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Charleston Manufacturers Focus on Training Current and Future Workers

Tuesday, October 31st, 2017

After visiting the Charleston Port terminal and the Mercedes-Benz Vans Training Center, I had the pleasure of visiting several manufacturers during my two-day trip to the Charleston metro area. We first visited Ingevity in North Charleston, where I met Michael Wilson, President and CEO, Dan Gallagher, V.P., Investor Relations, Eric Walmet, Charleston Plant Manager, Jack Maurer, Director, Communications and Brand Management, and Laura Woodcock, Manager, P.R.

Ingevity is a leading global manufacturer of specialty chemicals and high-performance carbon materials that are used in a variety of demanding applications, including asphalt paving, oil exploration and production, agrochemicals, adhesives, lubricants, publication inks, and automotive components that reduce gasoline vapor emissions. The company creates high value-added products from renewable raw materials. The name is “coined” from the meaning of four words:  genuine, ingenuity, innovation, and longevity.

Ingevity was spun off in May 2016 from WestRock, which has a long history and many name changes going all the way back to 1846 when it was founded as Ellis, Chaffin & Company. Ingevity is headquartered in North Charleston, and has manufacturing plants in South Carolina, Georgia, Kentucky, Louisiana, and Virginia, as well as two in China. Ingevity has four sites in the Charleston region: its headquarters with 205 employees, the manufacturing plant with 214 employees, the Ashley Center with 109 employees, and the Innovation Center with six employees for a total of 534 employees.

Michael Wilson said, “We recently announced an agreement to acquire Georgia-Pacific’s pine chemicals business for $315 million. This will give us a stronger more competitive pine chemicals business. We also signed a supply agreement with Georgia-Pacific which in combination with our agreement with WestRock, will put 70 percent of our crude tall oil requirements under long-term contract. There is little customer overlap between the two companies. And, because we do business in 65 countries, we believe we can accelerate global growth for the Georgia-Pacific products.”

When I asked him his impression of the manufacturing sector in the region, he responded, “The manufacturing base is very diversified. The business climate of South Carolina is world class. The mindset of the government has been beneficial. It is a right to work state and has low taxes.”

Eric Walmet gave us a tour of the Charleston plant and Innovation Center, where we saw some of the activated carbon end-products made by Ingevity. The products include carbon honeycombs, granular carbons, and shaped carbons used to reduce automotive gasoline emissions. The activated carbon is made by combining sawdust and acid through a proprietary process.

I could see that the plant was laid out on the basis of a Lean value stream mapping event, and there were the obvious signs of the application of Lean tools and principles on the shop floor.

Our next stop was IFA North America in nearby Ladson.  We met with Mauro Amarante, President and CEO, and Ryan Loveless, Training Coordinator.  IFA North America LLC, formerly known as MTU Drive Shafts LLC., was founded in 2002 and operates as a subsidiary of the German company IFA – Holding GmbH.

IFA is one of the world’s leading and largest suppliers of drive shafts and side shafts for the automotive industry. In North America, IFA produces more than two million drive shafts a year and employs more than 600 people.

Mr. Amarante said he has been in the U.S. 11 years, having previously lived in Germany, Brazil, and Verona, Italy where he was born and raised. IFA is currently building a new plant in Berkeley County (still in the Charleston metro area) that will be 234,000 sq. ft., where they will be manufacturing constant velocity joints. They plan to consolidate all their operations and expand to about 400,000 sq. ft. by 2023.

Mr. Amarante said, “South Carolina is very business oriented, and former Governor Nikki Haley was very business focused.  We have all the business conditions we need here to secure our workforce.  We were one of the partners with VTL and three other companies to start an apprenticeship program three years ago to teach basic manufacturing skills like math, statistics, gauging, and machine operations.”

Mr. Loveless gave us the plant tour where we watched their production team turn purchased metal tubes into several designs of drive shafts.  Mr. Loveless said, “In addition to our full-time employees, we utilize about 120 temporary workers from a private agency.  These people work for us for about three-six months, and then we select the best workers to add to our full-time employees base. We would like to reduce the number of temporary employees. This is why we are investing time and money into the apprenticeship program to grow our future employment pool.”

Again, I saw the application of Lean tools and principles throughout the shop floor.  We even had to watch a safety video before we got to take the plant tour, and I was glad I was wearing my own Sears Die Hard steel-toed shoes instead of having to wear their guest shoes. Of course, as an automotive Tier 1 and Tier 2 supplier, they are ISO 9001:2008 and TS 16949 Certified.

Next, we visited the VTL Group, also in Ladson, where we met with Jeff Teague, General Manager, and Brian Glasshof, Account Manager.  Mr. Teague said, “The company was started in 1919 and changed its name to Valeo Transmission Ltd. in 1997. The management team, Bruno Joan, Chris Elliott, and a third man who has since been bought out and retired, did a leveraged buyout in 2001.  Chris started at the company as an apprentice when he was a young man.

He said, “I started in November 2011 when the company was in a turn-around mode after the recession. I came from the Greenville/Spartanburg area.  We are now running in a very tight workforce market because of the low unemployment.

We specialize in the design, development, prototyping, and manufacture of high precision components and sub-assemblies for automotive powertrain applications. We have expanded by winning several new contracts.  This plant makes variable geometry turbo parts for Cummins and make engine components for Borg Warner.  Everything we do is built around CAFÉ standards for emissions. VTL Group employs 275 globally, and has 48 employees in this Charleston plant.”

He went on to tell me about the genesis of the region’s youth apprenticeship program. “We were one of the six companies that showed up at a meeting in 2013 to discuss starting an apprenticeship program, which launched in 2014. We had a signing day event for 11 students. Now, this fall we’ll have 100 in the program.  Apprentices can start when they are 16 years old in high school. There are now nine industry sectors and 122 companies in the apprenticeship program. Industrial mechanics is the most requested training.”

Two of their new apprentices were brought in to meet me:  John Cody Geiger and Ty’Celia Young.  Both are high school students.  Ty’Celia said, “My high school engineering teacher encouraged me to apply when I was a junior.” Cody said, “I got an email from my high school principal and applied as a senior, so I graduated before starting at VTL.”

They go to high school in the morning, and then take industry-specific college courses a couple afternoons, and go to work the other afternoons during the school year. In the summer, they work full-time. When they complete the apprenticeship program, they will be Certified as Journeymen by the Department of Labor. They will also have two years of paid work experience on their resume. VTL has hired two past apprentices as full-time employees.

There are 26 schools in the apprenticeship program, public high schools, as well as charter schools and private schools. The Charleston Metro Chamber of Commerce pays for the tuition, tools and supplies for all of the students, so the students are getting their training free of charge. The Charleston Metro Chamber focuses on in-demand occupations. Besides advanced manufacturing, Charleston is also becoming an IT hub.

When I asked about the curriculum, I was told that the community colleges already had curriculum, which the companies helped modify to meet their needs. The program has two main goals:

  • Fill the critical workforce needs.
  • Monitor the next generation of students to keep them in the region.

Apprenticeship training is not all the training provided at VTL. Every employee is allowed one hour a week for training, but it is up to them to take advantage of the opportunity. VTL uses ToolingU training modules for their in-house training program.

Mr. Teague gave us the plant tour, and I was amazed at how many robots they had doing various manufacturing processes and moving parts from one operation to another. No wonder that only 48 employees at this plant are able to maintain the work flow required of a Tier 1 and Tier 2 automotive supplier. The parts I saw in process were Variable Cam Timing engine components and turbo-charger components. Mr. Teague showed me their Lean scoreboard section where there are visual displays of all the metrics required for a Lean company.  Naturally, VTL is also ISO 9001:2008 and TS 16949 Certified.

From these tours, I could see why world class companies are choosing to locate or expand in the Charleston, South Carolina region. A very favorable business climate, excellent transportation options by truck, rail, and ship for both national and international destinations, a highly skilled, trained workforce, and apprenticeship programs make the region a desirable location for many manufacturing sectors, especially those that export their products.

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North Dakota Manufacturers Ride Innovation to Rapid Growth

Tuesday, June 13th, 2017

On the second day of my visit to Fargo, North Dakota, we went to see Andy Dalman, President/CEO of Advanced Bone Technology, which is developing SimuBone, a product that replicates a human bone. SimuBone is the first product to combine internal and external geometrical precision with mechanical properties adaptable to customer specifications, providing the look, feel, and performance desired in a clean, biohazard free, consumable product.

Andy said, “We are only a three-person team now, working out of our own apartments because we are all still students at North Dakota State University. I was part of a professor/student team that performed the initial research starting in 2012, and I was the student. But, I am in my final semester. We have a patent pending, and the University owns a portion of the patent. The standard for device, therapy, and procedure development is human cadaver or animal testing. My goal is to reduce the need for cadavers in medical research, medical device design, surgical training, public safety testing and more. SimuBone has no biological components and can be manufactured on-demand at a fraction of the cost of alternatives.”

He explained, “We make artificial bone out of composite materials using additive manufacturing (3D printing). We can replicate many different bone parts for use in education. We can produce a model based on a CT scan, which can be interpreted into a 3D model in liquid silicone. We own all of our own equipment and have been buying standard equipment that we modify. We use some modified Foam Labs equipment now because we don’t need to go to very high temperatures.”

I asked, “What other opportunities exist? Andy responded, “We have the opportunity to revolutionize medical training by providing realistic feedback without using a cadaver. Right now, medical training uses plastic models – plastic melts or burns. However, orthopedic and dental are two of the slowest industries for adopting new innovation.”

He added, “Our vision is to determine what it would take to become an in body implant company. We have a feeder grant through the North Dakota Department of Commerce. We are “boot strapping our company and have raised $140,000, but our total investment has been $200,000 to date. Of this amount, $120,000 has come from North Dakota, and another $25,000 has come from a grant from VentureWell as one of their E-team members.”

When I asked how they are marketing, he answered, “We are still figuring that out, but we are reaching out to more innovative dentists and doctors. We are currently marketing for dental applications and allowing students to give feedback. The properties of the material are bio compatible, but we are currently working on out of body applications because it is a long approval process for implant parts. We spoke to orthopedic doctors before we were ready. We do know that our market will be high dollar and low volume.

Our next stop was Appareo, which designs, develops and manufactures innovative electronic and software solutions for original equipment manufacturers, as well as direct-to-market.

We met with COO David Batcheller and Brenda Wyland, Director of Marketing. Appareo has established itself as a recognized leader in the custom design, development and manufacture of innovative electronic and software solutions within the industries of aerospace and agriculture.

Batcheller said, “Appareo was founded in 2003 and moved into the NDSU Technology Incubator when it opened in 2007. We started designing and manufacturing flight data recorders for airplanes and helicopters. Once we employed 50 people, we built our current building near the incubator in the Research Park and moved into it 2010. In 2013, we expanded our manufacturing facility to accommodate a second production line, but we quickly outgrew our space and purchased the adjacent manufacturing facility in 2014.”

He said, “Appareo’s proximity to the NDSU campus played an important role in the company’s growth. We have access to the product of NDSU, which produces some of the finest minds in the nation. ”

He explained. “Through the creative application of cutting-edge technologies, we create complex end-to-end solutions that include both mobile and cloud-based components. We are an accredited FAA Parts Manufacturing facility and are ISO 9001:2008 certified. All of our products are designed, developed, built, and supported in the USA. While our engineering and manufacturing expansion takes place in Fargo, we continue to expand our engineering capabilities with teams based in Tempe, Arizona and Paris, France. Having Appareo offices in Paris and Tempe is critical for building upon our global presence, but we have an unwavering commitment to Fargo as our home base. We’re fortunate to have access to a rare talent pool here; some of the most passionate, brightest high-tech engineering minds in the nation.”

He added, “Contributing to the growth of our agricultural business is a joint venture with AGCO Corporation, the world’s largest OEM dedicated solely to agriculture. Under the joint venture, called Intelligent Ag Solutions, we develop innovative electromechanical devices and systems, as well as technology for advanced machine control systems. We are the only company controlling agricultural products by WIFI. We work with agricultural equipment manufacturers to infuse these technologies into their equipment.

We have developed another new family of products under the Stratus brand to meet the aviation needs to comply with the FAA mandate that requires all aircraft operating in airspace that currently requires a  Mode-C transponder to be equipped with ADS-B Out before 2020. This family of products, a portable receiver, transponder, and TSO charging port, provides real-time weather and traffic information directly to pilots in the cockpit.”

His concluding remarks after we toured the shop floor were: “We have established a trajectory of rapid growth, averaging a compounded annual growth rate of more than 45%.”

Then, we drove 40- miles south of Fargo to Wahpeton to visit two companies, Giant Snacks, Inc. and ComDel. At Giant Snacks, we met with General Manager Lucy Spikermeir. Giant Snacks is a manufacturer of large sunflower seeds, pumpkin seeds, and most recently, pistachios.

Lucy said, “The President, Jay Schuler, took over his father’s business. We came out on our own to be only the second company to specialize in large seeds. We select sunflower farmers with proven excellence for growing large sunflower seeds. We work with each farmer during the growing process and monitor the seeds as they are processed, cleaned, seasoned, and roasted to perfection. We had the roaster custom built for us. We are using more and more robotics and automation in our plant.”

When she gave us a plant tour, I was quite impressed with the size of the tanks for the processing and cleaning of the seeds. They are huge – possibly 10-12 ft. in diameter and 12 – 15 ft. high. Their roaster is nearly as big, and everything from the transfer of seeds from one stage to another as well as the filling of the individual bags is all automated. There were actually only about 15 people working on the shop floor to do everything from processing the incoming seeds to packing the bags into shipping boxes. They design their own boxes so they can be used on their automated line.

Lucy told us, “For many years, Frito Lay was the official snack for all of the pro baseball teams except for Minnesota teams. The players really liked the larger size of our sunflower seeds and the variety of the seasonings. The Minnesota teams must have shared their snacks with other teams because we were called by the new snack manager of the dugouts asking if we could provide seeds for more teams. Now all but one of the major league dugouts uses our seeds.”

She explained, “We get out pumpkin seeds and pistachios from California, but our sunflower seeds are grown locally. In the upper Midwest, we have a 70 percent market share. We are experiencing big growth in Texas and the West, but nationwide, we only have a 15 percent market share. About 80 percent of our sales are in gas stations and convenience stores, but we are getting into more chain stores. We own the land, so we could triple the size of our building. We have 35 employees, but it is still a very seasonal business. January through March is slow for sunflower seeds. This is why we added pistachio seeds to our line. We are growing double digits every year, and we will continue to add new products and new seasonings.”

I really hadn’t eaten sunflower seeds since childhood, so had no idea of the variety of seasonings:  Dill Pickle, Toasted Coconut, BBQ Ranch, Spicy Garlic, etc. Lucy gave me my choice of flavorings for bags of sunflower seeds, pumpkin seeds, and pistachios, and my family enjoyed them all when I returned home.

Our last stop was ComDel Innovation, where we met with President Jim Albrecht, CFO Bruce Weeda, and General Manager Art Nelson. ComDel Innovation is a precision manufacturer that supports their customer’s commercialization process, integrating all aspects of product development under one roof. ComDel Innovation’s contract manufacturing services include injection molding, assembly operations, precision machining, fabrication of tooling and stamping dies, metal stamping & forming, thread rolling and metal finishing.

Jim said, “Our site was founded in the mid 1970s as a 3M manufacturing location, which was spun off to Imation in 1996. ComDel Innovation was formed when Imation decided to exit manufacturing in 2007. Many of our initial employees worked for 3M and Imation, providing a tremendous nucleus to form a company around. About four years ago, ComDel Innovation created an ESOP as a way to recognize the employees for their contribution to the success of the business. The name ComDel Innovation represents our commitment to deliver innovation and results for our customers. The value offered is in support of customer’s product development needs and providing high quality products. We operate in two buildings totaling 260,000 sq. ft., running 24 hours a day and 360 days a year. ComDel Innovation started with 60 people in 2007 and is currently at 275 employees. Much of our business is the result of working with customers in the U.S. Over the past few years we have seen opportunities to work with business that are reshoring products from other regions of the world.”

I asked if they are a Lean manufacturer, and Jim said. “We had great heritage, as part of 3M and Imation, where lean principles and the continuous improvement tools were taught and implemented throughout the organization. ComDel Innovation carries those tools and practices forward in support of our customers. We also utilize a Total Quality Management Program to manage the quality of materials we purchase. High-end computer-aided engineering software is integrated into our design process for custom assembly equipment, molds, tooling, and fixtures. CAD/CAM software is leveraged for our precision machining and grinding operations.

During the plant tour, I could see why ComDel Innovation is successfully capturing business and why businesses would consider them for reshoring product to the U.S.I saw considerable automation being used in their plastic injection molding, machining, and metal forming departments. ComDel Innovation utilizes assembly cells for low to high volume production. They use robots for removing parts from machines in the injection molding, machining, and metal forming departments. They have a Materials Laboratory to perform complete thermal and mechanical testing for thermoplastic resins and conduct failure/defect analysis. It is apparent they have invested a considerable amount of money in utilizing state-of-the art equipment and systems. This is the path that American manufacturers need to take to be competitive in the global marketplace.

As I ended my trip to North Dakota, I can envision the North Dakota Department of Commerce realizing its goal of expanding its manufacturing base by fostering emerging companies and supporting the growth of existing companies. With its very favorable business climate, North Dakota maybe able to attract companies from other upper Midwest states like Michigan, Wisconsin, and Minnesota.

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CONNECT’S MIP Awards range from Pure Fun to Life-Saving

Tuesday, December 13th, 2016

On December 1st, the winners of the 2016 CONNECT Most Innovative New Product Awards were announced at the 29th annual dinner event held at the Hyatt Regency Aventine in La Jolla.

CONNECT is a premier innovation company accelerator in San Diego that helps start up entrepreneurial teams become great companies in the technology and life sciences sectors by providing access to the people, capital, and technology resources they need to succeed. CONNECT has assisted in the formation and development of more than 3,000 companies since 1985. Lead sponsors for the event were Cubic Corporation, and JP Morgan Chase & Company.  Tom West, San Diego Executive Director & Regional Manager of JP Morgan Chase, presented CEO Greg McKee with a check for $200,000 to support CONNECT.

CONNECT CEO Greg McKee said in part, “This event gives us an occasion to celebrate what we do best in San Diego ? innovate. From genomics to robotics, Bluetech to biotech, and data analytics to medical devices the breadth of our innovation economy is staggering. In fact, it’s a quarter of our GDP. You, as innovators, matter. And, I would bet, that many of the products we see here tonight will have an equally profound impact. For over thirty years CONNECT has been, and continues to be, an organization driven by discovery, innovation, economic empowerment, and the opportunity to change the world. But, changing the world isn’t always about a single sweeping gesture or one grand moment, it’s hard work, it’s a blend of small insights and little steps forward, it’s about sharing discoveries and thriving on others’ inspiration.”

There were a record 111 entrants this year across the ten categories listed below. To be eligible, the product must have been first introduced after January 1, 2014, never been selected as a MIP finalist, and generated revenue from sales (except for free mobile apps and companies submitting for the Life Science Products – Clinical Stage category). Each semi-finalist demonstrated their products in front of an expert judging panel in early October, from which 30 were selected as finalists. The winners and other finalists were:

Bluetech:  Water Pigeon – a fast, simple, secure way to deliver automated metering infrastructure (AMI) capability without replacing existing water meters or building wireless networks. Water Pigeon is a graduate of CONNECT’s Springboard program and a resident of EvoNexus.

After winning the award, CEO/CoFounder Clay Melugin said, “The MIP award from Connect is an outstanding honor to win. With so many great startup companies in San Diego in all categories, being recognized for Innovation delivers a boost to our team as we continue to push forward on goals that improve the world. Innovation is clearly not dead in the US and we want the world to see how innovation emboldens a supportive city like San Diego.

The outreach from others after the award has been amazing. It is very inspiring when people take time to understand our mission and offer to help us continue the journey both as investors and people who simple want to help. This only happens in a vibrant technology community like San Diego where startups encourage and help each other move forward towards success.”

Other Finalists:

Diver6 – a life-saving diver tracking system used to wireless supervise divers position and monitor their vital information provides services and technology for government and industry with extensive experience and capabilities supporting complex scientific and maritime operations.

Planck Aerosystems – its flagship drone brings high performance, autonomous unmanned aerial systems to moving vessels previously only possible from manned helicopters.

Cleantech, Sustainability, and Energy:  Camston Wrather LLC – recovers gold, precious metals, and polymers from electronic waste using proprietary patents and green chemistry.

Other Finalists:

  • Measurabl – an all-in-one commercial real estate energy and sustainability management software.
  • SDG&E – a regulated public utility that invented the Renewable Meter Adapter (RMA) as an alternative for private solar rooftop customers to avoid costly panel upgrades.

Defense, Transportation, and Cybersecurity:  Cubic Corporation – designs, integrates and operates systems, products and services that increase situational awareness for customers in the transportation and defense industries.

Mike Twyman, President of Cubic Mission Solutions, said, “Cubic is honored to receive the Most Innovative Product (MIP) award from CONNECT in the Defense, Transportation and Cybersecurity category for our inflatable satellite communication system. Cubic GATR’s industry-leading inflatable satellite antenna is changing the satellite communications industry and receiving innovation awards, such as the MIP from CONNECT, validates the push for innovation at Cubic. We look forward to continuing our support of CONNECT and fostering innovation in San Diego region.”

Other Finalists:

  • B&B Technologies LP – developer of the DAMPS advanced magnetic suspension/propulsion shock mitigation technology R&D for the military, medical and professional/commercial markets.
  • Space Micro – the Micro-STAR-200M is a space qualified sensor observing start and delivering precision pointing information to its host spacecraft.

Information Communications Technologies: Aira – develops remote assistive technology and services that bring greater mobility and independence to blind and low-vision people in daily living by connecting them to a network of certified remote agents via the blind user’s wearable smart device.

“The impact of winning the CONNECT Most Innovative Product (MIP) Award certainly marks an important milestone at Aira, including our place as a recognized technological innovator in the San Diego region” said CEO Suman Kanuganti. “We believe that San Diego, because of its supportive and engaging technological environment, is truly the best community for startups like Aira, and we thank CONNECT for the work they do to grow the region, and of our peers who continue to inspire and challenge us to be more competitive, smarter, and committed to thrive and succeed here in San Diego. Equally important, Aira’s winning of the MIP Award allows further light to be shed on the often-forgotten challenges that people with vision loss face on a daily basis in functioning in a sighted world, and how the power of technology and innovation can play a major role in alleviating these challenges.”

Other Finalists:

  • Creative Electron – the TruView Cube is an innovative x-ray machine used to count the number of semiconductors without the need to open protective cases.
  • Qualcomm Technologies, Inc. – The SnapdragonTM 820 processor represents a rare feet in the engineering and design of semiconductors, in which every major IP block in the system is a new and custom design.

Life Science Diagnostics and Research Tools:  Echo Laboratories Inc. – developed the Revolve, a new hybrid microscope that easily transforms between upright and inverted configurations, merging the capabilities of two instruments into one. Echo Laboratories graduated from CONNECT’s Springboard program two years ago.

CEO/Founder Eugene Cho said, “Winning the event was a big achievement for us. Just two years ago we were at the same event, sitting in the audience as Springboard graduates. It was incredible validation to our team of how far we’ve come since then.”

Other Finalists:

  • DermTech – a non-invasive gene expression platform that works with samples collected using DermTech’s Adhesive Skin Biopsy Kit to facilitate the diagnosis and treatment of psoriasis and other inflammatory skin conditions.
  • NanoCellect Biomedical– the WOLF Cell Sorter is the new benchmark for access and performance to make flow cytometry and cell sorting technology more affordable and accessible for life science researchers to perform cellular analysis, develop molecular diagnostics, and improve personalized medicine.

Medical Devices:  Onciomed, Inc. – the Gastric Vest System™ (GVS) is a revolutionary, minimally invasive implantable device to treat obesity and diabetes.

Other Finalists:

  • Innovative Trauma Care – created the ITClamp Hemorrhage Control System which is designed to address massive hemorrhage – a leading cause of death in traumatic injury – by controlling critical bleeding in seconds.
  • 11Health – a connected medical device company, where all patented devices use Bluetooth® wireless technology to send secure real-time data to mobile devices, including smart phones, tablets and watches.

Pharmaceutical Drugs and Biologic Therapies:  ACADIA Pharmaceuticals, Inc. – NUPLAZID is the first FDA-approved treatment for hallucinations and delusions associated with Parkinson’s disease psychosis.

Bob Mischler, Senior Vice President, Strategy and Business Development said, “We’re honored that NUPLAZID was chosen as the winner of the Pharmaceutical Drugs and Biologic Therapies category. Even more importantly, we are gratified that this innovative treatment offers renewed hope to patients with Parkinson’s disease psychosis, a debilitating condition that affects around 40 percent of people with Parkinson’s disease, and the loved ones who care for them.”

Other Finalists:

  • Ardea Biosciences– Zurampic is the first new oral medication for treatment of gout approved by the FDA in 60 years.
  • GlyConMedics LLC – Pre-biotic (OZ101) tables advance the treatment for type 2 diabetes by providing an affordable and effective long-term ADD-ON treatment to existing SU therapies to improve glucose control, educe hypoglycemia and weight gain.

Robotics and Unmanned Vehicles:  Clever Pet – a connected game console that intelligently trains and engages dogs using their normal daily food automatically, whether their humans are home or not. CleverPet is a resident of EvoNexus.

“We were honored to receive CONNECT’s Most Innovative Product award in our category,” commented Co-founder Leo Trottier. “We could not have built CleverPet without the support of the San Diego community and organizations like Connect. We see this award as validating a business and idea that when we started felt at best a pipe dream.”

Other Finalists:

  • NXT Robotics – provides service robots to support increased security monitoring and alerting requirements.
  • Robolink – aims to make STEM education accessible, engaging and fun for children and hobbyists by producing robotics educations kits and providing educational lessons that teach core principles of engineering and programming.

Software, Digital Media, and Mobile Apps:  Guru – an app that features beacon-enabled technology that interacts with smartphones to create digital experiences for museums, aquariums and zoos. Guru is also a CONNECT Springboard graduate and a resident of EvoNexus.

Hilary Srole, Project Manager said, “Entrepreneurship is hard, so receiving recognition like this from CONNECT is awesome. Winning gave us a great sense of validation. Not only for us, but for the San Diego Museum of Art for taking a chance with us. It really feels good to show that their faith in us wasn’t misplaced. This whole process has been rewarding. Springboard’s mentorship has helped us avoid some of the pitfalls commonly associated with start-ups and has helped us to move in the right direction faster.”

Other Finalists:

  • Nanome, Inc. – developed the world’s first immersive and scientifically accurate molecular modeling tool in Virtual Reality.
  • South Doctors, Inc. – the leading platform that connects patients from around the world with the best doctors and facilities in Mexico.

Sport and Active Lifestyle Technologies:  Bixpy LLC – the world’s first portable and modular personal water propulsion device that runs on lithium batteries for snorkelers and scuba divers, with attachments available to motorize kayaks and standup paddle boards.

Founder/CEO Houman Nikmanesh, said, “We were absolutely humbled by our selection as a finalist for the MIP Awards by Connect. We were among some brilliant people, amazing products, and innovative ideas. So when we won, we were absolutely beyond ourselves. It has taken us more than two years to develop the Bixpy Jets and we have worked tirelessly on a project that at times seemed like a pipe dream. Winning such a prestigious award validates our vision and paves the way forward for us. We’re proud and attribute much of our success in our product development to being in San Diego. Aside from being the perfect hub for an outdoor lifestyle company, the San Diego startup and innovation community has been instrumental to our drive and success.”

Other Finalists:

  • ElliptiGO Inc. – the world’s first elliptical bicycle, combining the best of running, cycling, and the Elliptical trainer for a fun and effective way to exercise outdoors.
  • FlyDive – the X-BOARD connects to a personal watercraft for hydro jet propulsion, empowering riders to hover and fly above the water. It is the most advanced hydro flight system designed and engineered to support both beginners and professional riders.

It was a very exciting night for me because I had been one of Bixpy’s mentors in the CONNECT Springboard program this year. Bixpy graduated in July, and in only four short months, they conducted a successful Indiegogo crowdfunding campaign, were selected as a finalist, and won this prestigious award.

CONNECT has a built an unbeatable roster of over 500 highly-qualified individuals to serve as Springboard Entrepreneurs-In-Residence and Mentors who volunteer their time as mentors to help entrepreneurs develop successful companies. I look forward to mentoring more companies in the future.

 

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What Could be done about China’s Theft of Intellectual Property

Sunday, March 13th, 2016

Hardly a week goes by without a report of Chinese “hacking” or Intellectual Property Theft, so it was no surprise that a published analysis by CrowdStrike, a California-based cyber security company, revealed that China violated its cyber agreement with the United States the very next day after CNBC reported that President Obama and China’s President Xi Jinping agreed to not conduct cyber theft of intellectual property on Friday, September 25, 2015. President Obama said. “The United States government does not engage in cyber economic espionage for commercial gain, and today I can announce that our two countries have reached a common understanding on a way forward.” However, the U.S.-China agreement “does not prohibit cyber spying for national security purposes.”

It is interesting to note that the day before the announcement, September 24, 2015, Chet Nagle, a former CIA agent and current Vice President of M-CAM, penned an article in the Daily Caller, stating, “At FBI headquarters in July, the head of FBI counterintelligence, Randall Coleman, said there has been a 53 percent increase in the theft of American trade secrets, thefts that have cost hundreds of billions of dollars in the past year. In an FBI survey of 165 private companies, half of them said they were victims of economic espionage or theft of trade secrets — 95 percent of those cases involved individuals associated with the Chinese government.”

He blamed the corruption of Chinese government officials for the problem and stated that “President Xi Jinping has instituted a strict anti-corruption campaign. Regrettably, the campaign has focused on “tigers” — senior government officials — at the expense of eliminating the rampant corruption by the “flies” — officials at the provincial and local level. In any event, putting a dollar value on direct corruption does not address the totality of the costs. Business confidence and foreign direct investment in China are already falling because of the absence of the rule of law.”

He concluded, “China’s disregard of the rule of law should be the underlying driver for all discussions of commercial topics during the coming visit of China’s president. Lack of the rule of law is the most difficult challenge American enterprises face in China.”

In researching this topic, I found out that three years earlier, May 22, 2013, the bipartisan Commission on the Theft of American Intellectual Property of the U.S. International Trade Commission released a report. Dennis C. Blair, former Director of National Intelligence and Commander in Chief of the U.S. Pacific Command, and Jon M. Huntsman, Jr., former Ambassador to China, Governor of the state of Utah, and Deputy U.S. Trade Representative, were the Co-chairs of the Commission.

The day after the release, Forbes published an article about the report, stating that “China accounts for at least half – and maybe as much as 80 percent – of U.S. intellectual property theft.” The article briefly discussed the problem of China’s Intellectual Property theft and included quotes from the co-chairs, but did not go into any detail about the recommendations of the Commission.

The article did provide the link to the 100-page report, which I have since read. In view of the continuing problem, it is time to reconsider the key findings of the report, titled, “The Impact of International IP Theft on the American Economy”:

  • ”Hundreds of billions of dollars per year. The annual losses are likely to be comparable to the current annual level of U.S. exports to Asia—over $300 billion…”
  • Millions of jobs. If IP were to receive the same protection overseas that it does here, the American economy would add millions of jobs.
  • A drag on U.S. GDP growth. Better protection of IP would encourage significantly more R&D investment and economic growth.
  • The incentive to innovate drives productivity growth and the advancements that improve the quality of life. The threat of IP theft diminishes that incentive.

The report stated, “A core component of China’s successful growth strategy is acquiring science and technology. It does this in part by legal means—imports, foreign domestic investment, licensing, and joint ventures—but also by means that are illegal. National industrial policy goals in China encourage IP theft, and an extraordinary number of Chinese in business and government entities are engaged in this practice.”

The report stated that existing remedies are not keeping up with the problem because of:

  • Short product life cycles – “the slow pace of legal remedies for IP infringement does not meet the needs of companies whose products have rapid product life and profit cycles.”
  • Inadequate institutional capacity ? a shortage of trained judges in developing countries
  • China’s approach to IPR is evolving too slowly – “improvements over the years have not produced meaningful protection for American IP.”
  • Limitations in trade agreements? there are also significant problems in the WTO process that have made it impossible to obtain effective resolutions. “Bilateral and regional free trade agreements are not a panacea either.”
  • Steps undertaken by Congress and the administration are inadequate.

The Commission recommended short-term, medium-term, and long-term remedies. The short-term measures are immediate actions that are largely regulatory or made effective via executive order and include the following:

  • Designate the national security advisor as the principal policy coordinator for all actions on the protection of American IP.
  • Provide statutory responsibility and authority to the secretary of commerce to serve as the principal official to manage all aspects of IP protection.
  • Strengthen the International Trade Commission’s 337 process to sequester goods containing stolen IP.
  • Empower the secretary of the treasury, on the recommendation of the secretary of commerce, to deny the use of the American banking system to foreign companies that repeatedly use or benefit from the theft of American IP.
  • Increase Department of Justice and Federal Bureau of Investigation resources to investigate and prosecute cases of trade-secret theft, especially those enabled by cyber means.
  • Consider the degree of protection afforded to American companies’ IP a criterion for approving major foreign investments in the United States under the Committee on Foreign Investment in the U.S. (CFIUS) process.
  • Enforce strict supply-chain accountability for the U.S. government.
  • Require the Securities and Exchange Commission to judge whether companies’ use of stolen IP is a material condition that ought to be publicly reported.
  • Enforce strict supply-chain accountability for acquisitions by U.S. government departments and agencies by June 1, 2014, and work to enhance corporate accountability for the IP integrity of the supply chain.

The Commission made the following medium term recommendations to build a more sustainable legal framework to protect American IP that Congress and the administration should take:

  • Amend the Economic Espionage Act (EEA) to provide a federal private right of action for trade-secret theft. If companies or individuals can sue for damages due to the theft of IP, especially trade secrets, this will both punish bad behavior and deter future theft.
  • Make the Court of Appeals for the Federal Circuit (CAFC) the appellate court for all actions under the EEA. The CAFC is the appellate court for all International Trade Commission cases and has accumulated the most expertise of any appellate court on IP issues. It is thus in the best position to serve as the appellate court for all matters under the EEA.
  • Instruct the Federal Trade Commission (FTC) to obtain meaningful sanctions against foreign companies using stolen IP. Having demonstrated that foreign companies have stolen IP, the FTC can take sanctions against those companies.
  • Strengthen American diplomatic priorities in the protection of American IP. American ambassadors ought to be assessed on protecting intellectual property, as they are now assessed on promoting trade and exports. Raising the rank of IP attachés in countries in which theft is the most serious enhances their ability to protect American IP.

The more idealistic long-term recommendations are:

  • Build institutions in priority countries that contribute toward a “rule of law” environment in ways that protect IP.
  • Develop a program that encourages technological innovation to improve the ability to detect counterfeit goods.
  • Ensure that top U.S. officials from all agencies push to move China, in particular, beyond a policy of indigenous innovation toward becoming a self-innovating economy.
  • Develop IP “centers of excellence” on a regional basis within China and other priority countries.
  • Establish in the private, nonprofit sector an assessment or rating system of levels of IP legal protection, beginning in China but extending to other countries as well.

Of particular interest is the mention in the report that an annual survey in late 2012 of member companies of the American Chamber of Commerce in the People’s Republic of China “over 40% of respondents reported that the risk of data breach to their operations in China is increasing, and those who indicated that IP infringement has resulted in “material damage” to China operations or global operations increased from 18% in 2010 to 48% in 2012,” and that “The longer the supply line, the more vulnerable it is to IP theft.”

The risk of Intellectual Property is one of the major reasons many companies are returning manufacturing to America through reshoring. This is also why I urge the inventors that are part of the San Diego Inventors Forum to avoid going to China if at all possible, and if they have to go to China to meet their target Bill of Material cost, they should never source all of the parts of their product with one vendor. Otherwise, they are at risk of being victimized by their Chinese vendor stealing their IP and getting a counterfeit version of their product on the market first.

In conclusion, “The Commission considered three additional ideas for protecting the intellectual property of American companies that it does not recommend at this time.” The following one of the three is particularly interesting to me because of the enormous trade deficits we have with China:

“Recommend that Congress and the administration impose a tariff on all Chinese-origin imports, designed to raise 150% of all U.S. losses from Chinese IP theft in the previous year, as estimated by the secretary of commerce. This tariff would be subject to modification by the president on national security grounds.”

“The Commission is not prepared to make such a recommendation now because of the difficulty of estimating the value of stolen IP, the difficulty of identifying the appropriate imports, and the many legal questions raised by such an action under the United States’ WTO obligations. If major IP theft continues or increases, however, the proposal should be further refined and considered.”

What is outrageous to me is that it is obvious to me that none of the short-term, medium-term or long-term recommendations have been implemented or we would not still have the serious problem of cyber espionage and Intellectual Property Theft three years later.

Supporters of developments in China “essentially argue that when China begins producing its own intellectual property in significant quantities, the country’s own entrepreneurs and inventors will put pressure on political and Communist Party leaders to change the laws and improve IP protections.” Since China has the stated goal of becoming the superpower of the 21st Century and is Intellectual Property Theft is one of their tools to achieve this goal, I do not feel that this will ever happen.

To me, the most important conclusion of the report is “If the United States continues on its current path, with the incentives eroding, innovation will decline and our economy will stagnate. In this fundamental sense, IP theft is now a national security issue.” It will be interesting to see if the next president and the next Congress we elect will have the courage to play hardball with China by implementing some of the recommendations of the Commission.

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Traditional Industries Generate High-tech Spinoffs in Southwest Florida

Tuesday, November 3rd, 2015

My last article featured the stories of two companies that I visited, so this article will feature the four other companies I toured during my brief visit to Lee County earlier this month as the guest of the Lee County Economic Development Office.

Shaw Development is a family-owned company with the third generation now involved and specializes in the design, development and manufacturing of custom fluid management solutions, including Diesel Emissions Fluid (DEF) systems (headers, reservoirs, caps, adapters, strainers, etc.) for heavy-duty vehicles and machinery, such as trucks, buses, construction, mining, military vehicles, as well as agriculture and forestry equipment, power generation, and locomotive equipment.

Stephen Schock, Director of Manufacturing, gave us a plant tour first, and then we met with Lane Morlock, Chief Operations Officer. Lane told me that Frank Shaw founded the first Shaw company, Shaw Metal Products, in 1944 Buffalo, New York as a machine shop to support the military and developing aerospace market.

Shaw Aero Devices, Inc. was founded in 1954 to add engineering to their core capability and develop products with proprietary intellectual property. Frank’s son, Jim Shaw, headed up this company, and it became the industry standard for a variety of fuel, oil, water, and waste components and systems. Shaw Aero Devices moved Naples, Florida (Collier County) in the early 1980s and moved to Fort Myers in Lee County 1993. The company relocated back to Naples in 2001 after it outgrew its Lee County location.

Lane, said, “Shaw Development, LLC was formed in 1959 to transfer Shaw Aero Devices technology to ground vehicle markets particularly the lift and turn technology for fuel caps. We moved into our current 50,000 sq. ft. plant in Bonita Springs in 2008. Shaw entered into the DEF system business early on, and business has grown dramatically in the last 6 to 7 years.”

When I asked how much they outsource, he said, “We have a fair amount of capability in-house ? machining, stamping, forming, welding, paint, assembly and test capabilities. In 2009, we vertically integrated plastic injection molding by acquiring Gulf Coast Mold to bring back our molding from China. We bought a robot for welding that saves us a great deal of time. We buy some machining and sensors outside. In 2014, we added 17,000 sq. ft. to our production space in the plant and expanded our injection molding operation by 6,500 sq. ft. We added 75 employees over the past 3 years and our revenue has been increasing +25% YOY in this time period. We are now up to about 200 employees, so we are the second largest manufacturer in the region.”

In response to my question about their challenges, Lane said, “Our biggest challenge is to get the right talent. We work with Florida Gulf Coast University (FGCU) and more recently, we have engaged with the University of Miami to find the right talent. We work with local schools and the Southwest Regional Manufacturers Association to develop curriculum and manufacturing industry awareness to the local area. We are heavily involved with STEM and bring in students as interns and offer them the opportunity to work on private projects. One of our welders took a job with the local technical college to train welders, and this has provided us with an opportunity to work with this program and provide them with industry experience.”

With regard to my inquiry about being a lean company, he said that he had spent two years at NUMMI (Toyota Joint Venture) gaining an in-depth understanding of the Toyota Production System prior to spending seven years in a leadership role at General Motor’s corporate Lean Office. He added, “We have a full time Lean black belt to train our employees. We have gone from 43-day material turnaround to an average of 27 days in the past two years. Our model for business planning is Hoshin Kanri, and we have a five-year business plan and an annual business plan tied into it. Our on-time delivery is 98.8% year to date, and our quality PPM has improved by 60% in the past two years. We use a two-bin Kan Ban system and one-piece flow for our assembly line operations. Our employees are cross trained, and we review our manufacturing cell metrics at weekly meetings.”

With this emphasis on lean and the fact Shaw Development is both ISO 9000 and 14000 Certified, I could see why the company has been recognized as the Manufacturer of the Year for the State of Florida and Southwest Regional Manufacturer of the year.

My next visit was to American Traction Systems (ATS), a privately owned company formed in 2008 by Bonne Posma, as an affiliate of his other company, Saminco, Inc. ATS specializes in the design and manufacturing of electric propulsion systems for on and off road electric vehicles such the Ford Fusion, fuel cell buses, Hybrid trucks and buses, streetcars, trolleys, trams, GenSet Locomotives, Hybrid Diesel-Electric marine vessels, airline ground support vehicles. ATS has manufactured electric traction drives for Fuel Cell Buses designed by Ballard and Georgetown University, Hybrid-Electric systems for Allison Electric Drive division of General Motors as well as over 3,500 AC/DC and DC/DC controllers for underground mining vehicles. All design and manufacturing is performed in the Fort Myers, Florida facility with the capacity to deliver production of several hundred units per month.

General Manager Lem Vongpathoum led the plant tour at ATS and then we met with Mr. Bonne Posma and his niece, Cari Posma Wilcox, Vice President of Saminco, Inc. In a phone interview with Cari after returning home to clarify some details, she told me that Bonne was born in Indonesia of Dutch parents just as WWII erupted in Asia and spent the war years in a prison camp with his parents. His family returned to the Netherlands after the war and then immigrated to Canada. Mr. Posma founded Saftronics in 1968 in Johannesburg, South Africa and then opened a second facility in Ontario, Canada in 1976, which is still in operation as Saft Drives. He opened a Saftronics plant in Buffalo, New York in 1986, which he moved to Ft. Myers, Florida a year later. He left Saftronics and founded Saminco in 1992. Saftronics was sold to Emerson in 2005. After founding American Traction Systems in 2008, he opened a Saminco service office in China in 2009 and a service office in South Africa in 2011. He also opened an ATS facility in South Africa in 2013. Bonne’s energy and excitement about his companies was that of someone half his age when he showed us around Saminco and gave us a demonstration of some of the mining equipment at their testing yard.

Bonne clarified the difference between the three companies he has founded, saying “Saftronics made variable speed drives. Saminco makes solid-state electric vehicle traction controllers powered by batteries, diesel-hybrid, fuel cells and power systems, mainly for underground mining equipment. American Traction Systems makes electric and hybrid-electric propulsion systems for a variety of vehicles and equipment. I am the sole owner of both Saminco and ATS, and we have about 120 employees at the Ft. Myers Saminco and ATS plants. We also have a repair facility in Huntington, West Virginia that has 35-40 employees.”

Bonne explained, “We are competing with major corporations like Siemens, ABB and GE. We have to be more nimble to compete successfully. We competed against these companies for a Navy contract for a propulsion system for the USNS Waters operated by the Military Sealift Command and won the contract. We are getting into solar and working on a new diesel electric propulsion system for a Load Haul Dump (LHD) vehicle that is like a large Bobcat. We are also working on a new induction motor for ‘Mag lev’ trains.”

When I asked him about his suppliers, he said, “We use all American suppliers for what we can’t do in-house. We buy machining and sheet metal fabrication and use a contract manufacturer for our PCBs. We do full power testing in our lab.”

He added, “American workers are some of the highest paid workers in the world. There are three things that have destroyed American manufacturing: litigation, regulation, and taxes. If we want to level the playing field, we need to get rid of these three things.”

On my last morning in southwest Florida, we visited JRL Ventures, Inc. dba Marine Concepts headquartered in Cape Coral, Florida. The facility contains 42,000 sq. ft. of manufacturing and office space, equipped with state of the art CNC robotic machining centers and other technologies. Marine Concepts opened its doors in 1976 under the leadership of Augusto “Kiko” Villalon to be able to go from design to production of boats. Marine industry veterans, J. Robert and Karen Long, purchased Marine Concepts in 1994. As a leading manufacturer for nearly 40 years, Marine Concepts is now the largest manufacturer of tooling and molds for the marine industry in the United States. They make CNC plugs, composite molds (open and closed silicone/LRTM), CNC molds, CNC parts, limited production composite parts, scale models, and CNC cold mold kits. In 2012 Marine Concepts opened a facility in Sarasota, Florida with over 260,000 sq. ft. of manufacturing and office space. The two plants provide 300,000 sq. ft. of manufacturing space and seven 3 – 5-axis CNC milling machines.

Mac Spencer, CFO, gave us the plant tour where we watched a boat mold being machined by their very large machining robot. We met with Dan Locke, Design Manager and Senior Designer, who has been designing boats since the 1980s, using Unigraphix software that provides more free style for designing surfaces than Solid Works. Mr. Spencer said that normally their business was 80% marine vs. 20% non-marine, but during the recession, it was reverse. They diversified into making composite figures and structures for resort parks, such as Disneyland, Universal Studios, and Six Flags. They also make composite parts for trams and electric buses. Design work for other marine companies is also a growing part of their business. We briefly met with President Matt Chambers before departing.

My last visit was to Nor-Tech Boats where we met with Cindy Trombley, Director of Administration. She said the company was founded in 1980 by Trond Schon, who had moved with his family from Norway to Cape Coral, Florida. Nor-Tech manufactures high performance powerboats using advanced technologies, unique manufacturing processes, and stylish designs. The main manufacturing facility in North Fort Myers encompasses over 45,000 sq. ft. complete with a 20’ x 60’ downdraft paint booth. Within the main building a state of the art rig shop and in house upholstery departments are climate controlled year round to insure a clean and work friendly environment. The in-house engine development and production division is housed in a secondary facility along with the service department and a rigging facility. We could see three boats in various stages of production in the main plant, but we did not have time to go visit the secondary facility.

Cindy said they currently have 107 employees, but survived the recession by dropping down to only 35 and going into debt. She said they can make boats up to 80 ft. long, and most of the larger sized boats go overseas or to Canada. They make every style of powerboats except for “T-tops.” Cindy said, “Our biggest challenge outside of heat and humidity in Florida is finding skilled labor. There are no vocational schools teaching how to build boats. We have low turnover, but an aging workforce. One of the advantages of Florida is that there are no corporate or personal income taxes.”

A common thread for most of these companies is the concern about finding the right workers now and in the future. As I have discussed in past articles, this is a nationwide problem, not just in southwest Florida. During discussions with the management of the Lee County Economic Development office and members of the Southwest Regional Manufacturers Association at breakfast, lunch, and dinner meetings during my visit, I shared what is being done to address this problem in other parts of the country and by organizations such as SME’s PRIME schools, ToolingU, and Project Lead the Way that I have written about in previous articles. The more manufacturers and trade associations that get involved in solving this problem, the more successful we will be in attracting and developing the next generation of manufacturing workers.

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Southwest Florida Attracts Manufacturers, not just Retirees

Tuesday, November 3rd, 2015

During my recent trip to southwest Florida as the guest of the Lee County Economic Development agency, I learned that in recent years, there has been an increasing number of business owners that have been regularly vacationing in the area who have decided to either move their business or set up a business where they like to play.

Lee County is on the Gulf of Mexico side of Florida about 125 miles south of Tampa and about 50 miles north of the Everglades National Park. There are five incorporated cities in the country: Cape Coral, Ft. Myers, Bonita Springs, Ft. Myers Beach, and Sanibel. The county population grew 63% from 1994 to 2014, but 55% live in the unincorporated area.

My tour host, Shane Farnsworth, Manager of Business Development for the Lee County EDO, told me that Cape Coral was a planned “bedroom” community, but many people never built homes on the lots. So, Cape Coral offers the greatest area of growth for industrial development through the purchase and combining of these parcels into industrial sites. Ft. Myers is the oldest of the five cities, so there is very little undeveloped land and new industrial sites will occur through redevelopment. During my visit, I met with executives of several manufacturing companies in three of five and the city of Naples to the south in Collier County (most of Collier County is taken up by the Big Cypress National Park.).

My first interview was with Bill Daubmann, founder and Senior V. P. of KDD, Inc. dba My Shower Door and a member of D3 Glass LLC. Bill originally had  established a closet organization business in Springfield, MA in 1986 and obtained a license agreement with Mr. Shower Door in 1989. After visiting the Lee County region for several years on vacation, he decided to move to Naples in 2001 and opened a showroom in 2003. His son, Doug, moved also and joined the company. He took the Fast track entrepreneur course by the Kaufman Foundation with one son in 2007 to “hone” their management skills, and took it again in 2011 with his other son.

Bill said, “It was a tough struggle from 2008 – 2010 due to the Great Recession, as southwest Florida was “ground zero” for the decline in the new home building market. We survived by mostly doing home remodeling.”

In 2011, they were informed that their Mr. Shower Door license would not be renewed for 2012, so they explored setting up their own manufacturing plant to make the tempered and glazed needed for shower doors. After analyzing how much glass they were buying out of the state and the problems they had with breakage and defective glass, they set up D3 Glass LLC in 2012 when new home building started coming back in a building they had bought during the recession. Bill’s oldest son, Keith, became President of KDD, Inc. dba My Shower Door. Bill said that the ovens for tempering the glass cost one million and everything else cost another million. They had to buy two custom-outfitted trucks to deliver the glass to their showrooms and customers.

Since Florida requires a license for the glass and glazing business, Bill and his sons took the test and got their licenses. Bill said, “We hired a consultant to do a “SWOT” analysis for our shower door business to make sure that our business model worked in all parts of the country. We wrote a business plan and did a beta test site. We are now selling our business model to others and running an academy on how to run a shower door business. We have four affiliate stores: Oklahoma City, OK, Grand Rapids, MI, St. Paul, MN, and York, PA. We also sell the specialized hardware for shower doors to our affiliates and other shower door companies.”

In the last two years, they expanded from just doing shower doors into other markets for tempered glass and recently finished providing all of the tempered glass for the new Hertz headquarters building that will open next month. Bill said, “We went from 22 to 50 employees in 18 months and are now up to 64 employees. We just made the INC magazine list of 5,000 companies at #2,085 and will be going to the big event next month.”

After I told him that I am part of the Reshoring Initiative to promote bringing back manufacturing to America, he said, “We were buying aluminum extrusions from China, but just switched to a vendor in the United States.”

In answer to my question about the advantages of being located in the region, he responded, “It is easy to deal with the people in the local government agencies, there is good transportation available on I-75 and Rt. 41, the new airport has flights going to our markets, and there are good local colleges for preparing the future workers we will need.”

My second interview was with Brian Rist, President and CEO of Smart Companies, of which Storm Smart is the largest subsidiary. Storm Smart is Florida’s largest manufacturer & installer of hurricane protection products and is the ninth largest manufacturer across all industries in Lee County. Brian is the inventor of the innovative Storm Catcher Wind Abatement Screens. He also moved from the northeast to southwest Florida to run his business. Brian said, “I started out with a couple of partners in a general contracting business and wound up as the sole owner. The first three years were a struggle to find a niche. The building codes were changing and I became the expert in the new codes, even teaching architects. After Hurricane Ambrose came in 1994, I tried to find a fabric that would replace plywood for covering windows. We talked with people in energy management and got everyone’s opinion. I founded Storm Smart in 1996 to manufacture fabric window protection. We became known as who to talk to about window protection. If you fail to plan, then you plan to fail. We did a CD on what businesses could do for emergency planning because 83% of businesses that have a disaster never recover.”

Brian explained that the building codes changed in Florida for developing sites in 1997 requiring window protection to be part of building a home. In 2001 new codes came out and insurance regulations changed also. Everyone has to have separate hurricane insurance. Insurance companies offered special rates for homes that had protection, and the State of Florida offered a rebate program.

“We started making polypropylene window protection by hand cutting the material, but we needed to ramp up to higher production. Getting a sales tax credit helped us to be able to buy a laser cutting machine in 2013, and it eliminated the bottleneck in our business helping us develop new products.”

They work with the biggest companies in the world that use fabric for hurricane protection. While their products protect homes from hurricanes, they also reduce energy costs. Brian said, “You can build a business based on a known market of saving energy and not just protection from hurricanes. Impact-rated windows are a fast growing part of our business. Most new homes come with impact rated windows.”

He added, “The building codes changed again and they are much more about retaining heat rather than saving heat. International codes are also changing. We watch what percentage of our business is with builders. We went to Cancun and set up small operation during recession in Mexico. We are currently doing work in Los Cabos, Mexico also. We sell to Caribbean countries like Bermuda, Jamaica, and wherever else there are resorts.

We have experienced fast growth and have been picked by Inc. magazine four times as one of the 5,000 fastest growing companies. We went from 26 employees to 100 employees after Hurricane Charlie. We went from five to six jobs per month to about 100 jobs per month.

We looked at all of their jobs and decided to really go back into the customer service business to be a sustainable business. We started to invest in our people and getting to know who they were. We had to make sure they were doing things right. We have to ‘walk the talk.'”

After we discussed some of the articles I have written on developing and recruiting the next generation of manufacturing workers and my involvement with the Coalition for a Prosperous America, he added, “‘ Walking the talk” also involves working with students and getting involved with the Southwest Regional Manufacturers Association [for which he is in the current Vice-President.] He said, “We won the manufacturer of the year for the local region last year. We work with five different academies related to construction. Only about 20% of kids go to college and only about 20% of them graduate from college. We had a tour of our plant during Manufacturing Day and had about 13-14 students come on the tour. Florida is too reliant on tourism and construction. Manufacturing creates more different opportunities for good-paying jobs. Our Governor was at our plant three weeks ago, and he understands manufacturing. By partnering with government and education, we can be more effective in growing manufacturing in Florida. In order to grow, we have to develop the next generation of manufacturing workers. Team building, time management, and ethics are the same regardless of the industry.”

In answer to my inquiry about Lean training, he said, “We have been very involved with lean manufacturing and are working with the Florida Manufacturing Program. We are going through a program for an ERP system in order to continue to grow. We have a plan to develop the company over the next three years. Part of it will involve having licensed dealers.”

The outlook for business in Lee County is very good according to the Lee County Business Climate Survey Report, Third Quarter, 2015 prepared by The Regional Economic Research Institute, Lutgert College of Business, Florida Gulf Coast University, released on August 27th, 2015. The key findings were:

  • 74 percent of executives stated that the current economic conditions have improved over last year
  • 66 percent of the executives stated that the current economic conditions for their industry have improved over last year
  • 67 percent of executives expect economic conditions for their industry to improve over the next year
  • 68 percent of companies expect to increase investment next year and none expect to reduce investment levels
  • 61 percent of executives reported increasing employment over the last year, while four percent reported reducing employment
  • 57 percent of executives expect to increase employment at their companies during the next year

While manufacturing represents only 2% of the economy of Lee County today, the staff of the Lee County Development agency is working with the economic development offices of the five cities and members of the Southwest Regional Manufacturers Association to grow the manufacturing industry and expand that percentage. Their work will be aided by the fact that Florida ranks 5th in the 2015 State Business Tax Climate Index with a score of 6.91. The corporate income tax rate is only 5.5% for C corporations only. There is no inventory tax for businesses, and there is no personal income tax. There are nine universities and colleges, and the two largest, Florida South Western State College and Florida Gulf Coast University have a combined enrollment of over 30,000 students. There is good technical training at the two-year community college level as well as at the Fort Myers Institute of Technology, Cape Coral Institute of Technology, and at the ITT Technical Institute. The Ft. Myers airport (RSW) is served by 15 air carriers offering nonstop flights to 46 destinations, most of which are east of the Mississippi.

The stories of these two companies are good examples of innovation to develop new products, becoming a lean company, creating a new business model, and expanding into new markets. These are some of the recommendations I made in the chapter “What manufacturers can do to save themselves” in my book, Can American Manufacturing be Saved? Why we should and how we can.

Having no corporate and personal income taxes and providing a friendly business climate are ideas I discuss in the chapter on what government can do to save manufacturing in my book. My next article will tell the stories of other companies I visited in Florida.

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Fight to Stop Fatal Patent Bills Heats up

Tuesday, July 7th, 2015

Thanks to support from inventors and inventor groups all over the country, Randy Landreneau and Paul Morinville of US Inventor and Independent Inventors of America are continuing their fight to stop the bad patent bills: The House’s Innovation Act, H. R. 9, introduced by Rep. Bob Goodlatte (R-VA) on 2/05/2015, with the “Manager’s Amendment” version passed by the House Judiciary Committee on 6/11/2015, and the Senate’s PATENT Act, S.1137, introduced by Senator Grassley (R-IA) 4/29/2015, with the “Manager’s Amendment” version passed by the Senate Judiciary Committee on 6/04/2015.

In the latest email update from Mr. Landreneau, he reports that he held 65 meetings with House Congressional staff in the last two weeks of June to educate them on why H.R. 9 would crush American innovation. He attached his latest paper, The Innovation Act is Fatal to the American Innovation Ecosystem and Mr. Morinville’s latest paper, We’ve Been Googled.

In his paper, Morinville states, “H.R.9 creates a Patent System without Inventors. Over the last decade, Google and others have spent hundreds of millions of dollars to lobby Congress and produce an ingenious ‘patent troll’ narrative, which distorts the reality of invention in America. In this decade long war on inventors, H.R.9 is the Google lobby’s latest accomplishment. Not surprisingly, H.R.9 is not directed to fixing the fictional problem of ‘patent trolls.’ Instead, H.R.9 mounts its considerable damage on the patent system in general, specifically harming inventors and small patent-based businesses.”

Morinville explains, “If this bill becomes law, inventors will not be able to enforce their patent rights against moneyed corporations like Google. However, moneyed corporations like Google will still be able to enforce their patents against small businesses with even more devastating consequences to those small businesses. Patent litigation is about risk and cost versus reward. If risk or cost is too high in relation to reward, a patent cannot be enforced.”

In is paper, Landreneau states, “With presumptive Loser-Pays, regardless of the merit of any case, the party that does not prevail will automatically owe the other side its legal costs, which could exceed $1,000,000. To avoid this, the non-prevailing party will be forced to re-litigate the case to prove each point objectively reasonable.” He further explains that in addition to making every case more expensive, there will be an additional, even more damaging effect on independent inventors.

The independent inventor will almost always require a contingency attorney to stop the theft of his or her property. Under presumptive Loser-Pays, his attorney will have to be willing to go the extra mile, after losing, for no pay. This will cause many independent inventors to not be able to find representation and have any access to justice.”

Why is this important? Because most new technologies, especially break-through or disruptive technologies come from individual inventors who either start a company or license their technology to companies that are more able to take them to the market.

As a director on the board of the San Diego Inventors Forum, I see new consumer products and break-through technology introduced at our monthly meetings, and the best compete of these compete in our annual inventors’ contest for best new consumer product and best new technology. Our next inventors’ contest will be held on August 15th. All contestants must have applied for a patent before they can participate. The future success of their product or technology is contingent upon their having a patent they can protect from infringement. Their ability to raise the financial investment they need to bring their product to the marketplace depends upon their being able to protect their patent. No investor will take the risk of investing in a product or technology that cannot be protected.

I will not repeat a discussion of what is wrong with H. R. 9 and S.1137 that I discussed in a previous article, “Which Patent Reform Bill Doesn’t Destroy the American Patent System?” but suffice it to say that these bills would essentially destroy the American Patent System. The Loser-Pays clause would make it virtually impossible for independent inventors and small businesses to protect a patent and get investors. Only large corporations would be able to absorb the costs of patent infringement litigation. The economic benefits of patents granted in different metropolitan areas of the U. S. could come to a screeching halt if either of these two bad patent bills is passed. Either bill would squash the American innovation that is so essential to our national prosperity and the prosperity of many metropolitan areas.

In a February 2013 Brookings Institution report, “Patenting Prosperity: Invention and Economic Performance in the United States and its Metropolitan Areas,” an analysis of national and metropolitan area invention from 1980 to 2012, revealed:

  • “The rate of patenting in the United States has been increasing in recent decades and stands at historically high levels.
  • Most U.S. patents—63 percent—are developed by people living in just 20 metro areas, which are home to 34 percent of the U.S. population…the metro areas with the highest number per capita are San Jose; Burlington, VT; Rochester, MN; Corvallis, OR; and Boulder, CO.
  • Inventions, embodied in patents, are a major driver of long-term regional economic performance, especially if the patents are of higher quality.
  • Research universities, a scientifically educated workforce, and collaboration play an important role in driving metropolitan innovation.
  • Patents funded by the U.S. government tend to be of especially high quality, and federal small business R&D funding is associated with significantly higher metropolitan productivity growth.”

Of interest to those of us in California is the fact that when comparing the average granted patents per year and the patents per million residents from 2007-2011, California ranks very high. The report states “… a few large metros notably changed their share of U.S patents. At the top, San Jose moved up from ninth to first, and San Francisco moved from seventh to fourth, moving ahead of Chicago, Philadelphia, Detroit, and Boston. Seattle and San Diego moved up 15 and nine places, respectively, to become seventh and eighth. Meanwhile, Austin and Raleigh moved up 41 and 55 places, respectively, to become 11th and 20th. Cleveland fell 10 slots from 13th to 23rd, while Philadelphia fell from fourth to 13th.”

In his paper, “The Innovation Act, H.R.9 is Fatal to the American Innovation Ecosystem, Randy Landreneau explains why H. R. 9 would be harmful, saying, ” A key reason that America has out-innovated the rest of the world for 200 years is the way the unique American Patent System has not only encouraged individuals to innovate, it has also facilitated the flow of capital into the resulting innovations. A key ingredient in this successful recipe has been the ability to stop the theft of the intellectual property represented by a patent, which results in a valuable patent asset that can be used to attract venture capital and build a successful enterprise… An early-stage investor in a start-up that fails often ends up with little more than the patent. If he then has limited patent rights and significantly greater risk in defending the patent, as is being proposed, then the patent asset loses significant investment value. In a scenario that is already high in risk, the changes proposed by The Innovation Act will severely reduce investment, and the incentive for American innovation will be lost. What is being proposed destroys the innovation ecosystem that has enabled America to be the world leader in innovation.”

 

It is expected that the House will vote on H.R.9 the week of July 13th, so it is critical that we add our voices to its opposition now. The Senate’s S. 1137 will be on the Senate floor soon as well. More attention seems to be paid if you call the Washington, D. C. office of your Congressional representatives and senators than their local office. If you don’t know the names of your representative or senators, search online or call the main switchboard number 202-225-3121 and ask for your representative or senators. Tell your representative to oppose H. R. 9 and tell your senators to vote “no” on S.1137. Ask your senators to support the Strong Patents Act of 2015, S. 632. Don’t let them destroy the goose that lays the golden egg ? the American Patent System that fosters American innovation, which provides jobs and prosperity to our country.

 

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Has the America Invents Act been Beneficial or Harmful?

Monday, February 23rd, 2015

In September 2011, Congress passed and the president signed the Leahy-Smith America Invents Act (AIA) that changed the U.S. patent system to the party “first to file” instead of the “first to invent to bring the U.S. in line with other countries who adopted first to file patent systems years ago, supposedly to simplify the patent process for companies that file applications in multiple countries. Its central provisions went into effect on September 16, 2012 and on March 16, 2013. Let’s examine whether or not the America Invents Act has been beneficial or harmful to innovation by America’s inventors and small businesses.

At the time, supporters said it would improve patent quality by creating a new process for reviewing patents after they have been issued and allow third parties to provide information on other parties’ applications. Rep. Lamar Smith, who chaired the House Judiciary Committee (R-TX) said, “This bill is designed to help all inventors. The current system “seriously disadvantages small inventors and companies” because it can lead to years of costly legal challenges to their patents.” Another supporter, Rep. Mike Michaud (D-ME), said, “We need to make it easier for companies to innovate and make things here at home, and this bill does that.”

Opponents argued that there was no reason to change the U.S. system, and inventors and small businesses complained that switching to a “first to file” system would give large companies an advantage and hurt individual inventors.

Rep. Sensenbrenner (R-WI) and Rep. John Conyers opposed converting the U. S. patent system to a “first to file” system, but their amendments to strike this language were rejected. Rep. John Conyers (D-MI) said the legislation would “benefit large multinationals at the expense of independent inventors and small businesses” and would “harm jobs, harm innovation and harm our nation.”

Rep. Don Manzullo (R-IL) voted against the bill and stated, “This bill would weaken our strong patent system that has protected American entrepreneurs for centuries from overseas companies trying to pirate their inventions.” Manzullo said. “Any patent reform we undertake should focus on reducing the backlog in patent applications, not dramatically altering the system and giving multinational corporations advantages over American innovators. The last thing we should be doing right now is giving foreign companies an even greater opportunity to take our ideas and our jobs.”

What has happened in the last two and a half years since the American Invents Act went into effect?

Paul Morinville of www.USInventor.org, wrote, “An inventor is the odds on favorite to lose in today’s patent system. Since the America Invents Act created post grant opposition procedures (PGO), inventors have lost the large majority of patent cases. PGO’s invalidate patents at rates above 75%. Article III courts find patents invalid under the indefinable ‘abstract idea’ at similar rates. Today, inventors are losing more cases than at any time in the 224-year history of the U.S. patent system.”

He added, “An infringement suit can cost millions of dollars for each side. Prior to the AIA, even small inventions could be enforced. With the huge increase in inventor losses due to the AIA and the indefinable “abstract idea,” only inventions with exceptionally large damages can be enforced. It’s simple math, damages must exceed the cost of the case plus the cost of risk.”

Patent Agent David B. Waller, J.D. M.S., Patent Success Strategies, LLC, commented, “Recent changes in the United States Patent Laws under the America Invents Act have had beneficial effects for some and significant disadvantages for others. In particular, changing from a first-to-invent to a first-to-file system, while conforming U.S. patent law to a worldwide standard with respect to ownership, has significantly impacted the exclusive rights granted to inventors through the U.S. Constitution and simultaneously impacted collaboration among research groups. The new Post Grant Opposition (PGO) procedures now provide an avenue to invalidate issued patents with resulting costs significantly lower for the challenger than the patent holder. This presents a distinct advantage for those with substantial resources to challenge patents that may directly compete with their technology.

To compound an already problematic system, the Innovation Act that passed the House last year proposed provisions that while seemingly helpful to independent inventors, would have been detrimental. The provision that provided a losing party pay for an infringement suit created a substantial advantage for a party having the greater financial resources. This bill never passed the Senate, and in view of other potentially detrimental provisions of the AIA, it will be important to make changes in this law to readjust and balance the benefit for all inventors.”

Patent Agent George Levy explained some of the harmful effects of the America Invents Act: “The new law presents a terrible dilemma for the small inventor. He can’t talk about his invention until the invention is filed (any competitor could simply publish the inventor’s idea under the competitor’s name, thereby locking the inventor out, or even worse, file a patent in their own name, with or without improvements) – The so called grace period is worthless. He can’t file until he is funded, and he can’t be funded because potential investors are scared of post grant reviews invalidating the granted patent. He does not have the funding to protect himself from a post grant review.

The whole “troll” idea is a red herring. In fact the biggest trolls or non-practicing entities are the large corporations whose legal department make a point of erecting a picket fence around competitors. Note: “A well-known tactic to devalue a competitor’s patent is to create a “picket fence” around it. Using this tactic, a competitor attempts to surround the pioneering patent with many patents covering incremental innovations, thereby hindering freedom to operate or freedom to advance the technology along logical trajectories.”

Mr. Levy added, “A single patent is granted to an inventor who cannot practice it because of lack of funding, and large corporations won’t license the patent from him. However, if the patent interferes with the business of a corporation, the inventor is called a troll and his patent is subjected to post grant review…A large number of patents, called “picket-fence,” are granted to a large corporation and grouped around a competitor’s technology. The patents are specially designed to interfere with the competitor’s business. Such strategies are commonly used by corporate legal teams.”

At our San Diego Inventors Forum on February 12th, President Adrian Pelkus, said, “We are a nation of creators and builders living at a time when science and technology is exponentially enriching our quality of life. Disturbing the evolution of ideas disrupts our development as a society, and changes to our patent laws are doing just that. American inventors create new products and jobs. The more we enable inventors, the more our country prospers and the better our lives become. We can expect only the opposite if we if we stifle inventors by allowing laws to be passed by corporations pressuring our representatives to protect only their interests.”

Thus, my answer is that the American Invents Act has been harmful to American innovation, and the consequences demonstrate that once again our elected representatives in Congress sold out to the interests of multinational corporations at the expense of inventors and small businesses.

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Decline in Capital Investment is Threat to American Innovation

Tuesday, October 22nd, 2013

In early October, the Information Technology and Innovation Foundation released a report titled “Restoring America’s Lagging Investment in Capital Goods,” by Luke A. Steward and Robert D. Atkinson. The report analyzes trends in private sector investment in capital goods over the last three decades, investigates the causes of the current decline, and proposes policy reforms designed to spur increased investment growth. The authors warn that this serious decline in capital investment over the last decade is a key threat to economic growth.

The authors state, “Private capital investment is the primary means through which innovation, the key driver of economic growth, diffuses throughout the economy.” Business investment in equipment, software and structures grew by only 0.5 percent from 2000 and 2011 compared to an average of 2.7 percent between 1980 and 1989 and 5.2 percent per year between 1990 and 1999.

The authors make a strong case about why capital investment matters in developed, knowledge-based economies like the United States. While innovation powers long-run economic growth, the mere act of innovating is not sufficient to grow an economy. Innovation must diffuse through the economy by being adopted by other companies that seek to improve productivity or the quality of products or services. It is the purchase of machinery, equipment, and software by companies that is capital investment that spreads the innovation throughout the economy.

“Capital investment acts as a diffuser of innovation because innovation is embedded in new investment”  Industrial equipment such as engines, metalworking machinery, and materials handling equipment; transportation equipment like trucks and aircraft; construction machinery, agricultural or mining equipment are now “infused with highly advanced technologies, and each new generation is better than the last.”

After a comparison of neoclassical economies and neo-Keynesian economies with innovation economies such as the United States, they conclude that innovation economies require high rates of capital investment in order to be utilized. This innovation economy is also referred to as “the new growth theory, in which investment in new machinery, equipment and software spreads innovation. By high rates of investment, they do not mean a high amount of equipment, software and structures. They “mean that the capital stock is refreshed and replaced with newer and more productive machinery, equipment and software.” They write, “The value of investment is not in acquiring more machinery and equipment; it is in acquiring newer and more productive equipment… A high rate of investment enables innovations to swiftly spread through the economy, bestowing their economic benefits upon their users.”

The authors show that a second reason why “capital investment matters is that it has substantial ‘spillover’ benefits—that is, benefits not just for the firm making the investment, but also for the rest of society…Many economists acknowledge that investments in the production of innovation (such as R&D) have spillovers, and that this is why policies like the R&D tax credit are important. But fewer recognize that investments in new machines, equipment and software also have spillovers.”

The report continues with an analysis of capital investment trends, focusing on information processing equipment and software (IPES). While IPES assets grew at the very rapid rate of 681 percent compared to the next highest, transportation, at 69 percent from 1980 to 2011, the growth rate of even IPES stagnated in the decade of the 2000s.

The authors conclude: “This stagnation means that business investment rates are actually falling relative to the size of the economy…As a share of GDP, fixed investment was higher in the early 1980s—around 13 percent of GDP—than in any subsequent year. In 2011, fixed investment accounted for less than 10 percent of GDP. Given that it is investment that drives productivity growth, these statistics are sobering. Out of all the fundamental components of GDP—consumption, investment, government, and net exports—a fall in the relative magnitude of investment is the most worrying in terms of future economic performance.”

While equipment investment is far more important than investment in structures (buildings), in 2011, “the number of new manufacturing structures is no longer keeping pace with the depreciation of existing manufacturing structures, which, in turn, means that the real quantity of manufacturing facilities in the United States is shrinking…Between 2001 and 2011, the net stock of manufacturing structures fell by more than nine percent, a fall which, given investment’s continued decline, will also undoubtedly continue.”

A decline in value of manufacturing structures in the United States is only a symptom, not a driver, of a decline in the international competitiveness of the U.S. manufacturing sector. The decline of “investment equipment and software investment is more of a driver of competitiveness, and thus its decline is far more ominous.”

Total business investment in equipment and software grew in the 1980s, boomed in the 1990s, and then stagnated in the 2000s. Between 1980 and 1991, equipment and software investment increased by 37 percent compared to just 2 percent between 2000 and 2011. This means that investment in equipment and software is falling relative to the size of the economy just like total investment.

The picture looks even worse when the IPES assets are removed from total equipment assets, leaving only assets such as industrial machinery and transportation equipment. “Instead of merely stagnant growth, non-IPES investment has declined over eight percent since 2000.”

The next section of the report compares investment in equipment and software by industry, showing that “the composition of investment went from being spread over a broad base of sectors, especially in the 1990s, to being concentrated in a few select sectors in the 2000s.” Industries such as trade and transportation, health, and management and professional services expanded slightly. “Manufacturing led in the 1980s and 1990s but was displaced in the 2000s by finance and real estate, much of that made in the ramp up to the financial collapse of 2008.”

Not only did business investment stagnate in the 2000s, but investment is “now much more concentrated in a few select domestic-serving services industries, and industries that once powered U.S. investment growth and global competitiveness are now falling behind,” such as computers and chemical products.

The investment trends in the computer and electronic products industry are even worse than other manufacturing sectors:  “a 36 percent decline in equipment and software investment since 2000.”

The authors propose two possible reasons for the causes of investment stagnation:

  1. Decline in the competiveness of U.S. traded-sector businesses on the global market that has been occurring, particularly over at least the past decade
  2. “Short-termism”—the obsession with the upcoming financial report rather than long-range planning—that pervades publicly traded businesses facing stockholder pressures

Numerous other reports have described the U.S. competitive decline over the past decade so this report just summarizes a few of the key points that have been made in other reports and previous articles I have written. The end result is that the United States has lost its attractiveness as a production location for manufacturing, and when those businesses move offshore to other countries, they take their investment along with them. In addition, fewer foreign firms are making investments here in the United States. Thus, investment declines in one industry sector after another.

With regard to “short-termism,” the authors mean “the pressure on companies by Wall Street to achieve short-term profits has all too often come at the expense of long-term investment.” In other words, executives are willing to “delay new investment projects in order to meet short-term earnings targets, even if it meant sacrifices in value creation.”

Atkinson and Steward urge policymakers to put in place new policies to encourage the private sector to restore investment rates and stem the decline and stimulate new investment and productivity growth. They recognize that the first step to addressing market short-termism is for Congress and the Obama administration to acknowledge and take the problem seriously, and the next step is to begin a detailed analysis of the problem. They recommend the following actions:

Establish a Task Force to Study Market Short-Termism and Recommend Policies to Ameliorate It ?  The White House should establish a task force, led by the National Economic Council, bringing together members of the Council of Economic Advisers and the Treasury Department, to study the causes and nature of short-termism and draft a set of recommendations to ameliorate it. “The task force should analyze all potential options for reigning in market short-termism, ranging from changes to tax law to corporate governance solutions to encouraging changes in the U.S. corporate cultures within business schools, corporate boardrooms and ‘Wall Street.’”

Establish a Tax Credit for Investing in Equipment and Software ?  Congress should enact an investment tax credit (ITC) to provide a 35 percent credit on all capital expenditures made above 75 percent of a base amount. The ITC would be modeled on the Alternative Simplified Research and Experimentation Tax Credit (ASC).

This report proves that as investment declines, economic growth declines, and as economic growth declines, the capital available for investment and demand for new investment declines. If this trend continues, innovation will slow, competitiveness will continue to decline, and productivity growth will weaken. I agree with the authors that “it is essential that policymakers make challenging this problem a top priority. The authors’ policy recommendations may not be the only solutions to the problem, but “many countries have similar policies in place already—they will at least put the United States on a more equal f

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Protecting Intellectual Property is Critical to our Economy

Tuesday, September 10th, 2013

The U. S. economy has been the innovator of virtually all major technologies developed since World War II. The innovative technologies that American inventors and entrepreneurs have invented and developed have benefitted Americans in all aspects of their lives. American manufacturers have been responsible for more than two-thirds of all private sector R&D that led to these innovative new technologies. More than 90 percent of new patents derive from the manufacturing sector and the closely integrated engineering and technology-intensive services.

Innovation is the hallmark of U. S. manufacturing, and it requires a certain mass of interconnected activities, which like a snowball rolling downhill grows in size as it proceeds towards end users. Substantial R&D is required to keep the innovation ball rolling to ensure more successes than failures.

Manufacturing is an incubator for technology and science, so it is important that R&D be conducted in close proximity to manufacturing plants where innovative ideas can be tested and worker feedback can fuel product innovation.

Innovation and production are intertwined. You need to know how to make a product in order to make it better. “Most innovation does not come from some disembodied laboratory,” said Stephen S. Cohen, co-director of the Berkeley roundtable on the International Economy at the University of California, Berkeley. “In order to innovate in what you make, you have to be pretty good at making – and we are losing that ability.

In his book Great Again:  Revitalizing America’s Entrepreneurial Leadership, Hank Nothhaft, retired CEO of Tessera Technologies, writes that “In our arrogance and our own naiveté, we told ourselves that so long as America did the ‘creative’ work, the inventing, we could let other nations do the ‘grunt’ work – the manufacturing. We did not yet understand that a nation that no longer makes things will eventually forget how to invent them.”

Most cutting edge or break-through technologies are not generated by established, larger companies. They come from the creative innovations of entrepreneurs starting up companies. However, most of these entrepreneurs don’t startup their companies in a vacuum; they are most often started by people who have gained knowledge and experience at existing companies in a technology/product field and leave the company to develop their own innovative new product in that same field.

These entrepreneurs need to have protection for the intellectual property of their new technologies via the patent system in order to raise the investor funds they need to move forward in developing the technology into a marketable, producible end product. Angel investors and venture capital investors invest their monies in a combination of the entrepreneurial team and the innovative, even disruptive technology. If the intellectual property is not secured through a “patent pending” or issued patent, there is nothing in which to invest.

Economist Pat Choate, author of Saving Capitalism: Keeping America Strong, emphasized how important the protection of Intellectual Property is to the future of American manufacturing at the “Making California Thrive” Manufacturing summit last February facilitated by the Coalition for a Prosperous America. He said that the U. S. is the most innovative country in the world and issues more patents than any other country. However, the recent passage of the America Invents Act converting the U. S. from a “first-to-invent” to “first-to-file” is hurting our innovation. Most growth comes from “disruptive” technology developed by inventors/entrepreneurs of small companies, and the “first-to-file” favors large companies that can file a challenge against these small companies in the hopes of bankrupting them to avoid disruptive technology from harming their business.

In the last two decades, the competitive status of U. S. manufacturing has been increasingly challenged by the state-of-the-art technologies being developed by established nations such as Japan, Germany, Korea, and Taiwan. While emerging economies, such as China, are acquiring advanced manufacturing capability through R&D tax incentives and incentives for direct foreign investment, they still rely heavily on counterfeiting, pirating, and theft of American intellectual property to compete unfairly.

In the July 12th article in The Hill, Stephen Ezell, a senior analyst with the Information Technology and Innovation Foundation, wrote “IP-intensive industries are foundational to the U.S. economy. They contribute over $5.1 trillion in U.S. economic output, accounting for nearly 35 percent of U.S. GDP in 2010, as the U.S. Department of Commerce found in its report Intellectual Property and the U.S. Economy: Industries in Focus. At the same time, IP-intensive industries exported more than $1 trillion worth of goods and services in 2011, accounting for approximately 74 percent of total U.S. exports that year, and supported at least 40 million jobs, or 20 percent of all U.S. private sector employment.”
He criticized the testimony that the Government Accountability Office (GAO) provided to the House Committee on Energy and Commerce Subcommittee on Oversight and Investigations regarding Insights Gained from Efforts to Quantify the Effects of Counterfeit and Pirated Goods in the U.S. Economy because it ignored previous reports of the International Trade Commission and the IP Commission.

Instead of providing new data, the GAO report laments the fact that “quantifying the economic impact of counterfeit and pirated goods on the U.S. economy is challenging primarily because of the lack of available data on the extent and value of counterfeit trade.”

He pointed out that the ITC report, “China: Effects of Intellectual Property Infringement and Indigenous Innovation Policies on the U.S. Economy, estimated that in 2009 alone Chinese theft or infringement of U.S. intellectual property cost almost one million U.S. jobs and caused $48.2 billion in U.S. economic losses due to lost sales, royalties, or license fees. The report found that, ‘Of the $48.2 billion in total reported losses in 2009, approximately $36.6 billion (75.9 percent) was attributable to lost sales, while the remaining $11.6 billion was attributable to a combination of lost royalty and license payments.’”

He added that the more recent “IP Commission Report, a report from the Commission on the Theft of American Intellectual Property, found that the impact of international IP theft on the U.S. economy exceeds $320 billion annually, comparable to the level of U.S. exports to Asia.”

On June 20, 2013, the White House released the 92-page 2013 Joint Strategic Plan on Intellectual Property Enforcement. The press release states, “Since the first Joint Strategic Plan was released in 2010, the Administration has made tremendous progress in intellectual property enforcement. Coordination and efficiency of the Federal agencies has improved; U.S law enforcement has increased significantly and we have successfully worked with Congress to improve our legislation. We have increased our focus on trade secret theft and economic espionage that give foreign governments and companies an unfair competitive advantage by stealing our technology. We have pressed our trading partners to do more to improve enforcement of all types of intellectual property.”

It’s outrageous that the plan takes 92 pages to describe actions that are either the same as actions in the 2010 plan or are so ridiculously vague or redundant that they are virtually worthless, such as:

  • Support small and medium-size enterprises in foreign markets.
  • Coordinate international capacity-building and training.
  • Improve transparency in intellectual property policymaking.
  • Examine labor conditions.
  • Assess the economic impact of intellectual property-intensive industries.
  • Use legal software.
  • Educate authors on “fair use” copyright doctrine

What inventors and entrepreneurs need most is enforcement of current laws. Thus, the most useful actions in the new plan are:

  • Improve IPR enforcement efficacy by leveraging advanced technology and expertise.
  • Increase focus on counterfeits shipped through international mail and work with express carriers.
  • Evaluate the enforcement process of exclusion orders issued by the U.S. International Trade Commission (ITC).
  • Promote Enforcement of U.S. Intellectual Property Rights through Trade Policy Tools

I seriously question whether this plan will enhance protecting America’s Intellectual Property. In addition, how will we know if it is successful if we don’t have current data on the extent of Intellectual Property theft and the damage it is causing to the American economy?

I agree with Mr. Ezell that the above plan “must be effectively implemented and the federal government needs to make it clear that it will no longer tolerate foreign entities counterfeiting or pirating U.S. goods, stealing trade secrets, copying digital content, or otherwise taking U.S. property without paying for it.”

Since innovation and creativity are part of the foundation of our country’s economy, we need to have effective enforcement of intellectual property rights to promote economic growth, ensure our global competitiveness, and protect the health and safety of our citizens. If we want to remain at the cutting edge of technology and innovation and maintain the critical mass of our manufacturing industry, we also need to protect the key to our future security as a nation and keep the R&D that fuels innovation and the subsequent manufacture of products within the United States.

 

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