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Prepared for Members and Committees of Congress
                                                        



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In response to the foreign challenge in the global marketplace, the United States Congress has
explored ways to stimulate technological advancement in the private sector. The government has
supported various efforts to promote cooperative research and development activities among
industry, universities, and the federal R&D establishment designed to increase the
competitiveness of American industry and to encourage the generation of new products,
processes, and services.

Collaborative ventures are intended to accommodate the strengths and responsibilities of all
sectors involved in innovation and technology development. Academia, industry, and government
often have complementary functions. Joint projects allow for the sharing of costs, risks, facilities,
and expertise.

Cooperative activity covers various institutional and legal arrangements including industry-
industry, industry-university, and industry-government efforts. Proponents of joint ventures argue
that they permit work to be done that is too expensive for one company to support and allow for
R&D that crosses traditional boundaries of expertise and experience. Such arrangements make
use of existing, and support the development of new, resources, facilities, knowledge, and skills.
Opponents argue that these endeavors dampen competition necessary for innovation.

Federal efforts to encourage cooperative activities include the National Cooperative Research
Act; the National Cooperative Production Act; tax changes permitting credits for industry
payments to universities for R&D and deductions for contributions of equipment used in
academic research; and amendments to the patent laws vesting title to inventions made under
federal funding in universities. Technology transfer from the government to the private sector is
facilitated by several laws. In addition, there are various ongoing cooperative programs supported
by various federal departments and agencies.

Given the increased popularity of cooperative programs, questions might be raised as to whether
they are meeting expectations. Among the issues before Congress are whether joint ventures
contribute to industrial competitiveness and what role, if any, the government has in facilitating
such arrangements.




   
                                                                                 



    
Most Recent Developments............................................................................................................. 1
Rationale.......................................................................................................................................... 2
    Joint Industrial Research ........................................................................................................... 2
    Industry-University Cooperative Efforts................................................................................... 3
    Federal Laboratory-Industry Interaction ................................................................................... 4
Federal Initiatives in Cooperative R&D.......................................................................................... 4
Issues ............................................................................................................................................. 10
    Development ........................................................................................................................... 12
    Manufacturing......................................................................................................................... 12
    Defense vs. Civilian Support................................................................................................... 13
    Access by Foreign Firms......................................................................................................... 14
    Direct vs. Indirect Support ...................................................................................................... 14
Legislation in the 110th Congress .................................................................................................. 14



   
Author Contact Information .......................................................................................................... 17




    
                                                       




                           
Congressional initiatives over the past 25 years have promoted cooperative research and
development among industry, universities, and the federal R&D establishment. This is evident in
legislation creating technology transfer mechanisms as well as in support for two extramural
programs of the National Institute of Standards and Technology (NIST): the Advanced
Technology Program (ATP) which provided seed funding, matched by private sector investment,
to companies or consortia for the development of generic technologies that have broad
application across industrial sectors, and the Manufacturing Extension Partnership (MEP) which
offers technical assistance to small and medium-sized firms through regional centers in
conjunction with state or local government, universities, or the private sector.

The President's FY2008 budget proposed a significant decrease in support for manufacturing
extension to $46.3 million and did not include funding for ATP. The final appropriations
legislation, P.L. 110-161, provides MEP with $89.6 million and replaces ATP with a new initiative
the Technology Innovation Program (TIP) which is funded at $65.2 million (with an additional $5
million from FY2007 ATP unobligated balances). P.L. 110-69, the America COMPETES Act,
authorizes funding for NIST programs through FY2010 and creates various new activities within
the laboratory. The Administration's original FY2009 budget request proposed funding MEP at $4
million to terminate federal support for the program and provided no financing for TIP. On June
6, 2008, the President submitted a series of amendments to his budget one of which reduced the
amount for the MEP program to $2 million. The FY2009 appropriations bill ordered reported
from the House Committee on Appropriations would finance MEP at $112 million while support
for TIP would total $65.2 million. S. 3182, as reported by the Senate Committee on
Appropriations, provides $110 million for manufacturing extension and $65 million for TIP.

Several bills introduced in the current Congress are consistent with parts of the "American
Competitiveness Initiative" announced by the President in the 2006 State of the Union Address
that proposed several innovation-related activities including increased basic research funding,
making permanent the research and experimentation tax credit (which was extended through the
end of 2007 by P.L. 109-432), and improved math and science education. S. 833, the
Competitiveness Through Education, Technology, and Enterprise Act of 2007, would make the
research tax credit permanent, as does H.R. 2133, H.R. 2138, H.R. 2734, H.R. 3907, H.R. 5105,
H.R. 5681, and S. 2209. S. 41, the Research Competitiveness Act of 2007, and H.R. 1712, the
Research and Development Tax Credit Act of 2007, also make the research credit permanent and
create tax exempt facility bonds for the development of research park facilities, among other
things. H.R. 6049, as passed by the House, and S. 2552 would extend the research credit through
the end of 2008; S. 592 and S. 2884 extend it through the end of 2012.

S. 1373 and H.R. 4250 provide grants and loan guarantees for the development and construction
of science parks. Title VI of P.L. 110-229 establishes a program of grants to non-profit
institutions, state and local governments, cooperative extension services, or universities to
transfer energy efficient methods and technologies. S. 3078 creates a National Innovation Council
to coordinate federal innovation-related activities and promote state and local initiatives in this
area, among other things.




   
                                                        




In response to concerns over competition from foreign firms, the U.S. Congress has increasingly
looked for ways the federal government can stimulate technological innovation in the private
sector. This technological advancement is critical in that it contributes to economic growth and
long term increases in our standard of living. New technologies can create new industries and
new jobs; expand the types and geographic distribution of services; and reduce production costs
by making more efficient use of resources. The development and application of technology also
plays a major role in determining patterns of international trade by affecting the comparative
advantages of industrial sectors. Since technological progress is not necessarily determined by
economic conditions, it can have effects on trade independent of shifts in macroeconomic factors
that may affect the marketplace.

Joint ventures are an attempt to facilitate technological advancement within the industrial
community. Academia, industry, and government can play complementary roles in technology
development. While opponents argue that cooperative ventures stifle competition, proponents
assert that they are designed to accommodate the strengths and responsibilities of these sectors.
Collaborative projects attempt to utilize and integrate what the participants do best and to direct
these efforts toward the goal of generating new goods, processes, and services for the
marketplace. They allow for shared costs, shared risks, shared facilities, and shared expertise.

The lexicon of current cooperative activity covers various different institutional and legal
arrangements. These ventures might include industry-industry joint projects involving the
creation of a new entity to undertake research, the reassignment of researchers to a new effort,
and/or hiring new personnel. Collaborative industry-university efforts may revolve around
activities in which industry supports centers (sometimes cross-disciplinary) for research at
universities, funds individual research projects, and/or exchanges personnel. Cooperative
activities with the federal government might include projects that use federal facilities and
researchers, federal funding for industry-industry or industry-university efforts, or financial
support for centers of excellence at universities to which the private sector has access.

There are many different types of cooperative arrangements. The flexibility associated with this
concept can allow for the development of institutional and organizational plans tailored to the
specific needs of the particular project. Issues of patent ownership, disclosure of information,
licensing, and antitrust are to be resolved on an individual basis within the general guidelines
established by law governing joint ventures.

Collaborative ventures can be structured either "horizontally" or "vertically." The former involves
efforts in which companies work together to perform research and then use the results of this
research within their individual organizations. The latter involves activities where researchers,
producers, and users work together. Both approaches are seen as ways to address some of the
perceived obstacles to the competitiveness of American firms in the marketplace.


  
Traditionally, the federal government has funded research and development to meet mission
requirements; in areas where the government is the primary user of the results; and/or where there
is an identified need for R&D not being performed in the private sector. Most government support
is for basic research which is often long-term and highly risky for individual companies; yet


   
                                                        


research can be the foundation for breakthrough achievements which can revolutionize the
marketplace. Studies have shown that inventions based on R&D are the more important ones.
However, the societal benefits of research tend to be greater than those that can be captured by
the firm performing the work. Thus the rationale for federal funding of research in industry.

The major emphasis of legislative activity has been on augmenting research in the industrial
community. This focus is reflected in efforts to encourage companies to undertake cooperative
research arrangements and expand the opportunities available for increases in research activities.
Collaboration permits work to be done which is too expensive for one company to fund and also
allows for R&D that crosses traditional boundaries of expertise and experience. A joint venture
makes use of existing, and supports development of new resources, facilities, knowledge, and
skills.

The concentration on increased research as a prelude to increased technological advancement was
based upon the "pipeline model" of innovation. This process was understood to be a series of
distinct steps from an idea through product development, engineering, testing, and
commercialization to a marketable product, process, or service. Thus increases at the beginning of
the pipeline--in research--were expected to result in analogous increases in innovation at the
end. However, this model is no longer considered valid. Innovation is rarely a linear process and
new technologies and techniques often occur that do not require basic or applied research or
development. Most innovations are actually incremental improvements to existing products and
processes. In some areas, particularly biotechnology, research is closer to a commercial product
than this conception would indicate. In others, the differentiation between basic and applied
research is artificial. The critical factor is the commercialization of the technology. Economic
benefits accrue only when a technology or technique is brought to the marketplace where it can
be sold to generate income and/or applied to increase productivity.

In the recent past, it was increasingly common to find that foreign companies were
commercializing the results of U.S. funded research at a faster pace than American firms. In the
rapidly changing technological environment, the speed at which a product, process, or service is
brought to the marketplace is often a crucial factor in its competitiveness. The recognition that
more than research needs to be done has lead to other approaches at cooperative efforts aimed at
expediting the commercialization of the results of the American R&D endeavor. These include
industry-university joint activities, use of the federal laboratory system by industry, and industry-
industry development efforts where manufacturers, suppliers, and users work together.


¢ ¢  
Industry-university cooperation in R&D is one important mechanism intended to facilitate
technological innovation. Traditionally, universities perform much of the basic research integral
to certain technological advancements. They are generally able to undertake fundamental research
because it is part of the educational process and because they do not have to produce for the
marketplace. The risks attached to work in this setting are fewer than those in industry where
companies must earn profits. Universities also educate and train the scientists, engineers, and
managers employed by companies.

Academic institutions do not have the commercialization capacity available in industry and
necessary to translate the results of research into products and processes that can be sold in the
marketplace. Thus, if the work performed in the academic environment is to be integrated into
goods and services, a mechanism to link the two sectors must be available. Prior to World War II,


   
                                                        


industry was the primary source of funding for basic research in universities. This financial
support helped shape priorities and build relationships. However, after the war the federal
government supplanted industry as the major financial contributor and became the principal
determinant of the type and direction of the research performed in academic institutions. This
situation resulted in a disconnect between the university and industrial communities. Because
industry and not the government is responsible for commercialization, the difficulties in moving
an idea from the research stage to a marketable product or process appear to have been
compounded.

Efforts to encourage increased collaboration between the academic and industrial sectors might
be expected to augment the contribution of both parties to technological advancement. Company
support for research within the university provides additional funds and information on the
concerns and direction of industry. For many companies, access to expertise and facilities outside
of the firm expands or complements available internal resources. Yet, such cooperation should not
necessarily be seen as a panacea. Oftentimes, collaborative ventures fail because of various
factors including conflicting goals, differing research cultures, and financial disagreements.


  ¢ ¢ 
The federal government can share its extensive facilities, expertise, knowledge, and new
technologies with partners in a cooperative venture. In certain cases, the government laboratories
have scientists and engineers with experience and skills, as well as equipment, not available
elsewhere. The government also has a vested interest in technology development. It does not have
the mandate or resources to manufacture goods but has a stake in the availability of products and
processes to meet mission requirements. In addition, technological advancement contributes to
the economic growth vital to the health and security of the nation.

Collaboration between government laboratories and industry is not, however, just a one way
street. In several technological areas, particularly electronics and computer software, the private
sector is more advanced in technologies important to the national defense and welfare of this
country. Interaction with industry offers federal scientists and engineers valuable information to
be used within the government R&D enterprise.


      
The cooperative venture concept is not new. In the early 1970s, the National Science Foundation
established its Industry-University Cooperative Research Centers program. The Electric Power
Research Institute, a research organization supported by the electric power utilities, has been in
operation since 1973. In the private sector, the Microelectronics and Computer Technology
Corporation (MCC), which performs research for its member firms, and the Semiconductor
Research Corporation (SRC), which funds research in universities, were created in the early
1980s. The difference today is the number of projects and the scope of legislative activity
designed to promote cooperative ventures.

Faced with pressures from foreign competition, the government's interest appears to be
expanding beyond that of funding R&D, to meeting other critical national needs including the
economic growth that flows from new commercialization in the private sector. While
acknowledging that the commercialization of technology is the responsibility of the business



   
                                                                


community, in the past several years the government has attempted to stimulate innovation and
technological advancement in industry. These activities often involve the removal of barriers to
technology development in the private sector, thereby permitting market forces to operate and the
provision of incentives to encourage increased innovation related efforts in industry. Cooperative
R&D efforts are a part of both these trends.

The National Cooperative Research Act (P.L. 98-462) is designed to encourage companies to
undertake joint research which is typically long-term, risky, and often too expensive for one
company to finance. This legislation clarifies the antitrust laws and requires that the "rule of
reason" standard be applied in determinations of violations of these laws; that cooperative
research ventures are not to be judged illegal "per se". It also eliminates treble damage awards for
those research ventures found in violation of the antitrust laws if prior disclosure (as defined in
the law) has been made. In addition, P.L. 98-462 makes some changes in the way attorney fee
awards are made to discourage frivolous litigation against joint research ventures without
simultaneously discouraging suits of plaintiffs with valid claims. Between 1985 (when the law
went into effect) and 2003, over 900 joint ventures have filed with the Justice Department.1

P.L. 103-42, the National Cooperative Production Amendments Act of 1993, amends the National
Cooperative Research Act by, among other things, extending the original law's provisions to joint
manufacturing ventures. These provisions are only applicable, however, to cooperative
production when the principal manufacturing facilities are "located in the United States or its
territories, and each person who controls any party to such venture ... is a United States person, or
a foreign person from a country whose law accords antitrust treatment no less favorable to United
States persons than to such country's domestic persons with respect to participation in joint
ventures for production."

The Omnibus Trade and Competitiveness Act of 1988 (P.L. 100-418) created the Advanced
Technology Program (ATP) at the Department of Commerce's National Institute of Standards and
Technology. This program provided seed funding, matched by private sector investment, to
companies or consortia comprised of universities, companies, and/or government laboratories for
the development of generic technologies that have broad application across industrial sectors. As
of the end of 2007, 824 projects have been funded representing approximately $2.4 billion in
federal financing matched by $2.2 billion in financing from the private sector. Of these projects,
approximately 28% were or are joint ventures. Eleven initial R&D programs were selected for
funding, almost half of which involved consortia. Twenty-seven awards were made to programs
in the second year; approximately one-third were consortia. In December 1992, 21 new ATP
awards were made, including three joint ventures. Thirty additional projects were funded in 1993,
and, in October 1994, 41 awards were made in four key technology areas: information
infrastructure for healthcare; tools for DNA diagnostics; component-based software; and
computer-integrated manufacturing for electronics. Fourteen are cooperative efforts. In November
1994, 47 additional awards were made in the general competition and in the area of
manufacturing composite structures. Twenty-four involve collaborative R&D. Of the 24 awards
announced on July 13, 1995, 35% of the projects in the general competition were joint ventures
and 29% in the focused competition. The following month 21 additional awards were made of
which 9 were cooperative efforts. In early September, another 44 grants were awarded including
19 joint ventures. Later in that month, 10 more awards were made of which three were to

1
 National Science Board, Science and Engineering Indicators 2006, available at http://www.nsf.gov/statistics/seind06/
c4/c4s5.htm#fn38.




      
                                                       


cooperative efforts. On January 25, 1996, an additional four projects received awards; three
involved multiple firms. In March 1997, NIST announced that it would fund 8 new proposals
from the FY1996 general competition of which 2 were collaborative projects. Sixty-four awards
were made in October 1997; 15 involving multiple companies. In October 1998, NIST awarded
funding for 79 new projects involving more than 150 companies, 11 universities, and several
federal laboratories. This reflects changes in the ATP selection criteria designed to encourage
large companies to participate in joint ventures with small firms and academic institutions.
Thirty-seven awards for FY1999 were made on October 7, 1999. Of these, 27 are either joint
ventures or involve additional organizations working as subcontractors. In FY2001, 13 of the 59
grants involved collaborative projects while in FY2002, 10 of the 61 awards went to joint
ventures. Of the 16 awards made in July 2003, 3 were for collaborative projects. In September of
2003, 44 awards were made of which 9 were joint ventures. An additional 32 awards were made
in 2004, seven involving cooperative activities. Of the 56 awards provided in 2007, 9 were made
to joint ventures. (For more information, see CRS Report 95-36, The Advanced Technology
Program, by Wendy H. Schacht.)

P.L. 110-69, the America COMPETES Act, creates and authorizes a new Technology Innovation
Program (TIP) to replace ATP. P.L. 110-161, the FY2008 Consolidated Appropriations Act,
provides the funding for this new initiative. While similar to ATP in the intent to promote high-
risk R&D that would be of broad-based economic benefit to the Nation, there are several
differences in the operation of the new activity. Funding under TIP is limited to small and
medium-sized businesses whereas grants under ATP were available to companies regardless of
size. In the Advanced Technology Program, joint ventures were required to include two separately
owned for-profit firms and could include universities, government laboratories, and other research
establishments as participants in the project but not as recipients of the grant. Under TIP, a joint
venture may involve two separately owned for-profit companies but may also be comprised of
one small or medium-sized firm and a university. A single company was able to receive up to $2
million for up to three years under ATP; under TIP, the participating company (which must be a
small or medium-sized business) may receive up to $3 million for up to three years. In ATP, small
and medium-sized companies were not required to cost share (large firms provided 60% of the
total cost of the project) while in TIP there is a 50% cost sharing requirement which, again, only
applies to the small and medium-sized businesses that are eligible. There were no funding limits
for the five-year funding available for joint ventures under ATP; the TIP limits joint venture
funding to $9 million for up to five years. The Advisory Board that was created to assist in the
Advanced Technology Program included industry representatives as well as federal government
personnel and representatives from other research organizations. The Advisory Board for the
Technology Innovation Program would be comprised of only private sector members.

Appropriations for the Advanced Technology Program were $35.9 million in FY1991, $47.9
million in FY1992, and $67.9 million in FY1993. FY1994 appropriations expanded significantly
to $199.5 million and even further to $431 million in FY1995. However, P.L. 104-6, the DOD
Emergency Supplemental Appropriations and Rescissions Act, rescinded $90 million of this
amount. The Clinton Administration's FY1996 budget request for ATP was $490.9 million. The
original appropriations bill, H.R. 2076, which passed the Congress but was vetoed by the
President, provided no financing for ATP. The final appropriations legislation, P.L. 104-134,
funded the Advanced Technology Program at $221 million for FY1996. The following year,
FY1997, the Omnibus Consolidated Appropriations Act (P.L. 104-208) provided support levels of
$225 million, but $7 million was rescinded by P.L. 105-18. P.L. 105-119 funded ATP at $192.5
million in FY1998. The President's FY1999 budget included $259.9 million for this program, an
increase of 35%. However, P.L. 105-277, the Omnibus Consolidated Appropriations Act, funded


   
                                                      


ATP at $197.5 million, 3% above the previous year. This figure reflected a $6 million rescission
to account for "deobligated" funds resulting from prior projects that had been terminated early.

In the FY2000 budget, the Clinton Administration requested $238.7 million for ATP, an increase
of 21% over FY1999. Yet H.R. 2670, as originally passed by the House, contained no
appropriated funding for ATP. The report accompanying the House bill stated that "... the program
has not produced a body of evidence to overcome those fundamental questions about whether the
program should exist in the first place." S. 1217, as initially passed by the Senate, would have
appropriated $226.5 million, 15% more than the previous year. P.L. 106-113, the final FY2000
appropriations legislation, provided the Advanced Technology Program with $142.6 million,
financing that was 28% below the level of the previous year. For FY2001, the President requested
ATP funding of $175.5 million, an increase of 23% over prior year funding. The original
appropriations bill, as passed by the House, again provided no support for the program. However,
P.L. 106-553 did fund ATP at $145.7 million for FY2001, 2% above the previous fiscal year.

The Bush Administration's FY2002 budget proposed suspending all funding for new ATP awards
pending an evaluation of the program. However, $13 million would have been provided to meet
financial commitments for on-going projects. H.R. 2500, as first passed by the House, provided
no support for new ATP projects but did include $13 million to fund prior year commitments. The
original Senate-passed version of H.R. 2500 would have funded the program at $204.2 million.
The final legislation, P.L. 107-77, financed ATP at $184.5 million, a 27% increase over FY2001.

In the FY2003 budget, the President requested $108 million for the Advanced Technology
Program. This figure was 35% below the FY2002 appropriation. A number of Continuing
Resolutions supported the program at FY2002 levels until the 108th Congress passed P.L. 108-7
which appropriated $178.8 million in FY2003 (after a 0.65% across the board mandated by the
legislation).

The Administration's FY2004 budget included $27 million for ATP to cover on-going
commitments; no new projects would be funded. H.R. 2799, the appropriations bill initially
passed by the House, contained no funding for ATP. As reported to the Senate from the
Committee on Appropriations, S. 1585 would have provided $259.6 million for ATP. P.L. 108-
199, the FY2004 Consolidated Appropriations Act, financed the program at $170.5 million (after
a mandated rescission).

For FY2005, the President's budget proposal, as well as H.R. 4754, the FY2005 appropriations
bill originally passed by the House, did not include funding for ATP. As reported to the Senate by
the Committee on Appropriations, S. 2809 would have financed the program at $203 million, an
increase of 19% over the previous fiscal year. The FY2005 Omnibus Appropriations Act, P.L.
108-447, provided ATP with $136.5 million (after several rescissions mandated in the legislation),
20% less than FY2004.

President Bush's FY2006 budget request, as well as the version of H.R. 2862 initially passed by
the House, did not include support for ATP. H.R. 2862, as originally passed by the Senate, would
have funded the program at $140 million. The final FY2006 appropriations legislation, P.L. 109-
108, provides $79 million for the program (after mandated rescissions), 42% below the previous
fiscal year.

The Administration's FY2007 budget did not include funding for ATP, nor did H.R. 5672, the
FY2007 Science, State, Justice, Commerce, and Related Agencies Appropriations Act, as passed



   
                                                       


by the House on June 29, 2006 and as reported from the Senate Committee on Appropriations.
While no final FY2007 appropriations legislation was enacted during the 109th Congress, a series
of continuing resolutions finances ATP at FY2006 levels through February 15, 2007 when the
110th Congress passed P.L. 110-5 which appropriated $79 million for the program.

The President's FY2008 budget request again did not include support for this program. The initial
appropriations bill that passed the House, H.R. 3093, would have provided ATP with $93.1
million (acknowledging that a new TIP program would replace ATP) while the version passed by
the Senate would have funded the activity at $100 million (with $30.8 million of this directed to
other programs in the Federal Bureau of Investigation and the U.S. Marshals Service). The
Senate-passed bill also would have limited single applicant awards to companies with revenues
less than $1 billion. The final FY2008 appropriations legislation, P.L. 110-161, funds the new
Technology Innovation Program, which replaces ATP, at $65.2 million (with an additional $5
million from FY2007 ATP unobligated balances).

The President's FY2009 budget request does not include funding for TIP. The appropriations bill
ordered reported from the House Committee on Appropriations would finance the program at
$65.2 million while S. 3182, as reported from the Senate Committee on Appropriations, provides
$65 million.

Several laws have attempted to facilitate industry-university cooperation. Title II of the Economic
Recovery Tax Act of 1981 (P.L. 97-34) provided, in part, a temporary 25% tax credit for 65% of
all company payments to universities for the performance of basic research. Firms were also
permitted a larger tax deduction for charitable contributions of equipment used in scientific
research at academic institutions. The Tax Reform Act of 1986 (P.L. 99-514) kept this latter
provision, but reduced the credit for university basic research to 20% of all corporate
expenditures for this work over the sum of a fixed research floor plus any decrease in non-
research giving.

The 1981 Act also provided an increased charitable deduction for donations of new equipment by
a manufacturer to an institution of higher education. This equipment must be used for research or
training for physical or biological sciences within the United States. The tax deduction was equal
to the manufacturer's cost plus one-half the difference between the manufacturer's cost and the
market value, as long as it does not exceed twice the cost basis.

This research and experimentation tax credit expired in June 1992 when an extension contained in
H.R. 11, the Enterprise Zone Tax Act, was vetoed by former President Bush. The Omnibus
Budget Reconciliation Act, P.L. 103-66, reinstated the credit through July 1995 and made it
retroactive to the date of its previous expiration. The credit again expired. However, P.L. 104-188,
the Small Business Job Protection Act, reinstated the tax credit for application between July 1,
1996 and May 31, 1997. The Taxpayer Relief Act of 1997, P.L. 105-34, extended the credit for 13
months from June 1, 1997 through June 30, 1998. The tax credit expired once again but was
reinstated through June 30, 1999, by P.L. 105-277. Several bills also were introduced that would
have permitted the research tax credit to be applied to support for certain collaborative research
consortia. The 106th Congress once again extended the credit. Title V of P.L. 106-170 reinstated
the research and experimentation tax credit through June 30, 2004 and increased the credit rate
applicable under the alternative incremental research credit by one percentage point per step. P.L.




   
                                                             


108-311 extended the research credit through December 31, 2005 while in the 109th Congress,
P.L. 109-432 extended the credit through the end of 2007.2

Amendments to the patent and trademark laws contained in P.L. 96-517 also were designed to
foster interaction between academia and the business community. This law provides, in part, for
title to inventions made by contractors receiving federal R&D funds to be vested in the contractor
if it is a university, not-for-profit institution, or a small business. Certain rights to the patent are
reserved for the government and these organizations are required to commercialize within a
predetermined and agreed upon time frame. Providing universities with patent title is expected to
encourage licensing to industry where the technology can be manufactured or utilized, thereby
creating a financial return to the academic institution. University patent applications and licensing
have increased since this law was enacted. (For more discussion on this topic see CRS Report
RL32076, The Bayh-Dole Act: Selected Issues in Patent Policy and the Commercialization of
Technology, by Wendy H. Schacht and CRS Report RL30320, Patent Ownership and Federal
Research and Development (R&D): A Discussion on the Bayh-Dole Act and the Stevenson-Wydler
Act, by Wendy H. Schacht.)

Many cooperative industry-industry or industry-university programs are supported and/or
organized by the federal departments and agencies. These include, but are not limited to, the
National Science Foundation's Engineering Research Centers, the approximately 40 Industry-
University Cooperative Research Programs, and the more recent Science and Technology
Centers. A program to match small businesses interested in joint manufacturing technology
efforts has been created in the Department of Commerce.

While most legislative activities are intended to facilitate technological advance across industries,
there have been several recent efforts to provide direct assistance for cooperative ventures in a
particular industry. These initiatives are based, in part, on national defense and economic security
concerns over specific technologies that are, or are perceived as, potentially critical to a wide
range of businesses. Among the joint ventures, funded primarily by the Department of Defense,
have been SEMATECH (a joint private sector semiconductor manufacturing research effort
which is now privately financed), the National Center for Manufacturing Sciences, and the steel
initiative. In addition, DOD supported the Software Engineering Institute and the Department of
Energy assisted in the Partnership for a New Generation Vehicle initiative that, among other
things, encouraged joint R&D between federal laboratories and private firms leading to
commercialization.

Cooperation between industry and the federal R&D enterprise is another facet of the effort to
increase industrial competitiveness through joint ventures. The federal government will spend an
estimated $137 billion for research and development in FY2007 to meet the mission requirements
of the federal departments and agencies. This has led to many technologies and techniques, as
well as to the generation of knowledge and skills, which may have applications beyond their
original intent. To foster their development and commercialization in the industrial community,
various laws have established institutions and mechanisms to facilitate the movement of ideas and
technologies between the public and private sectors.



2
 For additional information see CRS Report RL31181, Research and Experimentation Tax Credit: Current Status and
Selected Issues for Congress, by Gary Guenther.




      
                                                        


The Stevenson-Wydler Technology Innovation Act (P.L. 96-480), as amended by the Federal
Technology Transfer Act (P.L. 99-502) and the Department of Defense FY1990 Authorizations
(P.L. 101-189), provides, in part, a legislative mandate for technology transfer from the federal
government to the private sector, establishes a series of offices in the agencies and/or laboratories
to administer transfer efforts, provides incentives for federal laboratory personnel to actively
engage in technology transfer, and creates new contractual means for industry to work with the
laboratories including cooperative research and development agreements (CRADAs). P.L. 104-
113, the National Technology Transfer and Advancement Act, attempts to clarify existing policy
with respect to the dispensation of intellectual property under a CRADA by amending the
Stevenson-Wydler Act. P.L. 106-404, the Technology Transfer Commercialization Act, makes
changes in current practices concerning patents held by the government to make it easier for
federal agencies to license such inventions to the private sector for commercialization. (For
additional information see CRS Report RL33527, Technology Transfer: Use of Federally Funded
Research and Development, by Wendy H. Schacht.)

The CREATE Act, P.L. 108-453, makes changes in the patent laws to promote cooperative
research and development among universities, government, and the private sector. The bill amend
section 103(c) of title 25, United States Code, such that certain actions between researchers under
a joint research agreement will not preclude patentability. (For more detail see CRS Report
RS21882, Collaborative R&D and the Cooperative Research and Technology Enhancement
(CREATE) Act, by Wendy H. Schacht.)

The Omnibus Trade and Competitiveness Act (P.L. 100-418) established a program of regional
Centers for the Transfer of Manufacturing Technology (now part of the Manufacturing Extension
Partnership effort) to facilitate the movement to the private sector of knowledge and technologies
developed under the aegis of the National Institute of Standards and Technology. (For more
discussion, see CRS Report 97-104, Manufacturing Extension Partnership Program: An
Overview, by Wendy H. Schacht.) In addition, the law required that NIST provide technical
assistance to state technology extension programs in an effort to improve private sector access to
federal technology. (For additional Information, see CRS Report RL33528, Industrial
Competitiveness and Technological Advancement: Debate Over Government Policy, by Wendy H.
Schacht.) Government-industry collaboration is further facilitated by a provision of the FY1991
National Defense Authorization Act (P.L. 101-510) that amends Stevenson-Wydler to allow
government agencies and laboratories to develop partnership intermediary programs to augment
the transfer of laboratory technology to the small business community.

A pilot activity under the Small Business Development Act of 1992, the Small Business
Technology Transfer (STTR) program, facilitates cooperative work between small companies and
federal labs leading to the commercialization of new technology. Scheduled to sunset in FY1996,
the program was extended for one year until P.L. 105-135 reauthorized it through FY2001.
Subsequently, P.L. 107-50 extended the STTR activity through FY2009, increased the set-aside
used to fund the program to 0.3% (beginning in FY2004), and expanded the amount of money
available for individual Phase II grants to $750,000. (See CRS Report 96-402, Small Business
Innovation Research Program, by Wendy H. Schacht.)



It is not yet known whether federal support of cooperative ventures signals a long-term
commitment to the development of technology. The former Clinton Administration set out a


   
                                                        


policy to actively promote joint R&D activities utilizing both direct and indirect federal support
for expanded cooperative work leading to commercialization. However, given current concerns
over the federal budget, it is unlikely that large sums of government money will be forthcoming
for such efforts in the future. Yet, other actions may reflect federal interest in the process of
technological advancement. The use of the extensive government R&D system, with its
expensive state-of-the-art facilities, can provide both academia and industry with resources that
may be beyond their financial ability. And despite the often short-term focus of budget decisions,
federal funds and non-monetary contributions to cooperative ventures may be leveraged by
contributions from state and local agencies and the private sector.

If the proliferation of programs is any indication, state and local jurisdictions have been in the
forefront of cooperative endeavors. Many state and local economic development activities focus
on increasing innovation and the use of technology in the private sector. Instead of competing for
companies to relocate, many of these jurisdictions now see additional benefits accruing from the
creation of new firms and the modernization of existing ones through the application of new
technology. Various states and localities are attempting to foster an entrepreneurial climate by
undertaking the development and support of a variety of programs to assist existing high
technology businesses, to promote the establishment of new companies, and to facilitate the use
of new technologies and processes in traditional industries. While these efforts vary by state and
locality, many of them include industry-university-government cooperation. Several
congressional proposals for increasing cooperative ventures built upon existing state and local
activities in these areas. (For additional discussion, see CRS Report 96-958, Technology
Development: Federal-State Issues (out of print; contact the author, Wendy H. Schacht, for
copies, 202-707-7066) and CRS Report 98-859, State Technology Development Strategies: The
Role of High Tech Clusters, by Wendy H. Schacht.)

Proponents of cooperative work argue that certain benefits are associated with joint ventures. The
increased popularity of this concept, and expanding federal support for this approach, however,
might suggest some questions be raised to assess whether cooperative ventures are meeting
expectations. Are there drawbacks to this effort in general and in specific instances? Are
cooperative projects addressing the problems associated with the competitiveness of U.S.
industry? Are they moving technology development in the right direction?

It might be expected that an increasing number of industries and/or companies will come to the
federal government for assistance in supporting cooperative R&D activities. Despite opposition
by some to what has been described as "picking winners or losers," various sectors of the
government have chosen to provide funding for cooperative ventures in specific industries while
requiring that the private sector generate matching funds. At the same time, there are programs
and policies that attempt to facilitate cooperative efforts across industry in general. Decisions
might need to be made whether one approach is better than the other, or if both should continue.

If part of government policy is to respond to individual industry requests for assistance, Congress
may opt to consider developing procedures to select between industries and/or companies
competing for limited federal funds. Can, and should, federal guidelines be established? In
addition, is it possible to determine at this time what type of cooperative ventures are the most
effective and efficient? Is there, in fact, one best model or should each venture be tailored to the
specific situation? And finally, what are the implications of these decisions for policymaking in
Congress?




   
                                                        



  
As noted above, innovation is a dynamic process that can involve idea origination, research,
development, commercialization, and diffusion throughout the economy. However, it is not a
linear process and an innovation may occur without developing through these steps. In fact, most
innovations are actually incremental changes in existing goods and services in response to unmet
market needs. The most crucial factor is the availability or use of the technology or technique in
the marketplace.

In the recent past, the commercialization and diffusion of products and processes often stood out
as significant problems in terms of the ability of U.S. industries to compete. Firms in several
other countries, particularly Japan and the East Asian newly industrializing countries, have been
successful in commercializing the results of R&D. In various instances, this was research initially
performed in the United States, as evidenced by the VCR and semiconductor chips. Basic
research and the pursuit of science are done successfully in the United States as indicated, in part,
by the number of Nobel prizes awarded to Americans. However, excellence in science does not
necessarily assure leadership in world markets. It has been noted that the United States was the
world's premiere economic power in the 1920s when this nation was far from being in the
forefront of science. Instead, market leadership is significantly affected by the development and
application of technology to make the goods and services the consumers want to purchase.

Thus, questions may be raised as to whether programs and policies encouraging increased
cooperative research, without concomitant efforts to facilitate the development and
commercialization of technologies and techniques, can be effective mechanisms to increase the
competitiveness of American industry. Do we need to know more about how to encourage the
application of the research resulting from joint ventures in the manufacture of products and
processes and in the delivery of services? Do these cooperative activities include mechanisms to
facilitate the effective and timely transfer of the results back to the companies where they can be
developed into goods for the marketplace? Since the major portion of the costs associated with
bringing out a new product occur at the development and marketing stages, not in the research
phase, should there be additional government incentives to encourage companies to spend funds
for commercialization in addition to research?



It is in the manufacturing arena where American companies appear to be the most vulnerable to
foreign competition. Process technologies (those used in manufacturing) can significantly lower
the costs of production and increase the quality of goods and services. In Global Competition, the
President's Commission on Industrial Competitiveness (under former President Reagan)
concluded that "... competitive success in many industries today is as much a matter of mastering
the most advanced manufacturing processes as it is in pioneering new products."

The costs associated with the development and purchase of new manufacturing equipment are
high. This is particularly true for the 350,000 small companies which make up a major segment of
the manufacturing community. Several of the cooperative efforts supported by the federal
government address these manufacturing concerns. The Manufacturing Technology program of
the Department of Defense, the advanced manufacturing initiatives in the Department of Energy,
and the Manufacturing Extension Centers operated by the National Institute of Standards and




   
                                                       


Technology, although all different, are examples of government activities devoted to facilitating
the development of new manufacturing techniques and their use in industry.

Enacted in the current Congress, P.L. 110-69 authorizes a new program of partnerships between
industry and other educational or research institutions to develop new manufacturing processes,
techniques, or materials. In addition, a manufacturing fellowship program would be created with
stipends available for post-doctoral work at NIST. These activities differ from the established
MEP effort where no new manufacturing research is conducted as existing manufacturing
technology is applied to the needs of small and medium-sized firms.

Considering the importance of manufacturing, the existing cooperative programs may not be
sufficient to increase the competitiveness of American industry. Are there more effective types of
joint ventures? Cooperative efforts, where resources could be pooled and the equipment shared,
may be one way to improve the manufacturing capability of U.S. firms, large or small. Will joint
manufacturing prove to be a viable option? Should existing cooperative manufacturing programs
in certain agencies be expanded or should new efforts in other departments be developed? Should
one government agency have the lead in policy determinations; if so, which federal department?


                     
Many of the industries interested in cooperative ventures with federal financial support have
approached the Department of Defense and, to a lesser extent, the Department of Energy's
Defense Programs because these agencies have the greatest amount of available resources and/or
funding. They also tend to have the expertise to operate large-scale programs and maintain close
ties with certain industrial sectors which could be encouraged to increase cooperation. In
addition, both DOD and DOE have a vested interest in the availability of certain technologies
which could be provided by a healthy domestic commercial market. However, questions remain
whether sponsorship of certain cooperative ventures by DOD and the Department of Energy's
defense-related programs will lead to increased commercialization in the civilian marketplace.

Critics argue that defense spending is not an effective mechanism to increase industry's ability to
innovate and develop new technologies. Much of the research and development in the defense
arena may be too specialized, overdesigned, and/or too costly to have value for commercial
markets. The R&D also tends to concentrate on weapon systems and other defense hardware
rather than on process technologies that are often necessary to improve manufacturing
productivity. One reason cited for the competitive problems of the machine tool industry was its
focus on defense needs rather than on the commercial market which is larger in the aggregate.

On the other hand, the U.S. commitment to military R&D has contributed to a favorable balance
of trade in the defense and aerospace industries. In the SEMATECH effort, the purpose of DOD
support was to facilitate the commercial development of technologies with critical defense
applications. The companies involved in SEMATECH were experienced semiconductor
manufacturers and were knowledgeable about the markets' needs and operations. Thus, although
the initial work performed by this semiconductor consortium may have been partially funded by
the Defense Advanced Research Project Agency, it was designed to result in new products and
processes in the civilian marketplace where both defense and commercial demand can be met.
SEMATECH now operates without direct federal financing.

The issue of cooperative work between the Defense Department and the private sector leading to
commercial technologies was addressed in the former Technology Reinvestment Project and was


   
                                                        


part of the more recent Dual-Use Partnership Project. The Department of Energy has been
expanding cooperative R&D activities in Defense Program laboratories in conjunction with an
increase in all DOE collaborative efforts with industry. Decreased technology transfer budgets
may impeded this effort, but several DOE defense laboratories are actively pursuing joint
ventures with industry.


   ¢  
With worldwide communications systems, it is virtually impossible to prevent the flow of
scientific and technical information. What is critical to competitiveness is the speed at which this
knowledge is used to make products, processes, and services for the marketplace. However, it
appears that many foreign firms are willing and able to take the results of research performed
both in the United States and their own countries and rapidly make high quality commercial
goods. Many of these companies are purchasing American businesses or establishing U.S.
subsidiaries to access American expertise. With the increased activity in research consortia,
particularly those with federal support, questions might be asked as to whether or not foreign
companies should or could be barred from access to the results. A larger issue is how to define an
"American company." Is it determined by majority ownership, manufacturing, location, value
added to the U.S. economy, or by some other definition? In addition, since technology is most
effectively transferred by person-to-person interaction, would cooperative activities between
American industry and foreign firms produce an outflow of information which could be used to
increase competitive pressures?


     
Government efforts to facilitate cooperative ventures have included both indirect supports and
direct federal funding. Indirect measures include such things as tax policies, intellectual property
rights, and antitrust laws that create incentives for the private sector. Other initiatives include
government financing (on a cost shared basis) of joint efforts such as the Advanced Technology
Program and Manufacturing Extension Partnerships. In the past, participants in the legislative
process generally did not make definite (or exclusionary) choices between these two approaches.
However, these activities were revisited in the 104th Congress given apparent Republican
preferences for the funding of basic research and not technology development. For example,
efforts to eliminate the Advanced Technology Program, funding for flat panel displays, and
agricultural extension reflected concern over the role of government in developing commercial
technologies and generally resulted in reductions of direct federal financing for such public-
private partnerships. Issues were again raised in subsequent Congresses although no relevant, on-
going program was terminated until FY2008 when ATP was replaced by the Technology
Innovation Program. As the 110th Congress continues to make budget decisions, the future of
cooperative R&D may be expected to be explored further.


                                         
                                               
P.L. 110-69 (H.R. 2272)

America COMPETES Act. Title III authorizes funding for the National Institute of Standards and
Technology (NIST) through 2010 and creates several new manufacturing R&D programs in that
organization. Funding for the Scientific and Technical Research and Services account within


   
                                                      


NIST is authorized at $502.1 million for FY2008, $541.9 million for FY2009, and $584.8 for
FY2010. Support for construction and maintenance would be authorized at $150.9 million for
FY2008, $86.4 million for FY2009, and $49.7 million for FY2010. Authorization of
appropriations for Industrial Technology Services programs within NIST would include $210
million ($100 million for the Technology Innovation Program (TIP) and $110 million for MEP)
for FY2008, $253.5 million ($131.5 million for TIP and $122 million for MEP) for FY2009, and
$272.3 million ($140.5 million for TIP and $131.8 million for MEP) for FY2010. Among the new
programs established within NIST would be a Technology Innovation Program (to replace the
Advanced Technology Program), collaborative manufacturing research pilot grants, a
manufacturing fellowship program, and a manufacturing research database. Introduced on May
10, 2007; referred to the House Committee on Science and Technology. Passed House on May 21,
2007 and received in the Senate on May 22, 2007. Placed on Senate Legislative Calendar under
General Orders. Senate struck out all after the Enacting Clause and substituted the language of S.
761. Passed Senate, with the amendment, on July 19, 2007. Conference held and conference
report agreed to on July 31, 2007. House and Senate agreed to conference report on August 2,
2007. Signed into law by the President on August 9, 2007.

P.L. 110-161 (H.R. 2764)

Consolidated Appropriations Act, FY2008. Appropriates $89.6 million for the Manufacturing
Extension Partnership and $65.2 million for the Technology Innovation Program which replaces
the Advanced Technology Program (with an additional $5 million from FY2007 ATP unobligated
balances), among other things. Introduced June 18, 2007; referred to the House Committee on
Appropriations. Passed House on June 22, 2007, and received in Senate the same day and referred
to the Senate Committee on Appropriations. Reported from the Senate Committee on
Appropriations, with an amendment in the nature of a substitute, on June 28, 2007. Passed Senate,
amended, on September 6, 2007. Signed into law by the President on December 26, 2007.

P.L. 110-229 (S. 2739)

Consolidated Natural Resources Act of 2008. Title VI creates a program of grants to non-profit
institutions, state and local governments, cooperative extension services, or universities to
transfer energy efficient methods and technologies. Introduced in the Senate on March 10, 2008.
Passed the Senate without amendment on April 10, 2008. Passed the House on April 29, 2008.
Signed into law by the President on May 8, 2008.

H.R. 1712 (Johnson, E. B.)

The Research and Development Tax Credit Act of 2007. Makes the research tax credit permanent
and allows for the issuance of tax exempt facility bonds for research park facilities used for
research and experimentation, among other things. Introduced March 27, 2007; referred to the
House Committee on Ways and Means.

H.R. 2133 (Allen)

Small Business Investment and Promotion Act of 2007. Makes the research tax credit permanent,
among other things. Introduced May 8, 2007; referred to the House Committee on Ways and
Means.




   
                                                       


H.R. 2138 (Levin)

Investment in America Act of 2007. Makes the research tax credit permanent, among other things.
Introduced May 3, 2007; referred to the House Committee on Ways and Means.

H.R. 2734 (Walberg)

Tax Increase Prevention Act of 2007. Makes the research tax credit permanent, among other
things. Introduced June 14, 2007; referred to the House Committee on Ways and Means.

H.R. 3907 (Murphy, C.)

Small Business Tax Relief Act of 2007. Makes the research tax credit permanent, among other
things. Introduced October 18, 2007; referred to the House Committee on Ways and Means.

H.R. 5105 (Dreier)

Fair and Simple Tax Act of 2008. Makes the research tax credit permanent, among other things.
Introduced January 23, 2008; referred to the House Committee on Ways and Means.

H.R. 5681(McNerney)

Innovation Tax Credit Act of 2008. Revises the tax credit for increased research activities and
makes it permanent, among other things. Introduced April 2, 2008; referred to the House
Committee on Ways and Means.

H.R. 6049 (Rangel)

Renewable Energy and Job Creation Act of 2008. Extends the research tax credit through the end
of 2008, among other things. Introduced May 14, 2008; referred to the House Committee on
Ways and Means. Reported, amended, from the House Committee on Ways and Means on May
20, 2008. Passed the House on May 21, 2008.

S. 41 (Baucus)

Research Competitiveness Act of 2007. Amends the Internal Revenue Code to make the research
and experimentation tax credit permanent. Among other things, this bill would allow the issuance
of tax exempt facility bonds for research park facilities used for research and experimentation.
Introduced January 4, 2007; referred to the Senate Committee on Finance.

S. 592 (Collins)

GoMe Act. Extends the research tax credit through 2012, among other things. Introduced
February 14, 2007; referred to the Senate Committee on Finance.

S. 833 (Coleman)

COMPETE Act of 2007. Makes the research and experimentation tax credit permanent, among
other things. Introduced March 9, 2007; referred to the Senate Committee on Finance.




   
                                                        


S. 1373 (Pryor)/H.R. 4250 (Wilson)

Building a Stronger America Act. Provides for grants and loan guarantees for the development
and construction of science parks, among other things. Introduced May 11, 2007; referred to the
Senate Committee on Commerce, Science, and Transportation. Hearings held by the
Subcommittee on Science, Technology, and Innovation on October 18, 2007. H.R. 4250
introduced November 15, 2007; referred to the House Committee on Science and Technology.

S. 2209 (Hatch)

Research Credit Improvement Act of 2007. Simplifies the research tax credit and makes it
permanent, among other things. Introduced October 19, 2007; referred to the Senate Committee
on Finance.

S. 2552 (Snowe)

Small Business Stimulus Act of 2008. Extends the research tax credit through the end of 2008.
Introduced January 24, 2008; referred to the Senate Committee on Finance.

S. 2884 (Collins)

Research and Development Tax Credit Improvement Act of 2008. Revises the tax credit for
increased research activities and extends the credit through 2012, among other things. Introduced
April 17, 2008; referred to the Senate Committee on Finance.

S. 3078 (Collins)

National Innovation and Job Creation Act of 2008. Establishes a National Innovation Council to
coordinate federal innovation policy and provide support for state and local initiatives in this area.
Provides funding for cluster development activities and information dissemination, among other
things. Introduced June 3, 2008; referred to the Senate Committee on Commerce, Science, and
Transportation.



    

Wendy H. Schacht
Specialist in Science and Technology Policy
wschacht@crs.loc.gov, 7-7066




   

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