace
against goods and services developed by foreign industries from research performed in the United
States. Thus, there has been increased congressional interest in mechanisms to accelerate the
development and commercialization processes in the private sector.
The development of a governmental effort to facilitate technological advance has been
particularly difficult because of the absence of a consensus on the need for an articulated policy.
Technology demonstration and commercialization have traditionally been considered private
sector functions in the United States. While over the years there have been various programs and
policies to facilitate such activities(such as tax credits, technology transfer to industry, and
patents), the approach had been ad hoc and uncoordinated. Much of the program development
was based upon what individual committees judged appropriate for the agencies over which they
have jurisdiction. Despite the importance of technology to the economy, technology-related
considerations often have not been integrated into economic decisions.
There have been attempts to provide a central focus for governmental activity in technology
matters. P.L. 100-519 created within the Department of Commerce a Technology Administration
headed by a new Under Secretary for Technology. However, this office was abolished as of the
end of FY2007. In November 1993, former President Clinton established a National Science and
Technology Council to coordinate and integrate decisionmaking in science and technology at all
policy levels. However, technological issues and responsibilities remain shared among many
departments and agencies. This diffused focus has sometimes resulted in actions which, if not at
1 Edwin Mansfield, “Social Returns From R&D: Findings, Methods, and Limitations,” Research/Technology
Management, November-December 1991, 24. See also Charles I. Jones and John C. Williams, “Measuring the Social
Return to R&D,” Quarterly Journal of Economics, November 1998, 1119 and Richard R. Nelson and Paul M. Romer,
“Science, Economic Growth, and Public Policy,” in Bruce R. Smith and Claude E. Barfield, eds. Technology, R&D,
and the Economy, (Washington, The Brookings Institution and the American Enterprise Institute, Washington, 1996),
57.
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cross purposes, may not have accounted for the impact of policies or practices in one area on
other parts of the process. Technology issues involve components which operate both separately
and in concert. While a diffused approach can offer varied responses to varied issues, the
importance of interrelationships may be underestimated and their usefulness may suffer.
Several times, Congress has examined the idea of an industrial policy to develop a coordinated
approach on issues of economic growth and industrial competitiveness. Technological advance is
both one aspect of this and an altogether separate consideration. In looking at the development of
an identified policy for industrial competitiveness, advocates argue that such an effort could
ameliorate much of the uncertainty with which the private sector perceives future government
actions. Some commentators have argued that consideration and delineation of national objectives
could encourage industry to engage in more long-term planning with regard to R&D and to make
decisions as to the best allocation of resources. Such a technology policy could generate greater
consistency in government activities. Because technological development involves numerous
risks, efforts to minimize uncertainty regarding federal programs and policies may help alleviate
some of the disincentives perceived by industry.
The development of a technology policy, however, is a contentious issue. There is widespread
resistance to what could be and has been called national planning, due variously to doubts as to its
efficacy, to fear of adverse effects on our market system, to political beliefs about government
intervention in our economic system, and to the current emphasis on short-term returns in both
the political and economic arenas. Opponents of a national industrial policy may see this
approach as government interference in the marketplace to “pick winners and losers.” Instead, it
is argued, measures that would occasion a better investment environment for industry to expand
innovation-related efforts would be preferable to government decisionmaking in technological
advancement.
Consideration of what constitutes government policy (both in terms of the industrial policy and
technology policy) covers a broad range of ideas from laissez-faire to special government
incentives to target specific high-technology, high-growth industries. Suggestions have been
made for the creation of federal mechanisms to identify and support strategic industries and
technologies. Various federal agencies and private sector groups have developed critical
technology lists. However, others maintain that such targeting is an unwanted, and unwarranted,
interference in the private sector which will cause unnecessary dislocations in the marketplace or
a misallocation of resources. From their perspective, the government does not have the
knowledge or expertise to make business-related decisions. Instead, they argue, the appropriate
role for government is to encourage innovative activities in all industries and to keep market
related decisionmaking within the business community that has ultimate responsibility for
commercialization and where such decisions have traditionally been made.
The relationship between government and industry often is a major factor affecting innovation
and the environment within which technological development takes place. This relationship can
be adversarial, with the government acting to regulate or restrain the business community, rather
than to facilitate its positive contributions to the nation. However, this may be changing as the
benefits of industry/government cooperation become more apparent. There are an increasing
number of areas where the traditional distinctions between public and private sector functions and
responsibilities are becoming blurred. Many assumptions have been questioned, particularly in
light of the increased internationalization of the U.S. economy. The business sector is no longer
viewed in an exclusively domestic context; the economy of the United States is often tied to the
economies of other nations. The technological superiority long held by the United States in many
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areas has been challenged by other industrialized countries in which economic, social, and
political policies and practices foster government-industry cooperation in technological
development.
The approach taken by the former Clinton Administration was a divergence from the past.
Articulated in two reports issued in February 1993 (A Vision of Change for America and
Technology for America’s Economic Growth, A New Direction to Build Economic Strength),2 the
proposal called for a national commitment to, and a strategy for, technological advancement as
part of a defined national economic policy. This detailed strategy offered a policy agenda for
economic growth in the United States, of which technological development and industrial
competitiveness were critical components.
In articulating a national technology policy, the approach initially recommended and subsequently
followed by the Clinton Administration provided a wide range of options while for the most part
reflecting then current trends in congressional efforts to facilitate industrial advancement. This
policy, backed by congressional legislation, increased federal coordination and augmented direct
government spending for technological development. While many past activities focused
primarily on research, the new initiatives shifted the emphasis toward development of new
products, processes, and services by the private sector for the commercial marketplace. In
addition, a significant number of the proposals aimed to increase both government and private
sector support for R&D leading to the commercialization of technology.
This approach was questioned by recent congresses and by the Bush Administration. Instead,
policies appeared more supportive of indirect strategies such as tax incentives, intellectual
property protection, and antitrust laws to promote technology advancement, increased
government support for basic research, and decreased direct federal funding for private sector
technology activities. In the 2006 State of the Union Address, former President Bush announced
the “American Competitiveness Initiative” to facilitate innovation and provide “our nation’s
children a firm grounding in math and science.” To achieve these goals, the President called for
doubling over the next 10 years the amount of federal funding for basic research, particularly in
the National Science Foundation, the Office of Science in the Department of Energy, and in the
core programs of the National Institute of Standards and Technology, Department of Commerce.
In addition, the Initiative would increase the number of math and science teachers and make
permanent the research and experiment tax credit.
Despite the continuing debate on what is the appropriate role of government and what constitutes
a suitable government technology development policy, it remains an undisputed fact that what the
government does or does not do affects the private sector and the marketplace. The various rules,
regulations, and other activities of the government have become de facto policy as they relate to,
and affect, innovation and technological advancement.
Legislative Initiatives and Current Programs
Legislative initiatives have reflected a trend toward expanding the government’s role beyond
traditional funding of mission-oriented R&D and basic research toward the facilitation of
technological advancement to meet other critical national needs, including the economic growth
2 Available from author.
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that flows from new commercialization and use of technologies and techniques in the private
sector. An overview of recent legislation shows federal efforts aimed at (1) encouraging industry
to spend more on R&D; (2) assisting small high-technology businesses; (3) promoting joint
research activities between companies; (4) fostering cooperative work between industry and
universities; (5) facilitating the transfer of technology from the federal laboratories to the private
sector; and (6) providing incentives for quality improvements. These efforts tend toward
removing barriers to technology development in the private sector (thereby permitting market
forces to operate) and providing incentives to encourage increased private sector R&D activities.
While most focus primarily on research, some also involve policies and programs associated with
technology development and commercialization.
Increased R&D Spending
To foster research in the private sector, Congress created a temporary tax credit for incremental
increases in qualified research spending. The 1981 Economic Recovery Tax Act (P.L. 97-34)
provided a 25% tax credit for the increase in a firm’s qualified research costs above the average
expenditures for the previous three tax years. Qualified costs included in-house expenditures such
as wages for researchers, material costs, and payments for use of equipment; 65% of corporate
grants towards basic research at universities and other relevant institutions; and 65% of payments
for contract research. The credit applied to research expenditures through 1985. While never
made permanent, the Research and Experimentation Tax Credit has been extended many times.
Several changes have been made to the rate and to the definition of qualified expenses. Most
recently, P.L. 110-343 retroactively extended the credit through the end of calendar year 2009.3
In 1982, the Small Business Development Act (P.L. 97-219) established Small Business
Innovation Research (SBIR) programs within the major federal R&D agencies designed to
increase participation of small, innovative companies in federally funded research and
development.4 Extended several times, the program requires that a set percentage of each
agency’s applicable extramural R&D budget—originally 1.23%, now 2.5%—is to be used to
support mission-related work in small companies. Funding is, in part, dependent on companies
obtaining private sector support for the commercialization of the resulting products or processes.
The authorization for the program terminated on September 30, 2008 but has been temporarily
extended five times and is now operating through April 30, 2010. In 1992, a pilot effort, the Small
Business Technology Transfer (STTR) program, was created to encourage firms to work with
universities or federal laboratories to commercialize the results of research. Initially funded by a
0.15% (phased in) set-aside, the STTR program has been reauthorized several times and the set-
aside raised to 0.3% in FY2004. This program sunset at the end of FY2009, but has been
temporarily extended through April 30, 2010.
The Omnibus Trade and Competitiveness Act of 1988 (P.L. 100-418) created the Advanced
Technology Program (ATP) at the Department of Commerce’s National Institute of Standards and
Technology (NIST).5 ATP provided seed funding, matched by private sector investment, for
3 CRS Report RL31181, Research and Experimentation Tax Credit: Current Status and Selected Issues for Congress,
by Gary Guenther
4 See CRS Report 96-402, Small Business Innovation Research (SBIR) Program, by Wendy H. Schacht and CRS
Report RS22865, The Small Business Innovation Research (SBIR) Program: Reauthorization Efforts, by Wendy H.
Schacht
5 See CRS Report 95-36, The Advanced Technology Program, by Wendy H. Schacht
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companies or consortia of universities, industries, and/or government laboratories to accelerate
development of generic technologies with broad application across industries. The first awards
were made in 1991. As of the end of 2007, when ATP was terminated and replaced by the
Technology Innovation Program, 824 projects had been funded representing approximately $1.6
billion in federal dollars matched by $1.5 billion in private sector financing. About 68% of the
awardees were small businesses or cooperative efforts led by such firms; 227 projects were joint
ventures.6
The Technology Innovation Program was created by P.L. 110-69, the America COMPETES Act.7
While similar to ATP in the intent to promote high-risk R&D that would be of broad-based
economic benefit to the nation, there are several differences in the operation of the new activity.
Funding under TIP is limited to small and medium-sized businesses whereas grants under ATP
were available to companies regardless of size. In addition, 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. In the TIP initiative, 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 (or other non-profit research organization). A single company could 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 is to 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.
Industry-University Cooperative Efforts
The promotion of cooperative efforts among academia and industry is aimed at increasing the
potential for the commercialization of technology.8 Traditionally, basic research has been
performed in universities or in the federal laboratory system while the business community
focuses on the manufacture or provision of products, processes, or services. Universities are
especially suited to undertake basic research. Their mission is to educate and basic research is an
integral part of the educational process. Universities generally are able to undertake these
6 National Institute of Standards and Technology, Historical Statistics on ATP Awards/Winners, available at
http://www.atp.nist.gov/eao/statisticshtm
7 See CRS Report RS22815, The Technology Innovation Program, by Wendy H. Schacht
8 For more information see CRS Report RL33526, Cooperative R&D: Federal Efforts to Promote Industrial
Competitiveness, by Wendy H. Schacht
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activities because they do not have to produce goods for the marketplace and therefore can do
research not necessarily tied to the development of a commercial product or process.
Subsequent to World War II, the federal government supplanted industry as the primary source of
funding for basic research in universities. It also became the principal determinant of the type and
direction of the research performed in academia. This resulted in a disconnect between the
university and industrial communities. The separation and isolation of the parties involved in the
innovation process is thought by many observers to be a barrier to technological progress. The
difficulties in moving an idea from the concept stage to a commercial product or process may be
compounded when several entities are involved. Legislation to stimulate cooperative efforts
among those involved in technology development has been viewed as one way to promote
innovation and facilitate the international competitiveness of U.S. industry.
Several laws have attempted to encourage industry-university cooperation. Title II of the
Economic Recovery Tax Act of 1981 (P.L. 97-34) provided, in part, a 25% tax credit for 65% of
all company payments to universities for the performance of basic research.9 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 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
research training for physical or biological sciences within the United States. The tax deduction is
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. Extended numerous times,
with certain changes, the research and experimentation tax credit is due to expire at the end of
calendar year 2009.
An additional legislative initiative to foster interaction between academia and the business
community is contained in amendments to the patent and trademark laws , commonly referred to
as the “Bayh-Dole Act.”10 This law is intended to use patent ownership as an incentive for private
sector development and commercialization of federally supported R&D. Title to inventions made
by contractors receiving federal research funds is to be vested in the contractor if they are small
businesses, universities, or not-for-profit institutions. 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 used thereby creating a
financial return to the academic institution. University patent applications and licensing have
increased significantly since this law was enacted.
Subsequently, the CREATE Act, P.L. 108-453, made changes in the patent laws to further
promote cooperative research and development among universities, government, and the private
9 See CRS Report RL31181, Research and Experimentation Tax Credit: Current Status and Selected Issues for
Congress, by Gary Guenther
10 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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sector. The bill amends section 103(c) of title 25, United States Code, such that certain actions
between researchers under a joint research agreement will not preclude patentability.11
Joint Industrial Research
Private sector investments in basic research are often costly, long term, and risky. Although not all
advances in technology are the result of research, it is often the foundation of important new
innovations. To encourage increased industrial involvement in research, legislation was enacted to
allow for joint ventures in this arena. It is argued that cooperative research reduces risks and costs
and allows for work to be performed that crosses traditional boundaries or expertise and
experience. Such collaborative efforts make use of existing and support the development of new
resources, facilities, knowledge, and skills.
The National Cooperative Research Act (P.L. 98-462) encourages companies to undertake joint
research. The legislation clarifies the antitrust laws and requires that a “rule of reason” standard
be applied in determinations of violations of these laws; cooperative research ventures are not to
be judged illegal “per se.” It eliminates 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. P.L. 98-
462 also makes changes in the way attorney fees are awarded. Defendants can collect attorney
fees in specified circumstances, including when the claim is judged frivolous, unreasonable,
without foundation, or made in bad faith. However, the attorney fee award to the prevailing party
may be offset if the court decides that the prevailing party conducted a portion of the litigation in
a manner which was frivolous, unreasonable, without foundation, or in bad faith. These
provisions were included 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, 913 joint research ventures have filed with the Department of Justice.
P.L. 103-42, the National Cooperative Production Amendments Act of 1993, amended the
National Cooperative Research Act by, among other things, extending the original law’s
provisions to joint manufacturing ventures. These provisions are only applicable, however, to
cooperative production when (1) the principal manufacturing facilities are “located in the United
States or its territories, and (2) 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.”
Commercialization of the Results of Federally Funded R&D
Another approach to encouraging the commercialization of technology involves the transfer of
technology from federal laboratories and contractors to the private sector where
commercialization can proceed. Because the federal laboratory system has extensive science and
technology resources and expertise developed in pursuit of mission responsibilities, it is a
potential source of new ideas and knowledge which may be used in the business community.12
11 See CRS Report RS21882, Collaborative R&D and the Cooperative Research and Technology Enhancement
(CREATE) Act, by Wendy H. Schacht
12 See CRS Report RL33527, Technology Transfer: Use of Federally Funded Research and Development, by Wendy
H. Schacht
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Despite the potential offered by the resources of the federal laboratory system, however, the
commercialization level of the results of federally funded R&D remained low. Studies indicated
that only approximately 10% of federally owned patents were ever utilized. There are many
reasons for this low level of usage, one of which is the fact that some technologies and/or patents
have no market application. However, industry unfamiliarity with these technologies, the “not-
invented-here” syndrome, and perhaps more significantly, the ambiguities associated with
obtaining title to or exclusive license to federally owned patents also contribute to the low level of
commercialization.
Over the years, several governmental efforts have been undertaken to augment industry’s
awareness of federal R&D resources. The Federal Laboratory Consortium for Technology
Transfer was created in 1972 (from a Department of Defense program) to assist in transferring
technology from the federal government to state and local governments and the private sector. To
expand on the work of the Federal Laboratory Consortium, and to provide added emphasis on the
commercialization of government technology, Congress passed P.L. 96-480, the Stevenson-
Wydler Technology Innovation Act of 1980. Prior to this law, technology transfer was not an
explicit mandate of the federal departments and agencies with the exception of the National
Aeronautics and Space Administration. To provide “legitimacy” to the numerous technology
activities of the government, Congress, with strong bipartisan support, enacted P.L. 96-480 which
explicitly states that the federal government has the responsibility, “to ensure the full use of the
results of the nation’s federal investment in research and development.” Section 11 of the law
created a system within the federal government to identify and disseminate information and
expertise on what technologies or techniques are available for transfer. Offices of Research and
Technology Applications were established in each federal laboratory to distinguish technologies
and ideas with potential applications in other settings.
Several amendments to the Stevenson-Wydler Technology Innovation Act have been enacted to
provide additional incentives for the commercialization of technology. P.L. 99-502, the Federal
Technology Transfer Act, authorizes activities designed to encourage industry, universities, and
federal laboratories to work cooperatively. It also establishes incentives for federal laboratory
employees to promote the commercialization of the results of federally funded research and
development. The law amends P.L. 96-480 to allow government-owned, government-operated
laboratories to enter into cooperative R&D agreements (CRADAs) with universities and the
private sector. This authority is extended to government-owned, contractor-operated laboratories
by the Department of Defense FY1990 Authorization Act, P.L. 101-189.13 Companies, regardless
of size, are allowed to retain title to inventions resulting from research performed under
cooperative agreements. The federal government retains a royalty-free license to use these
patents. The Technology Transfer Improvements and Advancement Act (P.L. 104-113), clarifies
the dispensation of intellectual property rights under CRADAs to facilitate the implementation of
these cooperative efforts. The Federal Laboratory Consortium is given a legislative mandate to
assist in the coordination of technology transfer. To further promote the use of the results of
federal R&D, certain agencies are mandated to create a cash awards program and a royalty
sharing activity for federal scientists, engineers, and technicians in recognition of efforts toward
commercialization of this federally developed technology. These efforts are facilitated by a
provision of the National Defense Authorization Act for FY1991 (P.L. 101-510), which amends
the Stevenson-Wydler Technology Innovation Act to allow government agencies and laboratories
13 See CRS Report 95-150, Cooperative Research and Development Agreements (CRADAs), by Wendy H. Schacht
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to develop partnership intermediary programs to augment the transfer of laboratory technology to
the small business sector.
Amendments to the Patent and Trademark law contained in Title V of P.L. 98-620 made changes
which are designed to improve the transfer of technology from the federal laboratories—
especially those operated by contractors—to the private sector and increase the chances of
successful commercialization of these technologies. This law permits the contractor at
government-owned, contractor-operated laboratories (GOCOs) to make decisions at the
laboratory level as to the granting of licenses for subject inventions. This has the potential of
effecting greater interaction between laboratories and industry in the transfer of technology.
Royalties on these inventions are also permitted to go back to the laboratory contractor to be used
for additional R&D, awards to individual laboratory inventors, or education. While there is a cap
on the amount of the royalty returning directly to the lab in order not to disrupt the agency’s
mission requirements and congressionally mandated R&D agenda, the establishment of
discretionary funds gives contractor-operated laboratories added incentive to encourage
technology transfer.
Under P.L. 98-620, private companies, regardless of size, are allowed to obtain exclusive licenses
for the life of the patent. Prior restrictions allowed large firms use of exclusive license for only 5
of the 17 years (now 20 years) of the life of the patent. This was expected to encourage improved
technology transfer from the federal laboratories or the universities (in the case of university
operated GOCOs) to large corporations which often have the resources necessary for
development and commercialization activities. In addition, the law permits GOCOs (those
operated by universities or nonprofit institutions) to retain title to inventions made in the
laboratory within certain defined limitations. Those laboratories operated by large companies are
not included in this provision.
P.L. 106-404, the Technology Transfer Commercialization Act, altered practices concerning
patents held by the government to make it easier for federal agencies to license such inventions.
The law amends the Stevenson-Wydler Technology Innovation Act and the Bayh-Dole Act to
decrease the time delays associated with obtaining an exclusive or partially exclusive license.
Previously, agencies were required to publicize the availability of technologies for three months
using the Federal Register and then provide an additional 60 day notice of intent to license by an
interested company. Under this legislation, the time period was shortened to 15 days in
recognition of the ability of the internet to offer widespread notification and the necessity of time
constraints faced by industry in commercialization activities. Certain rights are retained by the
government. The bill also allows licenses for existing government-owned inventions to be
included in CRADAs.
The program of regional centers to assist small manufacturing companies use knowledge and
technologies developed under the auspices of the National Institute of Standards and Technology
and other federal agencies, created by the Omnibus Trade and Competitiveness Act, was also
intended to promote the commercialization of federally supported R&D.14 Federal funding for the
centers is matched by non-federal sources including state and local governments and industry.
Originally, seven Regional Centers for the Transfer of Manufacturing Technology were selected.
The initial program was expanded in 1994 to create the Manufacturing Extension Partnership
(MEP) to meet new and growing needs of the community. In a more varied approach, the
14 See CRS Report 97-104, Manufacturing Extension Partnership Program: An Overview, by Wendy H. Schacht
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Partnership involves both large centers and smaller, more dispersed organizations sometimes
affiliated with larger centers as well as the NIST State Technology Extension Program which
provides states with grants to develop the infrastructure necessary to transfer technology from the
federal government to the private sector and a program which electronically ties the disparate
parties together along with other federal, state, local, and academic technology transfer
organizations. There are now centers in all 50 states and Puerto Rico. Since the manufacturing
extension activity was created in 1989, awards made by NIST have resulted in the creation of
approximately 350 regional offices. [It should be noted that the Department of Defense also
funded 36 centers through its Technology Reinvestment Project (TRP) in FY1994 and FY1995.
When the TRP was terminated, NIST took over support for 20 of these programs in FY1996 and
funded the remaining efforts during FY1997.]
A new NIST program of partnerships between industry and other educational or research
institutions to develop new manufacturing processes, techniques, or materials was authorized, but
not funded, by the American COMPETES Act. In addition, a manufacturing fellowship program
would be created with stipends available for post-doctoral work at NIST. These activities would
differ from the established MEP effort where no new manufacturing research is conducted as
existing manufacturing technology is applied to the needs of small and medium-sized firms.
Different Approach?
As indicated above, the laws affecting the R&D environment have included both direct and
indirect measures to facilitate technological innovation. In general, direct measures are those
which involve budget outlays and the provision of services by government agencies. Indirect
measures include financial incentives and legal changes (e.g., liability or regulatory reform; new
antitrust arrangements). Supporters of indirect approaches argue that the market is superior to
government in deciding which technologies are worthy of investment. Mechanisms that enhance
the market’s opportunities and abilities to make such choices are preferred. Advocates further
state that dependency on agency discretion to assist one technology in preference to another will
inevitably be subjected to political pressures from entrenched interests. Proponents of direct
government assistance maintain, conversely, that indirect methods can be wasteful and ineffective
and that they can compromise other goals of public policy in the hope of stimulating innovative
performance. Advocates of direct approaches argue that it is important to put the country’s scarce
resources to work on those technologies that have the greatest promise as determined by industry
and supported by its willingness to match federal funding.
In the past, participants in the debates generally did not make definite (or exclusionary) choices
between the two approaches, nor consistently favor one over the other. For example, some
proponents of a stronger direct role for the government in innovation also have supported
enhanced tax preferences for R&D spending, an indirect mechanism. Opponents of direct federal
funding for specific projects (e.g., SEMATECH, flat panel displays) may nevertheless back
similar activities focused on more general areas such as manufacturing or information technology.
However, in recent congresses, legislators directed many of their efforts toward eliminating or
curtailing some of the programs that previously had enjoyed bipartisan support. Initiatives to
terminate the Advanced Technology Program, funding for flat panel displays, and agricultural
extension reflected concern about the role of government in developing commercial technologies.
While funding for several programs decreased, and ATP was replaced by the Technology
Innovation Program, support for most ongoing activities continued. How the debate over federal
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funding evolves in the 111th Congress may serve to redefine thinking about the government’s
efforts in promoting technological advancement in the private sector.
Author Contact Information
Wendy H. Schacht
Specialist in Science and Technology Policy
wschacht@crs.loc.gov, 7-7066
Congressional Research Service
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