Patent Office Must Control Funds, MIT Leader Says (Transcript)

Massachusetts Institute of Technology President Susan Hockfield said during a panel discussion in Washington that Congress must keep its pledge to let U.S. Patent and Trademark Office, or PTO, have control over all the fees it collects to promote innovation and spur job creation. The Oct. 5 event, sponsored by Harvard University and the Business Roundtable and hosted by Bloomberg News, centered on ways to spur innovation.

Participants included Drew Gilpin Faust, president of Harvard University; former Michigan Governor John Engler, president of the Business Roundtable; Albert R. Hunt, an executive editor at Bloomberg; Bill Green, chairman of consulting firm Accenture Plc; Tim Solso, CEO of diesel truck-engine maker Cummins Inc.; Susan Hockfield, president of the Massachusetts Institute of Technology; Sally Mason, president of the University of Iowa, Ellen Kullman, CEO of DuPont Co.; James Goodnight, CEO of SAS Institute Inc.; Freeman Hrabowski, president of the University of Maryland, Baltimore County; John Hennessy, president of Stanford University; Linda Katehi, chancellor of the University of California-Davis; John Lechleiter, CEO of drugmaker Eli Lilly & Co., and Teresa Sullivan, president of the University of Virginia. Following is a transcript of the session on patents, moderated by Susan Goldberg, an executive editor at Bloomberg.

(This is not a legal transcript. Bloomberg LP cannot guarantee its accuracy.)

SUSAN GOLDBERG: I’d love to get started on the third leg of this stool. It’s been a fascinating discussion so far and I hope everybody’s still up to talk about more.

So we’ve talked a little bit about getting the right people to help with innovation. We’ve talked about investing in the tools. Now, I’d like to take a step back from that and talk about the ideas that are going to bring on jobs in the first place.

This morning, Dave Kappos from the Patent Office talked about the new law and how he felt it put the United States clearly in the forefront of innovation and that we had leapfrogged over other countries and that we were the only country with the 21st Century patent law.

Although the law was passed with overwhelming support and we were talking, John, earlier about how it’s one of the few areas where there did seem to be a lot of agreement at least in the political community.

I know in the VC community, the law did stir up quite a bit of debate. So I wanted to ask John Hennessy to start with, you know, coming from the land of startups in the garage and the ethos of individual entrepreneurs, is the change from first to invent to first to file, could that possibly hurt individual inventors? What do you think about that?

JOHN HENNESSY: You know, I think on the margin you could see some individuals who might claim they’d be hurt by that, but I think the important thing about patent reform was the overall advantage that it brought to the entire community.

It was -- it was a great example of working together, the I.T. industry, working with pharma, working with the universities to get everybody on the same page. Everybody made some compromises in this process. Nobody got the bill that was perfectly ideal for them, right?

Some people wanted prior-user rights, some people didn’t. The universities were concerned about first to file versus first to invent -


HENNESSY: but we all said in the end that this is an important bill for economic growth in the country. Aren’t there places we can all give a little in terms of making a big step forward and undoing 30 years of deadlock around patent reform?

So that’s a great accomplishment and that’s how we should be thinking about our other challenges whether it’s the country’s federal R & D investment or Visa reform or things like that. How do we get something that really works.

GOLDBERG: Yes, please, Susan.

SUSAN HOCKFIELD: So I agree with John and John and I had many conversations about what kind of compromises the universities were willing to make in order to, you know, get this new patent legislation done.

And I think it could be an advance, but it will only be advance if there is funding that comes with it. And so one of the great impediments to an effective PTO is the funding to just get the people power in place to move stuff through the system. We have had a massive acceleration in the amount of work we send to these people and, you know, they are just tied up in knots, you know, trying to develop the systems to make the processing of these patents and, you know, other things that come through the office efficient.

And so, you know, I just can’t strongly enough, you know, say, “Got to get the funding (inaudible). Get the funding in place.” Reliably and consistently, this is the message of this morning is, you know, things have to be reliable, they have to be consistent so that the Patent and Trademark Office can, you know, really accelerate and hopefully, at least, catch up with if not leapfrogging these activities in other countries.

GOLDBERG: Well, Jim, do you agree with that?

JAMES GOODNIGHT: Well, the funding, I think, has been taken care of by the new Patent Act because they are now are going to allow the Patent Office to keep all the money -


GOODNIGHT: that they charge for patents. Well, they claim it’s some kind of a lockbox, but I don’t know how that -- I don’t know how that really works.


GOODNIGHT: But as it -- as it was for many years, the Patent Office only got, like, $300 a patent even though they were collecting $1,500 to spend and they sure had produced a lot of garbage patents in the past few years. And it just -- and just about anything that would go through there would be stamped and patented and it was up to corporations like us to have to defend our prior art that we had already in place.

GOLDBERG: Well, actually, that raises one of the good questions. A lot of people thought that this new patent law did a lot on the -- on the front end, you know, changing the system of filing and cleaning up that, but not that much on the back end to deal with these lawsuits and litigation.

What do you all think about that? Is that -- is that really hurting this process?

GOODNIGHT: Well, actually, the joinder reform was absolutely incredible for us. This prevents a patent troll from just simply filing a lawsuit against a half a dozen companies and thereby being able to hold that to trial in East Texas.

What the -- what the joinder reform actually gave us was it prevents someone who’s bringing a patent suit from filing a -- they can only file against one company. And under -- and that’s very important because under current rules of the court system, that case has to be brought where all the evidence is.

So in other words, it has to be brought in the home state of the corporation. So now, we don’t have to send people down to live in East Texas anymore. We can keep them right there in North Carolina. So -

HENNESSY: I think the other big thing to deal with Jim’s junk patent problem is the post-grant review. That’s a big step forward in terms of a way in which people can respond quickly to patents where they simply -- where the Patent Review Office simply didn’t know about prior art in some cases.

HENNESSY: No, I think that helps a lot. But Susan’s exactly right. We need to get the money. I mean, the backlog is over 600,000 applications. Now, not all those patents were grant, but that’s three years worth of patents just to put it in perspective.

So we’ve got to invest in order to make this process work faster and that’s an American competitiveness issue for us.

GOLDBERG: Go ahead, Freeman.

FREEMAN HRABOWSKI: Just a comment. It’s clear that when you look at the different aspects of a reform that you heard that the results reflected thinking of a lot of people across sectors which is a lesson, I think, we can use in some other areas we’ve been talking about today that if you want to get to a good solution, it has to have some compromise and it has yet to reflect the thinking of the broader groups involved.

And I think in each of these areas, we can see where the hand of a number of people can be seen in a way that makes it palatable to most of us.

JOHN LECHLEITER: The -- another feature, I think, of the America Invents Act is that it’s partner friendly and Dave Kappos mentioned that briefly this morning when he said this is really a 21st Century patent bill.

The comment was made earlier that more and more of us are doing our research and much of our work through partnerships and the new patent legislation does not penalize partnerships by an essence of blocking one party from filing a patent based on what some in the past might’ve considered to be prior art on the part of the other -- the other partner.

So I think this is a -- this is a big step forward. I think for every one thing you can find that where you have questions or there might be concerns still left about some provision of this legislation, there’s nine things to -- that we can be happier are in there -- it’s a big step forward and I agree, we need to look at this and say, “How did that happen?” I can tell you because we were very involved in this from our industry perspective. A year ago, no one would’ve given this thing a chance of getting through.

In this environment, man, six months ago, people -- no one would’ve said that, but it -- but it -- why did that -- how did that happen? Why did that happen? And I maintain part of the reason is because there was an active coalition, there were multiple coalitions, universities, the high-tech companies, biotech and we got down at the -- in -- and sat down at the table, Dave Kappos, the commerce secretary, former Secretary Locke was involved and we worked this stuff out because we recognize it’s in our mutual interest to do that and are there analogies we can carry over from that?

GOLDBERG: Well, this morning we were talking about immigration and whether I wonder if there isn’t a coalition that could come together like that. I don’t know. John, what do you think?

HENNESSY: Well, I think there’s a possibility. The one thing that I think is interesting is that by in large the agreeing got done among the groups and Senator Leahy and others, then it accepted that. They went forward. I mean, it’s the old you all go outside their door here and work it out and come back when you’ve got an agreement kind of approach, almost that got used.

And there was -- there was little left for the -- I mean, committee and interestingly, when we got down to the -- to the final votes, the deal was not on the content. It was on the funding process of this, what I thought was -- we were whispering up here earlier and I thought the -- some in the Congress and some good friends who were saying, “Well, we need this, to go through the appropriation process for this oversight.”

I said, “This is the same oversight from the same budget process you’re so critical of where we never pass a budget. That’s when we’re going to do the oversight?” I mean, come on.

And the reality is, I think, where we came out, I do think we have to follow-up to make sure the funding does flow, but it’s -- but the argument and the equity where the funding does flow is pretty compelling. It comes from the applicants and they all said, “Hey, we’ll pay it in order to get the process.”

And Commerce, to their credit, at least the acting secretary, Becky Blank, was saying that, you know -- and Gary Locke was -- when he was still here was also saying, “We want to get to the point we can say that it’s going to be from when you file one year.” That’s where they think they can -- that’s where they think they can be there.

So -- and we ought to -- we ought to be encouraging that and probably the coalition remnants of that be kept together to kind of -- every year kind of maybe sit down and have an evaluation of how well we’re doing and bright spots and areas for improvement and keep the pressure on.

GOLDBERG: You know, one of the themes I keep hearing from this morning is this notion of the competitive threat from overseas and elsewhere. How is this new law going to help with that?

Do people think it will be helpful or do - what other steps need to be taken? I know there’s some discussion about having a global - a global patent system sort of like the global trademark system.

Is that the kind of thing that’s needed to really change the landscape?

GOODNIGHT: Well, in 2009, I’ve got (inaudible) data back then, there were actually more U.S. patent (inaudible) by people outside the United States (inaudible).

GOLDBERG: And that has remained true in 2010 as well?

GOODNIGHT: So - I don’t think the particular laws has any effect on them, but that’s the RND that’s being done overseas where the town is. So -

ELLEN KULLMAN: I think it’s a good first step at harmonizing the laws between us and other countries. I think there are further steps that can be taken because so often it’s - we’re duplicating resources to get these same patents through the different systems and the different countries.

And so I think more coordination there, but I think it’s a great first step. And, you know, we’ve been waiting for this for a long time and I think to John’s point, the benefits of getting this through now and really dealing with the funding issues, dealing with the low-quality patents issues in a - in a real firm way that we can get that, you know, on the table, you know?

For the process changes that are being made just are a tremendous step in, you know, modernizing our system and making us more competitive in the long run.

LECHLEITER: I think, Susan, it - I think we better be careful. I mean, we’re - we’ve declared victory around America Invents, but I think for all of us who run multinational companies, universities that have an international view of things, there’s still a lot of work to be done.

I think greater harmonization would be great, but I think just basic enforcement are concerns for many of us. And is our intellectual property, you know, being respected where we believe we have valid patents outside the United States and do trade agreements, for example, that are being constantly worked on, do they reflect in those trade agreements this country’s position on the importance of respecting intellectual property rights.

I know for many of us who operate in China, for example, intellectual property protection is a significant, important issue. I think it’s recognized by the government, but I think enforcement tends to be - tends to be spotty.

And then when you get to the absolute 180-degree opps of intellectual property protection is counterfeiting and, you know, that’s the ultimate disrespect for intellectual property whether that’s software, whether that’s medicines. It’s a huge, huge global industry, if I can call it an industry, a threat and a - and a - and a real problem that also needs to be dealt with.

So I think that, you know, I.P. more and more is going to constitute the essence of economic growth whether it’s for us or China and I think we need to use America Invents as sort of an anchor point, a set point to say, OK. We think this does represent what we believe is in the best interest of commerce, if you want to put it like that, how do we build out from there, but we can’t ignore these other issues.

GOLDBERG: Yes, Susan.

HOCKFIELD: (Inaudible) I can get back to your good question of can we use this process that was used for patent reform to other issues and, you know, bringing together what in previous years would’ve looked like a very heterogeneous coalition around this particular issue, I think, is a demonstration of just how integrated the innovation system is right now and needs to be even more so.

You know, in terms of, you know, coalitions, we talked about immigration but frankly coalition around research funding. Federal funding for, you know, the seedlings of our innovation enterprise is really important.

It was an industry academy coalition that advanced America Competes that really, you know, brought that into being whether that will be funded at the level that the legislation requires we will - we will see, but I think that when, you know - I had my university colleagues go to Capitol Hill to advocate for what we think are some policies for the long-term vitality of the United States and that is research funding. It appears as though we’re arguing for our own selfish best interests.

And, you know, I like to see research happening at MIT. It’s true. It’s why people come to MIT and I like to be sure that they are funded in a way that they can, you know, make the most out of their own talents and our resources.

However, the presence of industry in that discussion is absolutely critical and it has been critical in the past. I know that, you know, when I go to - go to Capitol Hill, I’ve got a list of stuff that, you know, I think is important in, you know, each of the industry because when you go to visit Capitol Hill, you also have a list and my guess is that funding for basic research might not be at the very top and you might get, like, fourth or fifth.

But I think building the kind of coalition that has been so effective, in fact, and in the past in advancing these, you know, policies that are just - make good sense for the nation in the long-term is really important.

So I would encourage this group to think about coming together around the defense of research budgets because - some - one more little thing, you know? If you look at our research investments over time, the peak in the nation was in the mid-1960s in the midst of the race to the moon, but then, you know, over time, what’s happened is to your point Jim, you know,

Corporations have actually accelerated their investments in R&D and the federal government has backed off, represented as percent of GDP, but what that means is that we are, you know, short-changing the future in exchange for funding the near - the near future or the - or the present.

And so it’s good for everybody, obviously, if federal funds are dependable and sufficient to make sure that the early research enterprise is robust and is furnishing those really good starter ideas that become the great products that the companies put into attention.

GOLDBERG: And then the jobs which is (inaudible).

HOCKFIELD: And the jobs that, yes, they come with that.

GOLDBERG: And Freeman, you had wanted to say something about that.

HRABOWSKI: (Inaudible) telling the stories, documenting the stories, we have a program funded by NSF to create a cadre of women entrepreneurs. You’re looking up and down the Baltimore/Washington (inaudible) and certain kinds of technology comes, you just don’t see many women CEOs.

And we’ve actually educated about 80 in recent years using technologies out of NIH, these are women with backgrounds in entrepreneurship, giving them the business deals, focusing on technology.

And I bring it up because as we’ve gone to tell the story in different places to be able to show the impact of some of the companies that these women are now CEOs of coming out of the technologies out of NIH makes the point to everybody and all of a sudden people are thinking about the university, they’re thinking about the national agencies, they’re thinking about other companies that help these companies get started and then the impact on people. That’s the point.

And the final point is what does all this mean to the American public and how can we see how starting these companies and having these range of people involved can lead to something that’s better for the American public?

GOLDBERG: Well - and Linda, I know you want to jump in, but I’m just - one of the points I’d love to talk about here is the length of time it can really take from the patent, from the R&D process to the patent process to the actually hiring the first person and what can be done to speed that - to speed up that process?

LINDA KATEHI: (Inaudible) will not respond directly to your question, but it would be relevant though. I wanted to come back exactly to that issue about patent reform, first of all, that I also thought that it was a major step forward. But when we speak about the impact of these on economic development eventually, (inaudible) critical partner in this discussion and this is the small and medium-sized companies, the startups. They make a big part of our economy obviously.

And there needs - there’s a question mark that needs to be answered on whether this patent reform went far enough to address the cost issues that small companies and small staff (inaudible) very early. It’s just back to what you said (inaudible) define and set (inaudible) in a very difficult position when they try to claim their own IP which is so critical at that stage.

And there is always - there has been a concern about the cost. That cost issue has been a problem for institutions since - especially those that don’t have a very large research enterprise and the ability to cover it.

And that remains to be seen. We need - really need to pay attention to it. But that is a component that really leads many companies into, you know, going broke before even they make it.

GOLDBERG: Well, and other countries do more to reimburse the inventors for the costs of filing for patents in other - in other countries. I think that China reimburses inventors who get patents in other - in other countries. Should the United States do something like that?

GOODNIGHT: Well, Susan, I mean, probably the - one of the best things that helps smaller companies - it doesn’t really cost that much to file a patent, but when a small company gets hit with a patent suit for supposed infringement, we should at least, you know, some time the next time the patent law is looked out try to add to it that the loser pays.

So if you bring a previous lawsuit and you lose, then you pay. That would help cut out a lot of the patent trouble lawsuits that we’re seeing right now. But, you know, probably another 30 years before they’ll touch this bill again. So -

GOLDBERG: (Inaudible).

LECHLEITER: In the meantime, the post-grant review offers some hope that weak patents can get thrown out earlier in the process and it’s through an administrative process, not through the courts with a bunch of discovery and - so that part really should dramatically decrease the cost, increase the certainty for the inventor.


LECHLEITER: and do it rather early on so that you haven’t invested huge amounts of capital to find that later through the court system your patent’s been undermined.

So there’s a degree of certainty that this new process brings a degree of transparency and predictability that I think ultimately is going to pay dividends for everybody and the small inventor.

GOLDBERG: John, were you going to -

HENNESSY: So Susan, getting back to your question, I think of how long it takes to move from discovery to getting company businesses created product to the marketplace, I think, is an - is an important one that we need to look at and it’s one where industry and universities need to collaborate to speed up that process.

I think if you look at information technology, that’s an industry where it works pretty quickly. Things move very fast, sometimes faster than even anybody would like, but the -

UNKNOWN: You don’t have to build anything.

HENNESSY: You don’t have to build anything, right? You have to - you don’t - and more importantly, I think, you don’t have a regulatory process there.

GOLDBERG: That’s right.

HENNESSY: And I think the regulatory process, there’s a balancing act. Look, we all care about safety in the biomedical sphere. It’s critically important, but that has to be balanced about the - to the extent that which we slow down discovery and the rate at which discoveries move out.

And getting that balance right is a hard problem. It’s a problem that the American public needs to weigh in because they’ve got to understand that there are risks in any medical treatment of any sort.

So - and I think doing something to close the valley of death from the biomedical sector is going to be in all our best interests because we’re investing a lot in basic research. How do we move that process along faster?

GOLDBERG: Does anybody have a sense on how that process moves faster?

JOHN ENGLER: Well, I had a question because I’ve often wondered in the - in the case of approvals and we know that other nations have other medical devices that are, what, two to three years faster in Europe for approval.

I had a company CEO tell me recently even in Japan, he said, “Amazingly, I was approved on a product before I could get it through the FDA here.” And he said, “That’s not an easy feat.”

There are for - in John’s world, I mean, with treatments and that, it does seem to me there ought to be a safe harbor created. We have some things for when someone’s in a stage four of something and if there’s - you know, where can we have assumption of risk so that I might try this if all other, you know, options are gone and how much more robust can that be?

Could there be approval, again, even if it’s on an assumption of risk basis? If something’s been approved in Europe, but not approved here, shouldn’t I be able to - if my medical professional wants to prescribe that to be able to take that?

I mean, those are - there’s a lot that it seems that we could be more creative than we have been.

LECHLEITER: Yes, I think the fact is that our industry needs to build on what John and John just talked about, the effective patent life for biomedical innovation -


LECHLEITER: that’s been shrinking and that’s a function of the time it takes for the regulatory review process to really complete.

And it’s not just the approval. It’s not the one or two years. It’s the whole development process because you’re - the clock’s running. It tends to - tends to run from the time that - the 20-year clock, you know? We start that process. It’s still a 10 to 15-year cycle.

So it’s not unusual to see medicines approved these days that have, you know, not the 14-year protection that the Hatch-Waxman Act envisioned in the early 80s, but, you know, seven to 10 years of patent protection left. OK?

So we’re still - we’re working on that. I mean, I think we made a step forward and the health care legislation included a data protection for biologics. So we have a 12-and-a-half-year period in which the data package - whether you have a patent or not, the data package cannot be referenced by a third party providing, I think, a good degree of assurance that an inventor or new biologic product can get adequate head time for an adequate return.

We don’t have the same thing on the so-called, small molecule side because of this erosion. New patent law, you know, has a lot to offer. It doesn’t deal with that - with that issue. And if you’re an investor, as John was saying, you’re saying, “Should I invest in this company.” I mean, you’re looking at time, the cost of money, predictability and assurance that you’re going to have some period where you have the exclusivity that you need to reclaim that investment and I think that’s still an issue that we have to wrestle with.

KATEHI: Yes. To - this is not the buyer or it’s not the only (inaudible) places this problem, but in the - in the environmental area we have the same thing. The industry - there is industry with interest in their ideas, but there is a lot of reluctance in investing in those because in some states like the state of California, for example, it may take three years to get the permission license to build even a small manufacturing facility that deals with products related to environmental.

HENNESSY: And there’s a lot of - I think particularly in the green tech sector there’s a lot of policy uncertainty.


HENNESSY: What is the country going to do -


HENNESSY: about the issues of CO2 and greenhouse gases? Are we going to have ongoing incentives for renewable energy?


HENNESSY: And if you’re sitting there as an investor thinking about investment in renewable energy and it makes sense if there’s a tax credit and it doesn’t make sense that there isn’t, what do you do?

UNKNOWN: (Inaudible).

HENNESSY: You think the tax credit’s going away. You say, “OK. I’m not going to take the chance maybe in that investment.”


HENNESSY: So, again, we get back to this issue of stability and predictability for businesses and particularly inventors and new businesses.

GOLDBERG: So clearly this whole speed to - speed to market is a big issue? But then there’s also the issue of well, where are the jobs actually going to be located? So, you know, you can have all the patents in the world and you can do a lot to make that process better, but what if none of those jobs or very few of those jobs are in the United States?

KULLMAN: Well, I think an important part of the extension -


KULLMAN: of the America Invents Act is the protection of, you know, intellectual property. And I think that this country has shown that it is willing to go to bat and protect.

Now, I think John makes a great point about making sure that the right words get into the free trade agreements that protect intellectual property, but I think that is an advantage that the United States has a long history of being there and helping companies, industries protect their intellectual property.

We don’t find that everywhere in the world. And I think to continue to enhance that actually, you know, industrial economic espionage that’s on the increase, the penalties for it are de minimus. I think you can go to jail longer for stealing a car than you can for stealing a bit of John’s or my technology.

And I think that whole area of it is the next one we really have to deal with. If we’re going to extract the real value and out of the research and development in the inventions that we are doing today.


TERESA SULLIVAN: (Inaudible), you know, another part of our respect for intellectual property is that the universities have an educational job to do. With our students, it’s starting off teaching them what intellectual property is and why you respect it. Later on, it becomes -

HENNESSY: Especially around music that they (inaudible).


SULLIVAN: And not just music, but anything else they defined as free (inaudible).

UNKNOWN: Yes, exactly.

SULLIVAN: But, you know, later on it becomes teaching everyone how to protect their own intellectual property which is something that they don’t understand.


SULLIVAN: It’s something we have to spend a lot of time with our graduate students who may inadvertently disclose something without realizing they’re even doing it. And then with our own faculty inventors who often really don’t know how to go about protecting their own intellectual property.

So universities are starting to spend a fair amount of their resources on thinking about how we do this kind of education and it’s pretty specialized work. It’s not something that we’ve always done or done well but I think you’re going to see a lot of us doing more of it in the future.

SALLY MASON: I think - I think that’s a great point that Teresa just raised because one of the things that this discussion around patent reform has done is it really has begun to open the eyes of even more of our faculty. There were a lot of our faculty who were engaged in the development and the intellectual property understood this before, but now, even more of them are interested.

So we’re going to glut the system even worse than it’s currently glutted and in the not too distant future just because many more people now are beginning to say, “Oh, I can do that.” That’s something that we can manage to do and the universities are prepared to help me do that.

And we are. I mean, we are - I think many of us have built our research parks, have geared up our intellectual property offices and have - we’re ready for whatever they want to bring to the table on this front, but too many of them have been reluctant in the past and I think that this at least now reengages them in the conversation.

GOLDBERG: Susan, you had -

HOCKFIELD: I want to speak to your question of how do we accelerate this relatively complex - we call it a pipeline, but it’s more like a maze between an invention, you know, the - our discovery of the lab (inaudible), a product for the marketplace.

As you know, in June, President Obama launched the Advanced Manufacturing Partnership. I mean, it - we don’t have easy answers yet. And so AMP is designed to bring together industry leaders, university leaders, the federal agencies that fund innovation to think about how we can kind of map out ways to accelerate this pipeline of innovation.

And AMP has gotten started. We hope to finish our work before election season really gets underway, but it’s starting awfully early. So we hope it’ll be, you know, I think, maybe a nine month process.

So late spring we hope to deliver some recommendations, but the recommendations are around, you know, several, you know, four sets of issues, but what I would call out is the development of technology and collaboration.

So for a lot of new products and a lot of, you know - you know, new things, you know, I don’t think we’re going to be working the software debate too much, but around - to develop a new manufacturing system is enormously time, labor, capital intensive.

And one question that we - we’re work - we’re talking with, you know, again, industry and the academy, is are there some common themes that we can develop and can we set up shared facilities basically in the precompetitive realm that would, you know, offload some of the responsibility from business and, you know, bring the university, you know, a little further, you know, along toward product development, toward manufacturing so that we can co-invent together what this next generation is going to be and an attempt to accelerate the development of new manufacturing.

Yes, I think what’s happened in America, I mean, it’s really quite fascinating. We have a manufacturing initiative that we launched at MIT. It’s called, Production in the Innovation Economy, but to really study what has happened to manufacturing - because where we are in America today is, it is kind of a commonplace. It’s reflex that people say, “Oh, we don’t manufacture in America anymore. Didn’t - you know, didn’t you get the memo?”

And, you know, we may not be the top manufacturing nation on Earth, but if we’re not the top, we are very close second. But the fear is that if we have a national attitude that we’d given up on manufacturing, you know, that mythology will become fact.

And we have to really think hard about all of the components that drive manufacturing and understand, you know, what is possible economically, sociologically to do in the United States rather than assuming that as soon as you go into manufacturing you’ve got to go, you know, to some other country.

And yes, I think this is a very important - I mean, obviously, you know - you know, we think it’s so important that not only am I co-chairing AMP with Andrew Liveris from Dow, we have this study, “Production and the Innovation of the Economy on Campus” because we don’t know what the answers are to accelerating this path and we don’t know the answers for the viability of 21st Century manufacturing America.

We think there are great possibilities, but until we can actually lay out the infrastructure requirements, the human power requirements and the policy requirements, we’re just kind of wandering in the dark and we think we really have to make some order - put some order into this mystery.

GOLDBERG: Yes, Freeman?

HRABOWSKI: It’s just the idea of changing the culture of institutions because, I mean, some institutions have been known for a long time for doing a lot in these areas and then other universities have not been as involved. And I do think for our campus at UMBC, changing the culture has meant really working on the partnerships with the corporate sector.

So our center in advanced sense of technologies works closely with GE and has been able to make amazing progress in some of these areas. And what it means is having the kind of collaboration where you have these research teams across the industry and the institution and it also (inaudible).

This is the part about looking at ourselves, making a decision about what’s important at the university because we have to - Teresa said it well if you kind of cut cost or you find ways in having (ENE), then how are you using that money?

If it’s important to do this kind of work, you have to find a way to put some of that money into this endeavor if you’re going to partner with other people. Now, you can have training as a part of it, to have students too, but it does mean setting priorities, reallocating when necessary and looking at attitudes of everybody involved in the process.


BILL GREEN: Yes, I - you know, when you look at other countries, you know, you find a lot of our innovation is still a craft skill. And in some ways, other countries who started later than us don’t have any baggage and they have had - been able to industrialize their innovation in a more profound way.

And that sort of from idea to outcome and the least possible amount of time with a focus on quality, speed, and cost in that order, no other order, you’ve got this right, work on speeding it, take the cost out of the process.

And so I think as we look at this and goes right through this, you know, valley of death and it goes through this Patent Office thing, it’s, you know, how do we industrialize innovation, right, to get it from idea to outcome, right, with speed and at scale?

And I think we do have a unique advantage here and I think the work you guys are doing in manufacturing is profound. I - and I think if we take that approach to looking at, you know, the manufacturing challenge, if you will, which we tend to think of in a traditional sense, but if we think of it as part of the supply chain from idea to outcome, I think we get a totally different answer. I think we have a totally different proposition for the world when we do that.

HOCKFIELD: And Bill, there’s another little kind of cycle inside that. It’s the feedback from the factory floor, whatever the factory floor looks like, you know, back to the lab bench because that cycle has to be short and if we let the manufacturing go someplace else, we’ve just cut ourselves out of that, you know, cycle that allows you to innovate the next generation.

HENNESSY: I think you’re right, Susan, and it’s a crazy situation. I mean, we design smart phones in this country, we design iPads in this country and then we manufacture them in China.

HOCKFIELD: Right. Well -

HENNESSY: But it’s not - it’s not fundamentally about labor. It’s labor cost differential, right? These are capital intensive, these are intensive in terms of people power, you need a lot of skills around quality assurance and manufacturing engineers that if we’re going to be competitive, we have to produce more people, but those are great jobs we could have in this country.

ENGLER: One of the - one of the outer points, this is a good - a good research project for the economics department Teresa was mentioning their importance too and that’s saying that we need to look at the trade deficit data and begin to disaggregate this a little bit because just the products you just mentioned, if you look at where the value is in there, there’s a whole lot of it’s in the IP side.

And I actually think this would strengthen the visibility and support of IP by - because on a trade deficit, when that comes back, it’s the value of the product. It isn’t just aggregated, but only part of that is really being imported.

And actually in some ways the dollar value of the import’s less if you - if you, again, disaggregate it and looked at that, the dollar of what you’re importing, you’re really re-importing your own IP.


ENGLER: And so is that adding - did that add to the trade deficit or not? I mean, is that a - is that - are we really getting it right? And I think for both the president’s group, you know, that - actually, both of the president’s groups, it’s sort of a fundamental question because we have the sense if we pull the energy costs out, our trade deficits - it’s a lot more reasonable, but if you pulled some of the IP stuff out, all of a sudden it really looks a little bit different.

And it’s just one of those things. I mean, we have a system built up over time, but I’m not sure it measures properly what the economic activity is. We’re still making 20 - about 21, 20 percent of the world’s manufactured goods in this country. We’re still in first place. The problem is, as mentioned earlier, the indicators are all - don’t bet against the countries that’s four times larger (inaudible).

GOLDBERG: Well, Tim, I know you wanted to jump in on that.

TIM SOLSO: Yes, I think there’s another perspective though that’s not a national one in the sense that I would argue the advanced manufacturing U.S.’s leaders, but, you know, we have that in a plan in the United States, but we’ll take that same system and put it in China or India or Brazil or wherever we are.

So we export that advanced manufacturing and then associated with that is the production system that you use with the advanced manufacturing. Again, we standardize, you know, to your point, as quality and as cost and as productivity.

So I don’t think it’s, in our case, it would be tied to a - you know, a particular country. It’s some - it’s, you know, a global company in terms of how we would do that. But I think also going back to the development cycle and reducing time to market is that we now integrate the engineering and the manufacturing almost simultaneously together so you’re not designing something and then passing it on without the manufacture ability, the service ability and that type of thing, and that’s relatively new, you know, in the - I would say in the last five or six years which, again, I tied back to advanced manufacturing.

GOLDBERG: I’m looking to see how all this new law is going to play out in the next few years in development of manufacturing and IT as well.

So John, do you want to wrap up this discussion of our panel system?

HENNESSY: Well, I think what we probably focused on properly here is that the protection of intellectual property remains a national priority, very important, but so too is the enforcement of intellectual property rights.

In other nations around the world, I think that’s an opportunity for the U.S. itself and the U.S. acting through international bodies to up our game. I think that we have -when you had, you know, the dominant share of the intellectual property and the dominant share of the manufacturing, it wasn’t as relevant as it becomes as things shift around the world.

And so to be able to stop a company in Thailand from taking a pharmaceutical product or a company in China from taking a - your software or your - you know, your chemical or whatever and replicating it, pretty important. I think there are reasons in addition to intellectual property. I mean, I think we’ve all become more aware also of the things like safety on a supply chain, too.

And in this country, the liability that attaches if the - you know, the asbestos in the product or the - you know, the insulation, something is wrong there. The other piece of this that I think is pretty darn important is that the intellectual property creation is only a piece of what is really the economic impact and it’s having the right policies that encourage the advanced manufacturing to come along with it.

And then just to Jim’s point, really important because what he just described is a system where he’s got R&D process, he’s got R&D function in Brazil, in China, everywhere there’s a plant. That’s all married up and that’s increasingly happening.

And so it’s not the idea that you can just have the R&D center here or that we’re going to have the high-tech end of the world and we can outsource this low-tech, you know, production piece because increasingly knitting that together - and I think from a - from a tax and a regulatory policy perspective, it challenges whether there’s a presidential commission looking at it or a group like the roundtable or the National Association of Manufacturers get smart with their policy.

And states have tried to do this in their economic development functions, but there’s no national strategy that exists on how we are saying that we want to make sure deep into the 21st Century the United States still place and makes a lot of stuff.

And we recognize that making a lot of that stuff creates a lot of wealth and a lot of jobs.

GOLDBERG: Well, ultimately, that’s what we’ve been talking about today, making a lot of stuff. So let me turn this back over to Al just for a few closing remarks. I want to thank everybody for another terrific discussion.




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