Congress Looks to Stop U.S. R&D From Landing in Other Countries

House lawmakers on Wednesday weighed options to curb the flow of technology-related intellectual property developed by U.S. companies to foreign competitors, particularly the large and emerging markets like China, India and Brazil.

At the final hearing of the House science committee’s subcommittee on investigations and oversight in the current session on Congress, lawmakers aired their frustration that so much U.S.-led research and development, much of it supported by public funding, yields technologies that land in the hands of the country’s economic rivals, often as the result of government coercion or outright theft.

“While the U.S. invests significant taxpayer resources in public as well as in private-sector research and development, other nations remain dedicated to acquiring the fruits of our labor. Their efforts to acquire U.S. technology have clearly had a significant impact on U.S. trade, our GDP and the U.S.’s standing as a world leader in research and development and innovation,” says Rep. Paul Broun (R-Ga.), the chairman of the subcommittee. “Unfortunately, measuring that impact has proved very difficult.”

The witnesses at the hearing outlined the various ways that technology can seep out of U.S. companies, ranging from piracy and corporate espionage to licensing agreements or the foreign acquisition of domestic firms.

In some markets, most notably China, technology transfer is just a cost of doing business, explains Dennis Shea, chairman of the U.S. China Economic Security and Review Council. In that country, companies looking to set up a factory or other facility are commonly subjected to the requirement that they enter into a joint venture with a domestic company, often one backed by the government.

While those arrangements provide the Chinese firm access to valuable intellectual property, which it can then repurpose for its own profit, many U.S. businesses acquiesce because the market opportunity is so great.

“No one’s forcing you to do business in China, but companies, since it’s such a large market, feel compelled,” Shea told the panel.

Lawmakers are quick to point out that the issue of technology transfer isn’t just a concern for the private sector. Citing data from the Congressional Research Service, Broun noted that in fiscal 2012, an estimated $139 billion in federal funds were allocated to R&D programs run out of a number of agencies.

The R&D group Battelle projected that the total volume of U.S. investment in research and development from government, business, academic and nonprofit sources would tally around $436 billion this year.

“American citizens have a huge stake in what American firms do with their innovations,” says Rep. Paul Tonko (D-N.Y.), the ranking member on the subcommittee.

“It is no secret that it is faster and cheaper to adopt new technologies than it is to develop them. It comes as no surprise that with the development of a global marketplace, the intense competition for market share, and the movement to a more open and integrated world economy, governments have turned to policies that will enable their firms to exploit the innovations of others,” Tonko adds.

“I am indeed uncomfortable with the idea that American firms license away innovations subsidized by our citizens. It is bad enough that we have lost jobs when firms offshore production and move out of our communities. The idea that they would exchange taxpayer-supported innovations for market access, however reluctantly, is very disturbing to me,” Tonko says.

Congress Sees the Problems, Solutions Aren’t So Clear

Lawmakers and witnesses at the hearing generally agreed that foreign technology transfer is a significant problem, both in terms of taxpayer equity and the macroeconomic concern that devaluing the intellectual property that results from U.S. R&D will undermine domestic job growth and investment. But policy prescriptions are harder to come by.

Robert Atkinson, president of the Information Technology and Innovation Foundation, a Washington think tank, suggests that Congress consider a limited joint antitrust exemption that would allow rivals within an industry to enter into an agreement to reject coercive or exploitative terms when negotiating with a foreign government to set up operations overseas.

Atkinson recommended that the United States pursue similar agreements with the governments of countries that are grappling with the same technology-transfer challenges, particularly states in the European Union and Japan.

“We can’t solve this problem on our own. We have to do it with our allies,” Atkinson says.

He also advises that lawmakers consider a modest increase in funding for the office of the U.S. Trade Representative to expand it capacity to address technology transfer.

Atkinson notes that the issue has flown under the radar of many policymakers, and that U.S. efforts to protect technologies stemming from domestic R&D have been “haphazard.” But whether U.S. policy evolves or not, U.S. tech firms, beholden to their shareholders to maximize profits, cannot be expected to turn their back on the major population centers in emerging markets.

“A lot of this is not voluntary — the intellectual property theft. There are certain parts where they just take it. There’s another component where companies give it, but they essentially have a gun to their head,” Atkinson says.

“They could not do business. I mean, they could just not go there. I mean they have that option, right?” counters Rep. Dan Benishek (R-Mich.).

“They have that option with regard to Zimbabwe,” Atkinson says. “They could just say we’re going to avoid China and Brazil and India, but essentially … that also consigns them to a long-term competitive disadvantage and perhaps decline.”

Kenneth Corbin is a Washington, D.C.-based writer who covers government and regulatory issues for CIO.com.

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