[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]

FOSTERING THE U.S. COMPETITIVE EDGE:
EXAMINING THE EFFECT OF
FEDERAL POLICIES ON
COMPETITION, INNOVATION, AND JOB GROWTH

=======================================================================

HEARING

BEFORE THE

SUBCOMMITTEE ON TECHNOLOGY AND INNOVATION

COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY
HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

SECOND SESSION

__________

TUESDAY, MARCH 27, 2012

__________

Serial No. 112-71

__________

Printed for the use of the Committee on Science, Space, and Technology

Available via the World Wide Web: http://science.house.gov

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COMMITTEE ON SCIENCE, SPACE, AND TECHNOLOGY

HON. RALPH M. HALL, Texas, Chair
F. JAMES SENSENBRENNER, JR., EDDIE BERNICE JOHNSON, Texas
Wisconsin JERRY F. COSTELLO, Illinois
LAMAR S. SMITH, Texas LYNN C. WOOLSEY, California
DANA ROHRABACHER, California ZOE LOFGREN, California
ROSCOE G. BARTLETT, Maryland BRAD MILLER, North Carolina
FRANK D. LUCAS, Oklahoma DANIEL LIPINSKI, Illinois
JUDY BIGGERT, Illinois DONNA F. EDWARDS, Maryland
W. TODD AKIN, Missouri BEN R. LUJAN, New Mexico
RANDY NEUGEBAUER, Texas PAUL D. TONKO, New York
MICHAEL T. McCAUL, Texas JERRY McNERNEY, California
PAUL C. BROUN, Georgia TERRI A. SEWELL, Alabama
SANDY ADAMS, Florida FREDERICA S. WILSON, Florida
BENJAMIN QUAYLE, Arizona HANSEN CLARKE, Michigan
CHARLES J. ``CHUCK'' FLEISCHMANN, SUZANNE BONAMICI, Oregon
Tennessee VACANCY
E. SCOTT RIGELL, Virginia VACANCY
STEVEN M. PALAZZO, Mississippi VACANCY
MO BROOKS, Alabama
ANDY HARRIS, Maryland
RANDY HULTGREN, Illinois
CHIP CRAVAACK, Minnesota
LARRY BUCSHON, Indiana
DAN BENISHEK, Michigan
VACANCY
------

Subcommittee on Technology and Innovation

HON. BENJAMIN QUAYLE, Arizona, Chair
LAMAR S. SMITH, Texas DONNA F. EDWARDS, Maryland
JUDY BIGGERT, Illinois FREDERICA S. WILSON, Florida
RANDY NEUGEBAUER, Texas DANIEL LIPINSKI, Illinois
MICHAEL T. McCAUL, Texas BEN R. LUJAN, New Mexico
CHARLES J. ``CHUCK'' FLEISCHMANN, SUZANNE BONAMICI, Oregon
Tennessee VACANCY
E. SCOTT RIGELL, Virginia EDDIE BERNICE JOHNSON, Texas
RANDY HULTGREN, Illinois
CHIP CRAVAACK, Minnesota
RALPH M. HALL, Texas

C O N T E N T S

Hearing Date

Page
Witness List..................................................... 2

Hearing Charter.................................................. 3

Opening Statements

Statement by Representative Benjamin Quayle, Chairman,
Subcommittee on Technology and Innovation, Committee on
Science, Space, and Technology, U.S. House of Representatives.. 8
Written Statement............................................ 9

Statement by Representative Donna Edwards, Ranking Minority
Member, Subcommittee on Technology and Innovation, Committee on
Science, Space, and Technology, U.S. House of Representatives.. 10
Written Statement............................................ 11

Witnesses:

Mr. Ron Cohen, President and CEO, Acorda Therapeutics
Oral Statement............................................... 13
Written Statement............................................ 15

Mr. Mick Truitt, Vice President, Ludlum Measurements, Inc.
Oral Statement............................................... 28
Written Statement............................................ 31

Mr. Thomas M. Brandt, Jr., Senior Vice President and CFO,
Telecommunications Systems, Inc.
Oral Statement............................................... 47
Written Statement............................................ 50

Mr. Richard Bendis, Interim CEO, Biohealth Innovation, Inc., and
President and CEO, Innovation America
Oral Statement............................................... 63
Written Statement............................................ 66

Discussion 71

Appendix 1: Answers to Post-Hearing Questions

Mr. Ron Cohen, President and CEO, Acorda Therapeutics............ 83

Mr. Mick Truitt, Vice President, Ludlum Measurements, Inc........ 89

Mr. Thomas M. Brandt, Jr., Senior Vice President and CFO,
Telecommunications Systems, Inc................................ 93

Mr. Richard Bendis, Interim CEO, Biohealth Innovation, Inc., and
President and CEO, Innovation America.......................... 95

Appendix 2: Additional Material for the Record

TechAmerica: Technology Roadmap for America...................... 102

FOSTERING THE U.S. COMPETITIVE EDGE:
EXAMINING THE EFFECT OF
FEDERAL POLICIES ON
COMPETITION, INNOVATION, AND JOB GROWTH

----------

TUESDAY, MARCH 27, 2012

House of Representatives,
Subcommittee on Technology and Innovation,
Committee on Science, Space, and Technology,
Washington, DC.

The Subcommittee met, pursuant to call, at 10:15 a.m., in
Room 2318 of the Rayburn House Office Building, Hon. Benjamin
Quayle [Chairman of the Subcommittee] presiding.

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Chairman Quayle. The Subcommittee on Technology and
Innovation will come to order. Good morning. Welcome to today's
hearing entitled ``Fostering the U.S. Competitive Edge:
Examining the Effect of Federal Policies on Competition,
Innovation and Job Growth,'' which is being held to examine the
effect of federal policies on U.S. competitiveness and
innovation. In front of you are packets containing the written
testimony, biographies and Truth in Testimony disclosures for
today's witnesses. I now recognize myself for five minutes for
an opening statement.
Today's discussion is the fourth in a series focused on
advancing U.S. innovation in a constrained budget environment,
following hearings on cloud computing, startup companies, and
principles of effective standards development.
At the Committee on Science, Space, and Technology, we are
fortunate that we have the opportunity to influence the Federal
Government's investments in basic research, which can result in
game-changing innovations 10, 20, even 30 years down the line.
We also influence science education policy, helping to ensure
our Nation's future workforce remains competitive in the global
economy.
While these policy areas are vital to U.S. competitiveness
and innovation, there are several other policy areas that
affect our country's competitive standing.
These areas include taxes, regulation, trade, protection of
intellectual property, and human capital, among many others.
According to House Rule X, Clause 2(c): ``Each standing
committee shall review and study on a continuing basis the
impact or probable impact of tax policies affecting subjects
within its jurisdiction.''
As part of carrying out our oversight responsibilities, the
Committee reviews laws, programs, and government activities
that affect the country's competitiveness and innovation.
Therefore, as we hear a range of policy recommendations from
our witnesses today, it is imperative that we understand how
these many issues affect our Nation's economic competitive
position.
As of April 1, the United States will have the dubious
honor of having the highest marginal corporate income tax in
the industrialized world. This tax rate harms competitiveness
by taking money away from companies that could be better used
to conduct research, develop new innovations and create jobs.
And it encourages companies to look for more favorable business
environments abroad.
Policy uncertainty can also make private sector business
and investment decisions more difficult. For instance, the
Research and Development Tax Credit has expired 14 times since
it was first authorized under President Reagan in 1981. While
the Congress has repeatedly extended this credit, it generally
has not done so until the end of each year, adding a layer of
uncertainty to company investment decisions.
Excessive regulations and red tape increase the cost of
doing business and create uncertainty for private sector
companies. A study commissioned by the Small Business
Administration in 2008 calculated that small businesses faced
annual regulatory costs of $10,585 per employee. In the first
three years of the Obama Administration, the Federal Government
imposed 106 new major regulations with annual costs of more
than $46 billion. By piling on new hoops for employers to jump
through, we are simply increasing costs that are passed on to
consumers.
Finally, our country's deficit is projected to exceed $1
trillion for the fourth straight year, and our gross national
debt exceeds $15 trillion. This fiscal path is unsustainable.
It is bad for business, and it is just plain wrong. Clearly, we
must do better. As policy-makers, we need to foster an
environment that allows U.S.-based innovators to compete and to
flourish. We should enact policies that ensure this country
remains the best place to launch or expand a business.
Today, we will be examining how federal policies and
regulations affect competition, innovation and job growth and
we will be hearing recommendations from leaders of innovative
companies and technology transfer organizations on ways to
improve federal economic and regulatory policy.
We thank our witnesses for being here today, and we look
forward to your testimony.
At this time, I am going to submit for the record Tech
America's Technology Roadmap for America. Without objection, so
ordered.
[The prepared statement of Mr. Quayle follows:]

Prepared Statement of Subcommittee Chairman Benjamin Quayle

Good morning, I'd like to welcome everyone to today's hearing,
which is being held to examine the effect of federal policies on U.S.
competitiveness and innovation.
Today's discussion is the fourth in a series focused on advancing
U.S. innovation in a constrained budget environment, following hearings
on cloud computing, start-up companies, and principles of effective
standards development.
At the Committee on Science, Space and Technology, we are fortunate
that we have the opportunity to influence the Federal Government's
investments in basic research, which can result in game-changing
innovations 10, 20, even 30 years down the line. We also influence
science education policy, helping to ensure our Nation's future
workforce remains competitive in the global economy.
While these policy areas are vital to U.S. competitiveness and
innovation, there are several other policy areas that affect our
country's competitive standing.
These areas include taxes, regulation, trade, and protection of
intellectual property and human capital, among many others. According
to House Rule X, Clause 2(c) ``Each standing committee shall review and
study on a continuing basis the impact or probable impact of tax
policies affecting subjects within its jurisdiction . . . .''
As part of carrying out our oversight responsibilities, the
Committee reviews laws, programs and government activities that affect
the country's competitiveness and innovation. Therefore, as we hear a
range of policy recommendations from our witnesses today, it is
imperative that we understand how these many issues affect our Nation's
economic competitive position.
As of April 1, the United States will have the dubious honor of
having the highest marginal corporate income tax in the industrialized
world. This tax rate harms competitiveness by taking money away from
companies that could be better used to conduct research, develop new
innovations and create jobs, and it encourages companies to look for
more favorable business environments abroad.
Policy uncertainty can also make private sector business and
investment decisions more difficult. For instance, the Research and
Development Tax Credit has expired 14 times since it was first
authorized under President Reagan in 1981. While the Congress has
repeatedly extended this credit, it generally has not done so until the
end of each year, adding a layer of uncertainty to company investment
decisions.
Excessive regulations and red tape increase the cost of doing
business and create uncertainty for private sector companies. A study
commissioned by the Small Business Administration in 2008 calculated
that small businesses faced annual regulatory costs of $10,585 per
employee. In the first three years of the Obama Administration, the
Federal Government imposed 106 new major regulations with annual costs
of more than $46 billion. By piling on new hoops for employers to jump
through, we are simply increasing costs that are passed on to
consumers.
Finally, our country's deficit is projected to exceed $1 trillion
for the fourth straight year, and our gross national debt exceeds $15
trillion. This fiscal path is unsustainable. It's bad for business, and
it is wrong.
Clearly, we must do better.
As policy makers, we need to foster an environment that allows
U.S.-based innovators to compete and to flourish. We should enact
policies that ensure this country remains the best place to launch or
expand a business.
Today, we will be examining how federal policies and regulations
affect competition, innovation and job growth and we will be hearing
recommendations from leaders of innovative companies and technology
transfer organizations on ways to improve federal economic and
regulatory policy.
We thank our witnesses for being here today and we look forward to
your testimony.

Chairman Quayle. I now recognize the gentlelady from
Maryland, Ms. Edwards, the Ranking Member, for her opening
statement.
Ms. Edwards. Thank you very much, Mr. Chairman, and thank
you for calling this hearing on competition, innovation, and
job growth. This hearing is an important follow-up to one that
we held back in November on small business creation.
I am pleased that we are taking an in-depth look at these
issues as we seek to identify the best federal policies for
fostering innovation and job growth and preserving our
competitive edge in the global economy. And I thank the
witnesses for being here today.
Without a doubt, regulatory, tax, immigration, and economic
policies have an unquestionable impact on innovation and
competitiveness. And there are important steps that we can and
should take in Congress to address these issues, including
policies that I have long advocated, such as increasing and
making permanent the research and development tax credit and
providing incentives for businesses to co-locate their research
and development and manufacturing activities here in the United
States.
In addition, I am strongly supportive of efforts by
policymakers and business leaders in my home State of Maryland
to enact a measure to make more companies eligible for the
State's biotech investment tax credit and to streamline the
application process, aiding countless small- and medium-sized
businesses.
Locally, in Montgomery County, which I represent along with
Prince George's County, the biotech investment tax credit, the
first such program at the local level anywhere in the country
and modeled after the State's program, has helped facilitate
nearly $6 million in local investment for a number of local
biotech companies. These are very promising programs that ought
to be replicated elsewhere.
However, for our purposes of today's hearing and despite my
advocacy for some issues that do not fall under this
Committee's jurisdiction, I think it is most worthwhile for us
to focus on the areas and programs within our committee's
jurisdiction, and these can have an important impact on
innovation and competitiveness.
We have legislative authority over many programs throughout
the Federal Government that are seeking to partner with the
private sector, State and local governments, academia, and
others to promote innovation- and technology-based economic
development. For example, in the America COMPETES
Reauthorization Act of 2010, we authorized the Office of
Innovation and Entrepreneurship and the regional innovation
strategies program at the Economic Development Administration.
These programs are up for reauthorization next year. I think it
would be a valuable use of our time to check in on the progress
of these programs and to hear from our witnesses today about
how they might be improved, enhanced, or expanded.
The truth is that there is much that can be done in the
area of regional innovation beyond the critical aspect of
creating linkages between and amongst the various stakeholders
in a region. There are interesting ideas involving shared
facilities, collaborative research and development, and
commercialization that we ought to be exploring in an effort to
enhance regional innovation and economic development. That is
why I am particularly pleased that Mr. Bendis is joining us
today as a witness. I am very interested in the BioHealth
Innovation initiative, and I am very supportive of efforts to
formalize and accelerate development of a biotechnology cluster
in the Central Maryland region. We have extraordinary and
unparalleled biotech assets in Central Maryland that can be and
ought to be leveraged to make the region a truly global force
in biotechnology.
In addition to EDA's efforts with respect to regional
innovation and economic development, there are also some very
relevant, White House-led policies under way that deserve some
examination and review. These include the President's Public-
Private Start-Up America initiative and his recent efforts to
enhance and improve technology transfer from our federal labs.
We have jurisdiction in this committee over these programs
and policies, and we should make the effort to evaluate their
effectiveness to determine if there are steps that we could
take by legislatively strengthening or improving them.
I think it would also be worthwhile for us to take a
serious look at what is going on with our international
competitors. Other countries, including Germany, Singapore, and
China, are pouring significant amounts of money into programs
to spur innovation and are trying out some interesting new
models. We should seek to better understand these models, the
lessons learned and the best practices, and explore the
possibility of piloting some of them here in the United States.
I look forward to hearing from our witnesses today and hope
we have an opportunity to touch on some of these important
issues, and I yield the balance of my time.
[The prepared statement of Ms. Edwards follows:]

Prepared Statement of Ranking Minority Member Donna Edwards

Mr. Chairman, thank you for calling this hearing on competition,
innovation, and job growth. This hearing is an important follow-up to
the hearing we held back in November on small business creation. I'm
glad that we are taking an in-depth look at these issues as we seek to
identify the best federal policies for fostering innovation and job
growth and preserving our competitive edge in the global economy. And
thank you to the witnesses for being here.
Without a doubt, regulatory, tax, immigration, and economic
policies have an impact on innovation and competitiveness. And there
are important steps that we can--and should--take in Congress to
address these issues, including policies that I've long advocated such
as increasing and making permanent the R & D tax credit and providing
incentives for businesses to co-locate their research and development
and manufacturing activities here in the United States.
In addition, I'm strongly supportive of efforts by policymakers and
business leaders in my home state of Maryland to enact a measure to
make more companies eligible for the State's biotech investment tax
credit and streamline the application process, aiding countless small-
and medium-sized businesses. Locally, in Montgomery County, which I
represent along with Prince George's County, the biotech investment tax
credit--the first such program at the local level anywhere in the
country and modeled after the State's program--has helped facilitate
nearly $6 million in local investment for a number of local biotech
companies. These are very promising programs that ought to be
replicated elsewhere.
However, for our purposes today, I think it is most worthwhile for
us to focus on those areas and programs within our Committee's
jurisdiction that have an impact on innovation and competitiveness. We
have legislative authority over many programs throughout the Federal
Government that are seeking to partner with the private sector, State
and local governments, academia, and others to promote innovation- and
technology-based economic development. For example, in the America
COMPETES Reauthorization Act of 2010, we authorized the Office of
Innovation and Entrepreneurship and the regional innovation strategies
program at the Economic Development Administration.
These programs are up for reauthorization next year. I think it
would be a valuable use of our time to check in on the progress of
these programs and hear from our witnesses how they might be improved,
enhanced, or expanded.
The truth is that there is much that can be done in the area of
regional innovation beyond the critical aspect of creating linkages
between and amongst the various stakeholders in a region. There are
interesting ideas involving shared facilities, collaborative research
and development, and commercialization that we ought to be exploring in
an effort to enhance regional innovation and economic development.
That is why I am particularly pleased that Mr. Bendis is joining us
today as a witness. I am very interested in the BioHealth Innovation
initiative and am very supportive of efforts to formalize and
accelerate the development of a biotechnology cluster in the central
Maryland region. We have extraordinary and unparalleled biotechnology
assets in central Maryland that can be, and ought to be, leveraged to
make the region a true global force in biotechnology.
In addition to EDA's efforts with respect to regional innovation
and economic development, there are some very relevant White House-led
policies underway that deserve some examination and review. These
include the President's Public-Private Start-Up America initiative and
his recent efforts to enhance and improve technology transfer from our
federal labs. We have jurisdiction over these programs and policies,
and should make the effort to evaluate their effectiveness and
determine if there are steps that we could be taking legislatively to
strengthen or improve them.
I think it would also be worthwhile for us to take a serious look
at what's going on with our international competitors. Other countries,
including Germany, Singapore, and China, are pouring significant
amounts of money into programs to spur innovation and are trying out
some interesting new models. We should seek to better understand these
new models, the lessons learned and the best practices, and explore the
possibility of piloting some of them in the United States.
I look forward to hearing from our witnesses today, and hope that
we will have an opportunity to touch on some of these important issues.
I yield back the balance of my time.

Chairman Quayle. Thank you, Ms. Edwards. If there are
Members who wish to submit additional opening statements, your
statements will be added to the record at this point.
At this time, I would like to introduce our witnesses, and
then we will proceed to hear from each of them in order.
Our first witness is Dr. Ron Cohen, President and CEO of
Acorda Therapeutics. In his current position, he oversees a
public biotechnology company aimed at bettering the lives of
those afflicted with a variety of neurological conditions. Next
we will hear from Mr. Mick Truitt, Vice President of Ludlum
Measurements, Inc. In this capacity, Mr. Truitt has dealt with
the extensive growth in the international markets. Our third
witness is Mr. Thomas Brandt, Jr., who is the Senior Vice
President and Chief Financial Officer of TeleCommunications
Systems, Inc., a wireless technology solutions provider. Mr.
Brandt is also here on behalf of TechAmerica, an association of
diverse U.S. technology companies. Our fourth witness is Mr.
Richard A. Bendis, the Interim CEO of BioHealth Innovation,
Inc., and President and CEO of Innovation America. These
current roles allow Mr. Bendis to lead two innovation
intermediaries which help bring together the range of
organizations and knowledge necessary to spur innovation.
Thanks again to all of our witnesses for being here this
morning.
As our witnesses should know, spoken testimony is limited
to five minutes each. After all witnesses have spoken, Members
of the Committee will have five minutes each to ask questions.
I now recognize our first witness, Dr. Ron Cohen, for five
minutes.

STATEMENT OF DR. RON COHEN,

PRESIDENT AND CEO, ACORDA THERAPEUTICS

Dr. Cohen. Chairman Quayle and Ranking Member Edwards,
Members of the Committee, it is my privilege to be here today
to discuss ways to foster biomedical innovation in the United
States.
My name is Ron Cohen and I am the President, CEO, and
founder of Acorda Therapeutics, Inc. I have over 25 years of
experience in the biotechnology industry, and I am appearing
before this Committee on behalf of the Biotechnology Industry
Organization, or BIO, where I serve as Chairman of the Emerging
Companies section of the Board.
Acorda is a small biotechnology company located in
Hawthorne, New York. I founded the company in 1995 with one
mission, to develop therapies that could restore neurological
function to people with multiple sclerosis, spinal cord
injuries, and other conditions that affect the nervous system.
In 2010, after 15 years of effort, we obtained FDA approval
for Ampyra, a drug that improves walking in people with MS, a
significant improvement in a basic function that affects the
lives of MS patients.
Our company went public in 2006, and today we employ over
330 people who are working on a pipeline of innovative
medicines that could be transformative in the lives of patients
afflicted with these terrible diseases.
America has developed more cures and breakthroughs than any
other country. However, this position will not be sustained
without a concerted policy focused on supporting and
incentivizing the next frontiers of biomedical discoveries,
treatments, and cures. Unfortunately, investors are now
decreasing their funding in early-stage companies, such as
ours, developing potential medical breakthroughs. Even as we
are decreasing our investment in early-stage biotechnology in
the United States, we are facing unprecedented competition from
around the globe to be the leader in biomedical research. In
2008, China pledged to invest $12 billion in drug development,
and in 2011, the Chinese government named biotechnology as one
of seven industries that will receive $1.7 trillion in
government funding over the next five years. The competitive
gap is getting smaller.
The U.S. biotechnology industry is poised to be a major
driver in an innovation-driven economy, and we offer real
solutions to our most pressing healthcare needs: curing
diseases, reducing costs, increasing quality, and ensuring that
people enjoy not only longer lives but better and more
productive lives. In fact, today the Nation's biotechnology
industry employs 1.42 million people and supports an additional
6.6 million jobs.
In order to truly realize these potential benefits, we must
have a policy environment that fosters innovation. My written
testimony discusses five policy areas that would better enable
us to do this. For my oral testimony today, I want to focus on
two areas, tax policy and regulatory environment.
In the past, Congress has provided tax incentives that
mitigate risk and enhance the returns of innovative development
projects like those found in our companies. The growth of the
industry in the early 1980s was due in part to the ability of
growing companies to pass through various tax incentives,
including credits and losses, to their investors. This
sponsored and promoted a great deal of investment in the
industry. Allowing certain tax incentives stemming from R&D to
flow through life science projects to their investors would
result in immediate tax benefits to investors and encourage
further investment.
On the regulatory front, we need to have a strong
successful FDA and a transparent FDA. It is imperative that the
FDA have the resources that it needs. In 1992, Congress,
industry, and the FDA created the PDUFA, or the Prescription
Drug User Fee Act. This ensured that the FDA would have the
wherewithal to hire the reviewers it needed, to expedite the
drug development process. And this year, the fifth
reauthorization of that very successful program is up for
renewal, PDUFA V. This PDUFA V legislation will further
streamline the activities of the FDA, and I encourage Congress
to pass that.
In addition, Congressmen Stearns' and Townes' Faster Access
to Specialized Therapies Act, or the FAST bill, would create a
robust, accelerated approval pathway that would enable the safe
and expeditious development of the next generations of modern
medicines. I encourage passage of the FAST Act and the benefits
that will accrue from it.
Thank you very much for the opportunity to speak to you
today.
[The prepared statement of Dr. Cohen follows:]

Prepared Statement of Dr. Roy Cohen

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Mrs. Biggert [presiding]. Thank you, Dr. Cohen. Mr. Truitt,
you are recognized for five minutes.

STATEMENT OF MR. MICK TRUITT,

VICE PRESIDENT, LUDLUM MEASUREMENTS, INC.

Mr. Truitt. Chairman, Ranking Member Edwards and
distinguished Members of the House Subcommittee on Technology,
thank you for the opportunity to testify today.
My name is Mick Truitt, and I'm the Vice President of
Sales, Marketing, and Business Development for Ludlum
Measurements, Inc., a mid-sized company located in Sweetwater,
Texas, a town of 11,000 people. I am here today to testify on
behalf of the U.S. Chamber of Commerce, where I serve on the
Corporate Leadership Advisory Council.
For over 50 years now, Ludlum has manufactured radiation
detection equipment. We are recognized internationally for our
reliable equipment, excellent customer service, and fair
pricing. When disaster struck last year in Japan, Ludlum was
one of the first in line to work hand in hand with the
companies and people to help meet their needs. We continue to
support the efforts being taken for cleanup and to ensure
people's safety.
Mr. Don Ludlum, the Founder and the President, was 29 years
old when he started the company and today is still a very
active participant in the business as the Company President.
But most days, you won't find him in his business office. You
will find him in Engineering, working on the next new design
that Ludlum will present to the world. He told me not long
after I started there that a company is either growing or
dying. You can never just be standing still. That is even truer
today in this global economy than it was on Valentine's Day in
1962 when Ludlum first incorporated.
Why Sweetwater? Simple economics. The people were friendly,
and the bank was willing to take a chance on this 29-year-old
and his idea of building a company. Now Ludlum employs 450
people in Nolan County and is the area's largest employer. Mr.
Ludlum always liked the idea of keeping work in house, so when
he needed more capacity, he built it internally, from making
our own printed circuit boards to a full machine shop and
plastic injection molding facility to specialized divisions
that develop and manufacture both photomultiplier tubes and
organic scintillator material that collects the radiation
energy and turns it into an electronic signal that can be
measured.
Ludlum has a staff of over 30 highly qualified engineers to
make sure we stay up to date with our products. It is never an
easy task to convince a young engineer that they should move to
a small town in West Texas, and sometimes the best-qualified
engineers are from outside of the United States. This is where
the complications really begin.
Yes, our Nation's immigration laws impact the business
community everywhere in this country and not just the major
household name companies and the titans of American industry.
Four years ago, when we were interviewing for an
engineering position, we had a very bright young electrical
engineer who had graduated with honors and had then gone on to
get his Masters of Business Administration from the University
of Texas. At that time, there were only three manufacturers of
photomultiplier tubes in the world. He had worked for four
years with one of them. This was almost too good to be true,
but there was a snag. He was a Mexican citizen. It seemed that
since his professional skill set was a perfect match for our
needs, that the immigration process would be straightforward.
However, to date, it has cost our West Texas company over
$17,000 in government fees and legal services to obtain and
maintain lawful status for him. We are sponsoring this key
employee for permanent resident status, but the green card
process will take many more years to complete.
Meanwhile, as a direct result of this hire, we have
expanded our sales and distribution in Central and South
America from a little over $200,000 to over $1 million
annually.
In 2007, Ludlum acquired a company in the United Kingdom
just outside of London. As this group grew, it became apparent
we would need to expand our operation, but we wanted to expand
here in the United States and not in the U.K. To do this,
specialized equipment had to be purchased or manufactured. Once
this manufacturing equipment was in place, Ludlum would need a
highly skilled, qualified production engineer familiar with
photomultiplier tube production to get the equipment up and
operating and to train people to operate the equipment and test
the end product. As this is a highly specialized market, there
are few people in the world that could do this. Unable to find
anyone locally, we depended upon our past experience of the
people in the U.K. Instead of focusing on the fact that we had
just completed a corporate acquisition, where it should be
expected or at least acceptable for us to access our newly
acquired staff and technology, we were faced with immigration
delays. Three months and $7,000 later, we finally were able to
bring an appropriate engineer over on a regular basis to manage
all the production line at our Sweetwater facility. This
operation now employs another 20 Americans.
Ludlum Measurements now has only one competitor in the
photomultiplier tube business, and you may have heard of this
company. It is Hamamatsu. It would be impossible to compete in
these global markets without engineers like these two, no
matter where they come from.
I am running behind. Another barrier to innovation and
investment for our company is the uncertainty and potential
increases of the individual marginal income tax rates. Ludlum
is structured as a subchapter S corporation, which means that
profits are passed through to the shareholders in the form of
distributions and taxed at the individual's rate of income. It
also means the rate of return on any reinvestment on those
profits retained by the company will be impacted by the
individual rate. As we attempt to plan for future long-term
growth and expansion or paying off the principal on existing
debt, individual marginal income tax rates do matter. Moreover,
the uncertainty of whether those rates are dramatically
increased at the end of this year or will be extended instills
yet another layer of risk in the growth and investment
decision-making process.
In conclusion, the decisions you make can help or hinder
us. By that, I mean the laws you create will either cultivate a
climate that provides small- and mid-sized business owners
greater confidence and certainty to invest, innovate, grow, and
generate new jobs or one that does just the opposite. We
desperately need elected officeholders who are on the right
side of the debate and are willing to lead. I served in the
United States Navy for 20 years and traveled the world aboard
nuclear submarines. Between my military and business
experience, I have been exposed to numerous countries and
cultures around the globe. I am incredibly proud to be an
American and strongly believe this Nation is still the greatest
place to live and do business.
Thank you for the opportunity to testify, and I look
forward to your questions.
[The prepared statement of Mr. Truitt follows:]

Prepared Statement of Mr. Mick Truitt

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Mrs. Biggert. Thank you, Mr. Truitt. Mr. Brandt, you are
recognized for five minutes.

STATEMENT OF MR. THOMAS M. BRANDT, JR.,

SENIOR VICE PRESIDENT AND CFO,

TELECOMMUNICATIONS SYSTEMS, INC.

Mr. Brandt. Thank you. Mr. Chairman, Ranking Member
Edwards, Members of the Subcommittee, I am Tom Brandt, Chief
Financial Officer of TeleCommunications Systems, an
entrepreneur-led, Annapolis, Maryland-based wireless
communication technology business, which now employs about
1,500 professionals and holds more than 200 patents. I am also
here before you today representing TechAmerica, the Nation's
leading technology advocacy organization representing over
1,000 U.S. companies committed to innovation. In my testimony
today, I will share TechAmerica's insights on some policy areas
where Congress can act to help advance America's innovation
economy.
TechAmerica has been working to advance a competitiveness
agenda for U.S. policy since collaborating with Leader Pelosi
and others in 2005 when we published ``Losing the Competitive
Advantage: The Challenge for Science and Technology in the
United States.'' My hope is that these latest recommendations
will help to inform public discussion and facilitate meaningful
debate toward a national technology vision and strategy.
The best hope for the United States to maintain its edge in
an increasingly competitive world is by fostering and expanding
our most prized intellectual asset, innovation. Over the past
30 years, innovation has given the United States and the rest
of the world wave after wave of technological advancement and
generated millions of high-skilled jobs. On average, each
technology job supports three jobs in other sectors of the
economy. The multiplier effect for information technology jobs
is even higher, nearly five to one.
Information technology has a proven track record of
economic success having recently accounted for more than a
third of U.S. gross domestic product growth and nearly two-
thirds of corporate capital investment.
Access to capital, strong basic research, the best and
brightest minds, and an infrastructure that supports the
entrepreneur are four key elements that have allowed the United
States to thrive on the basis of innovation.
Foreign governments, however, are increasingly aggressive
in promoting favorable tax policies, improving their legal
accounting/intellectual property structures, and boosting their
R&D spending to foster innovation in their countries. The
United States needs to meet the challenge of foreign
competitors or risk losing our edge. To maintain our Nation's
competitive advantage, we must update public policy to support
what has made us successful: improving access to capital with
smart tax policies, increasing support for our basic R&D,
improving math and science education, and supporting
immigration and opening new markets.
One of the greatest challenges facing new start-up
companies is gaining access to enough capital to get off the
ground in the early years and then fueling growth without
prematurely ceding control to a bigger, less entrepreneurial
owner.
About 25 years ago, my employer started up our company with
his wife and a childhood friend. Critical steps in growing our
company were venture capital investment followed by our IPO 12
years ago. We now employ about five times the 295 employees in
our 2000 prospectus, and we were very fortunate to raise our
capital shortly before changes in the environment sharply
raised the bar on access to such capital for similar stage
companies.
Reduced obstacles to investor capital for small growth
companies can make a major difference. The United States also
needs to reform the income tax code. Other nations have
adjusted their codes to incentivize innovation, attract
investment, and enhance the competitiveness of companies within
their borders. In just days, the United States will lead the
world with the highest corporate tax rate. We need to change
that. The R&D tax credit is a modest but Byzantine provision
that can help incentivize innovation, but it expired again in
2011. The United States needs to make it stronger and make it
permanent. The last major corporate tax reform took place 25
years ago, long before many of today's U.S. technology-based
companies were even in existence. TechAmerica looks forward to
working with Congress and the Administration on ways to
modernize the tax code.
The government has a critical role in the area of basic
research. From this pipeline of advances in information
technology, life sciences, and now clean energy, technology
enterprises have historically drawn many innovations. Often,
early-stage research into new discoveries is first funded with
federal dollars in a university or government lab and then
commercialized by angel or venture investors.
Prudent application of intellectual property laws can have
an important impact on services to the public. For example, I
am confident that all here recognize the importance of 911
technology, a vital national service that protects the lives
and property of every American and of which my company is a
provider. Today 911 is threatened by what the Federal Trade
Commission has termed patent assertion entities. These
companies have increasingly focused on government-mandated 911
services by wireless carriers as proof of infringement with
significant financial consequences to both the carriers and
their 911 vendors. I encourage you to investigate and resolve
the 911 patent problem before it irreparably harms America's
safety and security by disrupting the 911 system.
In addition to supporting basic research, government must
also support the entrepreneurial and technical talent that
brings this research to life. TechAmerica wholeheartedly
supports investing to improve math and science education for
U.S. students, particularly in grades K through 12. Other
countries have been devoting more resources to STEM education
for some time.
It is also critical that we reduce obstacles to the best
and brightest scientists and entrepreneurs from all over the
world who want to come to the United States. The U.S. high-tech
industry and the 5.9 million workers that it employs rely on
international trade and investment for continued growth,
innovation, and job creation. Encouraging international trade
buoys our GDP, enhances productivity and boosts the ability of
small businesses to innovate and create good U.S.-based jobs.
In conclusion, the technology industry remains committed to
doing our part to ensure that the United States remains the
leader in the innovation race, but we need the right policies
in place. TechAmerica looks forward to working with Members of
this Committee, Congress, and the Administration to support the
best and brightest ideas that continue to fulfill a robust
pipeline of innovation for our country. I thank the Committee
for this opportunity to discuss these issues with you today,
and I am happy to answer questions.
[The prepared statement of Mr. Brandt follows:]

Prepared Statement of Mr. Thomas M. Brandt, Jr.

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Chairman Quayle. Thank you, Mr. Brandt. I now recognize our
final witness, Mr. Richard Bendis, for his testimony.

STATEMENT OF MR. RICHARD BENDIS, INTERIM CEO,

BIOHEALTH INNOVATION, INC., AND

PRESIDENT AND CEO, INNOVATION AMERICA

Mr. Bendis. Thank you, Mr. Chairman. Chairman Quayle, and
Ranking Member Edwards----
Chairman Quayle. Is your mic on?
Mr. Bendis. Thank you for the opportunity to testify before
the Committee today. My name is Rich Bendis, and I am President
and CEO of BioHealth Innovation, Inc. It is a private-public
partnership that is predominantly funded by the private sector
to foster biohealth innovation-based economic development and
is a unique cluster-based model for regional economic
development. This initiative could be used as a model program
regardless of industry or cluster strength.
BHI is the first regionally focused innovation intermediary
created to connect the university and hospital biohealth
research strengths of Baltimore with the bioscience industry
and federal laboratory strengths of Montgomery County. It has
entered into a Partnership Intermediary Agreement with the
National Institutes of Health's Office of Technology Transfer
and has created the first private-sector funded Entrepreneur in
Residence program to identify commercializable science in the
27 institutes of NIH. This program will create new project-
based companies and high-paying life science jobs. BHI believes
this EIR program is applicable to many federal agencies that
have technology transfer offices and support SBIR programs.
BHI has designed a potential national pilot, the Health-
Regional Innovation Cluster, H-RIC, model, which will
incorporate the best innovation-based economic development
practices in the United States and integrate them into one
region in Central Maryland. BHI is currently seeking federal
financial support from several relevant federal agency partners
to accelerate the creation and implementation of this
innovative biohealth H-RIC model.
Over the past 35 years, I have developed and led
innovation-based technology organizations in Kansas,
Pennsylvania, and currently in Maryland. I also worked as
consultant in many States and countries to help them with their
programs. For example, Iowa's Innovation Council was the
recipient of the Economic Development Agency, EDA's, 2011 i6
Proof of Concept Challenge Grant, and Innovation Philadelphia
was the recipient of multiple grant awards by EDA's Public
Works Grant program. These grants enabled the innovation-based
strategies to be successfully developed and implemented within
these States and regions.
I have also partnered and served as a member of the United
States Innovation Partnership, which was formed by the
Technology Administration of the U.S. Department of Commerce
under the Clinton Administration.
The America Competes Reauthorization Act of 2010
established the Office of Innovation and Entrepreneurship with
its National Advisory Committee on Innovation and
Entrepreneurship, and this was created to serve as the central
location and focal point for these activities to foster
interagency cooperation. I believe this should remain a
priority for the U.S. Government, but it needs to have higher
Administration and congressional visibility and empowerment to
lead the innovation strategy for the Federal Government and
America.
The Department of Commerce and EDA should still continue to
lead this initiative, but it needs a senior official who is
empowered, fully budgeted and staffed office with clear
responsibilities, and measurable outcomes. An earlier version
of this office was created as the Technology Administration
Office within the Department of Commerce under the Clinton
Administration and had Undersecretary Dr. Mary Good leading the
office. It was the closest we came to having an empowered
technology and innovation coordinating body for the Federal
Government.
Today's theme, ``Examining the Effect of Federal Policies
on Competition, Innovation, and Job Growth,'' needs to commence
at the regional level where job creation occurs. It needs to
link the economically distressed regions together with stronger
regions to develop the much-needed jobs from the laboratories
to the market, similar to the i6 program that EDA had created.
EDA and the Department of Commerce need additional flexibility
in their program design and implementation, as every region in
the United States has their unique assets, strengths and needs.
There are several positive programs that affect the federal
policies on competition, innovation, and job growth. The
following are examples that have helped mitigate the risk of
those companies facing the valley of death in commercialization
or capital.
Number one, I applaud the SBIR reauthorization, but there
is a need for a Phase III commercialization award category,
especially in high-capital industries such as biotechnology and
energy that require extensive R&D investment.
Second, the National Institutes of Standards, NIST,
Technology Innovation Program, TIP, was effective and was not
corporate welfare as perceived, since it brought together large
and small companies and universities to tackle high-risk
mission-critical technology innovation projects that no other
federal program addressed. TIP needs to be reinstated because
it fills a critical gap in the innovation funding continuum.
Continued support and growth of the Manufacturing Extension
Partnership, MEP, is an excellent example of how the Federal
Government, States and the private sector can all work together
to tackle major challenges in our economy, especially in
manufacturing.
We need to create an early-stage seed jobs fund--of--funds
to address the innovation capital valley of death that would
complement the expanded Small Business Investment Company,
SBIC, program that has really taken off this year.
A national angel capital credit program to stimulate
private early-stage investment in high-risk, early-stage
ventures funded by private individuals is also something that
America needs to create. Thirty States have programs with angel
capital tax credit programs today.
I agree with the permanent reauthorization of R&D tax
credit, and we should also add a transferability component to
the R&D tax credit.
Lastly, we need an expansion of the Treasury program, New
Markets Tax Credit, for venture capital investment, especially
in early-stage companies and an expansion of the new State
Small Business Credit Initiative, SSBCI, that would increase
the percentage of allocation to seed and early-stage venture
capital.
Thank you much for the ability to make this testimony, and
we will stand for questions now. Thank you.
[The prepared statement of Mr. Bendis follows:]

Prepared Statement of Mr. Richard Bendis

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Chairman Quayle. Thank you, Mr. Bendis, and I would like to
thank all of our witnesses for their testimony today.
Reminding Members, the Committee rules limit questioning to
five minutes. The Chair at this point will open the round of
questions, and I will recognize myself for five minutes.
Mr. Truitt, within your testimony you stated that there is
absolutely no doubt that tax policy, both the burden and the
uncertainty, impacts competitiveness. This includes uncertainty
with the R&D tax credit as well as tax rate increases. In fact,
there are over about 200 federal tax provisions that are
scheduled to expire between 2010 and 2020. These policies
really affect the ability for businesses to grow with research
projects that are budgeted and planned for a three- to five-
year basis. How does uncertainty really reduce the ability to
map out a business plan for future innovation and investment?
Mr. Truitt. I am not really a tax expert, but what I can
tell you is that we always have to look at what resources we
have available, both in people and in money, when we look at
how our map goes forward and how we produce or develop new
products. When we do that, you know, a new product that may
have some real research to it, instead of just development to
it, where we have to go in and take some real risk to it, we
may not be able to take that risk if we don't have this R&D tax
credit to go along with it.
Chairman Quayle. Okay. Thank you. And Mr. Brandt, kind of
along those same lines, there has been a lot of talk about
simplifying the tax code, especially on the corporate side,
reducing the number of deductions and tax credit within the
system to get a lower rate. Would you be willing to give up
something like the R&D tax credit for a lower rate at the
corporate level?
Mr. Brandt. Well, speaking for myself and as a financial
officer, certainly the cost of compliance with the complex code
helps to offset the benefits of something like the R&D credit.
The R&D credit is somewhat focused insofar as being an
incentive for technology innovative companies to have a little
bit more resources than they otherwise would to reinvest in
development activities they wouldn't otherwise have the funds
for.
So I happen to be a big advocate for greater simplicity,
speaking as a guy who has to ensure those forms get completed
accurately and has to sign them.
Chairman Quayle. Yes, we want to make your job easier. But
true to course, I think there is, you know, broad agreement on
both sides of the aisle on the importance of government-
supported basic research. However, I do get concerned about
excessive technology transfer funding by the Federal Government
that can lend itself to picking winners and losers.
What do you view, Mr. Brandt, as the appropriate use of
federal funding versus industry funding in tech transfer
programs?
Mr. Brandt. My observation is they are symbiotic. My
company in part owes its legacy to DARPA and the investments
that went into enabling the Internet and the connectivity that
has then in turn led to the wireless industry and the broadband
technology that benefits society in a lot of ways. So I like to
think it is not an ``or'' but an ``and,'' and I am sure there
is lots of judgment as to where the balance is. But I see
benefits from both.
Chairman Quayle. Dr. Cohen, do you have any thoughts on
where it lies within tech transfer, whether on the federal
involvement versus the private sector involvement?
Dr. Cohen. It is a combination, as I think we are hearing
from the other witnesses. Clearly, I believe most of the drive,
the innovation, and the funding has to come from the private
sector, but there is a time when having a kick start or a
balance provided from government funding can be very helpful.
In the case of my company, which I started out of my bedroom,
you know it is now valued at $1 billion and, as I said, employs
over 330 people and gives additional help to thousands of other
people that we interact with in terms of their jobs and
employment.
But in the early days, it was very difficult to raise
funding. It always is in an early startup. And we managed to
get some SBIR grants. Back then there was the ATP or the
Advanced Technology Program grants. We got a $2 million grant,
which was a competitive grant that was adjudicated by a panel
of experts based on the information we provided. That actually
we were able to translate into enormous progress that then
enabled us to raise a $20 million private venture capital
round.
So there really is a place where, especially in the R&D
phase, when it is so difficult to kick start things that
ultimately may become real contributors to the economy, real
contributors to our health and so on. There is a place where
the right sort of incentives can be the difference between life
and death for these companies.
Chairman Quayle. Great. Thank you very much. I now
recognize Ms. Edwards for five minutes.
Ms. Edwards. Thank you, gentlemen, for your testimony. I
want to stay focused on that because although I have, you know,
an interest in a lot of our tax policy, too, I have my own R&D
tax credit bill, this Committee has really limited
jurisdiction. So I want to focus on the things that we on our
Committee could potentially do something about because
otherwise, it is just kind of an abstract conversation.
So, Mr. Bendis, in your testimony, you talked about the
Technology Innovation Program, and what I would like you to
focus on are some of the gaps that you mentioned where, you
know, TIP fills important and critical gaps, but now, because
of congressional action, we really don't have the benefit of
that. And also if you could give me an idea about your
perceptions of the predecessor program, the ATP, program as
well.
Mr. Bendis. Yes, Congresswoman Edwards, I believe the U.S.
Government and Congress could take a look at a gap analysis,
and to be honest with you, the gaps are wider and deeper than
they have ever been in the private sector because venture
capitalists are moving upstream and funding less early-stage
capital.
So I don't believe the Federal Government should fund by
itself every different segment and stage of the life cycle
within a company, but there are appropriate roles that the
Federal Government can play. I will start at the beginning of
the portfolio.
The SBIR program is the best program in the world for doing
early-stage funding. Many countries have copied what we do in
the United States, and I couldn't believe that we had to go
through so many reauthorization challenges here to get it
reauthorized. It is something that also should become permanent
in this government because it is the best early-stage
investment program that America has, and we should not have to
go through the reauthorization process, even after six years.
As I mentioned in my testimony, where we have a tremendous
gap in the innovation capital area right now is in
commercialization, and basically bridging the gap from proof of
concept to what I classify as proof of commercial relevance is
where Phase III would empower people to get their technologies,
to get it market and commercial ready.
On the TIP program, it was designed to deal with mission-
critical, federal agency, mission-critical, and Federal
Government and America mission-critical technologies in areas
that needed to be focused on to enhance the quality of life,
our infrastructure and defense of the United States. Since that
program has been discontinued, there basically isn't a program
to replace it with federal funding, and companies generally
don't have the capital to take on this high-risk research
themselves.
The difference in the ATP program and TIP program was ATP
tended to be more focused on large companies, but the TIP
program organized itself to focus on partnerships with small
business, academic institutions and large business but was
predominantly small-business oriented, where basically that
research should begin.
Ms. Edwards. Thank you, Mr. Bendis. And let me just
interrupt you because I think it is important for us, and I
want to hear from each of you just very briefly. Is there
universal agreement across this panel about the benefit of the
SBIR program? Mr. Truitt?
Mr. Truitt. You know, there was for us, you know. We have
gone to a point now where it is beyond what Ludlum works with,
but I could see where in the future that start-up companies
need something like that.
Ms. Edwards. But when you started up, you, your company, as
I understand it, has had the benefit of SBIR. Am I correct? So
it was important for beginning, even though for companies that
are well down the line, it may not be as valuable as those
start-ups, is that right?
Mr. Truitt. Yes, that is true. And when we started up, we
did have the benefit of, you know, the SBIR, and the local
bankers and things that were--again, back then, you know,
handshakes meant something. And that is really how a lot of the
business was done.
Ms. Edwards. Mr. Brandt.
Mr. Brandt. And I can report that our company benefited
from the 8(a) program early in its life, and at the time we did
our IPO, the pure venture money was supplemented and enhanced
by an SBIC. So those were key milestones in the development of
our 1,500 person company.
Ms. Edwards. Thanks, and I appreciate that because I think
sometimes we get confused. I mean, there is an important role,
especially in a start-up for several different programs,
whether it is through SBA, SBIR, you know, these things that
really can sort of jump start without choosing winners and
losers. That is not what this is about, but it is saying, you
know, there are some ideas out there that have to be seeded.
The Federal Government can provide some of that seed, and then
you all go off and let your thousand flowers bloom without us
choosing which one of them are the ones that should be picked.
And with that, I think I will yield.
Mrs. Biggert [presiding]. Thank you, and I would now yield
myself for five minutes. Mr. Brandt, thank you so much for what
you do for TechAmerica. I think that is so, so important to our
country. You know, we have heard a lot from companies about the
time and resources required to comply with the regulations. In
fact, some of them say that the only job they have been able to
hire for has been compliance officers. So I think that that
shows that there is a problem here.
Can you give us a sense of cost and time required by your
company to achieve regulatory compliance?
Mr. Brandt. Well, what is closest to my desk is Securities
and Exchange Commission requirements for being a public
company, and the cost and time certainly went up a notch as the
Sarbanes-Oxley 404 rules kicked in, and we have been obliged to
invest for internal control, monitoring and reporting, at a
much higher cost than prevailed before that rule came into
effect.
Mrs. Biggert. Does it really affect your business and
investment decisions?
Mr. Brandt. Well, it diminishes the capital that is
available to invest elsewhere. So to the extent I have an
internal audit department now and I have staff that are
virtually full time committed to ensuring that we have records
of having checked ourselves multiple times during the year for
compliance with our own policies. Those are dollars that are
not available for us to hire engineers to enhance our products
and be more competitive.
Mrs. Biggert. The SEC I think has at least 450 regulations
that they are working on or have already brought forward. Are a
lot of these the ones that you are working on?
Mr. Brandt. Well, between the outside auditors and the
attorneys who are, on the average, $300 to $500 an hour, they
monitor all those rules on behalf of my office and the company,
and I am sure they all factor into those bills.
Mrs. Biggert. Thank you. Then, Mr. Truitt, you testified
that trade policies affect the cost of doing business for
companies in the global markets, and you cite policies and
partnerships critical to the U.S. competitiveness and economic
growth. How can the United States best promote exports through
trade agreements, and can you give us a sense of how access to
new markets enable small- and medium-sized enterprises to
create jobs and grow their businesses?
Mr. Truitt. Yes, trade agreements do play a big part in
what we can do. The recent trade agreements with South Korea,
which has a big nuclear industry, and in fact, they are
building nuclear power plants for other countries now, has made
it so that we are more competitive with local companies because
there are local companies within South Korea that compete with
us. So it makes it so we are on a more level playing platform.
More trade agreements like this, because most countries around
the world have more than what the United States do, would
certainly make us more competitive in more countries.
Mrs. Biggert. It seems like those trade agreements that we
have just had with South Korea and Panama and Colombia really
took a long time to get out.
Does anyone else have anything they would like to add to
that question? Anybody else deal with trade? Okay.
Let me go back to research and development. It seems like
research and development is so important that we have the
Office of Science for the Department of Energy and Department
of Defense does a lot of this. But you talked about the valley
of death that so many companies reach. And I have had a couple
of companies that have come to me and, you know, they have a
product, it works but they can't get to that part where they
can really, you know, open up a big shop. What do we do with
them? There is one right now that really is an important issue
that could really solve some of the problems that we are having
with gasoline and diesel. Anybody have any ideas? Mr. Bendis.
Mr. Bendis. Yes, ma'am. Basically, every company shouldn't
create a big shop. What we need to determine whether or not is
whether they have something that is commercially relevant, that
somebody wants to buy and that there is a scalable market to be
able to create a real business around it. So what we can do to
them is to mentor them, provide advice to them initially, not
give them money, but I think they need knowledge more than they
do money sometimes to determine whether or not the market
really needs their technology.
And the other thing is there are a lot of State resources
that exist in each of the individual States, and that means
that if, for example, in Maryland you have TEDCO, which is a
tech-based economic development organization, that can provide
some support to them. Some of the tech transfer offices can
also provide some support to them.
So at the end of the day, I think providing good mentoring
knowledge and access to resources might be one of the best
things that could be done for these companies and
entrepreneurs.
Mrs. Biggert. Thank you very much. Dr. Cohen.
Dr. Cohen. Yes, speaking for the biotechnology industry,
one of the key issues in allowing that sort of growth and
transition for us is now the regulatory pathway, and we are one
of the most regulated industries in the world, and rightly so.
People need to be assured that we have safe and effective
medicines, and that is what the FDA tries to do.
But the reality is over the last decade or so, the pathway
has become so burdensome that the timelines have been
increasing, and companies are finding it harder and harder to
get their products to market, even with drugs that work and can
confer benefits. So, for example, in 2001, drugs that got
approved on average had taken about 12.4 years or so to get
through the development process. Now it is about 14.8 years. So
in just 10 years, we have increased the burden by over two
years, and that seems to be continuing.
So things that can be done, for example, what I suggested
in my testimony are approval of bills like the FAST bill where
we can get pathways adopted by the FDA and expand them to many
diseases that are serious, that require answers. Right now
those pathways are being applied reasonably well in HIV and
cancers. But for other diseases that are equally serious or
sometimes more so, they are not being applied. And that is a
critical thing that could help the biotech industry because
investors have recognized this, and 61 percent of venture
capitalists in a poll last year cited the regulatory
uncertainties as the reason that they are reducing their
investment in the biotechnology industry.
Mrs. Biggert. Thank you very much, and I have gone over my
time, but now I recognize the gentlelady from Oregon, Ms.
Bonamici.
Ms. Bonamici. Thank you very much, Madam Chair. Dr. Cohen,
you just anticipated and answered my question. But I wanted to
follow up a little bit about it because you talked about this
FDA approval process in your testimony, and it is something
that I have heard about from constituents, both relating to
drugs and devices, and you did mention that one of the reasons
why there is reduced investment in medical science sectors is
because of this regulatory challenge. I think we can all agree
that we need to have a process to assure that the drugs and the
products are safe.
So can you expand a little bit about the FAST bill, and I
know there is already the accelerated approval. What else can
be done so that we can assure safety but speed up the approval
process?
Dr. Cohen. So thank you for the opportunity to respond to
that. There are a number of things that can be done to respond
to that particular issue, and in my view it is the leading
issue for the biotech industry in terms of what could be done
to foster the industry and make sure that it is healthy and
growing and helping all of us.
BIO has put forth a series of suggestions, so for example,
in the FDA's mission statement, right now it does not include a
commitment to foster biomedical innovation. We think it should,
because out of that will flow a decision-making process that
will take into account that, for example, there is a cost not
only to putting a potentially unsafe drug on the market, but
there are many costs to not putting a potentially effective
drug on the market in a timely way. And too often in that
equation, that part of it is not given due weight.
So what is the cost to patients who need a drug now of not
getting it to them now, versus the cost, of course, you don't
want to get an unsafe drug out there.
But the balance is in my view skewed on one side, and it
needs to have that other balance, on behalf of the patients who
need the drugs. The patients' voices themselves are too often
not included in the process. There ought to be more ways for
patient groups to make their voices heard in terms of what do
they consider a benefit to them, and what do they consider a
risk that they are willing to assume. That voice is too often
missing from the equation.
So there are many different things. There are others--in my
written testimony I think we have a longer series of
proposals--but a very good start is embodied in the FAST Act.
It includes some of what I have just talked about, but in
particular this issue of accelerated approval, which is an
existing pathway.
Ms. Bonamici. Right.
Dr. Cohen. The FDA already recognizes it, but it is not
sufficiently broad in its application. There is not sufficient
transparency to companies like mine where we can have a
dialogue with FDA and say, well, do we potentially qualify for
this pathway? And over all, there needs to be more transparency
and communication between drug sponsors, like my company, and
the FDA. And one of the encouraging signs in the PDUFA
legislation that is up for reauthorization is FDA did agree to
an ombudsman that would now help facilitate basic
communications back and forth, where now if my group has a
simple question that could be answered theoretically in a day
or two, it could take a few months before we get our answer.
And during those few months, we are paralyzed. We can no longer
continue with our development program.
So these are the sorts of things that I would be very happy
if Congress would continue to focus on to help the FDA
accomplish the mission that they want to accomplish which will
help all of us.
Ms. Bonamici. Terrific. Thank you very much. Mr. Truitt and
Mr. Brandt, thank you for your testimony as well. I know you
both mentioned the difficulty of finding highly skilled,
qualified workers. And I suspect as we move toward more
advanced manufacturing, that difficulty is going to grow. And
Mr. Truitt, I understand you are here on behalf of the Chamber,
and I want to applaud you for talking about the need for high-
skilled immigration reform and how it needs to be coupled with
education reform. I think I couldn't agree with you more on
that.
But putting aside the immigration issue, what else can we
do as government policymakers to improve the training of our
domestic workforce to meet these growing advanced manufacturing
needs?
Mr. Bendis. I believe that continued support for STEM is
extremely important and also looking for advanced workers. All
of them don't need to have graduate degrees. I think the
community colleges in America play a tremendous role in
providing skilled workers, and I think they can actually help
support the need for skilled workers as our advanced
manufacturing needs occur because everybody doesn't need to be
a Ph.D. or scientist. But I think also some of the major
professional societies in America and associations need to work
on this problem because it is not just a congressional or a
federal problem. I think it is an industry problem which a lot
of them are trying to address as well as to how do we increase
the quality of our workforce in America to be able to compete
on a global basis.
Ms. Bonamici. Thank you very much, and I believe my time is
expired. Thank you.
Mrs. Biggert. Thank you. The gentleman from Illinois, Mr.
Lipinski, is recognized for five minutes.
Mr. Lipinski. Thank you, Madam Chairwoman. I have a couple
questions here. First I want to thank everyone for their
testimony here. Clearly we are all interested in what we can do
to foster the competitive edge that our country has as our
economy continues to struggle and people are asking the
question. I keep saying this, although I don't think people
want to voice it. Americans are saying where are our jobs going
to come from, and I think certainly innovation is what we need
to look to. On this Committee, one thing I want to especially
focus on, and we have been focusing on, is ways of leveraging
the Federal Government's investment in basic research to spur
the creation of new jobs.
If you are looking at this from an SBIR perspective, you
could consider it to be Phase 0. We are talking about we have
all these researchers in our universities, our national labs,
who are doing all this great research, but they don't know how
to start the process even trying to develop a product from that
research that can create a new company, new jobs.
Now, a couple of things we have done, the National Science
Foundation has started a program called the Innovation Corps,
or I-Corps, where research grant recipients can take what
amounts to an entrepreneur course for scientists. In part, the
corps teaches academic researchers how to develop a business
model, solicit customer feedback and revise their products over
and over to meet customer demands. This is based on decades of
experience by entrepreneurs and venture capitalists in Silicon
Valley. NSF has gone through one round of this so far and is
about to do a couple more rounds of this. So it is open to
anyone who has received an NSF grant.
On the SBIR side, I was able to get language into the
reauthorization bill that redirects $10 million of NIH's STTR
funds for grants to universities and other research
institutions to support proof of concept capabilities for
researchers, that is, programs that help researchers that are
attempting to found companies assess the marketability of the
innovation and give them the tools they need to succeed in
business. This is based on programs such as the one at
University of Virginia, which has generated a five-to-one
overall return on investment and new follow-on funding and a
42-to-1 ROI for the top 10 percent of portfolio projects at
UVA.
So we have these two programs. I wanted to ask, first start
with Mr. Bendis and then if anyone else has any comments, on I-
Corps, on essentially Phase 0, SBIR over at NIH. Are these good
programs? Is there anything else you would recommend for this
space, for what we can do to better get the great research
being done into new products, new jobs?
Mr. Bendis. The answer, both of them are good products,
Congressman Lipinski. The I-Corps I think is an innovative way
that we can look at identifying some potential scientists that
have ideas that may be commercializable but we can get in the
marketplace and find a way to give them some training.
Phase 0 is an extremely important part of the overall SBIR
portfolio of programs, and it is a good jumpstart program to
look at true proof of concept. But if we look at ways that we
want to improve these programs, or look at other programs to
strengthen it, and I think prior to your coming in, we talked
about the Phase III commercialization program for SBIR, of
which we are strong proponents and believe there is a
tremendous gap that needs to be addressed there.
Second, the tech transfer offices in the federal labs
generally are reactive, not proactive. That means that they
basically do laboratory push with trying to push technology
into the marketplace and rather than a market pull. What we
have created is a very innovative program called an
Entrepreneur in Residence program where we are placing a serial
entrepreneur within the Office of Technology Transfer at NIH to
be able to determine what industry's needs are and the market
needs are today, rather than just identifying what good science
is. We need to work hand in hand with these tech transfer
offices from a market perspective, rather than just purely from
a science and a laboratory perspective. And I think that is a
tremendous program.
Another program that is innovative in Maryland is called
Innovate, and it is a program between the University of
Maryland-Baltimore and Johns Hopkins where they take post-docs
that have ideas, that have potential commercialization, and
they work with them on a 12-month basis and educate them,
basically, to determine whether or not they should be
entrepreneurs, whether or not they have the capability to be an
entrepreneur, or whether or not the idea is marketable. If they
are not qualified at the end of that period, and say we don't
want any part of entrepreneurship but the technology is good,
it helps match up the technologies with potential entrepreneurs
who can take it further.
But everybody that is a scientist should not be a potential
entrepreneur or develop a product. And we need to have balance
in our research to where we have the advancement of knowledge,
which is extremely important, to our congressional and the
federal mission, but at the same time identify the low-hanging
fruit where there is significant commercial potential and match
them up with the resources, knowledge, and the potential
capital that is necessary. And there are some good programs
within the Federal Government to support that.
Mr. Lipinski. Thank you, Mr. Bendis, for bringing those
forward. Mr. Brandt.
Mr. Brandt. If I may, I would submit that in recent years
it is not only at the gestation stage but at the adolescent and
maturation stage where we have seen a big change in the
reduction and venture-backed initiatives that make their way
through to the stage of going public. And in order for the
venture community to be as effective as it once was in
filtering through the ideas and commercial opportunities that
began in the incubators or in academia, they need to know where
there is an exit. And today they can sell to a bigger company
which ordinarily means the departure of the entrepreneur. They
don't have an exit, and that has sharply reduced, it appears,
their number of investments that are nurturing and bringing
companies up to a larger stage where they are employing and
growing more people. But the high cost of being a public
company and other obstacles to going public have very, very
sharply reduced the number of IPOs and consequently the middle-
stage companies that prevailed a few years ago.
Mr. Lipinski. Thank you. I yield back.
Mrs. Biggert. The gentleman yields back. The gentleman from
California, Mr. Rohrabacher, is recognized for five minutes.
Mr. Rohrabacher. Thank you very much, and thank you very
much to our very knowledgeable panel. Before I ask you some
questions, let me predicate this on the fact that all of us on
this side of the room are faced with a huge challenge, and that
challenge is for the last three years our country has spent $5
trillion more than we have taken in and that if we do not stop
that, if we do not have some way to pull that back so we are no
longer going into debt at such a high rate, our economy will
collapse, the currency will collapse, the system will collapse.
So I am predicating my comments on that before we get into the
questions.
Now, with that understanding, how we are going to get out
of that depends on about what you are talking about. We have
got to make sure that we develop the technology that we are
capable of in this country, not only just develop it but put it
in place and see that it is working, commercialize it so that
it is developing, it is permitting us to do the things we need
to in a cheaper and better and faster way that only new
technology will permit us. In other words, $5 trillion in debt,
we have got to produce the equivalent of $5 trillion worth of
labor or focus and activity or wealth in our society.
With that said, there are several different approaches.
Some of the approaches we have heard today, like we just heard
a litany of, are focused on very specific--say we have got to
pick the low-hanging fruit, got to find those technologies that
have the best chance of making it and making a contribution.
Unfortunately, we have a focused approach, and you are relying
on the bureaucracy or on government to do this, to select who
is the low-hanging fruit. What happens is you end up with
cronyism, and in the midst of that $5 trillion debt, a close
examination of that will show that a substantial amount of
money, hundreds of billions of dollars, are ending up in the
pockets of cronies. Decisions that were made, ``Oh, yes, you
have got a good project because you are my buddy.'' And we end
up building factories in Finland, for example, with the
stimulus package, or we end up just in time giving a solar
energy company $250 million just before they go out of
business.
So what I would like to look at are the general policies
which I believe is if you have a general field of policies in
place, you look at those policies and find out what can make
sure that an overall environment for the development of new
technology is put into place, rather than relying on focused
programs.
So I am going to ask you about those general policies. We
have a general policy that is represented by the FDA. We have a
general policy that we are going to protect the public from
people who are offering things that have not been thoroughly
examined that might be harmful to them. Are we now protecting
our people to death? Is the FDA--I know three or four examples
myself of drugs and changes and innovations that the FDA has to
approve that they have been sitting on because they are a
bureaucracy. Do we need major FDA reform or some kind of
restructuring or at least some sort of systematic attempt to
make the FDA more efficient? Go right ahead, Dr. Cohen.
Dr. Cohen. Thank you, Congressman. As I indicated earlier,
I do believe that the system that we have in place now has many
virtues, but it has become overly, if I may use the word,
bureaucratic and too slow and too complex. And it needs to be
streamlined. It needs to be put in a position where it can
expedite development----
Mr. Rohrabacher. Well, aren't we spending billions of
dollars now that in the end, once something is approved, we
figure out those billions of dollars were actually not
necessary and perhaps time that we could be serving people who
are suffering with a new technology, that now they won't be
able to utilize this new technology or a new medicine? As I
say, that is a cost. We are talking about wasting huge amounts
of money.
Dr. Cohen. You are speaking about the billions of dollars
that are spent on FDA?
Mr. Rohrabacher. FDA approval, for example.
Dr. Cohen. Yeah. It is a question that is beyond my ability
to answer because I think you are asking a societal question,
and at the end of the day, society, and in particular the
patients who are affected and their loved ones, need to come to
consensus over time over what risk-benefit ratio they are
willing to accept. Because, clearly, I think we all agree that
there needs to be regulation to protect the public and ensure
that what my industry is putting out there is, in fact, at some
minimal level of safety and effectiveness that we all want and
accept.
Having said that, so I believe we need a strong FDA. I do
believe we need to invest in the FDA because it helps all of
us. It helps me to develop the right kind of medicines.
Mr. Rohrabacher. We need an FDA that functions. We need a
patent system so that----
Dr. Cohen. Correct.
Mr. Rohrabacher [continuing]. People who are inventing new
technologies will be protected and a copyright system and
people who are coming up with new medicines and new
technologies--let me ask one question, just informationally
here. The President's health care plan, I am not sure about
this detail. I heard that there was a new tax on health
technology in the new bill. Is that right? There is not? I am
asking you. I am not sure.
Mr. Bendis. I am not positive of that, but I think there
has been some confusion related to that issue.
Mr. Rohrabacher. Yeah, because I saw a list of things that
people are saying that would need to be fixed in the bill, and
one was that we are actually discouraging health care
technology because we are taxing new health care technology by
two percent or something. If we are doing that, that is insane
because if you have new health care technology, you might be
saving more than that.
Thank you, Madam Chairman.
Mrs. Biggert. Gentleman's time has expired. I would like to
thank all the witnesses for their valuable testimony. You have
been a great panel. And I would like to thank the Members for
their questions, and the Members of the Subcommittee may have
additional questions for the witnesses, and we would ask you to
respond in writing. And the record will remain open for two
weeks for additional comments and statements from Members.
With that, the witnesses are excused, and thank you all for
coming, and this hearing is now adjourned.
[Whereupon, at 11:30 a.m., the Subcommittee was adjourned.]

Answers to Post-Hearing Questions

Responses by Mr. Ron Cohen

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Responses by Mr. Mick Truitt

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Responses by Mr. Thomas M. Brandt, Jr.

Responses by Mr. Richard Bendis

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Appendix 2

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Additional Material for the Record

TechAmerica: Technology Roadmap for America

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