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Statement of the Honorable Judy Chu, Ranking Member

House Committee on Small Business

Subcommittee on Economic Growth, Tax and Capital Access

“Innovation as a Catalyst for New Jobs”

Thursday, April 18, 2013

Good morning.  Before I begin, I want to congratulate Chairman Rice on his appointment as Chair to this Subcommittee on Economic Growth, Tax and Capital Access.  Congressman Rice certainly knows about small businesses, economics and taxes – he owned his own tax law practice before he came to Congress!  I look forward to working closely  with Chairman Rice on the many critical issues addressed by this committee.

Today’s hearing is the first in a series that will focus on making America more competitive. Innovation is at the center of what makes American the greatest nation in the world.  The ability to turn new ideas into reality drives the U.S. economy forward, creating entire new industries and the employment opportunities that come with them.  It comes as no surprise that small business startups are responsible for leading this charge – seizing on opportunities and growing rapidly. 

America has a long tradition of cultivating innovation.  About 40 percent of Nobel Prizes have been awarded to American citizens and almost half of the world’s 100 most innovative companies are located right here in the United States. Whether it was in providing electricity throughout the country, putting men on the moon, developing the Internet, or decoding the human genome, we can be  proud of our legacy of discovery!  Not only that, these  innovative new businesses created new jobs, an average of 3 million a year. 

However, though  America  has the largest economy in the world, a highly skilled work force, top tier companies, and a second-to-none higher education system, there are signs that America’s innovative performance is beginning to slip.  In the most recent World Economic Forum rankings of national global competitiveness, the U.S. dropped from fifth to  seventh place.  In fact, in  2008, America ranked number one, but we have steadily been outranked ever since.   

We can reverse this trend if we take certain key and critical steps.  This means investing in education, funding federal research and development, strengthening our patent system, and reforming our nation’s immigration system.  Because of the timeliness of the last two issues, I’d like to make a few comments on them.

Patents incentivize creativity and innovation, rewarding people for their ideas.  Businesses must also know that our nation’s patent system is strong and their intellectual property will be protected.  If we want to encourage more startups to invest in their business here in the United States, then it is critical for us to ensure that their developments receive the protection they need.

As a member of the Judiciary Subcommittee on Intellectual Property, I am happy to say that we did pass a law providing the greatest reform to patent law in 40 years.  We are also continuing discussions on supporting innovation through patents.  Just yesterday, we had a hearing examining the effect of abusive patent litigation.  Unfortunately there are bad players that abuse the system and impose obstacles for real innovative startups. Companies called Patent Assertion Entities, or what some call Patent Trolls, acquire patents that they had no role in developing. Their business model is to sue companies, and then seek as many settlements as they can for profit. According to a recent Boston University study, 90 percent of defendants in these suits are small- and medium-sized companies. This poses a significant problem for startups, especially technology startups, and I am hopeful that we will find a solution to this issue.

Comprehensive Immigration Reform is a key issue in Congress right now, and it is certainly related to the issue of innovation.  Immigrants have made extraordinary contributions to America’s innovation - 25 percent of the highest-growth companies in America, including iconic success stories like Intel, Google, Yahoo, and eBay, were started by immigrants. In Silicon Valley, the world’s hub of innovation, immigrants helped found half of all technology and engineering companies, many which began as small start-ups.

But many of these innovative high tech companies can’t find the workers they because there just aren’t enough applicants trained in STEM (science, technology, engineering and math). To make matters worse, immigrants who study in the U.S. and want to make their great new idea a reality, can’t get a visa to stay and work on their start-up. Instead, they are taking the next Google back home instead of growing it right here in America.

But it’s not just employment-based visas that are critical to the success of the technology industry.  We won’t be able to attract the best and brightest, if they can’t live and work in the U.S. with their families at their sides. Immigrants are twice as likely to start a business as native borns, and there are many who come to the U.S. through the family visa system. Jerry Yang, the founder of Yahoo! is a perfect example. His mother brought him from Taiwan to America when he was ten years old on a family visa. Despite knowing only one English word – “shoe” – upon arrival, Yang went on to master the language and thrive in his new home, ultimately founding one of the world’s largest internet companies. He created thousands of American jobs and provides a service that allows millions of Americans to be more productive.

I believe a strong immigration system needs to work for our small and innovative businesses.  We must reform our immigration system to ensure that our small businesses have the workers they need and that students educated here can keep their ideas and businesses in America.

With this in mind, I am looking forward to today’s hearing, which will provide insights into what our country can do to be one of the most innovative and competitive economies in the world.  Understanding how we can encourage greater innovation is imperative not just for the U.S. economy overall, but also for all Americans who want a better standard of living. I thank the Chairman for convening this hearing. I would like to submit two documents for the record under unanimous consent, one documenting the cost to our American system of abusive patent litigation, and the other, policy recommendations from CONNECT, a successful program linking inventors and entrepreneurs with the resources they need.  Thank you and I yield back.

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