United States: The Import Of Federal SBIR And STTR Programs And Why Congress Should Act Quickly To Reauthorize These Programs And Make Them Permanent

Last Updated: August 25 2016
Article by Tina D. Reynolds

Despite bipartisan efforts, the future is uncertain for the by all accounts highly successful Small Business Innovative Research (SBIR) and Small Business Technology Transfer (STTR) programs. Authorization for the current programs expires September 30, 2017. Reauthorization efforts are underway, but it is not clear at this time when the House and Senate will consider the pending legislation necessary to ensure no lapse in the programs.

Congress's failure to reauthorize these programs would be an unfortunate mistake. The SBIR program provides $2.5 billion a year in seed funding to companies with emerging technologies. Since program inception, more than 150,000 SBIR awards worth over $42 billion have been made. The companies receiving these funds may not yet have a prototype or the proof of concept required to receive other private sources of funding, making government support all the more important. The STTR program supports, among other things, innovative advances in health care, with the NIH providing about one-third of the annual STTR funding, which currently is approximately $220 million.

Seventeen countries around the world have copied the U.S. SBIR/STTR programs. Program alumni include well-known companies such as iRobot (maker of unmanned robotic vehicles and the Roomba automatic vacuum cleaner), computer security firm Symantec, telecommunications giant Qualcomm, and biotech/biopharma companies Amgen, Biogen, and Chiron. The Jarvick artificial heart was also developed in part with SBIR funds.

For those unfamiliar with the SBIR and STTR programs, or interested in understanding more about their history and how they operate, some background information is provided below.

Program History

The SBIR Program was signed into law by President Reagan in 1982. It was the result of a bipartisan effort in Congress to encourage federal agencies to make better use of the research power of small companies. The stated purposes of the SBIR program were to stimulate technological innovation in the private sector by supporting research and development, and assisting small businesses in commercializing innovative technologies.

In 2000, the program was authorized for an additional eight years. Despite the program's success, authorization lapsed in September 2008 due to Congressional inaction. The program was not formally restarted until SBIR reauthorization language was included in the National Defense Authorization Act for 2012, passed December 15, 2011. In the interim, 14 continuing resolutions kept the program afloat for months at a time. This was not an ideal or efficient scenario, and it is a situation that the pending Senate version of the reauthorization legislation hopes to avoid by making the program permanent.

The STTR program started in 1992 by passage of the Small Business Technology Transfer Act. The STTR program was reauthorized in 1997 and 2001, and then in 2011 together with the SBIR reauthorization.

Each year, federal agencies make almost 5,000 SBIR/STTR awards. The Department of Defense (DoD) alone is responsible for almost half, with the next largest awardee being the National Institutes of Health (NIH).

SBIR/STTR funding recipients have received more than 125,000 patents. As noted above, several have gone onto great commercial success, and many have been acquired by much larger companies, including L-3 Communications, SAIC, General Electric, and Lockheed Martin.

SBIR Basics

Each year, eleven federal departments and agencies (those with extramural research and development (R&D) budgets that exceed $100 million) are required by the Small Business Innovation Development Act (as amended) to set aside a portion of their R&D budgets for SBIR awards to small businesses. These eleven are:

  • Department of Agriculture
  • Department of Commerce
  • Department of Defense
  • Department of Education
  • Department of Energy
  • Department of Health and Human Services
  • Department of Homeland Security
  • Department of Transportation
  • Environmental Protection Agency
  • National Aeronautics and Space Administration
  • National Science Foundation

Companies seeking SBIR funding must meet several eligibility criteria. They must be American-owned and independently operated for-profit businesses. The principal researcher must be employed by the business (i.e., not just a consultant), and the business must have fewer than 500 employees. (Notably, many SBIR funding recipients have fewer than ten employees.)

The SBIR program has three phases. Phase I is the startup phase. Awards of up to $100,000 for approximately six months support exploration of the technical merit or feasibility of an idea or technology.

Phase II awards are generally available up to $750,000 and for up to two years. They are used to expand on Phase I results. During Phase II, the company performs R&D work and evaluates commercialization potential. Only Phase I award winners are considered for Phase II.

Phase III is the period during which Phase II innovation moves from the laboratory into the marketplace. The small business must find funding in the private sector or other non-SBIR federal agency funding. The objective of Phase III is for the small business to pursue commercialization objectives resulting from the Phase I/II activities. No SBIR funds support this phase, but with some agencies, Phase III may involve follow-on non-SBIR funded R&D or production contracts for products, processes, or services intended for use by the U.S. Government.

STTR Basics

The goal of the STTR program is to stimulate scientific and technological innovation through cooperative research or research and development carried out between small business concerns and research institutions. The program also assists the small business and research communities in commercializing innovative technologies.

To obtain an STTR award, a small business must team with a research institution. As with SBIRs, the small business must be an American-owned and independently operated for-profit company with fewer than 500 employees. Unlike SBIRs, the principal researcher on an STTR program need not be (and very often is not) employed by the small business; he/she can be affiliated with the research institution instead. The teaming research institution must be located in the U.S., and be a nonprofit college, university, or research organization, or a federally funded R&D center (FFRDC).

Each year, federal agencies with extramural R&D budgets that exceed $1 billion are required by the Small Business Technology Transfer Act (as amended) to reserve 0.3% of their extramural research budget for STTR awards to small businesses. These federal departments and agencies are:

  • Department of Defense
  • Department of Energy
  • Department of Health and Human Services
  • National Aeronautics and Space Administration
  • National Science Foundation

The STTR program also has three phases: Phase I, the startup/feasibility stage; Phase II, R&D and evaluation of commercial potential; and Phase III, non-STTR funding for full commercialization. As with SBIR Phase III commercialization activities, while federal agencies do not provide Phase III funding, they sometimes remain involved in Phase III, as commercialized products ultimately may be purchased by the government. Phase I STTR awards are generally limited to $100,000 and are for approximately one year; Phase II awards can be up to $750,000 and for as long as two years.

The Proposal and Award Process

Most agencies run phased SBIR/STTR programs with proposal submissions due at specific times throughout the year. For example, DoD issues three SBIR and two STTR solicitations for proposals annually. Each solicitation has a pre-release phase (during which time the agency does not accept proposals but potential offerors can have discussions with agency technical experts), an open phase for submission of proposals (during which technical discussions are not permitted), and a close.1

The NIH has several methods by which researchers can apply for SBIR/STTR funding. Researcher-initiated ideas can be submitted via the SBIR and STTR Omnibus grant solicitations (also called funding opportunity announcements or FOAs). Applicants may also apply via the SBIR/STTR targeted grant solicitations, and the annual HHS SBIR contract. The targeted SBIR/STTR grant solicitations are focused on specific research areas, and the HHS SBIR contract relates to only specified technologies.

A list of other federal government SBIR solicitations is available at SBIR.gov. As a general rule, agencies like DoD and NASA that operate predominantly on a contract basis will have very specific SBIR solicitations, whereas those for the grant-based agencies (NIH, NSF, etc.) will be very broad. NIH and NSF also will bring in external peer reviewers to review proposals, whereas other agencies tend to keep the review process exclusively internal.

Proposals generally must include information describing the significance of the work and the proposed research approach, including a description of the researchers' experience and the research facilities to be used. A budget is also required. The budget can include both direct and indirect costs, plus a small fee to cover other expenses (patent filing, market research, etc.). Note that while some agencies, such as NIH, will go over the customary caps for each phase of work, others, such as DoD, will not.

Other Important Considerations

SBIR and STTR funding should be part of a global corporate funding strategy, not the sole source of funding. Companies are not limited to applying for a single contract or grant; SBIR/STTR funding can be stacked and spaced out to cover a platform of products. Once a company has SBIR/STTR funds, it may be more attractive to outside investors.2 Moreover, recipients of federal SBIR and STTR funding are also sometimes eligible for state matching grant or tax incentive programs. For example, the North Carolina small business program matches Phase 1 SBIR grants up to $50,000. Louisiana provides a 40% tax credit on R&D expenses that include SBIR/STTR awards.

In addition to have a funding strategy, companies pursuing federal funding should have a global intellectual property strategy. Companies should understand what rights they retain and what rights they have provided to the government. This is an area subject to some fluctuations. For example, just this past April, the Small Business Administration proposed a significant change to SBIR/STTR data rights, whereby, if the proposed change is adopted, the U.S. Government will be able to use SBIR/STTR data for any purpose after the expiration of a twelve year protection period. Where STTR funding is involved, the company will need to understand what rights are retained by the research institution and what rights it has in IP developed pursuant to the grant funding. Pre-existing IP should be kept segregated from new subject inventions developed with grant funds.

Finally, industry experts advise that companies should communicate with the relevant agency program managers and technical experts prior to submitting an SBIR/STTR proposal. This can save the company time if there is no interest on the part of the agency, or in instances where the agency has already funded similar projects. A company can also often be steered to a different agency, or within NIH, to a different institute, for which the company's product is better suited. Such communications must happen prior to the close date for submission of solicitations, however, as communications after that date are forbidden.

Current Reauthorization Status

In January 2016, the Senate Small Business and Entrepreneurship Committee held a hearing on reauthorization of the programs. On May 11, 2016, the Committee passed through S. 2812, the SBIR and STTR Reauthorization and Improvement Act of 2016, which would extend and make permanent authorization for the SBIR and STTR programs. The bill is sponsored by committee chair Sen. David Vitter (R-La.) and ranking member Jeanne Shaheen (D-N.H.).

A parallel House bill, H.R. 4783, the Commercializing on Small Business Innovation Act of 2016, was passed through House Committee on Small Business in March. Unlike the Senate version of the bill, the House version only reauthorizes the SBIR and STTR programs through 2022.

A central issue in reconciling the Senate and House versions of the reauthorization legislation is whether to make the programs permanent. Reauthorization efforts have been difficult in the past, notwithstanding the documented success of the programs. (Multiple reports by the National Academy of Sciences and the Government Accountability Office have touted the programs' success in meeting Congressional objectives.) Permanent authorization would recognize that SBIR/STTR programs are cost-effective investments of U.S. R&D funds.

Conclusion

The SBIR and STTR programs provide valuable research funding to companies with good ideas but little capital. The track record of proven success is significant and provides compelling support for reauthorization. Given the history of complications and delays with program reauthorization, Congress should make the programs permanent, while retaining oversight through required regular agency reporting to ensure that funding is being used appropriately. Few federal programs produce such measurable and important results – these are programs worth keeping for years to come.

Footnotes

1 The DoD SBIR solicitation schedule is available here: http://www.acq.osd.mil/osbp/sbir/sb/schedule.shtml.

2 Indeed, per Congressional instruction in the 2012 National Defense Authorization Act (NDAA), the Small Business Administration (SBA) adopted new affiliation rules that now permit venture capital investment in SBIR recipient entities. Under the FY12 NDAA and SBA's final rule, SBIR awards can be made to small business concerns that are more than 50% owned by multiple venture capital companies, hedge funds, private equity firms, or any combination of these. No single private investment company may own more than 50% of the concern, and each must have a place of business in the United States and be created or organized in the United States. These changes were somewhat controversial, as they were seen by some as shifting the program focus away from small businesses to large companies. The change to permit private investment also arguably has the effect of discouraging investment in nascent, cutting-edge technologies in favor of the sorts of more developed concepts that are more attractive to venture capital investment.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Morrison & Foerster LLP. All rights reserved

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Tina D. Reynolds
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions