5
Comments on the Advanced Technology Program

Mary L.Good1

University of Arkansas, Little Rock

The political ideology associated with the federal government’s support of commercially oriented technology has been an enormous problem for the Advanced Technology Program (ATP) since the program’s inception. This is despite the fact that the federal government has historically supported technology, research, and development in a variety of industries. For example, the federal government paid for the first demonstration of the telegraph. Research and technology development for aviation has been almost entirely funded by the federal government, starting during the First World War and continuing even throughout the Depression. This investment became an enormous asset during the Second World War. The aerospace industry continues to believe that it is the government’s duty to supply that research base, and indeed, for the most part the government still supports research and development (R&D) in that industry.

The Internet was created through federal funding by the Advanced Research Projects Agency and was originally designed so that scientists working for the Department of Defense could efficiently communicate with each other. The project was later transferred to the National Science Foundation (NSF), which provided the backbone for the Internet. In a similar manner, the federal government has funded most of the research in the agricultural technology industry. With the history of government intervention in these industries, it is intriguing that ATP has received such unusual feedback with respect to its role in technology development.

ATP was initiated in 1988 by President George H.W.Bush amid a climate of domestic collaboration to fight international competition. The Japanese had become a threat to the U.S. economy because of their success in developing new manufacturing technologies. The government responded by passing a number of technology and innovation acts. These included the Bayh-Dole Act of 1980, which gave the rights to the intellectual property of government-funded research to universities, small businesses, and

1  

Mary L.Good is the Donaghey University Professor at the University of Arkansas, Little Rock, and serves as the managing member for Venture Capital Investors, LLC. Previously, she served 4 years as the under secretary for technology for the Technology Administration in the Department of Commerce, a presidentially appointed, Senate-confirmed position, which had oversight of the Advanced Technology Program.



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5 Comments on the Advanced Technology Program Mary L.Good1 University of Arkansas, Little Rock The political ideology associated with the federal government’s support of commercially oriented technology has been an enormous problem for the Advanced Technology Program (ATP) since the program’s inception. This is despite the fact that the federal government has historically supported technology, research, and development in a variety of industries. For example, the federal government paid for the first demonstration of the telegraph. Research and technology development for aviation has been almost entirely funded by the federal government, starting during the First World War and continuing even throughout the Depression. This investment became an enormous asset during the Second World War. The aerospace industry continues to believe that it is the government’s duty to supply that research base, and indeed, for the most part the government still supports research and development (R&D) in that industry. The Internet was created through federal funding by the Advanced Research Projects Agency and was originally designed so that scientists working for the Department of Defense could efficiently communicate with each other. The project was later transferred to the National Science Foundation (NSF), which provided the backbone for the Internet. In a similar manner, the federal government has funded most of the research in the agricultural technology industry. With the history of government intervention in these industries, it is intriguing that ATP has received such unusual feedback with respect to its role in technology development. ATP was initiated in 1988 by President George H.W.Bush amid a climate of domestic collaboration to fight international competition. The Japanese had become a threat to the U.S. economy because of their success in developing new manufacturing technologies. The government responded by passing a number of technology and innovation acts. These included the Bayh-Dole Act of 1980, which gave the rights to the intellectual property of government-funded research to universities, small businesses, and 1   Mary L.Good is the Donaghey University Professor at the University of Arkansas, Little Rock, and serves as the managing member for Venture Capital Investors, LLC. Previously, she served 4 years as the under secretary for technology for the Technology Administration in the Department of Commerce, a presidentially appointed, Senate-confirmed position, which had oversight of the Advanced Technology Program.

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eventually large businesses. The Small Business Innovation Research Act followed in 1982 to strengthen the role of small innovative firms in federally funded R&D as a base for technological innovation to meet agency needs and contribute to the growth and strengthening of the nation’s economy. Semiconductor Manufacturing Technology, SEMATECH, a research consortium of the U.S. semiconductor industry began in 1987 in response to the economic downturn and international competition and is credited with returning the U.S. industry’s dominance. Legislation for the creation of ATP was included in the Omnibus Trade and Competitiveness Act of 1988. The idea was to provide partial funding for projects that were based on worthwhile ideas with commercial potential but that were at such an early stage of development that they were not likely to be supported by industrial firms. The projects were to be supported through the precommercial research stage but not into commercial development. Many of these projects paired small companies with large companies or universities. ATP’s first budget was approximately $10 million, but by 1992 its allocation had risen to about $60 million per year. That same year the Clinton-Gore campaign made ATP part of the Democratic candidates’ science and technology plan, and in 1994 ATP’s budget was over $200 million. Unfortunately, the support of ATP by Clinton-Gore gave the impression that it was a political program. When the House of Representatives and Congress changed party leadership, the program was vigorously attacked and the era of political debate over ATP’s future began. Amazingly, the program still runs with a budget of approximately $200 million, although it is by far the most evaluated government program ever—it has been analyzed by economists, scientists, industrial participants, and politicians. Although some changes have been made to meet the demands of various ideologies, the program still exists. About $61 million in new money will be available for research programs through ATP for fiscal year 2003. The remaining $140 million will be used for continuing grants from previous campaigns. The program has never been fully funded by the federal government; half of the funding is required to come from industry. While most of the participants are small and large businesses, universities have been major participants in ATP from the program’s conception. There have been a total of 581 projects involving 150 individual universities. ATP has been a fairly sizable supplier of funding to universities for their research activities. National laboratories have also participated in ATP. There have been many successes in ATP. Even the opponents of the program agree that it has been successful. The question then is, “Is the program needed?” ATP funds early, precommercial, enabling technology research that cannot be funded by government basic science programs like NSF based on program rules and definitions. Private companies generally do not fund research on enabling technology because, as use of the technology spreads, it is difficult to recover the costs. Although enabling technology could be important for the country as a whole, an individual company will not invest in that technology if it is not driving the market at that moment. There is actually very little private-sector capital for early-stage technology research and development. Venture capitalists want a prototype and a product market with a known size. Venture capitalist and founding partner of Morganthaler Ventures David Morganthaler has stated: “It does seem that early-stage help by the government in developing platform technologies and financing scientific discoveries is directed exactly at the areas where institutional venture capitalists cannot and will not go. In the analogy of the horse race, the role of the government can be to improve the blood lines of the horses and give them some preliminary schooling, but it is not buying the horses.”2 2   David Morganthaler. April 2000. Assessing technical risk. Unpublished presentation, National Institute of Standards and Technology.

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The private-sector venture money also has a tendency to “follow the herd.” As a result, certain technologies are funded preferentially. For example, in the 1980s, anything related to biotechnology was funded. In the past decade it has been information technology. Materials research has been ignored mainly because it involves extended development. The demise of the Department of Defense’s funding of technology since the Cold War has also contributed to the lack of available funding sources. Lastly, the corporate culture at large companies routinely causes termination of long-term precommercial research and favors projects that will make the company $100 million in the very near future. For this reason, virtually all of the in-house venture funding programs have folded. Clearly, a program such as ATP, which funds precommercial research that otherwise would not be pursued by the private sector, is needed. The opposite viewpoint is also heard. Some believe that the government should not fund technology research and that it should be left to the private sector. Government funding of research also gives large companies access to government subsidies. Although some contend that the government should not pick “winners” or “losers,” the NSF has always selected winners and losers for its research grants. In an attempt to create an evaluation system that was nonpolitical, the sponsor of ATP, the National Institute of Standards and Technology (NIST), has used reviewers without conflict of interest but with a real understanding of the technology. In fact, most of the reviewers have been recently retired scientists and engineers from universities or government agencies (except the Department of Commerce). However, the selection process becomes difficult when a small company involves its congressman and adds a political aspect to the selection process. The eventual commercialization rate of the projects in ATP is high. This is essential for the program’s survival since funding for ATP is debated on a yearly basis. Unfortunately, this is most likely due to selection criteria that favor lower-risk projects at the expense of high-risk and high-payoff projects. The federal government’s research and development portfolio contains fundamental research that is not targeted toward any foreseeable commercial use, applied research, or development. In general, applied research is designed to provide answers to specific scientific and technical questions needed to carry out certain governmental missions in defense, energy, space, the environment, and underlying national interests in the commercial sector such as standards and metrology. However, there are areas that are neglected by the federal government and corporate research programs. The ATP is an attempt to provide incentives for the development of new technologies before the usual market forces will focus on them. Not only will this provide significant additions to the nation’s technology pool, a program like ATP has the potential to create new economic growth areas and provide opportunity for entrepreneurs in any geographic location. The ATP fills in the research gaps between the mission agencies and fundamental research agencies. It has a well-defined, worthy purpose and is by far one of the best-run programs. I would like to see ATP continued and stabilized at approximately one-half billion dollars a year, which will bring out the best pool of applicants from industry. DISCUSSION Robert A.Beyerlein, NIST: I represent ATP and I want to say that I very much appreciate Dr. Good’s excellent even-handed perspective on the program and rather insightful recommendations for change. I only offer one comment about the current competition and that is what NIST and ATP are advertising. If you get in your proposal for this current competition by June 10, and if you win, you are recommended for funding in 2002. However, if you get it in later, any time up to September 30, the chance for funding most likely will be received from 2003 funding.

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Mary L.Good: NIST and ATP expect to receive enough proposals to fund $60 million by June 10. Robert A.Beyerlein: Right. As you stated earlier, some of that $61 million will be used to fund some projects that will be announced in the near future. These projects came in the later stages of 2001. Joseph A.Akkara, NSF: I was very interested by your portfolio of management prescription. Who manages the portfolio? Mary L.Good: That has always been the problem. Who manages the portfolio? Many of us have spent a fair amount of time thinking about the government’s funding of R&D. It would be wonderful if somebody moved up to the plate and said, “We really need to look at our portfolio and to know what we are doing and have some minimal oversight of it.” I wouldn’t recommend detailed micromanagement; that is not what I am talking about. Whenever a portfolio is assigned to the agency, it is the agency’s to manage. However, I had always hoped that the Office of Science and Technology Policy (OSTP) would step up to that plate and manage the whole portfolio. OSTP is one of the few groups that can. We currently have the concept of an interagency group that advises the science adviser; this idea has survived from the first Bush administration. If the right representatives from the agencies in that interagency group are involved in addition to OSTP, they would be in a position to look at the portfolio, evaluate it, and get feedback from a group like the President’s Council of Advisers for Science and Technology. The council is able to give some outside review of what path internal documents suggest. I understand the political difficulties of playing around in certain committees’ territories here, but sooner or later we need a serious evaluation because we are not necessarily using our R&D dollars for the biggest bang for the buck at the moment. We had a conversation at lunch about the Department of Energy (DOE) stating that it is now the source of the major facilities that people use. That is where it ought to be. You can’t reproduce facilities like the light sources on university campuses, nor can you reproduce them in industry, but such facilities ought to be part of that portfolio. DOE is providing the infrastructure for the country and that ought to be part of the country’s management portfolio. Joseph S.Francisco, Purdue University: What is PCAST? Mary L.Good: PCAST is the President’s Council of Advisers for Science and Technology, and it consists of approximately 24 members from industry, academia, and nonprofit organizations. PCAST has some very significant people on it, and they could be used as a sounding board for whatever kind of organizational structure and oversight issues the government might handle. Larry Dubois, SRI: ATP is one giant step toward the commercial side, away from the type of funding that NSF would give and away from the intelligence community’s programs and the Army’s venture capital. Would you comment on this trend of the government getting into the venture capital world? Mary L.Good: That is an excellent question. I would remind you that in many ways if I look at how deeply the government was involved in the aerospace industry, ATP is nowhere near that level of penetration. We are a long, long way from driving the industry with any of these programs, but my view is that the portfolio for the government ought to have this balance. If you take ATP, add about one-half billion dollars, then factor in DARPA at about that same number—do you know what the DARPA budget is?

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Larry Dubois: About $2.3 billion. Mary L.Good: The DARPA budget itself? Larry Dubois: The DARPA budget is about $2.3 billion also. Mary L.Good: This is all external? Larry Dubois: Yes, but if you add all of it up, the total amount of money going to the early stage of technology research is a fraction of what we spend in R&D for the government. As long as it stays at 5 percent, it would be an excellent investment. I wouldn’t even object to going as high as 10 percent, and it is nowhere near that at this stage of the game. The stuff that the Department of Defense (DOD) is now asking for is commercial because it goes beyond what ATP does. DOD has done that before. DOD no longer has commercial contracts that have money set aside for research. In the past, if you got a contract, you also got a research budget to go with it. DOD doesn’t do that anymore. If you look at the total amount of DOD grant dollars given for research, it is less than it used to be, not more. Hank Whalen, American Chemical Society: I have two questions. First, of the $200 million roughly that is appropriated for this year, what percentage would the chemical industry have of that? Mary L.Good: I don’t know. It would be small though. The chemical industry, for various and sundry reasons, has not participated in ATP to the extent that it might. On the other hand, when I say that, I am being somewhat disingenuous because the materials scientists have participated. Do I count them as chemists or not? Hank Whalen: It depends on to whom you are talking. Mary L.Good: Exactly. It depends on to whom you are talking. There have actually been three or four chemical companies involved. DuPont and a couple of small companies did some very innovative work on utilizing some plastics for commercial opportunities that had never been looked at before. Nevertheless, participation in ATP by the chemical industry has been rather small. The chemical industry is very proprietary, and many chemical companies are unwilling to go through the review process that NIST requires. Hank Whalen: Newt Gingrich and Bob Walker were very negative toward ATP. There doesn’t seem to be anybody that is that negative right now. Mary L.Good: I think that is probably correct. As you know, ATP was funded again last year, although it was not in the president’s budget. If I were a betting person, I would bet it will get funded again at about the same level whether it is in the president’s budget or not. There are enough people who believe that the program actually does something significant and want to support it. On the other hand, they are not willing to get out and push for big increases, particularly at a time when the budget is pretty tight. Mary L.Mandich, Bell Labs: Can you give the rationale behind backing smaller companies as opposed to large companies? Then would you care to defend that?

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Mary L.Good: Do you mean that small companies are better than large companies? Mary L.Mandich: Yes, in terms of getting funds from ATP. Mary L.Good: Actually I would not defend it very vigorously. Let me put it this way. The reason I wouldn’t is that some of the very, very best projects that ATP has funded were large companies working with small companies and with university experts. That combination has made some of the very best projects in terms of real impact and commercialization. There is a reason for that. The large companies, in many cases, have the expertise that can actually help that little company make that technology move, while a small company just doesn’t have the expertise to do this at the early stage of technology research. We are not talking about just building a prototype and commercialization here because ATP stops at the first prototype. Mary L.Mandich: What is the rationale, and would portfolio management of some sort help remedy this issue? Mary L.Good: The rationale truly is almost ideological. People don’t believe that large companies should be subsidized for research they believe the companies should do anyway. There is also a myth that small start-up companies should get some help. But in terms of the value of results, for example, DARPA does not, should not, and probably never will eliminate large companies. Even the new ATP rules will still let large companies participate, but there was a thought process that said that the American economy was built on start-ups. What people forget is to look at the whole infrastructure. Most of the small companies that have started up in this country and that have done well were either started by people who came out of big companies, learned how to do business, and ended up with the technology the company didn’t want, or the company decided the technology was too small to worry about and allowed it to be taken outside. People see all these small companies, but they don’t understand that those wouldn’t exist without training and background from larger companies. I just went to a big venture capital forum recently and was amused because of the five or six companies that were chosen to highlight for the venture capitalists, every single one of them had a CEO with gray hair. Peter Koen, Stevens Institute: Several years ago I looked at the amount of money Japan was putting into its Ministry of International Trade and Industry (MITI, in 2001 reorganized to the Ministry of Economy, Trade and Industry) and compared it to ATP. I expected ATP to be funded to the tune of at least a few billion dollars, but it is not. What is wrong? How are we sending out the message so that our congressmen and our representatives don’t understand the importance of funding the basic research? Mary L.Good: First of all, I don’t think those of us who have looked at MITI would argue that we should do what MITI does. If you look at MITI’s success rate, it is not what I would advocate. However, ATP ought to be focused in those areas that the market will not fund and does not fund at the moment. Technology research is a legitimate business and that is one of the problems. When people talk on Capitol Hill, they talk about science, and we are not talking about science per se. There is science involved, but we are talking about technology research. It is partially what engineers do, among other things, but technology research still requires a fair amount of research. I think we should have some mechanism that allows people who have good ideas in this arena to have a way to get off the ground. This is a very difficult area for even angel investors to be involved in because the timescale is too long.

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It takes too long and takes too much money. You can get a few of them to do it, but it is not a venture capitalist’s normal undertaking. Today, biotech and information technologies are fundable but not materials science. I can guarantee it. Somebody needs to fund materials science because in many ways materials are the basis of all the technologies that follow. I liked Elsa’s remarks this morning because it is clear that without the materials research there is no progress. That is true across the board in many other areas, but only a few of the big companies will still fund materials research. They expect their suppliers to do it, but their suppliers don’t get enough margin to fund it anymore. Participant: Will the myth continue that this is what companies should be doing rather than our government? Mary L.Good: It is an interesting thing. ATP was born out of a crisis. I would predict that within the next 3 or 4 years we will have another crisis of some kind. Then ATP will get a new lease on life and perhaps a different title, but that is the way we work in this country. We respond to crises, and in a sense that is the answer to the question about what the Defense Department is asking in terms of commercialization for security technology. Something like national security is a crisis, and agencies respond as they ought to. Hopefully, the country’s policymakers will find a middle road between investment for the future and crisis management.