The Changing Wealth of Nations: Intellectual Property in the Age of Innovation

Early in Margaret Mitchell's war time classic "Gone with the Wind," southern aristocrats bar-b-queing on Wilkes' plantation debate how long it will take them to "whip the Yankees." "One Southerner can lick twenty Yankees," proclaims one guest, because "Gentlemen can always fight better than rattle."

For the first of several times, Rhett Butler shows his contrarian streak by observing "there's not a cannon factory in the whole South.. [while the North has] factories, shipyards, coalmines. and a fleet." His point, made by Ms. Mitchell with 76 years of hindsight, was that in 1860 the strength of nations depended far less upon the bravery and training of gentlemen-soldiers and far more on manufacturing and transportation capacities. Having started in England 50 years prior, the Industrial Revolution was well under way. The winners would be those nations with access to critical materials and advanced production capabilities.

Over the next century, railroads and coal expanded to airports and oil, but the story of the industrial era remained largely dominated by material resources and production infrastructure. Then, during the second half of the 20th Century, another trend began emerging, and by Century's end a new information age was upon us. Ladies and gentlemen, knowledge — ideas — is the new coin of the realm, with innovative capacity the key driver of future economic productivity and wealth creation.

Thanks very much for inviting me to join you today. Your work is essential to America's innovative capacity - our intellectual property regime and education system will determine our success in the 21st Century. My friend Nick Godici just told you about some of the exciting efforts at the U.S. Patent & Trademark Office. For my part I'd like to offer my Technology Administration's perspective on:

• Why knowledge is now king;
• The implications for America's global competitiveness;
• The Bush Administration's high tech agenda to compete in the information age; and
• A few IPR issues on which my office is working.

Why Knowledge Is King

The wealth of nations is indeed changing. And while it may still take some time before the hydrogen economy replaces oil, the impact of innovation and technology on our society is already profound and unmistakable. Just look at the out-sized impacts of information industries.

• The information technology sector accounts for just 7% of all businesses in our economy, yet between 1996 and 2000 it drove 28% of the overall US real economic growth and created jobs at twice the pace of other sectors, jobs that paid twice as much on average (ESA).
• Advances in health care technologies and services have increased life expectancies, resulting in annual net gains of about $2.4 trillion to our economy. (Congressional Joint Economic Committee). Yale University economist William Nordhaus just published a paper that finds "the value [to our economy] of improvements in life expectancy is about as large as the value of all other consumption goods and services put together."
• And the ability to make use of innovations determines winners and losers within industries too. In a recent paper, Jason G. Cummins of the Federal Reserve Board and Giovanni L. Violante of University College London look at the so-called technology gap: how much more productive the best machines are compared with the average machine. They found that in 1975, the productivity of the average technology used on the factory floor lagged the best by 15%. By 2000, the figure had jumped to 40%.

Emerging technologies promise even greater economic impact and disruption. For example, the National Science Foundation predicts the market for nanotechnology products and services will reach over $1 trillion by 2015 in the United States alone. Leading experts gathered by NSF predicted nanotech's impact will be at least as significant as antibiotics, the integrated circuit and man-made polymers were in the 20th century.

The Good News and Bad News for U.S. Competitiveness

Now the growing importance of knowledge and innovation presents both good news and bad news for the United States relative to our global competitors. On the one hand, by almost any measure, America is the most innovative nation on earth.

• We generate the most patents per capita. According to Harvard Business School professor Juan Enriquez, it takes about 3,000 Americans to generate one U.S. patent, compared to 4,000 Japanese, 6,000 Taiwanese, 1.2 million Mexicans, 1.8 million Brazilians, 10 million Chinese and 21 million Indonesians.
• We conduct more research and development than any other nation. The United States finances 44% of the total worldwide investment in R & D - equal to the combined total of Japan, the United Kingdom, Canada, France, Germany and Italy (National Science Board's 2002 S&E indicators).
• Our workforce is more research-intensive than other regions'. Researchers represent only 5.3% of the overall workforce in Europe, compared with 8.1% in the U.S. (EU, www .cordis.lu/rtd2002/indicators/. Link no longer works.).
• American scientific output as measured by scientific publications per million population exceeds those of the EU and Japan, 708 to 613 and 498 respectively (1999 data compiled by the EU).
• Our labs and Universities remain a more attractive destination for the best and brightest young minds in the world. 85% of the PhDs who come here from China remain in the U.S. because it's a better place to do business. By contrast, many European Union nations remain challenged when trying to attract top scientists and students. As the Wall Street Journal recently observed, a German government web site summed it up nicely when it attempted to lure foreign researchers by noting: "Germany, as the statistics show, is no more xenophobic than other European countries."
• And perhaps most significantly, Americans have enjoyed the most rational, predictable and consistent framework for intellectual property rights in the world, encouraging investment and rewarding innovation.

Notwithstanding our advantages and current leadership, the rest of the world is not blind to the importance of innovative capacity in the 21st century, and they're not standing still. America's global competitiveness faces pressure on multiple fronts including:

• Education. American students at the K-12 level continue to fall behind their international counterparts in math and science learning. U.S. eighth graders ranked 19th out of 38 nations in math and 18th in science in the 1999 Third International Math & Science Study - Repeat. The World Competitiveness Yearbook ranks the U.S. 24th out of 45 nations in science education and 18th in "attractiveness of S&T to youth."
• Purchasing Power Parity. When I asked one great American multinational corporation why they were moving so many R&D operations off shore, they replied that it cost 90% less to develop a PhD in Russia than in the U.S. Just as manufacturing jobs have moved steadily abroad, innovation work may continue to globalize as highly-skilled foreign labor proves cheaper.
• Global R&D trends. While the United States accounts for 44% of worldwide R&D today, in 1970 we accounted for 70%. (Alliance for Science & Technology Research in America). The EU is racing to match our investments in nanotech, while Asian nations have collectively pulled ahead.
• Improving International IPR Frameworks. Other nations and regions are also working to improve their own systems for protecting innovation, attracting investment and encouraging invention.

The world is not standing still.

The Bush High Tech Agenda

With intellectual output playing such a critical role in our economy, society and global competitiveness, the Bush Administration is pursuing a high tech agenda that seeks to maximize the creation, protection and commercialization of intellectual property. Specifically, our policies promote innovation, support entrepreneurship, improve infrastructure and empower people.

To promote innovation, the President has proposed aggressive investments in research & development. Our 2002 budget crossed the $100 billion mark for the first time (at $103B), and we have proposed $112 billion for 2003 - the largest R&D commitment in our nation's history. We're also asking Congress to make the R&D tax credit permanent, to reflect the importance of private investments in R&D, which are twice as large as government's. We're seeking to strengthen intellectual property protection - both by devoting far more resources to the U.S. Patent & Trademark Office (21% more in 2003), and by enforcing IPR aggressively at home and abroad. Additionally, the President has asked Congress to devote another $200 million to improving math and science teaching at the K-12 level, working with regional teacher colleges and the NSF to improve math & science curricula.

To support entrepreneurs, the Bush Administration passed a bipartisan tax cut that many experts credit with moderating the recession of 2001. The President recently signed an economic stimulus package that extends unemployment benefits for laid-off workers, and accelerates depreciation schedules for businesses that invest in capital equipment — a key to sustaining our tech-led economic growth. He continues to push an aggressive free trade agenda around the world, asking Congress for Trade Promotion Authority as was enjoyed by the previous five Chief Executives, and working through the WTO to reduce barriers to trade and increase international cooperation in protecting intellectual property. Additionally, we're asking Congress to reform the Export Administration Act to make it less burdensome for our technology companies to export new tech equipment consistent with national security concerns.

To improve our innovation infrastructure, the President's technology priorities include hardening the nation's defenses, especially critical infrastructure protection and cyber security; implementing a national energy plan that uses technology to improve energy efficiency while expanding domestic capacities; supporting the deployment and usage of high-speed Internet (broadband) networks in a number of different ways, both on the supply and demand sides; and working to ensure we manage the radio spectrum most effectively. The information infrastructure is particularly important in the information age, and broadband usage may soon be the critical factor separating leading economies from the rest.

Lastly, to empower people, the President made e-government a top tier priority for the Administration, leveraging unprecedented federal investments in IT - $52 billion proposed for 2003, a 15% increase - to provide more services to citizens and operate government more efficiently. Of greatest importance to this President may be the bipartisan efforts to improve our nation's education system, epitomized by the No Child Left Behind Act signed last year. To remain globally competitive - both as a tech-led economy and as the most-inclusive opportunity society - we must place education first, and that's what President Bush is doing.

IP Issues at the Office of Technology Policy

In pursuit of this agenda, my office likewise focuses on policies to promote innovation, support entrepreneurs, improve infrastructure and empower people. We're working on several intellectual property questions of interest to many of you including:

• TECH TRANSFER. By statute, our office has the federal government lead on examining, reporting on and recommending changes to the 1980 Bayh-Dole and Stevenson-Wydler Acts, and in coordinating all federal technology transfer policy. These policies and laws establish the intellectual property regime governing technologies developed with federal funding, such as much University IP and innovations at our federal labs. They have helped distinguish America from other nations with large federal investments in R&D by trying to set a rational, predictable and consistent framework for determining IP control and ownership. With some urging assertion of greater federal rights over such IP (e.g. seeking recoupment) and others recommending less federal control (e.g. surrendering march-in rights), we're trying to ensure balanced rules to continue to maximize innovation and commercialization of federally-funded ideas.
• DRM. We're working with NIST and now PTO to examine questions of digital content and rights management as part of our effort to better encourage the deployment and usage of high-speed Internet. We have found that concerns over intellectual property protection and business models) are keeping valuable content off-line, especially games, music and video. We continue to work with information technology innovators and content creators, hoping to identify and remove barriers to market-based solutions so these potentially "killer" consumer applications can get off of the sidelines.
• The Office of Technology Policy also interacts with policy makers across the country and around the world, trying to identify and promote policies that support innovation and tech-led economic development. We continue to stress to our international counterparts that their protection of intellectual property rights is a core driver of sustainable growth and attracting foreign investment. Exporting American IPR policies and practices offers a win-win, supporting our businesses and protecting our technology while helping people around the world improve their own economies and innovative capacity.

Conclusion

If innovation and entrepreneurship profoundly shaped the 20th century, they will define the 21st. Knowledge development and commercialization are the new drivers of economic growth, both in the U.S. and around the world. Our ability to create new innovations and harness their power will directly impact our national prosperity, security and global influence. And our willingness and ability to protect intellectual property, combined with our education system, will dictate the pace of innovation and investment in future research around the world.

American technological leadership is anything but assured in today's global economy. In fact, American leadership is very much at stake. Longer-term, we face more significant challenges to our innovative capacity and global competitiveness than we have ever faced before.

• What happens to the competitiveness of our universities (and thus society) when today's foreign students and workers start returning home in far greater numbers to become tomorrow's foreign teachers?
• What happens to federal support for education and R&D when entitlement spending jumps from 7% of GDP in 2002 to 14-16% in 2030? according to Daniel Crippen, Director of the Congressional Budget Office)
• What happens when the gap between the haves and the have nots involves more than just Internet access? We're seeing the pressures on our IP posed by Asian and African need for AIDS drugs, so what happens when biotech and nanotech open even more revolutionary therapies and possibilities?
• And are we rapidly reaching a point where our technological capacity radically exceeds our wisdom to use it, especially if few are minding the legal, ethical and social implications of new discoveries?

Once again I appreciate your having me here and I congratulate all of you for your commitment and efforts to strengthen the development and protection of America's intellectual assets. Your work is critical to our economic strength and long-term prosperity, and we look forward to working with you to ensure our nation remains the leader in technology and innovation. Our future depends on our success. Thank you.

For technical questions concerning the Office of Technology Partnerships, contact us:
Office of Technology Partnerships, NIST, 100 Bureau Drive, Stop 2200, Gaithersburg, MD 20899-2200
Phone: (301) 975-3084, Fax: (301) 975-3482, Email: otp [at] nist.gov (otp[at]nist[dot]gov)