“Innovating to Win the Future in the 21st Century”
Under Secretary of Commerce & Director of the USPTO David Kappos
May 11, 2011
Bright Lights Conference 2011
“Innovating to Win the Future in the 21st Century”
Draft remarks as prepared for delivery
Good afternoon everybody and thank you for inviting me to be a part of this year’s Bright Lights Conference.
I’ll be honest—between battling budget cuts and making the case for patents in front of Congress—it’s not every day I am in a room where patent-related awards are actually being given out! Or where there is appreciation for the value created by the patent system. But between honoring industries and companies having the most disruptive, market changing IP—Christopher Marlett, Jeanne Cantlay and the whole MDB Capital team have offered us today a unique, bird’s-eye view of both the high-value technologies and the high-growth investors, that will undoubtedly write the next chapter of 21st century American growth.
Together, both innovators and the investors, doers and makers, turn the wheels of our nation’s economic engine. Whether in a garage, a corporate research lab or at an academic institution— curiosity and an unquenchable thirst for knowledge inspires the research & development that gives us all faster ways to compute, new ways to communicate on-the-go, stronger treatments for our spring allergies and more sustainable energy solutions for generations to come.
But pivotal to driving that creative genius forward, and seeding the incentives to develop ever newer tools & technologies, is the support of venture capitalists (VC’s) of all stripes. Whether focusing on emerging markets, high-tech firms or green-technologies, your strategic investments, and the equity you’re able to leverage, are the bedrock of our innovation economy. They are the vehicles by which great ideas are ushered to the marketplace, new industries are established and new jobs are created.
Most fundamentally, your capital, motivated by business opportunity, turns ideas into products, enabling communities across the world to use these tools to build out new infrastructure and drive progress forward. This is especially critical because we stand at a crossroads in our country’s economic evolution. Determined to accelerate the pace of growth, government and business alike strive on a daily basis to do more while working with a limited pool of resources.
Moreover, in a single generation, revolutions in technology have transformed the way we live, work and do business. Manufacturing factories that once needed thousands of workers can now manage the same operations with just 100. And today, just about any company can set up shop, hire workers, and sell their products wherever there's an Internet connection. So yes, the dynamics of the global economy have changed, and the competition for jobs is real. But American exceptionalism has never been a birthright.
The growth potential and vitality of the United States has been, and continues to be, deeply rooted in the power of our hard work and cutting-edge innovation. This country was founded by pioneers who developed new ways to cope with an unfamiliar environment; who cured disease and connected a country; who led the world into the age of flight and who have toppled borders through the power of information technology. Time and time again the story of American growth is written by the daring drive of entrepreneurs. Your efforts, similar to the story of this country itself, represent a willingness to take a risk on a new cause, a new idea or a new invention. And those investments empower independent ventures to create 2 out of every 3 new jobs in our country.
Importance of IP Investments to VCs
But in order for cutting edge ideas to get to the marketplace in time to address social needs, and in order for businesses to sustain themselves—strong patent protection is critical. And this proves vital to both sides of the IP transfer equation.
- Innovators are able to leverage strong patent rights to safeguard their ideas, attract venture capital, fuel more R&D, license their products for a profit and stimulate markets.
- For investors, patents are indicators of market potential for new companies; they can be leveraged for major competitive advantage within an industry; they can provide certainty about a product in multiple jurisdictions and they allow your firms to maintain the exclusive rights to any and all returns on investment.
In our modern economy, it is increasingly clear that ideas and innovations—intellectual-based assets—are rapidly edging-out land, raw materials and labor as the engines of growth for companies around the world. While scientists and engineers will continue to drive intellectual property development, the management of intellectual assets, and the derivation of value from IP, is increasingly a strategic business issue that cannot be overlooked. That means for all companies gathered today: intellectual property is a strong, essential and vibrant asset class for any venture capital group.
Nothing underscores this reality more than the fact that, as technology evolves, industries that were once stand-alone, niche markets are becoming more and more cross-disciplinary. Historically, vaccines were biological, medical devices were mechanical and telecommunications were largely fiber optic. But that has changed and great new products are forging ahead by cutting across fields. Ground breaking tools of the present decade have one foot in neuroscience, another in software, and yet another in nano-technology.
These kinetic realities highlight the fact that many technologists are increasingly working at the seams of unchartered sciences and markets. Not only will scientists and start-up companies in these spaces look to strong patent protections to assist in navigating their cutting edge terrains; but investing in that IP, will place venture funds at the forefront of entirely new industries and at the helm of the investment returns those new industries generate. So while the technologies represented in this room today mark America’s 21st century capacity to out-innovate, out-hustle and out-build our economic rivals—we should also bear in mind that whether you’re on the product development side of the technology equation, or on the investment side, a strong IP portfolio strengthens bottom lines, stimulates markets and offers long-term economic gains.
As an example, analysis completed just last year by MIT’s Sloan School of Management shows that 86% of the VC-backed-companies in 2010 that were acquired or held an Initial Public Offering (IPO) maintained strong intellectual property assets. The study indicates that while a healthy IP position alone may not guarantee that a start-up company is going to be an overnight success, it is going be a whole lot harder for investment funds, management portfolios and technology companies to succeed if they do not have the competitive edge that patent rights bring to a product or an idea.
“Bottom lines” aside, it is also important to consider that any idea—no matter how novel, disruptive or groundbreaking—without clear and consistent IP protection effectively translates into a royalty free donation to the global labor arbitrage. And in a 21st century globalized economy, not only can innovations be hastily co-opted by our economic rivals, but the very production and manufacturing jobs they create will only spur a race to the bottom—rewarding those economies with the lowest wages and lowest labor standards.
This means that an environment ripe for development doesn’t just balance market competition and IP advantage—it hinges on technological access and business growth. That’s why, in order to optimize the ability of entrepreneurs to thrive, the United States Patent and Trademark Office is working in concert with the Obama Administration, to reduce barriers to business development, and accelerate success through the Startup America initiative.
To help incentivize and build long-term private sector partnerships, the Department of Commerce and the Small Business Administration are matching up to $2 billion for private funds that invest in early-stage R&D. This adds an extra layer of financial incentive to the investments you’re making in next-generation technologies, while also assisting small to medium size enterprises that find themselves with limited access to funding for their technologies.
Outside of federal matching grants, we also want to create more conduits between innovators and funders, and place those relationships directly in your hands. Conferences such as this go a long way in connecting high-potential newcomers, larger businesses and investors—so with efforts like the Bright Lights Conference in mind, we are working to host several “DC-to-VC” summits around the country this year. By gathering federal leadership, entrepreneurs, and early-stage-investors, emerging businesses can pitch their ideas to private funds, establish long-term relationships and ultimately use those networks as vehicles to expand market opportunities.
Moreover, we understand that venture capitalists want to know where an invention fits in the larger marketplace and how it compares with the technology available to potential competitors. That’s why the White House is also working to build an R&D Dashboard where research institutions and businesses can monitor ideas blossoming around the country in real time, track the stages of product development, and know when and where investments will be most effective.
Part of understanding the larger competitive landscape is a desire on the part of VC’s to minimize risks and maximize the advantage a patent can bring to both inventors and investors. That’s why a paramount priority of the United States Patent and Trademark Office (USPTO) has been a more simplified, clear and consistent process to acquire IP rights. President Obama, Secretary of Commerce Gary Locke and I have been working hard to build widespread, bipartisan support for comprehensive patent reform as is now under consideration in Congress.
The America Invents Act enhances our patent system by offering greater certainty about patent rights while also reducing the need for cost-prohibitive litigation, which all too often ties up ideas in the courts—stifling innovation and choking job creation. Ultimately, the bill will provide the most sweeping reforms to the US patent system in 60 years—arguably 150 years. Through this legislation, the PTO is empowered to retain the fees necessary to ensure high quality patent reviews.
And I really want to stress the importance of this—being able to retain and set fees is particularly critical because in a world where economic outcomes truly do turn on the quality and efficiency of patent review, adequate resources end up making the difference between: being able to run a USPTO that effectively turns ideas into jobs—or not. Passing this legislation gives us a chance to improve the quality of examinations without adding a dime to the deficit, while also allowing the USPTO to actually use your fee payments to do the job you’re paying us to do in the first place!
Moreover, with the appropriate resources to process patents in a shorter amount of time, you will be able to use those intellectual property rights as vehicles to leverage new sources of funding, for new ideas, faster. And in a globalized world, comprehensive patent reform will increase productivity by enabling greater cross-border work-sharing between the USPTO and other patent offices. This updated patent infrastructure also levels the playing field for small enterprises seeking to participate in the global marketplace—enhancing American competitiveness.
As this bill is currently under consideration in the US House of Representatives, let me be clear about one thing: completing patent reform is not about politics; it’s about ensuring that we are doing everything we can to create a more efficient IP system, lift your businesses, spur growth in America and out-innovate our economic competitors.
Last year, the United States Patent and Trademark Office was described in Harvard Business Review as the “biggest job creator you never heard of.” As our country seeks to regain the 8 million jobs lost during the recent recession, the USPTO is a great place to start. Countless inventions that can spark new businesses are right there—sitting in our backlog of about 700,000 unexamined patent applications. And reducing that backlog is one of our Administration’s priorities and my highest priority.
Beyond funding and a supportive intellectual property system, close collaborations and peer-to-peer partnerships are also essential for startups to learn best-practices and grow. Groups like YCombinator and The Founder Institute offer forums to test new ideas and tap into a network of professional support.
And that’s why Startup America is expanding entrepreneurship education through additional mentorship programs that grow networks of support between large companies, investors and your businesses.
In truth, what these government collaborations, startup initiatives, patent reform efforts and funding programs strive to do, is keep up with a new reality. Smart innovation and the infrastructure that makes it happen, writes the next chapter of American growth and tackles the generational challenges of our time. That’s why the USPTO is also proud to play a role in accelerating socially conscious technologies. Under our Green Technology Pilot Program, patent applications involving reduced greenhouse gas emissions, energy conservation and environmental quality are accelerated in their review. And at no cost to the inventor. By advancing a commitment to building a more sustainable energy future, the US Patent and Trademark Office is able to spur additional innovation and promote green collar jobs that provide our world with alternatives to harmful energy practices.
We’re also working towards launching a Humanitarian Pilot Program that will reward companies for using their patented technologies as philanthropic vehicles to heal the sick, feed the poor and inspire hope in communities all too often forgotten by the rest of the world. By leveraging intellectual property for the benefit of others, the USPTO is leading the charge in demonstrating that the US is not just the world’s Chief Global Competitor, but also its Chief Global Citizen.
One thing is apparent from all of you gathered in this room today: America is not lacking for groundbreaking ideas, nor are we short on entrepreneurs willing to take risks. What we need is to improve our ability at connecting our country’s great creators and thinkers, our doers and our makers. That’s why forums such as this are so essential. They allow us to better understand how to balance the IP equation, distribute technologies and capture funding—all while addressing specific barriers to growth that you face daily.
By working together we can topple those barriers. And we can address specific issues I know are important in moving technology from lab to marketplace. We can move forward together, and as we celebrate National Inventors Month in the month of May, let’s all assure one another that as government works towards smarter investments in our innovation infrastructure—inventors will continue unleashing their creative genius, and investors will leverage their business acumen to usher IP to the marketplace—sustaining a vibrant innovation value-chain.
And if amplified by good government policy, the current re-aligning trends can support one another to preserve American excellence in out-building, out-innovating and out-hustling our economic competitors.