Chapter 5

The Federal Dimension

In much of the world outside the United States, national governments have implemented comprehensive regional development programs and have taken a central role in the formation of innovation clusters—26 of the 31 European Union countries have cluster development policies at the national level. By contrast, in the U.S., while the federal government has over 200 programs associated with regional development, there has until recently been “no federal policy on clusters.”1 In general, and with noteworthy exceptions in fields of national security and public health, the federal role in the states and regions has been to dispense a large number of relatively small packets of financial assistance for R&D and to support small business, and to set regulatory policies that define the competitive environment for innovation. Since 2009, however, the federal government has begun to establish and expand new programs explicitly for the purpose of fostering regional innovation clusters.

FEDERAL FUNDING OF SCIENTIFIC RESEARCH
AND ECONOMIC DEVELOPMENT

Most of the United States’ basic scientific research is funded by the federal government and conducted by U.S. research universities pursuant to grants and contracts.2 Basic R&D is funded in both established and promising thematic areas are seen as providing the foundation for scientific advance over the long run. The federal government also funds R&D to meet the mission requirements of federal agencies and departments. Much of this spending

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1Presentation by Andrew Reamer, Brookings Institution, “Stimulating Regional Economies,” in National Research Council, Growing Innovation Clusters for American Prosperity: Summary of a Symposium, C. Wessner, Rapporteur, Washington, DC: The National Academies Press, 2011. pp. 52-56.

2National Science Board, Science and Engineering Indicators 2012, Arlington, VA: National Science Foundation, 2012.



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Chapter 5 The Federal Dimension In much of the world outside the United States, national governments have implemented comprehensive regional development programs and have taken a central role in the formation of innovation clusters—26 of the 31 European Union countries have cluster development policies at the national level. By contrast, in the U.S., while the federal government has over 200 programs associated with regional development, there has until recently been “no federal policy on clusters.”1 In general, and with noteworthy exceptions in fields of national security and public health, the federal role in the states and regions has been to dispense a large number of relatively small packets of financial assistance for R&D and to support small business, and to set regulatory policies that define the competitive environment for innovation. Since 2009, however, the federal government has begun to establish and expand new programs explicitly for the purpose of fostering regional innovation clusters. FEDERAL FUNDING OF SCIENTIFIC RESEARCH AND ECONOMIC DEVELOPMENT Most of the United States’ basic scientific research is funded by the federal government and conducted by U.S. research universities pursuant to grants and contracts.2 Basic R&D is funded in both established and promising thematic areas are seen as providing the foundation for scientific advance over the long run. The federal government also funds R&D to meet the mission requirements of federal agencies and departments. Much of this spending 1 Presentation by Andrew Reamer, Brookings Institution, “Stimulating Regional Economies,” in National Research Council, Growing Innovation Clusters for American Prosperity: Summary of a Symposium, C. Wessner, Rapporteur, Washington, DC: The National Academies Press, 2011. pp. 52-56. 2 National Science Board, Science and Engineering Indicators 2012, Arlington, VA: National Science Foundation, 2012. 85

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86 BEST PRACTICES IN STATE AND REGIONAL INNOVATION INITIATIVES Box 5-1 The Federal Role in Economic Development and Innovation The federal government has been active in promoting economic development and innovation since the early days of the nation, manifested in such initiatives as the creation of the Patent Office (1802), the Coast and Geodetic Survey (1807), and early initiatives to improve navigation. Between the 1860s and the 1930s U.S. manufacturers were protected by a high tariff wall intended, in part, to foster new industries. Since World War II, investments in research by DoD, NIH, NASA, DOE, NSF, and other government institutions have given rise to new technologies creating entire new industries and millions of U.S. jobs. Federal funding was critical to the development of the transistor by Bell Labs, the emergence of the semiconductor industry, the development of GPS, and the creation of the Internet, and if anything, the importance of federal support for innovation is increasing. A survey of U.S. innovation concluded Whereas the lion’s share of the R&D 100 Award-winning U.S. innovations in the 1970s came from corporations acting on their own, most of the R&D 100 Award-winning U.S. innovation in the last two decades have come from partnerships involving business and government, including federal labs and federally funded research… [T]he federal government is playing a much more supportive and important role in innovation.3 supports development of technologies relevant to defense and national security, which sometimes has little or no near term commercial applicability. The U.S. national laboratories support research related to national defense, energy security and public health; despite a long history of initiatives to foster increased commercial application of their research results, their impact in the commercial arena has been an ongoing subject of concern on the part of policymakers.4 3 Fred Black and Matthew R. Keller, “Where Do Innovations Come From? Transformations in the U.S. National Innovation System, 1920-2006,” Information Technology and Innovation Foundation, July 2008, pp. 2-3 4 A number of recent reports have concluded that the metrics available to assess the federal laboratories’ performance in technology transfer to industry are inadequate, but that a number of factors inhibit such transfers, including the laboratories’ management, supervision, culture, available resources, mission(s), and location. See National Institute of Standards and Technology, Federal Laboratory Technology Transfer Fiscal Year 2010, August 2012; Institute for Defense Analysis Science and Technology Policy Institute, Technology Transfer and Commercialization Landscape of the Federal Laboratories, June 2011. In 2009, the General Accountability Office conducted a review of technology transfer by the DOE laboratories. It found that “the completeness and accuracy of DOE’s technology transfer data are questionable…One laboratory failed to report complete information on its federal work-for-others agreements for fiscal years 2004 through 2008…[M]ore could be done to ensure that promising technologies are being transferred…DOE’s lack of

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THE FEDERAL DIMENSION 87 The activities of Sandia National Laboratory in New Mexico in engaging U.S. industry suggests the opportunities that exist in expanding the federal laboratories’ role in commercially relevant innovation. Sandia has been involved in corporate research partnerships for over 15 years with companies such as Intel, Lockheed-Martin, Corning, Proctor & Gamble, IBM, and Hewlett- Packard.5 Sandia has collaborated with the state of New Mexico and Los Alamos National Laboratory to create Sandia Science and Technology Park, a public-private partnership which had 30 tenants as of 2012 (some of them spinoffs from Sandia) and accounted for 2,000 jobs in Albuquerque.6 The New Mexico Small Business Assistance program provides tax credits to Sandia and Los Alamos to provide technical support to local businesses, collaboration credited with creating and retraining 1,020 small business jobs in the state. Sandia’s Entrepreneurial Separation to Transfer Technology program allows its scientists to apply for “entrepreneurial leave” to help expand or start-up a company, with a guarantee of re-employment upon return (for whatever reason) within two years. Between 1998 and 2012, 138 scientists and engineers left Sandia and Los Alamos to found companies, starting up 91.7 There is no central clearinghouse or coordinating mechanism with respect to federal R&D spending, which is administered by numerous government agencies in a manner that is sometimes contradictory or duplicative. At the same time, the disaggregation of federal research spending accords innovators with multiple possibilities for securing federal funding. The notion of a national industrial policy or innovation strategy has been debated for decades, overarching goals—including a consensus on what activities constitute technology transfer—and reliable performance data have left DOE’s laboratories and program offices to chart their own course, most often with mixed results.” GAO, Technology Transfer: Clearer Priorities and Greater Use of Innovative Approaches Could Increase the Effectiveness of Technology Transfer at Department of Energy Laboratories, June 2009, pp. 19-31. Dr. Eric Isaacs, Director of the Argonne National Laboratory in Illinois, recalls the case of a promising new material developed “very quickly” in the laboratory but which took 19 years to develop into practical applications in the automobile industry. Eric Isaacs, “The Federal Laboratory Contribution,” National Research Council, “Building the Illinois Innovation Economy: Summary of a Symposium,” June 28-29, 2012. 5 Sandia initially collaborated with Goodyear on computational simulation technology that Goodyear needed to improve its tire design and production processes. The relationship flourished and Goodyear now uses Sandia simulation tools to design many types of tires. Goodyear fully funds the program and has invested over $40 million in it. J. Stephen Rottler, “Sandia National Laboratories as a Catalyst for Regional Growth,” National Research Council, Clustering for 21st Century Prosperity: Summary of a Symposium, C. Wessner, Rapporteur, Washington, DC: The National Academies Press, 2012. 6 Jobs in the Science Park pay salaries that are twice as high as the Albuquerque average. Ibid. 7 Ibid. Solar equipment maker Emcore acquired MODE, a company founded by Sandia scientists in 1996 to develop photovoltaic applications for satellites. Emcore moved its headquarters to Sandia’s Science Park and continued to license technologies from Sandia. As of 2012, having grown substantially, it employed 350 people. Emcore receives assistance from Sandia’s small business assistance program.

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88 BEST PRACTICES IN STATE AND REGIONAL INNOVATION INITIATIVES Box 5-2 A Groundbreaking National Laboratory-University Partnership The University of Chicago and the Chicago-based Argonne National Laboratory have launched collaboration—the Institute for Molecular Engineering—intended to redefine the engineering discipline. The Institute is building a new engineering program “across the boundaries of two very large institutions,” which “transcends disciplinary boundaries from the outset.” The new institute will treat various engineering fields—electrical, mechanical, chemical—at the most basic (e.g. molecular) level. The program will bypass traditional departmental structures and draw on multiple competencies, including the synthesis of new materials, synthetic biology and biological engineering, computational modeling, molecular-scale imagining, and micro- mechanics. Many of the faculty members will also have appointments at the Argonne National Laboratory. Incentives will be provided to encourage collaborations with industry.8 and the government has actively fostered key sectors, but the idea of industrial policy remains controversial, reflecting a widespread aversion to government planning, free market beliefs, and a reluctance to “pick winners and losers” in industry or between states and regions.9 Federal promotion of innovation in industry has been carried forward under the guise of assistance to small business and through mission-related programs by federal departments that support research and often directly impact actors in the commercial arena.10 Federal regional economic development policies have “evolved in a wildly ad hoc, 8 Matthew Tirrell, “Building an Institute for Engineering Innovation at the University of Chicago and Argonne National Laboratory,” in National Research Council, Building the Illinois Innovation Economy: Summary of a Symposium, C. Wessner, Rapporteur, Washington, DC: The National Academies Press, 2013. The Argonne National Laboratory is also partnering with the University of Kentucky in the Kentucky-Argonne Battery Manufacturing Research and Development Center, where R&D is being undertaken with respect to the fabrication of state-of-the-art lithium-ion cells and new cell chemistries. The Center plans to develop manufacturing lines for batteries. A spokesman for the project said that his goal is “to re-establish the United States as a world leader, not only in materials and development but in manufacturing technology and capability [in batteries].” The project has received $10 million in funding from NIST and $4 million from the state of Kentucky to fund construction of a 36,000-square foot laboratory for advanced batteries. Ralph Brodd, “The Kentucky-Argonne Battery Manufacturing R&D Center,” National Research Council, Building the U.S. Battery Industry for Electric Drive Vehicles: Progress, Challenges, and Opportunities—Summary of a Symposium, C. Wessner, Rapporteur, Washington, DC: The National Academies Press, 2012. 9 See generally: Otis, Graham, Jr., Losing Time: The Industrial Policy Debate, Cambridge Ma: Harvard University Press, 1992. 10 Wendy H. Schacht, “Industrial Competitiveness and Technological Advancement: Debate Over Government Policy”, CRS Report to Congress, March 13, 2012, pp. 41-43.

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THE FEDERAL DIMENSION 89 idiosyncratic and uncoordinated fashion.”11 Ginger Lew of the National Economic Council recalled in 2011 that she had met with a group of community leaders from the Pacific Northwest who were pursuing federal energy grant money: They showed a mind-boggling diagram of 23 program offices they had to apply to, coordinate with and manage. They talked about how there were in the second year of this particular journey to get access to federal dollars, all related to this particular topic and this same issue.12 In 1993, in a departure from the traditional federal approach, the Clinton Administration called for a national commitment to technology development in the context of a broader national economic strategy emphasizing the development of new products, industrial processes and services by the U.S. private sector.13 The Presidency of George W. Bush diverged from this approach, favoring more traditional promotional tools such as federal support for basic research and tax incentives. Federal support for private sector technological development was curtailed.14 In early 2009, President Obama declared an intention to double the budget of the most important science agencies, as identified by former President Bush, over a 10-year period. The Obama stimulus package enacted in 2009 allocated an additional $7.6 billion to scientific research, and additional funds to directly support green technologies such as renewable power generation, bio-fuels, green buildings, and electric vehicles.15 The government provided financial support to promising companies across a spectrum of technologies, without perhaps sufficient attention to the growth of demand for their products.16 At the same time, the government actively intervened to support the banking sector and recapitalized the automobile industry. 11 Karen G, Mills, Elisabeth B Reynolds and Andrew Reamer, Clusters and Competitiveness: A New Federal Role for Stimulating Regional Economies, Washington, DC: Brookings Institution, April 2008, p. 24. 12 Presentation of Ginger Lew, “Regional Innovation Clusters,” National Research Council, Clustering for 21st Century Prosperity, op. cit. 13 William J Clinton, and Albert Gore Jr, Technology for America’s Economic Growth, A New Direction to Build Economic Strength, February 22, 1993. 14 Wendy H. Schacht, “Industrial Competitiveness and Technological Advancement: Debate Over Government Policy”, CRS Report to Congress, March 13, 2012, p. 4. 15 The American Recovery and Reinvestment Act of 2009 is commonly referred to as the "stimulus" or the "stimulus package. See . 16 National Research Council, Building the U.S. Battery Industry for Electric Drive Vehicles, Progress, Challenges, and Opportunities, op. cit.

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90 BEST PRACTICES IN STATE AND REGIONAL INNOVATION INITIATIVES The National Science Foundation (NSF) NSF is a government agency that supports basic research and education in non-medical fields of science and engineering. It is a funding agency without its own laboratory network—“all of the [federal] money that comes in, goes out—primarily to universities—to support basic research in science and engineering, as well as educational activities.”17 Its annual budget is $7.5 billion. While its emphasis is on basic research, it supports teams of university-industry researchers who explore potential applications and funds numerous translational research programs, which affect state and local economic development. Leading NSF initiatives include: Industry- University Cooperative Research Centers (I/UCRCs) These centers are located at or near universities with strong research capabilities in engineering and information technology, and engage companies such as Corning, Kyocera, BASF, Ceradyne, and Kennametal. Engineering Research Centers (ERCs) These centers involve thematic industry-university R&D in a broad range of fields, including bioengineering, earthquake engineering, advanced manufacturing technologies, and power electronic systems.18 Materials Research Science and Engineering Centers (MRSECs) These centers support research of a scope and complexity that would not be feasible under traditional funding of individual research projects. According to NSF, “MRSECs are university-based, and undertake an interactive, interdisciplinary approach to materials research and education while fostering active cooperation among university-based researchers and those concerned with the application of materials research in industry and elsewhere.”19 The Science and Technology Centers (STCs) “STCs conduct world-class research through partnerships among academic institutions, national laboratories, industrial organizations, and/or other public/private entities, and via international collaborations, as appropriate. They provide a means to undertake significant investigations at the interfaces of disciplines and/or fresh approaches within disciplines.”20 17 NSF doesn’t directly run any laboratories, but it funds a number of central facilities (NCAR, LIGO, etc.) through contractors. 18 Thomas Peterson, “The NSF Role in the Innovation System”, in National Research Council, Building the Illinois Innovation Economy: Summary of a Symposium, C. Wessner, Rapporteur, Washington, DC: The National Academies Press, 2013. 19 Access at . 20 Access at .

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THE FEDERAL DIMENSION 91 The National Institutes of Health (NIH) The National Institutes of Health, which is part of the U.S. Department of Health and Human Services, is by far the most important federal entity supporting research and development in the life sciences. NIH conducts research in its own substantial laboratories, but most of its funds are allocated through its Extramural Research Program in the form of roughly 50,000 competitive grants to over 300,000 researchers at Universities, medical schools and research organizations in the U.S. and other countries. NIH also awards grants to small businesses through the Small Business Innovation Research (SBIR) program.21 NIH grants have a very substantial impact on local economies. Organizations in California alone received $3.33 billion in biomedical-related financing from NIH in 2011.22 In 2012 NIH awarded $392 million in grants in the state of Florida to 52 public and private organizations. NIH support has helped to foster Medical City, a partnership involving the University of Florida, the Sanford-Burnham Medial Institute and other organizations in a research collaboration at Lake Nona, Florida.23 Sanford-Burnham has received $52 million from NIH since starting operations at Lake Nona in 2009. Medical City has become a “magnet for scientists and research groups and clinics across the region,” enabling Medical City to become a “leading biosciences cluster in Florida.”24 The National Institute of Standards and Technology (NIST) Founded in 1901, the National Institute of Science and Technology (NIST), now a part of the Department of Commerce, is a non-regulatory federal agency tasked with promoting U.S. industrial competitiveness through measurement science, standards, and technology. In the words of NIST Director, Pat Gallagher, NIST has become “industry’s national laboratory. With the decline of the corporate laboratories created over a century ago, NIST now performs many of those functions.” NIST is currently organized into six mission-oriented operating units—national user facilities, the center for nanoscale science, the center for neutron research, and technology laboratories 21 National Research Council, Venture Funding and the NIH SBIR Program, C. Wessner, ed. Washington, D.C.: The National Academies Press, 2009. 22 “California Biomedical Industry Still the Biggest, Despite Tight Financing, Report Says,” Alameda Times-Star January 8, 2013. 23 Access at . 24 “Growth of Bioscience Research Depends on Continued Funding,” The Orlando Sentinel March 5, 2013.

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92 BEST PRACTICES IN STATE AND REGIONAL INNOVATION INITIATIVES for engineering, information technology, and measurement sciences.25 NIST offers a number of programs promoting innovation: Manufacturing Extension Partnership (MEP) MEP is a program to support small and medium-sized U.S. manufacturers through a network of manufacturing extension centers located in all 50 states and Puerto Rico. In all the MEP program has approximately 60 centers with about 370 field location and total of about 1,400 non-federal staff. The MEP centers are operated by independent organizations rather than MEP itself, and are co-funded at an annual level of about $300 million with one-third supplied by the federal government and the remainder by state and industry sources. The MEP centers provide services and expertise to small and medium sized enterprises (SME) to improve manufacturing processes, supply chain positioning, exploitation of new technologies, application of information and techniques, and manpower training. MEP is best known for promoting “lean manufacturing” and efficiency, but is currently implementing programs to promote new products and innovative processes.26 The Technology Innovation Program (TIP) NIST’s Technology Innovation Program (TIP) was derived from, but not identical to the Advanced Technology Program, which ended in 2007.27. Its mission was to support research and innovation in areas of critical national need. TIP grants, typically $3 to $5 million, supported precompetitive technology development by small and medium companies, with a focus on manufacturing technology. Thematic areas of critical national need included civil infrastructure, energy, healthcare, water, sustainability, complex systems and networks, and manufacturing (advanced robotics and intelligent automation).28 The program never gained broad support in the Congress and was effectively ended in 2011. 25 Phillip Singerman, “Reviving Manufacturing: The Role of NIST,” in National Research Council, Building the Ohio Innovation Economy: Summary of a Symposium, C. Wessner, Rapporteur, Washington, DC: The National Academies Press, 2013. 26 For a review of the program, see National Research Council, Strengthening American Manufacturing: The Role of the Manufacturing Extension Partnership, C. Wessner and P. Shapira, eds., Washington, DC: The National Academies Press, forthcoming. 27 The Advanced Technology Program (ATP) was designed to foster early-stage technology development by companies that might otherwise not be funded. Kristina Johnson, the U.S. Undersecretary of Energy, was previously a co-founder of ColorLink, a company formed in 1995 and sold in 2007. She indicated that the only reason ColorLink survived for 12 years was that it received a $2 million, three-year grant from ATP to develop the process to make 3-D glasses worn in movie theaters. “Without that staying power, we would have died in the Valley of Death.” Kristina Johnson, “Building a Clean Energy Economy through Accelerated Innovation,” NRC, Clustering for 21st Century Prosperity: Summary of a Symposium, op. cit. 28 For a review of the Advanced Technology Program, see National Research Council, The Advanced Technology Program: Assessing Outcomes, C., Wessner, ed., Washington, DC: National Academy Press, 2001.

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THE FEDERAL DIMENSION 93 Nanotechnology Research Initiative The Nanotechnology Research Initiative, launched in 2007, involves research to identify successor technologies to CMOS, currently the dominant semiconductor technology. This effort involves 35 universities and four research centers around the United States. A NIST spokesman indicated in 2012 that his agency was contributing $2.75 million annually to finance the university-based research at each center, industry partners were contributing $5 million, and states $15 million to grants and tax incentives. Total funding was estimated to exceed $200 million.29 The Small Business Innovation Research Program In 1982, Congress enacted the Small Business Innovation Development Act, creating the Small Business Innovation Research Program (SBIR), which requires government agencies that dispose of large research budgets, such as the Departments of Defense and Energy and the National Institutes of Health to utilize 2.5 percent of their extramural research budgets as grants or research contracts to small businesses.30 SBIR Phase I awards of $150,000 can be augmented, where appropriate, by Phase II awards of up to $1 million. Phase III (commercialization) must be funded by private, state or other non-federal sources. Participating agencies periodically release Phase I solicitations, setting forth research themes that will be considered for grants. Small businesses are eligible to compete. A number of federal agencies operate “match” programs pursuant to which successful SBIR grantees are introduced to companies, venture capital funds, and other potential supporters.31 SBIR awards are valuable to recipient companies as a means of securing early stage funding for innovations, but entail other advantages as well. Many states have implemented programs that augment the federal grants with additional state funds.32 A number of states have also introduced Phase Zero 29 Marc G Stanley, Acting Deputy Director, NIST, “Enhancing Competitiveness and Speeding Innovation: Design and Initial Results of the NIST Rapid Innovation and Competitiveness Initiative,” NRC, Clustering for 21st Century Prosperity: Summary of a Symposium, op. cit. A second phase in this project was launched. “Nanoelectronics Boosted by NIST and SRC,” EE Times May 8, 2013. 30 The National Research Council, in its recent assessment of the SBIR program found it “sound in concept and effective in practice” and documents support for a variety of technologies that have addressed national missions and advanced U.S. competitiveness. See National Research Council, An Assessment of the SBIR Program,” C. Wessner, ed., Washington, DC: The National Academies Press, 2008. At the same time, it called for a number of operational improvements to the program, including the need to shorten processing times. The NRC is currently reviewing the operations, challenges, and achievements of the SBIR program. 31 “A Grant Program for Small Business,” Seattle Post-Intelligencer November 9, 2007. 32 Robert McMahon, “The Role of SBIR and State Awards” in National Research Council, Understanding Research, Science, and Technology Parks: Global Best Practices—Summary of a Symposium, C. Wessner, Editor, Washington, DC: The National Academies Press, pp. 116-117; “State Offers Research, Technology Grants to Businesses,” The Pilot December 9, 2005. States

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94 BEST PRACTICES IN STATE AND REGIONAL INNOVATION INITIATIVES Box 5-3 Leveraging SBIR: The Role of State Phase Zero Programs Phase Zero programs are explicitly designed to help state-based companies apply for and win Federal SBIR/STTR funding. They range in scale and scope, and there does not appear to have been a completed comparative assessment of either their operations or their impact. Approximately 21 states currently operate “Phase Zero” programs.33 Most programs are operated either directly or in partnership with state economic development agencies. However, they are often housed at a university. In some cases, a consulting group has been hired to run the program, but in most cases it is run out of a university tech transfer office or similar. The core of most programs is a mini-grant designed to support potential Phase I applicants. Typically ranging from $3-5,000 the funding pays for a number of potentially useful supports, such as:  Grant writing  Professional application review  Market studies  Travel, especially to connect with Federal SBIR-granting agencies  Other consulting costs, such as lawyers A few states fund technology development and in particular testing to generate results showing the worth of future Federal funding. A few states have “00 Programs,” aimed at supporting Phase II applications. Most programs have limitations on the uses and conditions of funding. These can include  A requirement that the funding result in a valid SBIR/STTR application  Exclusions for some expenses—several states will not pay company salaries Some programs require a cash or in kind match from the company, usually 1:1. SBIR funded research must usually be largely or completely executed in the state providing the Phase Zero funding. Phase 0 programs are entirely state funded and have no direct connection to Federal programs (with the minor exception that in a few instances that funding matching SBIR awards include Texas, Kentucky, Connecticut, North Carolina, Montana and Michigan. 33 Phase Zero programs have sometimes been cut in the face of budget problems at the state level, so the number in operation at a given time fluctuates somewhat. At least 20 have been in continuous operation.

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THE FEDERAL DIMENSION 95 from the Federal and State Technology Partnership (FAST)34 is sometimes used by states to partly support Phase 0 programs).35 programs designed to help state-based companies apply for SBIR funding. (See Box 5-3)In addition, venture capital funds and other potential backers tend to view an SBIR award as a “technology validation.”36 SBIR awards allow proof of principle and prototype, which can considerably enhance the value of firms’ intellectual property. Moreover, SBIR awards do not require grantees to surrender intellectual property, no royalties are paid, and they can obtain funding “without giving away the baby.”37 The Economic Development Administration The Economic Development Administration is an agency in the Department of Commerce with a mandate to provide assistance to economically distressed regions to stimulate economic growth, innovation and competitiveness, and to preserve and create jobs. The EDA differentiates its “bottom up” programs from other federal economic development programs in that its grants are not formulaic but can “fund a range of customized investments developed specifically to meet the strategic priorities of applicant communities.”38 The EDA offers a wide range of regional assistance. Every three years it awards grants to “University Centers” to support student mentoring with local industries and work force training.39 It is currently funding university-based manufacturing programs, such as the Center for Energy and Advanced Manufacturing at South Carolina’s Aiken Technical College.40 Its current national strategic priorities are advanced manufacturing, information technology (broadband, smart grid) infrastructure, assistance to areas affected by 34 FAST provides about $2 million in funding annually (typically up to $100,000 per applicant) for outreach and technical assistance to science and technology driven small businesses, with particular emphasis on helping socially and economically disadvantaged firms compete for SBIR awards. 35 A handful of programs—such as the Florida program and the Phase Zero operated by the Leonard Wood Institute in Missouri—appear to have funding from Federal agencies such as DoD or other business-based sources. 36 Joshua Lerner, “Evaluating the Small Business Innovation Research Program: A Literature Review,” in National Research Council, SBIR: An Assessment of the DOD Fast Track Initiative, C. Wessner, ed., Washington, DC: National Academy Press, 2000. 37 The Deseret News, “A Champion Sought to Help Secure Federal Tech Grants,” August 21, 2004. 38 “For example, some communities identify strategy development as their top priority. In other cases, communities already have a well-defined strategy and now need implementation support. This flexibility enables EDA to target its competitive grants funding to support the development of robust regional innovation ecosystems based on the specific priorities of each community.” EDA, Congressional Budget Report (FY 2012). 39 “Economic Development Administration Selects SOSU as a University Center,” Durant Daily Democrat November 25, 2007. 40 “U.S. Economic Development Administration,” The State, May 31, 2012.

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98 BEST PRACTICES IN STATE AND REGIONAL INNOVATION INITIATIVES to medical device innovators, including design, engineering, product development, prototyping and small-scale manufacturing, preclinical testing, clinical trials, market research, and regulatory and quality assurance.46 The Center is providing seed funding to promising start-ups in the form of convertible notes.47 The Defense Advanced Research Projects Agency (DARPA) DARPA is an agency within the Department of Defense which develops new technologies for use by the U.S. military, but which often also have commercial applications. It conducts research projects through contracts with companies, consortia, and universities. It has a long track record of fostering transformative technologies in computing, telecommunication microelectronics, the Internet and aerospace. DARPA…adopts a model that emphasizes intense short-term forays into uncharted territory beyond the recognized scientific frontier. DARPA’s combinations are revolutionary, either disciplinary or interdisciplinary, and project-based. These projects often fail, but when they succeed they can produce spectacular results.48 The Office of Naval Research (ONR) Established in 1946, the Office of Naval Research characterized itself as the “Navy-Marine Corps bank for funding research.” Its budget of $2.25 billion is roughly divided between basic research (45 percent), naval prototypes (12 percent), future naval capabilities (12 percent), and quick reaction science and technology. Roughly two-thirds of its basic research funding is allocated to university-based R&D; with respect to applied research, 65 percent goes to companies, 30 percent to naval laboratories, and 23 percent to universities.49 THE FEDERAL ROLE IN REGIONAL DEVELOPMENT AND MANUFACTURING While many federal policies and programs have indirectly helped foster the evolution of innovation clusters, until recently the federal government has not explicitly sought to promote the development of specific industries in particular regions. In recent years a number of policy organizations have begun 46 . 47 “GCMI Provides Support to Two Medical Device Companies,” Market Wired March 29, 2012. 48 President’s Council of Advisors on Science and Technology, Transformation and Opportunity: The Future of the U.S. Research Enterprise, November 2012, p. 69. 49 Chris Fall, “The Office of Naval Research: A Unique Innovation Organization”, In National Research Council, Building the Illinois Innovation Economy: Summary of a Symposium, op. cit.

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THE FEDERAL DIMENSION 99 to urge the federal government to make innovation clusters a fundamental aspect of its economic development policies.50 During the 2008 presidential campaign, President Obama indicated that he wanted to provide $200 million in grants to improve local infrastructure including the funding of “research parks.” In 2010, the Obama administration formed the Taskforce for Advancing Regional Innovation Clusters, involving collaboration between agencies such as the Defense Department, the Economic Development Administration, the Department of Energy, and the Small Business Administration.51 The America COMPETES Reauthorization Act of 2010 directs the Secretary of Commerce to establish a regional innovation program to encourage regional innovation strategies, “including regional innovation clusters, science and research parks.” A number of specific cluster- promoting initiatives have been launched. The Obama administration initiatives in the area include: Small Business Administration In 2010, SBA initiated two regional innovation cluster funding programs. The first provides existing clusters with funding for business training, commercialization and transfer services, and other services to support small businesses. The second focuses on clusters specializing in defense-related technologies to provide training, matchmaking, and business advice.52 DOE Energy Hubs The Department of energy has established regional innovation clusters (“energy-innovation hubs”) in thematic areas such as batteries, solar power, nuclear energy, and energy-efficient buildings.53 The purpose of the hubs is to serve as a magnet for other programs and initiatives, including start-up businesses. A DOE spokesperson commented in 2010 that “we are talking about job application here. In addition to investing in what it takes to build one job, we are investing in people who can create multiple jobs.”54 In 2010, DOE announced that in conjunction with the SBA, the National Institute of Standards and Technology and the EDA, it would award a grant of $129 million to a 50 Center for American Progress, “The Geography of Innovation: The Federal government and the Growth of Innovation Clusters, 2009; Bruce Katz and Mark Muro “The New ‘Cluster Movement’: How Regional Innovation Clusters Can Foster the New Economy,” The Brookings Institution, September 21, 2010. 51 Tampa Bay Times, “Cluster Spending Exceeds Obama’s Goal,” April 27, 2012. 52 Karen Mills “Building Regional Innovation Clusters”, in National Research Council, “Clustering for 21st Century Prosperity,” 2012, op. cit. 53 Kristina M. Johnson, “Building a Clean Energy Economy Through Accelerated Innovation,” in National Research Council, Clustering for 21st Century Prosperity: Summary of a Symposium, op. cit. 54 Ibid.

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100 BEST PRACTICES IN STATE AND REGIONAL INNOVATION INITIATIVES project team based at Penn State University to create the Greater Philadelphia Innovation Cluster for Energy Efficient Buildings.55 EDA Cluster Activities The America Competes Act of 2007 (reauthorized in 2010) established a key role for the Economic Development Administration in supporting and funding regional clusters. 56 The EDA plays a key role in supporting the implementation of regional innovation clusters programs, providing planning support and grants to regional innovation initiatives.57 The EDA received $50 million in 2010 to fund the creation of regional innovation clusters in the United States.58 It is undertaking a “cluster mapping” initiative in conjunction with Harvard’s Michael Porter to enhance understanding of how the cluster model can best be utilized, forming linkages with other clusters in the U.S. and abroad.59 In 2011, the EDA launched the “Jobs and Innovation Accelerator Challenge” to foster innovation and job creation through public-private partnerships in at least 20 U.S. regions.60 In February 2013, Brookings scholar Mark Muro, whose previous work on innovation clusters has criticized the relative lack of federal involvement, commented on these new programs and drew the “inescapable conclusion:” Proliferating under the radar, the Obama administration’s “small bore” regional initiatives in economic development are beginning to add up to something meaningful. As of now some 74 cluster initiatives and region-focused innovation efforts are underway, helping to catalyze more linked effort and creative economic development in the nation’s regional centers of innovation. Through these initiatives some $250 million is being used to raise matching money and catalyze 55 “Penn State to Lead Energy Innovation Hub at Navy Yard,” The Philadelphia Inquirer August 25, 2010. 56 Presentation by Barry Johnson, EDA, “Infrastructure for the 21st Century Economy: the Role of EDA,” National Research Council, Building Hawaii’s Innovation Economy: Summary of a Symposium, op. cit. 57 John Fernandez, “Regional Innovation Strategies Initiative,” in National Research Council, Clustering for 21st Century Prosperity: Summary of a Symposium, op. cit. 58 Tampa Bay Times, “Cluster Spending Exceeds Obama’s Goal,” April 27, 2012. 59 Presentation by Barry Johnson, EDA, “Infrastructure for the 21st Century Economy: the Role of EDA,” National Research Council, “Building Hawaii’s Innovation Economy: Summary of a Symposium,” January 13-14, 2011. 60 The program features funding by EDA, the Department of Labor, and the Small Business Administration for technical assistance and workforce development. Applicants for funds are required to provide evidence of a high-growth cluster, the cluster’s needs and opportunities, proposed project concept and scope of work, projected impact and measurable outcomes (including business formation, commercialization of federal and private research, and development of a skilled workforce). Economic Modeling Specialists International, “EDA’s Jobs and Innovation Accelerator Challenge and EMSI” May 3, 2011.

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THE FEDERAL DIMENSION 101 regional efforts to strengthen the nation’s regional innovation ecosystems.61 Recent Federal Manufacturing Initiatives In 2011, the President’s Council of Advisors on Science and Technology (PCAST) issued a report documenting the decline in the U.S. competitive position in manufacturing and warning that “the United States is lagging behind in innovation in its manufacturing sector relative to high-wage nations such as Germany and Japan, and has relinquished leadership in high-tech industries that employ highly-skilled workers.”62 In response, in December 2011, the President created the cabinet, level White House Office of Manufacturing Policy to coordinate manufacturing initiatives across the federal government.63 In June 2011, the President launched the Advanced Manufacturing Partnership (AMP) to bring together industry, university, and government actors to coordinate investments in advanced manufacturing.64 The National Digital Engineering and Manufacturing Consortium (NDEMC) convenes manufacturers, federal agencies and research organizations, and research universities to make modeling and simulation tools and skills available to SMEs.65 In March 2012, the Administration announced plans to create 15 research institutes around the country to help rebuild the nation’s manufacturing base, the National Network for Manufacturing Innovation (NNMI). The centers will feature a collaboration between companies, universities, and state, local and federal government agencies. The first center, the National Additive Manufacturing Institute, was established in August 2012 and will be located in Youngstown, Ohio.66 61 Mark Muro, “Regional Innovation Clusters Begin to Add Up,” The Brookings Institution, February 27, 2013. 62 PCAST, Report to the President on Ensuring American Leadership in Advanced Manufacturing, June 2011, p. i. 63 “Obama Establishes Office of Manufacturing Policy,” Milwaukee Journal Sentinel December 12, 2011. 64 The AMP National Program Office (NPO) at the National Institute of Standards and Technology (NIST) supports the work of AMP partners, coordinate manufacturing programs between agencies, and provide links to public-private partnerships in manufacturing and to other manufacturing organizations. The President indicated at the outset of the program that it was intended to leverage existing programs and initiatives and would entail investments of over $500 million. “President Obama Launches Advanced Manufacturing Partnership,” White House press release, June 24, 2011. 65 NDEMC industry partners include DE, Deere & Company, Lockheed Martin, and Proctor & Gamble. NDEMC provides modeling, simulation and analytics education and training, access to high performance computing, and access to software as a service. . 66 “The Next Era of U.S. Manufacturing is Here,” Midland Daily News (January 31, 2013).

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102 BEST PRACTICES IN STATE AND REGIONAL INNOVATION INITIATIVES THE IMPACT OF FEDERAL PATENTS AND ANTITRUST POLICY The U.S. Constitution provides in Article I, Section 8 that Congress shall have the authority “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 U.S. patent system enjoyed widespread political support for over a century thereafter including the strong backing of Abraham Lincoln, who had personally secured a patent for an invention of his own and who had litigated patent cases as an Illinois attorney. Later in the Nineteenth Century, the public admired inventor-heroes like Thomas Edison and Alexander Graham Bell, and court decisions upheld Bell’s telephone monopoly and a cartel based on Edison’s electric lamp patents.67 In 1890, however, Congress enacted the Sherman Antitrust Act, which prohibited price-fixing, monopolization and attempts at monopolization, and other contracts, combinations, and “conspiracies” in restraint of trade. No other country in the world enacted comparable legislation until after World War II, and the great economic historian Alfred Chandler has observed that the Sherman Act and the values that it represented probably marked the most important noneconomic cultural difference between the United States and Germany, Britain, and indeed the rest of the world insofar as it affected the long-term evolution of the modern industrial enterprise.68 The Sherman Act made industries’ attempts to achieve market power through cartels or “trusts” subject to criminal and civil liability, triggering a wave of horizontal mergers in the decade after 1895 in an attempt by various industry sectors to maintain market power, e.g. the ability to control prices and limit competition.69 But another consequence of antitrust vulnerability was a new emphasis on industrial research and the use of patents to secure legal monopolies that provided the basis for the exercise of market power with lesser antitrust implications.70 In effect industrial innovation became the only legal avenue to monopoly rents for U.S. manufacturers. 67 F.M. Scherer, “The Political Economy of Patent Policy Reform in the United States”, Journal on Telecommunications and High Technology Law 7:169, 2008, citing U.S. v. General Electric Co. 1926. 272 U.S. 476. 68 Alfred D. Chandler, Scale and Scope: The Dynamics of Industrial Capitalism, Cambridge, MA and London: Belknap Press of Harvard University, 1999, pp. 72-73. 69 Martin J. Sklar, The Corporate Reconstruction of American Capitalism, 1890-1916, Cambridge: Cambridge University Press, 1988, pp. 158-166. 70 A 1911 consent decree settling a federal antitrust action against General Electric allowed GE to retain its patent licensing regime unmodified, “enabling the firm to maintain an effective cartel within the U.S. electric lamp market for years to come…during the interwar period, DuPont and General Electric both utilized patent licensing agreements as a basis for international cartel agreements. David C. Mowery, and Nathan Rosenberg, “The U.S. National Innovation System” in

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THE FEDERAL DIMENSION 103 During the early decades of the Twentieth Century, the acquisition of large patent portfolios by big businesses such as GE, DuPont, Eastman Kodak, and AT&T was viewed with growing suspicion and concern by the public and many political leaders who saw small enterprises, not big ones as the real source of innovation.71 This attitude was reflected in the attitude of courts, the antitrust agencies, and the antitrust bar throughout much of the Twentieth Century.72 Between 1930 and the mid 1970s—the so-called “anti-patent era”—antitrust concerns commonly overrode patent rights in the courts, and numerous measures and judicial opinions had the effect of weakening patent rights.73 One Supreme Court Justice commented critically in 1949 that “the only patent that is valid is one that this Court has not been able to get its hands on.”74 The anti- patent stance of federal antitrust enforcers was reflected in the so-called “Nine No-Nos” declared by then Deputy Assistant Attorney General Bruce Wilson beginning in 1970, setting forth fee arrangements and terms that could not legally be incorporated in technology licensing agreements.75 The anti-patent bias of U.S. antitrust policy during the mid-Twentieth Century was criticized by contemporary observers, but it was not until the advent of stagflation in the 1970s that a fundamental reappraisal of the legal foundations of the U.S. economic system took place.76 Legal and economic scholars, including Richard Posner, Robert Bork, and economists at the University of Chicago, subjected U.S. antitrust policy to withering criticism, emphasizing, among other things, the inhibitions that antitrust as then interpreted placed on innovation.77 Chicago School economists urged a Richard R. Nelson, ed. National Innovation Systems: A Comparative Analysis, Oxford: Oxford University Press, 1993, p. 65n. 71 President Woodrow Wilson, expressing a common public perspective, commented that “monopoly always checks development” and that the rise of large firms with monopoly power threatened to inhibit the traditional American genius that fostered inventions. “[T]he instinct of monopoly is against novelty, the tendency of monopoly is to keep in use the old thing, made in the old way… [W]ho can say what patents now lying, unrealized, in secret drawers and pigeonholes, will come to light, or what new inventions will astonish and bless us, when freedom is restored?” Richard Hofstadter. “What Happened to the Antitrust Movement?” in The Paranoid Style in American Politics and Other Essays, New York: Vintage Books Houghton-Mifflin, 2006, pp. 265-266. 72 Antitrust Modernization Committee, Report Recommendation, 2007, p. 36n. 73 Anthony Williams, “Governing Innovation Commons: Private Ordering of Intellectual Property Rights.” March 2005, p. 5. 74 Jurgerson v. Ostley & Barton Co. 1949. 335 U.S. 560, 572. Jackson, J, dissenting. 75 H. Hewitt Pate, “Competition and Intellectual Property in the U.S.: Licensing Freedom and the Limits of Antitrust,” Address at the 2005 EU Competition Workshop. 76 In 1952, economist John Kenneth Galbraith commented that “the showpieces of American industrial progress [were] dominated by a handful of large firms” and that “the foreign visitor, brought to the United States by the Economic Cooperation Administration, visits the same firms as do the attorneys of the Department of Justice in their search for monopoly. Richard Hofstadter. “What Happened to the Antitrust Movement?” in The Paranoid Style in American Politics and Other Essays, New York: Vintage Books Houghton-Mifflin. 77 Robert Bork characterized the emphasis of contemporary antitrust doctrine on deconcentration of economic power and protection of small business as superficially attractive, but basically an expression of social and political attitudes comprised of a “jumble of half-digested notions and

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104 BEST PRACTICES IN STATE AND REGIONAL INNOVATION INITIATIVES reappraisal of the U.S. patent system in response to “industrial stagnation and a lack of significant technological innovations.”78 An advisory committee established by President Carter to study U.S. innovation policy concluded that “diminished patent incentive” played a role in U.S. economic stagnation.79 Important court decisions and administrative actions reflected these changing attitudes. Two Supreme Court decisions, Diamond v Diehr and Diamond v. Chakrabarty, expanded the scope of patentable subjects, with the court declaring in Diehr in which it held that computer programs were patentable, and it Chakrabarty that patentable objects matter included “anything under the sun that is made by man.”80 In 1981, the Department of Justice renounced the Nine No-Nos on IP licensing, and outlined how economic analysis could result in a finding of pro-competitive effects arising out of certain licensing practices previously regarded as problematic.81 In 1982, Congress created the Court of Appeals for the Federal Circuit (CAFC) giving the new court exclusive jurisdiction over all appeals of decisions of the federal district courts involving patents, an institutional watershed that has led to upholding of the validity of patents on a far more regular basis than was the case during the “anti-patent” era.82 Changes in federal antitrust/patent policy in the early 1980s dramatically broadened the rights of innovators to exploit their inventions on an exclusive (e.g. monopoly) basis, arguably driving the surge in U.S. high technology business in the generation that followed.83 Spokesmen for the U.S. biotechnology industry “generally credited the [Supreme] Court decision in Chakrabarty as the beginning of their industry without which genetic engineering would not have made nearly as much progress.”84 A spokesman for mythologies” rather than rational economic analysis. Robert Bork, The Antitrust Paradox: A Policy War with Itself, Free Press, 1993, p. 54. 78 Federal Trade Commission, To Promote Innovation: The Proper Balance of Competition and Patent Law and Policy, October 2003. 79 Advisory Committee on Industrial Innovation. Report on Patent Policy ISS, 1979. 80 Diamond v. Diehr. 450 U.S. 175, 182. In Diamond v. Chakrabarty, the Court ruled that human- developed microorganisms ere patentable subject matter and cautioned that courts “should not read into the patent laws limitations and conditions which the legislature has not expressed”. 44 U.S. 303. 81 Abbott B. Lipsky, “Current Antitrust Division Views on Patent Licensing Promotions,” Antitrust Law Journal 1981-1982, 50:515. 82 Prior to the creation of the CAFC, courts rejected roughly two-thirds of patents considered that they lacked sufficient novelty or utility, the CAFC upheld roughly two-thirds. “The Federal Circuits new rulings on balance strengthened patent protection, made it more likely that companies found to be infringing patents would pay substantial damages, and hence raised the perceived benefits to companies (and universities) from building strong patent portfolios. Patent applications and patent issues soared in the years following the creation of the CAFC…” F.M. Scherer, “The Political Economy of Patent Policy Reform in the United States”, Journal on Telecommunications and High Technology Law 7:180, 2008. 83 Anthony Williams, “Governing Innovation Commons: Private Ordering of Intellectual Property Rights,” op. cit. 84 FTC. To Promote Innovation, op. cit., p. 21.

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THE FEDERAL DIMENSION 105 the American Bar Association’s section on Intellectual Property law observed in 2002 that Without patent protection, the venture capital which has been critical in fostering the [biotechnology] industry would not have been available. This entire industry, in which the United States is the clear leader, would have languished.85 In 1984, the U.S. enacted the National Cooperative Research Act, which reduced antitrust exposure with respect to interfirm collaborations involving pre-competitive research. This legislation facilitated the formation of research consortia in the 1980s such as the Microelectronics and Computer Technology Corporation (MCC) and SEMATECH. Most recently, the National Academies urged the “creation of a mechanism for post-grant challenges to newly issued patents, reinvigoration of the non-obviousness standard to quality for a patent, strengthening of the U.S. Patent and Trademark Office, simplified and less costly litigation, harmonization of the U.S., European, and Japanese examination process, and protection of some research from patent infringement liability.”86 Drawing on these recommendations, Congress passed, and on September 16, 2011, President Obama signed the America Invents Act. Intellectual Property Derived From Government-Funded Research The federal government has exerted significant influence on U.S. universities through its patent policies with respect to government-supported university-based research. Legislation enacted in 1980 which gave the universities the ability to secure patent rights on technology developed with federal government support has resulted in a dramatic increase in university- based innovation. At the end of World War II, the federal government was funding an extensive array of university-based research projects with the question of who had primary patent rights to research results being settled in a diversity of inconsistent ways.”87 The question was the subject of study by task forces and the Congress until 1980, when the Bayh-Dole Act was signed into law.88 Bayh- Dole created a presumption that government grants or contracts to researchers or 85 Robert. P. Taylor, Competition and Intellectual Property Law and Policy in the Knowledge-Based Economy: Hearings Before the Federal Trade Commission and U.S. Department of Justice, July 11, 2002. 86 National Research Council, A Patent System for the 21st Century, Washington, DC: The National Academies Press, 2004. 87 F. M. Scherer, “The Political Economy of Patent Policy Reform in the United States”, Journal on Telecommunications and High Technology Law, 7:180, 2008. 88 33 USC 200-212.

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106 BEST PRACTICES IN STATE AND REGIONAL INNOVATION INITIATIVES businesses would normally allow patent rights to be retained by the contractors or grantees, subject to an imprecise exception. An Executive Order issued in 1987 extended the presumption to all government R&D contractors, notwithstanding their size.89 The Stevenson-Wydler Act also enacted in 1980, required government entities conducting R&D internally to set up Research and Technology Applications offices which were encouraged to negotiate exclusive patent licenses with the private sector for technology developed through research within the government entity.90 The Bayh-Dole legislation prompted many universities to establish or expand technology transfer offices and to pursue commercialization opportunities for their research.91 A 2012 Harvard study of the impact of Bayh- Dole on counties surrounding universities receiving federal research funding, based on the Census Bureau’s Longitudinal Business Database concluded that “employment, payroll and average wages grow differentially faster after the Bayh-Dole Act in industries more closely related to the technological strengths of nearby universities. The magnitudes…are considerable and grow with geographical proximity to the university supporting the importance of spatial relationships in the spread of knowledge. Areas surrounding universities that received more federal research funding before the law was passed grow faster after the law than do others; the effect is particularly large for DOD and NIH funding.”92 One example of this phenomenon is the University of Colorado, which undertook a sustained effort to overhaul its technology transfer efforts after Bayh-Dole, and by 2006 could count 60 companies launched utilizing its technologies, “a good majority” of which “have stayed in the Boulder and Broomfield counties.”93 89 Executive Order No. 12591, 52 Fed Reg. 13414. 1987. 90 15 USC 3701-3717. A 2002 editorial in The Economist observed that “possibly the most inspired piece of legislation to be enacted in America over the past half-century was the Bayh-Dole Act of 1980…more than anything, this single policy measure helped to reverse America’ slide into industrial irrelevance.” “Innovation’s Golden Game,” The Economist December 12, 2002. For a review of the limitations of Bayh-Dole, see David C. Mowery and Bhaven N. Sampat "The Bayh- Dole Act of 1980 and University–Industry Technology Transfer: A Model for Other OECD Governments?" The Journal of Technology Transfer 30(1-2):115-127, 2004. 91 In the years prior to and immediately after Bayh-Dole (1967-82) an average of 1.3 university technology transfer offices were opened per year. In the years 1983 to 1995, the average soared to 7.4 openings per year. Association of University Technology Managers Licensing Activity Study, 2007, cited in Naomi Hausman, “University Innovation and Local Economic Growth and Entrepreneurship,” (Harvard Center for Economic Studies, CES-12-10, June, 2012) p. 34. In other cases, existing tech transfer offices expanded dramatically. The University of Minnesota’s office grew from a single patent administrator to a staff of 20 by 2000. “The Campus-Company Connection” St. Paul Pioneer Press September 17, 2000. 92 Hausman, “University Innovation,” op. cit., 2012, pp. 2-3. 93 “Stewards of Invention: CU’s Technology Transfer Office Helps Ideas Become Companies,” Boulder The Daily Camera June 19, 2006.

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THE FEDERAL DIMENSION 107 INTERNATIONAL TRADE POLICY State and regional innovation clusters and the industries based in them are engaged in international competition which is becoming increasingly intense, but states are limited in their ability to respond directly to overseas market barriers or mercantilist foreign practices. U.S. trade policy is administered virtually exclusively at the federal level. Locally-based industries must rely on the federal government to negotiate for and maintain their access to foreign markets. U.S.-based companies also may utilize an array of legal trade remedies administered by the federal government when imports of dumped or subsidized products cause material injury domestically or when imports violate intellectual property rights of U.S. firms. While U.S. trade policy has proven vital to a number of high technology U.S. industries, including semiconductors, supercomputers, and pharmaceuticals, many market-distorting foreign public and private practices exist which have no clearly available legal or public policy remedy.94 GOVERNMENT PROCUREMENT The federal government has affected the evolution of a number of high technology U.S. industries through procurement of products for defense and other public purposes. Government procurement contracts fostered the development of the U.S. aerospace and electronics industries in the generation after World War II.95 Although the research that developed integrated circuit technology in the 1950s was not federally-financed, it was “undertaken with the clear understanding that, if it were successful, there would be a massive government market.” In the early 1960s, NASA decided to use ICs in the guidance system for the Apollo mission, and the Air Force incorporated ICs into the guidance system for the Minuteman ICBM. Government purchases of ICs for these programs enabled U.S. companies to improve yields, reduce costs 94 At the Symposium on the U.S. Battery Industry, Senator Debbie Stabenow of Michigan pointed out that although China joined the WTO over 10 years ago, it has not signed the WTO Agreement on Government Procurement, which provides for nondiscrimination in public procurement by designated governmental entities. She pointed out that Chinese procurement policies “are blocking our companies from the ability to sell to their government.” Presentation by Senator Debbie Stabenow, in National Research Council, Building the U.S. Battery Industry for Electric Drive Vehicles: Progress, Challenges, and Opportunities—Summary of a Symposium, op. cit. See also Thomas R. Howell, “The Multilateral Trading System and Transnational Competition in Advanced Technologies: The Limits of Existing Disciplines,” in Marklund, Goran, Micholas S. Vonortas, and Charles W. Wessner, eds., The Innovation Imperative: National Innovation Strategies in the Global Economy, Cheltenham, UK, and Northampton, MA: Edward Elgar, 2009. 95 Stuart W. Leslie, “The Biggest Angel of the All: The Military and the Making of Silicon Valley,” in Kenney, ed., Understanding Silicon Valley, op. cit., pp. 48-67.

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108 BEST PRACTICES IN STATE AND REGIONAL INNOVATION INITIATIVES through volume production, and to find wider application for IC technology in industrial and commercial applications.96 Government procurement remains a policy tool under discussion in connection with emerging “green” technology industries in the U.S. which confront uncertain near-term demand for their products. The U.S. military is interested in electrification of numerous combat and logistics platforms that would require use of high-performance batteries, including the Army’s vehicle fleet and unmanned aerial and undersea vehicles being developed by the Air Force and Navy, respectively. Military demand could provide a market for U.S. battery makers in the event that demand for batteries for civilian vehicles does not grow substantially.97 LESSONS LEARNED In an era in which state budgets are under growing pressure, a vast array of federal programs and research organizations represent a diversity of resources that state and regions can draw on to help support local innovation initiatives.  A panoply of federal programs is now being directed toward the fostering of local innovation clusters, support for innovative start-ups, enhancement of U.S. manufacturing competitiveness, and the creation of public-private innovation partnerships.  Federal regulatory policies since 1980 in the realm of competition, intellectual property, and trade have played a critical role in stimulating innovation in the U.S. economy. 96 National Bureau of Standards, the Influence of Defense Procurement and Sponsorship of Research and Development on the Development of the Civilian Electronics Industry, June 30, 1977. 97 Presentations by Grace Bochenek and Sonya Zanardelli, U.S. Army Tank-Automotive Command Research, Development and Engineering Center; John Pellegrino, U.S. Army Research Laboratory, National Research Council, “Building the U.S. Battery Industry for Electric-Drive Vehicles: Report of a Symposium,” July 26, 2010.