University Startups Conference Showcases Latest ITIF Tech Transfer and Commercialization Policy Proposals

ITIF Vice President for Global Innovation Policy Stephen Ezell spoke at the National Council of Entrepreneurial Tech Transfer’s University Startups and Global 1,000 Conference in Washington, DC, on April 5, 2016. The following excerpts his remarks.

With innovation being the lifeblood of the American economy, I’d like to offer several policy recommendations that could bolster America’s broader innovation, tech transfer, and commercialization ecosystem.

First, as a society, we’re simply not investing enough in scientific research. We’re not investing as much in research and development (R&D) compared to our own history. In fact, if our own federal government invested as much in scientific research as a share of gross domestic product (GDP) that we did in 1983, we’d invest at least $60 billion more a year in R&D than we do now. So closer to $200 billion a year than $138 billion a year. Moreover, we’re not investing as much as a share of R&D compared to competitor nations. Preliminary data for the forthcoming 2016 OECD Science, Technology, and Industry Scoreboard shows the United States falling to 10th of the 39 OECD countries in national R&D intensity (national R&D investment in R&D as a share of GDP). Worse, today we invest 3.7 percent of the federal budget in R&D and 7.3 percent in debt service, but if you look at budget projections, by 2026 the R&D allocation remains unchanged (anticipated federal investment of $190 billion in R&D in 2026), but funding for debt service rises three-and-a-half-fold to 13 percent of the budget (from $230 billion to $840 billion). This matters because scientific research is the first, foundational input to America’s science and technology ecosystem. It’s the feedstock and seed corn of future innovation. It’s the committed investments made by our forefathers three decades ago that informs America’s technology base today; but we’re simply not doing enough to pay it forward for future generations.

Second, we need to turn America’s universities into greater engines of innovation. One way to achieve this is by updating the curriculum and approach of university engineering programs to better prepare engineers for careers in innovation and advanced manufacturing. Accordingly, Senators Coons, Graham, Ayotte, Gillibrand, Baldwin, Kirk, and Franken have partnered to introduce bipartisan legislation, endorsed by 26 House cosponsors, called The Manufacturing Universities Act of 2015, which would designate 25 “Manufacturing Universities” and provide them with grants of up to $5 million a year for four years to reshape their engineering programs with a stronger focus on advanced manufacturing. The resources would help universities promote their manufacturing engineering programs to attract more students into the field, promote more interdisciplinary education, and allow engineering programs to purchase essential equipment to support hands-on, project-based learning, often working on collaborative projects with industry.

Third, we don’t have enough industry-university collaboration. In fact, as a share of GDP among the 39 OECD nations, the United States ranks just 27th in industry funding of university R&D, as ITIF writes in its report University Research Funding—Still Lagging and Showing No Improvement. Moreover, a 2013 report by Times Higher Education found the United States to rank just 14th out of 36 nations in industry funding of academic researchers. While a March 2016 update to this report ranks America second, it found that the United States places only two universities (Duke and Johns Hopkins) in the world’s top 20 of attracting industry funding per academic researcher.

To further encourage greater levels of university-industry collaboration, Congress should enact a collaborative R&D tax credit that would make all collaborations between a business and a university, federal lab, or any research consortia eligible for a 40 percent flat tax credit. More than a dozen nations—from England, France, and Holland to Chile and Japan—have introduced such credits, and the United States should follow suit, as ITIF writes in Creating a Collaborative R&D Tax Credit.

By the way, how many of you know that the Energy Policy Act of 2005 created a special 20 percent flat credit for expenditures made to energy research consortia between at least one firm and a mix of four firms, universities, or federal laboratories? It’s an under-utilized incentive indeed. We’ve argued that Congress should amend the Act simply by moving the word “energy” to make it available for all research consortia. Also note that several U.S. states, such as Virginia, have introduced expanded collaborative R&D tax credits to support research investments made between companies and universities in their states.

Here, the United States also needs to increase its R&D tax incentive generosity. The United States invented the R&D tax credit in 1981, and as recently as 1992 offered the world’s most generous R&D tax credit. Unfortunately, today, the United States only offers the world’s 27th most-generous R&D tax credit and Brazil, China, and India all offer more generous R&D tax credits than does the United States. France’s R&D tax credit is close to six times more generous than the United States’.

Fourth, as the seminal report Innovation 2.0: Reinventing University Roles in the Knowledge Economy notes, universities themselves also need to evolve. In particular, more universities should recognize patenting and commercialization success as part of tenure consideration, something which is currently the case at less than one-quarter of America’s top 200 universities. Further, universities should also allow faculty members to suspend their tenure so that they may pursue commercialization opportunities.

Universities should also define an entrepreneurial leave policy for undergraduate and graduate students in which students could retain full-time student status for several years while launching their own company. Universities should also ensure that students have rights to the intellectual property (IP) they may develop while on campus. Another idea is to establish an entrepreneurial student loan deferment program for students attempting to start a new business.

We also need to establish stronger university entrepreneurship metrics, collecting better data regarding new business starts and spin-offs of new companies by faculty and students from universities. For example, Congress could direct the National Science Foundation (NSF) to develop a metric by which universities report such information annually and NSF could use this data to reward universities that do a better job; for example, by giving bonus points to research grant proposals they receive from private investigators at universities that do best over time on this.

Finally, the Small Business Innovation Research (SBIR) program represents one of the most successful innovation-promoting programs in the federal government. Despite the fact that the SBIR program accounts for less than 3 percent of the federal extramural R&D budget, a recent ITIF study, The Demographics of Innovation in the United States, found that 60 percent of firms with fewer than 25 employees in the study utilized public grants through SBIR in the creation of their innovations. Yet despite its strengths, there are several programmatic reforms that could make SBIR an even stronger engine of commercialization activity.

First, SBIR Phase II awardees should be permitted to expend up to 5 percent of their Phase II funding on commercialization-oriented activities, such as market validation, IP protection, market research, and business model development, as Delaware Senator Chris Coons, Colorado Senator Cory Gardner, and Connecticut Senator Kirsten Gillibrand propose in the new Support Startup Businesses Act. In the House, legislation similar in intent to foster commercialization activities has been proposed in an amendment to SBIR reauthorization legislation submitted by House Small Business Committee Ranking Member Nydia Velázquez.

Second, as NACIE, the President’s National Advisory Council on Innovation and Entrepreneurship, has further proposed:

• We should significantly increase the allocation of federal agencies’ SBIR project budgets themselves toward supporting commercialization activities.

• We should make commercialization potential a more prominent factor in SBIR-funding decisions. In particular, we should modify the criteria and composition of review panels to make commercialization potential a more prominent factor in funding decisions.

• We should also encourage and facilitate engagement of commercialization-focused intermediary organizations in supporting the development of startups. SBIR investments that are coupled with guidance from regional intermediaries (which are often government or nonprofit entities) experienced with helping innovators will have a greater likelihood of success and long term stability.

Implementing these types of policies and reforms could make America’s universities, national laboratories, and even federal agencies greater engines of innovation.