China Is Now #3 in the World in Patent Filings

[The following is excerpted from an article by Rachel Armstrong posted by Reuters, Thursday August 25 2011]

Patent filings are soaring across most sectors in China -- last year there were 313,854 patents registered in the country according to the Thomson Reuters Derwent World Patents Index, a 12 percent rise from 2009.  China was the third highest filer of patents in 2010, just behind the U.S., which registered 326,945 and Japan with 337,497. Japan has been the leading patent filer in the world for the past decade but its lead is narrowing, with its filings volume down 12 percent since 2006. China is up 83 percent.

"A lot of know-how flows through the contract manufacturer. The next logical step for these contract manufacturers is to climb up the value chain," said Elliot Papageorgiou a partner at intellectual property law firm Rouse in Shanghai.  And as they move up the value chain, they use patents to protect some of the knowledge and ideas they've picked up as contract manufacturers in order to give them room to manoeuvre in the increasingly competitive market.

"In the last year and especially this year, demand for IP work is growing very fast," said Anthony Chen, a patent lawyer for Jones Day in Shanghai.  Douglas Clark, a barrister specialising in intellectual property cases who has worked in China since 1993 says the size of the industry has surged in recent years. 

The surge in the size of patent portfolios is causing a corresponding rise in litigation.  ... These lawsuits are hardly surprising given that their foreign counterparts such as Apple, Google and Samsung are all trying to use an armory of patents to [control] competition in the global smartphone industry.  Google Inc's biggest deal ever, the agreement to buy Motorola Mobility Holdings Inc this month for $12.5 billion, is an attempt to buy insurance against increasingly aggressive legal attacks from rivals such as Apple Inc.

The influx of patents not only underscores China's growing strength in the telecom sector, it also reveals a change afoot in the country's attitude toward intellectual property.  While the change is hardly air-tight, China is moving more toward recognising ideas and their origins, rather than copying and proliferating.  Intellectual property civil litigation cases filed in China rose by 37 percent to 41,718 last year according to the country's Supreme People's Court. 

This is driven in part by China's plan to become a high-tech power house, with a target for 2.5 percent of its gross domestic product to come from research and development by 2020. It's trying to reach this goal by subsidising the cost of patents for Chinese companies and stricter enforcement of intellectual property rights.

"While traditionally in China you are supposed to share knowledge, the government is also aware that if you don't protect IP rights you don't attract investors and the nation can't develop the high-tech industries it wants," said Isabella Liu, a partner at Baker & McKenzie in Hong Kong.


[Leighton's comments:]
The above underscores the unmistakable trend in China to recognize and manage intellectual property rights in the landscape of business competition, both domestically in China and abroad in export markets.  As I have noted in my previous blog articles, Hawaii technology companies and innovation businesses should protect their intellectual property rights in the U.S. through patent filings, and also consider whether to acquire foreign patent rights through timely international filings in countries with booming markets such as China for possible value in tech transfer transactions.

BLUE REVOLUTION HAWAII VISION

"A blue jade dragon would be an extremely rare find!", a Chinese jade expert in Shanghai confided to us. "Blue jade seldom occurs in quantity", he said, "and it would be rarer still to carve it into a dragon, a symbol of power and success". Well, that is just the symbol that Pat Takahashi, Hawaii's longtime renewable energy expert, and Leighton Chong, attorney in intellectual property and international law, were looking for as a logo for their new undertaking, Blue Revolution Hawaii. Along with Fujio Matsuda, former State Transportation Director and President of the University of Hawaii, John Farias, Jr., former State Agriculture Director and Chair of Hawaii County EDB, and Guy Toyama, Executive Director of Friends of NELHA, Blue Revolution Hawaii was formed to advocate Hawaii's taking a leading role in tapping the vast resources of our oceans to generate virtually limitless energy, food and water for needy populations of the world.

Hawaii Can Lead the Blue Revolution
Hawaii today is 90% dependent on imported fossil fuels and 85% on shipped-in foods. Rather than being dependent on imported oil and at risk in food security, we can tap our vast ocean resources to supply our basic needs (energy, food, water) in a sustainable manner and in harmony with the marine environment. In 1979 Hawaii became renown in the scientific community for its Mini-OTEC success in producing a net electrical output from pumping cold water from the ocean depths into heat exchange with warm surface waters to produce electricity. Cold deep ocean water is also used today by new technology companies at NELHA Tech Park in aquaculture to grow shrimp, abalone, and tilapia, planned for use in building air conditioning in Honolulu, and used as a resource for production of bottled ocean water, nutrients for microalgae growing, as well as for drip irrigation of plants. We can leverage our unique assets in ocean and OTEC research, commercial fisheries, traditional and scientific knowledge in aquaculture, and state and federal government support to take a leading role in bringing the Blue Revolution to fruition.

The Blue Revolution: Sustainable Ocean Resources Development
71% of our Earth’s surface is water, and three-quarters of the heat of the Sun shining daily on Earth is stored as thermal energy in the oceans. By pumping or upwelling cold deep waters to warm surface waters for ocean thermal energy conversion (OTEC) into electricity, the thermal energy potential of the oceans would in theory be equal to 10,000 times the total energy currently used by mankind, indefinitely, at all times of the day and year.  Just a fraction of the energy potential of OTEC conversion could be used to desalinate potable water to supply the needs of human populations of the world.

Deep ocean waters also store vast concentrations of dissolved minerals that if brought to the surface could act as natural fertilizer for growing 3.5 billion dry tons of new marine biomass annually from just 1% of the ocean’s surface. This would be equal to 3 times the total terrestrial biomass that can be collected annually on land in the U.S. It would also represent about 1 billion tons of carbon sequestration annually. Each ton of marine biomass could be cleanly processed into 400 gallons of clean fuels such as methanol, green diesel, ammonia or hydrogen, and the biomass residue can be further processed into organic fertilizers, protein-rich animal and fish feeds, bioactive pharmaceuticals and other high-value marine bioproducts.

Pumping or upwelling cold ocean water to the surface in volumes sufficient for OTEC energy production could improve the world’s environment through cooling surface water temperatures to prevent the formation of typhoons and hurricanes, and absorbing large volumes of carbon dioxide from the atmosphere to reduce global warming. It could also have a beneficial effect of nutrient enrichment in euphotic zones of ocean waters to stimulate marine life growth and enhance marine food chains to revitalize the world’s wild fish stocks.

PIOS: Launching the Blue Revolution
The next frontier for Humanity is not Space, but the Ocean!

The first step to launching the Blue Revolution is to conduct the necessary research to provide best answers to the most optimal, sustainable, and environmentally protective ways to develop our ocean resources. We advocate the building of a PACIFIC INTERNATIONAL OCEAN STATION (PIOS) as a living/working laboratory for international cooperative research on sustainable ocean resources development. Architectural engineering firms in Japan, Australia, Netherlands, and Sweden have already begun exploring design concepts for constructing artificial islands in the ocean as integrated "green" living and working environments. Like the International Space Station, but at less than 1/10 the cost, PIOS can be deployed as the world's first artificial island in the ocean hosting important research activities of ocean universities, institutions, and agencies in international partnership under an international cooperative research agreement. Blue Revolution Hawaii is working to organize an international consortium of research and support partners to advocate for the building of PIOS in Hawaii's ocean waters. PIOS would also be the world's first floating island facility for testing in-ocean operational conditions and learning best practices for eventual widespread deployment of integrated ocean production "sea ranches" or "plantships" throughout the oceans of the world.

Our Invitation to APEC Delegates
We invite interested delegates of the 21 nations attending the Asia Pacific Economic Council (APEC) Summit in Hawaii to learn about the significant ocean resources of our State and its ideal location for hosting international cooperative research on ocean resources development through the building of the PIOS living/working in-ocean laboratory platform. Please visit our blogsite for further information and updates on our coming hospitality events to introduce the Blue Revolution Hawaii vision to visitors from around the world.


THE BLUE REVOLUTION HAWAII TEAM:
Dr. Patrick Takahashi, Leighton Chong, Guy Toyama, John Farias, Jr., Dr. Fujio Matsuda

UPDATE ON BLUE REVOLUTION HAWAII TEAM

This is an update on recent contacts by the Blue Revolution Hawaii Team with potential partners worldwide.

On his recent trip around the world starting in September, Pat Takahashi met in Tokyo with Dr. Professor Toshitsugu Sakou, a long-time proponent of ocean research at Tokyo University and current Chair of the Marine Technology Society of Japan, and MTS Japan colleagues preparing for the MTS Oceans conference in Kobe. They discussed possibilities for research cooperation between the U.S. and Japan, and the goal of the Blue Revolution Hawaii team to promote Hawaii to take a leading role for ocean resources development in Hawaiian waters.

Overlapping with my trip to China in October, Pat and I met with Dr. Changwen Wu, Vice President and Director of Research at Zhejiang Ocean University, which is among the top 5 universities in China for ocean research. We agreed to work together to establish a research exchange relationship with the University of Hawaii and other research institutes in Hawaii. Our meeting was set up by Dr. Zhibo Tang, Director of the Dept. of Science and Technology at Zhejiang Ocean University.

Pat and I were also invited to lunch with Mr. Shi Jun Chen, Director for the Office of the Mayor of the City of Zhoushan, to discuss a possible clean-energy-city relationship with Honolulu. Zhoushan is the main island in the strategic archipelago south of Shanghai that is the easternmost point of China in the East China Sea, and has been designated for national strategic development in the coming years by the Government of China. Zhoushan was a fishing village of 6,000 people only 15 years ago, and today is a bustling international city of 1.5 million.

While Pat continued around the world, I capped off my trip to China with a meeting in Tokyo with principals of Shimizu Corp., a pre-eminent architectural engineering firm in Japan. Shimizu has been developing engineering plans to build “Green Floating Islands” in the ocean that are 3,000 meters (2 miles) in diameter and can support 30,000 residents each as entirely clean energy, self-sustaining and carbon-negative ecosystems. Shimizu showed keen interest in Blue Revolution Hawaii’s goal to have the world’s first floating island built in Hawaiian waters as a living laboratory for ocean research.

While in Tokyo I also attended the EcoBalance 2010 conference in November at the Miraikan Science Museum, delivering presentations on ocean resources developments and clean energy incentives in Hawaii. Both topics were unique in a conference that included over 200 presentations by researchers and sustainability development experts from 48 countries worldwide.

Here in Hawaii Lockheed Martin is proceeding with its plan to construct a 5 MW OTEC pilot plant in partnership with the State of Hawaii and the Taiwan Industrial Technology Research Institute starting next year in 2011. The pilot plant will enable the collection of operational and ocean impact monitoring data for optimization of design and operation of large-scale OTEC facilities in the ocean. Hawaii has the largest ocean exclusive economic zone (EEZ) of all states in the U.S. With successful pilot plant operation, Lockheed Martin plans, in Phase 2, to build a 100 MW OTEC-powered platform to generate baseload electricity and freshwater for Honolulu. The Lockheed Martin team is partnering with Makai Ocean Engineering and other Hawaii companies and the University of Hawaii.

A proposal for growing yellowfin and bigeye tuna in large, autonomous, OTEC-powered “Oceanspheres” in an ocean lease zone 3 miles off Kawaihae Harbor of the Island of Hawaii has been put forward by Hawaii Oceanic Technology Inc., Honolulu, Hawaii. The company received approval of its final Environmental Impact Statement in October 2009 and recently completed licensing permitting for operations. Such next generation fisheries in deep ocean waters hold great promise for food sustainability and security, as well as positive health, environmental and socioeconomic benefits.

Now that Neil Abercrombie has been sworn in as the new Governor of Hawaii, we hope he will make it a top priority of his Administration to have Hawaii take a leading role in the Blue Revolution. As U.S. congressman, Abercrombie has been a strong supporter of funding for OTEC research and NELHA in Hawaii. Our BRH goals for the new State Administration in 2011 include:

(1) making a proclamation of Hawaii’s taking a leading role in ocean resources development on World Ocean Day in June 2011;
(2) enabling the State’s Department of Business, Economic Development & Tourism (DBEDT) to support ocean resources development as a Strategic Industry and draft a strategic plan for ocean resources development in the State of Hawaii;
(3) retitling the State’s Department of Land & Natural Resources as the “Department of Land, Ocean & Natural Resources” (DLONR), and providing the Ocean division with staffing and technical expertise for regulation of ocean resources development in state jurisdictional waters; and
(4) inviting and facilitating external investment and research exchange relationships with global companies and organizations worldwide for ocean resources development in Hawaii.


BLUE REVOLUTION HAWAII
Located in the middle of the Pacific Ocean, Hawaii today is 90% dependent for its energy needs on imported fossil fuels, and 85% dependent on shipped-in foods. The Blue Revolution Hawaii (BRH) Team believes that the ocean surrounding Hawaii, jurisdictionally constituting the largest exclusive economic zone of any state in the U.S., can be developed as our ultimate sustainable resource to provide energy, food, and other marine products for Hawaii's needs in economically sound, ecologically protective, and environmentally beneficial ways. Our initial focus will be on public education to promote objective (science-based) consideration of ocean resources development in harmony with the environment. Ultimately, ocean resources could be developed from new archipelagoes of OTEC-powered zero-emission floating islands sustainably producing a wide range of clean-and-green marine co-products: electricity, freshwater, biomethanol, hydrogen, ammonia, seafood, marine chemicals and other commodities, while serving as floating extensions of cities and marine parks in the Hawaii ocean EEZ. Blogsite: http://BlueRevolutionHawaii.blogspot.com/

IP-BASED TECH-TRANSFER BY U.S. TECHNOLOGY COMPANIES TO CHINA

I just returned from a month-long trip to China touring with a U.S. law delegation under the Eisenhower Citizen Ambassador Program led by Deborah Enix-Ross of the law firm of Debevoise & Plimpton with 29 participants. We visited Chinese law firms, law schools, seminar forums, and bar associations in Beijing, Xi’an and Shanghai (photo of our law tour delegation which held a joint U.S.-Sino law seminar with the Lixiaohua Law Firm). Including my trip extensions to Hong Kong (SAR) and Shenzhen, China, I visited 10 Chinese law firms in 5 major cities. Meeting Chinese law professionals and seeing the economic development in cities first-hand since my last visit to China 20 years ago, I came away thoroughly impressed with China’s accomplishments to date and with its dynamism and optimism for the future. We Americans need to reset our held-myths about China from 20 years ago and realize that it is a completely different country today. While China’s Government is asserting its increasing strength and elevating stature in economic and foreign policy, it is transforming its domestic institutions to a society based on rule-of-law (under civil code similar to Europe) and free-market principles (tempered by practical controls over social order). China’s economic development in the past 15 years has lifted an estimated 300 million people of its current 1.6 billion population out of poverty, and managed a transition from a predominantly agrarian society to one where 50% of its people now live and work in cities. Whole cities populated in the millions have been built new. China’s goal over the next 15 years is to continue its transformation to a middle-class society, while it works toward a new social order in the world based on sustainable use of resources for needed economic growth. Its biggest challenge will be to continue to adapt its internal political system commensurate with its economic development.


One area providing a useful example of China’s development is in technology and its transformation to a technological society. In preparing for my trip, I came across an article entitled “Five Reasons China Will Rule Tech”, by Ray Kwong, published in Forbes Online, July 13, 2010. He notes that China's leadership places a high priority on educating its upcoming generations in science and engineering. Most of its Politbureau members including President Hu Jintao have engineering degrees. Its science and engineering pool is vast – in 2005 China awarded 351,500 science and engineering degrees, compared to 137,500 in the U.S. It now emphasizes an “indigenous innovation policy” to promote development of Chinese-origin technology while at the same time encouraging transfer of foreign technology and high-level management services to China.


U.S. innovation companies are typically small-to-medium sized enterprises (SMEs) lightly capitalized with venture capital. Such SME companies will find it increasingly difficult to compete head-to-head with Chinese companies. As an example, I came across an article entitled “Chinese Solar Giants Cast Shadow on U.S.”, by Todd Woody, Fremont, CA, published in the International Herald Tribune, Business Asia with Reuters, October 14, 2010. The article notes that in competing with Chinese companies, American technology companies are struggling to find niches where they can survive. Silicon Valley start-ups in Clean Energy like Solyndra, Nanosolar, and MiaSole are finding it difficult to make headway in world markets and even in the U.S. against low-cost Chinese manufacturers supported by government investments and favorable trade policies. The article quotes Conrad Burke, CEO of Innovalight, saying, “Innovation will be the heart of the U.S. [survival] strategy, and although it might not create the same scale, we are exporting well-protected technology to China and creating well-paying jobs here”.


In other words, American companies are finding that they can survive by transferring their innovation technology to Chinese companies to manufacture products at China’s low costs. If a joint venture is formed through Hong Kong or Singapore, which have strong rule-of-law systems, the U.S. company can provide licensing of reserved IP rights in China and technology and innovation expertise to optimize products for marketing in China, and earn license royalties or a revenue share of sales in China. The U.S. company can then import the low-cost Chinese-supplied products back into the U.S. and other markets where it retains IP rights for profitable sales of its own.


As outlined in my November 2009 blog article, U.S. technology companies can advantageously transfer or license IP (patent) rights as primary assets in IP-based tech-transfer transactions with Chinese companies according to the following model:

1. U.S. researcher invents a new technology, and applies for IP rights.

2. U.S. innovation company acquires inventor’s IP rights, develops and proves the feasibility of the new technology, and files for patent rights in the U.S., China, and other countries.

3. The U.S. company transfers or licenses the Chinese patent rights to a joint venture company which engineers the product and manufactures it for marketing and sale in China.

4. The joint venture company in China establishes the product at efficient manufacturing costs through domestic sales, then supplies the product at low cost to the U.S. company for import.

5. The U.S. company makes profitable sales in the U.S. and foreign markets where it owns strong IP protection rights.


The typical small-to-medium sized U.S. technology company has little leverage or sufficient resources to enforce Chinese patent rights against large companies in China anyway, so that a transfer to the Chinese joint venture partner is the best use of the China IP rights and provides an incentive to the Chinese joint venture partner to invest in engineering the product and gearing up for manufacture and sales in China. The U.S. company can control export of the low-cost product from China for sale in the U.S. and other countries such as Japan, Korea, Australia, Canada, and/or Europe by relying on strong IP rights there.


In a typical patent filing strategy, the U.S. company should file a home country (U.S.) patent application as soon as the invention has been completed, then file an international (administrative) filing under the Patent Cooperation Treaty (PCT) within one year in order to claim the U.S. priority date and extend the treaty deadline for foreign filings for a further 18 months while also receiving an early international search and patentability report. The U.S. company must then elect in which countries to file national-stage patent filings from PCT by the 30-month deadline (from the U.S. filing date), which would include China and any other foreign countries of strong commercial interest. The USPTO grants an export license for foreign patent filings automatically within 6 months of the U.S. filing date, unless the application is sequestered within that time for national security purposes. The U.S. company may need to apply for an export license to transfer related technology (such as software and engineering data) if they contain technical subject matter that goes beyond the scope of the patent application disclosure.


The challenge for a small-to-medium sized U.S. technology company in this IP-based tech transfer model will be finding a trusted Chinese joint venture partner and making a compelling business case why the product is likely to be profitable to them in domestic China sales as well as for export for foreign sales. Deal-making in China is still strongly dependent on personal relationships (“guanxi”), so an introduction to persons with decision-making authority in the target Chinese company will depend on going through well-connected intermediaries. In technology deals, such intermediaries may be bilingual business consultants and/or attorneys handling corporate and/or IP matters for the target Chinese company. Chinese companies have access to plenty of capital and no longer prefer to structure cross-border deals based on foreign investment. However, they still need to justify their access to domestic investment capital based on projecting a strong likelihood of profitable domestic sales.

THE BLUE REVOLUTION MANIFESTO FOR HAWAII

[The following is a manifesto for the launch of the Blue Revolution team in Hawaii, presently consisting of Patrick Takahashi, Leighton Chong, Guy Toyama, and Sheridan Tatsuno (SFO)]

WHEREAS, the State of Hawaii is located in the middle of a vast resource of the Pacific Ocean from which virtually limitless renewable energy, aquacultured seafood, desalinated water, electrolyzed hydrogen, and a cornucopia of biomaterials and other ocean-grown products can be sustainably harvested;
WHEREAS, the State of Hawaii under the International Law of the Sea Treaty has ocean boundaries constituting the largest exclusive economic zone (EEZ) of any other state of the United States and larger than that of many nations of the world;
WHEREAS, the State of Hawaii can build upon its unique assets in ocean research, strategic defense interests, commercial fisheries, traditional Hawaiian knowledge in aquaculture, and state and federal government agency support in order to develop technological advances, ocean engineering expertise, model regulatory policies, and industry best practices for knowledge transfer to and investment from other research institutions, organizations and companies in the United States and other countries of the world;
WHEREAS, the State of Hawaii has a golden opportunity to take a commanding leadership role in a new era of global ocean resources development, referred to herein as “the Blue Revolution”, which can create extraordinary growth in ocean resources industries, high-skill employment, and educational opportunities for upcoming generations of its citizens;
NOW, THEREFORE, WE SUPPORTERS OF THE BLUE REVOLUTION advocate the following initiatives and goals for respective participants, policy makers and enablers of ocean resources development in the State of Hawaii:
1. Have the Governor declare the State of Hawaii as a global coordinator for the Blue Revolution, making the proclamation on World Ocean Day in June of 2011.
2. Enact legislation to authorize and fund the State’s Department of Business, Economic Development & Tourism (DBEDT) to support ocean resources development as a Strategic Industry and draft a strategic plan for ocean resources development in the State of Hawaii.
3. Enact legislation to retitle the State’s Department of Land & Natural Resources as the “Department of Land, Ocean & Natural Resources” (DLONR), and authorize and fund an Ocean division of such agency with staffing and technical expertise for the regulation of ocean resources development in state jurisdictional waters.
4. Enact legislation to authorize and fund the Ocean division of DLONR to conduct and draft programmatic environmental impact assessments for the permitting of commercial operations in ocean resources development activities in Hawaii’s jurisdictional waters of the EEZ.
5. Invite, facilitate and provide incentives for investment, research, and pilot programs by research organizations, companies and other development partners in ocean resources development activities in Hawaii’s jurisdictional waters.
6. Provide state input and assistance to the National Oceanic and Atmospheric Administration in drafting a national marine aquaculture policy, and coordinate state actions with relevant federal government agencies for ocean resources development activities in Federal jurisdictional waters of the EEZ.
7. Enact legislation to authorize and fund the School of Ocean & Earth Science and Technology (SOEST) of the University of Hawaii to establish research partnerships with other universities, companies, and research sponsors in the United States and other nations of the world, and to publish reports on advances in ocean resources development in the State of Hawaii.
8. Set a goal for ocean resources development in the State of Hawaii to achieve installation of 1000 megawatts of ocean energy generation capacity by the Year 2030, with concomitant marine co-products, to include, but not be limited to, farmed seafood, freshwater, green materials, biofuels and hydrogen, ocean resorts and living communities at sea.
9. Set a goal of tripling (3X) Hawaii’s exports of ocean products and services within 5 years (2015) and generating a 100% increase in private sector jobs in these industries for Hawaii residents.
10. Set a goal of attracting of the order of $500 million of new local, mainland and foreign investment into Hawaii by 2015 to fund ocean resources business expansion.

THE BLUE REVOLUTION TEAM IN HAWAII

DRAFTING A FEDERAL POLICY ON OCEAN AQUACULTURE

(The following was co-authored with Patrick Takahashi, former director of the Hawaii Natural Energy Institute, and submitted as comments to the National Oceanographic and Atmospheric Administration for public input on drafting a national marine aquaculture policy.)

The role of marine aquaculture and its relevance to a safe, sustainable U.S. seafood supply has long been recognized. At the request of the then Administration’s Marine Fisheries Advisory Council in 2005, NOAA developed its 10-Year Plan for Marine Aquaculture in October 2007 to implement four distinct goals: (1) a comprehensive regulatory program for marine aquaculture; (2) development of commercial marine aquaculture and replenishment of wild stocks; (3) promoting public understanding of marine aquaculture; and (4) fostering increased collaboration and cooperation with international partners.

NOAA is currently seeking broad input on components of a draft marine aquaculture policy from interested stakeholders. Based upon review and public comment on its draft policy statement, NOAA will issue a new National Marine Aquaculture Policy.

The NOAA policy mandate applies particularly to Federal waters which extend 3 miles to 200 miles from shore. States currently have state regulatory jurisdiction over internal and near-shore waters up to 3 miles offshore. The United States has national sovereign jurisdiction over its territorial waters up to 12 miles offshore and extended jurisdiction in a 12-mile contiguous zone up to 24 miles offshore. Waters up to 200 miles offshore constitute the U.S. Exclusive Economic Zone over which it has regulatory powers and stewardship responsibilities, pursuant to international protocol under the United Nations Law of the Sea. The State of Hawaii, which is surrounded by ocean and formed of an island chain extending 1500 miles to the island of Midway, has the largest jurisdictional area of ocean water in the U.S. and contains one of the largest Exclusive Economic Zones in the world, with over 200,000 square miles of open ocean in its EEZ. Hawaii with EEZ, for comparison, would be twice the size of Texas.

World fisheries monitoring has long sounded alarm over the very serious and accelerating decline in wild fish stocks throughout our oceans. Projections show that with increasing world population and a shift of nutritional patterns away from red meat towards seafood, actual fish stocks, and hence world seafood production, could decline precipitously toward total depletion in the near future.

Aquaculture already supplies over 40% (70% from China) of global seafood production. Imports comprised over 80% of U.S. seafood supply in 2006, while U.S. production amounted to only about 460,000 metric tons. NOAA has estimated that annual domestic aquaculture production could be increased by 1 million metric tons by 2025. Similarly, due to declining wildstocks caused by overfishing, it is estimated that global aquaculture production would have to double within 20 years to meet the needs of a growing world population.

However, increasing commercial seafood production in the U.S. has been stymied by patchwork, ineffective and uncertain federal regulatory processes with overlapping jurisdiction applicable to marine aquaculture facilities, and by the need for additional research on environmental and socioeconomic implications of large-scale increases in commercial marine aquaculture. In a regulatory climate fraught with uncertainty, consumer and environmental fears tend to become exaggerated, and businesses will avoid risk to capital and not invest in developing marine aquaculture.

Aquaculture has long been practiced in internal waters such as fish ponds, rivers and lakes and in fish farms on land. The indigenous Native Hawaiians had developed fishpond aquaculture into a high form that sustained large populations even by today’s standards. However, limits on available land space and waters, as well as pollution and other environmental considerations, make expansion of on-shore aquaculture industries problematic. For example, at its height Native Hawaiian fishponds are estimated to have reached about 360 in number and supplied about 2 million pounds of fish for a population estimated at 500,000 or more, whereas today Hawaii has a population of 1.3 million and consumes about 50 million pounds of seafood per year, of which about 17 million pounds are imported.

Offshore marine aquaculture has become widely practiced throughout many countries of the world such as China, India, Indonesia, Japan, Thailand, and European Union. Hawaii is unique in the United States in having in place a system for permitting near-shore (within 3 miles) commercial aquaculture facilities. Two companies, Kona Blue Water Farms and Hukilau Foods (formerly Cates International) today operate in Hawaiian waters. Typical near-shore marine aquaculture facilities employ mesh cages or mesh enclosed pens tethered to the seafloor in which selected fish species are grown and harvested. However, these near-shore facilities have been criticized for using non-organic or antibiotics-laced fish food, generating fish food debris and wastes that cause downstream fouling, escapes and debris contamination of wildstocks, and attracting predator hazards to the near-shore environment.

New marine aquaculture technologies are under development to allow facilities to be sited farther in the ocean away from the near-shore environment. One example is the proposal of Hawaii Oceanic Technology, Inc., to deploy fully autonomous, submerged, self-positioning, OTEC-powered Oceansphere™ cages in deep ocean water. Its final environmental impact statement to operate submerged ocean cages 3 miles off the Kohala Coast of the Big Island was recently approved by the Hawaii Dept. of Land & Natural Resources. The company expects that operating farther off-shore in deep ocean water will avoid many of the environmental problems with near-shore facilities.

Floating island “ranches” for growing, harvesting, and processing seafood on an even grander scale operating far off-shore perhaps to the full 200-mile extent of the EEZ have also been proposed. As described in an article published in August 1999, “Ultimate Ocean Ranch, The Sea Technology”, by F. Matsuda, J. Szyper, P. Takahashi, and J. Vadus, such ocean ranches would use artificially-induced upwelling of deep-ocean nutrients in the open seas to enhance biological food productivity unencumbered by land-based or near-shore aquaculture limitations. Commercial-scale fish and seafood production would be managed on manned, OTEC-powered floating platforms. Such integrated facilities can be scaled to operate in a range from $3 million in aquatic food products produced annually from a 10 megawatt (MW) OTEC plant, to more optimistic calculations for a 1,000 MW facility producing $1 billion a year in seafood products.

It is clear that the U.S. must promptly undertake coordinating and adopting a national marine aquaculture policy and provide the funding, regulatory capacities, and needed research support for commercial marine aquaculture within the EEZ. However, due to a past practice of importing most of its seafood needs from abroad and reticence over environmental opposition to opening the EEZ to commercial operations at home, the U.S. policy has been long delayed and is basically starting from scratch. Hawaii’s near-shore permitting of two commercial aquaculture operations are currently the only domestic examples of commercial ocean aquaculture.

Environmental opposition to even these two Hawaii operations has provoked a call for a moratorium on further expansion of offshore commercial aquaculture. On the other hand, Native Hawaiian cultural opposition to commercial scale uses of Hawaiian waters has led to a call for the U.S. to support a return to onshore fishpond and traditional ahu’apu’a (mountain-to-sea) land use practices for food production. These environmental and cultural considerations in Hawaii have far less or only nominal significance to commercial aquaculture in deep ocean waters where the density of use of a commercial scale operation is tiny in relation to much larger ocean spaces. It is also apparent that Hawaii’s cultural and socioeconomic considerations will be different from other states that have shorelines, and from overall national interests subject to Federal jurisdiction and regulatory oversight.

It will therefore be an important foundational task for NOAA to differentiate its marine aquaculture policy into one part in coordination with state jurisdiction for near-shore (up to 3 miles) aquaculture, and another part subject to exclusive Federal jurisdiction for commercial scale aquaculture in Federal waters (3 to 200 miles offshore) in the EEZ. In the state-coordinated near-shore aquaculture policy part, NOAA can provide states with coordination of other relevant Federal agencies, monitoring capabilities, and research support. NOAA can also define a model state-coordinated program that states without near-shore marine aquaculture programs in place can follow. In the Federal waters aquaculture policy part, NOAA should exercise full Federal pre-emption of exclusive jurisdiction over Federal waters under a uniform ocean aquaculture policy.

Another important task for NOAA in establishing a national policy is to define an effective process, supported by well-reasoned considerations and science-based knowledge, for mapping permittable commercial marine aquaculture zones (MAZ) in the EEZ. Such mapping should identify and exclude trafficked, recreational, and environmentally sensitive near-shore areas, ocean transport lanes, defensive seas areas, feeding and spawning areas for extant fish wildstocks, and migration areas for fish, whales, etc.

It will also be an important task for NOAA to set up an effective and prompt, yet environmentally protective, lease permitting process for identified commercial marine aquaculture zones, including setting standards for content and scope of programmatic EISs for such zones, and EAs for applicant operators. Due to national economic interests, standards will also need to be set for applicant operators to qualify as U.S. nationals or U.S. owned companies, having adequate capital and track record for carrying out proposed operations, and fulfilling mandated responsibilities for such operations.

Rules for regulating operators and monitoring the impacts of their operations on surrounding areas will need to be defined by NOAA. Security and safety operations will need to be allocated between Federal authorities such as the U.S. Coast Guard, U.S. Navy, state and local authorities, and operators themselves.

Much of earlier monitoring work has been limited to tracking the decline of fisheries and focusing only on edible seafood commodities. The whole ocean resource development system needs to be better understood. Ultimately, next generation fisheries will need to manage large-scale deep-ocean upwelling and ocean thermal energy conversion effluents used by floating ranch platforms. It is imperative that the science and engineering of these systems be investigated now. NOAA should establish marine bioengineering centers for research study in the Pacific and Atlantic Oceans and Gulf of Mexico to establish the knowledge base for operating marine seafood and product plantations, growth cycles for open ocean systems, linking deep ocean and OTEC effluents to optimize productivity, and understanding the interplay of these programs with remediation of global warming, hurricane prevention or mitigation, sustaining ocean biozones, and other new fields of knowledge.

Therefore, in view of the considerable complexity of these policy drafting tasks and the considerable funding, agency expertise, and research support required, we recommend that NOAA consider the following Five Imperatives in drafting a National Marine Aquaculture Policy:

Imperative #1:
NOAA should differentiate its national marine aquaculture policy into a state-coordinated near-shore aquaculture policy part, providing state regulatory programs (within 3 miles offshore) with support in the form of coordination of other relevant Federal agencies, monitoring capabilities, and research support, and a Federal waters aquaculture policy part in which NOAA exercises full Federal pre-emption for exclusive jurisdiction over a uniform, national ocean aquaculture policy applicable to Federal waters (3 to 200 miles) in the EEZ.

Imperative #2:
NOAA must take leadership and apply the considerable regulatory expertise of its agency and of other extant federal regulatory agencies to balance environmental and socioeconomic concerns with business risk and feasibility in a timely, forward-looking policy document.

Imperative #3:
NOAA should develop its draft policy in close coordination with the U.S. Environmental Protection Agency and all other relevant Federal jurisdictional offices to create a one-stop organization capable of acting swiftly and substantively on lease permitting, qualifying applicant operators, evaluating environmental and socioeconomic impact statements and assessments, regulating operations, and monitoring impacts of commercial marine aquaculture facilities.

Imperative #4:
NOAA should provide advisory guidance to the Department of Commerce to identify and set aside Federal stimulus funds and future appropriations of Federal funds to jump-start the regulatory infrastructure for commercial marine aquaculture facilities. This will need to be coordinated within Congressional budgetary constraints and with U.S. Treasury and commercial lending organizations in a working partnership.

Imperative #5:
NOAA should develop its draft policy in close coordination with the Department of Agriculture, Department of Energy and the National Science Foundation to plan for and develop research capabilities in support of the development of the knowledge base for marine aquaculture science and technology.

Why Hawaii Technology Companies Should Consider Outsourcing Their R and D Work

Hawaii technology companies are typically underfunded with venture capital by 1/5 to 1/10 what Mainland competitors can command for a comparable venture proposal. The funding deficit for tech companies here has gotten even worse with the current recessionary economy, pullback of venture capital firms from startup funding in general, and collapse of Act 221 tax credit incentives for Hawaii investors. As a result, Hawaii tech companies with good research innovations may have insufficient funds to conduct the R and D work needed to validate proof-of-concept into a commercializable or licensable product. Even if they can accomplish this step, commercialization would be difficult to achieve given Hawaii’s underdeveloped business infrastructure and impediments to cost-effective manufacturing, distribution and shipping to global markets.

One promising avenue for Hawaii tech companies to bridge their funding deficit and achieve commercialization is by outsourcing their R and D work to foreign countries having professional workers with high STEM skill levels employable at low labor rates relative to those in the U.S. Many countries produce STEM graduates with skill levels comparable to ours, but at 1/5 to 1/10 the wage cost. Countries like China, India and the Philippines are especially attractive given that English is spoken universally by science and engineering graduates and by most educated businesspeople.

I recently toured a number of cities in the Philippines as part of a trade mission organized by the Filipino Chamber of Commerce of Hawaii. Besides promoting tourism to Hawaii and sister-city-state relationships with Philippine cities and provinces, the trade mission also explored possibilities for business relationships between Hawaii and Philippine companies. Business process outsourcing (BPO), such as for call-center operations, CAD and architectural drafting, medical records transcription, and data entry of written records, has developed into a major industry in the Philippines in recent years. With increasing technical sophistication, it is now moving into knowledge process outsourcing (KPO), such as agricultural field testing, medical clinical trials, IT programming, and ICT engineering.

A business model for a Hawaii tech company working with a Philippine partner might work like this:

1. The Hawaii tech company develops a new technology covered by U.S. and international patent filings, has a system design ready for testing, but has a small U.S. R and D budget.

2. A Philippine tech partner can do the field testing under an outsourcing contract on a wage scale 1/5 to 1/10 of the U.S. The Hawaii budget can therefore be stretched to encompass at least 2X or 3X more than can be obtained with the same budget in the U.S.

3. The Hawaii partner pays the contract price upon completion and assigns the technology rights and PI patent filing rights to the PI partner to exploit the technology in their own domestic PI market.

4. Successful exploitation by the PI partner in the domestic PI market validates the technology for sales or licensing in other countries in which the Hawaii partner holds strong IP rights, such as Japan, China, Korea, Hong Kong, Singapore, and Australia.

5. The Hawaii partner gains a tested system on a small budget and can exploit the product for sales or licensing in global markets. The PI partner can manufacture and ship the product for the Hawaii partner to nearby Asian markets at a much lower cost than from the U.S.

While corruption and cronyism may continue to impede foreign investment in established business areas like Manila, newly developing areas of the Philippines can provide a more conducive business environment for foreign investment. For example, the Subic Bay Metropolitan Authority (SBMA) is constituted to develop the 67,000 hectare former U.S. naval base as a Freeport and Special Economic Zone into a self-sustaining industrial, commercial, financial, investment, and academic center.

SBMA is only 100 kilometers from Manila and connected by the new SCT Expressway. It has complete deep-water port facilities and is only 24 hours sailing time to Taiwan, 28 hours to Hong Kong, 53 hours to Shanghai, and 70 hours to Kobe, Japan. Subic has an onsite international airport and is also only 45 minutes drive away from the larger Clark airfield that has large available capacity for international flights and airfreight. New condo buildings, trade office towers, university extensions, and affordable housing constructions are slated for completion beginning in mid to late 2010. Hanjin Industries of Korea has invested $2 billion in upgrading shipbuilding and port loading/unloading facilities, and Philippine contractors in manufacture and metal-working are lining up to provide skilled labor. SBMA will thus have state-of-the-art infrastructure for tax-free manufacture, assembly, and shipping of technology products to ASEAN and other Asian markets.

By outsourcing R and D work to suitable foreign partners in developing economic zones like Subic Bay, Philippines, Hawaii technology companies can overcome their funding deficit and have the necessary work done by their foreign partner leveraged several times more than what their budget could accomplish in the U.S. Further, by enabling their foreign partner to successfully exploit the now-proven technology in their own domestic market, the Hawaii tech company gains validation of the technology for sales or licensing in other countries in which it holds strong IP rights. The foreign partner would also be enabled to manufacture and ship the product to orders for the Hawaii partner to global markets at a much lower cost, and therefore greater profitability, than from the U.S.