Technology Transfer: Use of Federally Funded Research and Development

Order Code IB85031
CRS Issue Brief for Congress
Received through the CRS Web
Technology Transfer:
Use of Federally Funded
Research and Development
Updated May 30, 2006
Wendy H. Schacht
Resources, Science, and Industry Division
Congressional Research Service ˜ The Library of Congress

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CONTENTS
SUMMARY
MOST RECENT DEVELOPMENTS
BACKGROUND AND ANALYSIS
Technology Transfer to Private Sector: Federal Interest
Technology Transfer to State and Local Governments: Rationale for Federal Activity
Current Federal Efforts to Promote Technology Transfer
Federal Laboratory Consortium for Technology Transfer
P.L. 96-480, P.L. 99-502, and Amendments
P.L. 100-418, Omnibus Trade and Competitiveness Act
Patents
Small Business Technology Transfer Program
Further Considerations
LEGISLATION

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Technology Transfer: Use of Federally Funded Research and
Development
SUMMARY
The government spends approximately
Congress has established a system to
one third of the $83 billion federal R&D
facilitate the transfer of technology to the
budget for intramural research and develop-
private sector and to state and local govern-
ment to meet mission requirements in over
ments. Despite this, use of federal R&D
700 government laboratories (including Feder-
results has remained restrained, although there
ally Funded Research and Development Cen-
has been a significant increase in private
ters). The technology and expertise generated
sector interest and activities over the past
by this endeavor may have application beyond
several years. Critics argue that working with
the immediate goals or intent of federally
the agencies and laboratories continues to be
funded R&D. This can be achieved by
difficult and time-consuming. Proponents of
technology transfer, a process by which tech-
the current effort assert that while the labora-
nology developed in one organization, in one
tories are open to interested parties, the indus-
area, or for one purpose is applied in another
trial community is making little effort to use
organization, in another area, or for another
them. At the same time, State governments are
purpose. It is a way for the results of the
increasingly involved in the process. At issue
federal R&D enterprise to be used to meet
is whether incentives for technology transfer
other national needs, including the economic
remain necessary, if additional legislative
growth that flows from new commercializa-
initiatives are needed to encourage increased
tion in the private sector; the government’s
technology transfer, or if the responsibility to
requirements for products and processes to
use the available resources now rests with the
operate effectively and efficiently; and the
private sector.
demand for increased goods and services at
the state and local level.
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MOST RECENT DEVELOPMENTS
Past Administrations have made expanded use of federal laboratories and
industry-government cooperation integral to efforts associated with technology development.
In support of this approach, Congress enacted various laws facilitating cooperative research
and development agreements (CRADAs) between federal agencies and the private sector,
and increasing funding for technology transfer activities included in the Advanced
Technology Program (ATP) and the Manufacturing Extension Partnership (MEP) at the
National Institute of Standards and Technology (NIST), a laboratory of the Department of
Commerce. However, many of these efforts have been revisited since the 104th Congresses,
reflecting the Republican majority’s preferences for indirect measures such as tax policies,
intellectual property rights, and antitrust laws to promote technology development rather than
to direct federal funding of private sector technology initiatives. While none of the relevant
programs have been terminated, several have seen significant decreases in support. FY2006
appropriations contained in P.L. 109-108 include $97.6 million for MEP and $79 million for
ATP (after mandated rescissions). For FY2007, the Administration’s budget requests $46.3
million for MEP but does not provide support for ATP. As part of the President’s “American
Competitiveness Initiative” announced in the 2006 State of the Union Address, the
Administration is seeking to expand and make the research and experimentation tax credit
permanent (as well as to increase basic research funding and make improvements in math
and science education). Various bills, including H.R. 4654, S. 2109, S. 2199, and S. 2720,
would make the research and experimentation tax credit permanent. H.R. 250, passed by the
House on September 21, 2005, establishes several new manufacturing technology programs
for small and medium-sized firms, as does S. 2134. H.R. 3331 would create and authorize
funding for a grant program in the National Science Foundation to assist universities in
promoting the application of new inventions developed within their institutions. S. 1581 and
S. 2198 provide financing and other assistance for the development of science parks. The
National Innovation Act (S. 2109, S. 2390, and H.R. 4654), has several provisions to
promote innovation including the establishment of a President’s Council on Innovation,
innovation acceleration grants, and programs for regional economic development. Similar
measures are contained in S. 2802, the American Innovation and Competitiveness Act.
BACKGROUND AND ANALYSIS
The federal government spends approximately $83 billion per year on research and
development to meet the mission requirements of the federal departments and agencies.
Approximately one-third of this is spent for intramural research and development (R&D) by
federal laboratories (including support for Federally Funded Research and Development
Centers). While the major portion of this activity has been in the defense arena, government
R&D has led to new products and processes for the commercial marketplace including, but
not limited to, antibiotics, plastics, airplanes, computers, microwaves, and bioengineered
drugs. Given the increasing competitive pressures on U.S. firms in the international
marketplace, proponents of technology transfer argue that there are many other technologies
and techniques generated in the federal laboratory system which could have market value if
further developed by the industrial community. Similarly, the knowledge base created by the
agencies’ R&D activities can serve as a foundation for additional commercially relevant
efforts in the private sector.
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The movement of technology from the federal laboratories to industry and to state and
local governments is achieved through technology transfer. Technology transfer is a process
by which technology developed in one organization, in one area, or for one purpose is
applied in another organization, in another area, or for another purpose. In the defense arena
it is often called “spin-off.” Technology transfer can have different meanings in different
situations. In some instances, it refers to the transfer of legal rights, such as the assignment
of patent title to a contractor or the licensing of a government-owned patent to a private firm.
In other cases, the transfer endeavor involves the informal movement of information,
knowledge, and skills through person-to-person interaction. The crucial aspect in a
successful transfer is the actual use of the product or process. Without this, the benefits from
more efficient and effective provision of goods and services are not achieved. However,
while the United States has perhaps the best basic research enterprise in the world — as
evidenced in part by the large number of Nobel Prizes awarded to American scientists —
other countries sometimes appear more adept at taking the results of this effort and making
commercially viable products to be sold in U.S. and world markets. (For further discussion
of innovation and economic growth, see CRS Issue Brief IB91132, Industrial
Competitiveness and Technological Advancement: Debate Over Government Policy, by
Wendy Schacht.)
Despite the potential offered by the resources of the federal laboratory system, the
commercialization level of the results of federally funded research and development
remained low through the 1980s. Studies indicated that only approximately 10% of federally
owned patents were ever used. There were many reasons for this, including the fact that
many of these technologies and patents have no commercial application. A major factor in
successful transfer is a perceived market need for the technology or technique. However,
because federal laboratory R&D is generally undertaken to meet an agency’s mission or
because there are insufficient incentives for private sector research that the government
deems in the national interest, decisions reflect public sector, rather than commercial needs.
Thus, transfer often depends on attempts to ascertain commercial applications of
technologies developed for government use — “technology push” — rather than on “market
pull.” In other words, a technology is developed and a use for it established because the
expertise exists rather than because it is needed.
Additional barriers to transfer involve costs. Studies have estimated that research
accounts for approximately 25% of expenditures associated with bringing a new product or
process to market. Thus, while it might be advantageous for companies to rely on
government-funded research, there are still significant added costs of commercialization after
the transfer of technology has occurred. However, industry unfamiliarity with these
technologies, the “not invented here” syndrome, and ambiguities associated with obtaining
title to or exclusive license for federally owned patents also contribute to a limited level of
commercialization. Complicating the issue is the fact that the transfer of technology is a
complex process that involves many stages and variables. Often the participants do not know
or understand each other’s work environment, procedures, terminology, rewards, and
constraints. The transfer of technology appears to be most successful when it involves
one-to-one interaction between committed individuals in the laboratory and in industry or
state and local government. “Champions” are generally necessary to see a transfer through
to completion because it is so often a time- and energy-consuming process. Given this,
technology transfer is best approached on a case-by-case basis that can take into account the
needs, operating methods, and constraints of the involved parties.
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Technology Transfer to Private Sector: Federal Interest
The federal interest in the transfer of technology from government laboratories to the
private sector is based on several factors. The government requires certain goods and
services to operate. Much of the research it funds is directed at developing the knowledge
and expertise necessary to formulate these products and processes. However, because the
government has neither the mandate nor the capability to commercialize the results of the
federal R&D effort, it must purchase technologies necessary to meet mission requirements
from the private sector. Technology transfer is a mechanism to get federally generated
technology and technical know-how to the business community where it can be developed,
commercialized, and made available for use by the public sector.
Federal involvement in technology transfer also arises from an interest in promoting the
economic growth that is vital to the nation’s welfare and security. It is through further
development, refinement, and marketing that the results of research become diffused
throughout the economy and can generate growth. It is widely accepted that technological
progress is responsible for up to one-half the growth of the U.S. economy and is the principal
driving force in long-term economic growth and increases in our standard of living.
Economic benefits of a technology or technique accrue when a product, process, or service
is brought to the marketplace where it can be sold or used to increase productivity. When
technology transfer is successful, new and different products or processes become available
to meet or induce market demand. Transfer from the federal laboratories can result in
substantial increases in employment and income generated at the firm level.
Cooperation with the private sector provides a means for federal scientists and engineers
to obtain state-of-the-art technical information from the industrial community, which in
various instances is more advanced than the government. Technology transfer is also a way
to assist companies that have been dependent on defense contracts and procurement to
convert to manufacturing for the civilian, commercial marketplace. Successful efforts range
from advances in the commercial aviation industry, to the development of a new technology
for use in advanced ceramics, to the development of the biotechnology sector.
Technology Transfer to State and Local Governments:
Rationale for Federal Activity
The increasing demands on state and local governments to provide improved goods and
services have been accompanied by a recognition that expanded technological expertise can
help meet many of these needs. The transfer of technology and technical knowledge from
government laboratories to state and local jurisdictions can allow for additional use of ideas
and inventions that have been funded and created through federal R&D. Intergovernmental
technology transfer can also help state and local officials meet responsibilities imposed by
federal legislation.
As state and local governments increasingly look for technological solutions, the
concept of “public technology” — the adaptation and utilization of new or existing
technology to public sector needs — has emerged. The application of technology to State
and local services is a complex and intricate procedure. In transferring technology from the
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federal laboratories, the application often can be direct. At other times, alterations in
technical products and processes may be necessary for application in the state and local
environment. However, this “adaptive engineering” generally is not extensive or expensive
and can be accomplished by federal laboratory and state and local personnel working
together.
State and local government concerns with regional economic growth also have focused
attention on technology transfer as a mechanism to increase private sector innovation related
activities within their jurisdiction. In order to develop and foster an entrepreneurial climate,
many states and localities are undertaking the support of programs that assist high technology
businesses, and that often use the federal laboratory system. State and local efforts to
develop “incubator centers” for small companies may rely on cooperation with federal
laboratories, which supply technical expertise to firms locating at the center. Other larger
programs to promote innovation in the state, such as the Ben Franklin Partnership in
Pennsylvania, use the science and technology resources of federal personnel. Additional
programs have been created involving state universities, private companies, and the federal
laboratories, with each program geared to the specific needs and desires of the participating
parties. (For more discussion see CRS Report 98-859, State Technology Development
Strategies: The Role of High Tech Clusters, by Wendy Schacht.)
Current Federal Efforts to Promote Technology Transfer
Over the years, several federal efforts have been undertaken to promote the transfer of
technology from the federal government to state and local jurisdictions and to the private
sector. The primary law affording access to the federal laboratory system is P.L. 96-480, the
Stevenson-Wydler Technology Innovation Act of 1980, as amended by the Federal
Technology Transfer Act of 1986 (P.L. 99-502), the Omnibus Trade and Competitiveness
Act (P.L. 101-418), the 1990 Department of Defense (DOD) Authorization Act (P.L.
101-189), the National Defense Authorization Act for FY1991 (P.L. 101-510), the
Technology Transfer Improvements and Advancement Act (P.L. 104-113), and the
Technology Transfer Commercialization Act (P.L. 106-404). Several practices have been
established and laws enacted that are aimed at encouraging the private sector to utilize the
knowledge and technologies generated by the federal R&D endeavor. These are discussed
below.
Federal Laboratory Consortium for Technology Transfer
One of the primary federal efforts to facilitate and coordinate the transfer of technology
among various levels of government and to the private sector is the Federal Laboratory
Consortium for Technology Transfer (FLC). The Consortium was originally established
under the auspices of the Department of Defense in the early 1970s to assist in transferring
DOD technology to state and local governments. Several years later, it was expanded to
include other federal departments in a voluntary organization of approximately 300 federal
laboratories. The Federal Technology Transfer Act of 1986 (P.L. 99-502) provided the FLC
with a legislative mandate to operate and required the membership of most federal
laboratories. Today, over 600 laboratories are represented.
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The basic mission of the Federal Laboratory Consortium is to promote the effective use
of technical knowledge developed in federal departments and agencies by “networking” the
various member laboratories with other federal entities, with state, local, and regional
governments, and with private industry. To accomplish this, the Consortium establishes
channels through which user needs can be identified and addressed. It also provides a means
by which federal technology and expertise can be publicized and made available through
individual laboratories to private industry for further development and commercialization.
Access to the resources of the full federal laboratory system can be made through any
laboratory representative, the FLC regional coordinators, the Washington area representative,
or by contacting the Chairman or Executive Director.
The FLC itself does not transfer technology; it assists and improves the technology
transfer efforts of the laboratories where the work is performed. In addition to developing
methods to augment individual laboratory transfer efforts, the Consortium serves as a
clearinghouse for requests for assistance and will refer to the appropriate laboratory or
federal department. The work of the Consortium is funded by a set-aside of 0.008% of the
portion of each agency’s R&D budget used for the laboratories.
P.L. 96-480, P.L. 99-502, and Amendments
In 1980, the U.S. Congress enacted P.L. 96-480, the Stevenson-Wydler Technology
Innovation Act. Recognizing the benefits to be derived from the transfer of technology, the
law explicitly states that:
It is the continuing responsibility of the federal government to ensure the full use of the
results of the Nation’s federal investment in research and development. To this end the
federal government shall strive where appropriate to transfer federally owned or
originated [non-classified] technology to state and local governments and to the private
sector.
Prior to this law, technology transfer was not part of the mission requirements of the federal
departments and agencies, with the exception of the National Aeronautics and Space
Administration. This left laboratory personnel open to questions as to the suitability of their
transfer activities. However, P.L. 96-480 “legitimized” the transfer effort and mandated that
technology transfer be accomplished as an expressed part of each agency’s mission.
Section 11 created the mechanisms by which federal agencies and their laboratories can
transfer technology. Each department with at least one laboratory must make available not
less than 0.5% of its R&D budget for transfer activities, although this requirement can and
has been waived. To facilitate transfer from the laboratories, each one is required to establish
an Office of Research and Technology Applications (ORTA); laboratories with annual
budgets exceeding $20 million must have at least one full-time staff person for this office
(although the latter provision can also be waived). The function of the ORTA is to identify
technologies and ideas that have potential for application in other settings.
Additional incentives for the transfer and commercialization of technology are
contained in various amendments to Stevenson-Wydler. P.L. 99-502, the Federal
Technology Transfer Act, amends P.L. 96-480 to allow government-owned, government-
operated laboratories (GOGOs) to enter into cooperative research and development
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agreements (CRADAs) with universities and the private sector. The authority to enter into
these agreements was extended to government-owned, contractor-operated laboratories
(generally the laboratories of the Department of Energy) in the FY1990 Defense
Authorization Act (P.L. 101-189). A CRADA is a specific legal document (not a
procurement contract) which defines the collaborative venture. It is intended to be developed
at the laboratory level, with limited agency review. In agencies which operate their own
laboratories, the laboratory director is permitted to make decisions to participate in CRADAs
in an effort to decentralize and expedite the technology transfer process. Generally, at
agencies which use contractors to run their laboratories, specifically DOE, the CRADA is
to be approved by headquarters. P.L. 106-398, however, allows the agency to define certain
conditions under which the CRADA may be approved by a laboratory itself rather than
headquarters.
The work performed under a cooperative research and development agreement must be
consistent with the laboratory’s mission. In pursuing these joint efforts, the laboratory may
accept funds, personnel, services, and property from the collaborating party and may provide
personnel, services, and property to the participating organization. The government can
cover overhead costs incurred in support of the CRADA, but is expressly prohibited from
providing direct funding to the industrial partner. In GOGO laboratories, this support comes
directly from budgeted R&D accounts. Prior to the elimination of a line item in the budget
to support non-defense energy technology transfer, the Energy Department generally relied
on a competitive selection process run by headquarters to allocate funding specifically
designated to cover the federal portion of the CRADA. Now these efforts are to be supported
through programmatic funds. A line item still exists for DOE defense program technology
transfer, but at reduced levels from previous years.
Under a CRADA, title to, or licenses for, inventions made by a laboratory employee
may be granted in advance to the participating company, university, or consortium by the
director of the laboratory. In addition, the director can waive, in advance, any right of
ownership the government might have on inventions resulting from the collaborative effort
regardless of size of the company. This diverges from other patent law which only requires
that title to inventions made under federal R&D funding be given to small businesses,
not-for-profits, and universities. In all cases, the government retains a nonexclusive,
nontransferable, irrevocable, paid-up license to practice, or have practiced, the invention for
its own needs.
Laboratory personnel and former employees are permitted to participate in
commercialization activities if these are consistent with the agencies’ regulations and rules
of conduct. Federal employees are subject to conflict of interest restraints. In the case of
government-owned, contractor-operated laboratories, P.L. 101-189 required the
establishment of conflict of interest provisions regarding CRADAs to be included in the
laboratories’ operating contracts within 150 days of enactment of the law. Preference for
cooperative ventures is given to small businesses, companies which will manufacture in the
United States, or foreign firms from countries that permit American companies to enter into
similar arrangements. To date, over 5,000 CRADAs have been signed (including NASA
Space Act Agreements).
P.L. 99-502 provides for cash awards to federal laboratory personnel for activities
facilitating scientific or technological advancements which have either commercial value or
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contribute to the mission of the laboratory and for the transfer of technology leading to
commercialization. As an additional incentive, federal employees responsible for an
invention are to receive at least 15% of royalties generated by the licensing of the patent
associated with their work. The agencies may establish their own royalty sharing programs
within certain guidelines. If the government has the right to an invention but chooses not to
patent, the inventor, either as a current or former federal employee, can obtain title subject
to the above-mentioned licensing rights of the government.
To further facilitate the transfer process, a provision of the National Defense
Authorization Act for FY1991 (P.L. 101-510) amends Stevenson-Wydler allowing
government agencies and laboratories to develop partnership intermediary programs
augmenting the transfer of laboratory technology to the small business sector.
P.L. 104-113, the Technology Transfer Improvements and Advancement Act, clarifies
existing policy with respect to the dispensation of intellectual property under a CRADA by
amending the Stevenson-Wydler Act. Responding to criticism that ownership of patents is
an obstacle to the quick development of CRADAs, this bill guarantees an industrial partner
the option to select, at the minimum, an exclusive license for a field of use to the resulting
invention. If the invention is made solely by the private party, then they may receive the
patent. However, the government maintains a right to have the invention utilized for
compelling public health, safety, or regulatory reasons and the ability to license the patent
should the industrial partner fail to commercialize the invention.
P.L. 100-418, Omnibus Trade and Competitiveness Act
In response to concerns over the development and application of new technology, the
1988 Omnibus Trade and Competitiveness Act contained several provisions designed to
foster technology transfer. The law redesignated the National Bureau of Standards as the
National Institute of Standards and Technology (NIST), and mandated the establishment of
(among other things): (1) an Advanced Technology Program to encourage public-private
cooperative efforts in the development of industrial technology and to promote the use of
NIST technology and expertise; (2) Regional Manufacturing Technology Transfer Centers;
and (3) a Clearinghouse on State and local innovation related activities. The set-aside for
operation of the Federal Laboratory Consortium created in P.L. 99-502 was also increased
from 0.005% of the laboratory R&D budget to 0.008%.
The Advanced Technology Program (ATP) provides seed funding, matched by
private-sector investment, to companies or consortia of universities, industries, and
government laboratories to accelerate the development of generic technologies that have
broad application across industries. The first awards were made in 1991. As of the end of
2004, 768 projects have been funded representing approximately $2.3 billion in federal
dollars matched by $2.1 billion in financing from the private sector.
The first four ATP competitions (through August 1994) were all general in nature.
However, in response to large increases in federal funding, NIST, in conjunction with
industry, identified various key areas for long-range support including information
infrastructure for healthcare; tools for DNA diagnostics; component-based software;
manufacturing composite structures; computer-integrated manufacturing for electronics;
digital data storage; advanced vapor-compression refrigeration systems; motor vehicle
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manufacturing technology; materials processing for heavy manufacturing; catalysis and
biocatalysis technologies; advanced manufacturing control systems; digital video in
information networks; engineering; photonics manufacturing; premium power;
microelectronics manufacturing infrastructure; selective-membrane platforms; and adaptive
learning systems. The general competition continued. Since FY1999, NIST dropped the
focused areas in favor of one competition open to all areas of technology. (For additional
information see CRS Report 95-36, The Advanced Technology Program, by Wendy
Schacht.)
Appropriations for the Advanced Technology Program included $36 million in FY1991,
$48 million in FY1992, $67.9 million in FY1993, and $199.5 million in FY1994.
Appropriations for FY1995 expanded significantly to $431 million, but $90 million of this
amount was rescinded by P.L. 104-6 as funding for ATP met with opposition in the 104th
Congress. The initial House Republican budget proposal associated with the House
Republican “Contract with America” would have eliminated the Advanced Technology
Program. The FY1996 appropriations bill that originally passed Congress, H.R. 2076, was
vetoed by the President, in part, because it offered no support for ATP. The legislation that
was finally signed into law, P.L. 104-134, funded the program at $221 million. In FY1997,
P.L. 104-208 provided $225 million in financing for ATP. P.L. 105-18 rescinded $7 million
from this amount. The following year, P.L. 105-119 appropriated $192.5 million for ATP.
The Clinton Administration’s FY1999 budget proposed $259.9 million for ATP, an
increase of 35%. While not providing such a large increase, P.L. 105-277 did fund ATP at
$197.5 million, 3% above the previous year. This reflected a $6 million rescission of
“deobligated” funds resulting from early termination of certain projects. For FY2000, the
Administration requested support for ATP at $238.7 million, an increase of 21% above
earlier funding. The appropriation bill originally passed by the House contained no funding
for the program. The report to accompany the bill (H.R. 2670) stated that “. . .the program
has not produced a body of evidence to overcome those fundamental questions about whether
the program should exist in the first place.” Yet P.L. 106-113 provided $142.6 million for
ATP, although this represented a 28% decrease over the earlier fiscal year.
President Clinton’s FY2001 budget called for financing ATP at $175.5 million, 23%
above the prior year’s support. The original version of the appropriations bill passed by the
House again did not fund the program. However, P.L. 106-553 appropriated $145.7 million
for ATP, an increase of 2% from the previous funding level.
For FY2002, the Bush Administration’s budget proposal would have suspended support
for all new awards pending an evaluation of the program; $13 million would be made
available to meet financial commitments for on-going projects. H.R. 2500, as initially passed
by the House, contained no funding for new ATP grants but also provided $13 million to
support prior project commitments. The original version of H.R. 2500 passed by the Senate
funded ATP at $204.3 million. The final legislation, P.L. 107-77, financed the program at
$184.5 million, an increase of almost 27% over the previous fiscal year.
In the FY2003 budget request, the Advanced Technology Program would have received
$108 million, 35% below the FY2002 figure. No relevant appropriations legislation was
enacted in the 107th Congress. A series of Continuing Resolutions provided support at the
FY2002 level until the 108th Congress passed P.L. 108-7 which appropriated $178.8 million
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for the program in FY2003 (after a 0.65% across the board recision mandated by the
legislation).
The President’s FY2004 budget would have provided $27 million for ATP to cover on-
going commitments; no new projects would be funded. Again, the appropriation bill initially
passed by the House contained no money for ATP. However, P.L. 108-199, the FY2004
Consolidated Appropriations Act, provided $170.5 million for the program after a rescission
mandated in the bill. The following year, the Administration’s budget request and H.R.
4754, the appropriations bill originally passed by the House, did not include funding for
ATP. S. 2809, as reported to the Senate by the Committee on Appropriations, would have
provided $203 million for the program. P.L. 108-447, the FY2005 Omnibus Appropriations
Act, funds ATP at $136.5 million (after several rescissions mandated in the legislation), a
20% decrease from the previous fiscal year.
The Administration’s FY2006 budget, and H.R. 2862, as initially passed by the House,
did not include support for the Advanced Technology Program. The version of H.R. 2862
originally passed by the Senate would have provided $140 million for the program. The final
FY2006 appropriation legislation, P.L. 109-108, finances ATP at $79 million (after mandated
rescissions), 42% below the FY2005 funding level.
For FY2007, the Administration does not provide any support for ATP.
The Omnibus Trade and Competitiveness Act (P.L. 100-418) also created a program
of regional centers to assist small manufacturing companies’ use of knowledge and
technology developed under the auspices of the National Institute of Standards and
Technology and other federal agencies. 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 and are
operational: the Great Lakes Manufacturing Technology Center at the Cleveland Advanced
Manufacturing Program in Ohio; the Northeast Manufacturing Technology Center at
Rensselaer Polytechnic Institute in Troy, New York (now called the New York
Manufacturing Extension Partnership); the South Carolina Technology Transfer Cooperative
based at the University of South Carolina in Columbia; the Midwest Manufacturing
Technology Center at the Industrial Technology Institute in Ann Arbor, Michigan; the
Mid-American Manufacturing Technology Center at the Kansas Technology Enterprise
Corporation of Topeka; the California Manufacturing Technology Center at El Camino
College in Torrance; and the Upper Midwest Manufacturing Technology Center in
Minneapolis.
The original program expanded in 1994 creating the Manufacturing Extension
Partnership (MEP) to meet new and growing needs of the community. In a more varied
approach, the Partnership involves both large centers and smaller, more dispersed
organizations sometimes affiliated with larger centers. Also included is 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 (an effort which was also mandated by P.L. 100-418) and a program that 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 program was created in 1989, awards made by NIST for extension activities
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resulting in the creation of approximately 400 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 financed the remaining ones during FY1997.]
Funding for this program was $11.9 million in FY1991, $15.1 million in FY1992, and
$16.9 million in FY1993. The FY1994 appropriation for the expanded Manufacturing
Technology Partnerships was $30.3 million. P.L. 103-317 appropriated $90.6 million for this
effort in FY1995, although P.L. 104-19 rescinded $16.3 million from this appropriation. For
FY1996, H.R. 2076, which passed the Congress but was vetoed by the President, included
appropriations of $80 million for MEP. This amount was retained in the final legislation,
P.L. 104-134. P.L. 104-208 appropriated $95 million for manufacturing extension in
FY1997, while temporarily lifting the six-year limit on federal support for individual centers.
For FY1998, P.L. 105-119 provided $113.5 million in funding and permitted government
support for centers to be extended, for periods of one year and at a rate of one-third the
centers annual cost, if a positive evaluation was received. The following year, P.L. 105-277
appropriated $106.8 million for the program, reflecting a reduced federal financial
commitment as centers mature, not a decrease in program support. In addition, the
Technology Administration Act of 1998, P.L. 105-309, permitted the federal government to
fund centers at one-third the cost after the six years if a positive independent evaluation is
made every two years. In FY2000, $104.2 million (after a mandated rescission) was
appropriated for MEP by P.L. 106-113. The next year, P.L. 106-553 provided $105.1
million for manufacturing extension; for FY2002, P.L. 107-77 funded MEP at $106.5
million.
The Bush Administration’s FY2003 budget proposed an 89% decrease in funding for
MEP to $13 million. According to the budget document, “... consistent with the program’s
original design, the President’s budget recommends that all centers with more than six years
experience operate without federal contribution.” A series of Continuing Resolutions
financed the activity at the FY2002 level until the 108th Congress enacted P.L. 108-7 which
appropriates $105.9 million for FY2003 (after a mandated rescission).
The President’s FY2004 budget included another cut in support for MEP, proposing
$12.6 million to support those centers that have not reached six years of federal financing.
H.R. 2799, the FY2004 appropriations bill, as initially passed by the House, financed the
Partnership at $39.6 million. This bill was incorporated into H.R. 2673, which was signed
into law as P.L. 108-199, the FY2004 Consolidated Appropriations Act. The legislation
funded MEP at $38.7 million after a mandated rescission contained in the bill.
For FY2005, the Bush Administration’s budget included $39.2 million for MEP. H.R.
4754, the Commerce, Justice, State appropriations bill originally passed by the House,
would have financed manufacturing extension at $106 million. S. 2809, reported to the
Senate by the Committee on Appropriations, would have provided $112 million to “fully
fund” existing centers and to provide additional assistance to small and rural States. The
FY2005 Omnibus Appropriations Act, P.L. 108-447, restored earlier cuts to the program and
financed MEP at $107.5 million after several rescissions mandated by the legislation.
In the President’s FY2006 budget proposal, support for manufacturing extension would
have been reduced to $46.8 million, 63% below the previous fiscal year. H.R. 2862, as
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originally passed by both the House and the Senate, would have funded the program at $106
million. After mandated rescissions, MEP was appropriated $97.6 million by P.L. 109-108.
The Administration’s FY2007 budget provides $46.3 million for MEP. (For additional
information see CRS Report 97-104, Manufacturing Extension Partnership Program: An
Overview, by Wendy Schacht.)
Patents
The patent system was created to promote innovation. Based on Article I, Section 8 of
the U.S. Constitution which states: “The Congress Shall Have Power ... To promote the
Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors
the exclusive Right to their respective Writings and Discoveries...”, the patent system
encourages innovation by simultaneously protecting the inventor and fostering competition.
Originally, it provided the inventor with a lead time of 17 years (from the date of issuance)
to develop his idea, commercialize, and thereby realize a return on his initial investment.
Today, in response to the Uruguay Round Agreements Act, the term of the patent has been
changed to 20 years from date of filing. The process of obtaining a patent places the idea in
the public domain. As a disclosure system, the patent can, and generally does, stimulate
other firms or inventors to invent “around” existing patents to provide parallel technical
developments or meet similar market needs.
Ownership of patents derived from research and development performed under federal
funding affects the transfer of technology from federal laboratories to the private sector.
Generally, the government retains title to these inventions and can issue to companies either
an exclusive license or, more commonly, a nonexclusive license. However, it is argued that
without title (or at least an exclusive license) to an invention and the protection it conveys,
a company will not invest the additional time and money necessary for commercialization.
This contention is supported by the fact that, although a portion of ideas patented by the
federal government have potential for further development, application, and marketing, only
about 10% of these are ever used in the private sector. However, there is no universal
agreement on this issue. It also is asserted that title should remain in the public sector where
it is accessible to all interested parties since federal funds were used to finance the work.
Despite the disagreements, the Congress has accepted to some extent the proposition
that vesting title to the contractor will encourage commercialization. P.L. 96-517,
Amendments to the Patent and Trademark Laws (commonly known as the Bayh-Doyle Act),
provides, in part, for contractors to obtain title if they are small businesses, universities, or
not-for-profit institutions. Certain rights are reserved for the government and these
organizations are required to commercialize within a predetermined and agreed-on time.
(For more information see CRS Report RL32076, The Bayh-Dole Act: Selected Issues in
Patent Policy and the Commercialization of Technology; CRS Report 98-862, R&D
Partnerships and Intellectual Property: Implications for U.S. Policy; and CRS Report
RL30320, Patent Ownership and Federal Research and Development: A Discussion on the
Bayh-Dole Act and the Stevenson-Wydler Act, all by Wendy Schacht.) Yet it continues to
be argued that patent exclusivity is important for both large and small firms. In a February
1983 memorandum concerning the vesting of title to inventions made under federal funding,
President Reagan ordered all agencies to treat, as allowable by law, all contractors regardless
of size as prescribed in P.L. 96-517. This, however, does not have a legislative basis.
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Further changes in the patent laws made by the enactment of P.L. 98-620 also affect the
transfer of technology from federal laboratories to the private sector. In a provision that was
designed to increase interaction and cooperation between government-owned,
contractor-operated (GOCO) laboratories and private industry in the transfer of technology,
Title V permits decisions to be made at the laboratory level as to the award of licenses for
laboratory generated patents. The contractor is also permitted by this legislation to receive
patent royalties for use in additional research and development, for awards to individual
inventors on staff, or for education. A cap exists on the amount of the royalty returning to the
laboratory so as not to distort the agency’s mission and congressionally mandated R&D
agenda. However, the creation of discretionary funds gives laboratory personnel added
incentive to encourage and complete technology transfers.
P.L. 98-620 also permits private companies, regardless of size, to obtain exclusive
license for the full life of the government patent. Prior restrictions on large firms allowed
exclusive license for only 5 of the (then) 17 years of the patent. The law permits those
government laboratories that are run by universities or nonprofit institutions to retain title to
inventions made in their institution (within certain defined limitations). Federal laboratories
operated by large companies are not included in this provision.
The Federal Technology Transfer Act and the FY1990 DOD authorization gives all
companies (not just small businesses, universities, and nonprofits) the right to retain title to
inventions resulting from research performed under cooperative R&D agreements with
government laboratories. If this occurs, the federal government retains a royalty-free license
to use these patents. In addition, the Federal Technology Act states that the government
agencies may retain a portion of royalty income rather than returning it to the Treasury. After
payment of the prescribed amount to the inventor, the agencies must transfer the balance of
the total to their government-operated laboratories, with the major portion distributed to the
laboratory where the invention was made. The laboratory may keep all royalties up to 5%
of their annual budget plus 25% of funds in excess of the 5% limit. The remaining 75% of
the excess returns to the Treasury. Funds retained by the laboratory are to be used for
expenses incurred in the administration and licensing of inventions; to reward laboratory
personnel; to provide for personnel exchanges between laboratories; for education and
training consistent with the laboratories’ and agencies’ missions; or for additional transfer.
P.L. 106-404, the Technology Transfer Commercialization Act, signed into law on
November 1, 2000, made alterations in current practices concerning patents held by the
government to make it easier for federal agencies to license such inventions. The law
amends P.L. 98-480 and P.L. 96-517 to decrease the time necessary to obtain an exclusive
or partially exclusive license on federally owned patents. 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. The
new law shortens the period to 15 days in recognition of the ability of the Internet to offer
widespread notification and the time constraints faced by industry in commercialization
activities. Certain rights would be retained by the government. The legislation also allows
licenses for existing government-owned inventions to be included in CRADAs.
The CREATE Act, P.L. 108-453, makes changes in the patent laws to promote
cooperative research and development among universities, government, and the private
sector. The legislation amends section 103(c) of title 25, United States Code, such that
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certain actions between researchers under a joint research agreement will not preclude
patentability.
Small Business Technology Transfer Program
P.L. 102-564 created a three-year pilot program designed to facilitate the
commercialization of university, nonprofit, and federal laboratory R&D by small companies.
The Small Business Technology Transfer program (STTR) provides funding for research
proposals which are developed and executed cooperatively between a small firm and a
scientist in a research organization and fall under the mission requirements of the federal
funding agency. Up to $100,000 in Phase I financing is available for one year to test the
viability of the concept. Phase II awards of $500,000 may be made for two years to perform
the research. Funding for commercialization of the results is expected from the private
sector. Financial support for this effort comes from a phased-in set-aside of the R&D
budgets of departments which spend over $1 billion per year on research and development.
Originally set to expire at the end of FY1996, the program was extended one year. P.L. 105-
135 reauthorized funding through FY2001, while P.L. 107-50 extended the STTR program
through FY2009. The set-aside used to fund the activity was increased to 0.3% in FY2004.
In addition, the amount of money available for individual Phase II grants increased from
$500,000 to $750,000. (For additional information see CRS Report 96-402, Small Business
Innovation Research Program, by Wendy Schacht.)
Further Considerations
The federal laboratories have received a mandate to transfer technology. This, however,
is not the same as a mandate to help the private sector in the development and
commercialization of technology for the marketplace. While the missions of the government
laboratories are often broad, direct assistance to industry is not included, with the exception
of the National Institute of Standards and Technology. The laboratories were created to
perform the R&D necessary to meet government needs, which typically are not consistent
with the demands of the marketplace.
The missions of the federal laboratories are under review, due, in part, to budget
constraints and the changing world order. National security is now being redefined to
include economic well-being in addition to weapons superiority. The laboratories which
have contributed so much to the defense enterprise are being re-evaluated. These discussions
provide an opportunity to debate whether the mandate of the federal R&D establishment
should include expanded responsibilities for assistance to the private sector. Whether or not
the missions of the U.S. government laboratories are changed to include expanded assistance
to industry, there are various initiatives which may facilitate the technology transfer process
under the laboratories’ current responsibilities. These include making the work performed
in government institutions more relevant to industry through augmented cooperative R&D,
increased private sector involvement early in the R&D efforts of the laboratories, and
expanded commercialization activities.
Because a significant portion of the laboratories are involved in defense research,
questions arise as to whether or not the technologies in these institutions can be transferred
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in such a way as to be useful to commercial companies. In addition, the selection of one
company over another to be involved in a transfer or in a cooperative R&D agreement raises
issues of fairness and equity of access, as well as conflict of interest. And, while it is
virtually impossible to prevent the flow of scientific and technical information abroad, there
is ongoing interest in the extent of foreign access to the federal laboratory establishment.
How these concerns are addressed may be fundamental to the success of U.S. technology
transfer.
Over the past 25 years, the Congress has enacted various laws designed to facilitate
cooperative R&D between and among government, industry, and academia. These laws
include (but are not limited to) tax credits for industrial payments to universities for the
performance of R&D, changes in the antitrust laws as they pertain to cooperative research
and joint manufacturing, and improved technology transfer from federal laboratories to the
private sector. The intent behind these legislative initiatives is to encourage collaborative
ventures and thereby reduce the risks and costs associated with R&D as well as permit work
to be undertaken that crosses traditional boundaries of expertise and experience leading to
the development of new technologies and manufacturing processes for the marketplace.
Since the 104th Congress, the perspectives on joint R&D, technology transfer, and
cooperative research and development agreements appear mixed. The results of legislative
activity are open to discussion. In the recent past, both national political parties have
supported measures to facilitate technological advancement. There are indications that the
congressional majority favors refocusing federal support for basic research as well as indirect
measures to encourage technology development in the private sector. CRADAs, in
particular, are a means to take this government-funded basic research from the federal
laboratory system and move it to the industrial community for commercialization to meet
both agency mission requirements and other national needs associated with the economic
growth which comes from new products and processes. It should also be recognized that the
government is expressly prohibited from providing direct financial support to partners in the
cooperative venture under a CRADA. Thus, it appears that this approach may meet the
criteria expressed as acceptable to the Congress. While the Advanced Technology Program
has faced much opposition in the House, the program continues to be funded, although at
decreased levels. Recently, the Manufacturing Extension Partnership had its budget cut, but
these cuts were restored the following fiscal year with the support of the Congress. As the
109th Congress continues to make decisions concerning funding for R&D, the role of the
federal government in technology transfer, technology development, and commercialization
might be expected to be explored further.
LEGISLATION
P.L. 109-108 (H.R. 2862)
Makes appropriations for science and the Departments of State, Justice, and Commerce.
As passed by the House, the bill would provide $106 million for the Manufacturing
Extension Partnership and no financing for the Advanced Technology Program. The version
of the legislation reported to the Senate from the Committee on Appropriations would fund
MEP at $106 million and provide $140 for ATP. Introduced June 10, 2005; referred to the
House Committee on Appropriations. Passed the House, amended, on June 16, 2005.
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Received in the Senate on June 16, 2005; referred to the Senate Committee on
Appropriations. Reported to the Senate, with an amendment in the nature of a substitute, on
June 23, 2005. Passed the Senate, amended on September 15, 2005. Conference report filed
November 7, 2005. House agreed to conference report on November 9, 2005; Senate agreed
on November 16, 2005. Signed into law by the President on November 22, 2005.
H.R. 250 (Ehlers)/S. 2134 (Smith)
Manufacturing Technology Competitiveness Act. Creates an interagency committee
to coordinate federal manufacturing R&D. Establishes and authorizes funding for a pilot
collaborative manufacturing research grants program to promote the development of new
manufacturing technologies through cooperative applied research among the private sector,
academia, states, and other non-profit institutions. Mandates and authorizes financing for
a manufacturing fellowship program. Creates and authorizes support for a manufacturing
extension center competitive grants program to focus on new or emerging manufacturing
technologies. Authorizes funding for the Manufacturing Extension Partnership, among other
things. Introduced January 6, 2005; referred to the Committee on Science. Reported to the
House, amended, May 23, 2005. Passed House on September 21, 2005. Received in Senate
and referred to the Senate Committee on Commerce, Science, and Transportation on
September 22, 2005. S. 2134 introduced December 16, 2005; referred to the Senate
Committee on Commerce, Science, and Transportation.
H.R. 3331 (Miller, B.)
Creates and authorizes funding for a grant program in the National Science Foundation
to assist universities in promoting the application of new inventions developed within their
institutions. Introduced July 27, 2005; referred to the House Committee on Science.
S. 1581 (Bingaman)
Provides financing and other assistance (including tax incentives for private sector
investments) for the development of science parks, among other things. Introduced July 29,
2005; referred to the Senate Committee on Finance.
S. 2109 (Ensign)/H.R. 4654 (Schiff)/S. 2390 (Ensign)
National Innovation Act. Establishes a President’s Council on Innovation and provides
innovation acceleration grants. Promotes innovation through regional economic
development and makes permanent the research and experimentation tax credit, among other
things. S. 2109 introduced December 15, 2005; referred to the Senate Committee on
Finance. H.R. 4654 introduced January 3, 2006; referred to the House Committees on
Science, Energy and Commerce, Ways and Means, Armed Services, Judiciary,
Transportation and Infrastructure, and Financial Services. S. 2390 introduced March 8,
2006; referred to the Senate Committee on Commerce, Science, and Transportation.
S. 2198 (Domenici)
Protecting America’s Competitive Edge Through Education Act. Among other things
creates mechanisms to develop and fund Science Parks. Introduced January 26, 2006;
referred to the Senate Committee on Health, Education, Labor, and Pensions.
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S. 2199 (Domenici)
Protecting America’s Competitive Edge Through Tax Incentives Act. Expands and
makes permanent the research and development tax credit, among other things. Introduced
January 26, 2006; referred to the Senate Committee on Finance.
S. 2720 (Baucus)
Research Competitiveness Act of 2006. Simplifies the research tax credit and makes
it permanent. Allows for tax exempt financing of research park facilities, among other
things. Introduced May 4, 2006; referred to the Senate Committee on Finance.
S. 2802 (Ensign)
American Innovation and Competitiveness Act of 2006. Among other things,
establishes the President’s Council on Innovation and Competitiveness, provides innovation
acceleration grants, and facilitates regional economic development. Introduced May 15,
2006; referred to the Senate Committee on Commerce, Science, and Transportation. Ordered
reported, with amendments, on May 18, 2006.
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