Strategy for American Innovation: Appendix B: Promote Market-Based Innovation

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Accelerate business innovation with the R&E tax credit

Make the R&E Tax Credit permanent

Expanding, simplifying, and permanently extending the Research and Experimentation tax credit will help companies create good jobs in America now while increasing future productivity and growth.  It will also encourage companies to invest in technological development here in America in ways that, while not captured on a company’s bottom line, will contribute to our country’s innovative capacity.  This is a win-win—encouraging job growth and investment now that will pay off with stronger economic growth in the future.  Specifically, the President’s proposal would:

• Expand the R&E tax credit by about 20 percent.This would be the largest increase in the credit in its history.  In total, the expanded credit would devote about $100 billion over the next 10 years to leverage additional R&D investment.
• Simplify the credit. The Administration proposes to increase the rate of the simpler credit to 17%, which would make it more attractive and simplify tax filing for businesses.  Simplifying the credit in this manner will increase its salience and impact on encouraging investment in research in the United States.
• Make the credit permanent. The President would make the credit permanent so that businesses could make investments, create jobs today, and be confident that they will continue to benefit from the credit in the future.

Backup documents: R&E tax credit proposal - factsheet

Promote ingenuity through effective intellectual property policy

Support and protect effective intellectual property rights

• Optimize Patent Quality and Timeliness | Department of Commerce and USPTO

Timely prosecuted, high-quality patents drive innovation and protect creativity.  By contrast, delay, uncertainty, poor quality, and costly litigation are obstacles to innovation and creativity.  Under the leadership of United States Patent and Trademark Office (USPTO), the Obama Administration has embarked on a multi-year initiative to enhance quality for all and allow speedier examination for those patent applicants who need it, in order to increase the value of the country’s entire IP system.

In the past year, USPTO has taken several significant initial steps.  For instance, itrevised the patent examiner production reward system to increase efficiency, decrease re-work, and support high-quality search and examination.  In addition, the USPTO has adopted new, more comprehensive procedures for measuring the quality of patent examination, beginning a process to reengineer the entire patent examination process from the time an application is filed to the patent decision.  These efforts coincide with the redesign of the agency’s IT infrastructure, which, when complete, will support state-of-the-art work-flow capabilities.  The agency also plans to hire more than 1,000 new examiners in the coming two fiscal years in order to increase production capacity. 

There are further time-saving and quality-enhancing strategies in development that require necessary public investments.  The Obama Administration is supporting comprehensive patent reform legislation coupled with the development of a sustainable funding model for the USPTO.  Innovative programs like the Enhanced Examination Timing Control Initiative (“Three Track”) will provide applicants greater control over when their applications are examined and enhance work sharing among IP offices.  USPTO administrative actions and Administration amicus brief filings can help refine patent law doctrines to increase patent quality.  To that end, the USPTO, for the first time in its history, has adopted guidelines for examiners addressing Section 112 of the Patent Act, which governs the “written description and enablement requirements,” to improve patent quality by more clearly defining the subject matter protected by a patent grant.  Other strategic priorities are included in the USPTO 2010-1015 Strategic Plan, including an ambitious joint goal set by Commerce Secretary Locke and Director Kappos to reduce the average total pendency for a patent application to 20 months from today’s 35 month figure.

Backup documents: USPTO 2010-2015 Strategic Plan, USPTO Public Roundtable on “Three Track” Patent Examination, USPTO is Hiring Patent Examiners, USPTO Adopts New Patent Examination Quality Measurement Procedures.

• Intellectual Property Enforcement Coordinator (IPEC) | The White House

The PRO-IP Act created the position of U.S. Intellectual Property Enforcement Coordinator (IPEC), placing it within the Executive Office of the President.  President Barack Obama nominated, and the Senate confirmed, Victoria Espinel as the first IPEC in late 2009.  On June 22, 2010, the IPEC released the Obama Administration’s first Joint Strategic Plan to combat intellectual property infringement (JSP).  The JSP was the result of significant input from America’s innovators – including more than 1,600 public comments on ways to improve enforcement – as well as the collaborative efforts of the Departments of Agriculture, Commerce, Health and Human Services, Homeland Security, Justice, and State, and of White House Offices, including the Office of Management and Budget and the U.S. Trade Representative.

The JSP included 33 action items designed to improve U.S. Government efforts to help protect America’s innovation and, thereby, the exports and jobs that come from that innovation.  Those action items fell within six broad categories:

1. The U.S. Government will lead by example, respecting intellectual property rights in our policy and our practices.
2. The U.S. Government will be transparent in our policymaking and enforcement, allowing America’s innovators and the public to know what the U.S. Government is doing to help enforce their intellectual property rights, and to have input in those efforts.
3. The U.S. Government will work to ensure efficiency and coordination, both domestically with our federal law enforcement agencies and state and local law enforcement, and internationally with our embassies.
4. The U.S. Government will help enforce our innovators’ rights overseas, ensuring that we are able to effectively work with foreign governments when their citizens are infringing U.S. intellectual property rights (just as we want to effectively work with foreign governments when our citizens are infringing foreign intellectual property rights).
5. The U.S. Government will focus on securing our supply chain, thereby attempting to limit infringing products from entering the U.S.  That includes working with Internet service providers, payment processors, advertisers and others to help combat the use of infringing websites to steal America’s innovation.  In doing so, we will ensure that our efforts are focused on repeated acts of infringement and protecting legitimate uses of the Internet and principles of free speech and fair process.
6. Finally, we will build a data-driven government.  Part of this effort includes launching an economic analysis to measure the economic contributions of intellectual property industries.  We have also committed to comprehensively review existing intellectual property laws to ensure that they are effectively protecting U.S. innovation and U.S. innovators.

Since issuance of the JSP in June, the Office of the IPEC has been working with federal agencies, congressional staff, and the public to implement that strategic plan.  The Administration will continue to prioritize intellectual property enforcement and to support U.S. businesses and consumers through protection of intellectual property.  The Office of the IPEC will submit, by February 2011, a report to Congress describing implementation.

Backup Documents:2010 Joint Strategic Plan on Intellectual Property Enforcement, Office of the U.S. Intellectual Property Enforcement Coordinator Homepage

• U.S. Patent Database Available for Free Online | USPTO

Operating from the President's Open Government Directive,the USPTO has worked to vastly increase the amount of U.S. patent information available at no charge on the Internet.  The system is now in full production, including all the current feeds that were previously only available by subscription.  Also available for the first time is the Patent Application Information Retrieval (PAIR) data, which is the full "wrapper" for a patent application.  PAIR data was previously only available on a rate-limited query-only service.

Backup Documents:USPTO Bulk Downloads: Patents

• Negotiated Anti-Counterfeiting Trade Agreement | USTR

In 2010 the Administration delivered on its commitment to strengthen international enforcement of intellectual property rights by concluding substantive negotiations on the proposed Anti-Counterfeiting Trade Agreement (ACTA).  ACTA will step up the fight against global proliferation of commercial-scale counterfeiting and piracy in the 21st century.  The agreement includes innovative provisions to deepen international cooperation, promote strong enforcement practices, and ultimately help sustain American jobs in innovative and creative industries.  In December 2010, the Office of the U.S. Trade Representative (USTR) published a notice seeking public comments in connection with consideration of U.S. signature of the agreement.

Some of the ACTA’s key features include commitments to:

• support and enhance approaches to criminal enforcement through stronger requirements for criminal remedies and through improved seizure and destruction of fake goods, seizure of the equipment and materials used in their manufacture, and criminal proceeds;
• combat Internet piracy through a balanced framework that addresses widespread distribution of pirated copyrighted works and preserves fundamental principles such as freedom of expression, fair process, and privacy;
• provide customs authorities with ability to act against import and export shipments as well as to cooperate on in-transit shipments;
• strengthen civil enforcement provisions dealing with damages, provisional measures, recovery of costs and attorneys’ fees, and destruction of infringing goods;
• cooperate among ACTA Parties to assist in enforcement efforts; and
• promote good enforcement practices.

Backup Documents:Anti-Counterfeiting and Trade Agreement (ACTA)

Encourage high-growth and innovation-based entrepreneurship

Increase access to capital for new business

• Small Business Jobs Act | Small Business Association

The Small Business Jobs Act (SBJA), signed by President Obama on September 27, 2010, provided an additional $14 billion more in lending support via the Small Business Administration and more than $30 billion in capital support for small business lending via the Treasury, as well as $12 billion in tax relief to small businesses, to help these businesses invest and create jobs. The USDA’s Business and Industry Guaranteed Lending Program also provides $1 billion annually and, on account of the Recovery Act, was able to deliver $3 billion in FY 2010 to support the financing of rural businesses.  All in all, the Obama Administration has sought to facilitate small business development by cutting taxes on small businesses 17 times.     

Backup documents:President Obama signs small business jobs act, Small Business Jobs Act Homepage

• Proposed Zero Taxes on Capital Gains from Small Business Investment | The White House

The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 provides a 100% exclusion from tax for capital gains realized on the sale of certain small business stock held for more than five years.  The amount of gain eligible for the exclusion is limited to the greater of $10 million or ten times the taxpayer’s basis in the stock.  This provision applies to qualified small business stock issued after December 31, 2010, and before January 1, 2012.  The President’s Budget proposal for FY 2012 calls for making this provision permanent, thereby supporting an expansion of private sector investment in small businesses.

Backup documents:State of the Union, January 2010,President Obama signs small business jobs act, Small Business Jobs Act Homepage

Hold a forum on facilitating access to capital for entrepreneurs

America’s preeminence in generating innovative new companies depends on open and well-functioning capital markets.  Research indicates that American start-ups create a disproportionate share of new jobs and contribute significantly to economic growth.  However, recent trends in capital markets present several challenges for American entrepreneurs.  First, venture capital deals and financing declined significantly during the financial crisis, making it more difficult for early stage companies to develop new products and expand.  Second, the IPO market has recovered slowly, reducing the number of successful exits.

Moreover, venture capital and angel funding has historically been localized in areas such as Silicon Valley and Boston.  Innovative programs have been launched to encourage capital formation in underserved areas, an especially critical need during this nascent economic recovery.

The forum will bring together top government officials from several agencies with experienced managers and investors from the private sector to assess recent trends in access to capital and its impact on entrepreneurship.

Topics of discussion will include:

• State of the IPO market and ideas to reduce the costs of going public
• The early stage capital gap and recommendations to fill it
• Recent trends in venture capital and implications for entrepreneurship
• Perspective of institutional investors on venture capital and private equity
• How to channel capital to emerging companies in underserved areas
   

• Guaranteed Business Lending | USDA

USDA Rural Development’s Business and Industry (B&I) Guaranteed Lending Program directly supports the financing of rural businesses, creating sustainable jobs and advancing economic development throughout rural America.  The B&I Guaranteed Lending Program improves access to capital for America’s rural businesses by providing lending support in partnership with both national and local community banks.  The Recovery Act allowed the USDA to provide nearly $3 billion in lending support that was delivered in FY 2010.

Widen America’s lead as the world’s best place for high-growth entrepreneurship

• Startup America | The White House

Our nation has historically been the place where world-leading businesses and new industries take root.  Working in concert with the private sector, the Administration is committed to promoting innovation-based, high-growth entrepreneurship – not only in Silicon Valley, Research Triangle Park, and Boston, but all over America.  This Startup America initiative will expand access to capital and improve the environment for startups; support entrepreneurship education and mentorship programs that empower more people not just to get a job, but to create jobs; strengthen commercialization of university and federally-funded research and development; and ensure that America continues to draw on the most talented innovators and entrepreneurs from around the world in starting new businesses.

To support Startup America’s goal of expanded access to capital, the Small Business Administration (SBA) will work with the private sector to invest $2 billion over the next five years in high-growth companies in underserved communities and innovation-based startups, all at no cost to taxpayers.  The Treasury Department is also working to reform the New Markets Tax Credit, making it easier to support startups in lower-income communities, while the Administration has proposed expanding the credit in its FY 2012 Budget proposal.  The Administration will also launch public online suggestion tools and go on the road to cities across America to hear directly from entrepreneurs about the challenges they face and what the Administration can do to reduce undue regulatory burdens and accelerate success.  To improve access to mentoring programs, both the SBA and the Veterans Administration have launched programs designed to provide high-quality mentorship by seasoned, successful entrepreneurs to new companies.  To help drive university and federally-funded research into the marketplace, the Department of Commerce is launching its second annual i6 Challenge, which will focus on the green tech sector.  Commerce is also announcing a Three Track Examination initiative that will give innovators more control over the patent application processing while supporting a more efficient market for innovation. 

These initiatives represent just the beginning of a sustained Administration effort to promote high-growth U.S. entrepreneurship.  At the same time, responding to the President’s call to action, a new coalition of entrepreneurs and other leaders will develop a series of major private-sector commitments aimed at promoting entrepreneurial success and job creation across the country.

Overall, these efforts will serve the three key strategic goals of Startup America:

• Increase the number of start-ups and successful high-growth firms that are creating economic growth, innovation, and quality jobs;
• Celebrate and honor entrepreneurship, and reinforce entrepreneurship as a core American value and source of competitive advantage; and
• Broaden the circle of opportunity, so that more communities and Americans participate in our “innovation nation.”

Backup Documents: Startup America Fact Sheet.

• Promoting High-Growth Entrepreneurship | The Department of Commerce

The Department of Commerce’s Office of Innovation and Entrepreneurship promotes innovation-based, high-growth entrepreneurship in pursuit of job creation and economic growth.  The Office plays a leading role in developing policy recommendations and implementing initiatives to increase the efficiency and effectiveness of efforts to commercialize technology developed through university and federally-funded research.  It manages the i6 Challenge, a multi-agency competitive grant program that encourages and rewards innovative partnership models, such as proof of concept centers, that accelerate technology commercialization, new venture formation, and job creation.  It also manages the National Advisory Council on Innovation and Entrepreneurship, which was established to advise the Secretary and administration on how best to foster high-growth entrepreneurship and support the development of innovation ecosystems. 

Backup Documents:EDA homepage, OIE homepage, National Advisory Council on  Innovation and Entrepreneurship, i6 Challenge

• Innovation Fund | Small Business Administration

The Innovation Fund will support up to $1 billion in private-sector financing over the next five years by matching private capital raised by investment funds that are seeking to deploy capital in early stage innovative small businesses.  Access to these sources of capital is a particular challenge that has been documented by the National Academy of Sciences, the Council on Competitiveness, and others.  For the past several years, high growth companies that create the industries of tomorrow have encountered serious financing hurdles, leaving many promising technologies and companies stranded in the so-called “Valley of Death” where they are unable to access sufficient capital to grow.  Investment funds licensed under the SBIC program raise private capital, a portion of which is guaranteed by SBA.  Over the past decade, SBA has supported investment funds that have invested in 6,600 small businesses.

• Reduced Health-Insurance Barriers to Business Creation | Health and Human Services

The Affordable Care Act will reduce health care costs for individuals and reduce health care constraints on entrepreneurship.  The Act allows Americans under the age of 26 to remain on their parents insuranceand will prohibit new insurance policies from discriminating against Americans with pre-existing conditions, making it easier for Americans to start or join a new company without facing the concern that they will lack health care coverage.

Backup Documents: Is Employer-Based Health Insurance a Barrier to Entrepreneurship?,

 Two New Studies: Health Reform Benefits Small Business, The Effects of the Affordable Care Act on Workers’ Health Insurance Coverage, Small Businesses and the Affordable Care Act of 2010

Promote regional innovation clusters

• Regional Cluster Initiative | Small Business Administration

SBA’s Regional Innovation Clusters (RICs) harness the potential of regional clusters to drive economic growth, create jobs, and strengthen American competitiveness.  Leveraging regional strengths, the RIC program will utilize SBA resources to achieve maximum impact.  At the same time, recognizing the needs for technology and innovation in specific areas, SBA is working closely with the Department of Defense on the Advanced Defense Technology (ADT) RIC program, which targets clusters focused on areas of interest to DOD, such as robotics, energy, lightweight materials, and cyber-security.

Backup documents:SBA Regional Clusters Initiative Homepage, SBA Announces Funding Available to Support Regional Clusters, Job Creation

• Regional Innovation Ecosystem Development | Department of Commerce

The Department of Commerce’s Economic Development Administration (EDA) is leading initiatives at several levels to support the development of regional innovation clusters as building blocks of job creation and U.S. economic competitiveness.  EDA is pursuing RIC initiatives on three fronts: (1) Data, Tools, and Best Practices; (2) 21^st Century Infrastructure; and (3) Institutional Support.  Working through its traditional investment programs such as Public Works and Economic Adjustment, EDA has provided significant support to RICs at the regional level (100+ grants totaling approximately $65 million in FY 2010 Q4 alone).  EDA is also committed to streamlining federal support for RICs across agencies, working with partners through the Taskforce for the Advancement of Regional Innovation Clusters (TARIC) on policy recommendations, coordinated grants, and other initiatives.

Backup documents: EDA homepage,  OIE homepage,  Regional Innovation Clusters,  Regional Innovation Acceleration Network Press Release,   Cluster Mapping Press Release, Know Your Region

• Rural Regional Innovation Initiative | USDA

USDA’s Regional Innovation Initiative is designed to support economic development efforts in rural America that deliver robust regional strategies focused on the region’s assets.  USDA is particularly interested in supporting regional strategies that take advantage of economic opportunities in rural America, including those involving regional food systems, renewable energy, and new jobs related to broadband and rural recreation.  The initiative encourages asset-based strategic planning that encourages broad-based collaboration.

Backup documents: USDA Announces Awards to Support Regional Economic Strategies

• Agricultural Technology Innovation Partnership Program (ATIP) | USDA

USDA Agricultural Research Service (ARS) established the Agricultural Technology Innovation Partnership Program (ATIP) to provide opportunities for the private sector to commercialize research outcomes arising from the vast R&D programs of USDA.  ATIP was established to strategically form nationwide geographic partnerships with well-established economic development entities that excel in providing the complementary business assets (manufacturing, marketing, fiscal) needed by private sector entrepreneurs and small businesses to commercialize USDA innovations. 

Promote innovative, open, and competitive markets

Protect and enable competition

• Revised Horizontal Merger Guidelines | Antitrust Division of the Department of Justice and the Federal Trade Commission

In September 2009, the Antitrust Division of the Department of Justice (DOJ) and the Federal Trade Commission (FTC) initiated a process to evaluate and possibly update their jointly issued Horizontal Merger Guidelines.  These Guidelines describe the merger enforcement policies of the DOJ and FTC.  They have a significant impact on the antitrust evaluation of mergers and acquisitions that are subject to review by the DOJ and FTC.  Well-designed merger enforcement policies promote innovation by allowing mergers to go forward that are likely to create efficiencies and spur innovation, while preventing mergers that may retard innovation by substantially reducing competition.  Revised Guidelines were released in August 2010 and include, for the first time, a section explaining in general terms how the DOJ and FTC assess whether a merger is likely to retard innovation.

Backup documents: FTC and DOJ Horizontal Merger Guidelines - August 2010

• Thoughtful and Effective Antitrust Enforcement | Antitrust Division of the Department of Justice and the Federal Trade Commission

The Obama Administration has made balanced antitrust enforcement a core part of its efforts to protect and promote competitive markets.  Where mergers or market restraints threaten to prevent firms from introducing innovative products or services, the antitrust agencies—the DOJ and FTC—are vigilant in addressing such conduct.  The Obama Administration also recognizes that American companies often need to collaborate to compete effectively in worldwide markets.  The antitrust agencies are advocates at home (with federal and state regulatory agencies) and abroad for the principle that sound competition policy means protecting the competitive process—allowing firms to succeed or fail on the merits—and not individual competitors.

Improve regulation and regulatory review

In January 2011, President Obama issued an Executive Order to improve regulation and the regulatory review process.  Under this Executive Order, the President required Federal agencies to design cost-effective, evidence-based regulations that are compatible with economic growth, job creation, and competitiveness.  The Order emphasizes the principles of public participation, integration and innovation, flexible approaches, and scientific integrity.  It also includes a provision on retrospective review, which asks agencies to submit a preliminary plan within 120 days to determine whether any regulations should be modified, streamlined, expanded, or repealed so as to make the agency's regulatory program more effective or less burdensome.

Ensure an open Internet that protects consumers and enables innovation

President Obama is strongly committed to protecting an open Internet that protects consumers and innovation.  To that same end, the FCC has acted to ensure that users and innovators are able to compete on the merits and not face anticompetitive barriers posed by incumbent broadband providers.  Similarly, President Obama is committed to ensuring that the Internet remains an environment where commerce can prosper and users will trust that they will be treated fairly.  To that end, the Department of Commerce has outlined a path forward on protecting Internet privacy.  Finally, as to the development of Internet policy principles more generally—protecting privacy, ensuring an open Internet, addressing cybersecurity concerns, etc.—the Administration has established an interagency effort to develop guidance on how to address policy issues in the Internet environment.

Backup Documents: Commerce Privacy Paper, FCC Action on Open Internet, White House

Statement on FCC Action On Open Internet, Formation of NSTC Subcommittee on Privacy and Internet Policy Principles

Promote American exports

• National Export Initiative | The White House

In March 2010, President Obama signed an executive order launching the National Export Initiative (NEI), an ambitious effort to help American businesses that sell their goods and services abroad.  The NEI aims to fulfill the President’s goal of doubling U.S. exports in five years in support of millions of additional jobs.  As part of this effort, the Administration is focusing on five chief areas, including: access to credit, especially for small and medium-sized firms; increased trade advocacy and export promotion efforts; removal of barriers to the sale of U.S. goods and services abroad; enforcement of trade rules; and the pursuit of policies that will increase global economic growth so that there’s a strong worldwide market for U.S. goods and services.

The NEI Executive Order established an Export Promotion Cabinet, which includes the Secretaries of Commerce, State, Treasury, Agriculture and Labor, the U.S. Trade Representative, and the heads of all the trade-related government agencies.  Meeting individually and as part of working groups convened by the Trade Promotion Coordinating Committee (TPCC), the Export Promotion Cabinet and other federal agencies have developed short- and long-term recommendations in the priority areas identified in the NEI Executive Order.

In September 2010, the Export Promotion Cabinet delivered a report to the President providing an overview of the progress of the NEI to date and laying out a comprehensive plan for reaching the President’s goals.  The NEI Report presents the Export Promotion Cabinet’s recommendations for doubling exports in five years.  It will be followed by the National Export Strategy, which will detail the implementation of these recommendations and measure progress. The National Export Strategy is delivered to Congress annually and is expected in March 2011.  Exports in the first 11 months of 2010 were up 17% from a year earlier, above the rate needed to reach the President’s goal.

In early December 2010, the United States and South Korea reached agreement on a trade deal in which the tariff reductions alone are expected to boost annual exports of American goods by up to $11 billion.  The opening of the Korean goods and services market to U.S. exports is expected to support at least 70,000 American jobs.

Backup Documents: Executive order - National Export Initiative, NEI homepage, NEI Report to the President (September 2010)