Industrial Innovation Initiatives Message to the Congress on Administration Actions and Proposals.

To the Congress of the United States:

Industrial innovation—the development and commercialization of new products and processes—is an essential element of a strong and growing American economy. It helps ensure economic vitality, improved productivity, international competitiveness, job creation, and an improved quality of life for every American. Further, industrial innovation is necessary if we are to solve some of the Nation's most pressing problems—reducing inflation, providing new energy, supplies and better conserving existing supplies, ensuring adequate food for the world's population, protecting the environment and our natural resources, and improving health care.

Our Nation's history is filled with a rich tradition of industrial innovation. America has been the world leader in developing new products, new processes, and new technologies, and in ensuring their wide dissemination and use. We are still the world's leader. But our products are meeting growing competition from abroad. Many of the world's leading industrial countries are now attempting to develop a competitive advantage through the use of industrial innovation. This is a challenge we cannot afford to ignore any longer. To respond to this challenge, we must develop our own policies for fostering the Nation's competitive capability and entrepreneurial spirit in the decades ahead. This Message represents an important first step in that direction.

I am today announcing measures which will help ensure our country's continued role as the world's leader in industrial innovation. These initiatives address nine critical areas:

• Enhancing the Transfer of Information

• Increasing Technical Knowledge

• Strengthening the Patent System

• Clarifying Anti-trust Policy

• Fostering the Development of Small Innovative Firms

• Opening Federal Procurement to Innovations

• Improving Our Regulatory System

• Facilitating Labor/Management Adjustment to Technical Change

• Maintaining a Supportive Climate for Innovation.

INITIATIVES

1. Enhancing the Transfer of Information. Often, the information that underlies a technological advance is not known to companies capable of commercially developing that advance. I am therefore taking several actions to ease and encourage the flow of technical knowledge and information. These actions include establishing the Center for the Utilization of Federal Technology at the National Technical Information Service to improve the transfer of knowledge from Federal laboratories; and, through the State and Commerce Departments, increasing the availability of technical information developed in foreign countries.

2. Increasing Technical Knowledge. We have already made significant efforts to assure an adequate investment in the basic research that will underlie future technical advances. This commitment is reflected in a 25 percent growth in funding during the first two years of my Administration. I am taking some additional steps that will increase Federal support for research and development:

First, I will establish a program to cooperate with industry in the advancement of generic technologies that underlie the operations of several industrial sectors. This activity will broaden the $50 million initiative I announced in May to further research in automotive research. Second, in order to help harness the scientific and technological strength of American universities, I have directed a significant enhancement in support of joint industry-university research proposals. This program will be modeled on a successful program at the National Science Foundation, and I have set a target of $150 million in Federal support for it.

3. Strengthening the Patent System. Patents can provide a vital incentive for innovation, but the patent process has become expensive, time-consuming, and unreliable. Each year, fewer patents are issued to Americans. At my direction, the Patent and Trademark Office will undertake a major effort to upgrade and modernize its processes, in order to restore the incentive to patent—and ultimately develop—inventions. I will also seek legislation to provide the Patent and Trademark Office with greater authority to reexamine patents already issued, thereby reducing the need for expensive, time-consuming litigation over the validity of a patent.

For over thirty years the Federal agencies supporting research and development in industry and universities have had conflicting policies governing the disposition of pertinent rights resulting from that work. This confusion has seriously inhibited the use of those patents in industry. To remove that confusion and encourage the use of those patents I will support uniform government patent legislation. That legislation will provide exclusive licenses to contractors in specific fields of use that they agree to commercialize and will permit the government to license firms in other fields. If the license fails to commercialize the inventories, the government will retain the right to recapture those rights. I will also support the retention of patent ownership by small businesses and universities, the prime thrust of legislation now in Congress, in recognition of their special place in our society.

4. Clarifying Anti-trust Policy. By spurring competition, anti-trust policies can provide a stimulant to the development of innovations. In some cases, however, such as in research, industrial cooperation may have clear social and economic benefits for the country. Unfortunately, our anti-trust laws are often mistakenly viewed as preventing all cooperative activity.

The Department of Justice, at my direction, will issue a guide clearly explaining its position on collaboration among firms in research, as part of a broader program of improved communication with industry by the Justice Department and the Federal Trade Commission. This statement will provide the first uniform anti-trust guidance to industrial firms in the area of cooperation in research.

5. Fostering the Development of Small Innovative Firms. Small innovative firms have historically played an important role in bringing new technologies into the marketplace. They are also an important source of new jobs. Although many of the initiatives in this Message will encourage such companies, I will also implement several initiatives focused particularly on small firms.

First, I propose the enhancement by $10 million of the Small Business Innovation Research Program of the National Science Foundation. This program supports creative, high-risk, potentially high-reward research performed by small business. Further, the National Science Foundation will assist other agencies in implementing similar programs, with total Federal support eventually reaching $150 million per year.

Second, in order to experiment with ways to ease the ability of small firms to obtain start-up capital, I will help establish two Corporations For Innovation Development to provide equity funding for firms that will develop and market promising high-risk innovations. These not-for-profit firms will be established with State or regional capital and the Federal government will provide each with matching loan funds up to $4 million.

6. Opening Federal Procurement to Innovations. The Federal government is the Nation's largest single purchaser of goods and services. Through its purchases, the Federal government can influence the rate at which innovative products enter the market.

For that reason, I am directing the Office of Federal Procurement Policy to introduce procurement policies and regulations that will remove barriers now inhibiting the government from purchasing innovative products. Special attention will be given to substituting performance for design specifications and, wherever feasible, selection will be on the basis of costs over the life of the item, rather than merely the initial purchase price.

7. Improving our Regulatory System. During my Administration, I have already taken a number of actions to help assure that regulation does not adversely affect innovation. Working with the Congress, I have moved successfully toward deregulation of airlines and other industries, and I expect the pressure of competition to trigger innovative new ways to cut costs and improve service. In environmental, health and safety regulation, I have emphasized the use of cost-impact analysis, where appropriate, to take account of the burdens on industry in the regulatory process. To provide better coordination between the regulatory agencies, I have created the Regulatory Council, composed of the heads of 35 regulatory agencies. This Council is working to reduce inconsistencies and duplications among regulations, to eliminate needless rule-making delays, to reduce paperwork, and to minimize the cost of compliance.

I am today proposing additional steps to improve our regulatory system. First, the Administrator of EPA will intensify his efforts, wherever possible, to use performance standards in regulations, specifying only the required goal, rather than the means of achieving it. Second, all Executive Branch environmental, health and safety regulatory agencies will prepare a five-year forecast of their priorities and concerns. This information will give industry the time to develop compliance technology. Third, all administrators of Federal executive agencies responsible for clearance of new products will be directed to develop and implement an expedited process for projects having a strong innovative impact or exceptional social benefit, and to do so without jeopardizing the quality of the review process.

8. Facilitating Labor and Management Adjustments to Technical Change. Although innovation can increase the number of workers employed within an industry over the long term, or even create an entire new industry, individual innovations may occasionally cause workers to be displaced.

In order to assure adequate time for workers and management to adjust to changes caused by innovations, I am directing the Secretaries of Labor and Commerce to work jointly with labor and management to develop a Labor/Technology Forecasting System. The System would develop advance warning of industrial changes and permit timely adjustments.

9. Maintaining a Supportive Federal Climate. The initiatives announced in this Message are only the first steps in our efforts to ensure American technological strength. We must also develop and maintain a climate conducive to industrial innovation. The Federal government must take the lead in creating that climate. And the Federal government's efforts must be continuing ones. I am committed to these goals.

I am charging the National Productivity Council with the continuing tasks of monitoring innovation, developing policies to encourage innovation and assisting the Departments and agencies in implementing the policies announced today. I am also establishing a Presidential award for technological innovation to make clear to this Nation's inventors and entrepreneurs that we place the highest national value on their contributions.

Each of the initiatives I have just proposed supports an important component in the innovation process. In combination, these initiatives should make a major difference in our Nation's ability to develop and pursue industrial innovation. However, these incentives will not by themselves solve our current difficulties in encouraging needed innovation. In our economic system, industrial innovation is primarily the responsibility of the private sector. The manager of the firm must decide whether to develop and market innovative new products or whether to find and employ new ways of making existing products. Although the Federal government can establish a climate that encourages innovative activity, it is the private sector that finally determines whether innovation will take place.

In addition, the steps outlined in this Message must be viewed in the context of our current severe inflation problem. With costs rising at an abnormally high rate, managers naturally have a disincentive to spend the sums needed for adequate industrial innovation. I understand and fully appreciate that changing certain of our tax laws could provide additional incentives for investment in innovation. Indeed, my approval of adjustments in the capital gains tax in the Revenue Act of 1978 has alleviated some shortages of venture capital. Many of the suggested alterations of our tax system are intertwined with other economic challenges—such as fighting inflation. While it might be possible to make changes in the tax code that would promote innovation, these changes should not be viewed in isolation from other aspects of our economy. I will therefore evaluate tax laws affecting industrial innovation at the time that I consider my fiscal policies for Fiscal Year 1981.

CONCLUSION

Innovation is a subtle and intricate process, covering that range of events from the inspiration of the inventor to the marketing strategy of the eventual producer. Although there are many places in the chain from invention to sale where we have found modification of Federal policy to be appropriate, there is no one place where the Federal government can take action and thereby ensure that industrial innovation will be increased. We have therefore chosen a range of initiatives, each of which we believe to be helpful. In aggregate, we expect them to have a significant impact. Nonetheless, they represent only an early skirmish in what must he a continuing battle to maintain the technological strength of the American economy. I pledge myself to this task and ask the Congress to join me in meeting our common challenge.

JIMMY CARTER

The White House,

October 31, 1979.