Christopher Gallagher was the keynote speaker at STC’s 2012 Creative Awards event last night. The title of his speech is noted above. Chris sees great promise for the New Mexico innovation ecosystem, even in the face of more challenges imposed by the recent AIA legislation.
Lisa Kuuttila, President & CEO, STC.UNM
Here is an excerpt of the text of Chris Gallagher’s speech:
I extend my heart-felt congratulations to all of tonight’s honorees. It’s exciting to meet you and see your inventions and copyrights. I am delighted to be in the company of such esteemed members of New Mexico’s culture.
After 7 years of Capitol-Hill-combat over Patent Reform and its impact on innovative scientific research I cannot overstate how pleased I am to be with real participants in its discovery, development and commercialization – people who understand what it means to be part of a productive innovation ecosystem. Ecosystems are complicated.
Moving inventions along the continuum from lab bench to store shelf, YOU must embrace the unknown and risk your human and financial capital, while collaborating on a self-selected “pick-up” team, sharing shifting leadership and even ownership, as inventions are refined and developed on their way to commercialization.
Innovation ecosystems are resources in reserve called upon when needed to tackle the unknown. Here at UNM you have repeatedly brought order out of the chaos of curiosity-driven scientific research and watched it thrive in functional independence as start-ups. You have every reason to be proud.
Such economic miracles require special leadership, which is why I am so pleased to be here at Lisa’s invitation. Lisa Kuuttila’s national reputation is unparalleled. You are lucky to enjoy her leadership here at STC. We are lucky to have her counsel in Washington.
Some have asked about the reference to “dancing elephants” in the title to my remarks. They call to mind an old Asian adage … “When the elephants dance, little creatures must beware.” The warning’s jungle implications are clear enough but … What do dancing elephants have to do with patents, policy, and power politics in our nation’s capital? How do they help us understand the American Invents Act – or AIA, as I will say hereafter? How does AIA affect your thriving innovation ecosystem? And … What can and should be done about it?
Tonight is not a time to answer such important questions in the depth they deserve. Having raised them – I will sketch some answers in the hope that later, you will do the work you must to keep your innovation ecosystem strong and healthy even after AIA is fully in place. The news is not all good, but I promise that if you make the effort soon – and get it right – your innovation ecosystem can and will survive AIA. AND it will out-perform the ecosystems of your sister states.
Understanding AIA requires understanding Washington. The elephant “dancers” in my title are the nation’s giant market incumbents, whose ample resources create and shape the “Washington Consensus.” They are the global IT mega-tech and multinational Leviathans who provide political support to Capital Hill’s incumbent. They occupy our IP community’s downstream environs. Their private sector business model differs from STC’s. Their use of research does, as well.
The “deliberative tinkering” of scientific research moves at its own pace through serendipitous discovery and evolution. The art of science research includes its inefficiency. It is about teaching students careful pace – and patience – while serving the public whose government funding makes it possible.
Established companies move pre-defined products to pre‑selected markets. Efficient execution is what enables them to thrive in cut-throat global competition. Their research needs are more short-term … largely incremental … and market directed.
The lines separating scientific and incremental research are not always clear. It is their purposes that differentiate them. We know that both types are worthwhile and economically important but I am confident that YOU at least appreciate the differences between them.
AIA is best understood, when YOU understand that it is the product of a partnership between well-resourced market incumbents and the powerful incumbents in congressional leadership whose continued incumbency depends on special interest support. Unfortunately, YOU are the “little creatures” who had best beware when these elephants are dancing.
The early-stage innovation landscape has changed, for you and everyone involved upstream in independent early-stage innovation. This includes students, faculty, university administrative infrastructure, tech transfer offices (TTOs), economic development personnel, myriad private sector management, marketing and legal advisors and funders of public and private capital whose collective and collaborative support is so critical to navigating the continuum from test tube to tank car. The change has not been for the better.
Here’s why: Information exchange is enhanced by the expectation of respect, trust and safety. And information exchange is what drives creativity and eventual success. Where mutual trust, fair play and favorable expectations are present, communication will happen. Where competitive hostility and selfish attitudes prevail, information sharing is dangerous and risky.
Like sea-water on the reef and the unconscious interactions of rainforest flora and fauna, the medium that lubricates the volume and velocity of information flow among participants in the innovation ecosystems is expectations about behavior. When inventions’ refinement and development require sharing non-rival intellectual property, mutual trust contributes far more than the random contacts in strategically clustered physical architectures so often touted as the key to creativity. It is not.
Indeed physical proximity often stimulates competitive rather than cooperative behavior. And if behavior is the key, then ecosystem culture is what unlocks the door. It is the key that unlocks trusted and complete communication within the system.
Knowing before committing that an innovation ecosystem’s participants behave in ways that make informational transactions more fluid will encourage more contributors to join the network. How does AIA affect these expectations?
There is no doubt that when fully effective AIA will have weakened patent reliability and collaborative trust. It will have lengthened the time for return on everyone’s investment whether it be human or financial capital. And, it will divert effort, resources and PI attention from the task at hand to costly compliance process and more uncertainty. Unless these AIA investment barriers are OFFSET by other adjustments to lubricate and energize our innovation ecosystems, their productive volume and velocity will diminish. The problem is uncertainty.
Uncertainty defines the price of risk assumption. Decisions to invest in early-stage innovation now must be tempered by the possibility that its technology will never see the light of day. We know that basic research is too risky for any investment except by government as a service to the public and as a source of economic growth. Its independent later-stage financing comes from investors whose diverse portfolios can mitigate their risk.
Worse, next March, AIA converts our centuries-old “first to invent” filing format to “harmonize” our PTO with most other countries who utilize a “first to file” format to establish patent validity although they cannot match our innovation output. Canada made a similar switch in 1989 and is still scrambling to revive its lost start-up capability. “First to file” sounds simple enough, but it necessitates repeal of our unique grace period, heavily relied upon by researchers to preserve their IP rights during research. Today’s grace periods accommodate the serendipitous pace of solitary, otherwise internal basic research and they support the complex collaborative and capital demands required to commercialize it.
In economic terms, AIA’s diminution of patent protection and added challenge and opportunity increase the “transaction costs” of participation in the independent ecosystem. These additional transaction costs will no doubt deter private, independent investment in potential start-ups.
Basic research is mission critical. Largely funded by Congress, most of America’s basic research is conducted in our distributed array of research universities, for whom pure scientific research connects its other missions of student education and service to the public. Congress and the Administration are in rare agreement that high risk basic research must be funded publicly. Federal grant makers are now actively promoting more cross discipline collaboration and accelerated commercialization at a time when the post AIA environment has made these express objectives more difficult, dangerous and costly. The administration and Congress itself are pushing hard for start-ups.
Meanwhile in another ironic trend, DC bookshelves are now bending under the weight of new books about the wonders of innovation. Two stand out above the rest.
“Rainforest,” authored by two smart venture capitalists, explains how and why innovation works well some places but not others with similar characteristics. It outlines the mechanics and importance of the information networks and communication flow within our innovation ecosystems. After explaining how own evolved behavior often causes frictions that can clog the arteries of our innovation ecosystems they demonstrate information flow’s importance. They also demonstrate how – by changing our behavior – that by unclogging and eliminating those frictions – we can make our systems more productive and more creative, by increasing the volume and velocity of information flow. No reference is made to AIA, but their suggestions on how to energize our innovation ecosystems ALSO point the way to properly adapting to AIA’s elevation of artery-clogging transaction costs.“Rainforest” is required reading for anyone looking to offset those costs by cost reductions elsewhere in the system.
Another must-read is “Start-up Nation” which tells how Israel has earned that name by using its cultural characteristics to boost private investment in a small isolated country with few natural resources to the point where it produces more start-up companies than most of the world’s largest economies.
Together these two books point to New Mexico’s post-AIA pathway to saving its start-up alternative by further energizing its innovation ecosystem by offsetting the handicaps imposed by AIA. If as I am told, your state’s cultural characteristics favor fairness, trust, innovative independence, respect for other’s property and a tendency to pull together when self-sacrifice and group support are needed, not selfish behavior. Properly crafted behavioral norms can be deployed to OFFSET the AIA’s increased transaction costs.
Like Israel, New Mexico is small enough to carry this off and to do so quickly allowing you to move ahead, before the innovation ecosystems of other states and cities have figured this out. But you also can let it be known that in New Mexico you expect fair behavior and will enforce it by making it a condition of further entry. Create your behavioral norms here and enforce them your own way in your own space. You, too, have the leadership and collective capacity to make this adjustment. And when you do, your innovation ecosystem will project its unique brand and will attract more volume.
If this sounds like pie in the sky, another very recent book by famed Harvard biologist E. O. Wilson lays out the mathematically supported fact that we have within us strong evolutionary inclinations to support the group even if the group is not limited to tribe or family. To survive, innovation ecosystems must offset AIA’s transaction cost impositions on the commercialization of basic research by establishing normative behavior to reduce communicative friction. The nationwide investment pool will shrink but those who still want to invest will drift to where such investment is more likely to succeed.
States that get there first will be the winners. You can do it!