Strategy for American Innovation: Promote Market-Based Innovation

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“All these investments -– in innovation, education, and infrastructure –- will make America a better place to do business and create jobs.  But to help our companies compete, we also have to knock down barriers that stand in the way of their success.”

- President Barack Obama, State of the Union Address, January 25, 2011

The private sector is an engine of innovation.  Great ideas can come from many corners, and the capacity of decentralized, competitive markets to see innovative opportunities, prove their value, and enable their diffusion drives our economic growth and the creation of new, better jobs for the American people.  The Obama Administration is committed to providing the best possible environment for private-sector innovation, whether by established firms or entrepreneurs.

Accelerate business innovation with the R&E Tax Credit

The President has proposed to reform the way that businesses are taxed to encourage innovation and entrepreneurship more broadly.  Any process or proposal for tax reform should address the market failure that the private incentive for an innovative investment typically falls short of the social interest because many of the innovative benefits accrue to consumers.

Make the R&E Tax Credit permanent

To encourage private sector innovation, the administration has proposed making the Research and Experimentation Tax Credit permanent, while simplifying its use and expanding its incentive payments by 20%.  The proposal for an expanded credit will invest about $100 billion over 10 years in the form of foregone tax receipts to leverage additional innovation.

Promote ingenuity through effective intellectual property policy

Intellectual property (IP) rights provide critical incentives for commercial innovation.  IP further allows new ideas to be traded between firms, finding their best uses in the marketplace, and is an important determinant of entrepreneurial funding.  Because IP supports both innovation and entrepreneurship, public policy must ensure that innovators receive high-quality IP rights in a timely manner, while maintaining public access to basic discoveries and room for healthy experimentation.   

Support and protect effective intellectual property rights

Our patent system faces serious challenges, with businesses and entrepreneurs now waiting an average of 35 months behind a backlog of over 700,000 patent applications.  The Obama Administration is supporting comprehensive patent reform to slash the processing time for patent applications, enable applicants to fast-track their most important applications, and allow a post-grant review procedure that can improve patent quality.  These initiatives, coupled with the 2010-2015 Strategic Plan of the U.S. Patent and Trademark Office, work to solve core challenges to our patent system and accelerate innovation, entrepreneurship, and economic growth.

Similarly, effective enforcement of intellectual property rights is essential to innovation and economic growth.  In June, the U.S. Intellectual Property Enforcement Coordinator (IPEC) released the Administration’s first plan to fight intellectual property infringement.  The plan included 33 specific action items, spanning six broad categories, which the Administration agreed to undertake to improve enforcement.  The Administration will continue to prioritize intellectual property enforcement and to support U.S. businesses and consumers through protection of intellectual property.

To promote international coordination, the United States Trade Representative has negotiated the Anti-Counterfeiting Trade Agreement, concluded in November 2010, which requires both a strong legal framework for the enforcement against counterfeit and pirated goods and promotes key practices that make those laws effective in reality.

Encourage high-growth and innovation-based entrepreneurship

Entrepreneurship plays an essential role in generating innovation and stimulating U.S. economic growth.  New firms account for most net job growth, and small businesses employ 30% of high-tech workers.  Yet market obstacles limit entrepreneurship, as would-be entrepreneurs struggle to raise funding without an established reputation or without giving ideas away.  The Obama Administration is committed to helping entrepreneurs build vibrant businesses that lead to new jobs and economic growth.

Increase access to capital for new business

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.     

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.  Recent trends in capital markets, however, present several challenges for American entrepreneurs.  To evaluate relevant policy strategies, this 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.

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

Startup America is the Administration’s sustained campaign to celebrate, inspire, and accelerate high-growth entrepreneurship throughout the nation.  This coordinated public/private effort brings together an alliance of the country’s most innovative entrepreneurs, corporations, universities, foundations, and other leaders, working in concert with a wide range of federal agencies to dramatically increase the prevalence and success of American entrepreneurs.  The core goals of Startup America are to increase the number of new high-growth firms that are creating innovation and quality jobs; celebrate and honor entrepreneurship as a core American value and source of competitive advantage; and inspire and empower an ever-greater diversity of communities and individuals to build successful American companies.  To achieve these goals, a broad set of federal agencies will launch a coordinated series of policies that ensure high-growth startups have unimpeded access to capital, expanded access to quality mentorship, an improved regulatory environment, and a rapid path to commercialization of federally-funded research. 

Promote regional innovation clusters

Regional clusters can be significant sources of entrepreneurship, innovation, and quality jobs, and the root of new industries.  The Administration is making substantial investments to promote regional innovation clusters that draw together industry, university, and government resources.  The Small Business Administration’s Regional Cluster Initiative, the USDA’s Agricultural Technology Innovation Partnership Program, and the Department of Energy’s Energy Efficient Building Systems Innovation Cluster are all working to spur regional innovation engines in major technology sectors.  Moreover, the Economic Development Administration’s i6 Challenge series encourages and rewards innovative partnership models that accelerate technology commercialization, new venture formation, and job creation.  Finally, the Departments of Labor and Education are aligning Workforce Investment Act training and employment programs and career and technical education with regional innovation clusters to ensure that clusters have the skilled workforce necessary to grow and prosper, and to connect American workers with good career opportunities.

Promote innovative, open, and competitive markets

Large, efficient markets attract innovative investment, and competition provides the means by which the best ideas spread.  Historically, our strong policy against collusion and unfair practices has contributed to vibrant, competitive American businesses that are better equipped to compete in global markets.  America’s long-standing efforts to open foreign markets have brought our private sector greater innovation incentives and rewards.  Well-functioning capital markets have historically made our country a leading place to invest, bringing scarce capital to the best ideas and fueling American ingenuity. 

Protect and enable competition

The Department of Justice (DOJ) and the Federal Trade Commission (FTC) have developed new Horizontal Merger Guidelines, issued in August 2010.  The new Guidelines include, for the first time, a section explaining how the DOJ and FTC assess whether a merger is likely to retard innovation.

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 an open Internet that protects consumers and innovation.  To that same end, the FCC has acted to preserve that openness so that users and innovators are able to compete on the merits and not face anticompetitive barriers imposed by incumbent broadband providers.  More generally, the Department of Commerce has outlined a path forward to protect Internet privacy, and the Administration has established an interagency effort to guide and address critical policy issues in the Internet environment, including openness, privacy protections, and cybersecurity concerns.

Promote American exports

In March 2010, President Obama launched the National Export Initiative (NEI), an ambitious effort to help American businesses that sell their goods and services abroad.  By unlocking foreign markets for U.S. goods and services, improving access to credit for U.S. businesses, and undertaking other measures, the NEI seeks to double U.S. exports in five years and support millions of additional jobs.