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Overview

Sadao Nagaoka

Hitotsubashi University


Kenneth Flamm

University of Texas at Austin


Masayuki Kondo

Yokohama National University and National Institute of Science and Technology Policy (NISTEP)


Innovation is a key driving force for economic growth and competitiveness in the 21st century. Aiming at strengthening their respective innovative capabilities, the United States and Japan have in recent years sought to encourage university-industry collaboration, protect of intellectual property rights, and stimulate innovation by startup companies. This volume shares the experiences of practitioners and analysts in both countries in exploring the future direction of the U.S. and Japanese innovations systems. It is based on the international symposium held in Tokyo in January 2006 that was convened by the U.S. National Academies’ Board on Science, Technology, and Economic Policy and Japan’s National Institute of Science and Technology Policy at the Ministry of Education, Culture, Sports, Science and Technology. Held in collaboration with the Institute of Innovation Research at Hitotsubashi University, the Symposium brought together the leading experts from academia as well as senior managers from business and the policy sector in both countries.

The presentations made in each of the six sessions of this symposium are summarized below.1

1

For a summary in Japanese and presentation slides in English, see NISTEP, “21st Century Innovation Systems for the United States and Japan: Lessons from a Decade of Change—International Symposium Report,” NISTEP Research Material No. 121.



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Overview Sadao Nagaoka Hitotsubashi Uniersity totsubashi Kenneth Flamm Uniersity of Texas at Austin Masayuki Kondo Yokohama National Uniersity and National Institute of Science and Technology Policy (NISTEP) Innovation is a key driving force for economic growth and competitiveness in the 21st century. Aiming at strengthening their respective innovative capabilities, the United States and Japan have in recent years sought to encourage university-industry collaboration, protect of intellectual property rights, and stimulate innovation by startup companies. This volume shares the experiences of practitioners and analysts in both countries in exploring the future direction of the U.S. and Japanese innova- tions systems. It is based on the international symposium held in Tokyo in January 2006 that was convened by the U.S. National Academies’ Board on Science, Technol- ogy, and Economic Policy and Japan’s National Institute of Science and Technology Policy at the Ministry of Education, Culture, Sports, Science and Technology. Held in collaboration with the Institute of Innovation Research at Hitotsubashi University, the Symposium brought together the leading experts from academia as well as senior managers from business and the policy sector in both countries. The presentations made in each of the six sessions of this symposium are summarized below. SeSSion i: ReFoRM anD neW DeVeloPMentS oF tHe JaPaneSe Science anD tecHnoloGy PolicieS Since tHe 1990s There have been series of significant reforms of the Japanese science and technology policies since the 1990s. These reforms have been driven by several 21 PRePublication coPy

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22 21ST CENTURY INNOVATION SYSTEMS FOR JAPAN AND THE UNITED STATES factors. First is the view—widely shared and supported—that investment in science and technology will be vital to the long-run economic growth of Japan. Supporting this view is the revitalization of economic growth driven significantly by the growth of information technology and biotechnology industries in the United States. Second is the recognition that underinvestment in research infra - structure in national universities and public research institutes over the long run were having negative effects for Japan. The ratio of government research funding to gross domestic product (GDP) in Japan in 1994 was 0.59 percent, compared with 0.88 percent in the United States. In the chapter on Technology Policies in Japan, Professor Akira Goto and Kazuyuki Motohashi provide an overview of how Japanese technology policy has changed in response to the economic and technological challenges of the 1990s. They describe Japan’s 1995 “Basic Law on Science and Technology,” which revamped the R&D tax credit, reformed technology policy as regards small and medium enterprises (SME), and addressed the corporatization of national univer- sities and research institutes and the promotion of their links with industry. They conclude that the enactment of the Basic Law and the university reform are likely to have long-lasting impacts on the Japan’s national innovation system, since they involve significant institutional changes. In the chapter on Reform of uniersity research system in Japan: Where do they stand? Ryuji Shimoda reviews the trends and current issues surrounding the reform of the university research system. He concludes that budget increases have helped universities improve the research environment that had deteriorated over the 1980s and early 1990s. He also notes that the corporatization of national uni - versities has given an unprecedented degree of freedom to university administra - tors. These reforms already appear to be improving research results, have created a more competitive environment, and are promoting greater industry-university cooperation. Shimoda also points out four emerging issues for Japanese faculty and researchers, university and industry leaders, and policymakers: These are— • Maintaining the diversity in university research in the environment of the increase of competitive research funding and the strategic prioritization of S&T research by the government. This question is related to the role of institutional appropriations. • Managing competitive funding by funding agencies. Currently these agen- cies have only very limited professional staffs, with the evaluation function being delegated mainly to outside experts. • Managing competitive funding by national university corporations given multiple sources of research funding. • Maintaining university openness while protecting propriety information from industry-university cooperation and the intellectual property rights of a university. PRePublication coPy

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2 OVERVIEW SeSSion ii: GoVeRnMent’S eVolVinG Role in SuPPoRtinG coRPoRate R&D anD entRePReneuRSHiP While the business supports nearly two-thirds of R&D in both Japan and the United States, appropriability constraints lead to sub-optimal levels of corporate investment. Small innovative firms in the early stages of development face par- ticular challenges in attracting capital. At the same time, the successes of U.S. firms like Microsoft, Intel, AMD, FedEx, Qualcomm, Adobe, Google, Genentech, Chiron, which grew rapidly from small beginnings, offer convincing evidence of the potential contributions of small startup firms. Encouraging more such high- tech startups is important to sustain the enhanced productivity growth rate of the U.S. economy seen over the past ten years. In the chapter on Theory and Practice in the Adanced Technology Pro- gram, Stephanie Shipp and Marc Stanley discuss the theoretical rationale for the Advanced Technology Program (ATP). ATP awarded over $2 billion over the course of its existence from 1990 to 2007, funding to early stage technology projects, while encouraging collaboration among firms and other organizations. ATP’s project evaluation has been widely recognized as “best practice.” Project selection, based on scientific and technological merit, cost sharing, and continued monitoring, ensured support for high-risk R&D projects with potential for broad- based economic benefits. In the chapter on Innoation Awards, Charles Wessner of the National Acad- emies summarizes the policy rationale, major structures as well as management principles of the U.S. Small Business Innovation Research Program (SBIR). This program sets aside 2.5 percent of the extramural R&D budget of eleven federal agencies for innovation awards for small firms (i.e., less than 500 employees). These awards amounted to $2 billion in 2004. Major features of this program include a two-phase structure (feasibility study stage and prototype development stage), early support to new entrepreneurs (one-third of the recipients are new to the program each year), almost full control of the intellectual property by a firm, certification effects based on competitive selection. While Japan’s policies to support SME are well developed, only recently have policy measures been specifically designed to address the needs of startup companies, notes Takehiko Yasuda. These include the removal of minimum capital regulation, educational and informative support to entrepreneurship, financial sup- port measures for startup stage and bankruptcy law reform. He also points out that the government needs to establish a new route of policy transmission for business startups different from the one for existing SMEs. SeSSion iii: R&D cooRDination anD collaboRation—u.S. anD JaPaneSe eXPeRiMentS in SeMiconDuctoR conSoRtia With semiconductor technology becoming increasingly complex, the success of R&D increasingly requires the coordination of many tasks spread over differ- PRePublication coPy

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2 21ST CENTURY INNOVATION SYSTEMS FOR JAPAN AND THE UNITED STATES ent fields, covering manufacturing, software, material and equipments. Research consortia can play an important role in improving such coordination. The chapter by Kenneth Flamm discusses the experience of the U.S. SEMATECH consortium and its role in semiconductor innovation from a 3-year to a 2-year cycle. Flamm also notes that this acceleration played a significant (if not predominant) role in the decline of quality adjusted price of microprocessors in the late 1990s and early 2000s. The chapter by Shuzo Fujimura discusses the lessons from the experiences of the Semiconductor Consortia in Japan. Successful consortia requires collabora - tion at the pre-competitive stage of research When projects that are too close to current generation technologies, firms become reluctant to share competitively sensitive information with the others and are less likely to collaborate effectively. Vertical collaboration among manufacturers, equipment producers and material producers is also important. Fragmentation can hamper the effective integration of knowledge across sectors. Finally, Fujimura notes that effective collaboration requires the protection of proprietary information SeSSion iV: inteRaction betWeen intellectual PRoPeRty anD innoVation SySteMS The patents systems of the United States and Japan face serious challenges. The increase in the number and the complexity of patent applications (patent examination requests in Japan) over the last decade threatens the quality and time- liness of patent examinations. Another emerging issue for the U.S. and Japanese patent systems is the “thicket problem,” which can deter innovation in cumulative technology areas by impeding the combination of new ideas and inventions. Bronwyn H. Hall reviews the changes to the U.S. patent (and innovation) system that have led to the current situation and the rationale behind the calls for reform. Major reform proposals to the U.S. patent system include a change from the “first to invent” standard to “first inventor to file,” the elimination of the subjective “best mode” requirement, a reduction of the scope of willful infringement, the limitation of the injunction, the restriction of continuations applications, and the strengthening the post-grant opposition system. She also points out the emerging role of the patent system in facilitating the vertical dis - integration of knowledge-based industries and the entry of new firms that possess only intangible assets. Discussing recent reforms of the Japanese patent system reform, Sadao Nagaoka identifies three issues for the efficient design of a patent examination system: These are capping examination requests for low-quality inventions, promoting efficient use of patent examination resources, and reducing the pat- ent thicket problem. He discusses, in this connection, the relevance of the high inventive step standard, the utilization of the third party’s information in patent examinations, the need for discipline on continuation (divisional) applications, PRePublication coPy

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2 OVERVIEW the use of exemptions on the use of patented information for research on subject matter, and mutual recognition of search results would be very important. He also points out the importance of strengthening the patent policy of standard bodies, including the clarification of the RAND conditions. Furthermore, he points out the importance of facilitating the efficient utilization of disclosed information for R&D and patenting decisions by a firm. SeSSion V: uniVeRSity-inDuStRy collaboRation Universities in the United States and Japan account for (respectively) 16.8 percent and 12.6 percent of the total national investments in research and development. Traditionally, universities have played a larger role in basic research: 62.0 percent and 46.5 percent of the basic research in the United States and in Japan. Moving research ideas from the university to the marketplace is a key challenge for innovation-driven growth. In the United States, the Bayh-Dole Act sought to encourage this transfer by giving U.S. universities intellectual property control of their inventions that resulted from federal government-funded research. Bayh-Dole is widely seen in Japan to have had a major positive impact on the U.S. innovation system—leading to the adoption of similar measures in Japan’s 1999 Law on Special Measures for Industrial Revitalization, sometimes referred to as the Japanese Bayh-Dole law. Describing the recent tensions between university and industry over the ownership of intellectual property and the economic terms for licensing sought by universities, Irwin Feller suggests that the industry and university relationship be guided from three general principles— 1. Successful university-industry collaboration should support the mission of each partner. Any effort in conflict with the mission of either party will ultimately fail. 2. Institutional practices and national resources should focus on fostering appropriate long-term relationships between universities and industry. 3. Universities and industry should focus on the benefit to each party that will result from collaborations by streamlining negotiations to ensure timely conduct of the research and the development of the research findings. In his paper on Uniersity-Industry Partnerships in Japan Masayuki Kondo describes the significant changes of the university-industry partnership in Japan. Describing the historical relationship, he points out that there was a strong tie between the two before the Second World War. The Department of Engineering of Tokyo University was the first engineering department of a university in the world. The former RIKEN (Institute of Physical and Chemical Research) was a very successful national research institute which was managed by university professors that incubated a number of new firms in Japan. PRePublication coPy

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26 21ST CENTURY INNOVATION SYSTEMS FOR JAPAN AND THE UNITED STATES While the university-industry collaboration stagnated in Japan in recent years, especially, compared to that in the United States, a number of policy measures have been taken to strengthen them in recent years. These measures have resulted in the increasing number of collaborative research centers established in national universities, the increase of the number of collaborative research projects and the increase of paper co-authoring and increasing academic spin-offs. At the same time, Japanese universities seek to maintain their identities as centers of higher education and the advancement of human knowledge. In this connection, Kondo concludes, Japanese universities need to establish rules to avoid conflicts of inter- ests at the working level. SeSSion Vi: GoVeRnMent anD inDuStRy collaboRation in tWo SectoRS In his chapter entitled The Connected Science Model for Innoation: the DARPA Role, Bill Bonvillian describes the organizational and managerial char- acteristics underpinning DARPA effective as an incubator of breakthrough radical innovations. DARPA is a flexible and flat organization of only 100-150 profes - sionals made up of world-class scientists and engineers who have substantial autonomy and freedom from bureaucratic impediments. In addition, it employs a connected science model for innovation, linking fundamental research, develop - ment, prototyping, and access to initial production. Furthermore, it organizes a significant part of its portfolio around specific ambitious technology challenges although its projects typically last 3-5 years. However, today’s DARPA faces significant challenges. Increasing importance of addressing the short-term military have resulted in a cut back of university research, making it more difficult to sustain the hybrid approach bridging the gaps between academic research and industry development. In addition, as more of its portfolio focuses on classified “black” research, participation by most universities and non-defense tech firms is not possible. As a result, DARPA has been moving from its history of radical innovation to more incremental innovation. In the final chapter, Yosuke Okada, Kenta Nakamura and Akira Tohei analyze Public-Private Linkages in Biomedical Research in Japan. Moving biomedical research from universities and public research institutions to commercialization is complex. Producing and transmitting scientific knowledge can take a wide variety of forms depending on research areas, organizations, participants, and other factors. Accordingly, there is no set method to organize public support for biomedical research. Public support for research, pro-patent policy measures in particular, must be designed on a case-by-case basis with sufficient attention to the characteristics of institutional and organizational features of the public sector. The authors believe that flexible funding schemes and higher mobility of researchers will be necessary to improve public-private linkage in Japan. PRePublication coPy