Chapter 8 | Invention, Knowledge Transfer, and Innovation

Highlights

The S&E workforce and R&D activity increase the capital stock of knowledge—either through fundamental scientific advances or by extending basic knowledge for practical applications. This knowledge storehouse, in turn, serves as a key resource for those who invent and innovate. Intertwined economic and organizational processes link knowledge advances to invention, knowledge transfer, and innovation.

• The S&E-trained workforce conducts research to make discoveries and create new technologies.
• Businesses, universities, federal laboratories and research centers, and nonprofit institutions all contribute to discoveries.
• Production and trade in knowledge-intensive goods and services fuel the transfer of S&E into commercial applications.
  
• The theory and data available advance our understanding of the innovation system and its important dynamics. However, metrics to gauge performance and effectiveness are incomplete, particularly for outcomes and impacts.

An invention brings something new into being and has a practical bent—the production of a new product or process that is potentially useful, previously unknown, and nonobvious. Patent data, valuable for their technological and geographic detail, are indicators of invention, rather than innovation.

The number of patents from the U.S. Patent and Trademark Office (USPTO) granted to U.S. inventors continues to grow, although at a slower rate than was seen earlier in the decade. The most well-defined metrics on U.S. inventions are patent applications and awards and the invention disclosures reported by the technology transfer offices at academic institutions and at the nation’s federal laboratories. Comprehensive patent data have become increasingly available and extensively analyzed in recent years. Invention disclosures are accessible in regular reports. Nonetheless, both these sets of data provide only a partial picture of U.S. invention.

• Foreign owners account for more than half of USPTO patents in recent years, almost 152,000 out of a total of more than 300,000 in 2016.
• The number of U.S. university patents granted by USPTO continues to increase rapidly, more than doubling between 2008 and 2016, reaching more than 6,600 in 2016.
• The number of foreign university patents granted by USPTO more than quadrupled during this same period, reaching more than 4,200 in 2016.
• Inventors in the United States received nearly half of USPTO patents granted in 2016. Japan and the European Union (EU) were the second and third largest recipients.
• The share of USPTO patents granted to U.S. inventors declined from 51% in 2006 to 47% in 2016.
• Faster growth in the number of USPTO patents granted to non-U.S. inventors was led by South Korea, China, and India over the same period.
• USPTO patents by U.S. inventors are relatively more concentrated in six advanced and science-based technologies, including three in the chemistry and health category—medical technology, pharmaceuticals, and biotechnology.
• USPTO patents by EU inventors are concentrated in nine technologies that are closely related to chemistry and health, including pharmaceuticals and biotechnology.
• Japan’s USPTO patents are relatively more concentrated in two information and communications technologies—semiconductors and telecommunications—and in optics, surface technology and coating, and materials and metallurgy.

Technology transfer is “the process by which technology or knowledge developed in one place or for one purpose is applied and used in another place for the same or different purpose.” Scientific discoveries and inventions flow into economic activity through freely accessible dissemination (e.g., open scientific and technical literature, person-to-person exchanges) and market-based transactions (e.g., patent licensing, formal collaborative R&D relationships that provide intellectual property protections, use of copyrighted materials). Organizations in academia, government, business, and nonprofit sectors all have policies and activities directed at identifying new knowledge and technology and helping transfer them where they can be applied, further developed, and eventually commercialized as new products and processes.

The federal government has been particularly active since the early 1980s in establishing policies and programs to improve the transfer and economic exploitation of the results of federally funded R&D—particularly through the Bayh–Dole Act of 1980 (affecting federally funded R&D in academia) and the Stevenson-Wydler Technology Innovation Act of 1980 and subsequent amplifying legislation (promoting technology transfer activities by the nation’s federal laboratories). Most statistics on technology transfer concern these federal government technology transfer policies, as they operate through U.S. higher education institutions and U.S. federal laboratories. Less is known about the technology transfer that happens within the private or nonprofit sectors.

• In the higher education sector, invention disclosures filed through university technology management and transfer offices totaled 22,507 in 2015, up from 13,718 in 2003.
• University applications for U.S. patents also increased over time: 13,389 in 2015, nearly doubling from 7,203 in 2003.
• The number of U.S. patents awarded to universities remained flat between 2003 and 2009, and then rose to 6,164 in 2015.
• Active licenses that generated revenue from university inventions increased from 18,845 in 2001 to 40,402 in 2015.
• Business startups from university technology transfer reached 950 in 2015, with the number of past startups still operating that year at 4,757.
• For the U.S. federal laboratories (including federal agency intramural R&D facilities and federally funded research and development centers), invention disclosures totaled 5,103 in 2014, compared with 5,106 in 2003. Other trends in U.S. federal laboratories included the following.
  • A total of 2,609 patent applications were filed in 2014, compared with 2,318 in 2003.
  • The number of patents issued was 1,931 in 2014, compared with 1,631 in 2003.
  • The total of active invention licenses (mainly of patents) across all the federal laboratories was 3,956 in 2014, compared with 3,747 in 2003.
  • Active licenses for other intellectual property (i.e., other than patents, including copyrights) totaled 16,866 in 2014, compared with 2,771 in 2003.
• Cooperative R&D agreements (CRADAs) between federal laboratories and nonfederal partners (e.g., with businesses, nonprofit organizations, and other nonfederal organizations) totaled 9,180 in 2014, up from 5,603 in 2003. Other types of collaborative R&D relationships (the authorities for which vary by the agencies; e.g., relationships through the National Aeronautics and Space Act of 1958) totaled 27,182 in 2014, compared with 8,162 in 2003.
• Most of the federal agencies engage in all these technology transfer mechanisms, although the emphases vary. Some are particularly intensive in patenting and licensing activities; others are intensive in transfer through collaborative R&D relationships.
• Some agencies have unique transfer authorities (statutory) that can confer practical advantages (e.g., the National Aeronautics and Space Administration [NASA] through the National Aeronautics and Space Act of 1958; the U.S. Department of Agriculture [USDA], with a variety of non-CRADA mechanisms for cooperative R&D; the Department of Energy [DOE], whose contractor-operated laboratories and nonfederal staff can use copyrights to protect and transfer computer software).
• The federal agencies accounting for the largest portion of federal R&D—including USDA, the Department of Commerce (DOC), the Department of Defense (DOD), the Department of Homeland Security (DHS), the U.S. Department of Health and Human Services (HHS), and NASA—account for most of the technology transfer activities enabled by the Stevenson-Wydler Act.
• U.S. business sector–based researchers produced more than 50,000 peer-reviewed publications in 2016. Almost half were coauthored with university researchers, and 12% were coauthored with federal agency researchers.
• Technology licensing and other global exports of intellectual property in trade flows were $272 billion in 2016. Together, the United States, Japan, and the EU account for more than 80% of this total.

Access to financing is an essential component of the translation of inventions to innovations, both for new and growing firms. The difficulty of entrepreneurs obtaining financing contributes to the “valley of death,” the inability of new and nascent firms to obtain financing to commercialize their inventions and technology. Venture capital investment also supports product development and marketing, company expansion, and acquisition financing.

• Venture capital investment, an indicator of support for the commercialization of emerging technologies, was more than $130 billion globally in 2016.
• The United States attracts slightly more than half of this venture capital funding. Four industries—software as a service, mobile, life sciences, and e-commerce—received the largest amount of U.S. venture capital investment between 2011 and 2016.
• China is the second largest recipient, attracting about one-quarter of the venture capital funding. Venture capital investment in China soared from $3 billion in 2013 to $34 billion in 2016, the fastest increase of any economy.

In response to ongoing national concerns about the comparative strength of U.S. industries and their ability to succeed in the increasingly competitive global economy, the federal government has been active since the late 1970s in establishing policies and programs directed at strengthening the prospects for the development and flow of early-stage technologies into the commercial marketplace, particularly where the R&D has been federally funded.

• Federal funding to small entrepreneurial companies engaged in R&D with eventual commercialization objectives, through the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs, are now considerably larger than when these programs were first initiated in, respectively, the early 1980s and the mid-1990s.
• At its start in FY 1983, the SBIR program (across all participating agencies) made 789 awards (all Phase I) for a total of $38 million in funding; in FY 2015, 4,508 awards were made (Phase I and Phase II), with funding totaling $1.923 billion.
• The STTR program started in FY 1995, with a single Phase I award for $100,000. In FY 2015, 725 STTR awards were made (Phase I and Phase II), with funding totaling $258 million.
• Beyond the well-known SBIR and STTR programs, which apply across much of the federal government, some departments or agencies have their own early-stage development programs more narrowly directed at their mission objectives. Examples of these programs are the DOC National Institute for Standards and Technology’s (NIST’s) Hollings Manufacturing Extension Partnership, DOE’s Advanced Research Projects Agency—Energy, and the National Science Foundation’s (NSF’s) Industry–University Cooperative Research Centers Program (IUCRC). (An appendix table to the chapter identifies a larger set of these programs across the USDA, DOC, DOD, DOE, HHS, DHS, Department of Transportation, Environmental Protection Agency, NASA, and NSF.)

Indicators of innovation in firms—the implementation of a new or significantly improved product or business process—show that information and communications technology (ICT)-producing industries report many of the highest rates of innovation. These indicators are collected in survey data guided by The Oslo Manual of the Organisation for Economic Co-operation and Development (OECD) and Eurostat (2005).

• One in six U.S. firms (17%) introduced a new or significantly improved product or process between 2013 and 2015, according to the Business R&D and Innovation Survey (BRDIS).
• U.S. manufacturing industries see highest rates of innovation in computer and electronic products (57%) and electrical equipment and components (48%).
• U.S. nonmanufacturing industries see highest rates of innovation in computer systems design (44%), scientific R&D services (44%), electronic shopping and auctions (40%), and information (31%).

Impacts of innovation are understood in multiple ways, and economic indicators are a partial but quantifiable measure. Multifactor productivity, the output growth that cannot be attributed to labor and capital inputs, is a broad measure of the impact of innovation and technological change on the economy. It shows declining growth in the United States compared with the 2000s and earlier decades. This is true for the United States and for many other economies. Small, fast-growing firms in the United States, which are a measure of entrepreneurship and its associated job growth, have shown a declining rate of new firm formation since the early 2000s.