American innovation lost big again as the U.S. Senate passed “patent reform” and caved to big business lobbyists at the expense of true innovators in small companies and universities. Bottom line: America has dominated innovation in the world for 100 years based on our patent system and protection of risk-takers. Innovation is the one thing we still dominate in the world economy. It is our job engine. The first rule of governing should apply here: If it aint broke don’t “fix” it.

The sponsors, Senator Patrick Leahy of Vermont and Representative Lamar Smith of Texas, worked extremely hard and were well-meaning, but the big lobbyists hijacked the process. The bill was conceived to solve the problem of truly frivolous lawsuits in the technology and banking industries. That problem was solved in five minutes, and then the big companies got ahold of the Bill and added all their bells and whistles and it passed based on sheer inertia. Few in Congress like this law, but they went along because big companies have more power than true innovators. Many will cheer it just to suck up to their representatives. Not me. Few, like Senator Maria Cantwell of Washington state, had the courage to call the bill what it is and that it “tramples the rights of small inventors.”

We gave some real competitive advantage to Europe and China with our “first-to-file” from first to invent. Now big companies and foreign firms with fleets of patent lawyers can “scoop” university professors and independent inventors by filing first. Our national investment in research and development has been devalued.

A lot of the reform was driven by the fat and happy tech companies like Intel, Cisco, Google and large New York banks. I call them the “infringers lobby” because their overt goal is to use their market power to steal other’s ideas without paying. That is what this bill does with its business methods section and also the new “post grant review” provisions.

These poor companies, most with market caps over $100 billion, whine loudly about how they are being harassed by the little guy. Never a larger load of horse manure have I heard in my 25 years of starting companies. They have forgotten their roots as venture capital-funded companies who relied on patents to get their funding in the first place. Now that they are less innovative, bloated bureaucracies, they want to repress the innovations of the little guy.

These technology companies and big pharmaceutical companies and others will use the new post-grant review clause to slow the patent process down, and to bleed small companies dry. It happens now, and will be much worse in the future, by big companies filing objections to the true innovations over and over, drying up small inventors’ ability to raise capital.

We have inadvertently put another nail in the coffin of American competitiveness. Our future, and the only way we can compete with China, is our unique ability to invent. It is the core American ideal. We can find our way out of any problem, and the little guy, be he Henry Ford, Thomas Edison, Alexander Graham Bell, Steve Jobs, Jonas Salk, or Gordon Moore, can dream big and invent new industries. All protected in their infancy by a strong patent system.

Not a single job will be created by this bill. Just happy smiles from big oil, big tech, and big pharma, lawyers and lobbyists, and with downright glee in China and the EU.

The most alarming fact is this law is just part of an even larger assault on innovation in the USA. Everywhere you turn, there is less capital available, higher taxes proposed on small business investors, more regulations on IPO companies and investors, an FDA gone wild, and crazy immigration and border policies that drive the best and brightest from our shores. The talk in Washington seems to be all about innovation saving us, and the policies seem to be all about killing it.

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Last year at year end, I wrote about technology trends. Those trends, like the merger of the cloud and mobile devices, personalized medicine, reprogramming of human cells to cure disease, and the re-emergence of nanotechnology, still hold. Startups are breaking down impossible barriers in computing, biology, energy, and materials science. The USA is leading and will continue to lead the world with tremendous innovation.

However, this year, the big impacts are will be made at the politico-economic level. Will government free business to innovate? Will we drown in debt, heading toward our own Greek or Irish “austerity?” There has not been a more critical year for the country since 1980 when we had a choice to leave the Carter malaise behind. The innovation community needs signals and concrete deeds that we are valued so we have some certainty about friendly policies in the future. Here are four trends to watch in the coming year.

Trend 1. Rediscovering innovation and the private sector. I hope we will look back at 2010 and 2011 as the year the United States began to save itself, rediscovering that technology innovation is the key to our economic recovery, and even to our success as a nation in the coming years. Venture funded companies contribute 20 percent of GDP, from zero 40 years ago. This means freeing the private sector to innovate to create new business that will be central to our productivity and economic growth. I was hoping the Obama Administration would have grabbed hold of this agenda from the start, but I am less hopey-changey now. Nonetheless, President Obama received the message this fall and is already reaching out like never before to entrepreneurs, and with folks like Austan Goolsbee leading the charge and a tailwind of fierce and justified rage from free-market advocates, there is reason for hope.

Alternatively, it could be the year that we cede control of our future to government, led by state employee unions, and runaway federal and state spending and debt, miring the country in an anti-business economic malaise that will cause us to make Chinese the primary language taught in our underfunded schools. Our Federal elected officials like Sens. Cantwell, Murray, and most of the representatives from WA seem to “get” innovation and have been effective advocates in DC, but it is not clear the governing party quite understands that it is innovative and entrepreneurial companies that create jobs and lead the United States into the future, not government. Spend one day in China and the entrepreneurial optimism whacks you in the face like a 2×4. Maybe our leaders will re-discover this in 2011, or they will be the minority party in 2012 with a repeat of 2010.

Our state politicians are another matter. While the Washington state federal delegation on both sides seems to understand innovation, the State folks in power seem to say the words, but their deeds show that they are captured by the unions and the backward looking partisans … Next Page »

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Washington’s economy is showing signs of recovery. But some major problems persist—unemployment is stuck at a historic high and healthcare costs continue to skyrocket.

The biotechnology industry can help alleviate both these problems. Washington is already a major hub of new biotech research and products. Boosting this sector will deliver our state—and our nation—from this economic slump. And if we don’t support it, others such as China and British Columbia are calling those of us in the investment community and asking “what can we do to get your investment dollars, and companies, to come here?”

We are at a crossroads. Do our state legislators want the high paying jobs, and thriving economy that comes with strong biotech, or will they force the research, startups, and investors away with inadvertent innovation-killing policies.

Life science companies directly employ more than 22,000 Washington residents, paying out over $5.3 billion in annual wages and contributing $5.7 billion in state GDP. This industry is a major producer of jobs in the state.

The creation of bioscience jobs has a ripple effect on the rest of the economy. For every new job within the industry, 3.4 jobs are generated somewhere else. The life science sector indirectly supports some 55,000 jobs here in Washington and 2.4 million nationally. In other words, it’s not just well-trained scientists that benefit when the biotech sector grows. Union construction workers, engineers and a host of other goods and service providers also gain from biotech’s success.

Washington is home to major international research institutions, including the Fred Hutchinson Cancer Research Center, the Bill & Melinda Gates Foundation, Seattle Biomed, the Institute for Systems Biology, and the University of Washington.

Bioscience also has a major role to play in reducing healthcare costs. Americans currently spend over $2 trillion a year on medical care. Lawmakers have been working tirelessly for the last year to devise a solution to this problem. But nothing will be as effective at lowering costs as sustained medical innovation.

Pharmaceuticals have long been known to drastically reduce costs. New medications have brought down the cost of treating depression by mitigating the need for hospitalization. Likewise, cholesterol drugs have saved our health system billions of dollars by reducing the need for heart surgery. And how much of the healthcare dollar do you think goes to branded pharmaceuticals? Four percent. Yes…only four percent. Pills that cure disease are cheaper than doctors and hospitals.

It’s no wonder that Lawrence Summers, President Obama’s chief economic advisor, recently noted that “over the long run, few issues are as important to a nation’s long-term economic security and global standing as being a leader in moving life sciences forward.”

And given Washington’s strong bioscience industry, this state is poised to play an integral role in helping the life sciences industry fortify our economy.

How does Washington’s life science sector compare to other states? It’s in the top ten for both research funding from the National Institutes of Health, and investment of bioscience venture capital.

There are a number of ways lawmakers can accelerate the growth of this industry. The most urgent and immediate issue is before the state Legislature right now. The Washington State House and Senate are negotiating final revenue bills that include massive increases in taxes on the life sciences industry and its research institutions.

If the State Legislature passes a bill like they did this week that almost doubles taxes on basic research in Washington (ESSB6143), this is a big problem for science and for jobs. If the State Legislature passes the proposed massive increases in taxes on investment income on foundations, research institutions, life science companies and venture capital investors, every venture fund will flee the state, and life sciences companies and research institutions will suffer. That would be the death of the industry. We need to make sure we have good policies in place that ensure researchers are incentivized to innovate and that cultivates a positive business climate for investment.

Thankfully, there are some State legislators and leaders, including Governor Gregoire, Rob McKenna, and others who understand the value of biotechnology and can put a stop to the inadvertent killing of the industry at the state level.

There are also issues at the federal level that must be addressed in order to ensure a vibrant life sciences sector. Hopefully, Congress will support sensible capital gains tax reform that will reduce taxes on investment in job-creating biotech investment, and not increase taxes as currently proposed.

With the right support and some restraint of innovation-harming policies, Washington’s biotech community will continue to generate jobs and revive the economy, while also saving lives with new products and driving down healthcare costs.

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The next decade will see the realization of many of the buzzwords of the last decade. The combination of the information era, the biotechnology revolution, and materials breakthroughs will drive new medical and cleantech inventions that will change our lives. The future of innovation in the United States is promising at its core and we will win unless policy makers accidentally harm innovation. They seem to be trying to do just that, in spite of their rhetoric, by doubling capital gains taxes on investors who fund job-creating cleantech and medical breakthroughs, proposing revised patent laws to penalize innovations, and accidentally constraining capital markets for high-tech with onerous regulations.

Still, here are the five innovations to watch in the coming decade:

1. The Return of Nanotechnology. Although much maligned as a “bubble,” this fundamental set of materials technologies that can unlock new physical properties and combinations of materials has been percolating away. Look for major innovations in solar energy that can produce electricity at 6 cents per kilowatt hour and which will compete with conventional power without subsidy. These are in the field now and will blow away the current big names in solar thermal, concentrated photovoltaics (CPV) and thin film solar. New battery innovations on flexible substrates and new form factors that are 2-5 times more efficient than current lithium ion batteries will emerge from the laboratory.

2. Industrial Applications of Synthetic Biology. Many people think the word “synthetic biology” is a marketing word for “biology.” That is mostly true, but the technical strides in sequencing and synthesis of genes into complex systems is nothing short of mind-boggling. The folks who will succeed here are not the providers of the biology, but those who understand and own the biology AND can integrate it into industries like fuel, and agriculture. Companies like Sapphire Energy are already developing technologies that will revolutionize fuels and agriculture as we know it. The United States will produce our own green crude oil at home and at huge scale by 2020.

3. P4 Medicine. A term coined by Leroy Hood to embody Personalized, Predictive, Preventive, and Participatory medicine. This technology will come of age. Driven by new cost reductions in the ability to sequence human genomes, we will finally be able to understand who will get disease, detect the disease early, and administer medicines that will work, only to those who need it. Medicine will be more cost effective and more targeted and “Smart pills” will be better and cheaper than expensive hospitals. The biggest barriers here are political—none of this will happen without … Next Page »

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(Editor’s Note: This is excerpted from written testimony to the U.S. Senate Judiciary Committee.)

Out of the many patents that will be filed in the coming years, there will be a handful of world-changing inventions that can crucially alter the course of our future. These are the jewels we need to protect:

—inventions that solve climate change
—inventions that rid us of foreign oil dependence
—inventions that prevent and treat pandemics
—inventions that address diabetes and Alzheimer’s, saving 40 percent of the future Medicare budget

It is important to emphasize that the patent reform discussion is not just between the high technology and pharmaceutical industries. It is also about the future of American innovation including high-tech, biotech and the area that is even more critical to America: energy – what we call “cleantech.” Cleantech is the fastest growing sector of business and of venture investment. The same venture capitalists who led the successful creation of the high-tech and biotech industries are now poised to lead the way in developing new clean technologies.

The issue we need to collectively explore is how to protect the truly pioneering inventions that we all want to see, such as San Diego-based Sapphire Energy’s carbon neutral crude oil. This is a true breakthrough, made by harnessing the energy from the sun and capturing carbon dioxide, to grow algae on non-agricultural land using non-potable water to make gasoline, diesel, and jet fuel.

Pioneering cleantech inventions require a huge investment upfront, and rely solely on original intellectual property protection to negotiate with corporate partners – some of the largest corporations in the world. By their very nature these inventions change entrenched industries and markets, and take orthogonal approaches to intractable societal problems. These are not inventions that large corporations are incented to make. They require the small business, entrepreneurial risk-taking component of our economy. … Next Page »

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Most Americans are depressed about the economy. But if we pull back and try to rise above the clouds, there are real reasons for hope.

The combination of a “Yes We Can” administration headed to the White House, along with our country’s established leadership in innovation, has us standing at the crest of a trail that could ensure we never enter this chasm again. Let’s get back on our feet and remember what we are made of.

America is the world’s leading innovator in medicine, energy, information technology, and almost every discipline. Our research, patents, startups, and venture capital, all show a country driven to innovate, to create, and to dream the big dream for a better future.

United States’ innovation drives our everyday lives. The light bulb. The transistor. The PC. The Internet. The human genome. An innovator’s spirit cannot be doused by a few rain showers, and thrives on adversity. We are amazed by modern day dreamers and historic visionaries, including Thomas Edison, Jonas Salk, Steve Jobs, Bill Gates, and others. They, like most Americans, possessed an innate disrespect for the status quo. They defied conventional wisdom and created new industries.

America succeeds where others fail because we value creativity over conformity. We respect the hope and naïveté of the young, because sometimes they are right. We seek risk, because it makes us stretch and break new ground. We support a free market for all good ideas, and welcome the best and brightest from distant shores.

We learn from failure and don’t punish it automatically, but we do not tolerate poor performance either. We reward the risk-takers.

Try that in Germany, or Japan, or China.

We must stay on the trail of innovation, in spite of adversity. Be aware that the trail is prone … Next Page »

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…is coming soon.

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