Patent wars update — gene patents (2)

Today’s New York Times story on the recent court decision on gene patents (see earlier posting) makes two important point. The first is that the industry has already shifting to a point where the decision may not have as much impact:

Diagnostic laboratories, for instance, are shifting from testing individual genes to testing multiple genes or even a person’s entire genome. When hundreds or thousands of genes are being tested at once, patents on each individual gene can become a hindrance to innovation rather than a spur.

This is especially important in the context of the split on patent reform between IT and bio — where electronic devices contain multiple patents that all need to be “owned” whereas bio usually has a few. Consequently, the electronics folks are more concerned about patent assertions what will block their products and the bio folks are concerned about counterfeits [a grossly over simplified description I know]. If parts of the bio industry are moving to a point where dealing with a multitude of individual patents becomes a barrier, they might swing over to the IT side of the debate.

The second point made in the story is this:

Even before an appeal is decided, the landscape could change in a way that would render the Myriad case moot. A ruling is expected soon from the Supreme Court in the so-called Bilski case. That case does not directly concern gene patents — it is about a fight over a method of hedging risk in commodities trading — but it gives the Supreme Court a chance to set new standards on what is patentable.

Everyone expects the Supreme Court to narrow the scope of patents — the only question is how dramatically. The Court heard oral arguments on that case back in November (see earlier posting). So we are just waiting on a decision – which could come at any time.

Financing Manufacturing

And speaking of the real economy (see yesterday’s post), Michael Lind at New America Foundation has two proposals for extending credit to manufacturing: The Manufacturing Credit System and Made in America Bonds. The first proposal would create regional manufacturing credit banks, modeled on the farm loan banks, and a single federally-chartered GSE: the National Manufacturing Loan Marketing Association (NMLMA), or “Mannie Mac” to provide a secondary market in loans to manufacturing. The second proposal would create “Made in America Bonds” modeled after the “Build America Bonds” for state and local infrastructure programs. The Made in America Bonds would be a new class of tax credit bonds that could be issued by states, local governments and other authorized entities to encourage the establishment or expansion of manufacturing in the United States.

I think we need to find ways to get credit to US manufacturing companies and lower the cost of capital. I’m not sure that I completely support these particular programs. I would suggest another, possibly complimentary, route. We need to allow all companies, including manufacturing companies to use their intangible assets as collateral for loans. Our earlier report, Intangible Asset Monetization: The Promise and the Reality, outlines some of the policies to foster the use of intangibles as collateral. One of those ideas was also a GSE to create a secondary market — in this case an Intangibles Mortgage Corporation (Ida Mae) to regularize the intangibles-backed securities market, either as a limited government-sponsored enterprise (GSE) or as an independent organization. However, I understand that creating a new GSE does not necessarily engender a lot of political support now days.

Regardless of what you think of the ideas, there is one telling fact in Lind’s proposals: if our financial system was working, we wouldn’t such programs to finance manufacturing companies. That we are having these discussion shows just how badly the system is broken.

Patent wars update — gene patents

Yesterday, a federal judge invalided seven gene patents (see stories in the Wall Street Journal and New York Times). The case involved whether Myriad Genetics Inc. and the University of Utah Research Foundation patents covering the BRCA1 and BRCA2 genes. Myriad sells diagnostic tests for the genes, which are markers for breast and ovarian cancers. Since Myriad holds the patents, only they sell they diagnostic test.

Opponents sued on the grounds that products of nature and therefore cannot be patented. The judge agreed. But the decision is likely to be appealed, so this fight is far from over.

Both sides claim that their position is good for innovation – and that the other side will stifle innovation. One side argues the need for property and profit incentives to carry our research; the other argues that open and free flow of information is most important for research. It is ongoing debate that too is not likely to be settled soon.

One comment in the New York Times story was especially telling however:

Bryan Roberts, a prominent Silicon Valley venture capitalist, said the decision could push more work aimed at discovering genes and diagnostic tests to universities. “The government is going to become the funder for content discovery because it’s going to be very hard to justify it outside of academia.”

I think that is exactly correct. The question then is what type of division of labor between public and private research do we want. And again, that is a question that will not be resolved quickly.

Baking innovation into government programs

Yesterday, the Treasury Department announced the second round of its Housing Finance Agency Innovation Fund for the Hardest Hit Housing Markets. The program was originally set up in mid-February to fund innovative state-level programs targeted in five states with home price declines greater than 20 percent. The second round will target five states with high concentrations of people living in economically distressed areas in which the unemployment rate exceeded 12 percent in 2009.

Besides begin a targeted program, what I like about this approach is its emphasis on public sector innovation. The incentive here is for states to come up with locally-focused solutions.

We are seeing this approach more and more in the Obama Administration. For example, also yesterday the Education Department announced the winners of it’s competition for Race to the Top grants while the companion Invest in Innovation Fund is still taking applications.

Losing solar?

On Friday, BP (formerly British Petroleum) announced it would be closing its solar panel manufacturing plant in Fredrick Maryland, while leaving its sales office, project development and R&D facilities in place. At first glance, this looks like a standard case of offshoring of manufacturing, as the first sentence in the
Washington Post story noted that this was: “the final step in moving its solar business out of the United States to facilities in China, India and other countries.” A closer look at the story reveals some more interesting information. For example, the Post story notes that BP “was producing 125 millimeter multi-crystalline solar cells in Frederick while the rest of the industry had moved to 156 millimeter cells, which have become standard.” The story goes on to note that BP Solar’s CEO Reyad Fezzani said that changing the production lines would be too expensive.

This, to me, is the real story. The Frederick plant is decade years old — so old that according to the Post story “The company, unable to sell or lease the building, will tear it down.” This raises a set of questions and issues — mostly around why BP didn’t feel the need to continually upgrade the plant. If they think there is a business case for simply scraping the facility, why is there not a business case for building a new facility in the same location? After all, there is already a trained workforce. The answer may be in another quote from the story:

“We remain absolutely committed to solar,” BP chief executive Tony Hayward said in an interview Friday. But he said BP was “moving to where we can manufacture cheaply.”

Sounds to me like BP has been ambivalent toward this plant for some time. According to the Gazette, BPO had laid off 140 assembly line workers last year while also looking for government grants to update the plant.

In the world of historic preservation of buildings there is a term “demolition by neglect.” It describes the process where an owner wishes to tear down a building (usually to replace it with something much larger and more profitable) but can’t. The solution is to simply wait until the building is in such poor condition that demolition is the only alternative.

I have to wonder if the story of the Frederick solar manufacturing plant is a case of offshoring-by-neglect?

Commercialization of University Research

Yesterday, the National Economic Council in the White House put out an announcement Request for Information on Commercialization of University Research. As part of the earlier announced Obama innovation strategy:

the Administration is interested in working with all stakeholders (including universities, companies, Federal research labs, entrepreneurs, investors, and non-profits) to identify ways in which we can increase the economic impact of Federal investment in university R&D and the innovations being fostered in Federal and private proof of concept centers (POCCs). This RFI is designed to collect input from the public on ideas for promoting the commercialization of Federally funded research. The first section of the RFI seeks public comments on how best to encourage commercialization of university research. The second section of the RFI seeks public comments on whether POCCs can be a means of stimulating the commercialization of early-stage technologies by bridging the “valley of death.”

The Request for Information asks the following specific questions:

Part I: With Respect to University Research, Promising Practices and Successful Models

What are some promising practices and successful models for fostering commercialization and diffusion of university research? What is the evidence that these approaches are successful? How could these promising practices be more widely adopted? Examples include, but are not limited to:
       Business plan competitions
       Coursework, training programs, and experiential learning that give faculty and students the skills they need to become entrepreneurs
       Programs that encourage multidisciplinary collaboration between faculty and students in different disciplines, such as science, engineering, business, and medicine
       Technology transfer and sponsored project offices that can negotiate agreements with companies in a timely fashion, and that have a mandate to maximize the impact of their university’s research as opposed to maximizing licensing income
       “Templates” for agreements on issues such as intellectual property, sponsored research, material transfer agreements, and visiting industry fellows that can reduce the time and cost required to commercialize university research and form university-industry partnerships
       Models for promoting open innovation and an intellectual property “commons”
       University-industry collaborations that increase investment in pre-competitive research and development that is beyond the time horizon of any single firm
       University participation in regional economic development initiatives and efforts to strengthen “clusters”
       Supportive university policies such as “industrial leave” that allows faculty members to work for a new or existing company to commercialize their research

Bootstrapping Innovation Ecosystems

Some universities participate in regional innovation “ecosystems” with dense concentrations of venture and angel investors, experienced entrepreneurs and managers, and a mix of large and small firms. These universities also have faculty who have been involved in commercialization of research and entrepreneurship, and can serve as mentors and role models to faculty or students. How can universities and their external partners expand their ability to commercialize research in the absence of these favorable conditions?

Metrics for Success

What are appropriate metrics for evaluating the success or failure of initiatives to promote commercialization of university research?

Changes in Public Policy and Funding

What changes in public policy and research funding should the Obama Administration consider that would promote commercialization of university research? How could existing programs be modified or augmented to encourage commercialization of university research?

Part II: With Respect to POCCs

Underlying Conditions and Infrastructure

What underlying conditions are necessary to enhance the success of a POCC?
        [cir] How can regions with less significant angel and VC investment cultures support POCCs and start-up business activity? Can current POCC successes transfer to other regions and universities?
       [cir] How important is active participation by strong local business community in a POCC? Describe how you integrate them into the POCC ecosystem?
How can Federal agencies, research institutions, Federal researchers, and the private sector work together to foster more successful POCCs that accelerate commercialization into the marketplace?
How can we leverage NSF’s and industry’s investment in Engineering Research Centers and Industry/University Cooperative Research Centers to speed the development and commercialization of new technology that has already reached the proof-of-concept stage?
In addition to Federal resources, what existing state, regional or local government funded resources or programs supplement the POCCs in bridging the “valley of death”?
       [cir] Describe any alternative sources of private funding/financing that might be available such as not for profit entities or charitable foundations.

Successful Practices

What are examples of successful practices?
What are the key ingredients responsible for this success?
Is there any evidence that indicates POCCs are an effective mechanism to foster local or regional economic development and job creation (e.g. research related to the needs of particular clusters, participating in regional networks, making shared facilities available to local firms, addressing the need for skilled labor in particular sectors)?
What lessons can be learned from other successful models such as technology-based economic development organizations that support POCCs?
Describe educational programs associated with POCCs that better prepare students to work in entrepreneurial environments?
To what extent do interdisciplinary services (legal, accounting, business plan training) contribute to POCCs successes?
At POCCs, what lessons have been learned regarding:
Leadership and team composition, project selection, optimum scale of effort, importance of brick-and-mortar facilities, geographic scope of participation, and multi-agency involvement?

Success Metrics

How do you define the success of a POCC?
       [cir] What are the relevant inputs, outputs, outcomes, and impacts for success metrics?
       [cir] What is the time period needed to measure success as applied
to different types of technologies?
Would the appropriate success metrics for a POCC affiliated with a university be different than one affiliated with a Federal research lab?

Other Questions

For those institutions with POCCs, how would you describe what you do and how you do it?
How can research and development assets supported by the Federal Government be leveraged to support POCCs, such as a multi-agency, multi-disciplinary database of supported research?
How could such assistance also bolster State and local government programs?
What other administrative policies/practices should the Administration consider modifying, adopting or implementing to enhance the success prospects of POCCs, including streamlining reporting requirements?

Responses are due by 11:59 p.m. Eastern Time on April 26, 2010. According to the announcement:

Responses to this RFI must be delivered electronically as an attachment to an e-mail sent to NEC_General@who.eop.gov with the subject line “Commercialization of University Research.”

Business incubators and intangible assets

Speaking of economic development (see previous posting), last week, the House Small Business Committee held a hearing on Business Incubators and Their Role in Job Creation (see Chairwoman’s statement, witness statements, and video highlights).

I have long been a supporter of incubators. During one of the many meetings this winter over possible new innovation policies, I argued for an expansion of funding for incubators — and that some of that new funding should go to support programming, not just facilities (see previous posting).

Well, it looks like the President of the National Business Incubation Association, David Monkman, agrees. In his testimony, he stated:

Currently, federal funding for incubation programs focuses almost exclusively on bricks and mortar – the facilities themselves. But successful incubators provide much more than shared space. I urge you to consider ways to also provide operational funding for incubators committed to developing innovative programming and following industry best practices, which will allow them to provide continued and expanded services to high-growth companies.

That argument was echoed by Lou Cooperhouse, Director of the Rutgers University Food Innovation Center. As he noted:

The heart of a true business incubation program is the ongoing, personalized and comprehensive services that are provided to clients.

Timothy Early, President of the Hampton Roads Technology Council, also pointed out that:

The U.S. Small Business Administration, which provides funding for SCORE and SBDC programs, offers many important programs to help small businesses. However, SBA has no business incubator funding program, and it does not offer intensive, sustained services to the start-up and fledgling companies that are creating our nation’s new jobs and commercializing new technologies.

That is a great point – and SBA programs should be modified accordingly. Specifically, those services should include helping companies identify, develop, and better utilize their intangible assets and intellectual capital. Other nations are already doing this — for example, Glasgow’s Intellectual Assets Centre and Hong Kong’s Intellectual Capital Management Consultancy Programme (see also the press release). We should as well.

New reports on economic development

I would like to draw your attention to two new reports on economic development in the knowledge economy. The first is a study of what universities have been doing successfully to promote economic development. The report A New Paradigm for Economic Development was written for the new chancellor of the State University of New York (SUNY) system by SUNY’s Rockefeller Institute, but it’s lessons are universal. I specifically like that it looks at the roles of universities beyond what is normally categorized as “tech transfer”:

First, institutions and systems are advancing innovation— new technologies, new processes, new products, new ideas– in their local and regional economies. This focus on innovation sees university faculty and leaders thinking creatively about how to leverage their strengths in knowledge creation to yield tangible economic benefits.
Second, higher education institutions and systems are pursuing strategies to help employers prosper and grow. They do this by deploying their strengths in knowledge transfer— through worker training, management counseling, help for startups, and other initiatives.
Third, higher education institutions are playing a more vigorous role in community revitalization. Many are a significant factor in the life of their home communities, and take that responsibility seriously.
Finally, higher education’s most fundamental contribution to economic development lies in its traditional role: creating an educated population. The new economy is making the traditional academic mission ever more important.

I admit that the title of the report “A new paradigm” is rather old news and that the survey covers a lot of old ground. But nonetheless, it is a good compendium of information for those interested in the topic.

The second is a report from the Economic Development Administration A Practitioner’s Guide To Economic Development Tools for Regional Competitiveness in a Knowledge-Based Economy. A shorter volume — only 19 pages — it covers four tools that are important in understanding and planning for a local knowledge economy:

•  Industry Cluster Analysis: With a useful set of 17 clusters, this tool helps the practitioner see networks of businesses that are creating wealth in their local or regional economy. This tool enables economic development professionals to define their own regions. As such, it represents a major advance in both the ease and flexibility of industry cluster analysis.
•  Regional Innovation Index: Businesses generate new wealth through innovation. Until now, economic development practitioners had no practical way to measure the innovation capacity of their local or regional economy. This innovation index represents a breakthrough in regional economic analysis. For the first time, professionals can examine the capacity of their economy to support innovative companies. Like the industry cluster tool, practitioners can design their own region by deciding which counties to include in their analysis.
•  Occupational Cluster Analysis: One of the major transformations underway involves the closer integration of education, workforce development and economic development. For many economic development practitioners, this shift opens unfamiliar territory to their practice. The occupation cluster tool provides fast insights into the talent base that drives a local or regional economy. With this tool, economic development professionals can begin to structure effective collaborations with businesses managers, educators, and workforce development professionals. Like the industry cluster analysis and the regional innovation index, the occupation cluster analysis is flexible. It starts at the county level, but practitioners can assemble their own regions by grouping individual counties.
•  Guidelines for Regional Organization and Investment Decisions: In the new world of economic development, collaboration matters, but it is often tricky. The guidelines for regional organization and investment decisions help leaders move forward as a region. These guiding principles provide frameworks for establishing investment priorities and making investment decisions. Unlike general guides on collaboration, these guidelines are designed specifically to meet the needs of economic development professionals who must structure investments among cooperating partners.

By the way, the data for these tools can be found at the Innovation in America’s Regions website.

Dump Doha?

It has been a busy weekend in Washington. On Saturday, there was an anti-war demonstration. On Sunday, tens of thousands of immigration reform supporters gathered on the Mall (and many thousands of them marched past my house in a festive gala). And, of course, there was all the drama of health care reform.

So, is Washington ready for another controversial take on a tough issue? Trade attorney Bob Lighthizer thinks so and has proposed what some may see as a radical step on trade policy in an op-ed in today’s New York Times: Stifling the Economy, One Argument at a Time . In that piece he calls for pulling the plug on the Doha Round of multilateral trade negotiations and specifically re-focusing our trade agenda on four major problems: the US-China trade balance; currency manipulation; unfair tax rules; and, regulatory disparities.

I worked with Bob on trade issues decades ago on the 1988 Trade Act and the Uruguay Round negotiations when I was on Senate staff and he was at USTR in the Reagan Administration and later in private practice. Bob makes a good point. The basic premise of the Doha Round — as the development round — may no longer be central to the issues facing the trading system. I wondered if they ever were. Back in 2001, I wrote a paper on After Doha: What The WTO Is Not Talking About. In that piece I speculated that the Uruguay Round might have been the last major comprehensive round of multilateral trade negotiations. The complexity and range of issues now under discussion may be simply too big to handle in one package. These negotiations worked well when the issue was trading off tariffs on steel for tariffs on shoes — when the goal of the discussions are to push tariffs lower on everything. But when the trade-offs involve balancing environmental regulations with investment issues, the process is not as clear. This is a point I and others have made before (see earlier postings).

My 2001 piece also made the point that for all the various issues being raised in the Doha Round, a major piece is missing:

Not on the table is a comprehensive look at policies toward information and other intangibles. We are moving to a knowledge economy. Knowledge is both an increasingly important input into the production process and an end-use commodity in and of itself. As the role of information increases in both our economic and social systems, issues of control of information will become increasingly central to our policy and political debates. Parts of the issue are included in the WTO agenda, such as: Trade-Related Aspects of Intellectual Property Rights (TRIPS); the work program on electronic commerce; trade and investment; and the proposal for a new discussion on technology transfer. Missing from the discussions is the recognition of the interconnection between these areas.

So, I don’t know if Bob is right that we should pull the plug on Doha — or whether we should make a last push to wrap up something and call it a success. Nor am I sure that he has the right set of issues. For example, his concern over unfair tax policy focuses on the use of a value-added tax by other nations. Rather than fight this, I think we should be adopting it.

But I agree with him and many others that the major issues confronting trade policy are outside of and beyond the Doha framework. We need to re-orient our policy towards issues that matter, not simply continue on the same old path.