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                                                       Calendar No. 142
107th Congress                                                   Report
                                 SENATE
 1st Session                                                     107-54

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



 
 SMALL BUSINESS TECHNOLOGY TRANSFER (STTR) PROGRAM REAUTHORIZATION ACT 
                                OF 2001

                                _______
                                

                August 28, 2001.--Ordered to be printed

   Filed under authority of the order of the Senate of July 30, 2001

                                _______
                                

 Mr. Kerry, from the Committee on Small Business and Entrepreneurship, 
                        submitted the following

                              R E P O R T

                         [To accompany S. 856]

    On July 19, 2001, the Committee on Small Business and 
Entrepreneurship (Committee) considered S. 856, the Small 
Business Technology Transfer (STTR) Program Reauthorization Act 
of 2001. The bill amends the Small Business Act to extend 
authorization of the STTR Program for nine years and to make 
other changes. Having considered S. 856, the Committee reports 
favorably thereon and recommends that the bill pass.

                        I. NEED FOR LEGISLATION

    Absent legislative action to reauthorize the Small Business 
Technology Transfer (STTR) program, it will expire on September 
30, 2001. This legislation is also necessary because it makes 
changes to the STTR program in order to facilitate more 
effectively the collaboration between small businesses and 
research institutions and thereby transfer more technology from 
lab into deployed products or processes and create small 
businesses around our research institutions.

                        II. LEGISLATIVE HISTORY

    The STTR program funds cooperative research and development 
(R&D;) projects between small companies and research 
institutions as an incentive to advance the nation's 
technological progress and the government's research and 
development goals. It complements the Small Business Innovation 
Research (SBIR) program, which was reauthorized last year. 
Whereas the SBIR program funds R&D; projects at small companies, 
STTR funds cooperative R&D; projects between a small company and 
a research institution, such as a university or a Federally 
funded R&D; lab. Like SBIR R&D; projects, STTR projects help 
participating agencies achieve their missions in the research 
and development arena. It was also designed to convert the 
billions of dollars invested in research and development at our 
nation's universities, Federal laboratories and non-profit 
research institutions into new commercial technologies.
    The STTR program was started as a pilot in 1992, and the 
first grants were made in 1994. The program was reauthorized in 
1997. The program is not funded out of the Small Business 
Administration's (SBA) budget, but out of the extramural R&D; 
budgets of Federal agencies or departments with extramural R&D; 
budgets of $1 billion or more. Such agencies must award at 
least .15 percent of that money for STTR projects. Five 
agencies currently qualify: the Department of Defense (DoD); 
the National Institutes of Health (NIH); the National 
Aeronautics and Space Administration (NASA); the National 
Science Foundation (NSF); and the Department of Energy (DoE).
    There are three phases of the program. Phase I is a one-
year grant for $100,000, and its purpose is to determine the 
scientific and commercial merits of an idea. Phase II is a two-
year grant for $500,000, and its purpose is to further develop 
the idea. Phase III is used to pursue commercial applications 
of the idea and cannot be funded with STTR funds. Only private-
sector and non-STTR Federal funds may be used in Phase III.
    This bill to reauthorize the STTR program is the result of 
a Committee hearing, Committee research, and a survey by the 
U.S. General Accounting Office (GAO).
    On June 21, 2001, the Committee on Small Business and 
Entrepreneurship held a hearing entitled ``S. 856, the Small 
Business Technology Transfer Program Reauthorization Act of 
2001.'' The purpose was to gather information about how the 
program has been working since it was last reauthorized in 1997 
and to get feedback on S. 856. The witnesses included: Dr. 
Anthony N. Pirri, Director of the Division of Technology 
Transfer at Northeastern University in Boston, Mass.; Mr. 
Clifford C. Hoyt, Vice President and Chief Technology Officer 
of Cambridge Research and Instrumentation in Woburn, Mass.; Dr. 
Barna Szabo, Founder and Chairman of Engineering Software 
Research and Development Inc. in St. Louis, Mo.; Mr. Kirk 
Ririe, President and CEO of Idaho Technology Inc. in Salt Lake 
City, Utah; Mr. Maurice Swinton, Assistant Administrator for 
the Office of Technology at the Small Business Administration; 
and Mr. Jim Wells, Director of Natural Resources and 
Environment at the General Accounting Office.
    There was consensus that the program is meeting its 
objectives, should be continued, and that the Phase II award 
amount should be increased. Examples were given of 
technological advances that improved industries, grew 
businesses, created jobs and more than returned the Federal 
government's investment. One comment, in particular, from Mr. 
Kirk Ririe of Idaho Technology Inc., which got its modest start 
in a potato shed and now has locations in Idaho and Utah, 
demonstrates the power of the STTR program:

          We were a tiny company--six people working with the 
        university group. We were able to, within two years, 
        launch (with about $100,000 in funding) a product that 
        basically filled a hole in biotechnology research and 
        development * * * that has gone on to generate over 
        $100 million in sales. * * * The GAO figures may not 
        [reflect this, but] I guarantee that we have paid a lot 
        more money back to the government in taxes than we 
        received in any of the funding. * * * The program has 
        been absolutely crucial to us. If we had not had this 
        program, we would still be in the potato shed. * * *

    In addition to the hearing, as referenced earlier, the 
Committee reviewed a survey by the GAO of the participating 
STTR companies. The survey was requested by the Chairmen 
andRanking Members of this Committee and the House Committee on Science 
in anticipation of reauthorization. The purpose was to survey the 
participating companies to identify the contributions to and results of 
the STTR program.
    GAO surveyed all companies that had received Phase II 
awards from 1995 to 1997. They chose these years because they 
were the first years of the program and it takes generally 
three to nine years for a company to progress from basic 
research of a concept to commercialization of a developed 
product. Though this program is still relatively young, the 
survey results indicate it is working effectively. Of the 102 
companies participating in the survey, 53.5 percent had either 
commercialized the technology or received follow-on funding for 
the technology. These companies had approximately $132 million 
in sales and $53 million in additional funding. These STTR 
winners expect additional sales of more than $900 million 
dollars by 2005. Putting this into perspective, the 
Government's total awards to these companies was less than $60 
million, or less than half of the sales to date and about five 
percent of the expected sales by 2005.
    Also of note, the survey revealed that the respondents 
strongly support continuing the program, and a majority said 
they want the STTR and SBIR programs to remain separate. The 
Committee strongly agrees with the findings. GAO noted that one 
area of improvement would be to involve more universities.

                    III. SUMMARY OF MAJOR PROVISIONS

    The Committee has concluded from its proceedings and its 
review of the GAO survey that the STTR program is meeting its 
program objectives successfully and merits reauthorization for 
an additional nine years.
    The Committee also believes the program should be expanded. 
This is a very good investment for our nation. According to the 
SBA's Office of Advocacy, small firms that collaborate with 
universities often have a better rate of return on their R&D; 
investments than they would otherwise have.\1\
---------------------------------------------------------------------------
    \1\ ``A New View of Government, University and Industry 
Partnerships,'' the Office of Advocacy, U.S. Small Business 
Administration, January 1999.
---------------------------------------------------------------------------
    To date, more than $347 million has been awarded to 1,500 
small businesses and more than 250 university partners. From 
the GAO survey, the Committee knows that these collaborations 
are already showing outstanding commercialization rates, and it 
should build on this successful program. Consequently, this 
bill raises in small increments the percentage that departments 
and agencies set aside for STTR research and development 
awards. In FY2004, the percentage increases from .15 to .3 
percent. In FY2007, the percentage increases from .3 to .5 
percent. Over the past three years, the .15 percent has 
amounted to a total of $65 million annually available for STTR 
awards. Based on that amount, increasing the percentage to .5 
percent would make $216 million available annually for small 
business technology transfer.
    The Committee recognizes that the research and development 
budgets have been reduced at most agencies. However, given that 
the small business share of Federal research and development 
funds is less than four percent annually and has been static 
for [more than] 20 years,\2\ the Committee believes the 
increase is justified. Even after both authorized increases are 
effective, the percentage will be only one half of one percent. 
Further, the percentages are phased in slowly over seven years, 
giving the agencies ample time to prepare for the increases. 
Also, the agencies continue to have complete autonomy to 
solicit proposals for research that in turn will help them 
achieve their missions.
---------------------------------------------------------------------------
    \2\ ``A New View of Government, University and Industry 
Partnerships,'' the Office of Advocacy, U.S. Small Business 
Administration, January 1999.
---------------------------------------------------------------------------
    The Committee also proposes raising the Phase II grant 
award amount from $500,000 to $750,000. This change was 
intended to address concerns by both the small businesses and 
the research institutions that $500,000 typically is no longer 
enough for this stage of research and development. As Dr. Pirri 
of Northeastern said at the hearing, ``By expanding the STTR 
program, funding levels will become more adequate to take 
technologies through the prototype stage and increase their 
probability of commercial success.'' Raising Phase II STTR 
awards to $750,000 makes them consistent with the Small 
Business Innovation Research (SBIR) program's Phase II awards. 
The main concern about raising the award amount is how it would 
impact the overall pool of money available for STTR awards. To 
address that concern, the legislation does not increase the 
award until FY2004, at which time the percentage increases and 
there is more money available for larger awards.
    To increase the percentage of research institutions that 
originate the key idea and initiate the collaboration, S. 856 
includes a provision encouraging the STTR agencies to reach out 
to universities to raise awareness of the program and to 
provide information to faculty members about taking advantage 
of this technology transfer program. According to the GAO 
survey, small businesses reported that 75 percent of the time 
they originated the key idea for the research and development 
that led to the STTR award, not research institutions. While 
the Committee acknowledges that research institutions were not 
asked that question and the results are not conclusive, 
universities themselves reported in other Committee research 
that there is a need for STTR awards to develop the research of 
their scientists and engineers but that they need to be made 
aware of and educated about the STTR program. GAO reported that 
only about 250 universities have participated in the program so 
far. The Committee believes, and GAO concurs, that there is 
tremendous potential to involve more universities in partnering 
with small businesses to convert research into new 
technologies. One of the goals of the STTR program is to create 
economic development around universities, Federal laboratories 
and non-profit research institutions all across the country, in 
an effort to duplicate the successful clusters similarly 
developed along Massachusetts' Route 128 and California's 
Silicon Valley.
    Lastly, of the major provisions included in this 
legislation, S. 856 strengthens the data rights protection for 
companies and research institutions that conduct STTR projects. 
Thechange in data rights is important because it clarifies that 
STTR companies, like SBIR companies, retain the data rights to their 
technology through all phases of an STTR project. Some agencies have 
been interpreting the law to mean that STTR companies only retain their 
data rights through phases I and II.
    This clarification helps protect STTR companies from losing 
control of their research so that they have a greater chance of 
commercializing their technology themselves. This clarification 
is important because the Committee has learned that some 
agencies are providing the data to bigger contractors for 
development, thereby cutting out the small business. This 
unfortunate situation not only robs small businesses of 
revenues, but it also results in expensive legal costs for 
small businesses to protect their data rights.

                         IV. SECTION-BY-SECTION

Section 1. Short title

    The title of the bill is ``The Small Business Technology 
Transfer Program Reauthorization Act of 2001.''

Section 2. Extension of program and expenditure

    This section reauthorizes the STTR program for nine years, 
through 2010, and raises the percentage of an agency's 
extramural R&D; budget set-aside for STTR awards two times over 
the next nine years. In FY2004, it raises the percentage from 
.15 to .3 percent, and then in FY2007, it raises the percentage 
from .3 to .5 percent. This section also eliminates the word 
``pilot'' from all places in the statute.

Section 3. Increase in authorized Phase II awards

    This section raises the amount of Phase II awards from 
$500,000 to $750,000. It is raised in FY2004, the same year 
that the set-aside percentage increases, so that the number of 
awards is not decreased. This section also adds flexibility to 
the program by giving the awarding agency the discretion to 
shorten or extend the amount of time for each phase, where 
appropriate for a particular project. Phase I is typically one 
year, and Phase II is typically two years. This authority shall 
be effective starting in FY2004.

Section 4. Agency outreach

    This section requires each of the participating agencies to 
implement an outreach program to research institutions and 
small business concerns in conjunction with any such outreach 
done for the SBIR program. The purpose is to increase new 
participation, particularly of universities and research 
institutions, in the STTR program.

Section 5. Policy directive modifications

    This section requires the SBA to issue a policy directive 
to all participating agencies that clarifies the data rights of 
STTR companies to their technology developed through STTR 
projects for all phases, including Phase I, Phase II and Phase 
III. Specifically, they have data rights for four years after 
the completion of each phase they are awarded a grant.

Section 6. STTR program data collection

    Consistent with requirements of the SBIR program, this 
section requires each agency with an STTR program to collect 
and maintain, in a common format, information on award winners 
as is necessary to assess the success of the STTR program, 
including information necessary to maintain the public database 
at the SBA. The goal is to collect fundamental information 
about the companies that get STTR awards so that they can be 
tracked if they close, are sold, or create spin-off companies, 
and to keep fundamental information about the award received so 
that we can track the technology.
    In addition to this information, four specific questions 
will be added to information collected on STTR awards. The 
Committee wants to know who initiates the collaborations; who 
originated the technology; how long it took to negotiate a 
licensing agreement between the STTR partners; and the 
percentage allocated to each partner from any revenues 
resulting from an STTR project.
    This section also seeks to minimize the burden on small 
businesses by requiring the SBA and the participating agencies 
to work together to simplify and standardize reporting 
requirements for information included in the databases.
    Lastly, this section includes a requirement for the SBA to 
report at least once a year to the Senate Committee on Small 
Business and Entrepreneurship and to the House Committees on 
Small Business and Science regarding output and outcomes of the 
STTR program and the extent to which participating agencies are 
providing the relevant requisite information to the SBA in 
order to maintain current databases.

                           V. COMMITTEE VOTE

    In compliance with rule XXVI(7)(b) of the Standing Rules of 
the Senate, the following vote was recorded on July 19, 2001. A 
motion by Senator Bond to adopt S. 856, the Small Business 
Technology Transfer (STTR) Program Reauthorization Act of 2001, 
was approved by a recorded vote of 19-0, with the following 
Senators voting in the affirmative: Kerry, Bond, Levin, Harkin, 
Lieberman, Wellstone, Cleland, Landrieu, Edwards, Cantwell, 
Carnahan, Burns, Bennett, Snowe, Enzi, Fitzgerald, Crapo, 
Ensign and Allen.

                  VI. EVALUATION OF REGULATORY IMPACT

    In compliance with rule XXVI(11)(b) of the Standing Rules 
of the Senate, it is the opinion of the Committee that no 
significant additional regulatory impact will be incurred in 
carrying out the provisions of this legislation. There will be 
no additional impact on the personal privacy of companies or 
individuals who utilize the services provided.

                      VII. CHANGES IN EXISTING LAW

    In the opinion of the Committee, it is necessary to 
dispense with the requirement of section 12 of rule XXVI of the 
Standing Rules of the Senate in order to expedite the business 
of the Senate.

                          VIII. COST ESTIMATE

    In compliance with rule XXVI(11)(a)(1) of the Standing 
Rules of the Senate, the Committee estimates the cost of the 
legislation will be equal to the amounts discussed in the 
following letter from the Congressional Budget Office.

                                     U.S. Congress,
                               Congressional Budget Office,
                                    Washington, DC, August 2, 2001.
Hon. John F. Kerry,
Chairman, Committee on Small Business,
U.S. Senate, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for S. 856, the Small 
Business Technology Transfer Program Reauthorization Act of 
2001.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Ken Johnson.
            Sincerely,
                                          Barry B. Anderson
                                    (For Dan L. Crippen, Director).
    Enclosure.

S. 856--Small Business Technology Transfer Program Reauthorization Act 
        of 2001

    Summary: S. 856 would change the expiration date of the 
Small Business Technology Transfer (STTR) program from 2001 to 
2010. The STTR program requires agencies with annual 
appropriations for extramural research of more than $1 billion 
to set aside a portion of their extramural research budget for 
cooperative research between small businesses and a federal 
laboratory or nonprofit research institution. The bill also 
would make certain modifications to the STTR program, including 
gradually raising the percentage of research funds that would 
be set aside for the program and altering the data reporting 
requirements for the participating agencies.
    Assuming appropriations of the necessary amounts, CBO 
estimates that implementing S. 856 would cost about $25 million 
over the 2002-2006 period. S. 856 would not affect direct 
spending or receipts; therefore, pay-as-you-go procedures would 
not apply.
    S. 856 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act (UMRA) 
and would impose no costs on state, local, or tribal 
governments.
    Estimated cost to the Federal Government: The estimated 
budgetary impact of S. 856 is shown in the following table. The 
costs of this legislation fall within budget functions 370 
(commerce and housing credit), 250 (general science, space, and 
technology), 050 (national defense), 270 (energy), and 550 
(health).

----------------------------------------------------------------------------------------------------------------
                                                                     By fiscal year, in millions of dollars--
                                                                 -----------------------------------------------
                                                                   2001    2002    2003    2004    2005    2006
----------------------------------------------------------------------------------------------------------------
                                        SPENDING SUBJECT TO APPROPRIATION

STTR Spending Under Current Law:
    Budget Authority \1\........................................       4       0       0       0       0       0
    Estimated Outlays...........................................       4       1       0       0       0       0
Proposed Changes:
    Estimated Authorization Level...............................       0       4       4       6       6       6
    Estimated Outlays...........................................       0       3       4       6       6       6
STTR Spending Under S. 856:
    Estimated Authorization Level...............................       4       4       4       6       6       6
    Estimated Outlays...........................................       4       4       4       6       6       6
----------------------------------------------------------------------------------------------------------------
\1\ The 2001 level is the amount that CBO estimates was appropriated to administer the STTR program in 2001.

    Basis of estimate: The five federal agencies that currently 
participate in the program are the Department of Defense, the 
Department of Energy, the Department of Health and Human 
Services, the National Aeronautics and Space Administration, 
and the National Science Foundation. Program oversight is 
conducted by the Small Business Administration (SBA). The costs 
of the STTR program to the participating agencies consist 
primarily of salaries and expenses for personnel to evaluate 
grant applications, associated overhead costs, printing costs, 
and mailing expenses. The costs associated with administering 
awards through the STTR program are slightly higher than 
administering the same awards through regular program channels.
    Based on information from the SBA and the participating 
agencies, CBO estimates that administering the STTR program 
will cost a total of about $4 million this year. Therefore, CBO 
estimates that extending the current STTR program through 2010 
would cost these agencies approximately that amount per year, 
assuming appropriation of the necessary amounts.
    In addition, S. 856 would increase the percentage of the 
agencies' extramural research budgets that would be set aside 
for the STTR program starting in 2004. Based on information 
from the affected agencies, CBO predicts that this provision 
would cause the number of applications for STTR grants to 
increase, thereby increasing the administrative cost of the 
program. Based on information from the SVA and the 
participating agencies, CBO estimates that this expansion would 
cost an additional $2 million a year during the 2004-2006 
period, subject to the appropriation of the necessary funds.
    Finally, S. 856 would modify the STTR program in two other 
ways. The bill would expand the program's outreach efforts to 
small businesses and the research community. Also, the 
legislation would alter and expand the data that the 
participating agencies would have to report to the SBA each 
year as part of its oversight responsibilities. Based on 
information from the affected agencies, CBO estimates that 
implementing these provisions would cost less than $500,000 per 
year.
    Pay-as-you-go considerations: None.
    Intergovernmental and private-sector impact: S. 856 
contains no intergovernmental or private-sector mandates as 
defined in UMRA and would impose no costs on state, local, or 
tribal governments.
    Estimate prepared by: Federal Costs: Ken Johnson. Impact on 
State, Local, and Tribal Governments: Scott Masters. Impact on 
the Private Sector: Cecil McPherson.
    Estimate approved by: Robert A. Sunshine, Assistant 
Director for Budget Analysis.