[Senate Hearing 107-1111]
[From the U.S. Government Publishing Office]
S. Hrg. 107-1111
TECHNOLOGY ADMINISTRATION AND THE
NATIONAL INSTITUTE OF STANDARDS AND
TECHNOLOGY, INCLUDING THE ADVANCED
TECHNOLOGY PROGRAM
=======================================================================
HEARING
before the
COMMITTEE ON COMMERCE,
SCIENCE, AND TRANSPORTATION,
UNITED STATES SENATE,
ONE HUNDRED SEVENTH CONGRESS
SECOND SESSION
__________
APRIL 16, 2002
__________
Printed for the use of the Committee on Commerce, Science, and
Transportation
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0SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION
ONE HUNDRED SEVENTH CONGRESS
SECOND SESSION
ERNEST F. HOLLINGS, South Carolina, Chairman
DANIEL K. INOUYE, Hawaii JOHN McCAIN, Arizona
JOHN D. ROCKEFELLER IV, West TED STEVENS, Alaska
Virginia CONRAD BURNS, Montana
JOHN F. KERRY, Massachusetts TRENT LOTT, Mississippi
JOHN B. BREAUX, Louisiana KAY BAILEY HUTCHISON, Texas
BYRON L. DORGAN, North Dakota OLYMPIA J. SNOWE, Maine
RON WYDEN, Oregon SAM BROWNBACK, Kansas
MAX CLELAND, Georgia GORDON SMITH, Oregon
BARBARA BOXER, California PETER G. FITZGERALD, Illinois
JOHN EDWARDS, North Carolina JOHN ENSIGN, Nevada
JEAN CARNAHAN, Missouri GEORGE ALLEN, Virginia
BILL NELSON, Florida
Kevin D. Kayes, Democratic Staff Director
Moses Boyd, Democratic Chief Counsel
Jeanne Bumpus, Republican Staff Director and General Counsel
C O N T E N T S
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Page
Hearing held on April 16, 2002................................... 1
Statement of Senator Allen....................................... 16
Prepared statement........................................... 16
Letter from Jeffery Payne, President and CEO, Cigital, Inc... 17
Statement of Senator Hollings.................................... 1
Prepared statement........................................... 2
Statement of Senator McCain...................................... 3
Prepared statement........................................... 4
Statement of Senator Nelson...................................... 23
Statement of Senator Wyden....................................... 21
Witnesses
Armstrong, Anne A., President, Virginia's Center for Innovative
Technology..................................................... 25
Prepared statement........................................... 27
Bodman, Hon. Samuel, Ph.D., Deputy Secretary, Department of
Commerce....................................................... 5
Prepared statement........................................... 8
Branscomb, Lewis M., Ph.D., Professor, Harvard University........ 29
Prepared statement........................................... 31
Donnelly, Scott, Senior Vice President for Global Research,
General Electric Company....................................... 34
Prepared statement........................................... 36
Appendix
Response to Written Questions Submitted by Hon. John B. Breaux to
Hon. Samuel Bodman............................................. 57
Response to Written Questions Submitted by Hon. Ernest F.
Hollings to Hon. Samuel Bodman................................. 56
Response to Written Questions Submitted by Hon. John McCain to:
Anne A. Armstrong............................................ 57
Hon. Samuel Bodman........................................... 43
Dr. Lewis Branscomb.......................................... 58
Scott Donnelly............................................... 61
TECHNOLOGY ADMINISTRATION AND THE
NATIONAL INSTITUTE OF STANDARDS
AND TECHNOLOGY, INCLUDING THE
ADVANCED TECHNOLOGY PROGRAM
----------
TUESDAY, APRIL 16, 2002
U.S. Senate,
Committee on Commerce, Science, and Transportation,
Washington, DC.
The Committee met, pursuant to notice, at 9:31 a.m. in room
SR-253, Russell Senate Office Building, Hon. Ernest F.
Hollings, Chairman of the Committee, presiding.
OPENING STATEMENT OF HON. ERNEST F. HOLLINGS,
U.S. SENATOR FROM SOUTH CAROLINA
The Chairman. Good morning. The Committee will come to
order. We are pleased this morning to conduct our hearing
relative to the programs of the Technology Administration and
NIST, particularly the ATP program. I want to put my full
statement in the record and let me shorten it by observing that
this ATP program has been tried and true. We have actually got
great results--ATP has been studied to death in a sense. It's
projects have improved automobile manufacturing processes,
reduced the cost of blood and immune cell production, and
developed new material for prosthetic devices, all of which
have more than paid for all of the projects the ATP program has
funded.
The reason I emphasize this is that it is always a struggle
seemingly with the Office of Management and Budget on the cost
of the program. Every attempt has been made over the years to
eliminate the program, bluntly.
I have had the pleasure of working with Secretary Bodman--
and we welcome you here today, Secretary Bodman--on the premise
and promise of Secretary Evans relative to trying to fine-tune
the ATP program to the satisfaction of the Administration. With
regard to those changes, we go along with the participation of
the universities and various other suggestions, save and
excepting that recoupment.
We did away with recoupment in 1992, some ten years ago. We
found it counterproductive in the sense it discouraged
companies from participating on the one hand. On the other
hand, we noted the Administration has suggested, essentially, a
five times taxation for success of the technology itself. So we
welcome you.
Let me yield to my distinguished ranking member here.
[The prepared statement of Senator Hollings follows:]
Prepared Statement of Hon. Ernest F. Hollings,
U.S. Senator from South Carolina
Today's hearing will examine the programs of the Department of
Commerce's Technology Administration and the National Institute of
Standards and Technology, with particular emphasis on the Advanced
Technology Program. We are pleased to have Deputy Secretary of Commerce
Dr. Sam Bodman, as well as our other distinguished witnesses, here with
us today.
NIST is really a hidden treasure. Twice in the past five years,
NIST Scientists have shared in the Physics Nobel Prize. Whether they
are investigating the collapse of the world trade center, making small
manufacturers better, sponsoring innovative research, or improving
timekeeping, the people of this little-noticed agency continue to do
amazing work, and I commend them.
Nonetheless, we continue to be embroiled in an annual tug-of-war on
funding for the Advanced Technology Program, known as ATP. I am
encouraged that Secretary Evans and Deputy Secretary Bodman want to
stabilize this program.
After all, the benefits of the program are well-documented. The
program has been studied thoroughly from individual case studies, to
comprehensive examinations like the 2001 study for the National Academy
of Sciences' National Research Council. What the analysis shows time
and time again is that the ATP is stimulating collaboration,
accelerating the development of high-risk technologies, and paying off
for the nation.
The Commerce Department has proposed several changes to the ATP. I
look forward to examining each of these changes and hope to include
many of them in a NIST authorization bill this year.
However, the proposal for recoupment of up to 5 times the original
amount of funding is not acceptable. First, the program has tried
recoupment and failed. The Department cites the Clean Coal Technology
Program of the Department of Energy as a poster child for recoupment.
That program--established in 1986--has recovered approximately one-
tenth of one percent of the $1.1 billion invested in completed
projects.
More importantly, recoupment discourages companies from
participating in the program. When they do participate, a cost recovery
provision encourages the companies to say that the enabling ATP
research had no impact on successful products. In another ten years,
supporters of the program will have no success stories to tell and
through recoupment, we will have done what opponents of the program
have failed to do for ten years, kill ATP.
And what successes the program has had. Since its inception in 1989
this industry-led, competitive, and cost-shared program has helped the
U.S. develop the next generation of breakthrough technologies in
advance of its foreign competitors.
On the second panel, we will hear from Scott Donnelly of GE. His
company, with ATP funding, developed a new method to produce the X-ray
panels that are the heart of a new digital mammography system. This
system is giving women and their doctors access to better, cheaper
digital mammograms.
A March 1999 study found that future returns from just three of the
completed ATP projects--improving automobile manufacturing processes,
reducing the cost of blood and immune cell production, and using a new
material for prosthesis devices--would pay for all projects funded to
date by the ATP.
The ATP is not the only well-regarded program that is threatened.
In spite of rave reviews and dramatic successes, the Administration has
proposed to eliminate Federal support for Manufacturing Extension
Partnership Centers in FY 2003.
Ironically, these MEP Centers help fulfill one of the top
priorities stated in the Administration's budget: ``revitalize the
economy and create jobs.'' MEP helps small manufacturers stay
competitive and, in 2000, helped these businesses attain $2.3 billion
in increased or retained sales, save costs of $480 million, and create
or retain more than 25,000 jobs.
Support for MEP is strong. Members of the Senate have received
approximately 8,000 letters from manufacturers and private consultants
urging us to continue to support the program.
I look forward to examining these and other related issues and to
the testimony of our distinguished witnesses.
STATEMENT OF HON. JOHN McCAIN,
U.S. SENATOR FROM ARIZONA
Senator McCain. Thank you, Mr. Chairman. Thanks for calling
the hearing today. I want to thank our witnesses for appearing
before the Committee.
As we look forward to the twenty-first century, it is
impossible to discuss the future without considering the role
of technology. In the past the United States has focused the
majority of its research and development funds towards defense.
However, recent analyses show that Federal R&D funding has
shifted toward the civilian side. An essential element of a
modern economy is a well-educated, versatile work force able to
conduct R&D and to convert its results into innovative
products, processes, and services. We must continue to refine
our innovation models to ensure the United States maintains its
position of leadership in science and technology development,
given the constantly changing nature of the world.
Today we will review the Technology Administration at the
Department of Commerce and its role in the Federal Government.
The Technology Administration has broad responsibilities,
ranging from space commercialization to publication of
technical documents to nanotechnology to local building codes.
The quality of work conducted at its laboratories in
Gaithersburg, Maryland and Boulder, Colorado is evident by the
awarding of two Nobel Prizes to NIST researchers, Dr. Bill
Phillips and Dr. Eric Cornell, in the past 5 years. To Dr.
Bodman and the many other engineers and scientists at the
laboratory, we look forward to your third award in the near
future.
This year's budget request, as usual, is not without
controversy. Usually Advanced Technology Program funding level
is a point of contention. This year the controversy extends
into the Manufacturing Extension Partnership Program. I
understand that the administration had to make some tough
choices based upon limited resources. It appears the
administration made a decision to fund ATP at $100 million
above last year's request while cutting MEP funding by $100
million below last year's request.
Although the administration stated that the decision to
reduce MEP funding was based on retaining the 6-year sunset
envisioned in the original statute that created the MEP
program, the sunset was repealed in 1998.
I look forward to hearing not only what criteria were used
to reach these budgetary decisions, but also the results of the
evaluations of the ATP and MEP programs. I think it would be
helpful to understand how it is in the best interests of the
country to take away millions of dollars in a program which
provides assistance to small manufacturers in adopting new
technologies, processes, and business practices and give these
millions to a small number of companies, including Fortune 500
companies, for high-risk long-term research.
In the spirit of making tough decisions, I would also like
to understand why the Teacher Science and Technology
Enhancement Program that was created in 1998 by the Congress to
work with high school math and science teachers during the
summer months to help them better understand the relationship
between technology and commerce, did not receive any
consideration in this budget request. Given the importance that
everyone is placing on math and science education and realizing
the economic potential of technology, how is this a loser?
I know there are also other programs in which Members of
this Committee have expressed an interest that are not included
in the budget request. I hope we can reach a resolution on
these matters.
Finally, Mr. Chairman, I am interested in hearing about
activities at the Technology Administration concerning climate
change. In the energy bill that is currently on the Senate
floor there are several provisions that will have an impact on
the programs of the Department. It would be useful to hear the
Department's evaluation of these provisions.
Thank you, Mr. Chairman. I look forward to the witnesses'
testimony.
[The prepared statement of Senator McCain follows:]
Prepared Statement of Hon. John McCain,
U.S. Senator from Arizona
Mr. Chairman, thank you for calling this hearing today. I also
thank our witnesses for appearing before the Committee.
As we look to the 21st century, it is impossible to discuss the
future without considering the role of technology. In the past, the
United States has focused the majority of its research and development
funds toward defense. However, recent analysis show that Federal R&D
funding has shifted toward the civilian side.
The essential element of a modern economy is a well-educated,
versatile workforce able to conduct R&D and to convert its results into
innovative products, processes, and services. We must continue to
refine our innovation models to ensure that the United States maintains
its position of leadership in science and technology development, given
the constantly changing nature of the world. We must ensure that our
research continues to lead to innovations which are fueled by a
technically savvy workforce, and is supported by appropriate technology
transfer and commercialization activities creating further economic
growth.
Today, we will review the Technology Administration at the
Department of Commerce and its role in the Federal government. I hope
that we can learn more about the vision for the organization. Because a
vision without a strategy is just an illusion, I am also interested in
hearing about the associated strategy.
The Technology Administration has broad responsibilities ranging
from space commercialization, to publication of technical documents, to
nanotechnology, to local building codes. The quality of work conducted
at its laboratories in Gaithersburg, Maryland and Boulder, Colorado is
evident by the awarding of two Nobel Prizes to NIST researchers, Dr.
Bill Phillips and Dr. Eric Cornell, in the past five years. To Dr.
Bodman and the many other engineers and scientists at the laboratory,
we look forward to your third award in the near future.
This year's budget request, as usual, is not without controversy.
Usually, the Advanced Technology Program (ATP) funding level is the
point of contention. This year, the controversy extends into the
Manufacturing Extension Partnership (MEP) program.
I understand that the Administration had to make some tough choices
based upon limited resources. It appears that the Administration made a
decision to fund ATP at $100 million above last year's request while
cutting MEP funding by $100 million below last year's request. Although
the Administration stated that the decision to reduce MEP funding was
based on retaining the six-year sunset envisioned in the original
statute that created the MEP program, the sunset was repealed in 1998.
I look forward to hearing not only what criteria were used to reach
these budgetary decisions, but also the results of the evaluations of
the ATP and MEP programs. I think it would be helpful to understand how
it is in the best interest of the country to take away millions of
dollars in a program which provides assistance for small manufacturers
in adopting new technologies, processes, and business practices, and
give these millions to a small number of companies, including Fortune
500 companies, for ``high-risk'' long-term research.
In the spirit of making tough decisions, I would also like to
understand why the Teacher Science and Technology Enhancement Program
that was created in 1998 by the Congress to work with high school math
and science teachers during the summer months to help them better
understand the relationship between technology and commerce did not
receive any consideration in this budget request. Given the importance
that everyone is placing on math and science education and realizing
the economic potential of technology, how was this a loser?
I know there are also other programs in which Members of this
Committee have expressed an interest that are not included in the
budget request. I hope we can reach a resolution on these matters.
Finally, Mr. Chairman, I am interested in hearing about activities
at the Technology Administration concerning climate change. In the
Energy bill that is currently on the Senate floor, there are several
provisions that will have an impact on the programs at the Department.
It would be useful to hear the Department's evaluations of these
provisions.
Thank you Mr. Chairman, and I look forward to the witnesses'
testimony.
The Chairman. Thank you.
Secretary Bodman, we would be delighted to hear from you at
this time. We include your statement in its entirety in the
record and you can deliver it as you wish or summarize, either
way.
STATEMENT OF HON. SAMUEL BODMAN, Ph.D.,
DEPUTY SECRETARY, DEPARTMENT OF COMMERCE
Dr. Bodman. Well, I have a summary statement. Chairman
Hollings, Ranking Member McCain, thank you very much for your
invitation to be here. It is a privilege to be here to talk
about something near and dear to my heart, namely technology
and the commercialization of technology.
I know that the Committee has particular interest in the
proposals related to the ATP program and I am happy to discuss
our thinking related to that. I also want to say at the outset
that I recognize that the level of funding in the
administration's request is disappointing in some areas and to
some Members of the Committee. That has already been made
clear. But this has been a challenging budget year. As you well
know, the priorities of the administration have been focused on
the war on terror and on homeland security, and therefore our
requests for the various programs here represent our best
judgment as to how to balance the needs of those priorities
versus the various science programs that are of interest here.
TA and NIST are committed to maximizing the contribution of
technology to our Nation's economy. They work with the private
sector, with our universities and other agencies to spur
innovation and entrepreneurship. More than ever before, as
Senator McCain has said, technology is vital to maintaining and
building our country's strength.
It is no accident that our country leads the world in
technology. Our achievements are in my view a dividend of
funding that was started in the forties, largely from the
Office of Naval Research, that helped establish the
technological beachheads in many of our research-based
institutions, which has then spread nationally to most of our
universities in America.
Private enterprise takes the lead in ensuring that the
United States remains on the cutting edge of technology from a
commercial standpoint. But our government, our Federal
Government, plays a critical role in enabling the creation of
new technology for private industry. The Technology
Administration is the principal Federal agency with the
explicit mission to maximize technology's contribution to our
economy. TA is the leading portal, a bully pulpit, if you will,
for the Federal Government in its relations with the technology
industry. The Under Secretary and the Office of Technology
Policy coordinate policy for the government in partnership with
industry and the technical or the high tech community.
Recently, TA hosted a number of workshops, several of which
I have chaired myself or co-chaired. Topics have included the
environment for innovation and R and D in the United States,
the factors affecting domestic demand for broadband
technologies, the state of technological development in the
European Union, and the flow of venture capital in Russia.
As this Committee well knows, NIST is a world-class
organization that performs cutting edge research. NIST programs
support homeland security. Currently NIST conducts more than 75
projects that aid law enforcement, military operations,
emergency services, airport and building security, and cyber
security. On March 29th, NIST and FEMA entered into a
memorandum of understanding that establishes a framework under
which NIST will be a research source for FEMA in disaster
prevention and homeland security.
The administration requests a total budget of $578 million
for NIST, which represents a total decrease of $103 million
from the fiscal 2002 appropriation. Within this amount, $396
million is provided for NIST labs, or a $75 million increase
relative to 2002, of which $50 million will be used to complete
and equip the Advanced Measurement Laboratory now under
construction.
The new laboratory is a unique facility. It is to be
completed in late calendar year 2003. Key technology industries
will require extremely precise measurements and standards at
the atomic scale and growing demand for these capabilities can
only be met with the special equipment and the highly
controlled environment in this new lab.
NIST will also undertake some long-overdue improvements at
NIST's Boulder, Colorado, laboratories. Most of these buildings
are over 50 years old. I would respond, if I may, to Senator
McCain's comment about our next Nobel Prize winner coming
along, which I devoutly hope will be the case, but I would tell
you, based on my eight months of experience in working for the
government, I have found that our physical facilities do not
seem to attract maintenance funds in the same way that happens
in private industry.
So we find ourselves with a physical infrastructure, of
which Boulder is an example, that is not conducive to world-
class research, and in fact I think it is raised from time to
time as a reason that we might have difficulty holding onto the
kinds of scientists that we wish to keep.
The plans also are to expand our operations out in
Gaithersburg at the Center for Neutron Research. This center is
the best facility of its kind in the United States and is now
chockablock with demand for time on it and we wish to expand
the facility.
The ATP program has been, as has been noted, a subject of
perennial debate. Last summer Secretary Evans initiated a
review with the intention of stabilizing the program. He asked
me to head that up. As has been mentioned, we have confirmed
that which the Committee already knew, namely that this has
been a very effective program. We nevertheless concluded that
some reforms could be put in place that would improve the
performance of the program.
Specifically, we have proposed reforms that include first
recognizing the significant value of the resources that
institutions of higher education offer by allowing universities
to lead ATP programs; secondly, to allow universities to
negotiate with joint venture partners for the right to
intellectual property, which they are denied permission to do
under current law.
It is our view that it would be appropriate to limit very
large companies' participation in the ATP program to joint
ventures. We do have a proposal that we believe in that--again,
this relates to the funding stress that we find ourselves
under--that some kind of cost recoupment for successful
projects, a royalty, if you will, from successful awards would
be appropriate.
We have recommended that we modify ATP project management
activities and selection criteria to ensure that the program
funds technical innovation and development. This is a
technology program, as to be contrasted with marketing or other
commercialization activities.
Then lastly, to ensure that ATP's project evaluation boards
where appropriate have additional private sector non-
proprietary input as to whether a specific technology is truly
innovative and not already being adequately supported by the
private sector. You can read into that some input from the
venture capital or angel investor community we think would be
useful.
We would like to work with the Congress to implement these
reforms. The Secretary and I have been deeply involved in this
issue. Personally, I have done so myself and spent a good deal
of time on it. We have asked for a budget of $108 million,
which would demonstrate our commitment to the program, of which
$35 million would be for new projects and the balance would be
for continuation of those projects which began in prior years.
In tomorrow's Federal Register the Department will announce
the fiscal 2002 competition for ATP. We plan to hold a single
competition open to all technology areas. Those proposals
received by the first deadline in June will be eligible for
funding this fiscal year.
With respect to the MEP program, our $12.9 million request
for the MEP partnership would return that program, as has been
mentioned, to its original plan, which called for the phaseout
of Federal moneys after 6 years of funding. The
administration's proposal would continue NIST funding for two
centers which are less than 6 years old and continue full
funding for those administrative centralized activities that
are appropriate for coordinating the network of some 60 MEP
centers, at least in the near term.
This past year was a notable one for the Baldrige program.
We awarded our first Malcolm Baldrige Awards in the education
category. Two school districts, the Chugach, Alaska, School
District and Pearl River, New York, School District, as well as
the University of Wisconsin at Stout, accounted for three of
the five awards.
I may mention in passing that the young man, a 17-year-old
senior from Chugach, Alaska, gave the acceptance speech and
made it exceedingly difficult on those who followed him to the
podium, who were 20 years older and had to fight to do as good
a job as he did in his acceptance speech.
There was a column, David Broder's column, this past Sunday
about the success of the Chugach School District. Apparently
the word is getting out that working hard and applying the
Baldrige quality principles can help our educational
institutions, and we are optimistic about future awards in this
field.
That concludes my introductory remarks, sir, and I would be
happy to try to respond to questions.
[The prepared statement of Dr. Bodman follows:]
Prepared Statement of Hon. Samuel Bodman, Ph.D,
Deputy Secretary, Department of Commerce
Chairman Hollings, Ranking Member McCain, and Members of the
Committee, I thank you for this opportunity to testify in support of
Congressional authorization of the programs of the Technology
Administration and the National Institute of Standards and Technology
(NIST) within the Department of Commerce. I also understand that the
Committee wishes to focus particular attention on the reforms that the
Administration has proposed concerning the Advanced Technology Program.
I look forward to discussing them with you today.
Technology Administration (TA) and NIST Programs: their goals and
importance.
TA and NIST are committed to maximizing the contribution of
technology to our national economy. They also work with the private
sector and other agencies to spur the innovation and entrepreneurship
that lead to more high-quality, high-paying jobs, which in turn foster
our country's economic security. A strong economy and national defense
are not only the bedrock of our quality of life and global leadership,
but of our very freedom. More than ever before, technology is vital to
maintaining and building these U.S. strengths.
As we have all witnessed in the past few months, technology is our
force-multiplier in the war on terrorism and in homeland security.
Thanks to technology, we can put the world's finest tools in the hands
of our military, law enforcement and public safety personnel. Our
advanced technologies are significantly reducing the risk to these
American men and women in service to their communities and their
country. There is every reason to believe that, in the years ahead,
technology will continue to be a significant force in our economy and
in the defense of our nation.
I would like to report to the Committee that on March 29th, NIST
and FEMA entered into a Memorandum of Understanding (MOU) that we
believe will significantly enhance the effectiveness of the two
agencies' cooperation. The MOU establishes a framework under which NIST
will be a research resource for FEMA in the areas of disaster
prevention and homeland security.
It is no accident that the United States leads the world in
sophisticated technology, both civilian and defense. Our achievements
are the dividends that flow from sustained public and private sector
investments in research and development since the late 1940's, coupled
with America's entrepreneurial spirit and willingness to take risks.
While under our economic system private enterprise takes the lead in
ensuring that the United States remains on the cutting edge of
technology and stays competitive in the world's high-tech markets, the
Federal government plays a critical enabling role. The U.S. Government,
in recent decades, has strongly supported scientific and technological
research, fostered excellence in standards development, and maintained
laws that foster innovation. These activities--in which the Technology
Administration plays a key part--have not only helped our industries
become technology leaders, but have caused our universities to become
world-class scientific and technological research institutions. I would
like briefly to outline some of the key operational elements and
programs of TA and NIST that support this role.
The Technology Administration
The Office of Technology Policy. In support of the President's
priorities for science, technology, and U.S. competitiveness, the
Technology Administration's Office of Technology Policy develops and
advocates national policies and initiatives that support the use of
technology to build America's economic strength. Its activities
include:
Promoting innovation through leadership and advocacy of
policies that encourage research, development, and
commercialization of new technologies (such as nanotechnology
and biotechnology);
Representing the interests of U.S. innovators and
entrepreneurs in international forums and partnerships;
Working with states, localities, and Federal labs to
institute policies that promote technology-led economic
development;
Fostering national workforce policies that promote and
improve the education and training of future scientists and
engineers, and by recognizing excellence through the National
Medal of Technology program;
Working with industry to employ technologies, such as
telemedicine and other e-commerce applications, in new ways for
greater productivity and higher standards of living, and
encouraging more students to pursue scientific and
technological careers through the GetTech public-private
partnership;
Maintaining close communication and understanding between
government, industry and academia on technological and
innovation issues. Recently TA has hosted a series of
workshops, several of which I have chaired, that build mutual
understanding of important market trends and developments.
Topics have included the environment for innovation and R&D in
the U.S., the factors affecting domestic demand for broadband
technologies, the state of technological development in the EU,
and the flow of venture capital in Russia.
The National Technical Information Service (NTIS). The overall role
of NTIS is to enhance public access to Federal ly generated scientific
and technical information. I am pleased to report that NTIS is
performing this important work on a self-sustaining basis. Part of its
revenue is derived from the sale of technical reports. But, consistent
with Congress' 1988 mandate that NTIS develop new ways to disseminate
information and its 1992 mandate to focus on electronic media, NTIS is
also generating revenue through services to other Federal agencies that
help them communicate more effectively with their own constituencies
online.
The National Institute of Standards and Technology (NIST).
As this Committee well knows, NIST is a world-class organization
that performs cutting edge research driven by its mission of developing
and promoting measurements, standards, and technology to enhance
productivity, facilitate trade, and improve the quality of life.
NIST, has just begun its second century of service to the Nation,
and in this period it has already produced some notable achievements.
In 2001, for the second time in five years, a NIST scientist won the
Nobel Prize in Physics, the ultimate recognition in science. This time,
NIST's Eric Cornell, along with a colleague from the University of
Colorado and another from MIT, won the prize for creating an entirely
new state of matter, called a Bose-Einstein condensate. This super-cold
creation, first accomplished in 1995, has launched a new branch of
atomic physics and unlocked a potential treasure trove of discoveries
and new technologies. The work of Cornell and his colleagues builds on
the contributions of NIST's 1997 Nobel Prize winner, Bill Phillips, who
perfected methods for trapping and cooling atoms with lasers. This
capability is now exploited in NIST's newest atomic clock, which
neither gains nor loses as much as one-billionth of a second in 20
years.
NIST's standards and measurements activities actively support
efforts to strengthen homeland security. Currently, NIST is conducting
more than 75 projects that support law enforcement, military
operations, emergency services, airport and building security, cyber
security, and efforts to develop new types of security technologies.
NIST is truly the ``crown jewel'' of the Federal laboratory system.
Three particular ongoing or planned initiatives address homeland
security. The first of these deals with current building design
standards and practices. Current building design practices do not
consider fire as a design condition or the consequences of injected
fuels or other highly flammable materials. Architects, not engineers,
specify fire protection in buildings, and the current testing standards
are based on work carried out by NIST in the 1920s. In addition,
progressive collapse--the spread of failure by a chain reaction
disproportionate to the triggering event--is an important issue that
will be investigated in connection with the World Trade Center collapse
and was responsible for the high number of deaths in the 1995 bombing
of the Federal building in Oklahoma City. Yet there are no U.S.
standards, codes, and practices to assess and reduce this
vulnerability. Beyond designing buildings that are better able
physically to withstand major disasters, the development of
``intelligent'' buildings could significantly affect the outcome in
terms of lives saved.
For this and other reasons, NIST is proposing to increase the
resources devoted to its Program for Accelerating Critical Information
Technologies. This increase in emphasis will support the development of
networked systems of embedded devices (``EmNets'') to detect, prevent,
and respond to natural and human-caused disasters. As computing device
costs decline and capabilities increase, devices and sensors will be
embedded in buildings, office spaces, manufacturing floors,
transportation medians, and appliances and will be interconnected using
wired or wireless networks. EmNets could offer enormous benefits to
personnel responding to a disaster, providing substantial amounts of
information in real time that could help to save lives and resources.
NIST's third new initiative in support of homeland security
involves the Computer Security Expert Assist Team. This team, based at
NIST, assists other Federal agencies on a cost-reimbursable basis.
Federal agencies are taking action to improve security, but most do not
understand what actions to take or in what order. NIST staff includes
world leaders in all aspects of information security.
The Advanced Technology Program. The Advanced Technology Program
(ATP) has been the subject of perennial debate that has hindered its
stability and effectiveness. Last summer, Secretary Evans initiated a
review of the Program with a view toward resolving this debate. The
results of that review are outlined in a report, The Advanced
Technology Program: Reform with a Purpose, which was issued earlier
this year.
Based on the Department's careful review and analysis of ATP, the
report highlights important reforms for the Program and more clearly
defines its role in the R&D enterprise. Technologies developed through
ATP have significant potential to bring economic growth and benefits to
the entire Nation. Nevertheless, our review concluded that some reforms
are needed to provide ATP with the proper tools and direction it needs
in order to be effective in the 21st century. For example, much has
changed since the Program's inception over a decade ago, such as the
increasingly important role of universities in innovative activity.
Despite this expansion in their R&D role, universities may not, under
current law, lead ATP joint ventures or hold rights in the intellectual
property that results from ATP-funded research. The Program needs to
respond to this and other changes in the research and business
environment. Specifically, the proposed reforms include:
Recognizing the significant value of the resources that
institutions of higher education offer by allowing universities
to lead ATP joint ventures;
Offering universities increased incentive to participate in
developing commercially relevant technologies by allowing them
to negotiate with joint venture partners over the rights to
hold the intellectual property that results from research;
Limiting very large companies' participation in ATP to joint
ventures. ATP support for companies of Fortune 500 size as
single applicants is inappropriate. However, in recognition of
the economic value of the diffusion of knowledge--as well as
other national benefits that arise from large firm
participation in joint ventures--very large companies should be
permitted to receive ATP awards, although only as part of a
joint venture;
Allowing recoupment from companies, and reinvestment into
the Program, of a percentage of revenues derived from
successfully commercialized awards. To accomplish this, ATP-
funded companies that achieve commercialization would pay an
annual royalty to the government of 5 percent of any gross
product revenues, up to 500 percent of the amount of the
original award;
Modifying ATP project management activities and selection
criteria to ensure that the Program funds technological
innovation and development, as contrasted with marketing or
other commercialization activities; and
Ensuring that ATP's project evaluation boards, where
appropriate, have additional private-sector, non-proprietary
input as to whether a specific technology is truly innovative
and not already being adequately supported by the private
sector.
We want to work with the Congress on the implementation of
appropriate reforms, including recoupment of the government's
investment in profitable ventures, which can be re-invested into the
Program. In this way the stability and effectiveness of the Program, we
believe, can be greatly improved. The Secretary and I have been
personally involved in this issue and feel strongly about the proposed
reforms. The Administration's proposed budget of $107.9 million
demonstrates our commitment to an enhanced ATP.
NIST Laboratory Initiatives. For the upcoming fiscal year, the
Administration has requested a budget of $396.4 million, an increase of
slightly more than $75 million over last year's appropriation. Of this
amount, $50 million will be used to complete and equip NIST's state-of-
the-art Advanced Measurement Laboratory, now under construction. A
facility like no other in the world, the Advanced Measurement
Laboratory is due to be completed in late 2003.
The Advanced Measurement Laboratory (AML) is extremely important to
the Nation's technology future. Its unique, highly controlled
environment is essential to NIST's ability to develop necessary
capabilities and tools. High-technology industries need advanced
measurement methods and standards to efficiently develop and produce
new products and services. The semiconductor, telecommunications, data
storage, biotechnology, and other key technology industries already
require extremely precise measurements and standards that are
approaching atomic scale. Growing demand for these and other
exceedingly accurate measurement capabilities can only be met with
special equipment in the unique AML environment.
NIST is also planning construction and renovation activities that
will include long-overdue improvements at NIST's Boulder, Colorado,
laboratories, where most of the buildings are nearly 50 years old.
Facility-related problems at the Boulder campus include severe
temperature fluctuations and power interruptions that often threaten
the quality of NIST data; power outages, spikes, and brownouts that
damage sensitive equipment; and poor heating and air conditioning
controls that have prevented the on-time delivery of specialized
superconducting chips to defense contractors, instrument makers, and
other NIST customers.
Key initiatives of the NIST laboratories will help to achieve the
President's aim to leverage the Nation's technology resources to speed
progress on several security fronts. For example, NIST plans to expand
operations and strengthen research capabilities at the NIST Center for
Neutron Research. This Center is the best and most productive facility
of its kind in the United States and among the best in the world. As
growing numbers of researchers are discovering, neutrons are incredibly
useful probes. Requests for ``beam time'' (experimental measuring time)
at this facility greatly exceed the Center's existing capacity. We plan
to take steps to meet this demand for what is a truly unique resource
for U.S. science. NIST will build staff expertise for the development
of new instruments and capabilities that will allow the agency to
increase the number of users by a minimum of 25 percent, from
approximately 1,750 to 2,300 per year, and strengthen key program areas
ranging from materials science to biology to fuel-cell research.
NIST also plans to expand its program in nanotechnology, an
exceptionally promising area in which NIST is already a leader.
Miniature technologies are important in many fields, including health
care, semiconductors, information technology, biotechnology and data
storage--many of which applications are important to homeland and
national security. Nearly all industrial sectors plan to exploit
nanotechnology, and most of their plans call for appropriately scaled
measurements and standards--NIST's specialty.
The Manufacturing Extension Partnership Program (MEP). The original
blueprint for MEP called for NIST to provide cost-share support to new
centers in the network during their crucial start-up years, after which
the Federal funding would be slowly phased out and the centers would
become self-sufficient. The $12.9 million FY 2003 budget request would
return MEP to this original plan, which called for the phase out of
Federal monies to centers after six years of funding. The
Administration's proposed budget will continue NIST cost-share funding
for two centers that are less than six years old, while allowing MEP to
continue to provide full technical and product support and coordination
for the network of centers.
Malcolm Baldrige National Quality Program. This past year was an
especially notable one for the Baldrige Program. It awarded its first
Malcolm Baldrige National Quality Awards in the education category. Two
school districts--Chugach, Alaska, and Pearl River, New York--and one
university--Stout University in Wisconsin--accounted for three of the
five awards given this year. These award winners will be excellent role
models for 21st century education organizations. We are optimistic
that, in the years to come, adoption of the Baldrige criteria for
performance excellence will spread across the education sector. As it
does, we anticipate that the Program will motivate the same kind of
revolution in the quality of American education that it helped to
launch in U.S. industry.
Mr. Chairman, I thank you for the opportunity to address the
Committee on these important issues. I will be happy to answer
questions you may have.
The Chairman. Secretary Bodman, let the record show that
you and I have been conferring and also with Secretary Evans--I
have the highest regard for both you and the Secretary--in
trying to iron this controversy regarding ATP out, because I
think you folks have the understanding and want to make this
program a success or, let us say, continue it as a success.
In other words, the hearing is to how are we going to save
a little here, save a little there. For the benefit of the
hearing, let me relate my feelings with respect to the
elephantine size of government. It started under President
Nixon. I will never forget it. What we had was a donnybrook. He
wanted to send all the money back to the States. Governor Allen
and I would love that because we have been governors. And the
Congress wanted to continue all the particular programs.
So in the conference we had over at the White House, the
President said: Well, go ahead, just pass both of them. We did
not know and mind how tricky he was, and we passed both of
them. He signed both of them and then he impounded ours. In
other words, the program that the Congress had continued, the
President cancelled, so we had to sue him.
Secretary Bodman, you know, you and I are good friends, so
we are not going to sue each other to get you to spend the
money. The only reason I think of this story is that you say
that finally the end of April we are going to begin the 2002
ATP competition. The fiscal year began in October of last year,
months and months ago and just now you are coming for the ATP
program that you say is a very good program, yet none of the
$60 million in awards are made.
So in a sense, that is one way to administer it, and
another way for us to make sure it is administered in the way
the Congress intended is to sue the so-called tentative
impoundment or the one-half impoundment, because you are going
to carry over the $35 million and that is only a request.
That is one way to save money, but if you want to save
money, this Committee might look at the space station which
started out at $8 billion. It is now 10 years over schedule and
will cost $98 billion over its lifetime. It is $90 billion over
cost. If you want to save money, Senator, we can go down on the
floor and save some on that $30 billion farm subsidies that
they are trying to embellish with this other particular
program, the corn. They want to put in some several billion
more there.
Here with ATP, we have got just a few million dollars and,
like you say, world-class research. This ATP program of NIST
started with Craig Fields over there in DARPA. He found out
that we had all this technology backed up in the National
Bureau of Standards, and so we created ATP and renamed the
Bureau as the National Institute of Standards and Technology.
Now, we are trying to keep it going.
With regard to ATP, you speak of the original intent. You
are talking to the original intender. I do not want to sound
like Al Gore, I invented technology.
But for example, if we had put it in the universities
originally that would not have passed muster with Chairman
Danforth, then Chairman of this Committee. We were trying to
make sure ATP was not pork, and universities are famed for
pork. We have got the expert Senator on pork right here to my
right. They would have eliminated the whole program. That is
why the universities were not in it.
Now you are coming recommending pork. You want to get the
universities into the program. We had it studied out by experts
and each project has to be vetted by them before an award could
even be considered and then brought over to the Department of
Commerce and by your Committee--not you, not me, not the
President, not the Secretary--on a competitive basis make those
awards.
So we made all the fences for pork. Here we come back in
with the universities' pork, which we are glad to go along
with. We know about pork. Yet on the other hand, the recoupment
you propose would discourage participation and the taxation
really of five times the value of the particular program is
really on the one hand let us award technology, but make darn
sure we penalize it if it succeeds.
I would like your comment with respect to that and with
respect to only now just coming with the awards. Do you expect
to make the grants this year of the full $60 million amount
provided by Congress?
Dr. Bodman. First I want to reiterate that I am aware that
you were the creator of this, sir. Secondly, I am relieved at
your statement that I will not be sued, which I take some
solace in.
Thirdly, against the fiscal constraints within which we
operate, it was my judgment that we would operate with $35
million of new projects in 2002, $35 million of new projects in
2003. When we get to the end of 2003, we would be in a position
where we would not have any carried over funds. This year, as
you have pointed out, we have had carryover funds, between $30,
$40 million for each of the last 2 years.
The current plan would be to award some $25 million by the
end of June and that we would expect another $10 million plus
or minus, depending on what we find in the applications, by the
end of the fiscal year. So the answer is the current program
would call for awarding some $35 million this year, which would
be consistent with the requested number for next year.
That was a judgment that I made, given the overall fiscal
constraints and trying to even it out so that we would have an
equal amount of new programs that we would be able to support
in each of the 2 years.
With respect to your comments on the recoupment, I do not
consider it a penalty. I do consider that if there is success
in these programs, having a royalty to provide additional
funding that would be able to support the ATP program is a
reasonable and a responsible thing to do.
What we have attempted to do, Senator, is to stabilize the
program. As you pointed out yourself in your opening remarks,
there has been a lot of controversy apparently over the years
about this program. It has been criticized on the one hand for
being corporate welfare; it has been criticized on the other
hand as being ineffective. We have found that neither of those
is the case, that there is a need, the so-called ``valley of
death'' in terms of funding new technology, that that is in
fact the case.
We have consulted at some length with Dr. Branscomb up at
the Kennedy School, who is by my way of thinking the great
expert in this field, on this topic, and in this country on
this topic, in order to try to get his views on the matter. Out
of that came a sense of the reforms that we have put before
you.
We do believe in the ATP program, and we will do our best
in representing the program both to you and to the people at
OMB who we deal with, as you know, in making the budgetary
tradeoffs that are part of the budgeting system.
The Chairman. Thank you.
Senator McCain.
Senator McCain. Thank you, Mr. Chairman.
For years I tried to put a cap on the space station
expenses as we received testimony after testimony that it was
spiraling out of control. In fact, we did put a cap, but that
was weakened by other legislative action, and we now see a
classic example of a system once beginning to be built
assembling a coalition of special interests to allow it to go,
as you mentioned, from $7 or $8 billion to about $98 billion,
and I guarantee it will be well over $100 billion before we are
through. However, because one program is out of control does
not justify other programs doing the same.
Just to start with, Mr. Secretary, General Electric, one of
the largest companies in the world, with revenues of $126
billion in 2001, was awarded an ATP grant in October 2001 as a
single applicant. That is not corporate welfare?
Dr. Bodman. I believe that, depending on what definition
you want to use for it----
Senator McCain. Why would one of the largest corporations
in the world need government money to pursue anything?
Dr. Bodman. The idea of the ATP program is to find the best
technology that this country has to offer, and those----
Senator McCain. The largest corporation in the world needs
that money from the Federal taxpayers?
Dr. Bodman. Senator McCain----
Senator McCain. You do not need to bother to continue to
answer, sir. You have no grounds with which to respond that we
need to spend the taxpayers' dollars of America in a single
applicant grant that is awarded to one of the biggest
corporations in the world. I do not think my constituents would
agree with such a decision, no matter how worthy the cause.
Dr. Bodman. Sir, one of the reforms that we put into place,
at the risk of continuing to answer when you told me not to,
one of the reforms we put into place would be to put companies
like General Electric, like IBM, to continue to allow them to
participate in the program, but not as a sole participant, that
they would have to be in there as a joint venture participant.
Senator McCain. Well, that is a wonderful breakthrough.
But at the same time, while you give corporate welfare to
one of the largest corporations in America, you cut the Teacher
Science and Technology Enhancement Program. They do not have
any big lobbyists around here, the average teachers. They are
not big soft money contributors. They do not get corporate
welfare, and yet you cut their program. How about explaining
that one?
Dr. Bodman. Sir, to my knowledge that is not a program that
we have cut and I cannot speak to that. That is a program----
Senator McCain. You have not looked at this year's budget
request?
Dr. Bodman. I have looked at this year's budget request.
Senator McCain. According to my reading, the Teacher
Science and Technology Enhancement Program has not received any
funding request.
Dr. Bodman. That may well be the case, sir. But as far as I
am aware--I am not familiar with that program, I have to tell
you, sir.
Senator McCain. I can understand that. They are not big
donors. I can understand why you would not know about a program
such as that.
Dr. Bodman. I do not know how to respond to that, sir.
Senator McCain. I am sure you do not. Senator Brownback and
I introduced legislation last year requiring the Secretary of
Commerce to establish a registry whereby companies can register
reductions in greenhouse gas emissions. The registry would
provide for trading of these reductions among various
companies. Similar registry programs are under consideration as
part of the energy bill.
One of the main reasons surrounding the registry is which
Federal agency would lead the effort. DOE currently has a
registry, but it does not contain the robustness that industry
needs. Some of those involved in the current industry trading
activities have told the Committee that what they need most is
a consistent approach to measuring and reporting reductions to
ensure when they buy a ton of carbon they are indeed buying a
ton of carbon.
Do you feel that the Commerce Department because of its
relationship with industry has any unique advantages to serve
this need as opposed to any agency like DOE or EPA?
Dr. Bodman. No.
Senator McCain. How do you respond to some critics who may
say that by making revisions to provide for more university
involvement it is just an effort to build a larger constituency
base?
Dr. Bodman. Is this with respect to ATP, sir?
Senator McCain. Yes.
Dr. Bodman. It is my view that the whole funding of
universities has been modified and changed over the past one to
two decades. More and more universities, I believe correctly,
are engaging in the development of new technology, are
participating in licensing programs, and therefore have greater
capacity to manage the commercialization or participate in the
commercialization of technology.
Therefore, I view it as perfectly appropriate to see that
universities can participate as full partners in the ATP
program. The ATP program, as I mentioned before, has been
successful. I think it can be more successful with greater
participation of our universities. I do not see it in my view
as expanding or responding to any particular constituency other
than trying to do our job of providing an environment for
commercializing technology.
Senator McCain. What plans do you have for completing a
study of the collapse of the Twin Towers?
Dr. Bodman. The people at NIST, who are among the world's
experts both on the structures of buildings and on the modeling
of explosions and conflagrations, are now working on a program
to model the collapse of the Twin Towers and to reach some
conclusions as to what modifications might be made in building
codes throughout the country.
Senator McCain. Thank you.
Thank you, Mr. Chairman.
The Chairman. Senator Allen.
STATEMENT OF HON. GEORGE ALLEN,
U.S. SENATOR FROM VIRGINIA
Senator Allen. Thank you, Mr. Chairman. I very much thank
you and Senator McCain for calling this hearing today and thank
all our witnesses, especially Ms. Anne Armstrong from the CIT
in Virginia. I have read her testimony. I think it is very
cogent testimony and I substantially agree with her assessment
of some of these proposals. I certainly look forward to working
with my colleagues to pass this Technology Administration
legislation and funding this year. There will be some
controversial issues and it will need some massaging before it
gets through.
I have a statement, Mr. Chairman, that I would like to have
put into the record rather than reading.
The Chairman. It will be included.
Senator Allen. Included in there is also a letter from a
constituent, Mr. Jeffrey Payne, on his experiences with ATP and
some of his suggested changes and where the program is
worthwhile.
The Chairman. it will be included.
[The prepared statement of Senator Allen follows:]
Prepared Statement of Hon. George Allen,
U.S. Senator from Virginia
Mr. Chairman, I would like to thank you and Senator McCain for
calling today's hearing, and thank all of our witnesses, especially Ms.
Anne Armstrong, for appearing here today. I believe that it is
important that we reauthorize the Technology Administration this year,
and am willing to work with my colleagues to pass this legislation.
The Technology Administration (TA) serves as the President's
principal voice on domestic and international technology issues. By
working with the private sector, TA develops policies that will shape
the future of American research and development.
The component parts of TA are the Office of Technology Policy
(OTP), the Office of Space Commercialization (OSC), the National
Technical Information Service (NTIS), and the National Institute of
Standards and Technology (NIST). Through these organizations, TA
develops policies to improve technology transfer from universities and
research institutions to the commercial sector, fosters greater private
investment in space, and serves as a clearinghouse for American and
international research.
NIST serves as the most high-profile part of TA by conducting
``cutting-edge'' research and establishing measurement tools and
technical standards that ensure national competitiveness. Examples of
NIST's research include: research on quantum computing; developing
nanotechnology measurements and standards to support the development of
new devices and materials on the atomic level; and maintaining the
Atomic Clock. NIST also runs the Baldridge National Quality Program,
which is the Nation's premiere award for excellence in the categories
of business, education, and health care performance.
The recent awarding of the Nobel Prize in Physics to Dr. Eric A.
Cornell for his work in creating the Bose-Einstein Condensate
underscores NIST's commitment to excellence. Dr. William D. Phillips
won the Nobel Prize in 1997 for his work on cooling and trapping atoms
with laser light. I would like to congratulate Secretary Bodman and Dr.
Bement for these awe-inspiring achievements.
This morning, I would like to emphasize the role that TA plays in
ensuring our homeland defense. Currently, NIST is formulating a plan to
analyze the technical causes of the World Trade Center collapse in
order to update building codes and improve physical infrastructure
safety. Also, it is establishing voluntary standards for equipment that
will protect police, fire and EMS personnel. In addition, NIST works
with other federal agencies to protect our Nation's critical
infrastructure by developing encryption standards, and resolving
vulnerabilities in the federal information systems.
I am interested in hearing about the Administration's plans
regarding the Manufacturing Extension Program. Virginia's A.L. Philpott
Manufacturing Extension Partnership helping 1,000 manufacturers
throughout the state. I am concerned that a cut in the federal funding
to this center would result in a loss of expertise.
In addition, I would like to highlight the importance of fully
funding the construction and maintenance of NIST laboratories and
facilities. It is important that this infrastructure be properly
maintained in order to ensure continued groundbreaking research.
I am also interested in hearing the Secretary's views on how to
reform the Advanced Technology Program, and today's debate on this
issue.
Finally, I would like to point out the important role that NIST can
play in ensuring free trade and access of American goods to foreign
markets. Some of our trading partners have used standards as non-tariff
barriers to keep out American products. NIST can play major role in
international standard setting organizations to establish commonly-
accepted technical standards that will prevent this practice and expand
international trade.
Again, thank you, Mr. Chairman, for holding this hearing. I look
forward to hearing from our witnesses.
______
Cigital
Hon. George Allen,
Commerce, Science, and Transportation Committee,
Washington, DC.
Dear Senator Allen:
Your interest in the Advanced Technology Program (ATP) has recently
come to my attention. As Virginia's first single company ATP award
winner and also Virginia's first two time ATP award winner, I'd like to
express my opinion about the ATP program.
Cigital helps companies build and deploy software that is reliable
and secure. We have worked with 35 of the Fortune 500 helping them
protect themselves against software failure. Cigital Labs, our award
winning research laboratory, has won research grants and contracts from
a number of prestigious federal agencies (e.g. National Security
Agency, Defense Advanced Research Projects Agency, National Science
Foundation, NASA) during our ten-year existence. The Advanced
Technology Program out of the Department of Commerce has been the most
beneficial research program we have been involved in. There are a
number of reasons why this is so:
1. ATP is the only research program that makes its awards
decisions based partially upon business criteria. In the past,
Cigital has been frustrated by federal agencies that award
research money to companies who have little or no plans or
ability to commercialize the technology they are proposing. My
belief is that applied research programs are most effective
when there is not only a good research idea but a solid
business plan for commercialization that has been thought
through. ATP's rigorous review of an ideas business plan as
part of the proposal selection process is an excellent way to
accomplish this
2. ATP is staffed by both scientists and business
professionals. Most research programs give no guidance on the
business aspects of technology transfer and commercialization
of ideas. By assigning both a technical and business program
manager to each ATP project, the Advanced Technology Program
assures that adequate time is spent on the business aspects of
each research idea.
There are, however, several issues with ATP that if corrected,
would improve the program:
1. Too much money goes to Fortune 500 companies. ATP is
supposed to fill the gap between idea generation and
institutional funding (i.e. Venture Capital). The program
should not be giving scarce ATP money to large companies who
are obviously not in this funding gap.
2. Focused ATP programs have been abolished. Traditionally,
ATP awards were given in each of a series of programs focused
on a particular technology topic (e.g. biotechnology, software
component technologies, homeland security). These topics were
selected by ATP program managers based upon industry feedback
on those technology areas most important to our economic
future. Today, all proposals are evaluated through a ``general
competition'' where any topic can be proposed. This has greatly
increased the politics associated with which proposals are
funded and which are not.
In summary, the ATP program has been of tremendous value for
Cigital and America. If the above program issues are adequately
addressed, ATP is a model for how all applied research programs should
be structured and run.
Sincerely,
Jeffery Payne,
President and CEO, Cigital, Inc.
Senator Allen. I would say that some of the aspects of
NIST, which is obviously the most high profile part of the
Technology Administration, is developing some examples of good
research, including research on quantum computing, and
developing nanotechnology measurements and standards to support
the development of new devices and materials at the atomic
level. I am going to ask you, Secretary Bodman, in a second
about some of the fire and police and EMS personnel
interoperability and communications improvements.
You do have some aspects of this that I have some concerns
and it has not really been mentioned much on the Manufacturing
Extension Program in cross-examination, but I do have some
concerns, especially with the thousands and thousands of jobs
we are losing, generally due to international competition. The
only way that I see us competing in the future is with better
technology that does not require maybe as many employees, but
with better quality and better technology.
To my point of view and sentiments, this may not be the
best time to be making such radical changes in that
Manufacturing Extension Program, and that will all get worked
out.
Let me ask you a question here or series of questions
relating to public safety communications interoperability. One
of the major issues that arose from the emergency responses to
the attacks, terrorist attacks on September 11th, was the
inability of fire and police and emergency services to work
together. It was not that they could not work together. They
were having a hard time communicating and they were all on
different wavelengths, and they ought to be on the same
wavelength.
The Office of Law Enforcement Standards at NIST has
experience in developing wireless communications standards. You
may know that here in the Metro D.C. area Maryland, Northern
Virginia, and the District of Columbia are working on what is
called CapWIN so they all can get on the same wavelength.
Now, as far as the guidelines for interoperability for
criminal justice and public safety areas, what recommendations
would you make on how to resolve this communications
interoperability issue?
Dr. Bodman. That is a very technical question, Senator. I
do know that the NIST office that you referred to is in fact
working on this matter and that we will have forthcoming a
series of recommendations as to how to improve it. There are
ways of, if you will, jerryrigging the system now so that we
could solve it, but I think the more appropriate thing is to
put standards in place, which these people are great experts
on, that would enable the problem that you referred to, which
is in fact a real problem, to be dealt with once and for all.
That is all I know about the topic. I would be happy to
come back to you with a more complete schedule and answer on it
than I can give you at this point in time.
Senator Allen. Well, I would just want to emphasize, Mr.
Chairman, to Secretary Bodman how important this is for our
homeland security. The standards being developed I think would
be very helpful to local, regional, and state law enforcement
and also emergency personnel.
I would also suggest in this and other areas, rather than
trying to have the government or NIST reinvent the wheel or
invent a new wheel, that there are many enterprise or
commercial applications that can be adapted to the governmental
needs, whether they are Federal silos that need to communicate
or whether they are state or local, and all actually do need to
communicate with one another.
I met with a company--I am not suggesting this is the only
solution--but a company called M/A-COM, who said they had a
system whereby you would not have to buy new equipment, but
just get the existing equipment to communicate. So I would hope
that in the midst of this study and analysis of standards and
determining what is workable, that you listen very closely to
hundreds of those in the private sector who have ideas.
I am not one to be able to evaluate what everyone says to
me, but nevertheless if you can evaluate and be a testbed of
assistance to law enforcement and emergency personnel, but also
listen to the private sector to see which of those systems
could work the best if they so desired to procure them.
Dr. Bodman. I think the Senator is certainly correct in
underscoring the importance of the problem. The challenge is
there are any of a variety of ways to solve it, and the goal
here is to try to get an approach hopefully making use of
current equipment that is already available so that we do not
have to, as you point out, reinvent the wheel.
So that is the challenge, where you have got a lot of
different solutions and how do you pick the one that is
optimum. That is the challenge that confronts them. I can, as I
said before, be happy to get you more information as to what
the schedule or anticipated schedule is.
Senator Allen. Good. I am very much interested in it.
Although Senator Wyden is not here, I know that he shares the
same view. We are working together on what we call NET Guard,
trying to get technology people involved in helping out with
national homeland security.
Thank you, Mr. Secretary.
The Chairman. Mr. Secretary, I can probably give one answer
to the reason that the largest corporation would want taxpayer
money. Thirty-five years ago, General Electric Corporation had
this submersible called TECTITE. It was down over 100 feet at
the bottom of the ocean and with the astronauts and others,
aquanauts, we went down in it. I became friends of Mark Norton
and Mr. Otto Clymer, two vice presidents of General Electric.
One day Mr. Clymer came in, he had a big briefcase full of
technology and said he was headed to Japan. It seemed that what
had occurred is the Pentagon had put on a competition out at
Vandenberg Air Base for servicemen's housing. They wanted to
get the finest little house at the most economical cost. Three
bedroom, two and a half bath, for $21,000 was the winner by
General Electric Corporation. They put in, instead of copper
gutterings, composite guttering and piping and different other
innovations of that kind, with insulation and otherwise.
I said: Why are you taking that to Japan? He said: Well,
the bureaucratic snarls here with all of the zoning laws. We
will just waste too much time going through that bureaucratic
maze, and we can make way more money by just selling the
technology.
Otherwise, there is a better reason and that is that you
put corporate executives under the pressure, if you do not get
the stock up within 3 years you are gone, and so they do not
have time for any long-term investments. A lot of this
outstanding technology that needs to be entered into and
researched, needs to be developed and commercialized, takes
longer than the 3 years.
So the largest, richest corporation in the world would pass
it by and sell it off, just like GE was selling off that
housing technology that was the winner, that the Pentagon had
put the program on and everything else and did not get the
advantage of it because there were certain other things
commercially they found with the city councils and otherwise on
zoning laws. They said, look, this is fine, we won, but let us
sell it and move on to something else.
That is the way the richest corporations operate. So they
are encouraged in this program to participate.
Let me ask about those facilities, though, that you
mentioned at Boulder, Colorado, and out here in Maryland. You
said the physical infrastructure--this is not a hearing on what
you need out there, but this Committee is vitally interested in
it--will not attract first class research. Mr. Secretary, tell
us about that before I yield here to Senator Wyden.
Dr. Bodman. As far as I know, the physical infrastructure
in Gaithersburg is in good shape. That is a more modern
facility. Some of the funding that has been requested will go
to providing a more secure environment, to providing, for
example, protection of some of our nuclear instrumentation such
that they cannot be attacked. So we are dealing there with the
homeland security issue. That is really what is involved in
Gaithersburg.
The statement that I made I believe to be true and that is
that many of our older facilities have not been properly
maintained, and that is certainly the case in Boulder. The
Boulder facility is wanting in adequate utilities and just the
things that one needs to do in maintaining any old structure.
It needs to have funding in order to keep it up to snuff.
I have had the same experience, frankly, in visiting both
the Census and the NOAA facilities in Suitland. The Suitland
facility, which is owned and operated by GSA, is an
embarrassment, and we have taken some steps to the extent that
I can do it to see to it that we live with the facilities there
until we can get new facilities built. That is now an ongoing
thing.
But I was just making the observation, which I believe to
be true----
The Chairman. It is an important observation, Mr.
Secretary. Give us a memo, please. Give the Committee a memo on
suggested needs both out there at that NOAA facility and at
Boulder and wherever. The Committee is vitally interested in
that.
Senator Wyden.
STATEMENT OF HON. RON WYDEN,
U.S. SENATOR FROM OREGON
Senator Wyden. Thank you, Mr. Chairman. First let me say,
Mr. Chairman, how much your leadership has meant in this area.
I mean, the fact of the matter is we would not have these
public-private partnerships in the technology area except for
the fact on ATP and on the MEP program you put those together.
They exist because you have been at it all these years and we
want you to know we appreciate that.
The Chairman. Thank you.
Senator Wyden. Just a question or two, if I could, for you,
Dr. Bodman. Your people have been very helpful to Senator Allen
and myself. As you know, we have proposed a major initiative
with respect to dealing with the events of 9/11, the NetGuard
legislation. The Science and Technology Mobilization Act
proposes the creation within NIST of a national clearinghouse,
a testbed, to look at the security and response products that
have flooded the Federal government.
Senator Allen and I found after our hearing that thousands
of these products had essentially come unsolicited to the
Federal government. Some of them seem promising, others not so
promising. But there is no systematic way at present to really
test them and evaluate them on the basis of objective criteria.
So in our legislation, Senator Allen and I proposed that
NIST really look in a thoughtful way at these various
technologies so that we can have in effect a government-wide
capability for examining them. Your folks have been very
helpful to the two of us, and I would just like to have your
thoughts on the record with respect to NIST's ability to look
at a function like this, assuming it was properly funded.
Dr. Bodman. Well, first of all, I am aware of the
legislation. Secondly, the Department is studying the proposed
legislation and will be shortly issuing a formal response.
My own thoughts, in the absence of having had any preview
of where the evaluation is going, is that I think it is a good
idea to have some central facility. The people at NIST are
largely qualified to deal with the technological evaluation of
instrumentation. Whether they have the breadth of knowledge and
experience that is necessary to do everything that is required
in this field, I do not know. So that is part of what we are
doing, is to try to understand what will be required and do we
have the necessary capabilities of doing it.
I always worry where you have a centralized group that is
trying to make a technical judgment, if you will, picking the
winners from the losers, and you do not have the market
involved in it, it makes it a problem. One man's expert is
another man's meddler. So I would want to be sure that we can
really do a good job, and we will do our best to evaluate
precisely what will be required, the range of technical skills
needed, and we will give you a response.
Senator Wyden. That is a thoughtful answer. I want to make
clear, and I know Senator Allen agrees with this, we are not
interested in the Federal government picking winners in the
technology area. The last thing we need to do now is to have
some kind of industrial policy in the technology field.
What we do want is some objective effort to look and to
report on whether or not these products seem promising and what
areas the government and the private sector should look for.
You have been very cooperative in this area.
The only other question stems from another hearing that we
held in the Science and Technology Subcommittee after 9/11. In
that hearing we found that there were no uniform standards for
equipment used by firefighters in trying to respond to chemical
and biological attacks. What we found there is that the typical
department, the typical fire department, did not have the
capability for looking at these various technologies.
As you know, NIST already tests equipment used by law
enforcement agencies in many areas, so we have been interested
in looking at the agency's role in again testing chemical and
biological agent detection equipment so as to help the
firefighters. My understanding is that you have begun some
discussions within the Department on that and I would be
interested in a report there as well.
Dr. Bodman. I am less familiar with that. I always hesitate
to say that there is anything that NIST cannot do because they
are so able. They obviously have a lot of skill in the fire
area. They have demonstrated their capability in the
bioterrorism area in certain respects, that is to say dealing
with the anthrax problem that we had and how to analyze it and
deal with the issues.
So all I can say is I believe they will have the capability
that you are looking for, but I do not have a specific response
for you at this point in time.
Senator Wyden. If you could give us a status report on that
as well.
Dr. Bodman. Be happy to do it.
Senator Wyden. We will work with you closely on the
NetGuard effort. I share your views with respect to the role of
NIST, and obviously the agency is going to have to have
adequate resources to do that. We do offer some additional
funds in the NetGuard proposal, and we thank you for your
cooperation.
Thank you, Mr. Chairman.
Dr. Bodman. Thank you, Senator.
The Chairman. Thank you.
Any further questions?
[No response.]
The Chairman. Mr. Secretary, we are very lucky to have you
and your willingness to serve in government. You have had some
tough questions, but that in no way indicates anything other
than the highest respect for you and for Secretary Evans. The
Committee will continue to work with you, and we will see if we
can iron out these differences and keep these two programs
going.
I was just remembering Craig Fields of DARPA. He is the one
who started us on this course with the Rapid Acquisition of
Manufactured Parts. It was put in for the Navy. A ship breaks
down in the Gulf, the ship is 23 years old. They do not make
the part any more. It lies fallow there in the Gulf for 2 or 3
months while they are trying to get the part. All the parts
now, not just for the Navy but for the Air Force and everyone
else has adopted this particular program that came out of the
National Bureau of Standards, because we found that that
research and technology was over there.
We computerize every part, and we file it. So all we have
to do is just punch, find the history of that particular part,
and it is manufactured and out there in a couple of days.
So we thank you very, very much--excuse me. Senator Nelson.
STATEMENT OF HON. BILL NELSON,
U.S. SENATOR FROM FLORIDA
Senator Nelson. Thank you Mr. Chairman. Just a quick
question, Mr. Chairman.
Dr. Bodman, you have jurisdiction over the little Office of
Space Commercialization and during another confirmation I asked
about the importance of that office and spoke about the
importance of that office from the standpoint of the United
States having a viable commercial space industry. Yet the
office has not had a director for about 2 years. Can you tell
me when that position will be filled?
Dr. Bodman. I do not have an answer for you. I can tell you
that I have spent a good deal of my personal time with people
from the space manufacturing industry trying to understand
their needs and we have been working on particularly issues
related to the licensing of products so that they can be more
efficiently sold and made available in the marketplace. So that
it is a topic that I have spent some time on.
But I do not have a quick answer as to any schedule for
filling that particular role.
Senator Nelson. Well, I would suggest that you look at it.
We are now a year and a quarter into the new administration.
The office is vacant.
Let me just suggest, Mr. Chairman, quite quickly what is in
the interest of the United States. If all of the capability of
launching goes abroad to others, primarily the competitor, the
European Space Agency, and the Chinese want to get into the
market. There are combinations between the Russian Zenit
rocket, and other folks that want to put payloads on the top of
that. Pretty soon you start diminishing the U.S. ability to
have lift capability to get into orbit, and sooner or later
there is going to be a terrorist act in trying to deny us some
of our capability of getting into space. The more robust stable
of horses that we have to get to space, to get our assets, the
more it is clearly in the interest of the United States.
That is one of the reasons why this little office was set
up years ago when I was in the House, and I would suggest that
you start looking for a director for that office.
Dr. Bodman. I will certainly try to understand what that
office, specific office, is and respond to it. As I say, I have
spent time with the various industry associations and the
companies themselves. The challenge that one has in this area
is on the one hand trying to protect the national security, and
our friends in the Department of Defense have strong feelings
about what should or should not be exported.
The issue is having enough of a market to support
industries that are U.S. industries that have this kind of
capability. What you would like to have is a market greater
than that in the United States, so that to the extent that
products can be developed and sold elsewhere it allows you to
spread the cost and keeps the cost down for each individual
product. That is the reason that we have spent time on matters
related to licensing and what can be exported and what cannot
be exported and who controls that and what are the terms of it
and so forth.
So those are some of the issues involved on it. But I will
certainly--as I said before, I do not have a comment or a
schedule for filling that particular job. But I thank you for
your comments, sir.
Senator Nelson. That is not what I am speaking of. The
issue that you raise, for example of whether there ought to be
a license for an American spacecraft to be launched on a
Chinese Long March rocket, I happen to take the side with the
Department of Defense. I have been rather hard-line and hard-
nosed on that for years.
But I am talking about keeping a viable expendable launch
vehicle market alive with U.S. manufacturers. The Office of
Commercial Space has a good bit to do with that and there needs
to be a director in that office. So I would like very much,
since I raised this at a previous confirmation hearing and a
year and a quarter later it is still vacant and you have
oversight responsibility on it, I would like to have a report
from you of when that position is going to be filled.
Dr. Bodman. You will have it, sir.
Senator Nelson. Thank you.
Thank you, Mr. Chairman.
The Chairman. In that regard, Mr. Secretary, please pay
attention to the satellite business. Specifically, today is
April the 16th. By April 30th the Chinese are going to make a
decision, and we are in competition with the French and the
French have been using the bureaucratic holdup in the United
States against one of the best producers of space satellites in
all of history.
Specifically, this Committee was having all kinds of
difficulties with our weather satellites in the Ford technology
section of Ford Motor. There were cost overruns and everything
else. Mr. Bernard Loral came, sat in that chair where you are
seated, testified that he could do it with a certain cost fixed
and a certain time fixed, and he produced, his company, under
cost and under time.
He got delayed because there was an insurance
investigation, they tell me, about certain instrumentalities
there in China, but that has been cleared. The Defense
Department has cleared it. The State Department is happy and
everyone else is happy, but no one moves. Since we do not have
anybody interested in the Department of Commerce in this
particular business, if we lose this then they will go on, like
investors will respond in the corporate world and we will lose
that business and then we will lose that technology.
So get into the satellite business right now that they are
interested in and have been trying to shake loose this
particular administration. Otherwise, by the end of the month
here in two weeks' time we are going to lose that business.
Dr. Bodman. Senator, I cannot predict what is going to
happen with respect to the decision. I can tell you, sir, that
I have spent time on it.
The Chairman. You have?
Dr. Bodman. Yes, sir.
The Chairman. You know about this one?
Dr. Bodman. Yes, sir.
The Chairman. Oh, good.
Dr. Bodman. So I have talked to the people involved and the
issues, the complaints, come about whether, particularly from
the European competitors, have been effective in describing the
licensing process that goes on in the Federal Government and
that is a delay and that therefore that causes delays and
should be a reason for a foreign nation to buy something from
the French or whoever.
So no, we have been. We have advocated. I have advocated
for it. I have been in China, advocated for it. So we have not
been uninvolved in this matter. But neither can I promise what
the result will be.
The Chairman. Well, as long as you know about it and you
are involved, you know as much as this Senator does, then. I
just did not want to pass this by and nobody act on the
particular measure.
We thank you very much and if there are no further
questions then we will move to panel number two. Thank you very
much, Mr. Secretary.
Dr. Bodman. Thank you.
The Chairman. Ms. Anne Armstrong, the President of the
Virginia Center for Innovative Technology; Dr. Lewis Branscomb,
the Aetna Professor in Public Policy and Corporate Management
at the Belfer Center for Science and International Affairs at
the Kennedy School; Mr. Scott Donnelly, the Senior Vice
President for Research in GE Global Research for the GE
Company.
[Pause.]
The Chairman. Ms. Armstrong, we welcome you. We have your
statement in its entirety. It will be included in the record
and you can deliver it or summarize as you wish.
STATEMENT OF ANNE A. ARMSTRONG, PRESIDENT,
VIRGINIA'S CENTER FOR INNOVATIVE TECHNOLOGY
Ms. Armstrong. I will give you a short version of it.
The Chairman. Thank you very much.
Ms. Armstrong. Chairman Hollings, Members of the Committee,
Senator Allen: I am the President of the Virginia Center for
Innovative Technology. A lot of people know that as the upside-
down building out by Dulles Airport, but we are a State-funded
nonprofit organization that supports the growth of technology-
based businesses in Virginia, the deployment of technology
throughout the State, and the development of our State's
research infrastructure. We have ten regional offices around
the State and a staff of around 40 people.
Like ATP, we invest in early stage, high risk research,
although such awards are part of a portfolio of programs that
we provide to help build the technology industry in Virginia.
Our total budget is around $10 million a year, so we count on
complementary programs from the Federal sector to help our
businesses.
As our own State budgets have declined and as the
availability of venture capital has dried up, particularly in
the seed and early stages, we count even more on these valuable
programs to help our companies and our State progress.
The two programs that support businesses at the very early
stage of R&D before the venture capitalists will deal with them
are the ATP and the Small Business Innovative Research, the
SBIRs. But the ATP is typically earlier stage and it has larger
scale projects. Virginia companies have done very well in
winning the SBIR awards. For several years running, we have
ranked third among the States in the total number of awards. We
are working, like many other States, to improve that early
stage research, how it is commercialized and moved into the
economy.
Virginia companies have not won very many ATPs. We are
participating in between one and five projects a year over the
life of the program, but the ones that we do win are in very
promising areas. These companies would not ordinarily receive
venture capital for such projects because of the stage of
development of the technologies and because they are located in
parts of the States that do not have a strong venture capital
community, places like Bristol on the Virginia-Tennessee border
and Blacksburg, which has one of our largest, strongest
research universities, but is not where a lot of venture
capitalists live.
In the last 2 years CIT has established a good working
relationship with the ATP management and we are focused
currently on raising awareness throughout the State, as well as
addressing what some people in the State perceive as barriers
to participation on the university side. The Virginia General
Assembly has given us a number of studies to look at in the
coming year specifically on commercialization and looking at
some of the intellectual property issues. I will not go into
all of those.
Virginia companies since 1990 have won 24 ATP awards
totaling $38.4 million, a number that could be increased
dramatically by reforming some elements of the program,
particularly reforms that make it easier for our universities
to participate, that promote small business involvement while
still allowing large firms and their resources to participate,
and improve the program marketing, most of which are addressed
in the Evans report.
The Evans report makes six recommendations for reforming
ATP and I would like to make a few comments on our reactions to
those. The first recommendation concerns allowing university
leadership of ATP joint ventures and the second would allow
university and other nonprofit organizations to negotiate
ownership of ATP-funded patents.
We support this approach as long as all the parties
involved support it and the projects are evaluated with the
same or perhaps more attention to the degree of industry
participation and the market potential for the technology. We
have heard and understand suggestions that universities should
not take the lead in what is essentially a business venture. We
have also heard universities' claims that they are unable to
participate in the program if they have to relinquish ownership
of the intellectual property. We suggest that allowing
universities to lead might remove a barrier or a perceived
barrier to more university-industry participation in the
program, which is an issue that we are facing in Virginia.
The third recommendation would allow large firm
participation in ATP joint ventures. We support this as long as
there is consideration for participation by small businesses.
Small businesses can benefit from the resources and the
infrastructure of their larger partners, and several of the
existing projects in Virginia represent these sort of
partnerships.
While the argument is often made that large firms can well
afford to undertake this research on their own dollar, they do
in fact contribute funding to the research. Further, ATP
funding allows the firm to expand its research horizon beyond
the immediate concerns of the bottom line and allows specific
researchers within a large organization to explore a line of
research.
The fourth recommendation would require royalties on
government investments in profitable ATP ventures. We do not
support this because we have found in Virginia that the
approach does not work. It sets up a contentious relationship
as the funding organization also becomes a bill collector. We
have tried several versions of payback and we are about to
abandon our own royalty-based programs and replace them with
new arrangements.
When funding early stage research that is not always
directly traceable from the product to the commercial stage, we
have found that payback generally generates more heat than
cash. We also believe with recoupment as a goal ATP program
managers would have far less incentive to invest in high-risk
projects, basically transforming them into government-sponsored
venture capitalists.
I see my time is up and so I will pass.
[The prepared statement of Ms. Armstrong follows:]
Prepared Statement of Anne A. Armstrong, President,
Virginia's Center for Innovative Technology
Chairman Hollings and Members of the Committee
In my testimony, I will discuss why NIST's Advanced Technology
Program (ATP) is important to our organization and to Virginia. In the
process, I'll tell you some of what our organization does. We do have
specific responses to the recommendations for reforming ATP in the
Evans report. Finally, we offer some additional thoughts on how state
organizations, such as CIT, could work more closely with ATP in the
future.
I am the President of Virginia's Center for Innovative Technology
(CIT), a state-funded nonprofit organization that supports the growth
of technology-based businesses in Virginia, the deployment of
technology throughout the state and the development of our state's
research infrastructure. We have ten regional offices and a staff of
about 40. Like ATP, we invest in early stage, high-risk research,
although such awards are part of a portfolio of programs we provide to
help build the technology industry in Virginia.
Our total budget is some $10 million per year, so we count on the
complementary programs from the federal sector to help our businesses.
As our own state budgets have declined, and as the availability of
venture capital has also dried up--particularly at the seed and early
stages--we count even more on these valuable programs to help our
companies and our state progress.
The two programs that support businesses at the very early stages
of R&D, before the venture capitalists will deal with them, are the ATP
and Small Business Innovative Research (SBIR), but ATP is typically
earlier stage and has larger scale projects. Virginia companies have
done very well in winning SBIR awards. For several years running, we
have ranked third among the states in total numbers of awards. We are
working, like many other states, to improve how that early stage
research is commercialized and moved into the economy.
Virginia companies have not won very many ATPs, winning or
participating in between one and five projects per year over the life
of the program, but the ones we do win are in some of the most
promising technologies--transgenics, nanotechnology, and networking.
These companies would not ordinarily receive venture capital for such
projects because of the stage of development of the technologies, and
often because they are not located in parts of the state with a strong
venture capital community--places like Bristol, on the Virginia-
Tennessee border, and Blacksburg, home to one of our strongest research
universities, but far from where most venture capital firms are
concentrated.
In the last two years, CIT has established a good working
relationship with ATP's management, and we are focusing currently on
raising awareness in the state as well as addressing what some perceive
as barriers to participation on the university side. For example, The
Virginia General Assembly has requested CIT and a number of other
stakeholders to;
develop a statewide policy and uniform standard for the
commercialization of intellectual property developed through
university research (HJ88),
recommend incentives necessary to encourage the
commercialization of university research and development
(HB530), and
establish a task force to study best practices for assisting
the development of technology-based businesses that will
produce jobs and other economic benefits throughout the
Commonwealth (HJ206).
In addition, Governor Mark Warner campaigned on the platform of
improving the state's technology transfer capabilities to extend
prosperity to other areas of the state, and has continued this focus in
the first months of his administration.
Virginia companies, since 1990, have won 24 ATP awards, totaling
$38.4 million, a number that could be increased by reforming elements
of the program, particularly reforms that make it easier for our
universities to take participate, promote small business involvement
(while still allowing large firms and their resources to participate),
and improve program marketing, most of which are addressed in the Evans
report.
The Evans report makes six recommendations for reforming the ATP. While
we generally support the recommendations, we do have some
comments:
The first recommendation concerns allowing university leadership of
ATP Joint Ventures, and the second recommendation would allow
university and other non-profit organizations to negotiate ownership of
ATP-funded patents. We support this approach, as long as all the
parties support the approach and the projects are evaluated with the
same, or perhaps more, attention to degree of industry participation
and the market potential for the technology.
We have heard and understand suggestions that universities should
not take the lead in what is essentially a business venture. We have
also heard universities' claims that they are unable to participate in
the program if they have to relinquish ownership of intellectual
property. We contend that allowing universities to lead might remove a
barrier, or a perceived barrier, to more university/industry
participation in the program--an issue we face in Virginia.
The third recommendation would continue to allow large firm
participation in ATP joint ventures. We support this as long as there
is consideration for participation by small businesses. Small
businesses can benefit from the resources and infrastructure of their
larger partners, and several of the existing projects in Virginia
represent these sorts of partnerships. While the argument is often made
that large firms can well afford to undertake this research on their
own dollar, they do, in fact, contribute funding to the research.
Further, ATP funding allows the firm to expand its research horizon
beyond the immediate concerns of its bottom line or allows specific
researchers within the large organization to explore a line of research
that would not normally be considered core to existing business
functions. CIT has undertaken similar projects with large Virginia
companies in addition to our mainstay work with small companies, and
the resulting jobs, additional revenues resulting in additional taxes
paid, cost savings to the company or their renewed commitment to
remaining in the state has given us substantial return on these
investments.
The fourth recommendation would require royalties on government
investments in profitable ATP ventures. We do not support this because
we have found the approach does not work well, and it sets up a
contentious relationship, as the funding organization also becomes a
bill collector. Virginia has tried several versions of payback, and we
are about to abandon our own royalty-based program and replace them
with new arrangements. Especially when funding early stage research
that is not always directly traceable from the product and commercial
stage, we have found the payback generates more heat than cash.
We also believe that with ``recoupment'' as a goal, ATP program
managers would have far less incentive to invest in the highest risk
projects, effectively transforming them into government-sponsored
venture capitalists.
The fifth recommendation specifies that ATP would only fund
projects that support removal of scientific or technological barriers
to development. We support this approach instead of recommendation
number 4. This language provides additional shoring up of the program's
intent, as we understand it, but doing this works directly against
recoupment, since it ensures earlier stage research.
The report's final recommendation would change the ATP Project
Review and Evaluation Process. We have no comment on this. We have not
heard or experienced anything to warrant changing the existing system,
and we understand that using federal experts for the review ensures
recourse for non-adherence to confidentiality agreements, but we use
outside experts to review proposals from time to time and we would
recommend leaving it to the ATP management to decide how to proceed.
Some additional comments:
Most federal (and state) programs would benefit from additional
marketing in order to expand the pool of potential applicants. State
entities--such as CIT--can help the program in these endeavors. We have
existing relationships with a number of potential ATP clients. We
recommend improving the mechanisms for working with state entities in
spreading the word on the program, training potential applicants how to
participate in the proposal process and potentially even evaluating
proposals, if outside review is an avenue chosen by the ATP management.
We strongly support ongoing funding for this program, and this
point was also made in a March 19th presentation to Virginia's
Congressional Delegation by the Virginia Research and Technology
Advisory Commission. Our state entities support the program. Our
companies and to some extent, our universities have benefited from the
program. We support 5 of the 6 reforms proposed in the Evans report. We
are troubled by the ``recoupment'' recommendation. We hope you will
take my comments into consideration when considering the report. Thank
you for your time.
The Chairman. Thank you very much.
Dr. Branscomb.
STATEMENT OF LEWIS M. BRANSCOMB, Ph.D.,
PROFESSOR, HARVARD UNIVERSITY
Dr. Branscomb. Senator, as a former Director of the
National Bureau of Standards, I had the pleasure of creating
the laboratory that just won the two Nobel Prizes, and my pride
in the National Bureau of Standards and NIST is great. It is a
fine technical community and it is entirely appropriate that
the ATP program should be rooted in its technical excellence.
It is a technical program and we are grateful to you for your
leadership in creating it.
I am going to respond quickly to the six recommendations
made by the Department of Commerce. I do it on the basis of
research that I have been doing for two years. The research is
funded by ATP. You probably know that ATP has a small economic
analysis unit independent of the actual project part of the
operation, and I am pleased at their interest in our studies
done collaboratively with an economist, Dr. Philip Auerswald.
We have in fact just completed the last two years of work
tracing the sources of risk money for this invention-to-
innovation transition, which is what ATP provides. While this
is still under review by ATP and by our advisory committee, I
have two copies of this available for your staff because I know
you are actively considering it and I have been given
permission to share that with you.
Let me turn immediately to the proposed reforms from the
Department. I certainly support the first two related to
universities. In particular, I know a number of universities
that have told me that they just cannot see how they can
participate if they are not even allowed to negotiate with the
companies in their consortium the intellectual property rights
for the work done by their own people in the university. That
seems like a no-brainer to me.
The issue of whether the university should play a lead role
in the consortium, that just seems to me a practical issue. We
are talking here about high-risk, very advanced technology. The
universities are increasingly interested in going beyond just
the basic research limits, which the government funds very
generously, to do the sort of reduction to practice of the
technology. A lot of this is done in engineering schools, and
that kind of technology, practical but intellectually demanding
work that the universities do is in many cases more
sophisticated than what the companies can do, but much of the
same kind.
So the collaboration is very logical, and I see no reason
why, if the university assembles a group of companies for a
project, that is any less desirable than a company assembling a
university and several colleagues. The criteria for the award
should not be influenced by whether a university had the talent
and the leadership to put the program together.
With respect to the third proposal on the large companies,
I listened to Senator McCain. I have heard that same reaction
from lots of folks. I think that is a political reality. I do
not believe that constraining the big companies would damage
the program much, but I have to tell you that in the research
we have done, we did four very detailed case studies of ATP
awards or programs that involved, among other things, an ATP
award. One of them was in fact a General Electric program, how
they went about developing amorphous semiconductors and
applying them ultimately to medical instruments.
I can respond to questions later about why I think that
would not have been done without government funding of a
variety of kinds, even though GE was a very rich company and
even though Mr. Welch took a personal interest at one point in
trying to keep this project alive when there was no market for
it.
Let me skip to the third proposed reform, which is that ATP
funding not fund product development but stay at the early
stage, just beyond the invention stage, the reduction to
practice stage. That is certainly right. That is what ATP does
already. That is what I think your law says they should do, and
so I see no problem in saying it again, and I will come back to
that in just a second.
The fifth proposal says that the ATP people in their
evaluation process--the sixth one, I am sorry--should look to
experts from outside to a greater degree, and it mentions
venture capitalists. I believe that is a wise thing to do, but
the people they should talk to are the angel investors, not the
venture capitalists. There are very few venture capitalists
that do this very early stage seed investment. Venture
capitalists are in the business of buying companies cheap and
selling them high. Of course they like to buy technology
companies cheap and sell them high because they typically have,
may have, very rapid growth.
But that is very different from what angel investors do,
who have been there, done that, and are looking--and cashed
out--and are looking for bright young entrepreneurs who want to
do it again. They offer not only money, but advice and entry
into the network that makes it all go. I am sure those folks
can be very helpful to NIST providing can figure out how to
protect the proprietary information of the companies, which
they of course do and they are authorized to do under the law.
Having said that, let me return to the controversial
recommendation for reform, which is the recapture. I have
exactly the same arguments against it as you do, and that is
this is a technology program and this would provide a very
perverse incentive to the ATP managers. They would be driven to
in fact invest in product development or even in manufacturing
if they can get away with it, because the have got to get the
money back somehow by recapturing profits.
If in fact ATP does what you have told them to do and what
the Commerce Department tells them to do in their reform number
five, and that is invest only in the technology and stop before
they get to product development, and the company does the
product development, then you are asking the company to pay the
government a royalty on the money they spent on the product.
In fact, I do not even know exactly how the company would
know which product actually benefited how much from the R&D
that they did with the government. So it seems to me very
difficult to administer and it drives the ATP management to do
the wrong things.
Thank you.
[The prepared statement of Dr. Branscomb follows:]
Prepared Statement of Lewis M. Branscomb, Ph.D.,
Professor, Harvard University
I am pleased to have the opportunity to provide to this committee
my views on the ATP program in general, and my observations on the
evaluation of the program and recommendations for reform from the
Secretary of Commerce in particular. Let me first address the
recommendations from the Secretary of Commerce. I will follow with the
reasoning behind my conclusions, which is based in part on research Dr.
Philip Auerswald and I have conducted on the transition from inventions
to innovations in the US economy.
I applaud the Commerce Department's report on ATP. They came to
reasoned and well-supported conclusions that should go a long way
toward ending the debate, often conducted along ideological lines, over
the program's future. Secretary Evans and Deputy Secretary Bodman
concluded that ATP is a useful policy tool for accelerating science-
based innovation in our economy. They proposed six reforms, which I
paraphrase for brevity.
1. Universities should be able to lead ATP consortium projects.
2. Universities should be able to negotiate patent rights with
firms.
3. Large firms should be eligible for ATP funding only in
consortia.
4. ATP should recoup profits by a 5 percent royalty.
5. ATP should fund only technology prior to product
development.
6. ATP should improve its evaluation process with inputs from
venture capital experts and other such sources of information.
I strongly support the first two of these recommendations, which
would clarify the important role that universities already play in ATP
and would remove one serious and unnecessary impediment to intensified
university participation in ATP-supported projects: the denial of
university access to intellectual property that results from their work
with a firm or firms in an ATP program. I have heard from a number of
senior research officers of universities that such denial of their
legitimate rights to the fruits of their work--in contradiction to the
intentions of the Bayh-Dole Act--caused them to decline to participate
in any ATP consortium. The DOC wisely would have the Congress leave the
negotiation of intellectual property rights to the parties directly
involved--the firm(s) and the university. I urge the Congress to make
whatever legislative adjustments are required to enact this change, and
further to allow a University to be the lead party in a consortium if
such an arrangement is agreeable to all involved parties.
The third proposed reform would permit large firms to participate
in ATP projects only when part of a consortium including smaller firms.
I see this change as primarily responsive to the understandable
political objection concerning grants going to firms with deep pockets.
Examples exist in which an ATP grant to a large firm was, in our view,
fully justified. We have studied in detail one such case involving GE.
However, I do not believe this change would materially reduce the
effectiveness of ATP, and it has the benefit of eliminating one point
of contention regarding the program.
Let me now skip to the last two proposed reforms, before returning
to the fourth pertaining to recoupment.
The fifth proposed reform, which limits ATP funding to projects
that have not yet reached the product development stage, represents a
reiteration of the rules already governing the program. This principle
is certainly correct. ATP is a research and development program focused
on early stage technology development. The only difficulty I see here
is that the rule as stated will have to be interpreted properly. Policy
debates usually characterize early stage technology development as a
linear process that begins with a workbench model and ends successfully
with the development, production, and marketing of a commercially
viable product. In reality the process is often iterative. The first
product may be unsuccessful, but by producing it the firm learns enough
about customer needs and reactions to create another that is
successful. With a breakthrough technology, the process of trying to
develop an entirely new market may take years, with many stops and
shifts in direction. This fifth proposed reform should be interpreted
as focusing ATP funds on technology R&D in order to determine product
specifications, production processes and costs of a developed product,
but requiring projects to rely on private funds for the actual product
development when such information is in hand. The possibility that a
prior product of perhaps marginal success had been designed by a firm
(with its own funds) should not disqualify the firm from submitting an
ATP proposal for technology project that remedies prior problems with
the technology, covers new technical ground and leads to other, more
successful products that may follow.
Finally (reform 6) the DOC would have ATP improve the evaluation
process with inputs from experienced venture capitalists and other
sources. This is sensible advice, but I would suggest that only a small
number of VC firms are experienced at evaluating technology based
projects in early stages of development. A richer source of that talent
is found among individual private equity investors, commonly known as
``angel'' investors--for example members of Silicon Valley's Band of
Angels and similar groups elsewhere. These experienced innovator-
investors could indeed be of great help to ATP if protection of
applicant firm's proprietary information can be assured.
Let me now turn to the one reform (no. 4) to which I take
exception: the proposal to recoup profits accruing to ATP supported
projects by a capped royalty of 5 percent. While this proposal appeals
to an intuitive sense of fairness, it is deeply problematic in at least
two respects.
Firstly, to the extent that such recoupment might become a primary
mechanism by which ATP was funded, it would introduce a perverse
incentive into the ATP project selection process. In order to ensure
ongoing funding, project managers would be motivated to pick projects
that are close to product development. It this sense, proposed reform
number 4 works against the spirit of proposed reform number 5. In
effect it pushes ATP to act as if it were a ``public venture capital''
business, despite the fact that the program (correctly) lacks the
ability to use many of the management tools that VC firms routinely use
to manage their risks--staged investments, the taking of positions on
the firm's board, acting to replace the CEO when necessary, etc. As the
5th and 6th proposals from the Secretary of Commerce suggest, the
proper role of a Federal technology program such as ATP is in the
support of nascent firms and projects--more the domain of the Angel
investor than of the venture capital firm. Popular press accounts
notwithstanding, venture capital firms are not in the R&D business.
Rather, they are in the business of earning maximal returns to their
investors by buying firms low and selling them high. Venture
capitalists do indeed back high-growth, new ventures. In many cases,
though not the majority, they support firms that are bringing radical
new technologies to market. However, even when venture capitalists do
support technology-based enterprises, they prefer to support ones that
have at least proceeded beyond the product development stage. For all
of these reasons, I do not believe the ``public venture capital'' model
is a good one for ATP.
A second problem with the recoupment proposal concerns the
challenge of computing the royalty. In my view, this would be a
daunting task. If royalties are based on the profits generated by a
product, what product shall be associated with the ATP R&D? Reform 5
says ATP stops before the product development phase begins. In essence,
the recoupment would be on profits derived from the firm's investment
in product development and manufacturing, not on ATP's R&D investment.
Let me conclude this part of my testimony with on observation based
on my 50 years of experience with the Department of Commerce, beginning
when I first went to work there in 1951. In my view, the Department of
Commerce has today, with the appointments made in the last year, the
strongest leadership team for understanding the role of innovation in
our economy that it has ever had. We are fortunate to have a Secretary
of Commerce who is trained in engineering; a Deputy Secretary who led
one of America's most innovative firms and understands the world of
industrial research and of capital investment in high tech industry; an
Undersecretary, now also Chief of Staff, who is also experienced in the
high tech world; and an exceptionally gifted and well qualified
director of NIST, Dr. Arden Bement. The committee can place its
confidence in Dr. Bement and the senior members of the department with
whom he works. With support from the President and Congress, NIST can
fulfill its promise as the one laboratory in government that truly
understands the world of research and innovation in support of a
strong, knowledge-based economy.
Let me turn now to a brief background discussion of the process of
technological innovation in the United States that will support my
previous observations regarding the reforms to ATP proposed by the
Secretary of Commerce.
The transition from invention to innovation plays a very important
role in our economy, and is unlike the pursuit of business growth in an
established, competitive environment, or the performance of research in
the pursuit of knowledge. For new product ideas to create new markets
requires entrepreneurship, science and engineering imagination, cross-
cultural trust, dreams of riches and willingness to risk failure. My
coauthor, Dr. Philip Auerswald, and I have explored the risks faced by
scientists and inventors with dreams of a new product or a new
business; the risks faced by an entrepreneur trying to bring that dream
to commercial fruition; and the risks faced by investors who put their
own money--or other people's money--into a nascent technology-based
venture with inherently and irreducibly uncertain prospects. \1\ More
recently we have completed a study for NIST tracking the sources and
flows of risk capital that are available to high tech entrepreneurs to
create commercially promising innovations. This work is now being
reviewed by NIST, and I expect it to be published in the next couple of
months.
---------------------------------------------------------------------------
\1\ (See L M. Branscomb and Philip Auerswald, Taking Technical
Risks: How Innovators, Executives, and Investors Manage High Tech Risks
(Cambridge MA: MIT Press, 2001)
---------------------------------------------------------------------------
I can share with the committee a few of the most important things
we have learned:
Entrepreneurs and private equity investors alike
consistently state that there exists a financial ``gap'' facing
early stage technology ventures seeking funding in amounts
ranging roughly from $200K to $2 million. Entrepreneurs report
a dearth of funding sources for technology projects that no
longer count as basic research (and perhaps eligible for
federal science funding) but are not yet far enough along to
form the basis for a business plan (which could attract the
typical $7 million in venture capital funding). At the same
time, venture capital firms and other investors are sitting on
record sums, with over $70 billion still undisbursed from funds
raised during the boom years.
We should not be surprised by this. Whenever outcomes of
investment are uncertain, social and private benefits diverge, and/
or products are indivisible, we can no longer expect competition to
yield efficient outcomes--a theorem that comes not from ``New
Economy'' prophets, but rather from a classic analysis of inventive
activity published four decades ago by Nobel Laureate Kenneth
Arrow. Clearly, early stage technology development involves
uncertainty, imperfect ability to capture full benefits, and
indivisibilities. Whether or not efficient markets exist on Wall
Street may be an open question. However, efficient markets do not
exist for allocating risk capital to early stage technology
ventures.
The primary sources of funding for early stage technology
development are not venture capital firms, as many people
believe. Nor are they state governments or universities. The
leading sources of support for the conversion of inventions to
innovations are the ``angel'' investors to whom I referred
earlier; large corporations still willing in the current highly
competitive global economy to support promising technologies
outside of their core business; and government programs like
ATP and SBIR.
Angel investors are especially important, not only because
their investments in early stage technology development far
outpace those by venture capitalists, but because the best of
the Angels are themselves successful entrepreneurs who made
their millions, cashed out and now look for promising images of
themselves. They are more than sources of money; they are
mentors who help newly minted entrepreneurs get access to the
networks of trust that make Route 128 in Boston and Silicon
Valley in California such a fertile ground for new ventures.
These findings lead me to four observations:
The financial gap is real, but, as noted above, it reflects
a gap in information, in networks of trust, and in the
experience to perform the ``due diligence'' required by any
investor. It follows that the government should not attempt to
become a public venture capitalist. I am in full agreement with
Josh Lerner of Harvard Business School, Richard Florida at
Carnegie Mellon, and others on this point. But the government
should selectively identify entrepreneurs with promising
technical ideas and share with them the risks of reducing these
ideas to practice in the context of a promising commercial
market. This is what ATP does; and it does it well.
ATP should therefore focus on its role as an R&D program (as
the DOC's 5th reform proposal requires), and take every
opportunity to leverage the most important sources of radical,
interesting technical ideas. The research universities have
shown themselves to be rich sources of those ideas and their
ability to help ATP achieve its goals should not be needlessly
limited.
ATP's performance consequently should be evaluated by its
success at identifying and nurturing--in partnership with
innovative firms--promising new technologies capable of
building a foundation for economic growth. The goal is, of
course, to create jobs and wealth for Americans. But that is
the ultimate, not the immediate, goal of the program. Indeed it
is often the case that a R&D project that fails in terms of ex
post objectives nonetheless yields extremely useful technical
insights that translate into economic rewards as subsequent
projects profit from earlier learning.
ATP has now over a decade of experience. It has been the
subject of extensive, impartial, and thorough reviews by a wide
variety of leading scholars. Now the Department of Commerce has
concluded that it is a useful program. Although much is still
being learned about the nature and risks of high tech
innovation, I believe that it is time to stop treating ATP as
an experiment. Instead, it is time to promote continued
prosperity and future economic security in the United States by
funding the program at a level appropriate to its important
mission. One guide to identifying such level is to analyze the
relative resources available to ATP and SBIR, in comparison
with their relative documented effectiveness in achieving
critical national goals. I believe ATP is the more effective
program of the two, and thus that it should be funded at a
level closer to that of the SBIR program.
Finally let me note that this Committee might want to explore the
potential role of ATP in the S&T component of the nation's
counterterrorism effort. I am co-chair with Richard Klausner of a
project of the Academies of Science and of Engineering and of the
Institute of Medicine to explore the role of S&T in counterterrorism.
Our report is on schedule to be released in early June. I believe that
report will make evident the kind of role ATP could play in this
context, based on the diverse forms of innovation that are needed from
the private sector in partnership with the public sector. When our
Academies' study is complete, I would be happy to explore this idea
further.
Finally I want to acknowledge and thank Dr. Philip Auerswald and
Brian K. Min for their contributions to the preparation of this
testimony.
Thank you.
The Chairman. Oh, boy. You answered all of my questions.
Mr. Donnelly.
STATEMENT OF SCOTT DONNELLY, SENIOR VICE
PRESIDENT FOR GLOBAL RESEARCH, GENERAL
ELECTRIC COMPANY
Mr. Donnelly. Thank you, Mr. Chairman, Senator Allen. In
fact, he has given my testimony, so I will briefly summarize
it.
GE, certainly we are appearing on behalf of support of the
NIST ATP programs. We have had the opportunity over the last
few years since the inception of the program to participate in
a number of technologies that are certainly very early on in
their technical life cycle, just coming out of basic research,
in areas as widely ranging as health care, generation of
electricity, and the consumption of electricity.
ATP for us has generated I think a unique environment that
encourages collaboration between universities and academic
settings, the government, as well as private sector businesses
such as ourselves, as well as other large and small companies
alike.
The nature of the program has been very supportive in terms
of providing some funding for very early things. We look
primarily at the role and responsibility of academia and
nonprofit institutions to do the basic research. We obviously
spend most of our research money in the adaptation of that
technology and turning that to commercially beneficial products
and services.
The nature of most of the programs funded under the ATP is
such that these technologies are probably at least a decade
from having a commercial revenue stream. So even though they
may be large companies involved in the program, we still have a
responsibility on the financial side to our shareholders, and
we recognize that these programs, of which we actually cost-
share a great deal of the funding, that these are not
technologies that are going to show up as commercial benefit
for some number of time.
I would also like to address the various reforms that have
been proposed by the Department of Commerce. I have the exact
same view as the others in terms of university involvement. In
fact, we have had several universities participate as part of
our AT programs. These universities bring that ability and in
many cases the researchers who have participated in the basic
research, and it is quite logical for them to participate as
part of these program teams to make sure that we are efficient
in how we take that basic research and demonstrate its
feasibility for the commercial sector.
As to the issue of leadership, I see no reason why a
university should not be able to lead one of these. I think it
is simply a practical matter that any team should decide
whether it is more appropriate for the university or the
private sector to be responsible for the program in total. I
feel the same about the intellectual property. That should be a
fair and reasonable negotiation between all parties and no one
should be exempted from that.
In terms of large firm participation, I think large firms
actually bring a different perspective and a lot of value to
add to an AT program. Companies like ourselves are actually
quite good at understanding very early technology and providing
requirements and feedback to universities and small companies
on how that technology should be developed to make sure that it
is going to hit the mark once it gets to the marketplace.
So in that regard, certainly I think exempting large firms
would deny the program the opportunity to have participants who
in fact have proven to be very adept and successful at that
translation of technology in the past.
Most of our programs have been ventures where we have been
teamed with other companies in academia. Over 80 percent of
those have been the case in fact. We certainly have no
objection whatsoever in sort of a mandate that would require a
large firm not to go it alone, but to have partners in either
small companies or academia, as that has been our practice in
general.
At the risk of piling on in terms of this issue of
royalties, I see this as a very, very difficult topic. We work
with universities. Negotiating and funding collaborations and
trying to understand royalty payoffs and how those things would
work in very early basic research, these are very, very
difficult to do. The nature of these technologies--and in fact
the later reform suggesting that these technologies and funds
should only be used for that translation of basic research to
validation would in my mind make it virtually impossible to go
back and assign a value or understand where you apply that 5
percent and whose revenue would be extremely challenging.
In fact, most of these technologies--a company like
ourselves could spend $100 million in bringing a product to
market and it could be that 5 years earlier a million dollars
of NIST ATP money was spent. To try to assign a 5 percent
royalty or any value to that would be extremely difficult and
frankly, I think, beyond the philosophical opposition, an
administrative nightmare to try to ascertain where to assess
that royalty stream.
The last in terms of project review and evaluation I think
is quite logical. It has been, I think, frankly a very fair
evaluation process. There are some great people that work on
evaluating these proposals and programs, and to the extent they
would look for more industrial participation or for other
agencies we are fully in support of that. I think it has
actually been a very well-run and very well administratively
applied evaluation process.
So with that, I want to thank you.
[The prepared statement of Mr. Donnelly follows:]
Prepared Statement of Scott Donnelly, Senior Vice President for Global
Research, General Electric Company
Thank you Mr. Chairman and Members of the Commerce Committee:
My name is Scott Donnelly and I am the Senior Vice President for
Global Research for the General Electric Company. I am appearing today
on behalf of GE to express my full support for the National Institute
of Standards and Technology (NIST) Advanced Technology Program (ATP).
There is no better time to focus on strengthening technology
leadership in the U.S. through collaboration among U.S. businesses,
universities and government organizations. The NIST ATP is the best
example of this type of collaboration in meeting our nation's
competitive challenges and technology needs.
In the past several years, world-wide technology and innovation has
exploded. This creates a large demand for the innovation process to
have significantly more speed than just a few years ago. The NIST ATPs
addresses this important factor, and excels at bringing technology to
market very quickly.
We believe that when the government identifies areas of social and
economic need that are strategic for the nation as a whole--but is
highly risky for short-term commercial return--then joint government-
industry collaboration makes sense. By sharing risks between
government, universities and the private sector, U.S. Industry is able
to take more chances, which results in breakthrough technologies that
wouldn't have been viable for any of the three to try it alone.
Successful examples of NIST ATPs where GE has participated range from
new technologies aimed at improved health care through medical
diagnostics, to highly efficient energy sources, to next-generation
lighting.
The NIST ATP is not the only government program to share risks
between the public and private sectors, but we believe it is the best
program of its kind because:
It focuses on industry- and market-driven programs that are
selected based on merit;
It has successfully stimulated customer, manufacturer and
supplier alliances aimed at accelerating time to market;
It employs a rigorously open, competitive process with
market and economic impact factored into the selection
criteria;
Demonstrated willingness to work with industry to structure
mutually acceptable terms and conditions (i.e. minimize cost
accounting burdens and establish realistic intellectual
property terms);
NIST has assigned competent Technical Program Managers to
add value to the industry-led programs;
To measure performance, NIST has established metrics of
evaluation to assess the success of the programs, as well as
the return on investment by all parties.
I would like to address the proposed rule changes for NIST ATPs
proposed by the Department of Commerce, but first, let me begin with a
brief overview of our company so you can have an understanding of how
our research and technology fits into our company.
GE is a diversified technology, manufacturing and services company
with a commitment to achieving technology leadership in each of its key
businesses, including:
Aircraft Engines
Appliances
Capital Services
Industrial Services
Lighting
Medical Services
NBC
Plastics
Power Systems
Specialty Materials
Transportation Systems
GE Global Research is the cornerstone of research and development
for GE. From our beginning more than 100 years ago, we have been and
continue to be one of the most diversified industrial laboratories in
the world. We have more than 2,100 technologists representing the full
spectrum of scientific disciplines with more than 750 PhDs.
Now I would like to share our thoughts on all of the proposed
reforms for NIST ATPs:
Reform #1: University Leadership of ATP Joint Ventures
GE supports this proposal. We have partnered with numerous
universities for NIST ATPs, and we understand with the benefits and
capabilities that university research partners add to the programs. Not
only do academic research partners bring new ideas into a company's
research programs, they are also a source for our future workforce. All
funding that is committed to universities is ultimately educating
future scientists.
It is important that administration recognized that there is
increased value when universities and companies work together, rather
than either working in a vacuum.
Reform #2: University and other Non-Profit Organization Ownership of
ATP-Funded Patents
GE supports the rights to intellectual property (IP) for those who
make inventions and discoveries. Universities and non-profits should
have the ability to negotiate IP terms when collaborating with
companies and other research partners.
Reform #3: Retain Large-Firm Participation in ATP Joint Ventures
GE supports this proposal as this is a common practice for GE. We
have partnered in 83 percent of NIST ATPs in which we participate. We
see this proposed reform as a positive contribution to the program that
will allow large corporations like GE to offer commercialization and
technology expertise to small- and medium-sized companies and
universities that don't typically have this type of experience. We have
found this approach successful, because some of our small company
partners have been suppliers and other business affiliates that
strengthens our relationships and creates a win-win situation for all
involved.
Reform #4: Royalties on Government Investments in Profitable ATP
Ventures
This proposed reform would modify ATP statue to require recipients
of ATP awards to pay an annual royalty to the federal government of
five percent of any gross revenues derived from a product or invention
supported by or created as a result of ATP funding. It is intended that
these royalties would be ``reinvested'' in the ATP.
We are concerned that this rule change introducing ``recoupment''
as a means to stablize NIST ATP funding will render the program
ineffective in stimulating the development of high-risk technology with
real commercial potential.
One of the primary goals of the NIST ATP programs have experienced
successes in bridging the gap between basic technology research and
market implementation. The recoupment clause may erode participation
from companies, which would remove their valuable cost share funding,
commercialization, technical expertise that complements and often
enables smaller sized companies' participation in NIST ATP.
NIST ATP funding represents a very small portion of a research
organization's total R&D spending. To use GE as an example, in 2002 we
will receive about $4.4 million in NIST funding, which was two-tenths
of one percent of our company's total R&D budget. These funds are not
going to further product development for GE. We use these funds to help
our customers, suppliers and research partners with technology
breakthroughs that they could not accomplish alone.
Secondly, the recoupment is based on 5 percent of gross revenue,
which raises many serious issues. How would the Department of Commerce
calculate the ``government royalty'' for an ATP. Often an ATP is
focused on a specific, high-risk technical hurdle associated with a key
component, process or subsystem. This component is then part of a
larger system. The component may only be a small percentage of the
total system cost. How could anyone agree on a fair and consistent
formula to calculate the royalty fee owed to the government? This
creates an administrative nightmare and adds additional expenses that
would take away funding from the research programs.
In addition, to calculate the royalty on ``gross revenues'' would
place undue pressures on industry to pay the government even if they
are not making a profit. This would be difficult for GE, but it would
be devastating for the smaller firms.
Reform #5: Ensuring that ATP Funding is Used Only to Support Removal of
Scientific or Technological Barriers to Product Development
GE supports this proposal. In our company NIST ATPs are part of our
Global Research labs, not the GE businesses. Research funded by NIST
should be aimed at taking basic research and validating it, not product
development or marketing.
In fact, this supports my previous point regarding recoupment. It
would be practically impossible to correlate validation of scientific
research with profits generated from specific products or services.
Reform #6: ATP Project Review and Evaluation Process
GE supports this proposal and fully supports the peer review
process. Enhanced assessment of technologies supported in the private
sector would add value to the process and lessen the chance of
duplication of effort.
In conclusion, we would like to emphasize that NIST ATPs are highly
valuable--not only because they meet national priorities and industry
needs with the right sense of urgency--but they also allow GE to form
strong R&D partnerships and mentoring relationships with smaller
businesses that wouldn't typically have the resources to participate in
such high-risk technology development. NIST ATPs have GE's full
support, and we thank the Chairman and this Committee for their
commitment to ATP. We applaud the administration's efforts to address
concerns and improve the program, and we appreciate the opportunity to
provide input into the process.
I thank you, Mr. Chairman, for the opportunity to testify today and
I welcome any questions.
The Chairman. I cannot thank this panel enough, because
your presentation is outstanding. I was arguing with the staff
about recoupment and they were trying to explain to me the
position of the administration and I still could not understand
it. I am glad to see you three cannot either.
Dr. Bement, that is no reflection on you, sir. We
appreciate your leadership. He is our Director of NIST and we
are proud of him. He is working hard, and we are glad he is
here.
I just got briefed, Senator Allen, by a group back from
China. I have been there in 1976, 1986, 1996, last year. What
we have got going on in the Middle East is nothing compared to
making friends and making sure we have a positive influence
there in China, because a billion 300 million--there are just
not as many Americans as there are Chinese and the only way we
are going to survive is the superiority of our technology.
These three folks there are leading the way for that, and
NIST and ATP is leading the way. That is, our first line of
defense and security is technology. Secretary Rumsfeld
understands that.
Ms. Armstrong, I am jealous. I will never forget sending my
man up to Richmond, Virginia, for Governor Albertus Harrison.
We had a red hot industrial development. Now I see what
Governor Allen and you have got there. Every time I go to
Dulles Air Base I say, how stupid I could have been. You folks
are way ahead of anybody-else--Research Triangle and anything
else. I mean, it is outstanding and we commend you on your
leadership and what you are doing out there. That is very good.
I appreciate it.
Senator Allen.
Senator Allen. Thank you, Mr. Chairman. Thank you for your
compliments of Virginia. As Governor I was envious of South
Carolina and what you had done there as a State. In fact, the
person I selected to head up our economic development effort
was there, had been there with Carol Campbell, Wayne Sterling.
We put together a good team, and South Carolina has done a
great job.
I agree very much with your views as far as how Americans
will compete and succeed in the future. We have to have the
right policies here in this country--good science-based
regulations, good pro-business tax policy, investment in
research. The key will be knowledge and having the best, most
knowledgeable individuals who have a good work ethic, but are
innovative in improving our lives. That is how we will have
better quality in our manufacturing, communications, and all
aspects of our economy.
I would like to ask Ms. Armstrong the follow-up questions.
You mentioned the universities, and I will not try to explain
what the logic of the recoupment aspect is. I am sure it is the
logic of keep using those funds to fund others in the future. I
would guess that is the logic of it. But I think as a practical
matter these three witnesses have shown the practicality of it
and probably or possibly an improper incentive or factor to put
into the calculations or determination as to who does receive
ATP funding.
Regardless of that, on the universities aspect of this,
especially with the CIT, when I was Governor the CIT was under
the Secretary of Education. I moved it to Commerce and Trade
because I wanted it to be job-oriented, not that the
universities and education is not important. Subsequently, with
the creation of a Secretary of Technology, logically it was put
into that secretariat.
Now, the issue on the universities aspect of this.
Universities in some cases, not all cases, can be useful
partners and they have their own patent, intellectual property
efforts, their patent and trademark, so to speak, offices
there.
Now, one of the reforms focused on here is to allow greater
university participation in the ATP program. Now, according--
and it may not be right but according to the National Research
Council report last year, it said: ``176 universities have been
involved in the program, participating in over half, 56
professional, of the programs 522 projects.''
Now supposedly there is a thread in here that there is some
sort of barrier to university participation in ATP. So I would
ask you, Ms. Armstrong or if Mr. Donnelly or Dr. Branscomb
would want to join in, what are the existing barriers to
universities' participation?
Ms. Armstrong. I will take a stab at it. In Virginia the
universities own, hold their IP and they license it, and there
is the perception that in the ATP program that the results of
the research must be owned by the company. So we have an
administrative barrier. There have been some ways around it,
which is how we have managed to have universities participate.
But I believe that it is a specific Virginia rule, which a lot
of other States have as a result of some of the Bayh-Dole
regulations. There are some States that have changed those
regulations--I believe Arizona is one of them--and have made
the licensing of the IP that is developed in the universities
much more available and allow the companies to own it.
Senator Allen. Dr. Branscomb?
Dr. Branscomb. I cannot speak to Arizona law. But on the
issue, I know that--and I talked to the vice president for
research at Cornell, who is very concerned about this
particular element. He says there is no way Cornell can
participate if they put their faculty into the program and they
invent stuff and then they do not own the invention and they
are not even allowed to negotiate with their countries partners
what the ownership will be.
It seems to me that the right answer is to get the Federal
Government out of the particular debate and leave it up to the
companies and the university to work it out. If they cannot
work it out, they probably are not ready to work together
anyway.
The other issue--and I am delighted that you pointed out,
Senator Allen, that half of these ATP programs already have
universities involved in them. My understanding of what
sometimes happens is there is a university, there are companies
in the same city, they talk to each other, the people in the
same areas, the engineers and the industry people. They are
talking about interesting technologies. They know something
about what everybody is doing, and the idea comes up, let us
think about doing something together.
I think very often the university people actually sit down
and work out what the technical strategy might be, then the
company picks it up and puts it in a proposal that includes the
university. All this particular reform does as far as I can see
is a fairly simple and in some sense purely administrative
thing, which is to say if a university is thought to be by the
companies the right group, has the right person, the right
leader there ready to put the consortium together and work out,
negotiate the details, why not let that happen.
It does not change anything as far as I can see in either
the criteria for deciding whether they get an ATP award nor
does it change anything on the expectations that the Congress
and the government are entitled to have for what the outcomes
would be. It is a question of not forcing the university to
pretend it did not ghostwrite the proposal, which I think
sometimes they actually do.
Senator Allen. So you would support this aspect of the
proposal?
Dr. Branscomb. Sure. I am not at all afraid of--maybe the
NIST will get accused of pork by letting universities in. My
understanding is the company is pretty good at pork, too, and I
do not think NIST is ever good at pork. I have never seen NIST
do a piece of pork. In fact, I think the reason they have
trouble selling the ATP program politically is they have leaned
so far over backwards to make sure that there is no pork that
they are not even willing to talk to politicians.
I at one time advocated putting the headquarters office for
ATP down in the Commerce Building so that Mary Goode could
teach them how to talk to politicians. Now I think we have got
a really good team at NIST and in the Department and that is
not necessary. But this is not a pork problem and it really
is--these projects really are high tech projects. They really
call for brainy people being involved. Not many companies have
the depth of high-level competence technically that some of the
better universities have in their midst.
Senator Allen. Thank you for explaining it. I assume that
all three of you, including you, Ms. Armstrong--and that is why
I asked you first, because before you were there, but
nevertheless the CIT has been under these different
secretariats. You all three would agree with the proposals from
the Secretary of Commerce insofar as the universities aspects,
right?
Mr. Donnelly. Absolutely.
Ms. Armstrong. Yes.
Dr. Branscomb. It seems to me consistent also with the
spirit of the Bayh-Dole Act, which goes back to 1980, and a
huge amount of the technical revitalization of this country has
come about through Bayh-Dole and the basic philosophies that it
contains.
Senator Allen. Thank you. Thank you all.
Thank you, Mr. Chairman.
The Chairman. Dr. Branscomb is heading up the
counterterrorism panel over at the National Academy of
Sciences. A role for ATP now in homeland security; do you see a
role? If any, what would that role be?
Dr. Branscomb. I think that could be quite plausibly a
role. Of course, we have not finished our study. We are
shooting to get it out in early June. But we are certainly
going to identify in that massive study a very large number of
technologies that lie just over beyond what is now commercially
reachable. Many of them will have the feature that, while
everywhere we can for homeland security we will look for dual
use technologies so there can be a commercial market to help
make it available to the country for homeland security
purposes, but I think it will be a feature of many of these
homeland security projects that, number one, they need
innovative companies to do the actual development; number two,
there is a weak or questionable or unknown or in some cases
nonexistent commercial market and there is a big public
interest involved in them.
So it seems to me just, I do not see these programs as any
different from other ATP projects. They will have the
characteristic of being very high tech, very early stage,
markets yet not well identified, and requiring technical
exploration, and in many cases involving the skills companies
have.
So I look around the government, where do we have really
good experience with public-private partnerships at doing
things with industry that the country badly needs? This program
looks to me like the one that has the best track record.
The Chairman. Very good. The appearance of each of you has
been most valuable here this morning.
The record will stay open with respect to questions, and
the Committee will be in recess until the call of the chair.
Thank you very, very much.
[Whereupon, at 11:05 a.m., the Committee was adjourned.]
A P P E N D I X
Response to Written Questions Submitted by Hon. John McCain to
Hon. Samuel Bodman
Question 1. The ATP program has consumed a tremendous amount of
management time, not only of NIST's, but also the Department's. One of
my concerns with the program is that other managerial areas of the
laboratories are not receiving the proper attention. Congressman Udall
and I wrote to the Secretary last year concerning the deteriorating
conditions of the NIST laboratories in Boulder, Co. The Secretary
responded to this letter stating that he would have the NIST update its
facilities plan and that it would be provided to the Congress as soon
as it is available. We have noticed that a report on proposed changes
to the ATP program has been completed within that time frame.
a) Can you provide us with a date as to when we can expect to
receive this updated facilities plan?
Answer. Elements of NIST's Boulder Construction Plan are reflected
in the President's FY03 Budget submission to Congress. In particular,
the budget requests $11.8M for the first phase of a new Central Utility
Plant (CUP) as well as $5.5M for the installation of upgrades to the
facilities' Primary Electrical Service.
The current Boulder renovation plan, subject to future budget
priorities, is to renovate Building 1 (multiple wings), Building 2, and
Building 4, phased in over a ten-year period.
Question 2. The Energy bill that is currently under consideration
by the Senate contains a provision that allows NIST to hold a portion
of the ATP competitions in thematic areas designed to develop and
commercialize enabling technologies to address climate change. The bill
also contains provisions for NIST to develop a program to support the
implementation of new ``green'' technologies and techniques at the more
than 351,000 small manufacturers.
a) What are your thoughts on these provisions?
Answer. Since the ATP provision was dropped from the version of the
Energy Bill (S. 517), this response will not comment on that provision.
Section 1364, titled Technology Development and Diffusion would give
the Manufacturing Extension Partnership (MEP) the opportunity to
increase the adoption of green technologies by small and medium sized
manufacturers by helping them to overcome the technical issues
associated with the insertion of these new technologies.
Currently, MEP provides small and medium sized manufacturers with
technical assistance to improve their energy efficiency and reduce
their impacts on the environment. This is important because
manufacturers consume more than 25 percent of the natural gas used in
the U.S., and they have been especially hard hit by the rising cost of
energy. A few examples of MEP results include:
Klune Industries of Spanish Forks, Utah, eliminated 1
million pounds of CO2, 7,700 pounds of
SO2, and 3,300 pounds of NOx, and
conserved 600,000-kilowatt hours of electricity by converting
to MEP's recommended lighting technology.
In Maine, the NIST affiliate helped Naturally Potatoes, a
small producer of potatoes, to conduct an energy audit and find
ways to save nearly $364,000 in annul energy costs.
NIST's New York affiliate helped Akron Agway reduce energy
costs 46 percent while slicing processing time by two thirds by
introducing new drying oven technology to the company.
MEP can also help companies meet the challenges of getting
customer acceptance of new products, their performance, and
associated price adjustments.
Aspects of an assistance program for ``Green Manufacturing'' could
include:
--Developing and disseminating assessment tools to help companies
conduct cost benefit analysis on different green technologies and
existing capital equipment.
--Positioning MEP services in the marketplace to help educate
technology development companies to produce products and services that
are properly scaled to meet the demands of small and medium sized
manufacturers.
--Helping small and medium sized manufacturers:
--Identify sources of funding to underwrite the cost of acquiring
new capital equipment needed for the conversion to green technologies.
--Implement the conversion to green technologies including
testing and production ramp-up.
--Identify and take advantage of the available tax relief and
incentiveprograms.
--Train company employees in the use of green technologies
including energy efficiency work practices.
--Develop and implement marketing strategies to gain customer
acceptance of new products that may look and behave differently yet
meet customers' functional requirement.
Question 3. Can you provide the fiscal year carryover balances for
ATP for the past ten years?
Answer. The following are ATP's carryover balances for fiscal years
1990-2001.
FY Carryover into following year
1990 $9.3M
1991 $35.4M
1992 $42.4M
1993 $49.2M
1994 $168.1M
1995 $136.4M
1996 $41.7M
1997 $15.1M
1998 $33.1M
1999 $67.7M
2000 $50.4M
2001 $31.1M
Question 4. The President's budget would cut federal funding to all
MEP centers that have been in existence longer than 6 years. However,
Congress eliminated this six-year limit in P.L. 105-309, Technology
Administration Act of 1998. Were there any additional reasons for
recommending this cut?
Answer. In making the decision regarding funding for MEP, the
Administration had to weigh several factors. In times of war, tough
budget choices must be made and this was one of those tough decisions,
especially in light of MEP's success at delivering services to small
and medium sized manufacturers. However, given the MEP centers' success
in improving productivity and efficiency, we felt that increasing fees
for service should be the direction in which the program heads. The
benefits of seeking MEP assistance, such as improved productivity and
efficiency, should outweigh the increased cost of the fees.
Question 5. The President has proposed elimination of the
Partnership for a New Generation Vehicle program, which was a 10-year
government/industry partnership for research on a light-duty-vehicle,
and instead proposed his Freedom Car Initiative at the Department of
Energy. Can you discuss whether the research that was being conducted
under this program at the various agencies has been eliminated also?
Answer. Although there will be no multi-agency coordinated R&D
program in the agencies after the termination of the PNGV Program, each
agency participating in the PNGV is able to continue their R&D work as
appropriate to their mission and budget guidance. We do not have
specific project information for the other agencies. Within the DoC,
NIST has 78 automotive related measurements and standards activities
currently in process. Although many of these were never specifically
directed to the PNGV roadmap requirements, all are high priority
projects needed by the auto industry and the major suppliers.
b) Also, the Washington Post is reporting the prototype of a
``one-liter Volkswagen'' which gets 239 miles per gallon. How does this
vehicle compare to the vehicle that was envisioned in the Partnership
for a New Generation Vehicle program?
Answer. Volkswagen, AG has not released any details or
specifications with respect to the vehicle we think is referenced in
the Washington Post. The only information we can obtain is from a photo
in the 4/22/02 Automotive News which shows F. Piech and B.
Pischetsrieder in a front-to-back configuration vehicle. This appears
to be a very small, two seat, vehicle, which may have a 1-liter diesel
in a hybrid powertrain. If this is the vehicle in question, it differs
significantly from the mid-size, 5-passenger sedan used as the basis
for the PNGV R&D roadmap plan. Without details of the vehicle body and
powertrain, it is impossible to provide item-by-item comparisons.
Question 6. One reform advocated by the Administration is that
recipients of ATP awards should pay an annual royalty of 5 percent of
any gross revenue derived from the product up to 500 percent of the
original funding received by the award recipient. Do you believe that
this recoupment plan can be used as an initial step to turning ATP into
a self-sufficient program?
Answer. The recoupment plan as proposed in ``Reform with a
Purpose'' could be considered the initial step to turning ATP into a
self-sufficient program. Under certain terms and conditions, and not in
an effort to penalize success, it is fair and reasonable to require a
direct repayment based on the initial Federal share if a company is
profitable and nets considerable gains from a technology developed
under ATP. As such, the financial returns that would stem from ATP
projects could potentially transform ATP into a self-sustaining program
and thus optimize Federal investment.
Question 7. The ATP program recently announced that Advanced Cell
Technology Group had won an award for ``Transdifferentiation of Adult
Somatic Cells.'' Advanced Cell Technology Group has also announced
their efforts in the cloning of humans. Can you elaborate what steps
are being taken to ensure federal funding is not being used for human
cloning activities at this company or any other ATP award recipients?
Answer. The ATP award to ACT will fund research using human somatic
cells. Somatic cells are cells such as skin or liver cells, and are
neither sperm nor eggs. The ACT award aims to use somatic cells to
develop transdifferentiation technology that could ultimately lead to
the production of replacement cells for patients suffering from
diseases such as Parkinson's, Alzheimer's and diabetes.
Through its cooperative agreement, the ATP has imposed stringent
award conditions on ACT that are designed to ensure that the award
funds are solely used for transdifferentiation research involving human
somatic cells. Included in these award conditions is a requirement that
ACT demonstrate prior to the release of funds that its accounting
system will adequately segregate and track ATP expenditures.
The Department of Commerce's Office of Inspector General has
completed an independent survey of selected aspects of the ACT award
and is completing work to ensure that ACT has policies and procedures
in place that will allow its financial management systems to adequately
segregate and track federal funds and comply with ATP's award
conditions. In addition, high-level technical, administrative, and
legal officials at the Department have reviewed the ACT award, and are
satisfied that the award issued to ACT is in compliance with all
Presidential policies, statutes, regulations, and guidelines for the
use of human subjects in federally funded research.
In addition, the ATP Human and Animal Subjects Advisor has been
assigned as a special regulatory and technical advisor to this award.
In addition to his normal oversight duties, this individual will attend
all meetings, and site visits with ACT and its subcontractors; review
quarterly technical reports; review all business reports; review all
correspondence involving ACT; ensure that ACT is in full compliance
with Federal guidelines on the use of human and animal subjects in
Federally funded research. Further this advisor will provide written
quarterly progress reports to the ATP Director, senior ATP management,
and the Project Management Team on ACT's technical progress and
compliance with applicable Federal regulations.
As ATP and NIST monitor this award, we will continue to strengthen
the oversight activities as warranted.
Question 8. The families of the victims of the September 11
terrorist attacks in New York and professional associations have
requested that NIST study the technical causes of the World Trade
Center collapse.
a) Do you believe that Congress should establish a specialized
team that would be analogous to the National Transportation Safety
Board, to investigate the collapse of large buildings?
Answer. At this time we are not prepared to comment on the need for
a ``specialized team'' analogous to the NTSB to investigate the
collapse of large buildings. NIST has put in place a very thorough
response plan to the collapse of the World Trade Center Buildings. This
plan is different from and responsive to the efforts of the Building
Performance Assessment Team, or BPAT, led by the American Society of
Civil Engineers (ASCE) and sponsored by the Federal Emergency
Management Agency, FEMA. The NIST response plan addresses all major
recommendations contained in the BPAT report. NIST has also identified
other critical issues that need study, especially in areas that impact
life safety and engineering practice.
The NIST proposed response plan consists of three key program
elements including an investigation to be conducted in parallel. These
are:
First, a 24-month building and fire safety investigation
into the collapse of the Twin Towers (WTC I and 2) and WTC 7.
The goal of this program element is to investigate the building
construction, the materials used, and the technical conditions
that combined to cause these disasters following the initial
impact of the aircraft. While WTC 4, 5,and 6 will not be
investigated specifically in this phase, what we learn in
examining WTC 1, 2 and 7 would benefit buildings of all
designs.
Second, a multi-year research and development (R&D) program
to provide the technical basis to support improved building and
fire codes, standards, and practices. This program element
addresses work in critical areas such as structural fire
safety, prevention of progressive collapse, and equipment
standards for first responders. It includes BPAT
recommendations for WTC 3, 4, 5, and 6, Bankers Trust, and
peripheral buildings as well as recommendations for future
studies to address specific issues of broader scope not covered
by the BPAT. The program outputs and recommendations will
support the voluntary consensus process that is used to develop
building and fire codes and standards in the United States.
Third, an industry-led dissemination and technical
assistance program (DTAP) that will provide practical guidance
and tools to better prepare facility owners, contractors,
designers, and emergency personnel to respond to future
disasters. The DTAP will also be an important complement to the
R&D effort to demonstrate and gain acceptance of proposed
changes to practice, standards, and codes. This program element
addresses BPAT recommendations for the training and education
of stakeholders.
We have shared the overall response plan approach extensively with
public and private sector organizations and have welcomed their inputs
since the middle of October 2001. The plan was modified in January 2002
when FEMA requested NIST to initiate an investigation under NIST's
unique legislative authorities to conduct structural and fire
investigations. This request was in direct response to a growing demand
for a broad-based federal investigation into the World Trade Center
disaster from technical experts, industry leaders, and families of
building occupants and first responders who lost their lives on
September II, 2001. We continue to revise the plan as more technical
information becomes available and to be responsive to the suggestions
and needs of these many stakeholders. We will continue to keep the
Committee informed as we continue to update the investigation and
response plan.
Question 9. Over the years the U.S. economy has become reliant upon
a steady flow of technologies for continuous economic development. The
U.S. government is investing over $40 billion in civilian R&D. Can you
update the Committee on the progress made on technology transfer at the
federal laboratories?
Answer. Please refer to Question #13.
Question 10. As part of NIST investigation of the World Trade
Center, you have mentioned the development of ``intelligent''
buildings. Can you elaborate on how such a system would work?
Answer. An ``intelligent'' building is one in which the automation
and control systems used for environmental comfort control, fire
detection, access control, lighting, and elevator control are
integrated so that they can exchange information and interact with each
other. This kind of integration is useful for energy management and to
improve response to emergency situations. For example, the detection of
a fire can cause changes in the ventilation system, lighting, elevator,
and access control systems to aid evacuation of the building.
Intelligent building systems can also permit interaction between
the building and outside service providers. In the future, these
systems will be used to interact with utility providers to manage
loads, provide a way for service companies to help the building owner
maintain the facilities, and also to provide access to critical
information about the building and its occupants to police, fire and
others responding to an emergency in the building.
NIST's Building and Fire Research Laboratory (BFRL) has been
working with industry for approximately fifteen years to develop
communication standards and other technology that will enable
widespread use of these integrated building systems. BFRL research also
involves automated detection of faults in building control systems and
other technologies that can take advantage of the information that can
be available because of the integration. Today there are hundreds of
thousands of building control products installed around the world that
use technology based on BFRL's work in this area.
Question 11. With the growing demand for communication services and
foreign competition in satellite launch services, what do you see as
the future of the U.S. commercial launch industry?
Answer. Although there is a healthy demand for satellite-based
telecommunications services, this demand has not translated into a
dramatic increase in demand for launch services, due to several
factors. First, the traditional geostationary orbit (GEO), fixed
satellite services market has been satisfied by larger and more capable
satellites, so that it has been possible to meet growing consumer
demand without a significant increase in the overall number of
satellites launched. Second, the satisfaction of demand for wireless
services by terrestrially based systems has led to the financial
troubles of several low earth orbit (LEO) satellite constellations
which could have otherwise stimulated a large increase in demand for
LEO satellite launch services.
Programs for development of new launch vehicles, such as EELV, had
been predicated, at least in part, upon the expectation that there
would in fact be a significant increase in launch services demand.
Consequently, there is growing evidence of oversupply in the
international launch services market, resulting in financial
difficulties for U.S. launch providers.
Near-term commercial development of reusable space vehicles has
also been adversely affected by the apparent overcapacity of launch
services. However, if new reusable vehicles can eventually be developed
in the U.S. to provide launch services with dramatically lower cost,
higher safety/reliability, and greater capability, the U.S. launch
industry could benefit in two important ways. First, U.S. providers
utilizing these new vehicles would be highly competitive in the
international marketplace. Second, new vehicles might enable
development of large new markets that would greatly increase overall
demand for launch services.
NASA's Space Launch Initiative represents a major effort to create
new technologies that can be applied to development of reusable launch
vehicles by early in the next decade, with commercial as well as
government applications. One or more of the remaining private
entrepreneurial reusable vehicle development efforts may succeed even
earlier in producing commercially profitable orbital launch services.
Finally, there may be considerable commercial promise in suborbital
reusable vehicles under development both in the U.S. and elsewhere.
Although suborbital vehicles would not travel to--or generally place
payloads in--orbit, they might provide a near-term financial bridge
between today's expendable launchers and tomorrow's orbital reusable
vehicles. Commercial markets enabled by suborbital vehicles might
provide at least some U.S. launch providers with revenues sufficient to
sustain them during that period.
Question 12. The Technology Administration Act of 1998 created the
Office of Space Commercialization within the Department of Commerce.
NASA is currently pursuing a number of commercialization activities.
Can you comment on any involvement that your Office of Space
Commercialization has had with NASA on commercializing the
International space Station?
Answer. The Office of Space Commercialization (OSC), which as you
note in your question was authorized by Congress in 1998, is working
with NASA in a number of areas, including commercialization of the
International Space Station (ISS). As you are likely aware, the space
policy of the Administration is handled in large part through the
National Security Council- and Office of Science and Technology Policy-
led Space Policy Coordinating Committee, often referred to as the Space
PCC. Under that larger umbrella, the Office of Space Commercialization
serves as a co-lead (along with representative from the Intelligence
Community and from the Department of Defense) of a sub-team on
commercial strategy. Although the primary focus of that sub-team has
been commercial remote sensing, at the suggestion of OSC, the group's
agenda also includes the issues of advertising, entertainment and
tourism aboard the ISS.
OSC, both on its own and as a representative of other Commerce
bureaus such as the International Trade Administration, has worked with
NASA on a draft plan to address these issues as they relate to ISS.
Apart from ISS, OSC is also engaged in activities related to NASA's
Space Launch Initiative, and has proposed to NASA leadership that OSC
host events in partnership with NASA that will focus on what the Space
Launch Initiative has to offer businesses that are outside of the usual
space-based business interests, but which could begin to use space
transportation for commercial purposes.
For further information, I would refer the Committee to the report
to Congress submitted by OSC in February 2001.
Question 13. The Office of Technology Policy (OTP) is one of the
only offices in the federal government charged with conducting
analysis, formulating policy, and advocating national policies to
maximize technology's contribution to U.S. competitiveness and economic
growth.
a) What areas of technology policy development is OTP currently
focused upon?
Answer. As you note, the Office of Technology Policy (OTP) is one
of the few offices in the federal government charged specifically with
providing policy guidance to enhance the environment for technology and
innovation in this country. I would further contend that it is the only
office at the federal level that is concerned with the entire process
of technological innovation--how technology gets developed, and how the
results of research and technology development make their way to the
marketplace or get deployed throughout the economy. The conversion of
research and technology development into wealth-generating,
productivityenhancing products, processes, and services strengthens our
country's competitive advantage, brings value to society and
contributes to global prosperity and stability.
Currently, OTP is focused on pursuing a number of concrete policy
objectives important to strengthening and serving the priorities of the
Under Secretary for Technology, the Secretary of Commerce and the
President of the United States.
These objectives are focused in three critical areas:
I. Supporting technology's contribution to the nation
II. The business climate for innovation
III. Building a workforce for the knowledge economy
Supporting Technology's Contribution to the Nation.
Technology Transfer
OTP has a statutory responsibility to report to the
President and the Congress on the status of technology transfer
activities by the federal laboratories. In accordance with the
StevensonWydler Act (as amended in 1986), OTP has prepared
periodic biennial reports for the President and Congress on
this topic since the late 1980s. (OTP's May 2000 report in this
series, ``Tech Transfer 2000: Making Partnerships Work,'' was
well received by the policy community and was a basis for
congressional testimony in that year.) More recently, the
Technology Transfer Commercialization Act of 2000 enlarged the
reporting process in number of ways, making OTP responsible for
preparation of an annual report to 0MB on the Department of
Commerce's plans, activities, and achievements for tech
transfer by its federal labs and for an annual summary report,
authored by the Secretary of Commerce, for the President and
Congress, on best practices and effective approaches for tech
transfer in evidence at all the federal labs. This federal-wide
reporting responsibility places OTP in an important role to
observe and comment on current federal technology transfer
trends, assess the effectiveness of prevailing policies and
programs, and provide informed recommendations on any changes
that may be needed in federal tech transfer policies.
OTP continues to chair and coordinate the activities of the
Interagency Working Group on Technology Transfer (IWGTT). This
longstanding group is comprised of senior policy and technology
transfer professionals from all federal agencies with federal
laboratory facilities. The IWGTT meets monthly to discuss
current issues about federal tech transfer laws and policies
and to develop recommendations pertaining to pending
legislation or other policy matters. Because technology
transfer happens in differing circumstances across the agencies
and numerous federal labs, the IWGTT plays an important role in
identifying issues and policy solutions of common interest.
As the U.S. Government representative to the Organization
for Economic Cooperation and Development's (OECD) Working Group
on Innovation and Technology Policy, OTP routinely coordinates
with U.S. agencies, universities, and businesses to formulate
the U.S. position on various technology transfer issues.
Recently, OTP led the development of the U.S. response to an
OECD study on publicly funded research organizations' licensing
activities. OTP worked with U.S. government agencies and
universities (through the Association of University Technology
Managers) to prepare the U.S. response.
Economic Growth
With the growing interest in high-tech business clusters,
state and local government leaders want information that
identifies critical elements commonly found in successful state
and regional technology environments and help identifying the
presence of these elements in each of the states. To meet this
need, OTP publishes ``The Dynamics of Technology-Based Economic
Development: State Science & Technology Indicators'', a data
tool that provides metrics on science and technology assets in
the 50 states. State and federal leaders have indicated this
information will be valuable to state and local economic
development officials across the country as they develop and
implement their technology initiatives.
Recognizing the critical need for economic stability in the
Middle East and North Africa, OTP helped create, develop and
launch the Middle East Business Development Initiative working
with ITA, BIS, NIST, NOAA and NTIA. This initiative is designed
to promote partnerships between U.S. and Middle Eastern and
North African businesses in order to strengthen the
international coalition against terrorism, expand business
opportunities for American companies, and improve prospects for
mutually reinforcing commercial growth and stability.
Important trading partners such as Russia are seeking to
actively pursue technology-led growth strategies and seek
guidance and best practices from the United States. OTP
recently hosted a roundtable that explored the venture capital
(VC) environment in Russia. A number of U.S. VC and investment
experts provided insight to a group of Russian investors,
entrepreneurs and policy makers.
Cybersecurity
In collaboration with NIST, and at the request of the Bureau
of Industry and Security, OTP is contributing to the
President's Critical Infrastructure Protection Board. The Board
has launched a series of Cybersecurity Board Policy Reviews,
and OTP has been asked to contribute to its outreach strategy.
This strategy will involve the IT business community in the
development and execution of the recommendations delivered by
the Board in its National Strategy to Secure Cyberspace.
OTP is also focused on providing support to the Office of
Homeland Security as it seeks to work with the numerous private
sector providers of security technologies. OTP's understanding
and relationships with the U.S. IT community are valuable in
leveraging private sector contributions in meeting the
President's national security objectives.
OTP is playing a leading role in the revision of the OECD
Guidelines for the Security of Information Systems and
Networks. The revision of these Guidelines reflects a dramatic
increase in the importance of a methodical, global approach to
securing the information infrastructure that serves as the
foundation for business, communication and government.
The Business Climate for Innovation
Understanding Broadband Demand
OTP has played a leading role in examining the policy debate
surrounding the availability and deployment of broadband
technologies in the United States. OTP has taken up the
challenge that, despite widespread availability, only a
fraction of American consumers have chosen to subscribe so
far--just 10 percent by some estimates. There are numerous
market and regulatory forces at work, and OTP has convened
experts for in-depth discussions on two factors: 1) the market
and policy issues impacting online, digital entertainment; and
2) the potential for broadband business applications to
catalyze demand. A third discussion is planned to explore the
impact of e-learning and tele-medicine on broadband deployment.
The Environment for Innovation in America
OTP is also conducting a series of roundtables examining
changes in the U.S. innovation system at the start of the 21st
century. The Innovation in America roundtable series brings
together national experts in R&D and innovation from U.S.
industry, universities and government laboratories to explore
the changing innovation landscape; to inform R&D policymakers,
practitioners and managers; and to identify trends and
understand their implications for national R&D and innovation
policies and programs. This effort serves as a foundation for
substantive follow-up with key stakeholders within government,
the private sector and academia regarding improvements in the
regulatory environment for innovation and best utilization of
federal R&D resources.
Biotechnology
The U.S. Government does not currently collect comprehensive
quantitative information about the emerging biotechnologies
that are transforming and creating industries. Recognizing that
making good public policy requires factual information, OTP is
leading an interagency effort to develop and deploy the first
comprehensive survey of U.S. firms using and manufacturing
biotechnology processes and products. Information collected
about capitalization of the industry, number of firms and
employees, and regulatory and workforce barriers to industry
growth and competitiveness can provide a foundation for future
data collection efforts by the Census Bureau and the National
Science Foundation.
OTP also is working with private-public groups to identify
barriers and propose solutions to biotechnology firms' response
to national homeland defense requirements for certain
biotechnology products (such as vaccines, bio-threat detectors,
and treatments).
E-Commerce Development and Growth
OTP is engaged on a number of relevant policy issues that
affect the electronic marketplace, working with industry and
others in the Administration. These include:
--Online Privacy
--Internet Taxation
--Online Gambling
--Digital Rights Management
International Competitiveness
In April 2002, the Under Secretary for Technology co-chaired
with China's Ministry of Science and Technology a roundtable on
business and university collaboration in China. The U.S.
technology businesses participating in the roundtable then
joined the Under Secretary in a meeting with China's Minister
of Science and Technology. The meeting provided a unique
opportunity for the U.S. companies to discuss with the Minister
various impediments they encounter in China. The United States
and Chinese agreed to pursue expanded cooperation in standards,
intellectual property rights enforcement as well as venture
capital development.
In April 2002, the Under Secretary for Technology also met
with senior science and technology officials in Japan. An
agreement was reached to pursue a regular dialogue on
technology policy issues. Through this dialogue, the Technology
Administration expects to accelerate the exchange of
information, identify best practices and gain increased insight
into Japan's evolving strategy to promote technological
innovation.
The Assistant Secretary for Technology Policy recently
completed consultations with European Union (EU) officials to
pursue greater collaboration in establishing policies conducive
to the growth of e-commerce. This builds upon substantial OTP
outreach to industry, which provides OTP insight in the
opportunities and challenges facing U.S. e-commerce and IT
firms that are seeking to establish or expand operations in the
EU.
OTP serves as the Secretariat for the U.S.-Israel Science
and Technology Commission, a binational initiative that helps
stimulate economic developing by promoting the use of
technology in both countries through collaborative science and
technology programs. Activities include joint ventures between
U.S. and Israeli private sector firms and ongoing dialogue to
help reduce commercial impediments and harmonize standards and
regulations. Each government provided funding ($15 million in
the mid-90s) to support this program.
OTP supports U.S. technology development and technology-led
economic growth by working with U.S. businesses to promote
international partnerships. OTP normally pursues such
activities through bilateral and multilateral initiatives with
foreign governments (e.g., Egypt and Israel) and typically
include direct participation from each country's private
sectors. OTP was recognized in a May 31, 2001 cable from the
U.S. Embassy in Cairo for its efforts in promoting public-
private partnerships. The cable (Cairo 3326) notes that the TA-
led Technology Subcommittee under the bilateral arrangement,
the U.S.-Egypt Partnership for Economic Growth and Development,
``has arguably been the most successful subcommittee in recent
years'' and ``its strong private sector participation sets it
aside'' from other bilateral efforts and has contributed to its
success.
Building A Workforce for the Knowledge Economy
IT Workforce
Based on the success of OTP's prior work on IT work force
issues, OTP was assigned to fulfill a Congressional mandate
under the American Competitiveness in the 21st Century Act to
conduct a review of existing public and private high-tech
workforce training programs in the United States, and submit a
report to Congress on the study findings.
On behalf of the Secretary, OTP is conducting this review and will
develop a report exploring: information technology (IT) worker demand
in terms of education and skill requirements, the employer role in IT
worker training, types of programs through which IT workers acquire
their education and skills, key elements of successful programs, and
the strengths and weaknesses of different IT education and training
program models. The review process will include: data analysis and
literature review; request for comments from employers, IT workers, and
IT education and training providers; expert round tables; and site
visits.
Global S&T Workforce
The office is also undertaking a study of the S&T workforce
issues in the G-7 nations, which budget and spend almost 70
percent of the world's R&D. The objective of the study is to
determine the policies and approaches adopted by the countries
in developing and sustaining their technology workforce base.
This study will look at the technology workforce ``system''
from three thematic perspectives--worker development, labor
availability, and globalization of the workforce. This research
can serve as input to discussions on national competitiveness,
innovation, and technology policy.
GO4IT
The Technology Administration maintains the GO4IT website
for information technology workforce initiatives. Through the
web site, which contains more than 300 resources, visitors can
learn about high-tech workforce initiatives across the country,
tap valuable information resources, and network with other
people who can offer insight and opportunities for
collaboration. For example, companies can explore ways that
other companies have used to develop a skilled workforce.
Individuals can get information on scholarships, internships,
training, and job banks. State and local government agencies
can find out what other governments are doing to build a high-
tech workforce.
GET TECH Campaign
OTP teamed with Women in Film and the National Association
of Manufacturers to develop the GET TECH Campaign aimed at
encouraging teens to prepare for high tech careers. Launched in
October 2000, the campaign features radio and television public
service announcements and a fun, interactive technical careers
web site for teens. In the campaign's first three months, the
television public service announcements were aired a total of
4,848 times on 300 stations in 172 cities across the country.
The web site had a total of 200,000 hits and the toll free
number received requests for over 40,000 GET TECH kits sent to
both students and teachers.
National Medal of Technology
OTP has maintained a long-term effort to promote the
National Medal of Technology laureates as role models who can
inspire young Americans to prepare for and pursue careers in
science and technology. This Presidential Medal is awarded
annually for technological achievement and is administered by
OTP.
b) How successful has OTP been in getting the federal government
to adopt its policy recommendations?
Answer. While it is difficult to ascribe traceable and direct
impacts on national policy to any specific agency within the Federal
Government, OTP has successfully contributed to U.S. policy decisions.
OTP analysis and recommendations--often made through discussions with
other policymakers in the Executive and Legislative branches and
foreign governments--have resulted in policy and procedural changes
that promote business innovation and adoption of new technologies.
OTP Contribution to Specific Accomplishments
Promoting Investment in Technology
The Economic Stimulus package signed into law on March 9fu,
2002 contains an immediate expensing provision that will
provide incentive for investments in technology and other
capital expenditures. OTP provided insight on the positive
impact this would have in the technology industry.
Collaboration with the President `s Council of Advisors on Science and
Technology
PCAST has established official panels on science and
technology investment and on the technical infrastructure for
the 21st century. As part of their work, PCAST working groups
will use OTP's analysis and information about market demand for
broadband, the dynamic of corporate innovation partnerships in
America, and federal laboratories' experiences with technology
transfer. PCAST has requested transcripts from all 3 Innovation
in America roundtables and has asked OTP to participate in
working group deliberations.
R&D Trends
OTP was the first Federal agency to identify the impact of
rising Federal R&D expenditures on health and flat or declining
Federal R&D investments in the physical sciences, mathematics
and engineering on the overall balance in the Federal R&D
portfolio. The Office has also analyzed the impact this has on
U.S. competitiveness, technological innovation, and the
production and availability of highly skilled scientists and
engineers for the U.S. workforce. OTP has worked with the White
House Office of Science and Technology Policy, the Director of
the National Science Foundation, and the Director of Defense
Research and Engineering to raise the visibility of the issue.
Today the issue of balance in the Federal R&D portfolio is
recognized by the Administration and Congress as an important
science and technology policy issue.
Recognizing the enormous importance of innovations in
biotechnology, OTP developed and implemented a strategy to
strengthen the Commerce Department's interaction and advocacy
with biotechnology companies. OTP coordinated a public
relations campaign (including articles in the industry
newsletter) and led development of an interagency biotechnology
group to provide rapid, coordinated Administration response to
emerging policy issues. At the request of USG policymakers, and
in cooperation with scientific and industry groups, OTP also
develops and sponsors a series of educational forums about
significant emerging biotechnology policy issues.
Intellectual Property
TA participated in an initiative chaired by the White House
Committee on International Science, Engineering, and Technology
to improve the Intellectual Property (IP) Annex used in
international S&T agreements. OTP worked with other agencies to
reach consensus on an IP annex text and procedures for new S&T
agreements. The result should be improved consistency in the
U.S. approach to IP with foreign partners and with rights of
the U.S. government. This new mechanism will also encourage
commercialization of technology consistent with the Bayh-Dole
Act and Executive Order 12591 and facilitate the negotiation
and approval of international S&T agreements.
Technology Transfer
The 1980 Stevenson-Wydler and Bayh-Dole Acts provide the
essential national policy framework for technology transfer by
the federal laboratories and federally funded researchers (such
as at universities). Both of these laws have been fine-tuned
through significant pieces of amending legislation since the
mid-1980s--the most recent of which is the Technology Transfer
Commercialization Act of 2000. OTP (and its predecessor office)
played a key role in conceptualizing, crafting, and advocating
much of this legislation throughout its history. The Stevenson-
Wydler and Bayh-Dole policy framework for tech transfer was
path-breaking in its concept, which many of our international
trading partners are now seeking to emulate.
OTP led the effort to establish a more complete and uniform
reporting system for technology transfer activities at Federal
laboratories.
OTP was instrumental in securing legislative provisions that
streamline and expedite the licensing of Federal technology
while, at the same time, protect the public interest in the
technology.
OTP conducted roundtable discussions with Industrial
Research Institute members to solicit industry perspectives on
the efficacy of Federal technology transfer efforts, laying a
foundation for future efforts to improve government-industry
collaboration. These roundtables provided key input to OTP's
1996 congressionally mandated biennial report ``Effective
Partnering: A Report to Congress on Federal Technology
Partnerships.''
OTP led the multi-agency National Technology Initiative
(NTI), which convened 16 town meetings across the country that
brought together thousands of representatives from high-tech
industry, Federal laboratories, universities, and government.
Each meeting was designed to address regionally significant
areas of technology, and the broad issues of cooperative R&D,
financing technology, and manufacturing excellence. These
conferences also served as a showcase for capabilities at the
Nation's Federal laboratories and encouraged businesses to take
advantage of them. In the two years following the NTI,
cooperative R&D agreements between Federal laboratories and
businesses more than doubled.
Supporting E-medicine
OTP negotiated modifications to legislation developed by the
Food and Drug Administration that would have held c-pharmacies
to a higher standard of verification than is required of
traditional ``bricks-and-mortar'' businesses. OTP also worked
to eliminate language that would have adversely affected other
c-medicine applications, such as medical consultations and
diagnoses made over the Internet.
Workforce Issues and the H-lB Visa Process
OTP's forthcoming report on the IT workforce will provide
valuable information to policy-makers and others who invest in
high-technology education and training.
Working closely with officials from the Department of Labor
and U.S. industry, OTP influenced the development of the H-I B
visa program regulations implementing the American
Competitiveness and Workforce Improvement Act of 1998. OTP's
goal was to minimize the burden of these regulations on the
business community seeking access to highly skilled, foreign
workers.
Accounting Rules for the Knowledge-Based Economy
OTP worked with the SEC and the Financial Accounting
Standards Board (FASB) to discuss the growing importance of
intangible assets (such as R&D and goodwill) in the knowledge-
based economy. By helping to define the far-reaching
implications of proposed accounting rules for intangible
assets, OTP and other interested parties facilitated a
reexamination and amendment of U.S. accounting rules.
Impact in International Fora
As the U.S. Government representative to the Asia Pacific
Economic Cooperation Industrial Science and Technology Working
Group, OTP coordinated the development of the APEC strategy on
infectious diseases, which was adopted by the APEC Heads of
State at the October 2001 Leaders Summit.
OTP wrote the APEC Agenda for Science and Technology
Cooperation in the 21st Century, and won endorsement by Heads
of State. The Agenda sets forth principles and the primary
areas for cooperation among the 21 APEC member economies.
OTP has been instrumental in bringing to Federal
policymakers and business leaders critical and detailed
information on the aggressive technology strategies of foreign
governments, and key foreign industrial competitors. These
analyses detailed the national technology plans, policies,
programs, and investments of more than 20 advanced and newly
industrializing countries in Asia, Europe, North America, and
elsewhere. OTP's groundbreaking work in ``Globalizing
Industrial Research and Development and The New Innovators:
Global Patenting Trends in Five Sectors'' assessed the extent
to which R&D and technology have become globalized, and how
newly emerging competitors are growing into technological
prominence in some fields.
OTP staff has played critical roles on U.S. interagency
teams negotiating bilateral framework Science and Technology
Agreements (e.g., the U.S.-EU Science and Technology Agreement,
the U.S.-Japan Science and Technology Agreement) and other
bilateral R&D projects with Japan and China. Among OTP's goals
in this work are ensuring equitable intellectual property
rights provisions and administrative arrangements conducive to
U.S. private sector participation.
c) What metrics does the Department of Commerce use to measure
OTP's performance?
Answer. OTP's principal activities and targeted outcomes are
captured in the Department's GPRA plan (see FY 2003 Annual Performance
Plan, Technology Administration chapter) as a single performance goal:
``Provide leadership in promoting national technology policies that
facilitate U.S. preeminence in key areas of science and technology and
leverage technological innovation to strengthen American global
competitiveness.'' This goal arises naturally from the mission Congress
gave the office in the Stevenson-Wydler Act (15 USC Sec. 3710 (a) and
(b)).
OTP's performance goal is orchestrated through a series of
strategies and action steps for FYs 2002, 2003, and beyond, each of
which have associated performance metrics. In general, the performance
goal is achieved through OTP-initiated activities in three primary
action areas:
I. Outreach: Engage U.S. industry and the nation's S&T community
on salient issues and policy needs.
II. Analysis and Education: Prepare timely, value-added analyses
and educate policymakers about the nation's resources, competitiveness,
and capabilities for research and development (R&D) and innovation.
III. Advocacy: Advocate policies, programs, and partnerships to
promote U.S. innovation and enable technology-led economic growth.
OTP's current performance plan specifies several dozen specific
activities across these three areas that grow from the office's
statutory responsibilities (such as periodic reports to the President
and Congress on the status of federal technology transfer policies and
programs), ongoing attention topics for policy analysis/development
(such as reviewing/revising existing federal guidelines for U.S.
federal lab tech transfer agreements involving foreign parties,
educational initiatives to encourage the interest and participation of
young students in science and technology, state/regional/local
initiatives to strengthen the contribution of science and technology
activities to economic development), and new initiatives to address
issues of emerging importance (such as analyzing the policy
implications of the globalizing R&D system and efforts of many of our
international trading partners to modernize and strengthen their own
capabilities for new technology based innovation).
Generally, Secretary Evans and I both place a high priority on the
ability of all the divisions and offices within the Department to work
together in pursuing our overall mission to serve U.S. industry and
strengthen the nation's economy. New technologies and the opportunities
for economically significant innovation based on them clearly cross
many organizational boundaries and have implications for many federal
agencies. OTP has a unique ability to contribute beyond its own
immediate objectives and priorities, to provide value by working
effectively with other offices within Commerce and in other agencies. I
believe that OTP recognizes these opportunities and is working hard to
pursue them in advantageous ways.
Question 14. The President's FY03 budget recommends terminating the
Experimental Program to Stimulate Competitive Technology (EPSC0T),
which was designed to build the science base of states that have
traditionally been underrepresented in federally sponsored research and
development.
a) What was your rationale for ending this program?
b) Are there parts of this program that you would recommend
continuing as part of the Technology Administration or in another
government agency?
Answer. EPSCoT was structured and operated as an experimental
program, designed to provide information about policy tools that work
effectively to stimulate tech-led economic development (TLED). As such,
EPSCoT grants (which were given in 1998 and 1999) were never intended
to create any permanent entitlements. All projects were of limited
duration with the expectation that the sponsored activity would be
sustained by other organizations at the end of the grant life.
TA's current work in TLED builds on three things: (1) our mission
of advocating policies that support tech led economic development, (2)
the expertise garnered from lessons learned in administering the EPSCoT
program and (3) the evaluation's recommendations.
Specifically, TA is leveraging its existing resources and those of
other federal agencies to sponsor a series of national training and
education events that will provide regions and communities with
instructional tools that address a variety of tech-led economic
development issues. TA's experience gained in EPSCoT and other tech-led
economic development work is a critical asset in matching relevant
technical expertise with community goals and potential.
Examples of activities under consideration include: workshops on
how angel investor and entrepreneur networks can support technology
transfer and technology-led economic growth, and ways to improve
telecommunications infrastructure--such as establishing consortiums of
users to facilitate high-speed access at reduced prices.
In these outreach efforts TA will remain guided by the following
principles:
TA will ensure that the states and regions served by these
activities will be consistent with those eligible for the
EPSCoT program, and participants will include state and local
governments, regional organizations, institutions of higher
education, business organizations, non-profit organizations,
tribal governments, and federal laboratories.
The ongoing outreach work in tech-led economic development
will remain integral to TA policy responsibilities regarding
domestic technological innovation, transfer, and
commercialization.
TA staff will, as resources permit, provide ongoing advice
and technical assistance.
TA will continue to recognize that local entities are in the
best position to determine what strategies should be
implemented in each state; TA recognizes that different states
and communities will identify different approaches, priorities,
and needs.
TA's work with EPSCoT states will continue to complement its
data development and dissemination efforts--like the State
Science and Technology Indicators report, which is a guide for
those in the public and private sectors who are looking for a
consistent set of metrics from which to formulate their own
science and technology strategies and economic development
goals.
Finally, our ongoing work outreach work--with former EPSCoT states
and others--will support two major themes of the DoC Mission: (1) build
for the future and promote U.S. competitiveness in the global
marketplace by strengthening and safeguarding the Nation's economic
infrastructure; and (2) keep America competitive with cutting-edge
science and technology and information.
Question 15. Several years ago, it was proposed that the National
Technical Information Service be eliminated. What are the current plans
for the service? Are you planning any changes in its operation?
Answer. NTIS has operated profitably for three consecutive years,
generating cumulative net earnings of $5.2 million over the period FY
1999-2001. While its basic core mission is to collect, preserve and
sell scientific and technical publications, I am pleased to report that
federal agencies continue to make significant use of its infrastructure
and expertise for distributing specialized information packages, such
as multi-media training materials, to their own constituents.
For many years, NTIS' business model was to distribute information
about the materials in its collection through information aggregators
who would sell access to many databases, including the NTIS
Bibliographic Database, through paid subscriptions. NTIS would receive
a portion of their revenue to the extent it was derived from the NTIS
Bibliographic Database. This worked well in the pre-Internet days when
NTIS had no practical way to reach the vast community of research
scientists. The downside of this approach, however, is that it only
provides information about the NTIS collection to those who can afford
such subscription services--mainly business, industry, and
universities.
NTIS is implementing a new business model in which it will post a
significant portion of the Database on the World Wide Web, refer users
to web sites of the source agency where a desired document may be
downloaded for free, and allow users to download for free any document
in our collection for free if NTIS has it in electronic image and it is
less than 20 pages or, if larger than that, for a flat fee of $8.95.
NTIS is hopeful that this will expand its customer-base and that
revenue from downloads and orders for paper products from new customers
will more than offset any revenue losses.
Question 16. You mentioned in your statement that you are
optimistic that adoption of the Malcolm Baldrige criteria for
performance excellence will spread across the education sector. What
are your plans for implementing the Baldrige criteria at the Department
of Commerce?
Answer. Although the Department as a whole has not assessed its
activities specifically using the criteria prescribed by the Malcolm
Baldrige National Quality Award Program, the administrative and
operational issues that the Baldrige criteria address are the focus of
various management reforms under way at Commerce.
Central to this effort is the Department's ongoing implementation
of the Government Performance and Results Act (GPRA). Under GPRA,
Commerce establishes long- and short-term goals and targets through its
five-year Strategic Plan and Annual Performance Plans (APP), and
evaluates its success in achieving those goals and targets in the
Annual Program
Performance Reports. These regular assessments help to ensure that
our daily operations mesh with our strategic goals and further the
mission of the Department.
While preparing the fiscal year (FY) 2003 APP, we thoroughly
evaluated our existing performance measures to determine whether they
optimally reflect program objectives and the needs of our clients. This
exercise resulted in substantial changes being made. One of the areas
most significantly affected was Departmental Management (DM), which
provides policy and administrative oversight for many of the management
functions addressed by the Baldrige criteria. These functions include,
among others, human resources, safety and security, information
technology, financial management, and acquisition management. The
Department has made management reform a priority by adapting DM
performance measures and targets to incorporate the five cross-cutting
initiatives established in the President's Management Agenda.
The resulting blueprint is guiding many of our efforts to:
structure and train our workforce to provide the best quality service
possible to the American taxpayers; link the performance of senior
managers to organizational goals; maximize the effectiveness with which
we employ information technology to enhance program performance; review
the extent to which activities could more efficiently be carried out by
the private sector; and ensure accountability for public funds through
sound financial management. As we seek to improve our operations, I
have encouraged our bureaus to include self-assessments among the tools
used to achieve that end. The National Institute of Standards and
Technology, as an example, has relied on the Baldrige criteria to do
so.
Through these initiatives and other attempts to strengthen
performance, we hope to achieve the same level of excellence as that
sought through the Malcolm Baldrige National Quality Award Program.
______
Response to Written Questions Submitted by Hon. Ernest F. Hollings to
Hon. Samuel Bodman
Question 1. At the hearing, you and I discussed the deterioration
of some of NIST's scientific facilities. Please provide the Committee
with information regarding the specific repairs needed, as well as the
associated costs for NIST facilities in Gaithersburg and Boulder.
Answer. Elements of NIST's Boulder Construction Plan are reflected
in the President's FY03 Budget submission to Congress. In particular,
the budget requests $11.8M for the first phase of a new Central Utility
Plant (CUP) as well as $5.5M for the installation of upgrades to the
facilities' Primary Electrical Service. In addition NIST's FY 2003
budget request includes $l5M for ``fitup'' of the Advanced Metrology
Laboratory and $22M for safety, capacity, maintenance, and major
repairs (SCMMR).
The current Boulder renovation plan, subject to future budget
priorities, is to renovate Building 1 (multiple wings), Building 2, and
Building 4, phased in over a ten-year period.
Question 2. ATP projects funded between 1990 and 1991 were subject
to the recoupment provisions in the original ATP law.
(a) How much was spent on the 39 projects to which recoupment
applies?
Answer. These 39 projects received $130 million in federal
funding.
(b) How much of the cost of these projects has the Department
recovered?
Answer. No funding has been recouped from these projects.
Question 3. The National Academy of Sciences' National Research
Council, in its June 2001 study The Advanced Technology Program:
Assessing Outcomes, recommended that ATP concentrate a significant
proportion of the awards in thematic areas. There are a number of
areas--such as enhancing homeland security or reducing energy
dependence--where fundamental breakthroughs in enabling technologies
could make a significant impact on problems facing this nation.
(a) Is the Department considering any thematic competitions for FY
2002 or FY 2003? Why or why not?
Answer. NIST has not to date administered competitions for awards
on a ``thematic'' basis. However, we have announced (by a Federal
Register notice in Docket No. 020328074-2074-0 1) that the FY 2002
proposals we receive may he distributed for review to technology-
specific source evaluation boards.
______
Response to Written Questions Submitted by Hon. John B. Breaux to
Hon. Samuel Bodman
Question 1. There is an executive order that directs executive
departments and agencies to make available federal buildings and lands
for the siting of mobile service antennas.
What steps have you taken or are you considering to carry out this
directive, and who has the responsibility for ensuring that the
wireless industry has access to federal property pursuant to this
executive order?
Answer. In August 1995, President Clinton directed the General
Services Administration (GSA), in consultation with the other Executive
Branch agencies, to develop procedures to facilitate access to Federal
property for the siting of commercial radio antennas. In February 1996,
Congress mandated similar action by federal departments and agencies in
section 704(c) of the Telecommunications Act of 1996.
In June 1997, GSA issued guidelines and procedures to assist
federal agencies in complying with the Presidential order and their
statutory obligations (Placement of Commercial Antennas on Federal
Property, 62 Fed. Reg. 32611 (June 16, 1997)). Those procedures, among
other things, require agencies to provide a preliminary written
response to an antenna siting request within 60 days. Furthermore, the
GSA guidelines provide that siting requests from ``duly authorized
telecommunications service providers should be granted unless there are
unavoidable conflicts with the [agency's] mission, or current or
planned use of the property or access to that property.''
The Department of Commerce is complying fully with the GSA
guidelines. The responsibility within the Department for antenna siting
lies within the Office of the Chief Financial Officer and Assistant
Secretary for Administration. To date, the Department has not received
many siting requests because we do not own or control a significant
proportion of federal buildings or lands.
______
Response to Written Questions Submitted by Hon. John McCain to
Anne Armstrong
Question 1. You mentioned that Virginia's Center for Innovative
Technology is a state funded non-profit organization. What activities
does your non-profit status allow you to perform that you would not be
able to perform if you were a state agency?
Answer. CIT was set up as a non-profit for a variety of business
and organizational reasons. First, as a non-profit, we can have the
oversight of a Board of Directors, drawn from government, industry and
academia. Second, we have the legal ability to keep business
proprietary information confidential, as we are exempt from FOIA, and
thus can deal with business proprietary information. Third, we are not
state employees and are more flexible to tailor our programs and our
staff to market imperatives.
Question 2. In your testimony, you stated support for five of
Secretary Evan's six recommendations for reforming the ATP. Are there
any other suggestions that you would like to offer?
Answer. We would like to offer our services in helping to market
the program. We have suggested that improving the dialogue with the
states could help bring more applicants, more small businesses and more
consortia with industry and academia into the pipeline. We have seen
improvements in our companies' participation over the past couple of
years that we have focused on this opportunity. In fact, we are in the
preliminary stages of formulating a states' ATP pilot program that
would allow for the germination of more high tech ideas at the local
level.
Question 3. You stated that ``most federal and state programs would
benefit from additional marketing in order to expand the pool of
potential applicants.''
a) How important a role does marketing provide for CIT?
Answer. Building awareness is a big issue for CIT. On the one
hand, our stakeholders want to know that we are being the most cost-
effective stewards of their money, but on the other hand they want us
to broaden awareness of our programs. We devote about 10 percent of our
budget to ``program communications'' as we seek to broaden awareness of
our programs among likely clients while devoting maximum funds to
service and program delivery.
b) Do you think that a new marketing strategy in needed for ATP?
Answer. ATP has been fairly aggressive in their outreach to
Virginia and the DC metropolitan area, which is the environment in
which we operate. Any program could benefit from increased exposure,
particularly to its target audience. Leveraging the outreach ability of
state organizations could be an add-on to ATP's existing marketing
strategy. However, it is not a uniform approach, since the states have
a variety of different organizations and approaches to science and
technology-based economic development. CIT would very much like to
become a marketing or outreach arm of ATP and would encourage the open
discussion of how best to accomplish mission.
Question 4. Why would you support the granting of intellectual
property rights to universities, non-profits with a mission of
education, and not supported recoupment for a government agency, whose
non-profit mission is directly for the public good?
Answer. We support the granting of IP rights to universities as a
means of removing administrative barriers to participating in ATP
projects. The guidelines of the projects should focus on the outcomes,
which are early-stage high-risk projects with future market potential.
Universities as sole applicants should probably not receive ATP
monies--they need the industry connection and market potential. We do
not support recoupment because recoupment can change the nature of the
projects funded. If project managers focus on the potential for
recoupment, they will lean away from funding the earlier stage, higher
risk research. If the technology is successful, and years later leads
to new product lines or new businesses, the government will recoup its
investment in tax revenues.
______
Response to Written Questions Submitted by Hon. John McCain to
Dr. Lewis Branscomb
Question 1. You have mentioned your agreement with ATP funding
technology prior to product development. How would you distinguish
which activities are product development and which ones are not, given
the shorten development cycles and the technical nature of some
technologies today?
Answer. Your question raises two issues, the effect of shortened
product cycles in competritive industries and the distinction between
early stage technology development and product development. I will
address them in turn.
Effect of shortened product cycles:
The point raised concerning shortened development cycles is valid
and highly relevant in this context. Before addressing that point
specifically, let me offer a more general response. The shortening of
product cycles is a real phenomenon in the core businesses of
established companies. The fact that in the 1980s .Japanese
manufacturers were able to turn around incremental improvements in
their products faster than many US firms was a significant contributor
to their superior competitiveness at the time. When mature firms are
challenged by a competitor with shorter product cycles, their normal
reaction would be to shorten their own by being less ambitious with
their own technology injection and to rely more on outsourcing
components and subsystems (or even whole new products which they re-
label and sell).
But these were incremental improvements, not the radical
technologies in which ATP is intended to invest. ATP addresses a
different industrial situation: new technology leading to new markets.
If an ATP grantee is the first firm to create a product for a
previously non-existent market there is no crush on product cycle time
except for the obvious fact that the longer it takes to get to market
successfully, the more expensive it is. And there is always the risk
that some other innovator will get there first. In many of the product
cases of firms that received ATP grants and were ultimately very
successful with breaking open new fields with new technology it took up
to 10 years to mature the technology and create a truly viable, growing
business. Short product cycles are not typical in radical high tech
innovations.
Distinguishing early stage technology development from product
development
In the ``mainstream'' economy, design and production technologies
usually evolve incrementally. Little research is required. Product
development incorporates most of the limited R&D needed. Firms with
established products serving known customers have strong incentive to
advance such work. The mandate of ATP is not to support this sort of
incremental product development, but rather to support further
development of promising, but not yet commercially mature,, science-
based technologies. In the areas in which ATP invests, before product
development can begin, the science (research) on which the invention or
product concept was based must be shown to be practical in a product
design whose manufacturing process is reasonably well understood. In
other words, the technology must be ``reduced to practice.'' In the
course of this work, whose costs ATP might share with an applicant
firm, the product specifications are quantified in order that the match
of the product to its intended market can be verified.
Thus the R&D that precedes product development is market sensitive,
and may require iterative changes in market specfications and product
specifications. Before final product development leading to production
can begin, this iterative process must have converged to some specific
outcome. To be sure the lines are not sharp, but, as the Booz Allen
research we sponsored shows, industrial R&D executives have little
difficulty in distinguishing them. In larger firms with corporate
research laboratories these two phases are typically distinguished
organizationally. The technology reduction to practice may be done by
the corporate research laboratory (financed by the risk funding
provided to the laboratory out of corporate profits), while the product
development is done in an operating product division (financed out of a
business case predicting product revenue). In smaller firms that do not
have a distinct, centrally funded corporate laboratory, the
organizational distinction is not so clear, but financially the two
activities--early stage technology development (ESTD) and product
development for production--are still distinct.
In some industries, notably some biotechnology and pharmaceutical
products, the research phase tends to be quite intensive and risky
while manufacturing is a relatively modest challenge. In this
situation, much of what might he called product development in other
industries is in fact hard to distinguish from research to reduce the
product technology to practice. That is, once the biological scientists
have demonstrated evidence of medical efficacy and safety in animal
experiments, the product may be said to have been `developed.' However,
in order to gain approval from the FDA to produce the drug, it may be
necessary to go back to the research lab repeatedly. Here it is truly
hard to make a clean separation between research to reduce the
technology to practice and the development work to ready the product
for manufacturing.
Finally, let mccall attention to the special case of software
products, the products of the so-called ``dot.com'' industry. While it
is commonplace to refer to all IT products as comprised of
``technology'' very little if any computer science research is required
for software products. Those software products that can truly be called
``high-tech innovations'' may indeed be radical innovations, but they
are usually market or business model innovations, not those based on
science in the way most ATP products are. In this situation there is
very little R&D and very little manufacturing. Product development
consists largely of writing the software code and then refining it to
adapt to market signals and discovery of errors (``bugs'').
Question 2. You mentioned that the government should not attempt to
become a public venture capitalist. At the same time, you mentioned
that the government should identify entrepreneurs and share with them
the risks of reducing their ideas to practice in the context of a
promising commercial market. If the government is to share in the risk
with entrepreneurs with taxpayers' funds, what should the taxpayers
expect in return?
Answer. The argument against ATP engaging in public venture capital
has two parts:
Firstly, 96 percent or more of private venture capital invests
during or after product development and market entry--the area in which
ATP does not invest.
Secondly, even if this were not a constraint, government agencies
cannot expect to use the management tools private VC firms find
essential, using a board seat and their equity to participate actively
in management, even to the point of removing the CEO when necessary.
When sharing with entrepreneurs i.e. company management--the cost
of high-risk but highly promising new technology development, the
Government should expect to see the emergence and diffusion of new
technology, embodied in products and services, that creates new growth
areas of the economy and, in the process, adds to technical knowledge
that can find its place in other applications not foreseen. To the
extent that ATP can stimulate Schumpeterian growth that might not have
happened otherwise (or least would have been significantly delayed),
the practical return to taxpayers is in tax revenues; the technical
return is in new and useful technology; and the social return is in new
employment, new wealth and new products that serve the public.
Question 3. You mentioned in your statement that venture
capitalists are not in the R&D business. You later mentioned that
venture capitalists do support firms that are bringing radical new
technologies to market. Where do you draw the line as to what is in the
R&D business versus bringing technologies to market?
Answer. Something like 4 percent of VC investments (in 1998) are in
``seed'' ventures, which like Angel investments and ATP projects are to
finance the R&D required to reduce to practice a research-based
technical idea with commercial promise. But the other 96 percent (early
stage and later investments) is also essential for successful
commercial innovation. Venture funding is the most promising instrument
for taking the next step after Early Stage Technology Development. It
is specifically designed to finance the rapid growth of a new business
element and to liquify the equity assets of all the participants in a
venture either by an Initial Product Offering (IPO) or by a merger or
acquisition which accomplishes the same end. VC funding is used for all
the financial requirements of the firm (i.e. from legal fees to Super
Bowl ads) including but by no means restricted to R&D.
Question 4. You have noted that you are in strong support of
university lead ATP consortium projects, and the right for universities
able to negotiate patent rights with firms. Do you, in any way, see
drawbacks from these two reforms?
Answer. I see few drawbacks. However there are a few situations for
which ATP managers should be on the lookout: (a) a consortium, led by a
university, in which the industry partners have joined for largely
cosmetic reasons, for example to help participating firms curry favor
with the university; (b) a university that assembles a consortium to
work on a technology is that so immature that the work to reduce the
technology to practice in environment of a real or prospective market
cannot be started and the university is simply looking exploratory or
basic research funds without a clear commercial concept and identified
market. On the issue of university developed intellectual property (IP)
it is only common sense for government to leave that question to the
parties (university and business) to resolve.
Question 5. In your testimony, you discuss the iterative process of
bringing new technology to market as a commercial product. Are there
other government programs, besides ATP, that also play a role in
helping companies commercialize technology? How do these programs
compare to ATP in effectiveness?
Answer. ATP is devoted to private commercial markets, so we can
exclude from the markets in this question those that are created by
government (DoD, NASA, nuclear weapons related research in DOE). The
only other program that is not technology specific and seeks to
encourage research-based commercial innovations is SBIR. A number of
agencies, however, engage in R&D funding to private firms to develop
technologies that the Congress and the President believe serve a public
interest in ways that market incentives alone will not adequately
address. Examples include genomic research, computer security,
environmental pollution mitigation technologies . . . . Some of such
programs do look fund R&D intended to define an economically attractive
technology, such as the public-private partnership with the auto
industry and other firms to accelerate the commercialization of fuel
cells or other alternative power plants for cars.
SBIR is a much more generously funded program than ATP because it
is funded by mandatory set aside of agency R&D funds to be spent with
small businesses. Thus no member of Congress has to vote for a line
item budget for SBIR. But there are SBIR ``mills''--firms that exist
only to compete for SBIR funds and pay little attention to
commercialization. ATP does a much more careful job of avoiding
investing in product development and a the same time insuring that
there is a high likelihood of commercialization if the R&D is
successful.
Question 6. One concern about ATP is that in the past it has been a
corporate welfare program that helped large companies bring technology
to market, while leaving small business at a disadvantage in applying
for grants. If Fortune 500 firms are forced to be parts of joint
ventures with smaller firms, will that resolve this problem or do other
reforms have to be initiated?
Answer. As our case study of GE's research on amorphous
semiconductor technology shows, there are circumstances in which it
makes economic sense for ATP to participate in funding entities within
even the largest firms. Such cases usually involve scientific work in
the large firm whose application lies outside the core business
interests of the firm. In this situation the technical advocates within
the firm, usually in central corporate research departments, are in a
similar position to a high-tech entrepreneur seek to start up a new
high-risk, high tech business.
But I well understand the political difficulty of defending this
rather special situation. I do not think the economic benefits of
allowing large firms to be funded solo by an ATP project outweigh the
political price paid for keeping this possibility in the program. Thus
I support the Commerce Secretary's proposal.
Question 7. Why would you support the granting of intellectual
property rights to universities, non-profits with a mission of
education, and not supported recoupment for a government agency, whose
non-profit mission is directly for the public good?
Answer. This is a two part question, in my opinion not logically
connected. I support allowing universities and firms to negotiate the
property rights for inventions that might arise in an ATP project for
two reasons.
(a) First, the Congress passed the Bayh-Dole Act for good reason in
1980, granting all institutions that perform R&D for the government to
own the intellectual property (IP) subject to a royalty free license
for the government. Many studies have shown that protected IP is more
likely to be made available to the public (through commercialization)
than is government sponsored, commercially valued R&D put into the
public domain. The Bayh-Dole act applies both to commercial firms and
to non-profit institutions. Thus it is entirely appropriate for ATP
projects to allow the grantees to own the IP.
(b) Once that is established, it is entirely consistent with our
free market principles that the parties should determine among
themselves the appropriate division of the lP generated under the
project. In free markets will well informed participants this should
yield the economic optimal outcome.
The second half of your question asks whether recoupment to a
government agency is not merited since the agency's non-profit mission
is directly for the public good. My answer is very simple. The costs of
the vast majority of government services to the public are shared by
the citizenry through taxes they vote to impose on themselves because
they realize that markets allocate capital very efficiently for some
goods, but not others. In a limited number of cases the government does
make a charge for a service, such as entry fees to national parks or
the sale of stamps to access distance independent mail service. Here
the logic is that Congress concludes that the market is not sufficient
to generate the revenue needed to create or preserve national parks,
but nevertheless all citizens do not benefit equally and those who
enter national parks are willing to pay a modest participation fee.
But recoupment is a special ease. Recoupment might be considered
when government activity creates economic value responsive to a
competitive market, and the government then chooses to collect some or
all of the profits. In socialist countries this is an entirely
familiar, even dominant model for economic activity. In our economic
system I believe it is inappropriate to apply the socialist model. Any
government program capable of competing with market forces in
generating revenue should be seriously questioned. If recoupment is
sufficient to pay for the investment that is a sufficient test to
convince me that the program should not have been initiated in the
first place.
But the ATP program does not pass the critical test. If it invests
in early stage technology development (ESTD) that markets will not
finance because the risks are too high and the appropriability is too
low, it will not be able to recoup its costs if the recoupment is
calculated on the economic returns from the ESTD alone. If the
recoupment is calculated on product development which is 100 percent
funded by the firm (since ATP does not invest in commercial product
development) a serious inequity results. Of course the consequence of a
recoupment fee on investments made with only private capital, no
rational firm will participate in the ATP program.
______
Response to Written Questions Submitted by Hon. John McCain to
Scott Donnelly
Question 1.
a) Are you aware that ATP funding should be a source of ``last
resort'' for its applicants?
b) What verification did you have to provide to the ATP program to
demonstrate that you had sought funding elsewhere?
Answer. NIST ATP requires applicants to describe efforts they have
been made to get internal funding and/or external private financing and
how ATP funding will change scope, scale, and/or timing of proposed
research effort. GE has appreciated this requirement and has always
provided an explanation as to why NIST ATP funds are needed. In general
GE seeks NIST ATP funding for high technical risk projects where no
other government funds exist and that GE would not fund on its own. In
addition, the ATP funds serve as a powerful incentive to rally outside
R&D collaborations with companies who on their own would not come
together.
In the case of GE's recent CY01 PM MRI NIST ATP win the GE
technical team had requested funding for this project from management
annually since 1997, and had received limited feasibility funding to
see if the program had merit. However, funding sufficient for the total
program has not been received because the project is viewed as too high
a technical risk and was targeted for a relatively low population
group, which does not meet business investment criteria.
Program support was also requested in 2001 from GE Global Research
and GE Medical Systems management. Program dollars were committed as
part of a total NIST ATP program. However, these funds are conditional
on receiving NIST funding. If a NIST award is not granted, then the
cost share dollars will be reevaluated in light of the program risks.
Previous history leads us to believe that without NIST funding, this
program will not meet the cutoff for full internal funding, and while
it may receive some level of decreased support, it will not be enough
to sustain its development in time to ward off foreign competition, if
at all.
A related proposal entitled ``Compact Permanent-Magnet MR Imager''
was submitted for potential funding on August 22, 2000 to the U.S. Army
Medical Research Acquisition Activity. Although this program has
various differences from the one submitted to NIST, they both included
the development of a more cost-effective, high-quality imaging system
using permanent magnets. The Army proposal was not viewed as meeting
the needs of the government's defense priorities and was not funded.
NIH was considered as a funding source but typically funds clinical
research. The nature of our proposal is more suited to meet the
priorities of NIST than that of the Defense or other federal programs.
The ATP defining criteria, while demanding, provides an outstanding
mechanism for a high-risk, high-impact program, where the technology
enabled provides a clear roadmap leading to subsequent
commercialization.
Question 2. It was recently reported that GE's last quarterly
income was $2.5 billion on revenue of $30.5 billion. GE invested $2.3
billion in R&D in 2001. In October of last year, GE won an ATP award as
a single applicant for a project entitled, ``Affordable Open MRI for
Unserved Markets''. In this project, GE was providing $2 million and
ATP providing$830,000.
a) Given GE Capital, the financial arm of GE, enjoys a credit
rating of AAA from Standard and Poors, why was GE not able to provide
funding for the additional $830,000?
Answer. NIST ATP funding represents a very small portion of a
research organization's total R&D spending. To use GE as an example, in
2002 we will receive a total of $4.4 million in NIST funding, which is
two-tenths of one percent of our company's total R&D budget. These
funds are not going to further product development for GE, they are for
research. The purpose of going to the federal government for additional
funds is generally to leverage our investment, in order to surpass
technical hurdles and to make the project technically feasible for
product development.
b) A description of the project on the ATP website states ``in
fact, the project might not be pursued at all otherwise because of the
high risk involved''. If ATP funding was not granted, would GE have
pursued this project?
Answer. For GE, the research drives the pursuit of ATP we are not
creating projects at the Research Center in order to access ATP funds.
We look to government programs such as NIST to supplement our own
investment.
c) What benefits did GE get from the ATP program that it didn't
have before?
Answer. NIST ATPs have allowed GE to form strong R&D partnerships
and mentoring relationships with smaller businesses that wouldn't
typically have the resources to participate in such high-risk
technology development. We also benefit from working with the highly-
skilled and talented Technical Program Managers at NIST. These
Technical Managers add real value to the industry-led programs. ATP is
a very well-run and professionally managed program.
d) What additional sources of funding were considered prior to
applying to the ATP program?
Answer. Please see answer to question #1. As stated, GE often
investigates numerous alternative funding options for its targeted
high-risk technical projects. In the case of the MRI program we sought
US Army and considered NIH funding. In both cases the program did not
fit the Agency's investment criteria.
Question 3. One concern of this Committee is the decrease in R&D
funding by private industry during this recession. Could you please
explain how GE allocates its R&D funding, and what factors will lead
the company to invest its own money, instead of applying for an ATP
grant, into a research project?
Answer. We are proud to report that at General Electric Company we
are increasing our investments in research and development. We have
identified several areas of emerging technologies to focus on
including: molecular imaging, nanotechnology, photonics and alternative
energy. As we stated above, ATP grants represent two-tenths of one
percent of our company's total R&D budget.
Question 4. Why would you support the granting of intellectual
property rights to universities, non-profits with a mission of
education, and not supported recoupment for a government agency, whose
non-profit mission is directly for the public good?
Answer. First, we believe that the federal government has an
important role in spurring innovation and that role is not as a loaning
institution but as a partner in the research enterprise--public sector,
private sector and academia. We believe that this commitment and the
investment made by the Federal government is directly linked to the
prosperity of the US economy. One might look at government-sponsored
research in the computer sciences that brought us the Internet as an
example, or, the advances in medical sciences that we may not have
without the National Institutes of Health and its partners.
As stated in my testimony before the committee, one of the primary
goals of the NIST ATP programs that has experienced success is in
bridging the gap between basic technology research and market
implementation. The recoupment clause may erode participation from
companies, which would remove their valuable cost share funding,
commercialization, technical expertise that complements and often
enables smaller sized companies' participation in NIST ATP.
Secondly, the recoupment is based on 5 percent of gross revenue,
which raises many serious issues. How would the Department of Commerce
calculate the ``government royalty'' for an ATP. Often an ATP is
focused on a specific, high-risk technical hurdle associated with a key
component, process or subsystem. This component is then part of a
larger system. The component may only be a small percentage of the
total system cost. How could anyone agree on a fair and consistent
formula to calculate the royalty fee owed to the government? This
creates an administrative nightmare and adds additional expenses that
would take away funding from the research programs.
In addition, to calculate the royalty on ``gross revenues'' would
place undue pressures on industry to pay the government even if they
are not making a profit. This would be difficult for GE, but it would
be devastating for the smaller firms.
With regard to intellectual property (IP) rights for universities,
GE supports the rights to IP for those who make inventions and
discoveries. Universities and non-profits should have the ability to
negotiate IP terms when collaborating with companies and other research
partners.