[Senate Hearing 107-1111]
[From the U.S. Government Publishing Office]



                                                       S. Hrg. 107-1111

                   TECHNOLOGY ADMINISTRATION AND THE 
                  NATIONAL INSTITUTE OF STANDARDS AND 
                  TECHNOLOGY, INCLUDING THE ADVANCED 
                           TECHNOLOGY PROGRAM

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

                                HEARING

                               before the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION,
                         UNITED STATES SENATE,

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 16, 2002

                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation



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       0SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                      ONE HUNDRED SEVENTH CONGRESS

                             SECOND SESSION

              ERNEST F. HOLLINGS, South Carolina, Chairman
DANIEL K. INOUYE, Hawaii             JOHN McCAIN, Arizona
JOHN D. ROCKEFELLER IV, West         TED STEVENS, Alaska
    Virginia                         CONRAD BURNS, Montana
JOHN F. KERRY, Massachusetts         TRENT LOTT, Mississippi
JOHN B. BREAUX, Louisiana            KAY BAILEY HUTCHISON, Texas
BYRON L. DORGAN, North Dakota        OLYMPIA J. SNOWE, Maine
RON WYDEN, Oregon                    SAM BROWNBACK, Kansas
MAX CLELAND, Georgia                 GORDON SMITH, Oregon
BARBARA BOXER, California            PETER G. FITZGERALD, Illinois
JOHN EDWARDS, North Carolina         JOHN ENSIGN, Nevada
JEAN CARNAHAN, Missouri              GEORGE ALLEN, Virginia
BILL NELSON, Florida
               Kevin D. Kayes, Democratic Staff Director
                  Moses Boyd, Democratic Chief Counsel
      Jeanne Bumpus, Republican Staff Director and General Counsel


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on April 16, 2002...................................     1
Statement of Senator Allen.......................................    16
    Prepared statement...........................................    16
    Letter from Jeffery Payne, President and CEO, Cigital, Inc...    17
Statement of Senator Hollings....................................     1
    Prepared statement...........................................     2
Statement of Senator McCain......................................     3
    Prepared statement...........................................     4
Statement of Senator Nelson......................................    23
Statement of Senator Wyden.......................................    21

                               Witnesses

Armstrong, Anne A., President, Virginia's Center for Innovative 
  Technology.....................................................    25
    Prepared statement...........................................    27
Bodman, Hon. Samuel, Ph.D., Deputy Secretary, Department of 
  Commerce.......................................................     5
    Prepared statement...........................................     8
Branscomb, Lewis M., Ph.D., Professor, Harvard University........    29
    Prepared statement...........................................    31
Donnelly, Scott, Senior Vice President for Global Research, 
  General Electric Company.......................................    34
    Prepared statement...........................................    36

                                Appendix

Response to Written Questions Submitted by Hon. John B. Breaux to 

  Hon. Samuel Bodman.............................................    57
Response to Written Questions Submitted by Hon. Ernest F. 
  Hollings to Hon. Samuel Bodman.................................    56
Response to Written Questions Submitted by Hon. John McCain to:
    Anne A. Armstrong............................................    57
    Hon. Samuel Bodman...........................................    43
    Dr. Lewis Branscomb..........................................    58
    Scott Donnelly...............................................    61

 
                   TECHNOLOGY ADMINISTRATION AND THE 
                    NATIONAL INSTITUTE OF STANDARDS 
                     AND TECHNOLOGY, INCLUDING THE 
                      ADVANCED TECHNOLOGY PROGRAM

                              ----------                              


                        TUESDAY, APRIL 16, 2002

                                       U.S. Senate,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 9:31 a.m. in room 

SR-253, Russell Senate Office Building, Hon. Ernest F. 
Hollings, Chairman of the Committee, presiding.

         OPENING STATEMENT OF HON. ERNEST F. HOLLINGS, 
                U.S. SENATOR FROM SOUTH CAROLINA

    The Chairman. Good morning. The Committee will come to 
order. We are pleased this morning to conduct our hearing 
relative to the programs of the Technology Administration and 
NIST, particularly the ATP program. I want to put my full 
statement in the record and let me shorten it by observing that 
this ATP program has been tried and true. We have actually got 
great results--ATP has been studied to death in a sense. It's 
projects have improved automobile manufacturing processes, 
reduced the cost of blood and immune cell production, and 
developed new material for prosthetic devices, all of which 
have more than paid for all of the projects the ATP program has 
funded.
    The reason I emphasize this is that it is always a struggle 
seemingly with the Office of Management and Budget on the cost 
of the program. Every attempt has been made over the years to 
eliminate the program, bluntly.
    I have had the pleasure of working with Secretary Bodman--
and we welcome you here today, Secretary Bodman--on the premise 
and promise of Secretary Evans relative to trying to fine-tune 
the ATP program to the satisfaction of the Administration. With 
regard to those changes, we go along with the participation of 
the universities and various other suggestions, save and 
excepting that recoupment.
    We did away with recoupment in 1992, some ten years ago. We 
found it counterproductive in the sense it discouraged 
companies from participating on the one hand. On the other 
hand, we noted the Administration has suggested, essentially, a 
five times taxation for success of the technology itself. So we 
welcome you.
    Let me yield to my distinguished ranking member here.
    [The prepared statement of Senator Hollings follows:]

            Prepared Statement of Hon. Ernest F. Hollings, 
                    U.S. Senator from South Carolina

    Today's hearing will examine the programs of the Department of 
Commerce's Technology Administration and the National Institute of 
Standards and Technology, with particular emphasis on the Advanced 
Technology Program. We are pleased to have Deputy Secretary of Commerce 
Dr. Sam Bodman, as well as our other distinguished witnesses, here with 
us today.
    NIST is really a hidden treasure. Twice in the past five years, 
NIST Scientists have shared in the Physics Nobel Prize. Whether they 
are investigating the collapse of the world trade center, making small 
manufacturers better, sponsoring innovative research, or improving 
timekeeping, the people of this little-noticed agency continue to do 
amazing work, and I commend them.
    Nonetheless, we continue to be embroiled in an annual tug-of-war on 
funding for the Advanced Technology Program, known as ATP. I am 
encouraged that Secretary Evans and Deputy Secretary Bodman want to 
stabilize this program.
    After all, the benefits of the program are well-documented. The 
program has been studied thoroughly from individual case studies, to 
comprehensive examinations like the 2001 study for the National Academy 
of Sciences' National Research Council. What the analysis shows time 
and time again is that the ATP is stimulating collaboration, 
accelerating the development of high-risk technologies, and paying off 
for the nation.
    The Commerce Department has proposed several changes to the ATP. I 
look forward to examining each of these changes and hope to include 
many of them in a NIST authorization bill this year.
    However, the proposal for recoupment of up to 5 times the original 
amount of funding is not acceptable. First, the program has tried 
recoupment and failed. The Department cites the Clean Coal Technology 
Program of the Department of Energy as a poster child for recoupment. 
That program--established in 1986--has recovered approximately one-
tenth of one percent of the $1.1 billion invested in completed 
projects.
    More importantly, recoupment discourages companies from 
participating in the program. When they do participate, a cost recovery 
provision encourages the companies to say that the enabling ATP 
research had no impact on successful products. In another ten years, 
supporters of the program will have no success stories to tell and 
through recoupment, we will have done what opponents of the program 
have failed to do for ten years, kill ATP.
    And what successes the program has had. Since its inception in 1989 
this industry-led, competitive, and cost-shared program has helped the 
U.S. develop the next generation of breakthrough technologies in 
advance of its foreign competitors.
    On the second panel, we will hear from Scott Donnelly of GE. His 
company, with ATP funding, developed a new method to produce the X-ray 
panels that are the heart of a new digital mammography system. This 
system is giving women and their doctors access to better, cheaper 
digital mammograms.
    A March 1999 study found that future returns from just three of the 
completed ATP projects--improving automobile manufacturing processes, 
reducing the cost of blood and immune cell production, and using a new 
material for prosthesis devices--would pay for all projects funded to 
date by the ATP.
    The ATP is not the only well-regarded program that is threatened. 
In spite of rave reviews and dramatic successes, the Administration has 
proposed to eliminate Federal support for Manufacturing Extension 
Partnership Centers in FY 2003.
    Ironically, these MEP Centers help fulfill one of the top 
priorities stated in the Administration's budget: ``revitalize the 
economy and create jobs.'' MEP helps small manufacturers stay 
competitive and, in 2000, helped these businesses attain $2.3 billion 
in increased or retained sales, save costs of $480 million, and create 
or retain more than 25,000 jobs.
    Support for MEP is strong. Members of the Senate have received 
approximately 8,000 letters from manufacturers and private consultants 
urging us to continue to support the program.
    I look forward to examining these and other related issues and to 
the testimony of our distinguished witnesses.

                STATEMENT OF HON. JOHN McCAIN, 
                   U.S. SENATOR FROM ARIZONA

    Senator McCain. Thank you, Mr. Chairman. Thanks for calling 
the hearing today. I want to thank our witnesses for appearing 
before the Committee.
    As we look forward to the twenty-first century, it is 
impossible to discuss the future without considering the role 
of technology. In the past the United States has focused the 
majority of its research and development funds towards defense. 
However, recent analyses show that Federal R&D funding has 
shifted toward the civilian side. An essential element of a 
modern economy is a well-educated, versatile work force able to 
conduct R&D and to convert its results into innovative 
products, processes, and services. We must continue to refine 
our innovation models to ensure the United States maintains its 
position of leadership in science and technology development, 
given the constantly changing nature of the world.
    Today we will review the Technology Administration at the 
Department of Commerce and its role in the Federal Government. 
The Technology Administration has broad responsibilities, 
ranging from space commercialization to publication of 
technical documents to nanotechnology to local building codes. 
The quality of work conducted at its laboratories in 
Gaithersburg, Maryland and Boulder, Colorado is evident by the 
awarding of two Nobel Prizes to NIST researchers, Dr. Bill 
Phillips and Dr. Eric Cornell, in the past 5 years. To Dr. 
Bodman and the many other engineers and scientists at the 
laboratory, we look forward to your third award in the near 
future.
    This year's budget request, as usual, is not without 
controversy. Usually Advanced Technology Program funding level 
is a point of contention. This year the controversy extends 
into the Manufacturing Extension Partnership Program. I 
understand that the administration had to make some tough 
choices based upon limited resources. It appears the 
administration made a decision to fund ATP at $100 million 
above last year's request while cutting MEP funding by $100 
million below last year's request.
    Although the administration stated that the decision to 
reduce MEP funding was based on retaining the 6-year sunset 
envisioned in the original statute that created the MEP 
program, the sunset was repealed in 1998.
    I look forward to hearing not only what criteria were used 
to reach these budgetary decisions, but also the results of the 
evaluations of the ATP and MEP programs. I think it would be 
helpful to understand how it is in the best interests of the 
country to take away millions of dollars in a program which 
provides assistance to small manufacturers in adopting new 
technologies, processes, and business practices and give these 
millions to a small number of companies, including Fortune 500 
companies, for high-risk long-term research.
    In the spirit of making tough decisions, I would also like 
to understand why the Teacher Science and Technology 
Enhancement Program that was created in 1998 by the Congress to 
work with high school math and science teachers during the 
summer months to help them better understand the relationship 
between technology and commerce, did not receive any 
consideration in this budget request. Given the importance that 
everyone is placing on math and science education and realizing 
the economic potential of technology, how is this a loser?
    I know there are also other programs in which Members of 
this Committee have expressed an interest that are not included 
in the budget request. I hope we can reach a resolution on 
these matters.
    Finally, Mr. Chairman, I am interested in hearing about 
activities at the Technology Administration concerning climate 
change. In the energy bill that is currently on the Senate 
floor there are several provisions that will have an impact on 
the programs of the Department. It would be useful to hear the 
Department's evaluation of these provisions.
    Thank you, Mr. Chairman. I look forward to the witnesses' 
testimony.
    [The prepared statement of Senator McCain follows:]

                Prepared Statement of Hon. John McCain, 
                       U.S. Senator from Arizona

    Mr. Chairman, thank you for calling this hearing today. I also 
thank our witnesses for appearing before the Committee.
    As we look to the 21st century, it is impossible to discuss the 
future without considering the role of technology. In the past, the 
United States has focused the majority of its research and development 
funds toward defense. However, recent analysis show that Federal R&D 
funding has shifted toward the civilian side.
    The essential element of a modern economy is a well-educated, 
versatile workforce able to conduct R&D and to convert its results into 
innovative products, processes, and services. We must continue to 
refine our innovation models to ensure that the United States maintains 
its position of leadership in science and technology development, given 
the constantly changing nature of the world. We must ensure that our 
research continues to lead to innovations which are fueled by a 
technically savvy workforce, and is supported by appropriate technology 
transfer and commercialization activities creating further economic 
growth.
    Today, we will review the Technology Administration at the 
Department of Commerce and its role in the Federal government. I hope 
that we can learn more about the vision for the organization. Because a 
vision without a strategy is just an illusion, I am also interested in 
hearing about the associated strategy.
    The Technology Administration has broad responsibilities ranging 
from space commercialization, to publication of technical documents, to 
nanotechnology, to local building codes. The quality of work conducted 
at its laboratories in Gaithersburg, Maryland and Boulder, Colorado is 
evident by the awarding of two Nobel Prizes to NIST researchers, Dr. 
Bill Phillips and Dr. Eric Cornell, in the past five years. To Dr. 
Bodman and the many other engineers and scientists at the laboratory, 
we look forward to your third award in the near future.
    This year's budget request, as usual, is not without controversy. 
Usually, the Advanced Technology Program (ATP) funding level is the 
point of contention. This year, the controversy extends into the 
Manufacturing Extension Partnership (MEP) program.
    I understand that the Administration had to make some tough choices 
based upon limited resources. It appears that the Administration made a 
decision to fund ATP at $100 million above last year's request while 
cutting MEP funding by $100 million below last year's request. Although 
the Administration stated that the decision to reduce MEP funding was 
based on retaining the six-year sunset envisioned in the original 
statute that created the MEP program, the sunset was repealed in 1998.
    I look forward to hearing not only what criteria were used to reach 
these budgetary decisions, but also the results of the evaluations of 
the ATP and MEP programs. I think it would be helpful to understand how 
it is in the best interest of the country to take away millions of 
dollars in a program which provides assistance for small manufacturers 
in adopting new technologies, processes, and business practices, and 
give these millions to a small number of companies, including Fortune 
500 companies, for ``high-risk'' long-term research.
    In the spirit of making tough decisions, I would also like to 
understand why the Teacher Science and Technology Enhancement Program 
that was created in 1998 by the Congress to work with high school math 
and science teachers during the summer months to help them better 
understand the relationship between technology and commerce did not 
receive any consideration in this budget request. Given the importance 
that everyone is placing on math and science education and realizing 
the economic potential of technology, how was this a loser?
    I know there are also other programs in which Members of this 
Committee have expressed an interest that are not included in the 
budget request. I hope we can reach a resolution on these matters.
    Finally, Mr. Chairman, I am interested in hearing about activities 
at the Technology Administration concerning climate change. In the 
Energy bill that is currently on the Senate floor, there are several 
provisions that will have an impact on the programs at the Department. 
It would be useful to hear the Department's evaluations of these 
provisions.
    Thank you Mr. Chairman, and I look forward to the witnesses' 
testimony.

    The Chairman. Thank you.
    Secretary Bodman, we would be delighted to hear from you at 
this time. We include your statement in its entirety in the 
record and you can deliver it as you wish or summarize, either 
way.

            STATEMENT OF HON. SAMUEL BODMAN, Ph.D., 
            DEPUTY SECRETARY, DEPARTMENT OF COMMERCE

    Dr. Bodman. Well, I have a summary statement. Chairman 
Hollings, Ranking Member McCain, thank you very much for your 
invitation to be here. It is a privilege to be here to talk 
about something near and dear to my heart, namely technology 
and the commercialization of technology.
    I know that the Committee has particular interest in the 
proposals related to the ATP program and I am happy to discuss 
our thinking related to that. I also want to say at the outset 
that I recognize that the level of funding in the 
administration's request is disappointing in some areas and to 
some Members of the Committee. That has already been made 
clear. But this has been a challenging budget year. As you well 
know, the priorities of the administration have been focused on 
the war on terror and on homeland security, and therefore our 
requests for the various programs here represent our best 
judgment as to how to balance the needs of those priorities 
versus the various science programs that are of interest here.
    TA and NIST are committed to maximizing the contribution of 
technology to our Nation's economy. They work with the private 
sector, with our universities and other agencies to spur 
innovation and entrepreneurship. More than ever before, as 
Senator McCain has said, technology is vital to maintaining and 
building our country's strength.
    It is no accident that our country leads the world in 
technology. Our achievements are in my view a dividend of 
funding that was started in the forties, largely from the 
Office of Naval Research, that helped establish the 
technological beachheads in many of our research-based 
institutions, which has then spread nationally to most of our 
universities in America.
    Private enterprise takes the lead in ensuring that the 
United States remains on the cutting edge of technology from a 
commercial standpoint. But our government, our Federal 
Government, plays a critical role in enabling the creation of 
new technology for private industry. The Technology 
Administration is the principal Federal agency with the 
explicit mission to maximize technology's contribution to our 
economy. TA is the leading portal, a bully pulpit, if you will, 
for the Federal Government in its relations with the technology 
industry. The Under Secretary and the Office of Technology 
Policy coordinate policy for the government in partnership with 
industry and the technical or the high tech community.
    Recently, TA hosted a number of workshops, several of which 
I have chaired myself or co-chaired. Topics have included the 
environment for innovation and R and D in the United States, 
the factors affecting domestic demand for broadband 
technologies, the state of technological development in the 
European Union, and the flow of venture capital in Russia.
    As this Committee well knows, NIST is a world-class 
organization that performs cutting edge research. NIST programs 
support homeland security. Currently NIST conducts more than 75 
projects that aid law enforcement, military operations, 
emergency services, airport and building security, and cyber 
security. On March 29th, NIST and FEMA entered into a 
memorandum of understanding that establishes a framework under 
which NIST will be a research source for FEMA in disaster 
prevention and homeland security.
    The administration requests a total budget of $578 million 
for NIST, which represents a total decrease of $103 million 
from the fiscal 2002 appropriation. Within this amount, $396 
million is provided for NIST labs, or a $75 million increase 
relative to 2002, of which $50 million will be used to complete 
and equip the Advanced Measurement Laboratory now under 
construction.
    The new laboratory is a unique facility. It is to be 
completed in late calendar year 2003. Key technology industries 
will require extremely precise measurements and standards at 
the atomic scale and growing demand for these capabilities can 
only be met with the special equipment and the highly 
controlled environment in this new lab.
    NIST will also undertake some long-overdue improvements at 
NIST's Boulder, Colorado, laboratories. Most of these buildings 
are over 50 years old. I would respond, if I may, to Senator 
McCain's comment about our next Nobel Prize winner coming 
along, which I devoutly hope will be the case, but I would tell 
you, based on my eight months of experience in working for the 
government, I have found that our physical facilities do not 
seem to attract maintenance funds in the same way that happens 
in private industry.
    So we find ourselves with a physical infrastructure, of 
which Boulder is an example, that is not conducive to world-
class research, and in fact I think it is raised from time to 
time as a reason that we might have difficulty holding onto the 
kinds of scientists that we wish to keep.
    The plans also are to expand our operations out in 
Gaithersburg at the Center for Neutron Research. This center is 
the best facility of its kind in the United States and is now 
chockablock with demand for time on it and we wish to expand 
the facility.
    The ATP program has been, as has been noted, a subject of 
perennial debate. Last summer Secretary Evans initiated a 
review with the intention of stabilizing the program. He asked 
me to head that up. As has been mentioned, we have confirmed 
that which the Committee already knew, namely that this has 
been a very effective program. We nevertheless concluded that 
some reforms could be put in place that would improve the 
performance of the program.
    Specifically, we have proposed reforms that include first 
recognizing the significant value of the resources that 
institutions of higher education offer by allowing universities 
to lead ATP programs; secondly, to allow universities to 
negotiate with joint venture partners for the right to 
intellectual property, which they are denied permission to do 
under current law.
    It is our view that it would be appropriate to limit very 
large companies' participation in the ATP program to joint 
ventures. We do have a proposal that we believe in that--again, 
this relates to the funding stress that we find ourselves 
under--that some kind of cost recoupment for successful 
projects, a royalty, if you will, from successful awards would 
be appropriate.
    We have recommended that we modify ATP project management 
activities and selection criteria to ensure that the program 
funds technical innovation and development. This is a 
technology program, as to be contrasted with marketing or other 
commercialization activities.
    Then lastly, to ensure that ATP's project evaluation boards 
where appropriate have additional private sector non-
proprietary input as to whether a specific technology is truly 
innovative and not already being adequately supported by the 
private sector. You can read into that some input from the 
venture capital or angel investor community we think would be 
useful.
    We would like to work with the Congress to implement these 
reforms. The Secretary and I have been deeply involved in this 
issue. Personally, I have done so myself and spent a good deal 
of time on it. We have asked for a budget of $108 million, 
which would demonstrate our commitment to the program, of which 
$35 million would be for new projects and the balance would be 
for continuation of those projects which began in prior years.
    In tomorrow's Federal Register the Department will announce 
the fiscal 2002 competition for ATP. We plan to hold a single 
competition open to all technology areas. Those proposals 
received by the first deadline in June will be eligible for 
funding this fiscal year.
    With respect to the MEP program, our $12.9 million request 
for the MEP partnership would return that program, as has been 
mentioned, to its original plan, which called for the phaseout 
of Federal moneys after 6 years of funding. The 
administration's proposal would continue NIST funding for two 
centers which are less than 6 years old and continue full 
funding for those administrative centralized activities that 
are appropriate for coordinating the network of some 60 MEP 
centers, at least in the near term.
    This past year was a notable one for the Baldrige program. 
We awarded our first Malcolm Baldrige Awards in the education 
category. Two school districts, the Chugach, Alaska, School 
District and Pearl River, New York, School District, as well as 
the University of Wisconsin at Stout, accounted for three of 
the five awards.
    I may mention in passing that the young man, a 17-year-old 
senior from Chugach, Alaska, gave the acceptance speech and 
made it exceedingly difficult on those who followed him to the 
podium, who were 20 years older and had to fight to do as good 
a job as he did in his acceptance speech.
    There was a column, David Broder's column, this past Sunday 
about the success of the Chugach School District. Apparently 
the word is getting out that working hard and applying the 
Baldrige quality principles can help our educational 
institutions, and we are optimistic about future awards in this 
field.
    That concludes my introductory remarks, sir, and I would be 
happy to try to respond to questions.
    [The prepared statement of Dr. Bodman follows:]

            Prepared Statement of Hon. Samuel Bodman, Ph.D, 
                Deputy Secretary, Department of Commerce

    Chairman Hollings, Ranking Member McCain, and Members of the 
Committee, I thank you for this opportunity to testify in support of 
Congressional authorization of the programs of the Technology 
Administration and the National Institute of Standards and Technology 
(NIST) within the Department of Commerce. I also understand that the 
Committee wishes to focus particular attention on the reforms that the 
Administration has proposed concerning the Advanced Technology Program. 
I look forward to discussing them with you today.

Technology Administration (TA) and NIST Programs: their goals and 
        importance.
    TA and NIST are committed to maximizing the contribution of 
technology to our national economy. They also work with the private 
sector and other agencies to spur the innovation and entrepreneurship 
that lead to more high-quality, high-paying jobs, which in turn foster 
our country's economic security. A strong economy and national defense 
are not only the bedrock of our quality of life and global leadership, 
but of our very freedom. More than ever before, technology is vital to 
maintaining and building these U.S. strengths.
    As we have all witnessed in the past few months, technology is our 
force-multiplier in the war on terrorism and in homeland security. 
Thanks to technology, we can put the world's finest tools in the hands 
of our military, law enforcement and public safety personnel. Our 
advanced technologies are significantly reducing the risk to these 
American men and women in service to their communities and their 
country. There is every reason to believe that, in the years ahead, 
technology will continue to be a significant force in our economy and 
in the defense of our nation.
    I would like to report to the Committee that on March 29th, NIST 
and FEMA entered into a Memorandum of Understanding (MOU) that we 
believe will significantly enhance the effectiveness of the two 
agencies' cooperation. The MOU establishes a framework under which NIST 
will be a research resource for FEMA in the areas of disaster 
prevention and homeland security.
    It is no accident that the United States leads the world in 
sophisticated technology, both civilian and defense. Our achievements 
are the dividends that flow from sustained public and private sector 
investments in research and development since the late 1940's, coupled 
with America's entrepreneurial spirit and willingness to take risks. 
While under our economic system private enterprise takes the lead in 
ensuring that the United States remains on the cutting edge of 
technology and stays competitive in the world's high-tech markets, the 
Federal government plays a critical enabling role. The U.S. Government, 
in recent decades, has strongly supported scientific and technological 
research, fostered excellence in standards development, and maintained 
laws that foster innovation. These activities--in which the Technology 
Administration plays a key part--have not only helped our industries 
become technology leaders, but have caused our universities to become 
world-class scientific and technological research institutions. I would 
like briefly to outline some of the key operational elements and 
programs of TA and NIST that support this role.

The Technology Administration
    The Office of Technology Policy. In support of the President's 
priorities for science, technology, and U.S. competitiveness, the 
Technology Administration's Office of Technology Policy develops and 
advocates national policies and initiatives that support the use of 
technology to build America's economic strength. Its activities 
include:

   Promoting innovation through leadership and advocacy of 
        policies that encourage research, development, and 
        commercialization of new technologies (such as nanotechnology 
        and biotechnology);

   Representing the interests of U.S. innovators and 
        entrepreneurs in international forums and partnerships;

   Working with states, localities, and Federal labs to 
        institute policies that promote technology-led economic 
        development;

   Fostering national workforce policies that promote and 
        improve the education and training of future scientists and 
        engineers, and by recognizing excellence through the National 
        Medal of Technology program;

   Working with industry to employ technologies, such as 
        telemedicine and other e-commerce applications, in new ways for 
        greater productivity and higher standards of living, and 
        encouraging more students to pursue scientific and 
        technological careers through the GetTech public-private 
        partnership;

   Maintaining close communication and understanding between 
        government, industry and academia on technological and 
        innovation issues. Recently TA has hosted a series of 
        workshops, several of which I have chaired, that build mutual 
        understanding of important market trends and developments. 
        Topics have included the environment for innovation and R&D in 
        the U.S., the factors affecting domestic demand for broadband 
        technologies, the state of technological development in the EU, 
        and the flow of venture capital in Russia.

    The National Technical Information Service (NTIS). The overall role 
of NTIS is to enhance public access to Federal ly generated scientific 
and technical information. I am pleased to report that NTIS is 
performing this important work on a self-sustaining basis. Part of its 
revenue is derived from the sale of technical reports. But, consistent 
with Congress' 1988 mandate that NTIS develop new ways to disseminate 
information and its 1992 mandate to focus on electronic media, NTIS is 
also generating revenue through services to other Federal agencies that 
help them communicate more effectively with their own constituencies 
online.

The National Institute of Standards and Technology (NIST).
    As this Committee well knows, NIST is a world-class organization 
that performs cutting edge research driven by its mission of developing 
and promoting measurements, standards, and technology to enhance 
productivity, facilitate trade, and improve the quality of life.
    NIST, has just begun its second century of service to the Nation, 
and in this period it has already produced some notable achievements. 
In 2001, for the second time in five years, a NIST scientist won the 
Nobel Prize in Physics, the ultimate recognition in science. This time, 
NIST's Eric Cornell, along with a colleague from the University of 
Colorado and another from MIT, won the prize for creating an entirely 
new state of matter, called a Bose-Einstein condensate. This super-cold 
creation, first accomplished in 1995, has launched a new branch of 
atomic physics and unlocked a potential treasure trove of discoveries 
and new technologies. The work of Cornell and his colleagues builds on 
the contributions of NIST's 1997 Nobel Prize winner, Bill Phillips, who 
perfected methods for trapping and cooling atoms with lasers. This 
capability is now exploited in NIST's newest atomic clock, which 
neither gains nor loses as much as one-billionth of a second in 20 
years.
    NIST's standards and measurements activities actively support 
efforts to strengthen homeland security. Currently, NIST is conducting 
more than 75 projects that support law enforcement, military 
operations, emergency services, airport and building security, cyber 
security, and efforts to develop new types of security technologies. 
NIST is truly the ``crown jewel'' of the Federal laboratory system.
    Three particular ongoing or planned initiatives address homeland 
security. The first of these deals with current building design 
standards and practices. Current building design practices do not 
consider fire as a design condition or the consequences of injected 
fuels or other highly flammable materials. Architects, not engineers, 
specify fire protection in buildings, and the current testing standards 
are based on work carried out by NIST in the 1920s. In addition, 
progressive collapse--the spread of failure by a chain reaction 
disproportionate to the triggering event--is an important issue that 
will be investigated in connection with the World Trade Center collapse 
and was responsible for the high number of deaths in the 1995 bombing 
of the Federal building in Oklahoma City. Yet there are no U.S. 
standards, codes, and practices to assess and reduce this 
vulnerability. Beyond designing buildings that are better able 
physically to withstand major disasters, the development of 
``intelligent'' buildings could significantly affect the outcome in 
terms of lives saved.
    For this and other reasons, NIST is proposing to increase the 
resources devoted to its Program for Accelerating Critical Information 
Technologies. This increase in emphasis will support the development of 
networked systems of embedded devices (``EmNets'') to detect, prevent, 
and respond to natural and human-caused disasters. As computing device 
costs decline and capabilities increase, devices and sensors will be 
embedded in buildings, office spaces, manufacturing floors, 
transportation medians, and appliances and will be interconnected using 
wired or wireless networks. EmNets could offer enormous benefits to 
personnel responding to a disaster, providing substantial amounts of 
information in real time that could help to save lives and resources.
    NIST's third new initiative in support of homeland security 
involves the Computer Security Expert Assist Team. This team, based at 
NIST, assists other Federal agencies on a cost-reimbursable basis. 
Federal agencies are taking action to improve security, but most do not 
understand what actions to take or in what order. NIST staff includes 
world leaders in all aspects of information security.
    The Advanced Technology Program. The Advanced Technology Program 
(ATP) has been the subject of perennial debate that has hindered its 
stability and effectiveness. Last summer, Secretary Evans initiated a 
review of the Program with a view toward resolving this debate. The 
results of that review are outlined in a report, The Advanced 
Technology Program: Reform with a Purpose, which was issued earlier 
this year.
    Based on the Department's careful review and analysis of ATP, the 
report highlights important reforms for the Program and more clearly 
defines its role in the R&D enterprise. Technologies developed through 
ATP have significant potential to bring economic growth and benefits to 
the entire Nation. Nevertheless, our review concluded that some reforms 
are needed to provide ATP with the proper tools and direction it needs 
in order to be effective in the 21st century. For example, much has 
changed since the Program's inception over a decade ago, such as the 
increasingly important role of universities in innovative activity. 
Despite this expansion in their R&D role, universities may not, under 
current law, lead ATP joint ventures or hold rights in the intellectual 
property that results from ATP-funded research. The Program needs to 
respond to this and other changes in the research and business 
environment. Specifically, the proposed reforms include:

   Recognizing the significant value of the resources that 
        institutions of higher education offer by allowing universities 
        to lead ATP joint ventures;

   Offering universities increased incentive to participate in 
        developing commercially relevant technologies by allowing them 
        to negotiate with joint venture partners over the rights to 
        hold the intellectual property that results from research;

   Limiting very large companies' participation in ATP to joint 
        ventures. ATP support for companies of Fortune 500 size as 
        single applicants is inappropriate. However, in recognition of 
        the economic value of the diffusion of knowledge--as well as 
        other national benefits that arise from large firm 
        participation in joint ventures--very large companies should be 
        permitted to receive ATP awards, although only as part of a 
        joint venture;

   Allowing recoupment from companies, and reinvestment into 
        the Program, of a percentage of revenues derived from 
        successfully commercialized awards. To accomplish this, ATP-
        funded companies that achieve commercialization would pay an 
        annual royalty to the government of 5 percent of any gross 
        product revenues, up to 500 percent of the amount of the 
        original award;

   Modifying ATP project management activities and selection 
        criteria to ensure that the Program funds technological 
        innovation and development, as contrasted with marketing or 
        other commercialization activities; and

   Ensuring that ATP's project evaluation boards, where 
        appropriate, have additional private-sector, non-proprietary 
        input as to whether a specific technology is truly innovative 
        and not already being adequately supported by the private 
        sector.

    We want to work with the Congress on the implementation of 
appropriate reforms, including recoupment of the government's 
investment in profitable ventures, which can be re-invested into the 
Program. In this way the stability and effectiveness of the Program, we 
believe, can be greatly improved. The Secretary and I have been 
personally involved in this issue and feel strongly about the proposed 
reforms. The Administration's proposed budget of $107.9 million 
demonstrates our commitment to an enhanced ATP.
    NIST Laboratory Initiatives. For the upcoming fiscal year, the 
Administration has requested a budget of $396.4 million, an increase of 
slightly more than $75 million over last year's appropriation. Of this 
amount, $50 million will be used to complete and equip NIST's state-of-
the-art Advanced Measurement Laboratory, now under construction. A 
facility like no other in the world, the Advanced Measurement 
Laboratory is due to be completed in late 2003.
    The Advanced Measurement Laboratory (AML) is extremely important to 
the Nation's technology future. Its unique, highly controlled 
environment is essential to NIST's ability to develop necessary 
capabilities and tools. High-technology industries need advanced 
measurement methods and standards to efficiently develop and produce 
new products and services. The semiconductor, telecommunications, data 
storage, biotechnology, and other key technology industries already 
require extremely precise measurements and standards that are 
approaching atomic scale. Growing demand for these and other 
exceedingly accurate measurement capabilities can only be met with 
special equipment in the unique AML environment.
    NIST is also planning construction and renovation activities that 
will include long-overdue improvements at NIST's Boulder, Colorado, 
laboratories, where most of the buildings are nearly 50 years old. 
Facility-related problems at the Boulder campus include severe 
temperature fluctuations and power interruptions that often threaten 
the quality of NIST data; power outages, spikes, and brownouts that 
damage sensitive equipment; and poor heating and air conditioning 
controls that have prevented the on-time delivery of specialized 
superconducting chips to defense contractors, instrument makers, and 
other NIST customers.
    Key initiatives of the NIST laboratories will help to achieve the 
President's aim to leverage the Nation's technology resources to speed 
progress on several security fronts. For example, NIST plans to expand 
operations and strengthen research capabilities at the NIST Center for 
Neutron Research. This Center is the best and most productive facility 
of its kind in the United States and among the best in the world. As 
growing numbers of researchers are discovering, neutrons are incredibly 
useful probes. Requests for ``beam time'' (experimental measuring time) 
at this facility greatly exceed the Center's existing capacity. We plan 
to take steps to meet this demand for what is a truly unique resource 
for U.S. science. NIST will build staff expertise for the development 
of new instruments and capabilities that will allow the agency to 
increase the number of users by a minimum of 25 percent, from 
approximately 1,750 to 2,300 per year, and strengthen key program areas 
ranging from materials science to biology to fuel-cell research.
    NIST also plans to expand its program in nanotechnology, an 
exceptionally promising area in which NIST is already a leader. 
Miniature technologies are important in many fields, including health 
care, semiconductors, information technology, biotechnology and data 
storage--many of which applications are important to homeland and 
national security. Nearly all industrial sectors plan to exploit 
nanotechnology, and most of their plans call for appropriately scaled 
measurements and standards--NIST's specialty.
    The Manufacturing Extension Partnership Program (MEP). The original 
blueprint for MEP called for NIST to provide cost-share support to new 
centers in the network during their crucial start-up years, after which 
the Federal funding would be slowly phased out and the centers would 
become self-sufficient. The $12.9 million FY 2003 budget request would 
return MEP to this original plan, which called for the phase out of 
Federal monies to centers after six years of funding. The 
Administration's proposed budget will continue NIST cost-share funding 
for two centers that are less than six years old, while allowing MEP to 
continue to provide full technical and product support and coordination 
for the network of centers.
    Malcolm Baldrige National Quality Program. This past year was an 
especially notable one for the Baldrige Program. It awarded its first 
Malcolm Baldrige National Quality Awards in the education category. Two 
school districts--Chugach, Alaska, and Pearl River, New York--and one 
university--Stout University in Wisconsin--accounted for three of the 
five awards given this year. These award winners will be excellent role 
models for 21st century education organizations. We are optimistic 
that, in the years to come, adoption of the Baldrige criteria for 
performance excellence will spread across the education sector. As it 
does, we anticipate that the Program will motivate the same kind of 
revolution in the quality of American education that it helped to 
launch in U.S. industry.
    Mr. Chairman, I thank you for the opportunity to address the 
Committee on these important issues. I will be happy to answer 
questions you may have.

    The Chairman. Secretary Bodman, let the record show that 
you and I have been conferring and also with Secretary Evans--I 
have the highest regard for both you and the Secretary--in 
trying to iron this controversy regarding ATP out, because I 
think you folks have the understanding and want to make this 
program a success or, let us say, continue it as a success.
    In other words, the hearing is to how are we going to save 
a little here, save a little there. For the benefit of the 
hearing, let me relate my feelings with respect to the 
elephantine size of government. It started under President 
Nixon. I will never forget it. What we had was a donnybrook. He 
wanted to send all the money back to the States. Governor Allen 
and I would love that because we have been governors. And the 
Congress wanted to continue all the particular programs.
    So in the conference we had over at the White House, the 
President said: Well, go ahead, just pass both of them. We did 
not know and mind how tricky he was, and we passed both of 
them. He signed both of them and then he impounded ours. In 
other words, the program that the Congress had continued, the 
President cancelled, so we had to sue him.
    Secretary Bodman, you know, you and I are good friends, so 
we are not going to sue each other to get you to spend the 
money. The only reason I think of this story is that you say 
that finally the end of April we are going to begin the 2002 
ATP competition. The fiscal year began in October of last year, 
months and months ago and just now you are coming for the ATP 
program that you say is a very good program, yet none of the 
$60 million in awards are made.
    So in a sense, that is one way to administer it, and 
another way for us to make sure it is administered in the way 
the Congress intended is to sue the so-called tentative 
impoundment or the one-half impoundment, because you are going 
to carry over the $35 million and that is only a request.
    That is one way to save money, but if you want to save 
money, this Committee might look at the space station which 
started out at $8 billion. It is now 10 years over schedule and 
will cost $98 billion over its lifetime. It is $90 billion over 
cost. If you want to save money, Senator, we can go down on the 
floor and save some on that $30 billion farm subsidies that 
they are trying to embellish with this other particular 
program, the corn. They want to put in some several billion 
more there.
    Here with ATP, we have got just a few million dollars and, 
like you say, world-class research. This ATP program of NIST 
started with Craig Fields over there in DARPA. He found out 
that we had all this technology backed up in the National 
Bureau of Standards, and so we created ATP and renamed the 
Bureau as the National Institute of Standards and Technology. 
Now, we are trying to keep it going.
    With regard to ATP, you speak of the original intent. You 
are talking to the original intender. I do not want to sound 
like Al Gore, I invented technology.
    But for example, if we had put it in the universities 
originally that would not have passed muster with Chairman 
Danforth, then Chairman of this Committee. We were trying to 
make sure ATP was not pork, and universities are famed for 
pork. We have got the expert Senator on pork right here to my 
right. They would have eliminated the whole program. That is 
why the universities were not in it.
    Now you are coming recommending pork. You want to get the 
universities into the program. We had it studied out by experts 
and each project has to be vetted by them before an award could 
even be considered and then brought over to the Department of 
Commerce and by your Committee--not you, not me, not the 
President, not the Secretary--on a competitive basis make those 
awards.
    So we made all the fences for pork. Here we come back in 
with the universities' pork, which we are glad to go along 
with. We know about pork. Yet on the other hand, the recoupment 
you propose would discourage participation and the taxation 
really of five times the value of the particular program is 
really on the one hand let us award technology, but make darn 
sure we penalize it if it succeeds.
    I would like your comment with respect to that and with 
respect to only now just coming with the awards. Do you expect 
to make the grants this year of the full $60 million amount 
provided by Congress?
    Dr. Bodman. First I want to reiterate that I am aware that 
you were the creator of this, sir. Secondly, I am relieved at 
your statement that I will not be sued, which I take some 
solace in.
    Thirdly, against the fiscal constraints within which we 
operate, it was my judgment that we would operate with $35 
million of new projects in 2002, $35 million of new projects in 
2003. When we get to the end of 2003, we would be in a position 
where we would not have any carried over funds. This year, as 
you have pointed out, we have had carryover funds, between $30, 
$40 million for each of the last 2 years.
    The current plan would be to award some $25 million by the 
end of June and that we would expect another $10 million plus 
or minus, depending on what we find in the applications, by the 
end of the fiscal year. So the answer is the current program 
would call for awarding some $35 million this year, which would 
be consistent with the requested number for next year.
    That was a judgment that I made, given the overall fiscal 
constraints and trying to even it out so that we would have an 
equal amount of new programs that we would be able to support 
in each of the 2 years.
    With respect to your comments on the recoupment, I do not 
consider it a penalty. I do consider that if there is success 
in these programs, having a royalty to provide additional 
funding that would be able to support the ATP program is a 
reasonable and a responsible thing to do.
    What we have attempted to do, Senator, is to stabilize the 
program. As you pointed out yourself in your opening remarks, 
there has been a lot of controversy apparently over the years 
about this program. It has been criticized on the one hand for 
being corporate welfare; it has been criticized on the other 
hand as being ineffective. We have found that neither of those 
is the case, that there is a need, the so-called ``valley of 
death'' in terms of funding new technology, that that is in 
fact the case.
    We have consulted at some length with Dr. Branscomb up at 
the Kennedy School, who is by my way of thinking the great 
expert in this field, on this topic, and in this country on 
this topic, in order to try to get his views on the matter. Out 
of that came a sense of the reforms that we have put before 
you.
    We do believe in the ATP program, and we will do our best 
in representing the program both to you and to the people at 
OMB who we deal with, as you know, in making the budgetary 
tradeoffs that are part of the budgeting system.
    The Chairman. Thank you.
    Senator McCain.
    Senator McCain. Thank you, Mr. Chairman.
    For years I tried to put a cap on the space station 
expenses as we received testimony after testimony that it was 
spiraling out of control. In fact, we did put a cap, but that 
was weakened by other legislative action, and we now see a 
classic example of a system once beginning to be built 
assembling a coalition of special interests to allow it to go, 
as you mentioned, from $7 or $8 billion to about $98 billion, 
and I guarantee it will be well over $100 billion before we are 
through. However, because one program is out of control does 
not justify other programs doing the same.
    Just to start with, Mr. Secretary, General Electric, one of 
the largest companies in the world, with revenues of $126 
billion in 2001, was awarded an ATP grant in October 2001 as a 
single applicant. That is not corporate welfare?
    Dr. Bodman. I believe that, depending on what definition 
you want to use for it----
    Senator McCain. Why would one of the largest corporations 
in the world need government money to pursue anything?
    Dr. Bodman. The idea of the ATP program is to find the best 
technology that this country has to offer, and those----
    Senator McCain. The largest corporation in the world needs 
that money from the Federal taxpayers?
    Dr. Bodman. Senator McCain----
    Senator McCain. You do not need to bother to continue to 
answer, sir. You have no grounds with which to respond that we 
need to spend the taxpayers' dollars of America in a single 
applicant grant that is awarded to one of the biggest 
corporations in the world. I do not think my constituents would 
agree with such a decision, no matter how worthy the cause.
    Dr. Bodman. Sir, one of the reforms that we put into place, 
at the risk of continuing to answer when you told me not to, 
one of the reforms we put into place would be to put companies 
like General Electric, like IBM, to continue to allow them to 
participate in the program, but not as a sole participant, that 
they would have to be in there as a joint venture participant.
    Senator McCain. Well, that is a wonderful breakthrough.
    But at the same time, while you give corporate welfare to 
one of the largest corporations in America, you cut the Teacher 
Science and Technology Enhancement Program. They do not have 
any big lobbyists around here, the average teachers. They are 
not big soft money contributors. They do not get corporate 
welfare, and yet you cut their program. How about explaining 
that one?
    Dr. Bodman. Sir, to my knowledge that is not a program that 
we have cut and I cannot speak to that. That is a program----
    Senator McCain. You have not looked at this year's budget 
request?
    Dr. Bodman. I have looked at this year's budget request.
    Senator McCain. According to my reading, the Teacher 
Science and Technology Enhancement Program has not received any 
funding request.
    Dr. Bodman. That may well be the case, sir. But as far as I 
am aware--I am not familiar with that program, I have to tell 
you, sir.
    Senator McCain. I can understand that. They are not big 
donors. I can understand why you would not know about a program 
such as that.
    Dr. Bodman. I do not know how to respond to that, sir.
    Senator McCain. I am sure you do not. Senator Brownback and 
I introduced legislation last year requiring the Secretary of 
Commerce to establish a registry whereby companies can register 
reductions in greenhouse gas emissions. The registry would 
provide for trading of these reductions among various 
companies. Similar registry programs are under consideration as 
part of the energy bill.
    One of the main reasons surrounding the registry is which 
Federal agency would lead the effort. DOE currently has a 
registry, but it does not contain the robustness that industry 
needs. Some of those involved in the current industry trading 
activities have told the Committee that what they need most is 
a consistent approach to measuring and reporting reductions to 
ensure when they buy a ton of carbon they are indeed buying a 
ton of carbon.
    Do you feel that the Commerce Department because of its 
relationship with industry has any unique advantages to serve 
this need as opposed to any agency like DOE or EPA?
    Dr. Bodman. No.
    Senator McCain. How do you respond to some critics who may 
say that by making revisions to provide for more university 
involvement it is just an effort to build a larger constituency 
base?
    Dr. Bodman. Is this with respect to ATP, sir?
    Senator McCain. Yes.
    Dr. Bodman. It is my view that the whole funding of 
universities has been modified and changed over the past one to 
two decades. More and more universities, I believe correctly, 
are engaging in the development of new technology, are 
participating in licensing programs, and therefore have greater 
capacity to manage the commercialization or participate in the 
commercialization of technology.
    Therefore, I view it as perfectly appropriate to see that 
universities can participate as full partners in the ATP 
program. The ATP program, as I mentioned before, has been 
successful. I think it can be more successful with greater 
participation of our universities. I do not see it in my view 
as expanding or responding to any particular constituency other 
than trying to do our job of providing an environment for 
commercializing technology.
    Senator McCain. What plans do you have for completing a 
study of the collapse of the Twin Towers?
    Dr. Bodman. The people at NIST, who are among the world's 
experts both on the structures of buildings and on the modeling 
of explosions and conflagrations, are now working on a program 
to model the collapse of the Twin Towers and to reach some 
conclusions as to what modifications might be made in building 
codes throughout the country.
    Senator McCain. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. Senator Allen.

                STATEMENT OF HON. GEORGE ALLEN, 
                   U.S. SENATOR FROM VIRGINIA

    Senator Allen. Thank you, Mr. Chairman. I very much thank 
you and Senator McCain for calling this hearing today and thank 
all our witnesses, especially Ms. Anne Armstrong from the CIT 
in Virginia. I have read her testimony. I think it is very 
cogent testimony and I substantially agree with her assessment 
of some of these proposals. I certainly look forward to working 
with my colleagues to pass this Technology Administration 
legislation and funding this year. There will be some 
controversial issues and it will need some massaging before it 
gets through.
    I have a statement, Mr. Chairman, that I would like to have 
put into the record rather than reading.
    The Chairman. It will be included.
    Senator Allen. Included in there is also a letter from a 
constituent, Mr. Jeffrey Payne, on his experiences with ATP and 
some of his suggested changes and where the program is 
worthwhile.
    The Chairman. it will be included.
    [The prepared statement of Senator Allen follows:]

               Prepared Statement of Hon. George Allen, 
                       U.S. Senator from Virginia

    Mr. Chairman, I would like to thank you and Senator McCain for 
calling today's hearing, and thank all of our witnesses, especially Ms. 
Anne Armstrong, for appearing here today. I believe that it is 
important that we reauthorize the Technology Administration this year, 
and am willing to work with my colleagues to pass this legislation.
    The Technology Administration (TA) serves as the President's 
principal voice on domestic and international technology issues. By 
working with the private sector, TA develops policies that will shape 
the future of American research and development.
    The component parts of TA are the Office of Technology Policy 
(OTP), the Office of Space Commercialization (OSC), the National 
Technical Information Service (NTIS), and the National Institute of 
Standards and Technology (NIST). Through these organizations, TA 
develops policies to improve technology transfer from universities and 
research institutions to the commercial sector, fosters greater private 
investment in space, and serves as a clearinghouse for American and 
international research.
    NIST serves as the most high-profile part of TA by conducting 
``cutting-edge'' research and establishing measurement tools and 
technical standards that ensure national competitiveness. Examples of 
NIST's research include: research on quantum computing; developing 
nanotechnology measurements and standards to support the development of 
new devices and materials on the atomic level; and maintaining the 
Atomic Clock. NIST also runs the Baldridge National Quality Program, 
which is the Nation's premiere award for excellence in the categories 
of business, education, and health care performance.
    The recent awarding of the Nobel Prize in Physics to Dr. Eric A. 
Cornell for his work in creating the Bose-Einstein Condensate 
underscores NIST's commitment to excellence. Dr. William D. Phillips 
won the Nobel Prize in 1997 for his work on cooling and trapping atoms 
with laser light. I would like to congratulate Secretary Bodman and Dr. 
Bement for these awe-inspiring achievements.
    This morning, I would like to emphasize the role that TA plays in 
ensuring our homeland defense. Currently, NIST is formulating a plan to 
analyze the technical causes of the World Trade Center collapse in 
order to update building codes and improve physical infrastructure 
safety. Also, it is establishing voluntary standards for equipment that 
will protect police, fire and EMS personnel. In addition, NIST works 
with other federal agencies to protect our Nation's critical 
infrastructure by developing encryption standards, and resolving 
vulnerabilities in the federal information systems.
    I am interested in hearing about the Administration's plans 
regarding the Manufacturing Extension Program. Virginia's A.L. Philpott 
Manufacturing Extension Partnership helping 1,000 manufacturers 
throughout the state. I am concerned that a cut in the federal funding 
to this center would result in a loss of expertise.
    In addition, I would like to highlight the importance of fully 
funding the construction and maintenance of NIST laboratories and 
facilities. It is important that this infrastructure be properly 
maintained in order to ensure continued groundbreaking research.
    I am also interested in hearing the Secretary's views on how to 
reform the Advanced Technology Program, and today's debate on this 
issue.
    Finally, I would like to point out the important role that NIST can 
play in ensuring free trade and access of American goods to foreign 
markets. Some of our trading partners have used standards as non-tariff 
barriers to keep out American products. NIST can play major role in 
international standard setting organizations to establish commonly-
accepted technical standards that will prevent this practice and expand 
international trade.
    Again, thank you, Mr. Chairman, for holding this hearing. I look 
forward to hearing from our witnesses.
                                 ______
                                 
                                                    Cigital
Hon. George Allen,
Commerce, Science, and Transportation Committee,
Washington, DC.

Dear Senator Allen:

    Your interest in the Advanced Technology Program (ATP) has recently 
come to my attention. As Virginia's first single company ATP award 
winner and also Virginia's first two time ATP award winner, I'd like to 
express my opinion about the ATP program.
    Cigital helps companies build and deploy software that is reliable 
and secure. We have worked with 35 of the Fortune 500 helping them 
protect themselves against software failure. Cigital Labs, our award 
winning research laboratory, has won research grants and contracts from 
a number of prestigious federal agencies (e.g. National Security 
Agency, Defense Advanced Research Projects Agency, National Science 
Foundation, NASA) during our ten-year existence. The Advanced 
Technology Program out of the Department of Commerce has been the most 
beneficial research program we have been involved in. There are a 
number of reasons why this is so:

        1.  ATP is the only research program that makes its awards 
        decisions based partially upon business criteria. In the past, 
        Cigital has been frustrated by federal agencies that award 
        research money to companies who have little or no plans or 
        ability to commercialize the technology they are proposing. My 
        belief is that applied research programs are most effective 
        when there is not only a good research idea but a solid 
        business plan for commercialization that has been thought 
        through. ATP's rigorous review of an ideas business plan as 
        part of the proposal selection process is an excellent way to 
        accomplish this

        2.  ATP is staffed by both scientists and business 
        professionals. Most research programs give no guidance on the 
        business aspects of technology transfer and commercialization 
        of ideas. By assigning both a technical and business program 
        manager to each ATP project, the Advanced Technology Program 
        assures that adequate time is spent on the business aspects of 
        each research idea.

    There are, however, several issues with ATP that if corrected, 
would improve the program:

        1.  Too much money goes to Fortune 500 companies. ATP is 
        supposed to fill the gap between idea generation and 
        institutional funding (i.e. Venture Capital). The program 
        should not be giving scarce ATP money to large companies who 
        are obviously not in this funding gap.

        2.  Focused ATP programs have been abolished. Traditionally, 
        ATP awards were given in each of a series of programs focused 
        on a particular technology topic (e.g. biotechnology, software 
        component technologies, homeland security). These topics were 
        selected by ATP program managers based upon industry feedback 
        on those technology areas most important to our economic 
        future. Today, all proposals are evaluated through a ``general 
        competition'' where any topic can be proposed. This has greatly 
        increased the politics associated with which proposals are 
        funded and which are not.

    In summary, the ATP program has been of tremendous value for 
Cigital and America. If the above program issues are adequately 
addressed, ATP is a model for how all applied research programs should 
be structured and run.
        Sincerely,
                                             Jeffery Payne,
                                   President and CEO, Cigital, Inc.

    Senator Allen. I would say that some of the aspects of 
NIST, which is obviously the most high profile part of the 
Technology Administration, is developing some examples of good 
research, including research on quantum computing, and 
developing nanotechnology measurements and standards to support 
the development of new devices and materials at the atomic 
level. I am going to ask you, Secretary Bodman, in a second 
about some of the fire and police and EMS personnel 
interoperability and communications improvements.
    You do have some aspects of this that I have some concerns 
and it has not really been mentioned much on the Manufacturing 
Extension Program in cross-examination, but I do have some 
concerns, especially with the thousands and thousands of jobs 
we are losing, generally due to international competition. The 
only way that I see us competing in the future is with better 
technology that does not require maybe as many employees, but 
with better quality and better technology.
    To my point of view and sentiments, this may not be the 
best time to be making such radical changes in that 
Manufacturing Extension Program, and that will all get worked 
out.
    Let me ask you a question here or series of questions 
relating to public safety communications interoperability. One 
of the major issues that arose from the emergency responses to 
the attacks, terrorist attacks on September 11th, was the 
inability of fire and police and emergency services to work 
together. It was not that they could not work together. They 
were having a hard time communicating and they were all on 
different wavelengths, and they ought to be on the same 
wavelength.
    The Office of Law Enforcement Standards at NIST has 
experience in developing wireless communications standards. You 
may know that here in the Metro D.C. area Maryland, Northern 
Virginia, and the District of Columbia are working on what is 
called CapWIN so they all can get on the same wavelength.
    Now, as far as the guidelines for interoperability for 
criminal justice and public safety areas, what recommendations 
would you make on how to resolve this communications 
interoperability issue?
    Dr. Bodman. That is a very technical question, Senator. I 
do know that the NIST office that you referred to is in fact 
working on this matter and that we will have forthcoming a 
series of recommendations as to how to improve it. There are 
ways of, if you will, jerryrigging the system now so that we 
could solve it, but I think the more appropriate thing is to 
put standards in place, which these people are great experts 
on, that would enable the problem that you referred to, which 
is in fact a real problem, to be dealt with once and for all.
    That is all I know about the topic. I would be happy to 
come back to you with a more complete schedule and answer on it 
than I can give you at this point in time.
    Senator Allen. Well, I would just want to emphasize, Mr. 
Chairman, to Secretary Bodman how important this is for our 
homeland security. The standards being developed I think would 
be very helpful to local, regional, and state law enforcement 
and also emergency personnel.
    I would also suggest in this and other areas, rather than 
trying to have the government or NIST reinvent the wheel or 
invent a new wheel, that there are many enterprise or 
commercial applications that can be adapted to the governmental 
needs, whether they are Federal silos that need to communicate 
or whether they are state or local, and all actually do need to 
communicate with one another.
    I met with a company--I am not suggesting this is the only 
solution--but a company called M/A-COM, who said they had a 
system whereby you would not have to buy new equipment, but 
just get the existing equipment to communicate. So I would hope 
that in the midst of this study and analysis of standards and 
determining what is workable, that you listen very closely to 
hundreds of those in the private sector who have ideas.
    I am not one to be able to evaluate what everyone says to 
me, but nevertheless if you can evaluate and be a testbed of 
assistance to law enforcement and emergency personnel, but also 
listen to the private sector to see which of those systems 
could work the best if they so desired to procure them.
    Dr. Bodman. I think the Senator is certainly correct in 
underscoring the importance of the problem. The challenge is 
there are any of a variety of ways to solve it, and the goal 
here is to try to get an approach hopefully making use of 
current equipment that is already available so that we do not 
have to, as you point out, reinvent the wheel.
    So that is the challenge, where you have got a lot of 
different solutions and how do you pick the one that is 
optimum. That is the challenge that confronts them. I can, as I 
said before, be happy to get you more information as to what 
the schedule or anticipated schedule is.
    Senator Allen. Good. I am very much interested in it. 
Although Senator Wyden is not here, I know that he shares the 
same view. We are working together on what we call NET Guard, 
trying to get technology people involved in helping out with 
national homeland security.
    Thank you, Mr. Secretary.
    The Chairman. Mr. Secretary, I can probably give one answer 
to the reason that the largest corporation would want taxpayer 
money. Thirty-five years ago, General Electric Corporation had 
this submersible called TECTITE. It was down over 100 feet at 
the bottom of the ocean and with the astronauts and others, 
aquanauts, we went down in it. I became friends of Mark Norton 
and Mr. Otto Clymer, two vice presidents of General Electric.
    One day Mr. Clymer came in, he had a big briefcase full of 
technology and said he was headed to Japan. It seemed that what 
had occurred is the Pentagon had put on a competition out at 
Vandenberg Air Base for servicemen's housing. They wanted to 
get the finest little house at the most economical cost. Three 
bedroom, two and a half bath, for $21,000 was the winner by 
General Electric Corporation. They put in, instead of copper 
gutterings, composite guttering and piping and different other 
innovations of that kind, with insulation and otherwise.
    I said: Why are you taking that to Japan? He said: Well, 
the bureaucratic snarls here with all of the zoning laws. We 
will just waste too much time going through that bureaucratic 
maze, and we can make way more money by just selling the 
technology.
    Otherwise, there is a better reason and that is that you 
put corporate executives under the pressure, if you do not get 
the stock up within 3 years you are gone, and so they do not 
have time for any long-term investments. A lot of this 
outstanding technology that needs to be entered into and 
researched, needs to be developed and commercialized, takes 
longer than the 3 years.
    So the largest, richest corporation in the world would pass 
it by and sell it off, just like GE was selling off that 
housing technology that was the winner, that the Pentagon had 
put the program on and everything else and did not get the 
advantage of it because there were certain other things 
commercially they found with the city councils and otherwise on 
zoning laws. They said, look, this is fine, we won, but let us 
sell it and move on to something else.
    That is the way the richest corporations operate. So they 
are encouraged in this program to participate.
    Let me ask about those facilities, though, that you 
mentioned at Boulder, Colorado, and out here in Maryland. You 
said the physical infrastructure--this is not a hearing on what 
you need out there, but this Committee is vitally interested in 
it--will not attract first class research. Mr. Secretary, tell 
us about that before I yield here to Senator Wyden.
    Dr. Bodman. As far as I know, the physical infrastructure 
in Gaithersburg is in good shape. That is a more modern 
facility. Some of the funding that has been requested will go 
to providing a more secure environment, to providing, for 
example, protection of some of our nuclear instrumentation such 
that they cannot be attacked. So we are dealing there with the 
homeland security issue. That is really what is involved in 
Gaithersburg.
    The statement that I made I believe to be true and that is 
that many of our older facilities have not been properly 
maintained, and that is certainly the case in Boulder. The 
Boulder facility is wanting in adequate utilities and just the 
things that one needs to do in maintaining any old structure. 
It needs to have funding in order to keep it up to snuff.
    I have had the same experience, frankly, in visiting both 
the Census and the NOAA facilities in Suitland. The Suitland 
facility, which is owned and operated by GSA, is an 
embarrassment, and we have taken some steps to the extent that 
I can do it to see to it that we live with the facilities there 
until we can get new facilities built. That is now an ongoing 
thing.
    But I was just making the observation, which I believe to 
be true----
    The Chairman. It is an important observation, Mr. 
Secretary. Give us a memo, please. Give the Committee a memo on 
suggested needs both out there at that NOAA facility and at 
Boulder and wherever. The Committee is vitally interested in 
that.
    Senator Wyden.

                 STATEMENT OF HON. RON WYDEN, 
                    U.S. SENATOR FROM OREGON

    Senator Wyden. Thank you, Mr. Chairman. First let me say, 
Mr. Chairman, how much your leadership has meant in this area. 
I mean, the fact of the matter is we would not have these 
public-private partnerships in the technology area except for 
the fact on ATP and on the MEP program you put those together. 
They exist because you have been at it all these years and we 
want you to know we appreciate that.
    The Chairman. Thank you.
    Senator Wyden. Just a question or two, if I could, for you, 
Dr. Bodman. Your people have been very helpful to Senator Allen 
and myself. As you know, we have proposed a major initiative 
with respect to dealing with the events of 9/11, the NetGuard 
legislation. The Science and Technology Mobilization Act 
proposes the creation within NIST of a national clearinghouse, 
a testbed, to look at the security and response products that 
have flooded the Federal government.
    Senator Allen and I found after our hearing that thousands 
of these products had essentially come unsolicited to the 
Federal government. Some of them seem promising, others not so 
promising. But there is no systematic way at present to really 
test them and evaluate them on the basis of objective criteria.
    So in our legislation, Senator Allen and I proposed that 
NIST really look in a thoughtful way at these various 
technologies so that we can have in effect a government-wide 
capability for examining them. Your folks have been very 
helpful to the two of us, and I would just like to have your 
thoughts on the record with respect to NIST's ability to look 
at a function like this, assuming it was properly funded.
    Dr. Bodman. Well, first of all, I am aware of the 
legislation. Secondly, the Department is studying the proposed 
legislation and will be shortly issuing a formal response.
    My own thoughts, in the absence of having had any preview 
of where the evaluation is going, is that I think it is a good 
idea to have some central facility. The people at NIST are 
largely qualified to deal with the technological evaluation of 
instrumentation. Whether they have the breadth of knowledge and 
experience that is necessary to do everything that is required 
in this field, I do not know. So that is part of what we are 
doing, is to try to understand what will be required and do we 
have the necessary capabilities of doing it.
    I always worry where you have a centralized group that is 
trying to make a technical judgment, if you will, picking the 
winners from the losers, and you do not have the market 
involved in it, it makes it a problem. One man's expert is 
another man's meddler. So I would want to be sure that we can 
really do a good job, and we will do our best to evaluate 
precisely what will be required, the range of technical skills 
needed, and we will give you a response.
    Senator Wyden. That is a thoughtful answer. I want to make 
clear, and I know Senator Allen agrees with this, we are not 
interested in the Federal government picking winners in the 
technology area. The last thing we need to do now is to have 
some kind of industrial policy in the technology field.
    What we do want is some objective effort to look and to 
report on whether or not these products seem promising and what 
areas the government and the private sector should look for. 
You have been very cooperative in this area.
    The only other question stems from another hearing that we 
held in the Science and Technology Subcommittee after 9/11. In 
that hearing we found that there were no uniform standards for 
equipment used by firefighters in trying to respond to chemical 
and biological attacks. What we found there is that the typical 
department, the typical fire department, did not have the 
capability for looking at these various technologies.
    As you know, NIST already tests equipment used by law 
enforcement agencies in many areas, so we have been interested 
in looking at the agency's role in again testing chemical and 
biological agent detection equipment so as to help the 
firefighters. My understanding is that you have begun some 
discussions within the Department on that and I would be 
interested in a report there as well.
    Dr. Bodman. I am less familiar with that. I always hesitate 
to say that there is anything that NIST cannot do because they 
are so able. They obviously have a lot of skill in the fire 
area. They have demonstrated their capability in the 
bioterrorism area in certain respects, that is to say dealing 
with the anthrax problem that we had and how to analyze it and 
deal with the issues.
    So all I can say is I believe they will have the capability 
that you are looking for, but I do not have a specific response 
for you at this point in time.
    Senator Wyden. If you could give us a status report on that 
as well.
    Dr. Bodman. Be happy to do it.
    Senator Wyden. We will work with you closely on the 
NetGuard effort. I share your views with respect to the role of 
NIST, and obviously the agency is going to have to have 
adequate resources to do that. We do offer some additional 
funds in the NetGuard proposal, and we thank you for your 
cooperation.
    Thank you, Mr. Chairman.
    Dr. Bodman. Thank you, Senator.
    The Chairman. Thank you.
    Any further questions?
    [No response.]
    The Chairman. Mr. Secretary, we are very lucky to have you 
and your willingness to serve in government. You have had some 
tough questions, but that in no way indicates anything other 
than the highest respect for you and for Secretary Evans. The 
Committee will continue to work with you, and we will see if we 
can iron out these differences and keep these two programs 
going.
    I was just remembering Craig Fields of DARPA. He is the one 
who started us on this course with the Rapid Acquisition of 
Manufactured Parts. It was put in for the Navy. A ship breaks 
down in the Gulf, the ship is 23 years old. They do not make 
the part any more. It lies fallow there in the Gulf for 2 or 3 
months while they are trying to get the part. All the parts 
now, not just for the Navy but for the Air Force and everyone 
else has adopted this particular program that came out of the 
National Bureau of Standards, because we found that that 
research and technology was over there.
    We computerize every part, and we file it. So all we have 
to do is just punch, find the history of that particular part, 
and it is manufactured and out there in a couple of days.
    So we thank you very, very much--excuse me. Senator Nelson.

                STATEMENT OF HON. BILL NELSON, 
                   U.S. SENATOR FROM FLORIDA

    Senator Nelson. Thank you Mr. Chairman. Just a quick 
question, Mr. Chairman.
    Dr. Bodman, you have jurisdiction over the little Office of 
Space Commercialization and during another confirmation I asked 
about the importance of that office and spoke about the 
importance of that office from the standpoint of the United 
States having a viable commercial space industry. Yet the 
office has not had a director for about 2 years. Can you tell 
me when that position will be filled?
    Dr. Bodman. I do not have an answer for you. I can tell you 
that I have spent a good deal of my personal time with people 
from the space manufacturing industry trying to understand 
their needs and we have been working on particularly issues 
related to the licensing of products so that they can be more 
efficiently sold and made available in the marketplace. So that 
it is a topic that I have spent some time on.
    But I do not have a quick answer as to any schedule for 
filling that particular role.
    Senator Nelson. Well, I would suggest that you look at it. 
We are now a year and a quarter into the new administration. 
The office is vacant.
    Let me just suggest, Mr. Chairman, quite quickly what is in 
the interest of the United States. If all of the capability of 
launching goes abroad to others, primarily the competitor, the 
European Space Agency, and the Chinese want to get into the 
market. There are combinations between the Russian Zenit 
rocket, and other folks that want to put payloads on the top of 
that. Pretty soon you start diminishing the U.S. ability to 
have lift capability to get into orbit, and sooner or later 
there is going to be a terrorist act in trying to deny us some 
of our capability of getting into space. The more robust stable 
of horses that we have to get to space, to get our assets, the 
more it is clearly in the interest of the United States.
    That is one of the reasons why this little office was set 
up years ago when I was in the House, and I would suggest that 
you start looking for a director for that office.
    Dr. Bodman. I will certainly try to understand what that 
office, specific office, is and respond to it. As I say, I have 
spent time with the various industry associations and the 
companies themselves. The challenge that one has in this area 
is on the one hand trying to protect the national security, and 
our friends in the Department of Defense have strong feelings 
about what should or should not be exported.
    The issue is having enough of a market to support 
industries that are U.S. industries that have this kind of 
capability. What you would like to have is a market greater 
than that in the United States, so that to the extent that 
products can be developed and sold elsewhere it allows you to 
spread the cost and keeps the cost down for each individual 
product. That is the reason that we have spent time on matters 
related to licensing and what can be exported and what cannot 
be exported and who controls that and what are the terms of it 
and so forth.
    So those are some of the issues involved on it. But I will 
certainly--as I said before, I do not have a comment or a 
schedule for filling that particular job. But I thank you for 
your comments, sir.
    Senator Nelson. That is not what I am speaking of. The 
issue that you raise, for example of whether there ought to be 
a license for an American spacecraft to be launched on a 
Chinese Long March rocket, I happen to take the side with the 
Department of Defense. I have been rather hard-line and hard-
nosed on that for years.
    But I am talking about keeping a viable expendable launch 
vehicle market alive with U.S. manufacturers. The Office of 
Commercial Space has a good bit to do with that and there needs 
to be a director in that office. So I would like very much, 
since I raised this at a previous confirmation hearing and a 
year and a quarter later it is still vacant and you have 
oversight responsibility on it, I would like to have a report 
from you of when that position is going to be filled.
    Dr. Bodman. You will have it, sir.
    Senator Nelson. Thank you.
    Thank you, Mr. Chairman.
    The Chairman. In that regard, Mr. Secretary, please pay 
attention to the satellite business. Specifically, today is 
April the 16th. By April 30th the Chinese are going to make a 
decision, and we are in competition with the French and the 
French have been using the bureaucratic holdup in the United 
States against one of the best producers of space satellites in 
all of history.
    Specifically, this Committee was having all kinds of 
difficulties with our weather satellites in the Ford technology 
section of Ford Motor. There were cost overruns and everything 
else. Mr. Bernard Loral came, sat in that chair where you are 
seated, testified that he could do it with a certain cost fixed 
and a certain time fixed, and he produced, his company, under 
cost and under time.
    He got delayed because there was an insurance 
investigation, they tell me, about certain instrumentalities 
there in China, but that has been cleared. The Defense 
Department has cleared it. The State Department is happy and 
everyone else is happy, but no one moves. Since we do not have 
anybody interested in the Department of Commerce in this 
particular business, if we lose this then they will go on, like 
investors will respond in the corporate world and we will lose 
that business and then we will lose that technology.
    So get into the satellite business right now that they are 
interested in and have been trying to shake loose this 
particular administration. Otherwise, by the end of the month 
here in two weeks' time we are going to lose that business.
    Dr. Bodman. Senator, I cannot predict what is going to 
happen with respect to the decision. I can tell you, sir, that 
I have spent time on it.
    The Chairman. You have?
    Dr. Bodman. Yes, sir.
    The Chairman. You know about this one?
    Dr. Bodman. Yes, sir.
    The Chairman. Oh, good.
    Dr. Bodman. So I have talked to the people involved and the 
issues, the complaints, come about whether, particularly from 
the European competitors, have been effective in describing the 
licensing process that goes on in the Federal Government and 
that is a delay and that therefore that causes delays and 
should be a reason for a foreign nation to buy something from 
the French or whoever.
    So no, we have been. We have advocated. I have advocated 
for it. I have been in China, advocated for it. So we have not 
been uninvolved in this matter. But neither can I promise what 
the result will be.
    The Chairman. Well, as long as you know about it and you 
are involved, you know as much as this Senator does, then. I 
just did not want to pass this by and nobody act on the 
particular measure.
    We thank you very much and if there are no further 
questions then we will move to panel number two. Thank you very 
much, Mr. Secretary.
    Dr. Bodman. Thank you.
    The Chairman. Ms. Anne Armstrong, the President of the 
Virginia Center for Innovative Technology; Dr. Lewis Branscomb, 
the Aetna Professor in Public Policy and Corporate Management 
at the Belfer Center for Science and International Affairs at 
the Kennedy School; Mr. Scott Donnelly, the Senior Vice 
President for Research in GE Global Research for the GE 
Company.
    [Pause.]
    The Chairman. Ms. Armstrong, we welcome you. We have your 
statement in its entirety. It will be included in the record 
and you can deliver it or summarize as you wish.

          STATEMENT OF ANNE A. ARMSTRONG, PRESIDENT, 
          VIRGINIA'S CENTER FOR INNOVATIVE TECHNOLOGY

    Ms. Armstrong. I will give you a short version of it.
    The Chairman. Thank you very much.
    Ms. Armstrong. Chairman Hollings, Members of the Committee, 
Senator Allen: I am the President of the Virginia Center for 
Innovative Technology. A lot of people know that as the upside-
down building out by Dulles Airport, but we are a State-funded 
nonprofit organization that supports the growth of technology-
based businesses in Virginia, the deployment of technology 
throughout the State, and the development of our State's 
research infrastructure. We have ten regional offices around 
the State and a staff of around 40 people.
    Like ATP, we invest in early stage, high risk research, 
although such awards are part of a portfolio of programs that 
we provide to help build the technology industry in Virginia. 
Our total budget is around $10 million a year, so we count on 
complementary programs from the Federal sector to help our 
businesses.
    As our own State budgets have declined and as the 
availability of venture capital has dried up, particularly in 
the seed and early stages, we count even more on these valuable 
programs to help our companies and our State progress.
    The two programs that support businesses at the very early 
stage of R&D before the venture capitalists will deal with them 
are the ATP and the Small Business Innovative Research, the 
SBIRs. But the ATP is typically earlier stage and it has larger 
scale projects. Virginia companies have done very well in 
winning the SBIR awards. For several years running, we have 
ranked third among the States in the total number of awards. We 
are working, like many other States, to improve that early 
stage research, how it is commercialized and moved into the 
economy.
    Virginia companies have not won very many ATPs. We are 
participating in between one and five projects a year over the 
life of the program, but the ones that we do win are in very 
promising areas. These companies would not ordinarily receive 
venture capital for such projects because of the stage of 
development of the technologies and because they are located in 
parts of the States that do not have a strong venture capital 
community, places like Bristol on the Virginia-Tennessee border 
and Blacksburg, which has one of our largest, strongest 
research universities, but is not where a lot of venture 
capitalists live.
    In the last 2 years CIT has established a good working 
relationship with the ATP management and we are focused 
currently on raising awareness throughout the State, as well as 
addressing what some people in the State perceive as barriers 
to participation on the university side. The Virginia General 
Assembly has given us a number of studies to look at in the 
coming year specifically on commercialization and looking at 
some of the intellectual property issues. I will not go into 
all of those.
    Virginia companies since 1990 have won 24 ATP awards 
totaling $38.4 million, a number that could be increased 
dramatically by reforming some elements of the program, 
particularly reforms that make it easier for our universities 
to participate, that promote small business involvement while 
still allowing large firms and their resources to participate, 
and improve the program marketing, most of which are addressed 
in the Evans report.
    The Evans report makes six recommendations for reforming 
ATP and I would like to make a few comments on our reactions to 
those. The first recommendation concerns allowing university 
leadership of ATP joint ventures and the second would allow 
university and other nonprofit organizations to negotiate 
ownership of ATP-funded patents.
    We support this approach as long as all the parties 
involved support it and the projects are evaluated with the 
same or perhaps more attention to the degree of industry 
participation and the market potential for the technology. We 
have heard and understand suggestions that universities should 
not take the lead in what is essentially a business venture. We 
have also heard universities' claims that they are unable to 
participate in the program if they have to relinquish ownership 
of the intellectual property. We suggest that allowing 
universities to lead might remove a barrier or a perceived 
barrier to more university-industry participation in the 
program, which is an issue that we are facing in Virginia.
    The third recommendation would allow large firm 
participation in ATP joint ventures. We support this as long as 
there is consideration for participation by small businesses. 
Small businesses can benefit from the resources and the 
infrastructure of their larger partners, and several of the 
existing projects in Virginia represent these sort of 
partnerships.
    While the argument is often made that large firms can well 
afford to undertake this research on their own dollar, they do 
in fact contribute funding to the research. Further, ATP 
funding allows the firm to expand its research horizon beyond 
the immediate concerns of the bottom line and allows specific 
researchers within a large organization to explore a line of 
research.
    The fourth recommendation would require royalties on 
government investments in profitable ATP ventures. We do not 
support this because we have found in Virginia that the 
approach does not work. It sets up a contentious relationship 
as the funding organization also becomes a bill collector. We 
have tried several versions of payback and we are about to 
abandon our own royalty-based programs and replace them with 
new arrangements.
    When funding early stage research that is not always 
directly traceable from the product to the commercial stage, we 
have found that payback generally generates more heat than 
cash. We also believe with recoupment as a goal ATP program 
managers would have far less incentive to invest in high-risk 
projects, basically transforming them into government-sponsored 
venture capitalists.
    I see my time is up and so I will pass.
    [The prepared statement of Ms. Armstrong follows:]

          Prepared Statement of Anne A. Armstrong, President, 
              Virginia's Center for Innovative Technology
    Chairman Hollings and Members of the Committee

    In my testimony, I will discuss why NIST's Advanced Technology 
Program (ATP) is important to our organization and to Virginia. In the 
process, I'll tell you some of what our organization does. We do have 
specific responses to the recommendations for reforming ATP in the 
Evans report. Finally, we offer some additional thoughts on how state 
organizations, such as CIT, could work more closely with ATP in the 
future.
    I am the President of Virginia's Center for Innovative Technology 
(CIT), a state-funded nonprofit organization that supports the growth 
of technology-based businesses in Virginia, the deployment of 
technology throughout the state and the development of our state's 
research infrastructure. We have ten regional offices and a staff of 
about 40. Like ATP, we invest in early stage, high-risk research, 
although such awards are part of a portfolio of programs we provide to 
help build the technology industry in Virginia.
    Our total budget is some $10 million per year, so we count on the 
complementary programs from the federal sector to help our businesses. 
As our own state budgets have declined, and as the availability of 
venture capital has also dried up--particularly at the seed and early 
stages--we count even more on these valuable programs to help our 
companies and our state progress.
    The two programs that support businesses at the very early stages 
of R&D, before the venture capitalists will deal with them, are the ATP 
and Small Business Innovative Research (SBIR), but ATP is typically 
earlier stage and has larger scale projects. Virginia companies have 
done very well in winning SBIR awards. For several years running, we 
have ranked third among the states in total numbers of awards. We are 
working, like many other states, to improve how that early stage 
research is commercialized and moved into the economy.
    Virginia companies have not won very many ATPs, winning or 
participating in between one and five projects per year over the life 
of the program, but the ones we do win are in some of the most 
promising technologies--transgenics, nanotechnology, and networking. 
These companies would not ordinarily receive venture capital for such 
projects because of the stage of development of the technologies, and 
often because they are not located in parts of the state with a strong 
venture capital community--places like Bristol, on the Virginia-
Tennessee border, and Blacksburg, home to one of our strongest research 
universities, but far from where most venture capital firms are 
concentrated.
    In the last two years, CIT has established a good working 
relationship with ATP's management, and we are focusing currently on 
raising awareness in the state as well as addressing what some perceive 
as barriers to participation on the university side. For example, The 
Virginia General Assembly has requested CIT and a number of other 
stakeholders to;

   develop a statewide policy and uniform standard for the 
        commercialization of intellectual property developed through 
        university research (HJ88),

   recommend incentives necessary to encourage the 
        commercialization of university research and development 
        (HB530), and

   establish a task force to study best practices for assisting 
        the development of technology-based businesses that will 
        produce jobs and other economic benefits throughout the 
        Commonwealth (HJ206).

    In addition, Governor Mark Warner campaigned on the platform of 
improving the state's technology transfer capabilities to extend 
prosperity to other areas of the state, and has continued this focus in 
the first months of his administration.
    Virginia companies, since 1990, have won 24 ATP awards, totaling 
$38.4 million, a number that could be increased by reforming elements 
of the program, particularly reforms that make it easier for our 
universities to take participate, promote small business involvement 
(while still allowing large firms and their resources to participate), 
and improve program marketing, most of which are addressed in the Evans 
report.

The Evans report makes six recommendations for reforming the ATP. While 
        we generally support the recommendations, we do have some 
        comments:
    The first recommendation concerns allowing university leadership of 
ATP Joint Ventures, and the second recommendation would allow 
university and other non-profit organizations to negotiate ownership of 
ATP-funded patents. We support this approach, as long as all the 
parties support the approach and the projects are evaluated with the 
same, or perhaps more, attention to degree of industry participation 
and the market potential for the technology.
    We have heard and understand suggestions that universities should 
not take the lead in what is essentially a business venture. We have 
also heard universities' claims that they are unable to participate in 
the program if they have to relinquish ownership of intellectual 
property. We contend that allowing universities to lead might remove a 
barrier, or a perceived barrier, to more university/industry 
participation in the program--an issue we face in Virginia.
    The third recommendation would continue to allow large firm 
participation in ATP joint ventures. We support this as long as there 
is consideration for participation by small businesses. Small 
businesses can benefit from the resources and infrastructure of their 
larger partners, and several of the existing projects in Virginia 
represent these sorts of partnerships. While the argument is often made 
that large firms can well afford to undertake this research on their 
own dollar, they do, in fact, contribute funding to the research. 
Further, ATP funding allows the firm to expand its research horizon 
beyond the immediate concerns of its bottom line or allows specific 
researchers within the large organization to explore a line of research 
that would not normally be considered core to existing business 
functions. CIT has undertaken similar projects with large Virginia 
companies in addition to our mainstay work with small companies, and 
the resulting jobs, additional revenues resulting in additional taxes 
paid, cost savings to the company or their renewed commitment to 
remaining in the state has given us substantial return on these 
investments.
    The fourth recommendation would require royalties on government 
investments in profitable ATP ventures. We do not support this because 
we have found the approach does not work well, and it sets up a 
contentious relationship, as the funding organization also becomes a 
bill collector. Virginia has tried several versions of payback, and we 
are about to abandon our own royalty-based program and replace them 
with new arrangements. Especially when funding early stage research 
that is not always directly traceable from the product and commercial 
stage, we have found the payback generates more heat than cash.
    We also believe that with ``recoupment'' as a goal, ATP program 
managers would have far less incentive to invest in the highest risk 
projects, effectively transforming them into government-sponsored 
venture capitalists.
    The fifth recommendation specifies that ATP would only fund 
projects that support removal of scientific or technological barriers 
to development. We support this approach instead of recommendation 
number 4. This language provides additional shoring up of the program's 
intent, as we understand it, but doing this works directly against 
recoupment, since it ensures earlier stage research.
    The report's final recommendation would change the ATP Project 
Review and Evaluation Process. We have no comment on this. We have not 
heard or experienced anything to warrant changing the existing system, 
and we understand that using federal experts for the review ensures 
recourse for non-adherence to confidentiality agreements, but we use 
outside experts to review proposals from time to time and we would 
recommend leaving it to the ATP management to decide how to proceed.
Some additional comments:
    Most federal (and state) programs would benefit from additional 
marketing in order to expand the pool of potential applicants. State 
entities--such as CIT--can help the program in these endeavors. We have 
existing relationships with a number of potential ATP clients. We 
recommend improving the mechanisms for working with state entities in 
spreading the word on the program, training potential applicants how to 
participate in the proposal process and potentially even evaluating 
proposals, if outside review is an avenue chosen by the ATP management.
    We strongly support ongoing funding for this program, and this 
point was also made in a March 19th presentation to Virginia's 
Congressional Delegation by the Virginia Research and Technology 
Advisory Commission. Our state entities support the program. Our 
companies and to some extent, our universities have benefited from the 
program. We support 5 of the 6 reforms proposed in the Evans report. We 
are troubled by the ``recoupment'' recommendation. We hope you will 
take my comments into consideration when considering the report. Thank 
you for your time.

    The Chairman. Thank you very much.
    Dr. Branscomb.

            STATEMENT OF LEWIS M. BRANSCOMB, Ph.D., 
                 PROFESSOR, HARVARD UNIVERSITY

    Dr. Branscomb. Senator, as a former Director of the 
National Bureau of Standards, I had the pleasure of creating 
the laboratory that just won the two Nobel Prizes, and my pride 
in the National Bureau of Standards and NIST is great. It is a 
fine technical community and it is entirely appropriate that 
the ATP program should be rooted in its technical excellence. 
It is a technical program and we are grateful to you for your 
leadership in creating it.
    I am going to respond quickly to the six recommendations 
made by the Department of Commerce. I do it on the basis of 
research that I have been doing for two years. The research is 
funded by ATP. You probably know that ATP has a small economic 
analysis unit independent of the actual project part of the 
operation, and I am pleased at their interest in our studies 
done collaboratively with an economist, Dr. Philip Auerswald.
    We have in fact just completed the last two years of work 
tracing the sources of risk money for this invention-to-
innovation transition, which is what ATP provides. While this 
is still under review by ATP and by our advisory committee, I 
have two copies of this available for your staff because I know 
you are actively considering it and I have been given 
permission to share that with you.
    Let me turn immediately to the proposed reforms from the 
Department. I certainly support the first two related to 
universities. In particular, I know a number of universities 
that have told me that they just cannot see how they can 
participate if they are not even allowed to negotiate with the 
companies in their consortium the intellectual property rights 
for the work done by their own people in the university. That 
seems like a no-brainer to me.
    The issue of whether the university should play a lead role 
in the consortium, that just seems to me a practical issue. We 
are talking here about high-risk, very advanced technology. The 
universities are increasingly interested in going beyond just 
the basic research limits, which the government funds very 
generously, to do the sort of reduction to practice of the 
technology. A lot of this is done in engineering schools, and 
that kind of technology, practical but intellectually demanding 
work that the universities do is in many cases more 
sophisticated than what the companies can do, but much of the 
same kind.
    So the collaboration is very logical, and I see no reason 
why, if the university assembles a group of companies for a 
project, that is any less desirable than a company assembling a 
university and several colleagues. The criteria for the award 
should not be influenced by whether a university had the talent 
and the leadership to put the program together.
    With respect to the third proposal on the large companies, 
I listened to Senator McCain. I have heard that same reaction 
from lots of folks. I think that is a political reality. I do 
not believe that constraining the big companies would damage 
the program much, but I have to tell you that in the research 
we have done, we did four very detailed case studies of ATP 
awards or programs that involved, among other things, an ATP 
award. One of them was in fact a General Electric program, how 
they went about developing amorphous semiconductors and 
applying them ultimately to medical instruments.
    I can respond to questions later about why I think that 
would not have been done without government funding of a 
variety of kinds, even though GE was a very rich company and 
even though Mr. Welch took a personal interest at one point in 
trying to keep this project alive when there was no market for 
it.
    Let me skip to the third proposed reform, which is that ATP 
funding not fund product development but stay at the early 
stage, just beyond the invention stage, the reduction to 
practice stage. That is certainly right. That is what ATP does 
already. That is what I think your law says they should do, and 
so I see no problem in saying it again, and I will come back to 
that in just a second.
    The fifth proposal says that the ATP people in their 
evaluation process--the sixth one, I am sorry--should look to 
experts from outside to a greater degree, and it mentions 
venture capitalists. I believe that is a wise thing to do, but 
the people they should talk to are the angel investors, not the 
venture capitalists. There are very few venture capitalists 
that do this very early stage seed investment. Venture 
capitalists are in the business of buying companies cheap and 
selling them high. Of course they like to buy technology 
companies cheap and sell them high because they typically have, 
may have, very rapid growth.
    But that is very different from what angel investors do, 
who have been there, done that, and are looking--and cashed 
out--and are looking for bright young entrepreneurs who want to 
do it again. They offer not only money, but advice and entry 
into the network that makes it all go. I am sure those folks 
can be very helpful to NIST providing can figure out how to 
protect the proprietary information of the companies, which 
they of course do and they are authorized to do under the law.
    Having said that, let me return to the controversial 
recommendation for reform, which is the recapture. I have 
exactly the same arguments against it as you do, and that is 
this is a technology program and this would provide a very 
perverse incentive to the ATP managers. They would be driven to 
in fact invest in product development or even in manufacturing 
if they can get away with it, because the have got to get the 
money back somehow by recapturing profits.
    If in fact ATP does what you have told them to do and what 
the Commerce Department tells them to do in their reform number 
five, and that is invest only in the technology and stop before 
they get to product development, and the company does the 
product development, then you are asking the company to pay the 
government a royalty on the money they spent on the product.
    In fact, I do not even know exactly how the company would 
know which product actually benefited how much from the R&D 
that they did with the government. So it seems to me very 
difficult to administer and it drives the ATP management to do 
the wrong things.
    Thank you.
    [The prepared statement of Dr. Branscomb follows:]

           Prepared Statement of Lewis M. Branscomb, Ph.D., 
                     Professor, Harvard University

    I am pleased to have the opportunity to provide to this committee 
my views on the ATP program in general, and my observations on the 
evaluation of the program and recommendations for reform from the 
Secretary of Commerce in particular. Let me first address the 
recommendations from the Secretary of Commerce. I will follow with the 
reasoning behind my conclusions, which is based in part on research Dr. 
Philip Auerswald and I have conducted on the transition from inventions 
to innovations in the US economy.
    I applaud the Commerce Department's report on ATP. They came to 
reasoned and well-supported conclusions that should go a long way 
toward ending the debate, often conducted along ideological lines, over 
the program's future. Secretary Evans and Deputy Secretary Bodman 
concluded that ATP is a useful policy tool for accelerating science-
based innovation in our economy. They proposed six reforms, which I 
paraphrase for brevity.

        1. Universities should be able to lead ATP consortium projects.
        2. Universities should be able to negotiate patent rights with 
        firms.
        3. Large firms should be eligible for ATP funding only in 
        consortia.
        4. ATP should recoup profits by a 5 percent royalty.
        5. ATP should fund only technology prior to product 
        development.
        6. ATP should improve its evaluation process with inputs from 
        venture capital experts and other such sources of information.

    I strongly support the first two of these recommendations, which 
would clarify the important role that universities already play in ATP 
and would remove one serious and unnecessary impediment to intensified 
university participation in ATP-supported projects: the denial of 
university access to intellectual property that results from their work 
with a firm or firms in an ATP program. I have heard from a number of 
senior research officers of universities that such denial of their 
legitimate rights to the fruits of their work--in contradiction to the 
intentions of the Bayh-Dole Act--caused them to decline to participate 
in any ATP consortium. The DOC wisely would have the Congress leave the 
negotiation of intellectual property rights to the parties directly 
involved--the firm(s) and the university. I urge the Congress to make 
whatever legislative adjustments are required to enact this change, and 
further to allow a University to be the lead party in a consortium if 
such an arrangement is agreeable to all involved parties.
    The third proposed reform would permit large firms to participate 
in ATP projects only when part of a consortium including smaller firms. 
I see this change as primarily responsive to the understandable 
political objection concerning grants going to firms with deep pockets. 
Examples exist in which an ATP grant to a large firm was, in our view, 
fully justified. We have studied in detail one such case involving GE. 
However, I do not believe this change would materially reduce the 
effectiveness of ATP, and it has the benefit of eliminating one point 
of contention regarding the program.
    Let me now skip to the last two proposed reforms, before returning 
to the fourth pertaining to recoupment.
    The fifth proposed reform, which limits ATP funding to projects 
that have not yet reached the product development stage, represents a 
reiteration of the rules already governing the program. This principle 
is certainly correct. ATP is a research and development program focused 
on early stage technology development. The only difficulty I see here 
is that the rule as stated will have to be interpreted properly. Policy 
debates usually characterize early stage technology development as a 
linear process that begins with a workbench model and ends successfully 
with the development, production, and marketing of a commercially 
viable product. In reality the process is often iterative. The first 
product may be unsuccessful, but by producing it the firm learns enough 
about customer needs and reactions to create another that is 
successful. With a breakthrough technology, the process of trying to 
develop an entirely new market may take years, with many stops and 
shifts in direction. This fifth proposed reform should be interpreted 
as focusing ATP funds on technology R&D in order to determine product 
specifications, production processes and costs of a developed product, 
but requiring projects to rely on private funds for the actual product 
development when such information is in hand. The possibility that a 
prior product of perhaps marginal success had been designed by a firm 
(with its own funds) should not disqualify the firm from submitting an 
ATP proposal for technology project that remedies prior problems with 
the technology, covers new technical ground and leads to other, more 
successful products that may follow.
    Finally (reform 6) the DOC would have ATP improve the evaluation 
process with inputs from experienced venture capitalists and other 
sources. This is sensible advice, but I would suggest that only a small 
number of VC firms are experienced at evaluating technology based 
projects in early stages of development. A richer source of that talent 
is found among individual private equity investors, commonly known as 
``angel'' investors--for example members of Silicon Valley's Band of 
Angels and similar groups elsewhere. These experienced innovator-
investors could indeed be of great help to ATP if protection of 
applicant firm's proprietary information can be assured.
    Let me now turn to the one reform (no. 4) to which I take 
exception: the proposal to recoup profits accruing to ATP supported 
projects by a capped royalty of 5 percent. While this proposal appeals 
to an intuitive sense of fairness, it is deeply problematic in at least 
two respects.
    Firstly, to the extent that such recoupment might become a primary 
mechanism by which ATP was funded, it would introduce a perverse 
incentive into the ATP project selection process. In order to ensure 
ongoing funding, project managers would be motivated to pick projects 
that are close to product development. It this sense, proposed reform 
number 4 works against the spirit of proposed reform number 5. In 
effect it pushes ATP to act as if it were a ``public venture capital'' 
business, despite the fact that the program (correctly) lacks the 
ability to use many of the management tools that VC firms routinely use 
to manage their risks--staged investments, the taking of positions on 
the firm's board, acting to replace the CEO when necessary, etc. As the 
5th and 6th proposals from the Secretary of Commerce suggest, the 
proper role of a Federal technology program such as ATP is in the 
support of nascent firms and projects--more the domain of the Angel 
investor than of the venture capital firm. Popular press accounts 
notwithstanding, venture capital firms are not in the R&D business. 
Rather, they are in the business of earning maximal returns to their 
investors by buying firms low and selling them high. Venture 
capitalists do indeed back high-growth, new ventures. In many cases, 
though not the majority, they support firms that are bringing radical 
new technologies to market. However, even when venture capitalists do 
support technology-based enterprises, they prefer to support ones that 
have at least proceeded beyond the product development stage. For all 
of these reasons, I do not believe the ``public venture capital'' model 
is a good one for ATP.
    A second problem with the recoupment proposal concerns the 
challenge of computing the royalty. In my view, this would be a 
daunting task. If royalties are based on the profits generated by a 
product, what product shall be associated with the ATP R&D? Reform 5 
says ATP stops before the product development phase begins. In essence, 
the recoupment would be on profits derived from the firm's investment 
in product development and manufacturing, not on ATP's R&D investment.
    Let me conclude this part of my testimony with on observation based 
on my 50 years of experience with the Department of Commerce, beginning 
when I first went to work there in 1951. In my view, the Department of 
Commerce has today, with the appointments made in the last year, the 
strongest leadership team for understanding the role of innovation in 
our economy that it has ever had. We are fortunate to have a Secretary 
of Commerce who is trained in engineering; a Deputy Secretary who led 
one of America's most innovative firms and understands the world of 
industrial research and of capital investment in high tech industry; an 
Undersecretary, now also Chief of Staff, who is also experienced in the 
high tech world; and an exceptionally gifted and well qualified 
director of NIST, Dr. Arden Bement. The committee can place its 
confidence in Dr. Bement and the senior members of the department with 
whom he works. With support from the President and Congress, NIST can 
fulfill its promise as the one laboratory in government that truly 
understands the world of research and innovation in support of a 
strong, knowledge-based economy.
    Let me turn now to a brief background discussion of the process of 
technological innovation in the United States that will support my 
previous observations regarding the reforms to ATP proposed by the 
Secretary of Commerce.
    The transition from invention to innovation plays a very important 
role in our economy, and is unlike the pursuit of business growth in an 
established, competitive environment, or the performance of research in 
the pursuit of knowledge. For new product ideas to create new markets 
requires entrepreneurship, science and engineering imagination, cross-
cultural trust, dreams of riches and willingness to risk failure. My 
coauthor, Dr. Philip Auerswald, and I have explored the risks faced by 
scientists and inventors with dreams of a new product or a new 
business; the risks faced by an entrepreneur trying to bring that dream 
to commercial fruition; and the risks faced by investors who put their 
own money--or other people's money--into a nascent technology-based 
venture with inherently and irreducibly uncertain prospects. \1\ More 
recently we have completed a study for NIST tracking the sources and 
flows of risk capital that are available to high tech entrepreneurs to 
create commercially promising innovations. This work is now being 
reviewed by NIST, and I expect it to be published in the next couple of 
months.
---------------------------------------------------------------------------
    \1\ (See L M. Branscomb and Philip Auerswald, Taking Technical 
Risks: How Innovators, Executives, and Investors Manage High Tech Risks 
(Cambridge MA: MIT Press, 2001)
---------------------------------------------------------------------------
    I can share with the committee a few of the most important things 
we have learned:

   Entrepreneurs and private equity investors alike 
        consistently state that there exists a financial ``gap'' facing 
        early stage technology ventures seeking funding in amounts 
        ranging roughly from $200K to $2 million. Entrepreneurs report 
        a dearth of funding sources for technology projects that no 
        longer count as basic research (and perhaps eligible for 
        federal science funding) but are not yet far enough along to 
        form the basis for a business plan (which could attract the 
        typical $7 million in venture capital funding). At the same 
        time, venture capital firms and other investors are sitting on 
        record sums, with over $70 billion still undisbursed from funds 
        raised during the boom years.

     We should not be surprised by this. Whenever outcomes of 
    investment are uncertain, social and private benefits diverge, and/
    or products are indivisible, we can no longer expect competition to 
    yield efficient outcomes--a theorem that comes not from ``New 
    Economy'' prophets, but rather from a classic analysis of inventive 
    activity published four decades ago by Nobel Laureate Kenneth 
    Arrow. Clearly, early stage technology development involves 
    uncertainty, imperfect ability to capture full benefits, and 
    indivisibilities. Whether or not efficient markets exist on Wall 
    Street may be an open question. However, efficient markets do not 
    exist for allocating risk capital to early stage technology 
    ventures.

   The primary sources of funding for early stage technology 
        development are not venture capital firms, as many people 
        believe. Nor are they state governments or universities. The 
        leading sources of support for the conversion of inventions to 
        innovations are the ``angel'' investors to whom I referred 
        earlier; large corporations still willing in the current highly 
        competitive global economy to support promising technologies 
        outside of their core business; and government programs like 
        ATP and SBIR.

   Angel investors are especially important, not only because 
        their investments in early stage technology development far 
        outpace those by venture capitalists, but because the best of 
        the Angels are themselves successful entrepreneurs who made 
        their millions, cashed out and now look for promising images of 
        themselves. They are more than sources of money; they are 
        mentors who help newly minted entrepreneurs get access to the 
        networks of trust that make Route 128 in Boston and Silicon 
        Valley in California such a fertile ground for new ventures.

    These findings lead me to four observations:

   The financial gap is real, but, as noted above, it reflects 
        a gap in information, in networks of trust, and in the 
        experience to perform the ``due diligence'' required by any 
        investor. It follows that the government should not attempt to 
        become a public venture capitalist. I am in full agreement with 
        Josh Lerner of Harvard Business School, Richard Florida at 
        Carnegie Mellon, and others on this point. But the government 
        should selectively identify entrepreneurs with promising 
        technical ideas and share with them the risks of reducing these 
        ideas to practice in the context of a promising commercial 
        market. This is what ATP does; and it does it well.

   ATP should therefore focus on its role as an R&D program (as 
        the DOC's 5th reform proposal requires), and take every 
        opportunity to leverage the most important sources of radical, 
        interesting technical ideas. The research universities have 
        shown themselves to be rich sources of those ideas and their 
        ability to help ATP achieve its goals should not be needlessly 
        limited.

   ATP's performance consequently should be evaluated by its 
        success at identifying and nurturing--in partnership with 
        innovative firms--promising new technologies capable of 
        building a foundation for economic growth. The goal is, of 
        course, to create jobs and wealth for Americans. But that is 
        the ultimate, not the immediate, goal of the program. Indeed it 
        is often the case that a R&D project that fails in terms of ex 
        post objectives nonetheless yields extremely useful technical 
        insights that translate into economic rewards as subsequent 
        projects profit from earlier learning.

   ATP has now over a decade of experience. It has been the 
        subject of extensive, impartial, and thorough reviews by a wide 
        variety of leading scholars. Now the Department of Commerce has 
        concluded that it is a useful program. Although much is still 
        being learned about the nature and risks of high tech 
        innovation, I believe that it is time to stop treating ATP as 
        an experiment. Instead, it is time to promote continued 
        prosperity and future economic security in the United States by 
        funding the program at a level appropriate to its important 
        mission. One guide to identifying such level is to analyze the 
        relative resources available to ATP and SBIR, in comparison 
        with their relative documented effectiveness in achieving 
        critical national goals. I believe ATP is the more effective 
        program of the two, and thus that it should be funded at a 
        level closer to that of the SBIR program.

    Finally let me note that this Committee might want to explore the 
potential role of ATP in the S&T component of the nation's 
counterterrorism effort. I am co-chair with Richard Klausner of a 
project of the Academies of Science and of Engineering and of the 
Institute of Medicine to explore the role of S&T in counterterrorism. 
Our report is on schedule to be released in early June. I believe that 
report will make evident the kind of role ATP could play in this 
context, based on the diverse forms of innovation that are needed from 
the private sector in partnership with the public sector. When our 
Academies' study is complete, I would be happy to explore this idea 
further.
    Finally I want to acknowledge and thank Dr. Philip Auerswald and 
Brian K. Min for their contributions to the preparation of this 
testimony.
    Thank you.

    The Chairman. Oh, boy. You answered all of my questions.
    Mr. Donnelly.

           STATEMENT OF SCOTT DONNELLY, SENIOR VICE 
            PRESIDENT FOR GLOBAL RESEARCH, GENERAL 
                        ELECTRIC COMPANY

    Mr. Donnelly. Thank you, Mr. Chairman, Senator Allen. In 
fact, he has given my testimony, so I will briefly summarize 
it.
    GE, certainly we are appearing on behalf of support of the 
NIST ATP programs. We have had the opportunity over the last 
few years since the inception of the program to participate in 
a number of technologies that are certainly very early on in 
their technical life cycle, just coming out of basic research, 
in areas as widely ranging as health care, generation of 
electricity, and the consumption of electricity.
    ATP for us has generated I think a unique environment that 
encourages collaboration between universities and academic 
settings, the government, as well as private sector businesses 
such as ourselves, as well as other large and small companies 
alike.
    The nature of the program has been very supportive in terms 
of providing some funding for very early things. We look 
primarily at the role and responsibility of academia and 
nonprofit institutions to do the basic research. We obviously 
spend most of our research money in the adaptation of that 
technology and turning that to commercially beneficial products 
and services.
    The nature of most of the programs funded under the ATP is 
such that these technologies are probably at least a decade 
from having a commercial revenue stream. So even though they 
may be large companies involved in the program, we still have a 
responsibility on the financial side to our shareholders, and 
we recognize that these programs, of which we actually cost-
share a great deal of the funding, that these are not 
technologies that are going to show up as commercial benefit 
for some number of time.
    I would also like to address the various reforms that have 
been proposed by the Department of Commerce. I have the exact 
same view as the others in terms of university involvement. In 
fact, we have had several universities participate as part of 
our AT programs. These universities bring that ability and in 
many cases the researchers who have participated in the basic 
research, and it is quite logical for them to participate as 
part of these program teams to make sure that we are efficient 
in how we take that basic research and demonstrate its 
feasibility for the commercial sector.
    As to the issue of leadership, I see no reason why a 
university should not be able to lead one of these. I think it 
is simply a practical matter that any team should decide 
whether it is more appropriate for the university or the 
private sector to be responsible for the program in total. I 
feel the same about the intellectual property. That should be a 
fair and reasonable negotiation between all parties and no one 
should be exempted from that.
    In terms of large firm participation, I think large firms 
actually bring a different perspective and a lot of value to 
add to an AT program. Companies like ourselves are actually 
quite good at understanding very early technology and providing 
requirements and feedback to universities and small companies 
on how that technology should be developed to make sure that it 
is going to hit the mark once it gets to the marketplace.
    So in that regard, certainly I think exempting large firms 
would deny the program the opportunity to have participants who 
in fact have proven to be very adept and successful at that 
translation of technology in the past.
    Most of our programs have been ventures where we have been 
teamed with other companies in academia. Over 80 percent of 
those have been the case in fact. We certainly have no 
objection whatsoever in sort of a mandate that would require a 
large firm not to go it alone, but to have partners in either 
small companies or academia, as that has been our practice in 
general.
    At the risk of piling on in terms of this issue of 
royalties, I see this as a very, very difficult topic. We work 
with universities. Negotiating and funding collaborations and 
trying to understand royalty payoffs and how those things would 
work in very early basic research, these are very, very 
difficult to do. The nature of these technologies--and in fact 
the later reform suggesting that these technologies and funds 
should only be used for that translation of basic research to 
validation would in my mind make it virtually impossible to go 
back and assign a value or understand where you apply that 5 
percent and whose revenue would be extremely challenging.
    In fact, most of these technologies--a company like 
ourselves could spend $100 million in bringing a product to 
market and it could be that 5 years earlier a million dollars 
of NIST ATP money was spent. To try to assign a 5 percent 
royalty or any value to that would be extremely difficult and 
frankly, I think, beyond the philosophical opposition, an 
administrative nightmare to try to ascertain where to assess 
that royalty stream.
    The last in terms of project review and evaluation I think 
is quite logical. It has been, I think, frankly a very fair 
evaluation process. There are some great people that work on 
evaluating these proposals and programs, and to the extent they 
would look for more industrial participation or for other 
agencies we are fully in support of that. I think it has 
actually been a very well-run and very well administratively 
applied evaluation process.
    So with that, I want to thank you.
    [The prepared statement of Mr. Donnelly follows:]

Prepared Statement of Scott Donnelly, Senior Vice President for Global 
                   Research, General Electric Company

    Thank you Mr. Chairman and Members of the Commerce Committee:
    My name is Scott Donnelly and I am the Senior Vice President for 
Global Research for the General Electric Company. I am appearing today 
on behalf of GE to express my full support for the National Institute 
of Standards and Technology (NIST) Advanced Technology Program (ATP).
    There is no better time to focus on strengthening technology 
leadership in the U.S. through collaboration among U.S. businesses, 
universities and government organizations. The NIST ATP is the best 
example of this type of collaboration in meeting our nation's 
competitive challenges and technology needs.
    In the past several years, world-wide technology and innovation has 
exploded. This creates a large demand for the innovation process to 
have significantly more speed than just a few years ago. The NIST ATPs 
addresses this important factor, and excels at bringing technology to 
market very quickly.
    We believe that when the government identifies areas of social and 
economic need that are strategic for the nation as a whole--but is 
highly risky for short-term commercial return--then joint government-
industry collaboration makes sense. By sharing risks between 
government, universities and the private sector, U.S. Industry is able 
to take more chances, which results in breakthrough technologies that 
wouldn't have been viable for any of the three to try it alone. 
Successful examples of NIST ATPs where GE has participated range from 
new technologies aimed at improved health care through medical 
diagnostics, to highly efficient energy sources, to next-generation 
lighting.
    The NIST ATP is not the only government program to share risks 
between the public and private sectors, but we believe it is the best 
program of its kind because:

   It focuses on industry- and market-driven programs that are 
        selected based on merit;

   It has successfully stimulated customer, manufacturer and 
        supplier alliances aimed at accelerating time to market;

   It employs a rigorously open, competitive process with 
        market and economic impact factored into the selection 
        criteria;

   Demonstrated willingness to work with industry to structure 
        mutually acceptable terms and conditions (i.e. minimize cost 
        accounting burdens and establish realistic intellectual 
        property terms);

   NIST has assigned competent Technical Program Managers to 
        add value to the industry-led programs;

   To measure performance, NIST has established metrics of 
        evaluation to assess the success of the programs, as well as 
        the return on investment by all parties.

    I would like to address the proposed rule changes for NIST ATPs 
proposed by the Department of Commerce, but first, let me begin with a 
brief overview of our company so you can have an understanding of how 
our research and technology fits into our company.
    GE is a diversified technology, manufacturing and services company 
with a commitment to achieving technology leadership in each of its key 
businesses, including:

   Aircraft Engines
   Appliances
   Capital Services
   Industrial Services
   Lighting
   Medical Services
   NBC
   Plastics
   Power Systems
   Specialty Materials
   Transportation Systems

    GE Global Research is the cornerstone of research and development 
for GE. From our beginning more than 100 years ago, we have been and 
continue to be one of the most diversified industrial laboratories in 
the world. We have more than 2,100 technologists representing the full 
spectrum of scientific disciplines with more than 750 PhDs.
    Now I would like to share our thoughts on all of the proposed 
reforms for NIST ATPs:

Reform #1: University Leadership of ATP Joint Ventures
    GE supports this proposal. We have partnered with numerous 
universities for NIST ATPs, and we understand with the benefits and 
capabilities that university research partners add to the programs. Not 
only do academic research partners bring new ideas into a company's 
research programs, they are also a source for our future workforce. All 
funding that is committed to universities is ultimately educating 
future scientists.
    It is important that administration recognized that there is 
increased value when universities and companies work together, rather 
than either working in a vacuum.

Reform #2: University and other Non-Profit Organization Ownership of 
        ATP-Funded Patents
    GE supports the rights to intellectual property (IP) for those who 
make inventions and discoveries. Universities and non-profits should 
have the ability to negotiate IP terms when collaborating with 
companies and other research partners.

Reform #3: Retain Large-Firm Participation in ATP Joint Ventures
    GE supports this proposal as this is a common practice for GE. We 
have partnered in 83 percent of NIST ATPs in which we participate. We 
see this proposed reform as a positive contribution to the program that 
will allow large corporations like GE to offer commercialization and 
technology expertise to small- and medium-sized companies and 
universities that don't typically have this type of experience. We have 
found this approach successful, because some of our small company 
partners have been suppliers and other business affiliates that 
strengthens our relationships and creates a win-win situation for all 
involved.

Reform #4: Royalties on Government Investments in Profitable ATP 
        Ventures
    This proposed reform would modify ATP statue to require recipients 
of ATP awards to pay an annual royalty to the federal government of 
five percent of any gross revenues derived from a product or invention 
supported by or created as a result of ATP funding. It is intended that 
these royalties would be ``reinvested'' in the ATP.
    We are concerned that this rule change introducing ``recoupment'' 
as a means to stablize NIST ATP funding will render the program 
ineffective in stimulating the development of high-risk technology with 
real commercial potential.
    One of the primary goals of the NIST ATP programs have experienced 
successes in bridging the gap between basic technology research and 
market implementation. The recoupment clause may erode participation 
from companies, which would remove their valuable cost share funding, 
commercialization, technical expertise that complements and often 
enables smaller sized companies' participation in NIST ATP.
    NIST ATP funding represents a very small portion of a research 
organization's total R&D spending. To use GE as an example, in 2002 we 
will receive about $4.4 million in NIST funding, which was two-tenths 
of one percent of our company's total R&D budget. These funds are not 
going to further product development for GE. We use these funds to help 
our customers, suppliers and research partners with technology 
breakthroughs that they could not accomplish alone.
    Secondly, the recoupment is based on 5 percent of gross revenue, 
which raises many serious issues. How would the Department of Commerce 
calculate the ``government royalty'' for an ATP. Often an ATP is 
focused on a specific, high-risk technical hurdle associated with a key 
component, process or subsystem. This component is then part of a 
larger system. The component may only be a small percentage of the 
total system cost. How could anyone agree on a fair and consistent 
formula to calculate the royalty fee owed to the government? This 
creates an administrative nightmare and adds additional expenses that 
would take away funding from the research programs.
    In addition, to calculate the royalty on ``gross revenues'' would 
place undue pressures on industry to pay the government even if they 
are not making a profit. This would be difficult for GE, but it would 
be devastating for the smaller firms.

Reform #5: Ensuring that ATP Funding is Used Only to Support Removal of 
        Scientific or Technological Barriers to Product Development
    GE supports this proposal. In our company NIST ATPs are part of our 
Global Research labs, not the GE businesses. Research funded by NIST 
should be aimed at taking basic research and validating it, not product 
development or marketing.
    In fact, this supports my previous point regarding recoupment. It 
would be practically impossible to correlate validation of scientific 
research with profits generated from specific products or services.

Reform #6: ATP Project Review and Evaluation Process
    GE supports this proposal and fully supports the peer review 
process. Enhanced assessment of technologies supported in the private 
sector would add value to the process and lessen the chance of 
duplication of effort.
    In conclusion, we would like to emphasize that NIST ATPs are highly 
valuable--not only because they meet national priorities and industry 
needs with the right sense of urgency--but they also allow GE to form 
strong R&D partnerships and mentoring relationships with smaller 
businesses that wouldn't typically have the resources to participate in 
such high-risk technology development. NIST ATPs have GE's full 
support, and we thank the Chairman and this Committee for their 
commitment to ATP. We applaud the administration's efforts to address 
concerns and improve the program, and we appreciate the opportunity to 
provide input into the process.
    I thank you, Mr. Chairman, for the opportunity to testify today and 
I welcome any questions.

    The Chairman. I cannot thank this panel enough, because 
your presentation is outstanding. I was arguing with the staff 
about recoupment and they were trying to explain to me the 
position of the administration and I still could not understand 
it. I am glad to see you three cannot either.
    Dr. Bement, that is no reflection on you, sir. We 
appreciate your leadership. He is our Director of NIST and we 
are proud of him. He is working hard, and we are glad he is 
here.
    I just got briefed, Senator Allen, by a group back from 
China. I have been there in 1976, 1986, 1996, last year. What 
we have got going on in the Middle East is nothing compared to 
making friends and making sure we have a positive influence 
there in China, because a billion 300 million--there are just 
not as many Americans as there are Chinese and the only way we 
are going to survive is the superiority of our technology.
    These three folks there are leading the way for that, and 
NIST and ATP is leading the way. That is, our first line of 
defense and security is technology. Secretary Rumsfeld 
understands that.
    Ms. Armstrong, I am jealous. I will never forget sending my 
man up to Richmond, Virginia, for Governor Albertus Harrison. 
We had a red hot industrial development. Now I see what 
Governor Allen and you have got there. Every time I go to 
Dulles Air Base I say, how stupid I could have been. You folks 
are way ahead of anybody-else--Research Triangle and anything 
else. I mean, it is outstanding and we commend you on your 
leadership and what you are doing out there. That is very good. 
I appreciate it.
    Senator Allen.
    Senator Allen. Thank you, Mr. Chairman. Thank you for your 
compliments of Virginia. As Governor I was envious of South 
Carolina and what you had done there as a State. In fact, the 
person I selected to head up our economic development effort 
was there, had been there with Carol Campbell, Wayne Sterling. 
We put together a good team, and South Carolina has done a 
great job.
    I agree very much with your views as far as how Americans 
will compete and succeed in the future. We have to have the 
right policies here in this country--good science-based 
regulations, good pro-business tax policy, investment in 
research. The key will be knowledge and having the best, most 
knowledgeable individuals who have a good work ethic, but are 
innovative in improving our lives. That is how we will have 
better quality in our manufacturing, communications, and all 
aspects of our economy.
    I would like to ask Ms. Armstrong the follow-up questions. 
You mentioned the universities, and I will not try to explain 
what the logic of the recoupment aspect is. I am sure it is the 
logic of keep using those funds to fund others in the future. I 
would guess that is the logic of it. But I think as a practical 
matter these three witnesses have shown the practicality of it 
and probably or possibly an improper incentive or factor to put 
into the calculations or determination as to who does receive 
ATP funding.
    Regardless of that, on the universities aspect of this, 
especially with the CIT, when I was Governor the CIT was under 
the Secretary of Education. I moved it to Commerce and Trade 
because I wanted it to be job-oriented, not that the 
universities and education is not important. Subsequently, with 
the creation of a Secretary of Technology, logically it was put 
into that secretariat.
    Now, the issue on the universities aspect of this. 
Universities in some cases, not all cases, can be useful 
partners and they have their own patent, intellectual property 
efforts, their patent and trademark, so to speak, offices 
there.
    Now, one of the reforms focused on here is to allow greater 
university participation in the ATP program. Now, according--
and it may not be right but according to the National Research 
Council report last year, it said: ``176 universities have been 
involved in the program, participating in over half, 56 
professional, of the programs 522 projects.''
    Now supposedly there is a thread in here that there is some 
sort of barrier to university participation in ATP. So I would 
ask you, Ms. Armstrong or if Mr. Donnelly or Dr. Branscomb 
would want to join in, what are the existing barriers to 
universities' participation?
    Ms. Armstrong. I will take a stab at it. In Virginia the 
universities own, hold their IP and they license it, and there 
is the perception that in the ATP program that the results of 
the research must be owned by the company. So we have an 
administrative barrier. There have been some ways around it, 
which is how we have managed to have universities participate. 
But I believe that it is a specific Virginia rule, which a lot 
of other States have as a result of some of the Bayh-Dole 
regulations. There are some States that have changed those 
regulations--I believe Arizona is one of them--and have made 
the licensing of the IP that is developed in the universities 
much more available and allow the companies to own it.
    Senator Allen. Dr. Branscomb?
    Dr. Branscomb. I cannot speak to Arizona law. But on the 
issue, I know that--and I talked to the vice president for 
research at Cornell, who is very concerned about this 
particular element. He says there is no way Cornell can 
participate if they put their faculty into the program and they 
invent stuff and then they do not own the invention and they 
are not even allowed to negotiate with their countries partners 
what the ownership will be.
    It seems to me that the right answer is to get the Federal 
Government out of the particular debate and leave it up to the 
companies and the university to work it out. If they cannot 
work it out, they probably are not ready to work together 
anyway.
    The other issue--and I am delighted that you pointed out, 
Senator Allen, that half of these ATP programs already have 
universities involved in them. My understanding of what 
sometimes happens is there is a university, there are companies 
in the same city, they talk to each other, the people in the 
same areas, the engineers and the industry people. They are 
talking about interesting technologies. They know something 
about what everybody is doing, and the idea comes up, let us 
think about doing something together.
    I think very often the university people actually sit down 
and work out what the technical strategy might be, then the 
company picks it up and puts it in a proposal that includes the 
university. All this particular reform does as far as I can see 
is a fairly simple and in some sense purely administrative 
thing, which is to say if a university is thought to be by the 
companies the right group, has the right person, the right 
leader there ready to put the consortium together and work out, 
negotiate the details, why not let that happen.
    It does not change anything as far as I can see in either 
the criteria for deciding whether they get an ATP award nor 
does it change anything on the expectations that the Congress 
and the government are entitled to have for what the outcomes 
would be. It is a question of not forcing the university to 
pretend it did not ghostwrite the proposal, which I think 
sometimes they actually do.
    Senator Allen. So you would support this aspect of the 
proposal?
    Dr. Branscomb. Sure. I am not at all afraid of--maybe the 
NIST will get accused of pork by letting universities in. My 
understanding is the company is pretty good at pork, too, and I 
do not think NIST is ever good at pork. I have never seen NIST 
do a piece of pork. In fact, I think the reason they have 
trouble selling the ATP program politically is they have leaned 
so far over backwards to make sure that there is no pork that 
they are not even willing to talk to politicians.
    I at one time advocated putting the headquarters office for 
ATP down in the Commerce Building so that Mary Goode could 
teach them how to talk to politicians. Now I think we have got 
a really good team at NIST and in the Department and that is 
not necessary. But this is not a pork problem and it really 
is--these projects really are high tech projects. They really 
call for brainy people being involved. Not many companies have 
the depth of high-level competence technically that some of the 
better universities have in their midst.
    Senator Allen. Thank you for explaining it. I assume that 
all three of you, including you, Ms. Armstrong--and that is why 
I asked you first, because before you were there, but 
nevertheless the CIT has been under these different 
secretariats. You all three would agree with the proposals from 
the Secretary of Commerce insofar as the universities aspects, 
right?
    Mr. Donnelly. Absolutely.
    Ms. Armstrong. Yes.
    Dr. Branscomb. It seems to me consistent also with the 
spirit of the Bayh-Dole Act, which goes back to 1980, and a 
huge amount of the technical revitalization of this country has 
come about through Bayh-Dole and the basic philosophies that it 
contains.
    Senator Allen. Thank you. Thank you all.
    Thank you, Mr. Chairman.
    The Chairman. Dr. Branscomb is heading up the 
counterterrorism panel over at the National Academy of 
Sciences. A role for ATP now in homeland security; do you see a 
role? If any, what would that role be?
    Dr. Branscomb. I think that could be quite plausibly a 
role. Of course, we have not finished our study. We are 
shooting to get it out in early June. But we are certainly 
going to identify in that massive study a very large number of 
technologies that lie just over beyond what is now commercially 
reachable. Many of them will have the feature that, while 
everywhere we can for homeland security we will look for dual 
use technologies so there can be a commercial market to help 
make it available to the country for homeland security 
purposes, but I think it will be a feature of many of these 
homeland security projects that, number one, they need 
innovative companies to do the actual development; number two, 
there is a weak or questionable or unknown or in some cases 
nonexistent commercial market and there is a big public 
interest involved in them.
    So it seems to me just, I do not see these programs as any 
different from other ATP projects. They will have the 
characteristic of being very high tech, very early stage, 
markets yet not well identified, and requiring technical 
exploration, and in many cases involving the skills companies 
have.
    So I look around the government, where do we have really 
good experience with public-private partnerships at doing 
things with industry that the country badly needs? This program 
looks to me like the one that has the best track record.
    The Chairman. Very good. The appearance of each of you has 
been most valuable here this morning.
    The record will stay open with respect to questions, and 
the Committee will be in recess until the call of the chair. 
Thank you very, very much.
    [Whereupon, at 11:05 a.m., the Committee was adjourned.]


                         A  P  P  E  N  D  I  X

    Response to Written Questions Submitted by Hon. John McCain to 
                           Hon. Samuel Bodman

    Question 1. The ATP program has consumed a tremendous amount of 
management time, not only of NIST's, but also the Department's. One of 
my concerns with the program is that other managerial areas of the 
laboratories are not receiving the proper attention. Congressman Udall 
and I wrote to the Secretary last year concerning the deteriorating 
conditions of the NIST laboratories in Boulder, Co. The Secretary 
responded to this letter stating that he would have the NIST update its 
facilities plan and that it would be provided to the Congress as soon 
as it is available. We have noticed that a report on proposed changes 
to the ATP program has been completed within that time frame.

    a) Can you provide us with a date as to when we can expect to 
receive this updated facilities plan?

    Answer. Elements of NIST's Boulder Construction Plan are reflected 
in the President's FY03 Budget submission to Congress. In particular, 
the budget requests $11.8M for the first phase of a new Central Utility 
Plant (CUP) as well as $5.5M for the installation of upgrades to the 
facilities' Primary Electrical Service.

    The current Boulder renovation plan, subject to future budget 
priorities, is to renovate Building 1 (multiple wings), Building 2, and 
Building 4, phased in over a ten-year period.

    Question 2. The Energy bill that is currently under consideration 
by the Senate contains a provision that allows NIST to hold a portion 
of the ATP competitions in thematic areas designed to develop and 
commercialize enabling technologies to address climate change. The bill 
also contains provisions for NIST to develop a program to support the 
implementation of new ``green'' technologies and techniques at the more 
than 351,000 small manufacturers.

    a) What are your thoughts on these provisions?

    Answer. Since the ATP provision was dropped from the version of the 
Energy Bill (S. 517), this response will not comment on that provision. 
Section 1364, titled Technology Development and Diffusion would give 
the Manufacturing Extension Partnership (MEP) the opportunity to 
increase the adoption of green technologies by small and medium sized 
manufacturers by helping them to overcome the technical issues 
associated with the insertion of these new technologies.

    Currently, MEP provides small and medium sized manufacturers with 
technical assistance to improve their energy efficiency and reduce 
their impacts on the environment. This is important because 
manufacturers consume more than 25 percent of the natural gas used in 
the U.S., and they have been especially hard hit by the rising cost of 
energy. A few examples of MEP results include:

   Klune Industries of Spanish Forks, Utah, eliminated 1 
        million pounds of CO2, 7,700 pounds of 
        SO2, and 3,300 pounds of NOx, and 
        conserved 600,000-kilowatt hours of electricity by converting 
        to MEP's recommended lighting technology.

   In Maine, the NIST affiliate helped Naturally Potatoes, a 
        small producer of potatoes, to conduct an energy audit and find 
        ways to save nearly $364,000 in annul energy costs.

   NIST's New York affiliate helped Akron Agway reduce energy 
        costs 46 percent while slicing processing time by two thirds by 
        introducing new drying oven technology to the company.

   MEP can also help companies meet the challenges of getting 
        customer acceptance of new products, their performance, and 
        associated price adjustments.

    Aspects of an assistance program for ``Green Manufacturing'' could 
include:

    --Developing and disseminating assessment tools to help companies 
conduct cost benefit analysis on different green technologies and 
existing capital equipment.

    --Positioning MEP services in the marketplace to help educate 
technology development companies to produce products and services that 
are properly scaled to meet the demands of small and medium sized 
manufacturers.
    --Helping small and medium sized manufacturers:

      --Identify sources of funding to underwrite the cost of acquiring 
new capital equipment needed for the conversion to green technologies.
      --Implement the conversion to green technologies including 
testing and production ramp-up.
      --Identify and take advantage of the available tax relief and 
incentiveprograms.
      --Train company employees in the use of green technologies 
including energy efficiency work practices.
      --Develop and implement marketing strategies to gain customer 
acceptance of new products that may look and behave differently yet 
meet customers' functional requirement.

    Question 3. Can you provide the fiscal year carryover balances for 
ATP for the past ten years?
    Answer. The following are ATP's carryover balances for fiscal years 
1990-2001.


                   FY                     Carryover into following year

1990                                     $9.3M
1991                                     $35.4M
1992                                     $42.4M
1993                                     $49.2M
1994                                     $168.1M
1995                                     $136.4M
1996                                     $41.7M
1997                                     $15.1M
1998                                     $33.1M
1999                                     $67.7M
2000                                     $50.4M
2001                                     $31.1M


    Question 4. The President's budget would cut federal funding to all 
MEP centers that have been in existence longer than 6 years. However, 
Congress eliminated this six-year limit in P.L. 105-309, Technology 
Administration Act of 1998. Were there any additional reasons for 
recommending this cut?
    Answer. In making the decision regarding funding for MEP, the 
Administration had to weigh several factors. In times of war, tough 
budget choices must be made and this was one of those tough decisions, 
especially in light of MEP's success at delivering services to small 
and medium sized manufacturers. However, given the MEP centers' success 
in improving productivity and efficiency, we felt that increasing fees 
for service should be the direction in which the program heads. The 
benefits of seeking MEP assistance, such as improved productivity and 
efficiency, should outweigh the increased cost of the fees.
    Question 5. The President has proposed elimination of the 
Partnership for a New Generation Vehicle program, which was a 10-year 
government/industry partnership for research on a light-duty-vehicle, 
and instead proposed his Freedom Car Initiative at the Department of 
Energy. Can you discuss whether the research that was being conducted 
under this program at the various agencies has been eliminated also?
    Answer. Although there will be no multi-agency coordinated R&D 
program in the agencies after the termination of the PNGV Program, each 
agency participating in the PNGV is able to continue their R&D work as 
appropriate to their mission and budget guidance. We do not have 
specific project information for the other agencies. Within the DoC, 
NIST has 78 automotive related measurements and standards activities 
currently in process. Although many of these were never specifically 
directed to the PNGV roadmap requirements, all are high priority 
projects needed by the auto industry and the major suppliers.

       b) Also, the Washington Post is reporting the prototype of a 
``one-liter Volkswagen'' which gets 239 miles per gallon. How does this 
vehicle compare to the vehicle that was envisioned in the Partnership 
for a New Generation Vehicle program?

       Answer. Volkswagen, AG has not released any details or 
specifications with respect to the vehicle we think is referenced in 
the Washington Post. The only information we can obtain is from a photo 
in the 4/22/02 Automotive News which shows F. Piech and B. 
Pischetsrieder in a front-to-back configuration vehicle. This appears 
to be a very small, two seat, vehicle, which may have a 1-liter diesel 
in a hybrid powertrain. If this is the vehicle in question, it differs 
significantly from the mid-size, 5-passenger sedan used as the basis 
for the PNGV R&D roadmap plan. Without details of the vehicle body and 
powertrain, it is impossible to provide item-by-item comparisons.
    Question 6. One reform advocated by the Administration is that 
recipients of ATP awards should pay an annual royalty of 5 percent of 
any gross revenue derived from the product up to 500 percent of the 
original funding received by the award recipient. Do you believe that 
this recoupment plan can be used as an initial step to turning ATP into 
a self-sufficient program?
    Answer. The recoupment plan as proposed in ``Reform with a 
Purpose'' could be considered the initial step to turning ATP into a 
self-sufficient program. Under certain terms and conditions, and not in 
an effort to penalize success, it is fair and reasonable to require a 
direct repayment based on the initial Federal share if a company is 
profitable and nets considerable gains from a technology developed 
under ATP. As such, the financial returns that would stem from ATP 
projects could potentially transform ATP into a self-sustaining program 
and thus optimize Federal investment.
    Question 7. The ATP program recently announced that Advanced Cell 
Technology Group had won an award for ``Transdifferentiation of Adult 
Somatic Cells.'' Advanced Cell Technology Group has also announced 
their efforts in the cloning of humans. Can you elaborate what steps 
are being taken to ensure federal funding is not being used for human 
cloning activities at this company or any other ATP award recipients?
    Answer. The ATP award to ACT will fund research using human somatic 
cells. Somatic cells are cells such as skin or liver cells, and are 
neither sperm nor eggs. The ACT award aims to use somatic cells to 
develop transdifferentiation technology that could ultimately lead to 
the production of replacement cells for patients suffering from 
diseases such as Parkinson's, Alzheimer's and diabetes.

    Through its cooperative agreement, the ATP has imposed stringent 
award conditions on ACT that are designed to ensure that the award 
funds are solely used for transdifferentiation research involving human 
somatic cells. Included in these award conditions is a requirement that 
ACT demonstrate prior to the release of funds that its accounting 
system will adequately segregate and track ATP expenditures.

    The Department of Commerce's Office of Inspector General has 
completed an independent survey of selected aspects of the ACT award 
and is completing work to ensure that ACT has policies and procedures 
in place that will allow its financial management systems to adequately 
segregate and track federal funds and comply with ATP's award 
conditions. In addition, high-level technical, administrative, and 
legal officials at the Department have reviewed the ACT award, and are 
satisfied that the award issued to ACT is in compliance with all 
Presidential policies, statutes, regulations, and guidelines for the 
use of human subjects in federally funded research.

    In addition, the ATP Human and Animal Subjects Advisor has been 
assigned as a special regulatory and technical advisor to this award. 
In addition to his normal oversight duties, this individual will attend 
all meetings, and site visits with ACT and its subcontractors; review 
quarterly technical reports; review all business reports; review all 
correspondence involving ACT; ensure that ACT is in full compliance 
with Federal guidelines on the use of human and animal subjects in 
Federally funded research. Further this advisor will provide written 
quarterly progress reports to the ATP Director, senior ATP management, 
and the Project Management Team on ACT's technical progress and 
compliance with applicable Federal regulations.

    As ATP and NIST monitor this award, we will continue to strengthen 
the oversight activities as warranted.

    Question 8. The families of the victims of the September 11 
terrorist attacks in New York and professional associations have 
requested that NIST study the technical causes of the World Trade 
Center collapse.

       a) Do you believe that Congress should establish a specialized 
team that would be analogous to the National Transportation Safety 
Board, to investigate the collapse of large buildings?

    Answer. At this time we are not prepared to comment on the need for 
a ``specialized team'' analogous to the NTSB to investigate the 
collapse of large buildings. NIST has put in place a very thorough 
response plan to the collapse of the World Trade Center Buildings. This 
plan is different from and responsive to the efforts of the Building 
Performance Assessment Team, or BPAT, led by the American Society of 
Civil Engineers (ASCE) and sponsored by the Federal Emergency 
Management Agency, FEMA. The NIST response plan addresses all major 
recommendations contained in the BPAT report. NIST has also identified 
other critical issues that need study, especially in areas that impact 
life safety and engineering practice.

    The NIST proposed response plan consists of three key program 
elements including an investigation to be conducted in parallel. These 
are:

   First, a 24-month building and fire safety investigation 
        into the collapse of the Twin Towers (WTC I and 2) and WTC 7. 
        The goal of this program element is to investigate the building 
        construction, the materials used, and the technical conditions 
        that combined to cause these disasters following the initial 
        impact of the aircraft. While WTC 4, 5,and 6 will not be 
        investigated specifically in this phase, what we learn in 
        examining WTC 1, 2 and 7 would benefit buildings of all 
        designs.

   Second, a multi-year research and development (R&D) program 
        to provide the technical basis to support improved building and 
        fire codes, standards, and practices. This program element 
        addresses work in critical areas such as structural fire 
        safety, prevention of progressive collapse, and equipment 
        standards for first responders. It includes BPAT 
        recommendations for WTC 3, 4, 5, and 6, Bankers Trust, and 
        peripheral buildings as well as recommendations for future 
        studies to address specific issues of broader scope not covered 
        by the BPAT. The program outputs and recommendations will 
        support the voluntary consensus process that is used to develop 
        building and fire codes and standards in the United States.

   Third, an industry-led dissemination and technical 
        assistance program (DTAP) that will provide practical guidance 
        and tools to better prepare facility owners, contractors, 
        designers, and emergency personnel to respond to future 
        disasters. The DTAP will also be an important complement to the 
        R&D effort to demonstrate and gain acceptance of proposed 
        changes to practice, standards, and codes. This program element 
        addresses BPAT recommendations for the training and education 
        of stakeholders.

    We have shared the overall response plan approach extensively with 
public and private sector organizations and have welcomed their inputs 
since the middle of October 2001. The plan was modified in January 2002 
when FEMA requested NIST to initiate an investigation under NIST's 
unique legislative authorities to conduct structural and fire 
investigations. This request was in direct response to a growing demand 
for a broad-based federal investigation into the World Trade Center 
disaster from technical experts, industry leaders, and families of 
building occupants and first responders who lost their lives on 
September II, 2001. We continue to revise the plan as more technical 
information becomes available and to be responsive to the suggestions 
and needs of these many stakeholders. We will continue to keep the 
Committee informed as we continue to update the investigation and 
response plan.

    Question 9. Over the years the U.S. economy has become reliant upon 
a steady flow of technologies for continuous economic development. The 
U.S. government is investing over $40 billion in civilian R&D. Can you 
update the Committee on the progress made on technology transfer at the 
federal laboratories?
    Answer. Please refer to Question #13.
    Question 10. As part of NIST investigation of the World Trade 
Center, you have mentioned the development of ``intelligent'' 
buildings. Can you elaborate on how such a system would work?
    Answer. An ``intelligent'' building is one in which the automation 
and control systems used for environmental comfort control, fire 
detection, access control, lighting, and elevator control are 
integrated so that they can exchange information and interact with each 
other. This kind of integration is useful for energy management and to 
improve response to emergency situations. For example, the detection of 
a fire can cause changes in the ventilation system, lighting, elevator, 
and access control systems to aid evacuation of the building.

    Intelligent building systems can also permit interaction between 
the building and outside service providers. In the future, these 
systems will be used to interact with utility providers to manage 
loads, provide a way for service companies to help the building owner 
maintain the facilities, and also to provide access to critical 
information about the building and its occupants to police, fire and 
others responding to an emergency in the building.

    NIST's Building and Fire Research Laboratory (BFRL) has been 
working with industry for approximately fifteen years to develop 
communication standards and other technology that will enable 
widespread use of these integrated building systems. BFRL research also 
involves automated detection of faults in building control systems and 
other technologies that can take advantage of the information that can 
be available because of the integration. Today there are hundreds of 
thousands of building control products installed around the world that 
use technology based on BFRL's work in this area.

    Question 11. With the growing demand for communication services and 
foreign competition in satellite launch services, what do you see as 
the future of the U.S. commercial launch industry?
    Answer. Although there is a healthy demand for satellite-based 
telecommunications services, this demand has not translated into a 
dramatic increase in demand for launch services, due to several 
factors. First, the traditional geostationary orbit (GEO), fixed 
satellite services market has been satisfied by larger and more capable 
satellites, so that it has been possible to meet growing consumer 
demand without a significant increase in the overall number of 
satellites launched. Second, the satisfaction of demand for wireless 
services by terrestrially based systems has led to the financial 
troubles of several low earth orbit (LEO) satellite constellations 
which could have otherwise stimulated a large increase in demand for 
LEO satellite launch services.

    Programs for development of new launch vehicles, such as EELV, had 
been predicated, at least in part, upon the expectation that there 
would in fact be a significant increase in launch services demand. 
Consequently, there is growing evidence of oversupply in the 
international launch services market, resulting in financial 
difficulties for U.S. launch providers.

    Near-term commercial development of reusable space vehicles has 
also been adversely affected by the apparent overcapacity of launch 
services. However, if new reusable vehicles can eventually be developed 
in the U.S. to provide launch services with dramatically lower cost, 
higher safety/reliability, and greater capability, the U.S. launch 
industry could benefit in two important ways. First, U.S. providers 
utilizing these new vehicles would be highly competitive in the 
international marketplace. Second, new vehicles might enable 
development of large new markets that would greatly increase overall 
demand for launch services.

    NASA's Space Launch Initiative represents a major effort to create 
new technologies that can be applied to development of reusable launch 
vehicles by early in the next decade, with commercial as well as 
government applications. One or more of the remaining private 
entrepreneurial reusable vehicle development efforts may succeed even 
earlier in producing commercially profitable orbital launch services. 
Finally, there may be considerable commercial promise in suborbital 
reusable vehicles under development both in the U.S. and elsewhere. 
Although suborbital vehicles would not travel to--or generally place 
payloads in--orbit, they might provide a near-term financial bridge 
between today's expendable launchers and tomorrow's orbital reusable 
vehicles. Commercial markets enabled by suborbital vehicles might 
provide at least some U.S. launch providers with revenues sufficient to 
sustain them during that period.

    Question 12. The Technology Administration Act of 1998 created the 
Office of Space Commercialization within the Department of Commerce. 
NASA is currently pursuing a number of commercialization activities. 
Can you comment on any involvement that your Office of Space 
Commercialization has had with NASA on commercializing the 
International space Station?
    Answer. The Office of Space Commercialization (OSC), which as you 
note in your question was authorized by Congress in 1998, is working 
with NASA in a number of areas, including commercialization of the 
International Space Station (ISS). As you are likely aware, the space 
policy of the Administration is handled in large part through the 
National Security Council- and Office of Science and Technology Policy-
led Space Policy Coordinating Committee, often referred to as the Space 
PCC. Under that larger umbrella, the Office of Space Commercialization 
serves as a co-lead (along with representative from the Intelligence 
Community and from the Department of Defense) of a sub-team on 
commercial strategy. Although the primary focus of that sub-team has 
been commercial remote sensing, at the suggestion of OSC, the group's 
agenda also includes the issues of advertising, entertainment and 
tourism aboard the ISS.

    OSC, both on its own and as a representative of other Commerce 
bureaus such as the International Trade Administration, has worked with 
NASA on a draft plan to address these issues as they relate to ISS.

    Apart from ISS, OSC is also engaged in activities related to NASA's 
Space Launch Initiative, and has proposed to NASA leadership that OSC 
host events in partnership with NASA that will focus on what the Space 
Launch Initiative has to offer businesses that are outside of the usual 
space-based business interests, but which could begin to use space 
transportation for commercial purposes.

    For further information, I would refer the Committee to the report 
to Congress submitted by OSC in February 2001.

    Question 13. The Office of Technology Policy (OTP) is one of the 
only offices in the federal government charged with conducting 
analysis, formulating policy, and advocating national policies to 
maximize technology's contribution to U.S. competitiveness and economic 
growth.

       a) What areas of technology policy development is OTP currently 
focused upon?

    Answer. As you note, the Office of Technology Policy (OTP) is one 
of the few offices in the federal government charged specifically with 
providing policy guidance to enhance the environment for technology and 
innovation in this country. I would further contend that it is the only 
office at the federal level that is concerned with the entire process 
of technological innovation--how technology gets developed, and how the 
results of research and technology development make their way to the 
marketplace or get deployed throughout the economy. The conversion of 
research and technology development into wealth-generating, 
productivityenhancing products, processes, and services strengthens our 
country's competitive advantage, brings value to society and 
contributes to global prosperity and stability.

    Currently, OTP is focused on pursuing a number of concrete policy 
objectives important to strengthening and serving the priorities of the 
Under Secretary for Technology, the Secretary of Commerce and the 
President of the United States.

    These objectives are focused in three critical areas:

      I. Supporting technology's contribution to the nation
      II. The business climate for innovation
      III. Building a workforce for the knowledge economy

Supporting Technology's Contribution to the Nation.
Technology Transfer
   OTP has a statutory responsibility to report to the 
        President and the Congress on the status of technology transfer 
        activities by the federal laboratories. In accordance with the 
        StevensonWydler Act (as amended in 1986), OTP has prepared 
        periodic biennial reports for the President and Congress on 
        this topic since the late 1980s. (OTP's May 2000 report in this 
        series, ``Tech Transfer 2000: Making Partnerships Work,'' was 
        well received by the policy community and was a basis for 
        congressional testimony in that year.) More recently, the 
        Technology Transfer Commercialization Act of 2000 enlarged the 
        reporting process in number of ways, making OTP responsible for 
        preparation of an annual report to 0MB on the Department of 
        Commerce's plans, activities, and achievements for tech 
        transfer by its federal labs and for an annual summary report, 
        authored by the Secretary of Commerce, for the President and 
        Congress, on best practices and effective approaches for tech 
        transfer in evidence at all the federal labs. This federal-wide 
        reporting responsibility places OTP in an important role to 
        observe and comment on current federal technology transfer 
        trends, assess the effectiveness of prevailing policies and 
        programs, and provide informed recommendations on any changes 
        that may be needed in federal tech transfer policies.

   OTP continues to chair and coordinate the activities of the 
        Interagency Working Group on Technology Transfer (IWGTT). This 
        longstanding group is comprised of senior policy and technology 
        transfer professionals from all federal agencies with federal 
        laboratory facilities. The IWGTT meets monthly to discuss 
        current issues about federal tech transfer laws and policies 
        and to develop recommendations pertaining to pending 
        legislation or other policy matters. Because technology 
        transfer happens in differing circumstances across the agencies 
        and numerous federal labs, the IWGTT plays an important role in 
        identifying issues and policy solutions of common interest.

   As the U.S. Government representative to the Organization 
        for Economic Cooperation and Development's (OECD) Working Group 
        on Innovation and Technology Policy, OTP routinely coordinates 
        with U.S. agencies, universities, and businesses to formulate 
        the U.S. position on various technology transfer issues. 
        Recently, OTP led the development of the U.S. response to an 
        OECD study on publicly funded research organizations' licensing 
        activities. OTP worked with U.S. government agencies and 
        universities (through the Association of University Technology 
        Managers) to prepare the U.S. response.
Economic Growth
   With the growing interest in high-tech business clusters, 
        state and local government leaders want information that 
        identifies critical elements commonly found in successful state 
        and regional technology environments and help identifying the 
        presence of these elements in each of the states. To meet this 
        need, OTP publishes ``The Dynamics of Technology-Based Economic 
        Development: State Science & Technology Indicators'', a data 
        tool that provides metrics on science and technology assets in 
        the 50 states. State and federal leaders have indicated this 
        information will be valuable to state and local economic 
        development officials across the country as they develop and 
        implement their technology initiatives.

   Recognizing the critical need for economic stability in the 
        Middle East and North Africa, OTP helped create, develop and 
        launch the Middle East Business Development Initiative working 
        with ITA, BIS, NIST, NOAA and NTIA. This initiative is designed 
        to promote partnerships between U.S. and Middle Eastern and 
        North African businesses in order to strengthen the 
        international coalition against terrorism, expand business 
        opportunities for American companies, and improve prospects for 
        mutually reinforcing commercial growth and stability.

   Important trading partners such as Russia are seeking to 
        actively pursue technology-led growth strategies and seek 
        guidance and best practices from the United States. OTP 
        recently hosted a roundtable that explored the venture capital 
        (VC) environment in Russia. A number of U.S. VC and investment 
        experts provided insight to a group of Russian investors, 
        entrepreneurs and policy makers.
Cybersecurity
   In collaboration with NIST, and at the request of the Bureau 
        of Industry and Security, OTP is contributing to the 
        President's Critical Infrastructure Protection Board. The Board 
        has launched a series of Cybersecurity Board Policy Reviews, 
        and OTP has been asked to contribute to its outreach strategy. 
        This strategy will involve the IT business community in the 
        development and execution of the recommendations delivered by 
        the Board in its National Strategy to Secure Cyberspace.

   OTP is also focused on providing support to the Office of 
        Homeland Security as it seeks to work with the numerous private 
        sector providers of security technologies. OTP's understanding 
        and relationships with the U.S. IT community are valuable in 
        leveraging private sector contributions in meeting the 
        President's national security objectives.

   OTP is playing a leading role in the revision of the OECD 
        Guidelines for the Security of Information Systems and 
        Networks. The revision of these Guidelines reflects a dramatic 
        increase in the importance of a methodical, global approach to 
        securing the information infrastructure that serves as the 
        foundation for business, communication and government.
The Business Climate for Innovation
Understanding Broadband Demand
   OTP has played a leading role in examining the policy debate 
        surrounding the availability and deployment of broadband 
        technologies in the United States. OTP has taken up the 
        challenge that, despite widespread availability, only a 
        fraction of American consumers have chosen to subscribe so 
        far--just 10 percent by some estimates. There are numerous 
        market and regulatory forces at work, and OTP has convened 
        experts for in-depth discussions on two factors: 1) the market 
        and policy issues impacting online, digital entertainment; and 
        2) the potential for broadband business applications to 
        catalyze demand. A third discussion is planned to explore the 
        impact of e-learning and tele-medicine on broadband deployment.
The Environment for Innovation in America
   OTP is also conducting a series of roundtables examining 
        changes in the U.S. innovation system at the start of the 21st 
        century. The Innovation in America roundtable series brings 
        together national experts in R&D and innovation from U.S. 
        industry, universities and government laboratories to explore 
        the changing innovation landscape; to inform R&D policymakers, 
        practitioners and managers; and to identify trends and 
        understand their implications for national R&D and innovation 
        policies and programs. This effort serves as a foundation for 
        substantive follow-up with key stakeholders within government, 
        the private sector and academia regarding improvements in the 
        regulatory environment for innovation and best utilization of 
        federal R&D resources.
Biotechnology
   The U.S. Government does not currently collect comprehensive 
        quantitative information about the emerging biotechnologies 
        that are transforming and creating industries. Recognizing that 
        making good public policy requires factual information, OTP is 
        leading an interagency effort to develop and deploy the first 
        comprehensive survey of U.S. firms using and manufacturing 
        biotechnology processes and products. Information collected 
        about capitalization of the industry, number of firms and 
        employees, and regulatory and workforce barriers to industry 
        growth and competitiveness can provide a foundation for future 
        data collection efforts by the Census Bureau and the National 
        Science Foundation.

   OTP also is working with private-public groups to identify 
        barriers and propose solutions to biotechnology firms' response 
        to national homeland defense requirements for certain 
        biotechnology products (such as vaccines, bio-threat detectors, 
        and treatments).
E-Commerce Development and Growth
   OTP is engaged on a number of relevant policy issues that 
        affect the electronic marketplace, working with industry and 
        others in the Administration. These include:

        --Online Privacy
        --Internet Taxation
        --Online Gambling
        --Digital Rights Management
International Competitiveness
   In April 2002, the Under Secretary for Technology co-chaired 
        with China's Ministry of Science and Technology a roundtable on 
        business and university collaboration in China. The U.S. 
        technology businesses participating in the roundtable then 
        joined the Under Secretary in a meeting with China's Minister 
        of Science and Technology. The meeting provided a unique 
        opportunity for the U.S. companies to discuss with the Minister 
        various impediments they encounter in China. The United States 
        and Chinese agreed to pursue expanded cooperation in standards, 
        intellectual property rights enforcement as well as venture 
        capital development.

   In April 2002, the Under Secretary for Technology also met 
        with senior science and technology officials in Japan. An 
        agreement was reached to pursue a regular dialogue on 
        technology policy issues. Through this dialogue, the Technology 
        Administration expects to accelerate the exchange of 
        information, identify best practices and gain increased insight 
        into Japan's evolving strategy to promote technological 
        innovation.

   The Assistant Secretary for Technology Policy recently 
        completed consultations with European Union (EU) officials to 
        pursue greater collaboration in establishing policies conducive 
        to the growth of e-commerce. This builds upon substantial OTP 
        outreach to industry, which provides OTP insight in the 
        opportunities and challenges facing U.S. e-commerce and IT 
        firms that are seeking to establish or expand operations in the 
        EU.

   OTP serves as the Secretariat for the U.S.-Israel Science 
        and Technology Commission, a binational initiative that helps 
        stimulate economic developing by promoting the use of 
        technology in both countries through collaborative science and 
        technology programs. Activities include joint ventures between 
        U.S. and Israeli private sector firms and ongoing dialogue to 
        help reduce commercial impediments and harmonize standards and 
        regulations. Each government provided funding ($15 million in 
        the mid-90s) to support this program.

   OTP supports U.S. technology development and technology-led 
        economic growth by working with U.S. businesses to promote 
        international partnerships. OTP normally pursues such 
        activities through bilateral and multilateral initiatives with 
        foreign governments (e.g., Egypt and Israel) and typically 
        include direct participation from each country's private 
        sectors. OTP was recognized in a May 31, 2001 cable from the 
        U.S. Embassy in Cairo for its efforts in promoting public-
        private partnerships. The cable (Cairo 3326) notes that the TA-
        led Technology Subcommittee under the bilateral arrangement, 
        the U.S.-Egypt Partnership for Economic Growth and Development, 
        ``has arguably been the most successful subcommittee in recent 
        years'' and ``its strong private sector participation sets it 
        aside'' from other bilateral efforts and has contributed to its 
        success.
Building A Workforce for the Knowledge Economy
IT Workforce
   Based on the success of OTP's prior work on IT work force 
        issues, OTP was assigned to fulfill a Congressional mandate 
        under the American Competitiveness in the 21st Century Act to 
        conduct a review of existing public and private high-tech 
        workforce training programs in the United States, and submit a 
        report to Congress on the study findings.

     On behalf of the Secretary, OTP is conducting this review and will 
develop a report exploring: information technology (IT) worker demand 
in terms of education and skill requirements, the employer role in IT 
worker training, types of programs through which IT workers acquire 
their education and skills, key elements of successful programs, and 
the strengths and weaknesses of different IT education and training 
program models. The review process will include: data analysis and 
literature review; request for comments from employers, IT workers, and 
IT education and training providers; expert round tables; and site 
visits.
Global S&T Workforce
   The office is also undertaking a study of the S&T workforce 
        issues in the G-7 nations, which budget and spend almost 70 
        percent of the world's R&D. The objective of the study is to 
        determine the policies and approaches adopted by the countries 
        in developing and sustaining their technology workforce base. 
        This study will look at the technology workforce ``system'' 
        from three thematic perspectives--worker development, labor 
        availability, and globalization of the workforce. This research 
        can serve as input to discussions on national competitiveness, 
        innovation, and technology policy.
GO4IT
   The Technology Administration maintains the GO4IT website 
        for information technology workforce initiatives. Through the 
        web site, which contains more than 300 resources, visitors can 
        learn about high-tech workforce initiatives across the country, 
        tap valuable information resources, and network with other 
        people who can offer insight and opportunities for 
        collaboration. For example, companies can explore ways that 
        other companies have used to develop a skilled workforce. 
        Individuals can get information on scholarships, internships, 
        training, and job banks. State and local government agencies 
        can find out what other governments are doing to build a high-
        tech workforce.
GET TECH Campaign
   OTP teamed with Women in Film and the National Association 
        of Manufacturers to develop the GET TECH Campaign aimed at 
        encouraging teens to prepare for high tech careers. Launched in 
        October 2000, the campaign features radio and television public 
        service announcements and a fun, interactive technical careers 
        web site for teens. In the campaign's first three months, the 
        television public service announcements were aired a total of 
        4,848 times on 300 stations in 172 cities across the country. 
        The web site had a total of 200,000 hits and the toll free 
        number received requests for over 40,000 GET TECH kits sent to 
        both students and teachers.
National Medal of Technology
   OTP has maintained a long-term effort to promote the 
        National Medal of Technology laureates as role models who can 
        inspire young Americans to prepare for and pursue careers in 
        science and technology. This Presidential Medal is awarded 
        annually for technological achievement and is administered by 
        OTP.
       b) How successful has OTP been in getting the federal government 
to adopt its policy recommendations?
    Answer. While it is difficult to ascribe traceable and direct 
impacts on national policy to any specific agency within the Federal 
Government, OTP has successfully contributed to U.S. policy decisions. 
OTP analysis and recommendations--often made through discussions with 
other policymakers in the Executive and Legislative branches and 
foreign governments--have resulted in policy and procedural changes 
that promote business innovation and adoption of new technologies.
OTP Contribution to Specific Accomplishments
Promoting Investment in Technology
   The Economic Stimulus package signed into law on March 9fu, 
        2002 contains an immediate expensing provision that will 
        provide incentive for investments in technology and other 
        capital expenditures. OTP provided insight on the positive 
        impact this would have in the technology industry.
Collaboration with the President `s Council of Advisors on Science and 
        Technology
   PCAST has established official panels on science and 
        technology investment and on the technical infrastructure for 
        the 21st century. As part of their work, PCAST working groups 
        will use OTP's analysis and information about market demand for 
        broadband, the dynamic of corporate innovation partnerships in 
        America, and federal laboratories' experiences with technology 
        transfer. PCAST has requested transcripts from all 3 Innovation 
        in America roundtables and has asked OTP to participate in 
        working group deliberations.
R&D Trends
   OTP was the first Federal agency to identify the impact of 
        rising Federal R&D expenditures on health and flat or declining 
        Federal R&D investments in the physical sciences, mathematics 
        and engineering on the overall balance in the Federal R&D 
        portfolio. The Office has also analyzed the impact this has on 
        U.S. competitiveness, technological innovation, and the 
        production and availability of highly skilled scientists and 
        engineers for the U.S. workforce. OTP has worked with the White 
        House Office of Science and Technology Policy, the Director of 
        the National Science Foundation, and the Director of Defense 
        Research and Engineering to raise the visibility of the issue. 
        Today the issue of balance in the Federal R&D portfolio is 
        recognized by the Administration and Congress as an important 
        science and technology policy issue.

   Recognizing the enormous importance of innovations in 
        biotechnology, OTP developed and implemented a strategy to 
        strengthen the Commerce Department's interaction and advocacy 
        with biotechnology companies. OTP coordinated a public 
        relations campaign (including articles in the industry 
        newsletter) and led development of an interagency biotechnology 
        group to provide rapid, coordinated Administration response to 
        emerging policy issues. At the request of USG policymakers, and 
        in cooperation with scientific and industry groups, OTP also 
        develops and sponsors a series of educational forums about 
        significant emerging biotechnology policy issues.
Intellectual Property
   TA participated in an initiative chaired by the White House 
        Committee on International Science, Engineering, and Technology 
        to improve the Intellectual Property (IP) Annex used in 
        international S&T agreements. OTP worked with other agencies to 
        reach consensus on an IP annex text and procedures for new S&T 
        agreements. The result should be improved consistency in the 
        U.S. approach to IP with foreign partners and with rights of 
        the U.S. government. This new mechanism will also encourage 
        commercialization of technology consistent with the Bayh-Dole 
        Act and Executive Order 12591 and facilitate the negotiation 
        and approval of international S&T agreements.
Technology Transfer
   The 1980 Stevenson-Wydler and Bayh-Dole Acts provide the 
        essential national policy framework for technology transfer by 
        the federal laboratories and federally funded researchers (such 
        as at universities). Both of these laws have been fine-tuned 
        through significant pieces of amending legislation since the 
        mid-1980s--the most recent of which is the Technology Transfer 
        Commercialization Act of 2000. OTP (and its predecessor office) 
        played a key role in conceptualizing, crafting, and advocating 
        much of this legislation throughout its history. The Stevenson-
        Wydler and Bayh-Dole policy framework for tech transfer was 
        path-breaking in its concept, which many of our international 
        trading partners are now seeking to emulate.

   OTP led the effort to establish a more complete and uniform 
        reporting system for technology transfer activities at Federal 
        laboratories.

   OTP was instrumental in securing legislative provisions that 
        streamline and expedite the licensing of Federal technology 
        while, at the same time, protect the public interest in the 
        technology.

   OTP conducted roundtable discussions with Industrial 
        Research Institute members to solicit industry perspectives on 
        the efficacy of Federal technology transfer efforts, laying a 
        foundation for future efforts to improve government-industry 
        collaboration. These roundtables provided key input to OTP's 
        1996 congressionally mandated biennial report ``Effective 
        Partnering: A Report to Congress on Federal Technology 
        Partnerships.''

   OTP led the multi-agency National Technology Initiative 
        (NTI), which convened 16 town meetings across the country that 
        brought together thousands of representatives from high-tech 
        industry, Federal laboratories, universities, and government. 
        Each meeting was designed to address regionally significant 
        areas of technology, and the broad issues of cooperative R&D, 
        financing technology, and manufacturing excellence. These 
        conferences also served as a showcase for capabilities at the 
        Nation's Federal laboratories and encouraged businesses to take 
        advantage of them. In the two years following the NTI, 
        cooperative R&D agreements between Federal laboratories and 
        businesses more than doubled.
Supporting E-medicine
   OTP negotiated modifications to legislation developed by the 
        Food and Drug Administration that would have held c-pharmacies 
        to a higher standard of verification than is required of 
        traditional ``bricks-and-mortar'' businesses. OTP also worked 
        to eliminate language that would have adversely affected other 
        c-medicine applications, such as medical consultations and 
        diagnoses made over the Internet.
Workforce Issues and the H-lB Visa Process
   OTP's forthcoming report on the IT workforce will provide 
        valuable information to policy-makers and others who invest in 
        high-technology education and training.

   Working closely with officials from the Department of Labor 
        and U.S. industry, OTP influenced the development of the H-I B 
        visa program regulations implementing the American 
        Competitiveness and Workforce Improvement Act of 1998. OTP's 
        goal was to minimize the burden of these regulations on the 
        business community seeking access to highly skilled, foreign 
        workers.
Accounting Rules for the Knowledge-Based Economy
   OTP worked with the SEC and the Financial Accounting 
        Standards Board (FASB) to discuss the growing importance of 
        intangible assets (such as R&D and goodwill) in the knowledge-
        based economy. By helping to define the far-reaching 
        implications of proposed accounting rules for intangible 
        assets, OTP and other interested parties facilitated a 
        reexamination and amendment of U.S. accounting rules.
Impact in International Fora
   As the U.S. Government representative to the Asia Pacific 
        Economic Cooperation Industrial Science and Technology Working 
        Group, OTP coordinated the development of the APEC strategy on 
        infectious diseases, which was adopted by the APEC Heads of 
        State at the October 2001 Leaders Summit.

   OTP wrote the APEC Agenda for Science and Technology 
        Cooperation in the 21st Century, and won endorsement by Heads 
        of State. The Agenda sets forth principles and the primary 
        areas for cooperation among the 21 APEC member economies.

   OTP has been instrumental in bringing to Federal 
        policymakers and business leaders critical and detailed 
        information on the aggressive technology strategies of foreign 
        governments, and key foreign industrial competitors. These 
        analyses detailed the national technology plans, policies, 
        programs, and investments of more than 20 advanced and newly 
        industrializing countries in Asia, Europe, North America, and 
        elsewhere. OTP's groundbreaking work in ``Globalizing 
        Industrial Research and Development and The New Innovators: 
        Global Patenting Trends in Five Sectors'' assessed the extent 
        to which R&D and technology have become globalized, and how 
        newly emerging competitors are growing into technological 
        prominence in some fields.

   OTP staff has played critical roles on U.S. interagency 
        teams negotiating bilateral framework Science and Technology 
        Agreements (e.g., the U.S.-EU Science and Technology Agreement, 
        the U.S.-Japan Science and Technology Agreement) and other 
        bilateral R&D projects with Japan and China. Among OTP's goals 
        in this work are ensuring equitable intellectual property 
        rights provisions and administrative arrangements conducive to 
        U.S. private sector participation.

       c) What metrics does the Department of Commerce use to measure 
OTP's performance?

    Answer. OTP's principal activities and targeted outcomes are 
captured in the Department's GPRA plan (see FY 2003 Annual Performance 
Plan, Technology Administration chapter) as a single performance goal: 
``Provide leadership in promoting national technology policies that 
facilitate U.S. preeminence in key areas of science and technology and 
leverage technological innovation to strengthen American global 
competitiveness.'' This goal arises naturally from the mission Congress 
gave the office in the Stevenson-Wydler Act (15 USC Sec. 3710 (a) and 
(b)).

    OTP's performance goal is orchestrated through a series of 
strategies and action steps for FYs 2002, 2003, and beyond, each of 
which have associated performance metrics. In general, the performance 
goal is achieved through OTP-initiated activities in three primary 
action areas:

       I. Outreach: Engage U.S. industry and the nation's S&T community 
on salient issues and policy needs.

       II. Analysis and Education: Prepare timely, value-added analyses 
and educate policymakers about the nation's resources, competitiveness, 
and capabilities for research and development (R&D) and innovation.

       III. Advocacy: Advocate policies, programs, and partnerships to 
promote U.S. innovation and enable technology-led economic growth.

    OTP's current performance plan specifies several dozen specific 
activities across these three areas that grow from the office's 
statutory responsibilities (such as periodic reports to the President 
and Congress on the status of federal technology transfer policies and 
programs), ongoing attention topics for policy analysis/development 
(such as reviewing/revising existing federal guidelines for U.S. 
federal lab tech transfer agreements involving foreign parties, 
educational initiatives to encourage the interest and participation of 
young students in science and technology, state/regional/local 
initiatives to strengthen the contribution of science and technology 
activities to economic development), and new initiatives to address 
issues of emerging importance (such as analyzing the policy 
implications of the globalizing R&D system and efforts of many of our 
international trading partners to modernize and strengthen their own 
capabilities for new technology based innovation).
    Generally, Secretary Evans and I both place a high priority on the 
ability of all the divisions and offices within the Department to work 
together in pursuing our overall mission to serve U.S. industry and 
strengthen the nation's economy. New technologies and the opportunities 
for economically significant innovation based on them clearly cross 
many organizational boundaries and have implications for many federal 
agencies. OTP has a unique ability to contribute beyond its own 
immediate objectives and priorities, to provide value by working 
effectively with other offices within Commerce and in other agencies. I 
believe that OTP recognizes these opportunities and is working hard to 
pursue them in advantageous ways.
    Question 14. The President's FY03 budget recommends terminating the 
Experimental Program to Stimulate Competitive Technology (EPSC0T), 
which was designed to build the science base of states that have 
traditionally been underrepresented in federally sponsored research and 
development.

      a) What was your rationale for ending this program?

      b) Are there parts of this program that you would recommend 
continuing as part of the Technology Administration or in another 
government agency?

    Answer. EPSCoT was structured and operated as an experimental 
program, designed to provide information about policy tools that work 
effectively to stimulate tech-led economic development (TLED). As such, 
EPSCoT grants (which were given in 1998 and 1999) were never intended 
to create any permanent entitlements. All projects were of limited 
duration with the expectation that the sponsored activity would be 
sustained by other organizations at the end of the grant life.

    TA's current work in TLED builds on three things: (1) our mission 
of advocating policies that support tech led economic development, (2) 
the expertise garnered from lessons learned in administering the EPSCoT 
program and (3) the evaluation's recommendations.

    Specifically, TA is leveraging its existing resources and those of 
other federal agencies to sponsor a series of national training and 
education events that will provide regions and communities with 
instructional tools that address a variety of tech-led economic 
development issues. TA's experience gained in EPSCoT and other tech-led 
economic development work is a critical asset in matching relevant 
technical expertise with community goals and potential.

    Examples of activities under consideration include: workshops on 
how angel investor and entrepreneur networks can support technology 
transfer and technology-led economic growth, and ways to improve 
telecommunications infrastructure--such as establishing consortiums of 
users to facilitate high-speed access at reduced prices.

    In these outreach efforts TA will remain guided by the following 
principles:

   TA will ensure that the states and regions served by these 
        activities will be consistent with those eligible for the 
        EPSCoT program, and participants will include state and local 
        governments, regional organizations, institutions of higher 
        education, business organizations, non-profit organizations, 
        tribal governments, and federal laboratories.

   The ongoing outreach work in tech-led economic development 
        will remain integral to TA policy responsibilities regarding 
        domestic technological innovation, transfer, and 
        commercialization.

   TA staff will, as resources permit, provide ongoing advice 
        and technical assistance.

   TA will continue to recognize that local entities are in the 
        best position to determine what strategies should be 
        implemented in each state; TA recognizes that different states 
        and communities will identify different approaches, priorities, 
        and needs.

   TA's work with EPSCoT states will continue to complement its 
        data development and dissemination efforts--like the State 
        Science and Technology Indicators report, which is a guide for 
        those in the public and private sectors who are looking for a 
        consistent set of metrics from which to formulate their own 
        science and technology strategies and economic development 
        goals.

    Finally, our ongoing work outreach work--with former EPSCoT states 
and others--will support two major themes of the DoC Mission: (1) build 
for the future and promote U.S. competitiveness in the global 
marketplace by strengthening and safeguarding the Nation's economic 
infrastructure; and (2) keep America competitive with cutting-edge 
science and technology and information.

    Question 15. Several years ago, it was proposed that the National 
Technical Information Service be eliminated. What are the current plans 
for the service? Are you planning any changes in its operation?
    Answer. NTIS has operated profitably for three consecutive years, 
generating cumulative net earnings of $5.2 million over the period FY 
1999-2001. While its basic core mission is to collect, preserve and 
sell scientific and technical publications, I am pleased to report that 
federal agencies continue to make significant use of its infrastructure 
and expertise for distributing specialized information packages, such 
as multi-media training materials, to their own constituents.

    For many years, NTIS' business model was to distribute information 
about the materials in its collection through information aggregators 
who would sell access to many databases, including the NTIS 
Bibliographic Database, through paid subscriptions. NTIS would receive 
a portion of their revenue to the extent it was derived from the NTIS 
Bibliographic Database. This worked well in the pre-Internet days when 
NTIS had no practical way to reach the vast community of research 
scientists. The downside of this approach, however, is that it only 
provides information about the NTIS collection to those who can afford 
such subscription services--mainly business, industry, and 
universities.

    NTIS is implementing a new business model in which it will post a 
significant portion of the Database on the World Wide Web, refer users 
to web sites of the source agency where a desired document may be 
downloaded for free, and allow users to download for free any document 
in our collection for free if NTIS has it in electronic image and it is 
less than 20 pages or, if larger than that, for a flat fee of $8.95. 
NTIS is hopeful that this will expand its customer-base and that 
revenue from downloads and orders for paper products from new customers 
will more than offset any revenue losses.

    Question 16. You mentioned in your statement that you are 
optimistic that adoption of the Malcolm Baldrige criteria for 
performance excellence will spread across the education sector. What 
are your plans for implementing the Baldrige criteria at the Department 
of Commerce?
    Answer. Although the Department as a whole has not assessed its 
activities specifically using the criteria prescribed by the Malcolm 
Baldrige National Quality Award Program, the administrative and 
operational issues that the Baldrige criteria address are the focus of 
various management reforms under way at Commerce.

    Central to this effort is the Department's ongoing implementation 
of the Government Performance and Results Act (GPRA). Under GPRA, 
Commerce establishes long- and short-term goals and targets through its 
five-year Strategic Plan and Annual Performance Plans (APP), and 
evaluates its success in achieving those goals and targets in the 
Annual Program

    Performance Reports. These regular assessments help to ensure that 
our daily operations mesh with our strategic goals and further the 
mission of the Department.

    While preparing the fiscal year (FY) 2003 APP, we thoroughly 
evaluated our existing performance measures to determine whether they 
optimally reflect program objectives and the needs of our clients. This 
exercise resulted in substantial changes being made. One of the areas 
most significantly affected was Departmental Management (DM), which 
provides policy and administrative oversight for many of the management 
functions addressed by the Baldrige criteria. These functions include, 
among others, human resources, safety and security, information 
technology, financial management, and acquisition management. The 
Department has made management reform a priority by adapting DM 
performance measures and targets to incorporate the five cross-cutting 
initiatives established in the President's Management Agenda.

    The resulting blueprint is guiding many of our efforts to: 
structure and train our workforce to provide the best quality service 
possible to the American taxpayers; link the performance of senior 
managers to organizational goals; maximize the effectiveness with which 
we employ information technology to enhance program performance; review 
the extent to which activities could more efficiently be carried out by 
the private sector; and ensure accountability for public funds through 
sound financial management. As we seek to improve our operations, I 
have encouraged our bureaus to include self-assessments among the tools 
used to achieve that end. The National Institute of Standards and 
Technology, as an example, has relied on the Baldrige criteria to do 
so.

    Through these initiatives and other attempts to strengthen 
performance, we hope to achieve the same level of excellence as that 
sought through the Malcolm Baldrige National Quality Award Program.
                                 ______
                                 
 Response to Written Questions Submitted by Hon. Ernest F. Hollings to
                           Hon. Samuel Bodman

    Question 1. At the hearing, you and I discussed the deterioration 
of some of NIST's scientific facilities. Please provide the Committee 
with information regarding the specific repairs needed, as well as the 
associated costs for NIST facilities in Gaithersburg and Boulder.
    Answer. Elements of NIST's Boulder Construction Plan are reflected 
in the President's FY03 Budget submission to Congress. In particular, 
the budget requests $11.8M for the first phase of a new Central Utility 
Plant (CUP) as well as $5.5M for the installation of upgrades to the 
facilities' Primary Electrical Service. In addition NIST's FY 2003 
budget request includes $l5M for ``fitup'' of the Advanced Metrology 
Laboratory and $22M for safety, capacity, maintenance, and major 
repairs (SCMMR).

    The current Boulder renovation plan, subject to future budget 
priorities, is to renovate Building 1 (multiple wings), Building 2, and 
Building 4, phased in over a ten-year period.

    Question 2. ATP projects funded between 1990 and 1991 were subject 
to the recoupment provisions in the original ATP law.

      (a) How much was spent on the 39 projects to which recoupment 
applies?

      Answer. These 39 projects received $130 million in federal 
funding.

      (b) How much of the cost of these projects has the Department 
recovered?

      Answer. No funding has been recouped from these projects.

    Question 3. The National Academy of Sciences' National Research 
Council, in its June 2001 study The Advanced Technology Program: 
Assessing Outcomes, recommended that ATP concentrate a significant 
proportion of the awards in thematic areas. There are a number of 
areas--such as enhancing homeland security or reducing energy 
dependence--where fundamental breakthroughs in enabling technologies 
could make a significant impact on problems facing this nation.

    (a) Is the Department considering any thematic competitions for FY 
2002 or FY 2003? Why or why not?

    Answer. NIST has not to date administered competitions for awards 
on a ``thematic'' basis. However, we have announced (by a Federal 
Register notice in Docket No. 020328074-2074-0 1) that the FY 2002 
proposals we receive may he distributed for review to technology-
specific source evaluation boards.
                                 ______
                                 
   Response to Written Questions Submitted by Hon. John B. Breaux to 
                           Hon. Samuel Bodman

    Question 1. There is an executive order that directs executive 
departments and agencies to make available federal buildings and lands 
for the siting of mobile service antennas.

    What steps have you taken or are you considering to carry out this 
directive, and who has the responsibility for ensuring that the 
wireless industry has access to federal property pursuant to this 
executive order?
    Answer. In August 1995, President Clinton directed the General 
Services Administration (GSA), in consultation with the other Executive 
Branch agencies, to develop procedures to facilitate access to Federal 
property for the siting of commercial radio antennas. In February 1996, 
Congress mandated similar action by federal departments and agencies in 
section 704(c) of the Telecommunications Act of 1996.

    In June 1997, GSA issued guidelines and procedures to assist 
federal agencies in complying with the Presidential order and their 
statutory obligations (Placement of Commercial Antennas on Federal 
Property, 62 Fed. Reg. 32611 (June 16, 1997)). Those procedures, among 
other things, require agencies to provide a preliminary written 
response to an antenna siting request within 60 days. Furthermore, the 
GSA guidelines provide that siting requests from ``duly authorized 
telecommunications service providers should be granted unless there are 
unavoidable conflicts with the [agency's] mission, or current or 
planned use of the property or access to that property.''

    The Department of Commerce is complying fully with the GSA 
guidelines. The responsibility within the Department for antenna siting 
lies within the Office of the Chief Financial Officer and Assistant 
Secretary for Administration. To date, the Department has not received 
many siting requests because we do not own or control a significant 
proportion of federal buildings or lands.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. John McCain to 
                             Anne Armstrong

    Question 1. You mentioned that Virginia's Center for Innovative 
Technology is a state funded non-profit organization. What activities 
does your non-profit status allow you to perform that you would not be 
able to perform if you were a state agency?
    Answer. CIT was set up as a non-profit for a variety of business 
and organizational reasons. First, as a non-profit, we can have the 
oversight of a Board of Directors, drawn from government, industry and 
academia. Second, we have the legal ability to keep business 
proprietary information confidential, as we are exempt from FOIA, and 
thus can deal with business proprietary information. Third, we are not 
state employees and are more flexible to tailor our programs and our 
staff to market imperatives.
    Question 2. In your testimony, you stated support for five of 
Secretary Evan's six recommendations for reforming the ATP. Are there 
any other suggestions that you would like to offer?
    Answer. We would like to offer our services in helping to market 
the program. We have suggested that improving the dialogue with the 
states could help bring more applicants, more small businesses and more 
consortia with industry and academia into the pipeline. We have seen 
improvements in our companies' participation over the past couple of 
years that we have focused on this opportunity. In fact, we are in the 
preliminary stages of formulating a states' ATP pilot program that 
would allow for the germination of more high tech ideas at the local 
level.
    Question 3. You stated that ``most federal and state programs would 
benefit from additional marketing in order to expand the pool of 
potential applicants.''

       a) How important a role does marketing provide for CIT?

       Answer. Building awareness is a big issue for CIT. On the one 
hand, our stakeholders want to know that we are being the most cost-
effective stewards of their money, but on the other hand they want us 
to broaden awareness of our programs. We devote about 10 percent of our 
budget to ``program communications'' as we seek to broaden awareness of 
our programs among likely clients while devoting maximum funds to 
service and program delivery.

       b) Do you think that a new marketing strategy in needed for ATP?

       Answer. ATP has been fairly aggressive in their outreach to 
Virginia and the DC metropolitan area, which is the environment in 
which we operate. Any program could benefit from increased exposure, 
particularly to its target audience. Leveraging the outreach ability of 
state organizations could be an add-on to ATP's existing marketing 
strategy. However, it is not a uniform approach, since the states have 
a variety of different organizations and approaches to science and 
technology-based economic development. CIT would very much like to 
become a marketing or outreach arm of ATP and would encourage the open 
discussion of how best to accomplish mission.
    Question 4. Why would you support the granting of intellectual 
property rights to universities, non-profits with a mission of 
education, and not supported recoupment for a government agency, whose 
non-profit mission is directly for the public good?
    Answer. We support the granting of IP rights to universities as a 
means of removing administrative barriers to participating in ATP 
projects. The guidelines of the projects should focus on the outcomes, 
which are early-stage high-risk projects with future market potential. 
Universities as sole applicants should probably not receive ATP 
monies--they need the industry connection and market potential. We do 
not support recoupment because recoupment can change the nature of the 
projects funded. If project managers focus on the potential for 
recoupment, they will lean away from funding the earlier stage, higher 
risk research. If the technology is successful, and years later leads 
to new product lines or new businesses, the government will recoup its 
investment in tax revenues.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. John McCain to 
                          Dr. Lewis Branscomb

    Question 1. You have mentioned your agreement with ATP funding 
technology prior to product development. How would you distinguish 
which activities are product development and which ones are not, given 
the shorten development cycles and the technical nature of some 
technologies today?
    Answer. Your question raises two issues, the effect of shortened 
product cycles in competritive industries and the distinction between 
early stage technology development and product development. I will 
address them in turn.

Effect of shortened product cycles:
    The point raised concerning shortened development cycles is valid 
and highly relevant in this context. Before addressing that point 
specifically, let me offer a more general response. The shortening of 
product cycles is a real phenomenon in the core businesses of 
established companies. The fact that in the 1980s .Japanese 
manufacturers were able to turn around incremental improvements in 
their products faster than many US firms was a significant contributor 
to their superior competitiveness at the time. When mature firms are 
challenged by a competitor with shorter product cycles, their normal 
reaction would be to shorten their own by being less ambitious with 
their own technology injection and to rely more on outsourcing 
components and subsystems (or even whole new products which they re-
label and sell).
    But these were incremental improvements, not the radical 
technologies in which ATP is intended to invest. ATP addresses a 
different industrial situation: new technology leading to new markets. 
If an ATP grantee is the first firm to create a product for a 
previously non-existent market there is no crush on product cycle time 
except for the obvious fact that the longer it takes to get to market 
successfully, the more expensive it is. And there is always the risk 
that some other innovator will get there first. In many of the product 
cases of firms that received ATP grants and were ultimately very 
successful with breaking open new fields with new technology it took up 
to 10 years to mature the technology and create a truly viable, growing 
business. Short product cycles are not typical in radical high tech 
innovations.

Distinguishing early stage technology development from product 
        development
    In the ``mainstream'' economy, design and production technologies 
usually evolve incrementally. Little research is required. Product 
development incorporates most of the limited R&D needed. Firms with 
established products serving known customers have strong incentive to 
advance such work. The mandate of ATP is not to support this sort of 
incremental product development, but rather to support further 
development of promising, but not yet commercially mature,, science-
based technologies. In the areas in which ATP invests, before product 
development can begin, the science (research) on which the invention or 
product concept was based must be shown to be practical in a product 
design whose manufacturing process is reasonably well understood. In 
other words, the technology must be ``reduced to practice.'' In the 
course of this work, whose costs ATP might share with an applicant 
firm, the product specifications are quantified in order that the match 
of the product to its intended market can be verified.
    Thus the R&D that precedes product development is market sensitive, 
and may require iterative changes in market specfications and product 
specifications. Before final product development leading to production 
can begin, this iterative process must have converged to some specific 
outcome. To be sure the lines are not sharp, but, as the Booz Allen 
research we sponsored shows, industrial R&D executives have little 
difficulty in distinguishing them. In larger firms with corporate 
research laboratories these two phases are typically distinguished 
organizationally. The technology reduction to practice may be done by 
the corporate research laboratory (financed by the risk funding 
provided to the laboratory out of corporate profits), while the product 
development is done in an operating product division (financed out of a 
business case predicting product revenue). In smaller firms that do not 
have a distinct, centrally funded corporate laboratory, the 
organizational distinction is not so clear, but financially the two 
activities--early stage technology development (ESTD) and product 
development for production--are still distinct.
    In some industries, notably some biotechnology and pharmaceutical 
products, the research phase tends to be quite intensive and risky 
while manufacturing is a relatively modest challenge. In this 
situation, much of what might he called product development in other 
industries is in fact hard to distinguish from research to reduce the 
product technology to practice. That is, once the biological scientists 
have demonstrated evidence of medical efficacy and safety in animal 
experiments, the product may be said to have been `developed.' However, 
in order to gain approval from the FDA to produce the drug, it may be 
necessary to go back to the research lab repeatedly. Here it is truly 
hard to make a clean separation between research to reduce the 
technology to practice and the development work to ready the product 
for manufacturing.
    Finally, let mccall attention to the special case of software 
products, the products of the so-called ``dot.com'' industry. While it 
is commonplace to refer to all IT products as comprised of 
``technology'' very little if any computer science research is required 
for software products. Those software products that can truly be called 
``high-tech innovations'' may indeed be radical innovations, but they 
are usually market or business model innovations, not those based on 
science in the way most ATP products are. In this situation there is 
very little R&D and very little manufacturing. Product development 
consists largely of writing the software code and then refining it to 
adapt to market signals and discovery of errors (``bugs'').
    Question 2. You mentioned that the government should not attempt to 
become a public venture capitalist. At the same time, you mentioned 
that the government should identify entrepreneurs and share with them 
the risks of reducing their ideas to practice in the context of a 
promising commercial market. If the government is to share in the risk 
with entrepreneurs with taxpayers' funds, what should the taxpayers 
expect in return?
    Answer. The argument against ATP engaging in public venture capital 
has two parts:
    Firstly, 96 percent or more of private venture capital invests 
during or after product development and market entry--the area in which 
ATP does not invest.
    Secondly, even if this were not a constraint, government agencies 
cannot expect to use the management tools private VC firms find 
essential, using a board seat and their equity to participate actively 
in management, even to the point of removing the CEO when necessary.
    When sharing with entrepreneurs i.e. company management--the cost 
of high-risk but highly promising new technology development, the 
Government should expect to see the emergence and diffusion of new 
technology, embodied in products and services, that creates new growth 
areas of the economy and, in the process, adds to technical knowledge 
that can find its place in other applications not foreseen. To the 
extent that ATP can stimulate Schumpeterian growth that might not have 
happened otherwise (or least would have been significantly delayed), 
the practical return to taxpayers is in tax revenues; the technical 
return is in new and useful technology; and the social return is in new 
employment, new wealth and new products that serve the public.
    Question 3. You mentioned in your statement that venture 
capitalists are not in the R&D business. You later mentioned that 
venture capitalists do support firms that are bringing radical new 
technologies to market. Where do you draw the line as to what is in the 
R&D business versus bringing technologies to market?
    Answer. Something like 4 percent of VC investments (in 1998) are in 
``seed'' ventures, which like Angel investments and ATP projects are to 
finance the R&D required to reduce to practice a research-based 
technical idea with commercial promise. But the other 96 percent (early 
stage and later investments) is also essential for successful 
commercial innovation. Venture funding is the most promising instrument 
for taking the next step after Early Stage Technology Development. It 
is specifically designed to finance the rapid growth of a new business 
element and to liquify the equity assets of all the participants in a 
venture either by an Initial Product Offering (IPO) or by a merger or 
acquisition which accomplishes the same end. VC funding is used for all 
the financial requirements of the firm (i.e. from legal fees to Super 
Bowl ads) including but by no means restricted to R&D.
    Question 4. You have noted that you are in strong support of 
university lead ATP consortium projects, and the right for universities 
able to negotiate patent rights with firms. Do you, in any way, see 
drawbacks from these two reforms?
    Answer. I see few drawbacks. However there are a few situations for 
which ATP managers should be on the lookout: (a) a consortium, led by a 
university, in which the industry partners have joined for largely 
cosmetic reasons, for example to help participating firms curry favor 
with the university; (b) a university that assembles a consortium to 
work on a technology is that so immature that the work to reduce the 
technology to practice in environment of a real or prospective market 
cannot be started and the university is simply looking exploratory or 
basic research funds without a clear commercial concept and identified 
market. On the issue of university developed intellectual property (IP) 
it is only common sense for government to leave that question to the 
parties (university and business) to resolve.
    Question 5. In your testimony, you discuss the iterative process of 
bringing new technology to market as a commercial product. Are there 
other government programs, besides ATP, that also play a role in 
helping companies commercialize technology? How do these programs 
compare to ATP in effectiveness?
    Answer. ATP is devoted to private commercial markets, so we can 
exclude from the markets in this question those that are created by 
government (DoD, NASA, nuclear weapons related research in DOE). The 
only other program that is not technology specific and seeks to 
encourage research-based commercial innovations is SBIR. A number of 
agencies, however, engage in R&D funding to private firms to develop 
technologies that the Congress and the President believe serve a public 
interest in ways that market incentives alone will not adequately 
address. Examples include genomic research, computer security, 
environmental pollution mitigation technologies . . . . Some of such 
programs do look fund R&D intended to define an economically attractive 
technology, such as the public-private partnership with the auto 
industry and other firms to accelerate the commercialization of fuel 
cells or other alternative power plants for cars.
    SBIR is a much more generously funded program than ATP because it 
is funded by mandatory set aside of agency R&D funds to be spent with 
small businesses. Thus no member of Congress has to vote for a line 
item budget for SBIR. But there are SBIR ``mills''--firms that exist 
only to compete for SBIR funds and pay little attention to 
commercialization. ATP does a much more careful job of avoiding 
investing in product development and a the same time insuring that 
there is a high likelihood of commercialization if the R&D is 
successful.
    Question 6. One concern about ATP is that in the past it has been a 
corporate welfare program that helped large companies bring technology 
to market, while leaving small business at a disadvantage in applying 
for grants. If Fortune 500 firms are forced to be parts of joint 
ventures with smaller firms, will that resolve this problem or do other 
reforms have to be initiated?
    Answer. As our case study of GE's research on amorphous 
semiconductor technology shows, there are circumstances in which it 
makes economic sense for ATP to participate in funding entities within 
even the largest firms. Such cases usually involve scientific work in 
the large firm whose application lies outside the core business 
interests of the firm. In this situation the technical advocates within 
the firm, usually in central corporate research departments, are in a 
similar position to a high-tech entrepreneur seek to start up a new 
high-risk, high tech business.
    But I well understand the political difficulty of defending this 
rather special situation. I do not think the economic benefits of 
allowing large firms to be funded solo by an ATP project outweigh the 
political price paid for keeping this possibility in the program. Thus 
I support the Commerce Secretary's proposal.
    Question 7. Why would you support the granting of intellectual 
property rights to universities, non-profits with a mission of 
education, and not supported recoupment for a government agency, whose 
non-profit mission is directly for the public good?
    Answer. This is a two part question, in my opinion not logically 
connected. I support allowing universities and firms to negotiate the 
property rights for inventions that might arise in an ATP project for 
two reasons.
    (a) First, the Congress passed the Bayh-Dole Act for good reason in 
1980, granting all institutions that perform R&D for the government to 
own the intellectual property (IP) subject to a royalty free license 
for the government. Many studies have shown that protected IP is more 
likely to be made available to the public (through commercialization) 
than is government sponsored, commercially valued R&D put into the 
public domain. The Bayh-Dole act applies both to commercial firms and 
to non-profit institutions. Thus it is entirely appropriate for ATP 
projects to allow the grantees to own the IP.
    (b) Once that is established, it is entirely consistent with our 
free market principles that the parties should determine among 
themselves the appropriate division of the lP generated under the 
project. In free markets will well informed participants this should 
yield the economic optimal outcome.
    The second half of your question asks whether recoupment to a 
government agency is not merited since the agency's non-profit mission 
is directly for the public good. My answer is very simple. The costs of 
the vast majority of government services to the public are shared by 
the citizenry through taxes they vote to impose on themselves because 
they realize that markets allocate capital very efficiently for some 
goods, but not others. In a limited number of cases the government does 
make a charge for a service, such as entry fees to national parks or 
the sale of stamps to access distance independent mail service. Here 
the logic is that Congress concludes that the market is not sufficient 
to generate the revenue needed to create or preserve national parks, 
but nevertheless all citizens do not benefit equally and those who 
enter national parks are willing to pay a modest participation fee.
    But recoupment is a special ease. Recoupment might be considered 
when government activity creates economic value responsive to a 
competitive market, and the government then chooses to collect some or 
all of the profits. In socialist countries this is an entirely 
familiar, even dominant model for economic activity. In our economic 
system I believe it is inappropriate to apply the socialist model. Any 
government program capable of competing with market forces in 
generating revenue should be seriously questioned. If recoupment is 
sufficient to pay for the investment that is a sufficient test to 
convince me that the program should not have been initiated in the 
first place.
    But the ATP program does not pass the critical test. If it invests 
in early stage technology development (ESTD) that markets will not 
finance because the risks are too high and the appropriability is too 
low, it will not be able to recoup its costs if the recoupment is 
calculated on the economic returns from the ESTD alone. If the 
recoupment is calculated on product development which is 100 percent 
funded by the firm (since ATP does not invest in commercial product 
development) a serious inequity results. Of course the consequence of a 
recoupment fee on investments made with only private capital, no 
rational firm will participate in the ATP program.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. John McCain to 
                             Scott Donnelly

    Question 1.

    a) Are you aware that ATP funding should be a source of ``last 
resort'' for its applicants?

    b) What verification did you have to provide to the ATP program to 
demonstrate that you had sought funding elsewhere?

    Answer. NIST ATP requires applicants to describe efforts they have 
been made to get internal funding and/or external private financing and 
how ATP funding will change scope, scale, and/or timing of proposed 
research effort. GE has appreciated this requirement and has always 
provided an explanation as to why NIST ATP funds are needed. In general 
GE seeks NIST ATP funding for high technical risk projects where no 
other government funds exist and that GE would not fund on its own. In 
addition, the ATP funds serve as a powerful incentive to rally outside 
R&D collaborations with companies who on their own would not come 
together.
    In the case of GE's recent CY01 PM MRI NIST ATP win the GE 
technical team had requested funding for this project from management 
annually since 1997, and had received limited feasibility funding to 
see if the program had merit. However, funding sufficient for the total 
program has not been received because the project is viewed as too high 
a technical risk and was targeted for a relatively low population 
group, which does not meet business investment criteria.
    Program support was also requested in 2001 from GE Global Research 
and GE Medical Systems management. Program dollars were committed as 
part of a total NIST ATP program. However, these funds are conditional 
on receiving NIST funding. If a NIST award is not granted, then the 
cost share dollars will be reevaluated in light of the program risks. 
Previous history leads us to believe that without NIST funding, this 
program will not meet the cutoff for full internal funding, and while 
it may receive some level of decreased support, it will not be enough 
to sustain its development in time to ward off foreign competition, if 
at all.
    A related proposal entitled ``Compact Permanent-Magnet MR Imager'' 
was submitted for potential funding on August 22, 2000 to the U.S. Army 
Medical Research Acquisition Activity. Although this program has 
various differences from the one submitted to NIST, they both included 
the development of a more cost-effective, high-quality imaging system 
using permanent magnets. The Army proposal was not viewed as meeting 
the needs of the government's defense priorities and was not funded. 
NIH was considered as a funding source but typically funds clinical 
research. The nature of our proposal is more suited to meet the 
priorities of NIST than that of the Defense or other federal programs. 
The ATP defining criteria, while demanding, provides an outstanding 
mechanism for a high-risk, high-impact program, where the technology 
enabled provides a clear roadmap leading to subsequent 
commercialization.
    Question 2. It was recently reported that GE's last quarterly 
income was $2.5 billion on revenue of $30.5 billion. GE invested $2.3 
billion in R&D in 2001. In October of last year, GE won an ATP award as 
a single applicant for a project entitled, ``Affordable Open MRI for 
Unserved Markets''. In this project, GE was providing $2 million and 
ATP providing$830,000.

      a) Given GE Capital, the financial arm of GE, enjoys a credit 
rating of AAA from Standard and Poors, why was GE not able to provide 
funding for the additional $830,000?

    Answer. NIST ATP funding represents a very small portion of a 
research organization's total R&D spending. To use GE as an example, in 
2002 we will receive a total of $4.4 million in NIST funding, which is 
two-tenths of one percent of our company's total R&D budget. These 
funds are not going to further product development for GE, they are for 
research. The purpose of going to the federal government for additional 
funds is generally to leverage our investment, in order to surpass 
technical hurdles and to make the project technically feasible for 
product development.

    b) A description of the project on the ATP website states ``in 
fact, the project might not be pursued at all otherwise because of the 
high risk involved''. If ATP funding was not granted, would GE have 
pursued this project?

    Answer. For GE, the research drives the pursuit of ATP we are not 
creating projects at the Research Center in order to access ATP funds. 
We look to government programs such as NIST to supplement our own 
investment.

    c) What benefits did GE get from the ATP program that it didn't 
have before?

    Answer. NIST ATPs have allowed GE to form strong R&D partnerships 
and mentoring relationships with smaller businesses that wouldn't 
typically have the resources to participate in such high-risk 
technology development. We also benefit from working with the highly-
skilled and talented Technical Program Managers at NIST. These 
Technical Managers add real value to the industry-led programs. ATP is 
a very well-run and professionally managed program.

    d) What additional sources of funding were considered prior to 
applying to the ATP program?

    Answer. Please see answer to question #1. As stated, GE often 
investigates numerous alternative funding options for its targeted 
high-risk technical projects. In the case of the MRI program we sought 
US Army and considered NIH funding. In both cases the program did not 
fit the Agency's investment criteria.

    Question 3. One concern of this Committee is the decrease in R&D 
funding by private industry during this recession. Could you please 
explain how GE allocates its R&D funding, and what factors will lead 
the company to invest its own money, instead of applying for an ATP 
grant, into a research project?
    Answer. We are proud to report that at General Electric Company we 
are increasing our investments in research and development. We have 
identified several areas of emerging technologies to focus on 
including: molecular imaging, nanotechnology, photonics and alternative 
energy. As we stated above, ATP grants represent two-tenths of one 
percent of our company's total R&D budget.
    Question 4. Why would you support the granting of intellectual 
property rights to universities, non-profits with a mission of 
education, and not supported recoupment for a government agency, whose 
non-profit mission is directly for the public good?
    Answer. First, we believe that the federal government has an 
important role in spurring innovation and that role is not as a loaning 
institution but as a partner in the research enterprise--public sector, 
private sector and academia. We believe that this commitment and the 
investment made by the Federal government is directly linked to the 
prosperity of the US economy. One might look at government-sponsored 
research in the computer sciences that brought us the Internet as an 
example, or, the advances in medical sciences that we may not have 
without the National Institutes of Health and its partners.
    As stated in my testimony before the committee, one of the primary 
goals of the NIST ATP programs that has experienced success is in 
bridging the gap between basic technology research and market 
implementation. The recoupment clause may erode participation from 
companies, which would remove their valuable cost share funding, 
commercialization, technical expertise that complements and often 
enables smaller sized companies' participation in NIST ATP.
    Secondly, the recoupment is based on 5 percent of gross revenue, 
which raises many serious issues. How would the Department of Commerce 
calculate the ``government royalty'' for an ATP. Often an ATP is 
focused on a specific, high-risk technical hurdle associated with a key 
component, process or subsystem. This component is then part of a 
larger system. The component may only be a small percentage of the 
total system cost. How could anyone agree on a fair and consistent 
formula to calculate the royalty fee owed to the government? This 
creates an administrative nightmare and adds additional expenses that 
would take away funding from the research programs.
    In addition, to calculate the royalty on ``gross revenues'' would 
place undue pressures on industry to pay the government even if they 
are not making a profit. This would be difficult for GE, but it would 
be devastating for the smaller firms.
    With regard to intellectual property (IP) rights for universities, 
GE supports the rights to IP for those who make inventions and 
discoveries. Universities and non-profits should have the ability to 
negotiate IP terms when collaborating with companies and other research 
partners.

                                  
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