Regulations and R&I policies : comparing Europe and the USA.
Date: 2016-08-05
Institutions: Directorate-General for Research and Innovation
Subjects: EU policy, Europe, United States, administrative formalities, comparative analysis, digital technology, innovation, regulation (EU), research report

Regulation and R&I Policies 

Comparing Europe and the USA

Written by Andrea Renda, CEPS and Duke University 
June 2016 

EUR 27961 EN 

 
 
 
 
 
 
 
 
 
 
 
 
EUROPEAN COMMISSION 

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EUROPEAN COMMISSION 

Regulation and R&I Policy 

Comparing Europe and the USA 

Andrea Renda 

CEPS and Duke University 

2016 

EUR 27961 EN 

Directorate-General for Research and Innovation 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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3 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Contents 

1

2

INTRODUCTION .................................................................................................. 5 

BETTER  REGULATION:  WHY  THE  U.S.  SYSTEM  IS  NOT  A  “PERFECT  MATCH” 
FOR EUROPE ....................................................................................................... 7 

3

  MAINSTREAMING  INNOVATION  IN  THE  DAILY  WORK  OF  AGENCIES:  AN 

ANALYSIS OF THE 2015 STRATEGY FOR AMERICAN INNOVATION ...................... 7 

A Spotlight on Nine Areas of Strategic Opportunity ........................................... 9 

3.1 
3.2  Mainstreaming  innovation  within  government:  the  new  Innovation  Toolkit  for 

Public-Sector Problem-Solving ...................................................................... 12 
The creation or re-launch of Innovation Labs at Federal Agencies ..................... 13 
A whole of government effort: the creation of U.S. Digital Service teams across 
government ............................................................................................... 14 
Building and Using Evidence to Drive Social Innovation, including through “Pay-
For-Success” approaches to pay for outcomes as opposed to inputs .................. 15 
Is all that glitters gold? Remaining challenges in U.S. innovation policy ............. 16 

3.3 
3.4 

3.5 

3.6 

4

IS THE U.S. REGULATORY FRAMEWORK MORE INNOVATION-FRIENDLY THAN 
THE EUROPEAN ONE? ........................................................................................ 17 

4.1  Competition policy ...................................................................................... 18 
4.2  Copyright law in the age of big data .............................................................. 19 
4.3  Data protection in the age of big data ........................................................... 21 
Precaution and risk: comparing the U.S. and the EU ....................................... 22 
4.4 
Is the EU stifling innovation through regulation? ............................................. 24 
4.5 

5

NEGOTIATED  REGULATION  IN  THE  UNITED  STATES,  AND  ITS  RELEVANCE 
FOR EU INNOVATION DEALS ............................................................................. 25 

5.1 
The anatomy of “Reg neg” ........................................................................... 26 
5.2  Negotiated implementation .......................................................................... 28 
5.3  Negotiated compliance ................................................................................ 29 
5.4  Regulatory reinvention ................................................................................ 29 
5.5 
The Performance Track initiative: rise and fall ................................................ 30 
5.6  Consequences of the U.S. experience for the “innovation deals” in Europe ......... 31 

6

  MAIN FINDINGS AND POLICY IMPLICATIONS FOR THE EUROPEAN UNION ...... 32 

BIBLIOGRAPHY ........................................................................................................ 34 

 
 
 
 
 
 
 
 
 
 
1

  INTRODUCTION 

Regulation has for a long time been considered mainly as an obstacle to innovation, especially with 
respect  to  rules  that  create  so-called  “red  tape”,  or  administrative  burdens.  However,  academics 
have  demonstrated  that  regulation  can  greatly  facilitate  innovation,  by  creating  markets  for 
existing  ideas  and  stimulating  entrepreneurship  and  inventions  that  contribute  to  social  welfare 
(Ashford  et  al.  1985;  Porter  1999).  Pelkmans  and  Renda  (2014)  observe  that  regulation  and  the 
overall  legal  environment  affect  both  research  and  innovation,  in  many  ways,  and  that  the 
relationship  between  regulation  and  innovation  is  complex  and  ambiguous,  which  creates 
challenges for those that wish to use regulation as a pro-innovation tool.  

The  European  Commission  has  emphasised  the  role  of  regulation,  and  more  broadly  of  the  EU 
better regulation agenda, as tools that can lead to more innovation. This implies  i.a. that existing 
rules are reviewed with peculiar attention to their potential impact on innovation. In a recent Staff 
Working  Document  on  “Better  Regulation  for  Innovation-driven  Investment”,  the  European 
Commission  made  the  case  for  the  use  of  more  flexible  and  pragmatic  regulatory  instruments, 
which would be able to bridge the gap between the needs of innovators and investors, and existing 
rule at the national or EU level1. The deployment and use of “Innovation deals”, anticipated in the 
document and now officially launched with a first call for expressions of interest, is presented as a 
step  in  that  direction.  In  addition,  the  document  advocates  use  of  the  REFIT  programme  of  the 
European  Commission  to  remove  existing  barriers  to  existing  products  and  services  (…)  and 
facilitate the emergence of new technologies and business models by addressing existing collective 
actions problems; or facilitating diffusion through targeted action”.  

Against  this  background,  some  scholars  have  argued  that  the  “innovation  emergency’  often 
denounced in Europe (which is probably more correctly defined as a “diffusion deficit”, see Ashford 
and  Renda  2016)  is  heavily  affected  by  policies  that  do  not  belong  to  the  traditional  domain  of 
innovation,  such  as  single  market  policies,  competition  policy,  intellectual  property  policy  and 
sector-specific  policies.  From  this  perspective,  the  role  of  better  regulation  for  innovation  would 
thus  have  to  expand  to  all  those  policies  that  affect  incentives  to  innovate,  rather  than  on  the 
rather more limited toolkit of innovation policymakers. This is why REFIT (which so far has mostly 
used  stakeholder  consultation,  and  has  focused  on  the  removal  of  administrative  burdens)  would 
probably  have  to  be  gradually  re-oriented  towards  a  new  overarching  goal  (that  of  ensuring  the 
alignment between legislation, innovation and overall societal welfare).  

To further complicate this issue, the overall context in which innovation takes place is very rapidly 
changing,  and  this  change  affects  an  increasing  number  of  economic  sectors.  In  particular,  the 
emergence  of  the  data-driven  economy  and  the  ongoing  “platformization”  of  many  economic 
sectors is leading new, disruptive business models to enter existing markets in a way that creates 
enormous  challenges  for  incumbent  players.  This  has  a  number  of  consequences:  (i)  the  role  of 
data,  and  their  seamless  flow,  becomes essential  to  power  innovation  and  entrepreneurship,  in  a 
growing  portion  of  the  economy;  (ii)  the  virtualization  of  production,  which  from  software  and 
services  is now encompassing also part of hardware,  is lowering  barriers to entry  related to fixed 
costs of production, and possibly creating new barriers (e.g. user attention, data availability, etc.); 
(iii)  innovation  is  becoming  more  multi-dimensional  and  systemic  than  in  the  past,  now 
encompassing not only product and service innovation, but also organizational innovation and user 
innovation and this in turn calls for policies that do not focus only on traditional (linear) innovation 
models;  (iv)  all  better  regulation  tools  based  on  negotiation,  cooperation  or  exchange  of 
information  with  incumbent  players  (including  REFIT,  and  possibly  innovation  deals)  are  not 
necessarily fit for the purpose of eliminating incumbency problems (OECD, 2015).  

Finally, the literature on innovation is increasingly realizing and acknowledging that innovation is a 
means,  not  an  end.  Policies  that  support  innovation  should  thus  be  designed  by  considering  that 
not all innovation contributes to grand societal challenges in the same way and to the same extent; 
and  that  innovation  should  possibly  lead  to  sustainable  development,  in  terms  of  long-term 
economic,  social  and  environmental  goals  (for  example,  decarbonisation  and  high  quality 
employment).  In  this  respect,  the  REFIT  program  (if  adequately  adjusted)  provides  an  ideal 
framework  for  linking  innovation  to  the  ultimate  goals  of  EU  policy:  these  goals,  spelled  out 
originally in the Europe 2020 strategy and incorporated i.a. in Horizon 2020, are today in need of a 
revision,  which  unfortunately  does  not  seem  likely  to  occur  in  the  coming  months.  Meanwhile, 
some  (but  not  all)  of  these  goals  have  been  subsumed  under  Juncker’s  “Ten  Priorities”2;  and 
Commissioner Moedas has launched a new “Open Science, Open Innovation and Open to the world” 

1 See https://ec.europa.eu/research/innovation-union/pdf/innovrefit_staff_working_document.pdf. 
2 https://ec.europa.eu/priorities/index_en  

5 

 
                                                 
strategy, which incorporates ways to create a more inclusive process for research and innovation in 
the EU. But overall, it is  fair to  state that  Europe  has lost  momentum in  pursuing its  strategy  for 
long-term sustainable development. 

An important source of inspiration in this challenging task is provided by international experience, 
and in particular at the past and present experience of the United States. This study looks at the 
ways in which U.S. regulatory policy contributes to innovation, and focuses in particular on the new 
U.S. innovation policy strategy, on negotiated rulemaking, implementation and compliance, and on 
the US better regulation system more broadly.  

As a preliminary  caveat, it is important  to  recall that the U.S.  and  EU  regulatory frameworks and 
better regulation agendas are remarkably different, in a number of respects. First,  the multi-level 
governance  and  level  of  integration  of  the  two  jurisdictions  is  remarkably  different.  This  implies 
that the possibility, for the U.S. administration, to develop innovation policies for the whole 50 US 
states is generally greater than the corresponding power of the EU institutions. In other words, the 
EU28  still  enjoy  a  significant  degree  of  autonomy  in  their  decisions  about  innovation  policy,  and 
indeed the EU budget dedicated to R&I is only a tiny fraction of public expenditure in R&I in the EU 
(and more generally, the EU budget in and of itself is much smaller than the U.S. federal budget)3.  

Second,  the  scope  of  better  regulation  tools  used  in  the  US  and  in  the  EU  is  also  very  different. 
While  the  United  States  use  Regulatory  Impact  Analysis  and  retrospective  review  with  exclusive 
reference  to  secondary  legislation,  in  the  European  Union  the  better  regulation  agenda 
encompasses al major initiatives included in the European Commission’s annual work program, and 
the use  of impact assessments and  stakeholder consultation was recently expanded to cover also 
implementing and delegated acts (Renda 2015). This, in turn implies that the extent to which the 
two  jurisdictions  can  use  better  regulation  to  promote  innovation  is  different;  and  that  the 
relevance  of  a  possible  “innovation  principle”  in  the  US  would  likely  be  less  significant  than  in 
Europe.  

Third,  and  relatedly,  the  U.S.  experience  with  “negotiated  rulemaking”  (the  closest  analogy  one 
could  find  to  the  proposed  “innovation  deals”)  has  been  confined  to  administrative  rules,  which 
again entails that negotiated  rulemaking is likely to  be less able  to inspire  a more pro-innovation 
agenda from the outset, compared to a more flexible instrument such as the innovation deals. That 
said, innovation deals are being designed mostly as a tool that would operate  rebus sic stantibus, 
i.e.  with  no  change  envisaged  in  existing  regulation,  and  thus  leading  only  to  better 
implementation,  clarification  and  interpretation  of  rules  to  the  benefit  of  regulatory  certainty, 
innovation and entrepreneurship: this, too, limits the extent to which innovation deals can be used 
to pave the way for systemic innovation of the type needed in many areas to bring about change 
(Ashford and Renda 2016).  

Fourth,  drawing  comparisons  between  the  two  legal  systems  can  be  a tricky exercise  also due  to 
the fact that in the United States, litigation plays a very different, and most likely stronger, role in 
shaping the incentives of private players, as well as the enforcement of existing rules. The prospect 
of of litigation and the pervasive nature of settlements and collective redress schemes such as opt-
out class actions, especially if coupled with contingency fees for lawyers, exerts a significant impact 
on the way regulations are shaped ex ante, and such difference has to be factored into the analysis 
in order to understand how legal rules will end up affecting innovation and market incentives. 

With  these  caveats  in  mind,  the  next  sections  discuss  the  current  evolution  in  U.S.  innovation 
policy,  as  well  as  the  way  in  which  regulation  takes  into  account  possible  impacts  on  innovation. 
Section  1  discusses  more  in  depth  why  the  US  system  does  not  provide  a  good  reference  for 
Europe on how to mainstream innovation in the better regulation agenda. Section 2 then illustrates 
the main aspects of the recently re-launched strategy for American Innovation, for what concerns 
the introduction of an innovation-oriented mindset in federal agencies. Section 3 looks at horizontal 
policies  such  as  competition  law,  copyright  law,  data  protection  and  risk  regulation.  Section  4 
ventures in the analysis of flexible regulatory approaches adopted by a number of agencies in the 
U.S. and the EU. Finally, Section 5 summarizes the lessons that can be drawn from an analysis of 
the U.S. policy and legal system for EU’s future innovation agenda. 

3 Total gov budget in the US is approx 6.4 trillion (two thirds is federal level); total budget in the Eu is approx. 
8 trillion, but the overwhelming majority is member states. The overall EU budget is about 1% of the EU’s 
and GDP. That compares with national budgets of between 35% and 58% of GDP. 

6 

 
                                                 
2

  BETTER REGULATION: WHY THE U.S. SYSTEM IS NOT A “PERFECT MATCH” FOR 

EUROPE 

The better regulation  agenda in  the  United States has traditionally focused on a specific tool, i.e. 
the  ex-ante  regulatory  impact  analysis  (RIA)  that  federal  agencies  (and  to  some  extent, 
independent  agencies  draft  when  preparing  most  economically  significant  regulations.  Since  the 
1990s,  and  even  more  after  2011,  the  U.S.  system  has  tried  to  promote  also  the  use,  within 
government, of ex post evaluations, also termed lookbacks or retrospective reviews. However, the 
current state of development of retrospective reviews seems to lag behind that of ex ante RIA, and 
most agencies do not feature a systematic, formalized, well-planned ex post evaluation agenda.  

In  addition,  as  already  mentioned  in  the  introductory  section,  it  must  be  recalled  that  the  use  of 
better regulation tools in the U.S. is mostly confined to secondary legislation. This, of course, does 
not  mean  that  no  economic  analysis  (or  any  analysis  on  innovation)  is  carried  out  on  proposed 
primary legislation. But such analysis is performed in many different ways, for example within the 
Congressional  Budget  Office,  the  Congressional  Research  Service  or  by  the  Council  of  Economic 
Advisors, to name a few, in a way that does not follow a very structured and systematic procedure. 
In  addition,  the  Office  of  Technology  Assessment,  created  in  1972  and  by  many  regarded  as  a 
contributor of high quality studies, was dismantled in 1995. 

That said, for secondary legislation the need to focus on impacts on innovation  has been stressed 
more  vibrantly  in  the  U.S.  by  Executive  Order  13,563,  which  observes  that  the  U.S.  regulatory 
system  “must  protect  public  health,  welfare,  safety,  and  our  environment  while  promoting 
economic growth, innovation, competitiveness, and job creation”; and that “each agency shall also 
seek to identify, as appropriate, means to  achieve regulatory goals that are  designed to promote 
innovation”4.  This  laudable  intent,  however,  has  not  been  translated  into  specific  methodologies 
applied  to  assess  the  impact  of  specific  regulation  on  innovation.  Accordingly,  innovation  impacts 
are  normally  accounted  for  within  the  more  general  framework  of  cost-benefit  analysis,  and 
through  other  means  such  as  the  general  encouragement  of  flexible  regulatory  mechanisms  and 
management-based regulatory solutions where appropriate.  

Another  important  factor  that  limits  the  applicability  of  the  U.S.  experience  to  the  EU  better 
regulation agenda is the fact that, as observed by authoritative commentators (Rai and Benjamin 
2008), some of the agencies that have  the largest impact on innovation act, in the United States 
more  through  adjudication  than  through  rulemaking.  This  is  the  case,  i.a.  of  the  FTC,  the  Patent 
Office, and the Antitrust Division of the Department of Justice5.  

As a result, the way in which the U.S. uses better regulation tools is very difficult to compare with 
the  EU  one,  and  certainly  the  indirect  way  in  which  innovation  has  been  mainstreamed  in  the 
rulemaking  practice  of  US  agencies  is  too  impalpable  to  represent  a  real  reference  for  EU 
policymakers. That said, recent measures adopted as part of the Strategy for American Innovation, 
aimed at increasing attention towards innovation inside individual agencies, and more generally the 
individual  regulatory  approaches  adopted  in  the  U.S.  on  a  number  of  policy  issues  provide  very 
important lessons for the EU, and this is why in the remainder of this paper we will focus on these 
two issues.  

3

  MAINSTREAMING INNOVATION IN THE DAILY WORK OF AGENCIES: AN 

ANALYSIS OF THE 2015 STRATEGY FOR AMERICAN INNOVATION 

In  October  2015,  the  U.S.  administration  unveiled  an  updated Strategy  for  American  Innovation 
(hereinafter  “the  Strategy”)6.  The  Strategy,  first  issued  in  2009,  provides  an  overview  of 
Administration efforts to ensure America continues to lead as the world’s most innovative economy, 
to develop the industries of the future, and to harness innovation to help address most important 
societal  challenges.  The  Strategy  also  makes  the  case  for  the  key  innovation  investment  in  a 
number of selected emerging technologies, presented as critical for ensuring that the United States 
remains  an  innovative  nation.  The  Strategy,  released  in  October  2015,  features  three  core 
components: 

 

The importance of investing in research and development (R&D) and the other building blocks 
of long-term economic growth. 

4 See https://www.gpo.gov/fdsys/pkg/FR-2011-01-21/pdf/2011-1385.pdf.  
5 http://scholarship.law.duke.edu/cgi/viewcontent.cgi?article=2729&context=faculty_scholarship, footnote 21. 
6 See https://www.whitehouse.gov/sites/default/files/strategy_for_american_innovation_october_2015.pdf.  

7 

 
                                                 
 

 

A focus on nine Strategic areas where focused effort can advance national priorities and help 
create shared prosperity7. 

New  efforts  to  make  the  Federal  government  more  innovative  to  improve  performance  and 
create a better environment for innovation by the private sector and civil society. 

While a full description of the 2015 strategy would fall outside the scope of this report, a number of 
interesting features can be highlighted for the purposes of this Study.  

First,  there is an explicit  recognition of the  importance  of creating the right policy and regulatory 
environment to stimulate private-sector investment. Interestingly, part of this “right environment” 
includes, besides more straightforward instances such as IPR protection, effective competition law 
and  access  to  finance  for  startups,  also  a  renewed  commitment  to  a  trade  policy  that  promotes 
sustainable innovation8. The Strategy document observes that “although the government’s role of 
creating the right ‘rules of the road’ and investing in continued long-term economic growth is less 
visible than that of the entrepreneur, it is critical to America’s economic future”. 

Second,  the  governance  of  the  strategy  appears  at  once  simpler  and  more  comprehensive 
compared  to  that  of  the  EU  research  and  innovation  policy.  As  shown  in  Figure  1  below,  the 
strategy  is  based  on  a  first,  foundational  set  of  policies  aimed  at  the  so-called  building  blocks  of 
innovation policy (Making World-Leading Investments in Fundamental Research, Boosting Access to 
High-Quality  STEM  Education,  Clearing  a  Path  for  Immigrants  to  Help  Propel  the  Innovation 
Economy, Building a Leading 21st Century Physical Infrastructure, and Building a Next-Generation 
Digital  Infrastructure).  On  top  of  these  foundations  the  strategy  identifies  two  broad  initiatives: 
fueling  the  engine  of  private  sector  innovation  (through  R&E  Tax  Credits,  support  for  Innovative 
Entrepreneurs  and  Ensuring  the  Right  Framework  Conditions  for  Innovation;  Empowering 
Innovators with Open Federal Data; boosting the Commercialization of Federally-Funded Research; 
supporting the  Development  of  Regional  Innovation  Ecosystems  and  helping  Innovative  American 
Businesses  Compete  Abroad);  and  Empowering  a  nation  of  innovators  (through  Incentive  Prizes, 
Making,  Crowdsourcing,  and  Citizen  Science).  These  two pillars  create the  preconditions  for  more 
challenge-led initiatives, grouped under three areas: creating jobs (especially in manufacturing and 
in  the  industries  of  the  future);  catalyzing  breakthroughs  for  national  priorities  (which  includes 
concerted  actions  on  grand  societal  challenges,  from  precision  medicine  to  neuro-technologies, 
smart  cities,  clean  energy,  education,  space,  computing,  and  the  eradication  of  poverty);  and 
delivering innovative government to citizens.  

7  Note  that  the  expresssion  “shared  prosperity”,  besides  recalling  a  strategy  launched  in  2014  by  the  World 
Bank, echoes the importance of promoting accessibility to innovation for society as a whole, and as such 
incorporates distributional impacts in the assessment of the possible effects of innovation. 

8 This issue is fundamental to trigger innovation that fosters long-term decarbonization. See Ashford and Renda 

2016. 

8 

 
 
                                                 
Figure 1 – Strategy for American Innovation: an overview 

Source: A New Strategy For American Innovation, October 2015 

The sections below focus on a selected number of areas, which seem to be more directly relevant 
for the purpose of this Study. In particular, the “Smarter government” area includes:  

 

 

 

The  identification  of  societal  grand  challenges  and  the  governance  arrangements  selected  to 
pursue them. 

The adoption of an Innovation Toolkit for Public-Sector Problem-Solving.  

The creation or re-launch of Innovation Labs at Federal Agencies.  

  More Effective Digital Service Delivery through the creation of U.S. Digital Service teams across 

government.  

  Building  and  Using  Evidence  to  Drive  Social  Innovation,  including  through  “Pay-For-Success” 

approaches to pay for outcomes as opposed to inputs.  

3.1  A Spotlight on Nine Areas of Strategic Opportunity 

As part of the Strategy, the U.S: Administration is highlighting new areas of strategic opportunity 
where  focused  effort  can  advance  national  priorities  and  help  create  shared  prosperity,  including 
the following nine highlights: 

  Advanced Manufacturing: American manufacturing,  which supplies nearly  three-quarters of 
all U.S. private-sector R&D, is central to American innovation, both to discoveries being made 
today and our ability to drive productivity and job growth in the future. The President and his 
Administration  have  put  forward  a  comprehensive  agenda  to  strengthen  U.S.  manufacturing, 
including  restoring  the  nation’s  lead  at  the  cutting-edge  of  manufacturing  innovation  by 
launching  a  National  Network  for  Manufacturing  Innovation,  reinvesting  in  supply  chain 
innovation, supporting the scale-up of technology-intensive manufacturing startups, and more. 

  Precision Medicine: Most medical treatments have been designed for the “average patient.” 
As  a  result  of  this  “one-size-fits-all”  approach,  treatments  can  be  very  successful  for  some 

9 

 
 
 
patients  but  not  for  others.  Precision  medicine  gives  clinicians  tools  to  better  understand  the 
complex mechanisms underlying a patient’s health, disease, or condition, and to better predict 
which  treatments  will  be  most  effective  –  but  the  potential  for  precision  medicine  to  improve 
care  and  speed  the  development  of  new  treatments  has  only  just  begun  to  be  tapped.  The 
2016  U.S.  Budget  earmarked  $215  million  for  a  new  Precision  Medicine  Initiative,  which  will 
leverage  advances  in  genomics,  emerging  methods  for  managing  and  analyzing  large  data 
sets, and health information technology, while seeking a high level of privacy protection. 

  BRAIN  Initiative:  the  Strategy  reports  that  the  social  and  economic  burden  of  neurological 
disorders  and  diseases  is  overwhelming,  and  developing  new  treatments  is  critical  to 
addressing  these  burdens.  For  example,  the  current  cost  of  caring  for  the  five  million 
Americans  with  Alzheimer’s  disease  is  over  $200  billion  per  year,  including  $150  billion  from 
Medicare and Medicaid. The BRAIN Initiative has the potential to do for neuroscience what the 
Human  Genome  Project  did  for  genomics  by  enabling  a  dynamic  understanding  of  brain 
function.  A  deepened  knowledge  of  how  brains  work  will  help  scientists  and doctors  diagnose 
and  treat  diseases  more  incisively,  educate  children  more  effectively,  and  develop  novel 
technologies  and  devices  to  help  alleviate  the  burdens  of  illness  and  injury.  The  U.S.  2016 
Budget allocates over $300 million to the BRAIN Initiative. 

  Advanced  Vehicles:  Breakthrough  developments  in  sensing,  computing,  and  data  science 
have  brought  vehicle-to-vehicle  communication  and  cutting-edge  autonomous  technology 
safety  features  into  commercial deployment,  while  vehicles  approaching  full  autonomy  –  self-
driving  cars  –  are  already  being  tested  on  public  roads.   Accelerating  the  development  and 
deployment of these advanced  vehicle  technologies could save thousands of lives annually by 
applying the split-second reaction times and precision decision-making of machine intelligence 
to  the  more  than  90  percent  of  crashes  involving  human  error.  The  President’s  2016  Budget 
calls  for  doubling  Federal  investments  in  autonomous  vehicle  technology  research  to  develop 
performance  and  safety  standards  for  autonomous,  connected,  and  self-driving  vehicles  on 
public  roads  and  to  comprehensively  pilot  these  technologies  in  cities,  on  highways,  and  in 
commercial environments. 

  Smart  Cities:  An  emerging  community  of  civic  leaders,  data  scientists,  technologists,  and 
companies  are  joining  forces  to  build  “Smart  Cities”—communities  that  are  building  an 
infrastructure to continuously improve the collection, aggregation, and use of data to improve 
the  life  of  their  residents—by  harnessing  the  growing  data  revolution,  low-cost  sensors,  and 
research collaborations, and doing  so  securely to protect safety  and  privacy.  For example, by 
coordinating  adjacent  traffic  signals  to  decrease  local  traffic,  a  pilot  project  in  Pittsburgh  has 
reduced  commuting  travel  times  by  nearly  25  percent  on  average.  The  U.S.  Administration’s 
new  Smart  Cities  Initiative  invests  over  $160  million  in  Federal  research  and  leverages  more 
than 20 cities participating in new multi-city collaborations to help local communities tackle key 
challenges  such  as  reducing  traffic  congestion,  fighting  crime,  fostering  economic  growth, 
managing  the  effects  of  a  changing  climate,  and  improving  the  delivery  of  city  services.  The 
President’s 2016 Budget calls for over $30 million in new research and deployment investments 
for smart cities. 

  Clean Energy and  Energy Efficient Technologies: Over the past six  years, the amount  of 
electricity generated from wind power has tripled and from solar power has increased by more 
than  20-fold.  The  U.S.  Administration  is  determined  to  sustain  this  momentum  through 
continuing  to  build  on  its  progress  in  developing  and  deploying  clean  electricity  technologies, 
catalyzing  independent  commitments  by  major  foundations,  institutional  investors,  and  other 
long-term  investors  to  fund  climate-change  solutions,  make  energy  go  further  through 
improved  energy  efficiency,  and  work  to  reduce  carbon  pollution  while  helping  to  improve 
energy security. 

  Educational  Technology:  Currently,  a  large  gap  remains  between  the  relatively  modest 
impact  that  technology  has  had  on  education,  particularly  in  grades  K-12,  and  the 
transformative  impact  that  technology  has  had  on  other  parts  of  our  lives.  The  President’s 
Council of Advisors on Science and Technology estimates that less than a mere 0.2% of overall 
education spending goes to R&D, unlike knowledge-intensive sectors like  biotechnology which 
allocate  15-20  percent  of  revenue  to  R&D.  But  that  is  poised  to  change.  The  technological 
conditions  are  ripe  for  the  development  of  advanced  educational  technologies  that  can 
transform teaching and learning.  In just the past  five  years,  DARPA  has showed that Navy IT 
students  trained  with  a  DARPA-developed  digital  tutor  can  outperform  98%  of  the  students 
trained  with  a  traditional  instructor.  Through  the  President’s  ConnectED  Initiative,  the  United 
States is now on the path to give 99% of  students access to  high-speed broadband by 2018. 
And  the  2016  Budget  includes  $50  million  for  the  creation  of  an  Advanced  Research  Projects 
Agency for Education (ARPA-ED) to pursue breakthroughs in learning technology. 

10 

 
  Space: President Obama has emphasized the importance of investing in space technology and 
a long-term goal in space of venturing “out into the solar system, not just to visit but to stay,” 
as  he  articulated  in  the  2015  State  of  the  Union  Address.  In  addition  to  core  investments  to 
develop a U.S. commercial crew space transportation capability by 2017, NASA is increasing its 
support for longer-term research projects with ambitious goals,  such  as protecting astronauts 
from radiation in space, developing advanced propulsion systems, and allowing humans to “live 
off  the  land”  by  producing  fuel,  oxygen,  and  water  on  other  planets.   These  investments  will 
create the foundations for a space-faring civilization and a future human mission to Mars. The 
2016  Budget  proposes  $1.2  billion  for  NASA’s  Commercial  Spaceflight  program,  and  $725 
million for NASA’s Space Technology Mission Directorate. 

  New  Frontiers  in  Computing: Advances  in  high-performance  computing  (HPC)  have  the 
ability  to  improve  public  services,  grow  the  economy,  improve  the  health  and  safety  of  our 
community,  and  promote  scientific  discovery.  Coordinated  new  investments  are  needed  to 
overcome  key  challenges,  including:  the  end  of  Moore’s  Law  as  a  predictor  of  increases  in 
system  performance,  the  rise  of  extremely  large  data  sets  and  attendant  computational 
challenges, and the coming end of a two-decade period of stability in HPC architecture. In July 
2015,  the  President  created  a  National  Strategic  Computing  Initiative  (NSCI)  by  Executive 
Order  to  meet  these  challenges  and  create  a  cohesive,  multi-agency  strategic  vision  and 
Federal  investment  strategy  for  HPC.  This  strategy  will  spur  the  creation  and  deployment  of 
computing  technology  at  the  leading  edge,  helping  to  advance  Administration  priorities  for 
economic competitiveness, scientific discovery, and national security. 

In  addition  to  these  nine  priority  areas,  the  U.S.  Administration  also  continues  to  encourage 
investment in a pipeline of emerging “general-purpose technologies” that will serve as a source of 
future strategic initiatives. These technologies are innovations that have a pervasive impact on our 
economy  and  our  society.  Past  examples  include  the  steam  engine,  electricity,  interchangeable 
parts,  the  transistor,  and  the  Internet.  The  Administration  is  committed  to  spurring  the 
development  of  the  next  generation  of  general-purpose  technologies,  such  as  nanotechnology, 
robotics and autonomous systems, advanced materials, and engineering biology.  

Besides  the  clarity  and  focus  of  the  nine  strategic  areas  selected  by  the  U.S.  government,  it  is 
important  to  highlight  that  the  effectiveness  of  these  initiatives  is  pursued  through  specific 
governance  arrangements,  which  take  the  form  of  smart,  challenge-led  agencies  such  as  ARPA-E 
and  ARPA-ED;  and  the  creation  of  public-private  partnerships  that  leverage  public  support  to 
incorporate  private  funding  and  capabilities  (e.g.  the  Cancer  Moonshot).  The  strategy  was 
enthusiastically  received  by  most  stakeholders,  in  particular  by  higher  education  institutions, 
industry  associations  and  think  tanks.  Some  commentators  wait to  see  its  implementation  before 
drawing  a  final  judgment,  especially  looking  at  the  promise  of  openness,  which  has  not  fully 
materialized to date, especially for what concerns open access to data held by government.  

Box: ARPA-E: an example of challenge-led smart institution 

Modeled after the Department of Defense’s Defense Advanced Research Projects Agency (DARPA), 
ARPA-E’s mission is to catalyze and accelerate the creation of transformational energy technologies 
by  making  high  impact  investments  in  their  early  stages  of  development.  ARPA-E’s  Program 
Directors  are  experts  in  their  respective  fields  and  have  a  passion  for  innovation.  Each  Program 
Director  is  encouraged  to  challenge  the  status  quo  and  find  new  ways  of  looking  at  America’s 
energy  issues,  bringing  together  collaborators  across  varied  technical  and  professional  disciplines 
to solve complex problems.  

ARPA-E  also  focuses  on  moving  innovative  technologies  out  of  the  lab  and  into  the  market. 
Dedicated  ARPA-E  Technology-to-Market  Advisors  provide  awardees  with  practical  training  and 
critical business information to equip project teams with a clear understanding of market needs to 
guide early stage technical development and help projects succeed.  To date, ARPA-E has invested 
approximately $1.3 billion across more than 475 projects through 30 focused programs and three 
open funding solicitations. 

In  a  recent  contribution,  Mariana  Mazzucato  (2016)  convincingly  argued  that  while  private  sector 
efforts  such  as  Elon  Musk’s  Tesla  have  marked  important  steps  towards  the  production  of  “an 
existing,  pretty  powerful  battery  technology”,  ARPA-E  has  been  pursuing  technological  innovation 
in  the  purest  sense,  by  “creating  new  ways  of  doing”  things,  which  “have  the  potential  to  be 

11 

 
 
significantly  better.”  Bill  Gates  himself  acknowledged  that  only  the  state,  in  the  form  of  public 
institutions like ARPA-E, can lead the way to an energy breakthrough9.  

At  the  same  tine,  however,  other  commentators  have  observed  that  very  few  of  the  projects 
funded by ARPA-E have had a significant commercial impact in the seven years in which the agency 
has  been  in  operation.  While  this  is  in  the  nature  of  ARPA-E’s  work  (high  risk,  early  stage 
investment), there are margins for improvement, and the U.S. government has earmarked a 21% 
increase  in  the  2017  for  clean-energy  R&D  funding,  most  of  which  goes  to  ARPA-E.  Obama  also 
proposed  a  so-called  “ARPA-E  Trust”  for  developing  “larger-scale  investment-ready  outcomes,” 
which  would  begin  with  $150  million  in  funding  in  fiscal  2017  and  provide  $1.85  billion  over  five 
years to ARPA-E. 

The Cancer Moonshot: public-private cooperation or competition? 

Another  important  example  of  mission-led  initiative  that  focused  on  a  specific  type  of  scientific 
challenge is the Cancer Moonshot, officially launched by President Obama during his 2016 State of 
the Union, and led by Vice President Joe Biden. The Moonshot initiative will begin immediately with 
$195 million in new cancer activities at the National Institutes of Health (NIH) in Fiscal Year 2016, 
whereas Fiscal Year 2017 additional $755 million should be earmarked in mandatory funds for new 
cancer-related  research  activities  at  both  NIH  and  the  Food  and  Drug  Administration.  Moreover, 
The  Departments  of  Defense  and  the  Veterans  Affairs  are  increasing  their  investments  in  cancer 
research,  including  through  funding  Centers  of  Excellence  focused  on  specific  cancers,  and 
conducting large longitudinal studies to help determine risk factors and enhance treatment. 

Within  the  Department  of  Health  and  Human  Services  (HHS),  these  investments  will  support 
cutting  edge  research  opportunities  such  as:  Pevention  and  Cancer  Vaccine  Development;  Early 
Cancer  Detection;  Cancer  Immunotherapy  and  Combination  Therapy;  Genomic  Analysis  of  Tumor 
and Surrounding Cells; Enhanced Data Sharing; a virtual Oncology Center of Excellence developed 
by the Food and Drugs Administration; Pediatric Cancer. 

Like  the  ARPA-E,  the  proposed  new  fund  will  be  focused  on  high-risk,  high-return  research 
identified by the collaborative work and new ideas stimulated by the research community as part of 
this work. Interestingly, the White House announced that the National Cancer Moonshot requires a 
whole-of-government  approach,  marshalling  resources  from  across  the  Federal  government  to 
address this singular goal.  

But here too, not all agree on the governance of this ambitious new initiative, also since a number 
of  similarly  named,  but  privately-led,  projects  have  been  launched  sice  the  beginning  of  2016. 
More in detail, three privately funded immuno therapy research projects are being announced: the 
$250-million Parker Institute for Cancer Immunotherapy, funded by Sean Parker, co-founder of the 
music-file-sharing  company  Napster,  and  announced  on  13  April;  a  $125-million  Immunotherapy 
Center  at  Johns  Hopkins  University  in  Baltimore,  Maryland,  unveiled  in  March;  and  the  Cancer 
MoonShot  2020  Program, announced  in  January  by  biotechnology  billionaire  Patrick  Soon-Shiong. 
These  announcement  have  raised  an  alarm  in  the  U.S.,  as  the  projects,  rather  than  cooperating, 
might  end  up  cannibalizing  themselves:  part  of  the  governance  challenge  will  be  to  ensure 
adequate  data  sharing  and  coordination  of  efforts,  in  order  to  maximise  the  effectiveness  of  the 
publicly  funded  research  without  incurring  in  undesirable  circumstances  such  as  free  riding, 
insufficient scale, etc.  

3.2  Mainstreaming innovation within government: the new 

Innovation Toolkit for Public-Sector Problem-Solving 

Now  that  innovation  has  been  recognized  as  a  whole  of  government  effort,  the  administration 
decided  to  create  a  toolkit  for  innovation,  mostly  referring  to  success  stories  and  examples  that 
many civil servants are unaware of, and would want to follow. Accordingly, the Toolkit appears to 
be more an awareness-raising tool, rather than a real methodological guidance; and will consist of 
online  resources  that  explain  how  and  why  certain  approaches  can  yield  important  results.  The 
Toolkit is also accompanied by a number of “communities of practice” that allow Federal employees 
to address common challenges that many agencies face and to share expertise.  

The Innovation  Toolkit will include resources that help Federal employees deploy new approaches 
in areas such as the following: 

9 See, i.a. http://www.theatlantic.com/magazine/archive/2015/11/we-need-an-energy-miracle/407881/.  

12 

 
                                                 
  Rapidly  hiring  top  talent  using  flexible  hiring  authorities  and  accelerated  hiring  practices, 
particularly  for  areas  where  there  is  a  significant  gap  between  world-class  performance  and 
current public-sector practices. 

  Developing  high-impact  innovation  labs  like  the  HHS  IDEA  Lab  that  support  employee 

efforts to experiment with new approaches to meeting agency missions. 

  Making open and machine readable  the  default for government data, and encouraging 

entrepreneurs and developers to create compelling applications that take advantage of it. 

  Designing  incentive  prizes  that  serve  as  magnets  for  good ideas  from  startups  and  citizen 

inventors. 

 

Identifying and pursuing the “Grand Challenges” of the 21st century. 

  Paying  for  outcomes  through  Pay  for  Success  and  innovative  approaches  to  contracting 

that only pay for what works. 

  Enabling  government  to  serve  as  an  early  customer  for  new  firms  with  breakthrough 

technologies. 

  Funding  what  works  by  building  and  using  evidence  –  e.g.  the  “tiered  evidence” 

framework used by the Department of Education’s Investing in Innovation program. 

  Using  human-centered  design  and  the  Lean  Startup  methodology  to  improve  delivery  of 

government services. 

  Launching  high-impact  multi-sector  collaborations  involving  companies,  foundations, 

nonprofits, researchers, regional initiatives, and skilled volunteers. 

  Designing  Federal  policies  and  programs  in  ways  that  are  informed  by  what  people 
really need and how they actually make decisions by, for example, partnering with the Social 
and Behavioral Sciences Team or the Innovation Lab at the Office of Personnel Management. 

3.3  The creation or re-launch of Innovation Labs at Federal 

Agencies  

To increase Federal capacity for innovation, the U.S. Administration announced that it is supporting 
the  development  of  Innovation  Labs  at  Federal  agencies.  Such  labs  provide  the  resources  and 
support  for  employees  and  members of  the  public  to  develop,  test,  and  scale  new  approaches  to 
meeting agency goals, resulting  in significant  improvements to the effectiveness and efficiency of 
the  Federal  Government.  The  Strategy  mentions  that  already  several  U.S.  agencies  have  made 
significant strides in developing  their internal innovation capacity through Innovation Lab  models. 
These include the HHS IDEA Lab, the USAID Global Development Lab, the OPM Innovation Lab, the 
VA Center for Innovation, and the National Security Agency (NSA) Incubation Cell.  

A  good  example  is  the  IDEA  Lab,  launched  by  the  Secretary  of  the  Department  of  Health  and 
Human Services (HHS) in early 2014. The Lab aims at fostering innovation on specific solutions to 
problems in government and health care, mostly by empowering entrepreneurs and intra-preneurs 
(especially  inside  the  HHS).  The  Lab  develops  resources  to  help  HHS  Operating  Divisions/Staff 
Divisions  advance  their  modernization  and  problem  solving  abilities  with  the  goal  of  streamlining 
processes, improving services, and refining the way the HHS meets its mission. The Lab follows a 
three pronged approach:  

- 

Encouraging  internal  entrepreneurship  by  investing  in  HHS  employees.  This  pillar 
includes  the  HHS  Ignite  Accelerator,  an  internal  program  providing  selected  teams 
methodological  coaching  and  technical  guidance  within  a  startup  framework  for  the testing  of 
new  products,  services,  and  processes  that  could  lead  to  dramatic  improvements  in  service 
delivery  or  treatment;  the  HHS  Ventures  Fund,  which  provides  growth-stage  funding  and 
support to HHS employees with proven concepts for  how to dramatically improve their Office, 
Agency,  or  the  Department’s  ability  to  carry  out  its  mission;  and  the  HHS  Innovates  Awards, 
which recognizes every year HHS employees who have taken innovative approaches to solving 
some of the biggest problems in government and in delivering health and human services. 

13 

 
 
-  Bringing  in  external  talent.  This  pillar  encompasses  an  Entrepreneurs-In-Residence 
Program, in which employees hire outside talent to come to HHS and work with an embedded 
team  on  high-risk,  high-reward  projects  over  a  1  year  time  period;  and  an  Innovator-In-
Residence  Program,  in  which  HHS  organizations  partner  with  a  private  sector  not-for-profit 
organization  to  hire  outside  expertise  and  work  on  a  common  problem  over  a  1-2  year  time 
frame. 

-  Building collaborative communities. This stream of activities includes the HHS Buyers Club, 
which aims at leveraging under-utilized language in the Federal Acquisition Regulation (FAR) to 
improve  the  purchase  decision-making  pathways;  the  HHS  Competes,  which  supports  the 
development  and  deployment  of  open  innovation  contests  and  challenges  as  a  means  of 
addressing some of the biggest challenges faced by HHS; the “Health Data Initiative: Liberating 
Data”,  which  aims  at  leveraging  access  to  health  data  to  spur  the  development  of  new 
applications and a data-driven health care  environment, including through the  organization of 
yearly  “Datapaloozas”;  and  the  Invent  Health  Initiative,  aimed  at  empowering  inventors  both 
inside and outside government to create tools for better living and better clinical care. 

Building on the success  of  the  HHS Idea Lab, the  2016 Budget includes funding for several other 
agencies  –  including  the  Department  of  Commerce,  Department  of  Education,  Department  of  the 
Treasury,  and  the  Small  Business  Administration  –  to  create  their  own  versions  of  an  IDEA  Lab, 
tailored to their specific missions and operations.  

3.4  A whole of government effort: the creation of U.S. Digital 

Service teams across government 

The U.S. administration observes that the success rate of government digital services is improved 
when agencies have digital service experts on staff who are experienced with the modern design, 
software  engineering,  and  product-management  techniques  that  have  powered  the  growth  in 
America’s  technology  sector  for  the  past  decade.  To  ensure  agencies  can  effectively  build  and 
deliver important digital services, the 2016 U.S. Budget includes funding for several Federal 
agencies for staffing costs to build Digital Service teams. These teams will be composed of 
experts who will focus on transforming some of the country’s most important citizen- and business-
facing services so they are easier to use and more cost-effective to build and maintain. 

These  digital  service  experts  will  bring  private-sector  best  practices  in  the  disciplines  of  design, 
software engineering, and product management to bear on the agency’s most important services. 
The  positions  will  be  term-limited,  to  encourage  a  continuous  influx  of  up-to-date  design  and 
technology  skills  into  the  agency.  The  digital  service  experts  will  be  recruited  from  among 
America’s leading technology enterprises and startups, and will join with the agency’s top technical 
and  policy  leaders  to  deliver  meaningful  and  lasting  improvements  to  the  services  the  agency 
provides to citizens and businesses. 

This  effort  builds  on  the  success  of  the  Administration’s  U.S.  Digital  Service  and  the  General 
Service  Administration’s  digital  service  team  known  as  “18F,”  both  created  in  2014.  Since  their 
creation,  these  small  teams  have  worked  in  collaboration  with  Federal  agencies  to  implement 
cutting-edge  digital  and  technology  solutions  to  best  serve  the  American  people.  Projects  have 
included  improvements  to  the  Veterans  Benefits  Management  System,  green  card  replacements 
and renewals, the creation of the College Scorecard, and more. In addition to their work on these 
high-priority projects, these small teams of tech experts have worked to establish best practices, to 
develop  government-wide  design  standards,  and  to  recruit  more  highly-skilled  digital  service 
experts and engineers into government.  

BOX – The “18F” group: from problems to solutions 

A  very  interesting  experience  from  within  the  U.S.  government  is  the  creation  of  Digital  Service 
Teams such as the 18F group, which makes digital products for government organizations and uses 
lean  startup  methods,  open  source  code,  and  contemporary  programming  languages.  Its  name 
refers to its office location in northwest Washington, D.C., on 18th and F Streets. 18F is within the 
Office of Citizen Services and Innovative Technologies (OSCIT) and runs in parallel with the Digital 
Government Strategy's Digital Services Innovation (DSI) Center. 

The  group  was  started  following  multiple  problems  in  the  rollout  of  the  HealthCare.gov  health 
insurance  marketplace,  which  began  an  effort  to  reform  citizen-facing  government  technology.  A 
similar group was created also in the UK (the Government Digital Service). Interestingly, 18F runs 
on  a  cost  recovery  model  where  client  agencies  reimburse  the  digital  agency  for  its  work.  Their 

14 

 
operation is closer to a traditional business than government organizations like the DSI Center. The 
agency started with 15  employees, including  11 former Presidential Innovation  Fellows from  both 
the  private  and  public  sectors.  The  staff  previously  worked  in  front  and  backend  development, 
design and usability, and product management. 

Upon  its  opening,  18F  began  to  host  the  Presidential  Innovation  Fellows  program  that  started  in 
May  2012  in  the  Digital  Government  Strategy.  The  18F  group  launched  several  projects  such  as 
analytics.usa.gov, the College Scorecard, myRA, Every Kid in a Park and MyUSA. 

3.5  Building and Using Evidence to Drive Social Innovation, 

including through “Pay-For-Success” approaches to pay for 
outcomes as opposed to inputs 

As  announced  in  the  Strategy  for  American  Innovation,  the  U.S.  Administration  has  ushered  in  a 
new  era  of  data-driven  social  innovation  by  piloting  creative  approaches  to  seemingly  intractable 
problems. Highlights of agency efforts to promote evidence since 2011 include the following: 

 

 

 

The  Corporation  for  National  and  Community  Service’s  Social  Innovation  Fund  (SIF),  which 
provides  grants  to  grow  and  further  test  community-based  social  interventions  at  several 
organizations. Recently the SIF added a Pay  for Success (PFS) grant program, selecting eight 
grantees to help communities study using this approach to tackle social problems ranging from 
childhood asthma to chronic homelessness. PFS strategies tie funding for an intervention to its 
impact in the community. Instead of paying for services regardless of their effects, government 
or  other  entities  only  pay  if  programs  actually  achieve  positive  outcomes  for  the  people  they 
are  designed  to  benefit.  As  of  mid-2015,  the  SIF  was  funding  34  PFS  feasibility  studies  and 
providing support for transaction structuring for five PFS projects, with more to come. 

Investing in Innovation (i3) Program tiered-evidence grants are granted by the Department of 
Education. These grants fund the development, validation, and scale-up of promising or proven 
interventions to dramatically improve student outcomes. 

The  Department  of  Labor  in  2013  established  and  formalized  a  policy  that  requires  rigorous, 
independent  and  transparent  evaluations  in  all  of  its  discretionary  grant  programs.  For 
example, the Workforce Innovation Fund’s performance is measured in terms of outcomes for 
job seekers and employers, and in terms of cost effectiveness. Newer programs backed by less 
evidence  are  eligible for less funding,  whereas more  sizable grants to proven programs make 
possible  the  wider-scale  expansion  of  these  models.  This  is  a  very  interesting  experience  in 
terms of program evaluation, which could be followed by the European Commission. 

  Administration-wide  evidence  and  innovation  process.  Through  this  process,  all  agencies  will 
take  concrete  and  meaningful  steps  to  better  build  and  use  evidence  to  increase  government 
effectiveness and social program impact. 

In addition, the U.S. Administration is deepening its investment in evidence and social innovation. 
Among its priorities, the 2016 budget allocates funding to initiatives aimed at better use of existing 
data while protecting privacy to learn more about what works, and to the creation of an incentive 
fund for Pay for Success approaches10.  

10  These  initiatives  have  already  seen  a  first  implementation  in  the  EU:  in  particular,  the  EIF’s  Social  Impact 
Accelerator was set up in 2013 as a “fund of funds”, seeking to mobilize an initial amount of EUR 60m of 
capital for investment in social impact funds. In addition to enhancing the availability of finance for social 
enterprises,  SIA  aims  to  build  up  the  existing  market  infrastructure  for  social  impact  investing  in  such  a 
way that this emerging asset class is placed on a path to long-term sustainability. The first investment of 
the accelerator, in late 2013, was in the Social Venture Fund, a German social venture capital fund, which 
was awarded more than €16 million in funding. 

15 

 
 
 
                                                 
3.6  Is all that glitters gold? Remaining challenges in U.S. 

innovation policy 

The  two  Obama  administrations  have  certainly  marked  a  shift of  gear  in U.S.  policies to promote 
innovation.  The  U.S.  government  is  now  more  aware  of  the  important  of  proactive  policy  to 
stimulate innovation,  as  well  as  the  government’s  role in  boosting  the  results  of  research.  At  the 
same time, it is clear that, even if probably in lower measures compared to the EU, also in the U.S. 
there is no problem of innovation deficit, and there is rather a diffusion deficit problem.  

A recent report by the MIT, rather explicitly titled  “future postponed”, collects a number of cases 
of technologies that are not finding enough space  in  the market to reach the minimum  scale and 
start creating their positive effects on society11. For example, in the domain of low-carbon energies 
technologies  have  achieved,  also  thanks  to  publicly  funded  research,  dramatic  drops  in  prices: 
however, the deployment of these technologies requires smart government (Romm 2016). This, in 
turn,  suggests  that  the  U.S.  government  could  do  even  more  to  promote  the  uptake  of  existing 
technologies,  a  theme  that  lies  at  the  core  of  the  current  commitment  of  the  Administration. 
Leveraging  entrepreneurial  and  intrapreneurial  skills  in  support  of  existing  societal  challenges  is 
certainly  a  very  promising  avenues,  but  the  U.S.  administration  seems  to  be  at  the  beginning  of 
this process, and accomplishments are not numerous to date.  

Similarly,  the  declared  commitment  towards  open  data  in  the  U.S.  administration  has  so  far 
produced less than it has promised, and a lot still remains to be done in terms of liberating data to 
generate data-driven social innovation. Certainly, initiatives such as hackathons and datapaloozas 
are  important  references  also  for  the  EU,  and  the  same  goes  for  the  various  cross-governmental 
initiatives  launched  to  promote  an  innovation-oriented  mindset  in  the  administration,  including 
Labs, toolkits, Presidential Innovation Fellows and communities of practice. All these are ideas that 
EU  institutions  have  started  to  test  (for  example,  the  European  Food  Safety  Authority  organizes 
hackatons12,  and  the  European  Commission  already  hosts  a  number  of  communities  of  practice), 
but  should  be  probably  tested  further  across  DGs,  in  recognition  of  the  fact  that  innovation  is  a 
whole of government exercise, and needs to be adequately mainstream in the daily activity of the 
administration  in  order  to  produce  long-lasting  results.  That  said,  it  is  also  important  to  observe 
that  the  U.S.  administration  is  composed  of  federal  agencies  that  have  a  more  direct  regulatory 
power compared to the European Commission DGs, and this in turn places them in a position that 
is closer to the public, and to the core of problems to be addressed and solved. Not surprisingly, at 
the  EU  level  the  best  experience  with  adaptive,  flexible  policymaking  comes  from  an  agency,  the 
European Medicines Agency; and that hackatons have been launched by the European Food Safety 
Authority.  Whether  this  can  be  seen  as  an  argument  in  favor  of  a  further  “agencification”  of  EU 
institutions, is a theme that would deserve further investigation in the future, and cannot be kept 
separate from the role of agencies in the overall regulatory process. In the United States, federal 
(government and independent) agencies perform their own evaluations of policy initiatives, and are 
bound by the Administrative Procedure Act and by  a number of White House  Executive Orders to 
rely on better regulation tools such as ex ante regulatory impact analysis, retrospective review and 
notice  and  comment  (i.e.  stakeholder  consultation).  This  puts  them  in  direct  contact  with  their 
stakeholders, in turn enhancing their accountability and the overall transparency of the regulatory 
process.  

11  See  MIT,  http://www.technologyreview.com/news/543351/at-a-time-of-plenty-some-technologies-are-shut-

out/ 

12 https://www.efsa.europa.eu/en/prizes/hackathon 

16 

 
 
 
                                                 
4

  IS THE U.S. REGULATORY FRAMEWORK MORE INNOVATION-FRIENDLY THAN 

THE EUROPEAN ONE? 

Apart  from  the  specifics  of  innovation  policy,  and  besides  differences  in  the  better  regulation 
agendas,  the  extent  to  which  the  overall  legal  and  regulatory  framework  is  conducive  to 
entrepreneurship and innovation in the United States and Europe has been increasingly under the 
spotlight  over  the  past  decade.  The  factors  to  be  taken  into  account  in  order  to  perform  a 
meaningful  comparison  are  numerous.  While  regulation  is  still  considered  by  many  authors  as  a 
barrier  to  innovation  in  all  or  most  circumstances,  evidence  suggests that  the  relationship  is  way 
more  ambiguous,  and  that  in  many  cases  regulation,  if  well-drafted  and  designed,  acts  as  a 
stimulus for the type of innovation that society needs (Ashford and Renda 2016). The key elements 
to be taken into account in order to determine whether regulation will have a positive or a negative 
impact on innovation include stringency, time, flexibility and certainty (Pelkmans and Renda 2014). 
Stringency  relates  to  how  difficult  and  costly  it  is  for  firms  to  comply  with  new  regulatory 
requirements  using  existing  ideas,  technologies,  processes  and  business  models.  The  amount  of 
time  that  a  regulation  gives  to  the  targeted  stakeholders  for  compliance  with  the  regulatory 
requirements  is  essential  to  stimulate  innovation,  but  timing  is  a  double-edged  sword:  too  little 
time might discourage innovation and determine an unsustainable increase of compliance burdens, 
too  much  time  might  crystallize  innovation  efforts  due  to  the  lack  of  pressure  to  meet  the 
requirements13.  Flexible,  performance-  or  outcome-based  regulation  stimulates  innovation  more 
than  purely  prescriptive  regulation,  provided  that  it  is  coupled  with  adequate  monitoring  and 
enforcement (see i.a. Coglianese 2015). And also uncertainty has been found to act as a driver and 
also as an inhibitor of innovation depending on the circumstances14.  

That  said,  for  so-called  “horizontal  policies”  such  as  i.a.  competition  law,  public  procurement, 
standardization, and increasingly copyright and data protection regulations, it is possible to draw a 
comparison of U.S. and EU policies. The same could be done also, with come caveats, for sectorial 
policies, where (as will be explained below) the regulatory approaches adopted in the U.S. have not 
always  been  more  stringent  and  precautionary  than  in  the  EU:  a  fact  that  should  be  subject  to 
further  research  in  the  future15.  In  addition,  the  debate  on  the  use  of  flexible  approaches  to 
regulation  in  order  to  stimulate  more  innovation  and  overcome  legacy  problems  has  been  very 
lively in the United States over the past few years, and led to sparse initiatives adopted by different 
regulatory authorities, or proposed by institutions such as presidential commissions. These include 
the  FTC’s  case-by-case  approach  to  new  technologies  (recently  dubbed  “regulatory  humility”  by 
one  of  the  FTC  Commissioners)16;  the  “prudent  vigilance”  or  “regulatory  parsimony”  approach 
proposed  by  the  Presidential  Commission  on  Bioethics,  which  requires  prudent  vigilance  and  a 
proportionate,  cautious  approach  to  rulemaking  and  oversight17;  adaptive  licensing  or  planned 
adaptation  approaches  proposed  by  academics  on  both  sides  of  the  Atlantic18;  and  cases  of 

13   BERR  (2008)  and  Centre  for  International  Economics  (2006)  discuss  specifically  the  timing  of 
standardization: here too, the message is that standardization should not occur too early, and also not too 
late to stimulate and encourage innovation. An early standard can kill alternatives (e.g. the GSM standard 
for mobile communications), creating more intra-standard competition. If the standard is imposed too early, 
this  can  generate  an  undesirable  lock-in  effect,  which  leaves  society  trapped  into  a  suboptimal  standard. 
Similarly,  the  selection  of  a  rigid,  non-scalable  standard  can  inhibit  both  incremental  and  disruptive 
innovation, and as such is highly damaging to social welfare and progress. 

14   Ashford et al. (1985) claim that “although excessive regulatory uncertainty may cause industry inaction on 
the  part  of  the  industry  too  much  certainty  will  stimulate  only  minimum  compliance  technology.  Similarly 
too frequent change of regulatory requirements may frustrate technological development.” More generally, 
it  is  fair  to  state  that  whenever  innovation  requires  large  investment  in  R&D,  the  absence  of  reasonable 
stability  or  certainty  in  the  regulatory  framework  can  significantly  hinder  innovation.  Our  case  study  of 
competition  rules  applied  in  the  e-communications  sector  below  can  contribute  to  shedding  some  light  on 
this aspect of uncertainty. 

15   See  J.B.  Wiener,  M.D.  Rogers,  J.K.  Hammitt  and  P.H.  Sand  (eds.)  (2011),  The  Reality  of  Precaution: 

Comparing Risk Regulation in the US and Europe, RFF/Earthscan/Routledge.  

16 

See 

Ohlhausen, 

M. 

(2015), 

Regulatory 

Humility 

in 

Practice, 

at 

https://www.ftc.gov/system/files/documents/public_statements/635811/150401aeihumilitypractice.pdf 
17   See  Presidential  Commission  for  the  Study  of  Bioethical  Issues  (2011),  Moral  Science:  Protecting 
at 

Participants 
D.C., 
http://bioethics.gov/sites/default/files/Moral%20Science%20June%202012.pdf 

Research,  Washington 

December 

Subjects 

Human 

2011, 

in 

18  See  See  e.g.  McCray,  L.E:,  K.A.  Oye  and  A.C.  Petersen  (2010),  Planned  adaptation  in  risk  regulation:  An 
initial  survey  of  US  environmental,  health,  and  safety  regulation,  Technological  Forecasting  &  Social 
Change  77  (2010)  951–959.  And  more  recently,  IRGC  (2015),  A  short  introduction  to  “planned  adaptive 
regulation”, 
https://www.irgc.org/wp-
content/uploads/2015/12/A_short_introdution_to_Planned_Adaptive_Risk_Regulation-19Nov15.pdf.   

at 

17 

 
                                                 
negotiated  rulemaking  that  ended  up  stimulating  innovation,  such  as  the  “Innovation  Waivers” 
initiative and the “Common Sense Initiatives” launched by the EPA19. 

Below,  these  areas  of  analysis  are  illustrated  and  discussed.  Section  2.1  discusses  horizontal 
policies,  whereas  Section  2.2  illustrates  some  of  the  regulatory  flexibility  and  negotiated 
rulemaking  initiatives  U.S.  agencies  have  experimented  with  over  the  past  decades,  their 
performance  and  possible  lessons  to  be  drawn  for  the  EU.  Section  2.3  discusses  possible  take-
aways for the EU.  

4.1  Competition policy 

Nowhere like in antitrust law have the United States and Europe shown signs of convergence in the 
past century. As a matter of fact, the introduction of rules on competition in the Treaty of Rome in 
1957 is seen as largely inspired by the U.S. tradition, starting with the 1890 Sherman Act and the 
194 Clayton Act. And indeed, broadly speaking the rules contained in the antitrust legislation of the 
two  blocs  are  close  to  identical.  However,  when  it  comes to  antitrust  the devil  is  the details,  and 
the  details  are  numerous.  Without  pretending  to  provide  an  exhaustive  explanation,  this  section 
explores existing differences with a specific focus on digital markets and the Internet ecosystem. 

First, even if the wording of Sections 1 and 2 of the Sherman Act and Articles 101 and 102 TFEU is 
broadly  comparable,  the  overall  approach  to  anticompetitive  conduct,  and  specifically  single-firm 
conduct  has  always  been described  as  divergent  in the  literature.  This  is  particularly  the  case  for 
single-firm conduct (abuse of dominance  in  the  EU  jargon), due to the prevalence  of the Chicago 
School  of  economics  in  the  United  States,  and  the  influence  of  the  more  structuralist  Ordoliberal 
school in Europe,  starting from  the early  days of the  debate on the Treaty of Rome20. This is not 
only a matter for historians or a subject matter for academic writings: the different approach has 
resulted in starkly divergent positions being adopted in merger control (e.g. on the  GE/Honeywell 
merger cleared in  the U.S.  and  rejected in the EU  in 2001), and also most notably in the area of 
single-firm conduct (e.g. in the U.S. and EU Microsoft cases) (Renda and Yoo 2015).  

Second, notable differences between the two legal systems on the treatment of single-firm conduct 
are highly relevant for the ICT sector, which is considered as a key enabler of innovation  in many 
markets. For example, EU antitrust rules (and consequently, also the EU regulatory framework for 
electronic  commuications)  heavily  reflect  reliance  on  the  so-called  “essential  facilities”  doctrine, 
whereas  the  US  Supreme  Court  has  never  endorsed  that  doctrine  (Renda  2010;  Renda  and  Yoo 
2015). This, in practice, means that the set of circumstances in which EU authorities might end up 
imposing asset sharing or compulsory licensing in refusal to deal cases is, in all likelihood, broader 
than what occurs in the U.S. Cases like  Trinko and  Linkline in the United States have been easily 
compared with the interoperability stance taken by the European Commission and the Court of First 
Instance  (now  General  Tribunal)  in  their  decisions  on  Microsoft  in  2004  and  2007,  respectively. 
Moreover,  the  rulings  of  the  Court  of  Justice  of  the  European  Union  on  issues  of  predation  and 
margin  squeeze  (especially  the  Telia  Sonera  case)  and  on  loyalty  rebates  (Intel)  have  confirmed 
that  EU  antitrust  dances  “on  a  different  drummer”  compared  to  the  U.S.  one:  in  particular,  in 
Europe  large  companies  are  explicitly  attributed  a  “special  responsibility”  vis  à  vis  their  market 
which  has  recently  led  the  Court  to  theorize that  large  firms  should  ensure,  besides  the  survival, 
also the profitability of their smaller rivals.  

Third,  the  different  antitrust  economics  applied  in  the  two  jurisdictions  becomes  even  more 
relevant  when  it  comes  to  high  tech  markets,  and  in  particular  on  the  Internet,  due  to  the 
prevalence of network externalities and multi-sided platforms. Many of these settings, as a matter 
of  fact,  tend  to  be  characterized  by  competition  “for”,  rather  than  “in”,  the  market,  as  firms 
compete in a high risk, high reward game that selects the one and only product that will spread to 
all or almost all consumers. The structuralist view of competition prevailing in the European Union 

19   Innovation  waivers  have  been  made  available  by  Congress  in  certain  environmental  statutes.  When  the 
Environmental Protection Agency grants such a waiver, the firm is given additional time to comply with the 
standard so that it may perfect a promising innovative compliance technology. Similarly, the Occupational 
Safety and Health Act ("OSHAct") authorizes OSHA to grant waivers to selected firms that need additional 
time  to  perfect  new  and  improved  technologies  to  protect  worker  health  or  safety.  The  EPA’s  Common 
Sense  Initiative  assembled  groups  of  interested  parties  to  focus  on  regulatory  issues  concerning  a 
particular industry sector (e.g., automobile manufacturing), with the goal of developing "cleaner, cheaper, 
smarter" ways of reducing or preventing pollution. 

20  See Gerber, D. (1994), “Constitutionalizing the Economy: German Neo-liberalism, Competition Law and the 
‘New’  Europe”,  American  Journal  of  Comparative  Law,  Vol.  42,  pp.  25-84;  and  Akman,  P.,  (2009), 
“Searching for the Long-Lost Soul of Article 82”, Oxford Journal of Legal Studies, Vol. 29, No. 2, pp. 267-
303. 

18 

 
                                                 
reverberates on the authorities’ understanding of this dynamic form of competition (as a “sequence 
of monopolies”, rather than a static situation of pluralism), despite the fact that in Europe, just as 
in the U.S., market power is not equated with  market share, but in principle requires a finding of 
independence of behavior. The consequence is that the European Commission can end up defining 
as  dominant  companies  that  have  a  high  chance  of  being  fagocitated  by  market  competitors  in 
subsequent generations of their product, in what is an ever-changing competitive landscape.  

The continental drift in antitrust, exacerbated by the peculiar economics of high tech markets, is at 
the roots of many  differences  between  regulatory practice in the two legal systems, including the 
ones  on  infrastructure  regulation  and  network  neutrality.  It  is,  also,  at  the  origin  of  the  U.S. 
relatively “hands-free” approach to both merger regulation and single-firm conduct in cyberspace, 
which  lies  in  stark  contrast  with  the  EU  “interventionist”  approach.  And  while  the  numerous 
antitrust  investigations  against  Microsoft  in  both  jurisdictions  over  the  past  fifteen  years  are 
probably the clearest example of the existing divergence, the current European Commission’s case 
against  Google  is  a  good  example  of  a  case  dismissed  by  the  FTC  in  the  United  States,  and 
currently being re-proposed, with remarkable emphasis, in the European Union21.  

These  signs  of  divergence  have  been  interpreted  by  the  literature  as  evidence  that  the  U.S. 
privileges  dynamic  competition  and  allows,  where  possible,  also  more  concentrated  market 
structures  compared  to  the  EU,  which  focuses  more  on  static  efficiency  and  a  pluralist  market 
structure  when  enforcing  competition  rules.  That  said,  the  EU’s  relatively  stricter  approach  to 
antitrust  law  must  also  be  seen  in  light  of  the  weaker  enforcement  existing  in  Europe,  where 
private  antitrust  damages  actions  and  criminal  sanctions  for  antitrust  violations  are,  respectively, 
under-developed  and  non-existent  (Renda  et  al.  2007).  In  other  words,  a  holistic  look  at  the 
effectiveness of antitrust requires that both the scope of the law and the strength and credibility of 
enforcement  are  duly  taken  into  account:  the  relatively  more  lenient  approach  in  the  U.S., 
especially on single-firm conduct, could be also framed as an “equilibrating tendency” that results 
from awareness of the existence of a very strong litigation system22.   

Finally, it is important to stress that competition  policy is not limited to antitrust and not even  to 
the regulation of network industries: most regulation can have an impact on competition, and such 
impacts  have  to  be  adequately  taken  into  account  when  crafting  legal  rules.  Importantly,  in  the 
United  States  the  better  regulation  agenda  has  not  explicitly  contemplated  the  assessment  of 
impacts on competition, which end up being considered within the cost-benefit analysis performed 
by  federal  agencies  (and  a  number  of  independent  agencies)  when  drafting  Regulatory  Impact 
Analyses in support of new regulation. However, in April 2016 a new Executive Order was adopted 
by the White House, which mandates that all federal agencies assess the impact of their rules on 
competition23. This new Executive Order has not been accompanied, to date, by guidelines on how 
to  assess  competition  impacts:  such  guidance,  developed  i.a.  by  the  OECD  and  also  in  the  EU 
Impact  Assessment  Guidelines,  would  promote  better  awareness  of  the  possible  impacts  of 
regulatory options on levels of competition. Based on the description of the diverging competition 
reigmes offered above, such guidance would anyway be different for the U.S compared to the EU, 
and  possibly  more  oriented  towards  dynamic  efficiency  and  impacts  on  long-term  innovation 
incentives.  

4.2  Copyright law in the age of big data  

With the rise of the data-driven economy, copyright legislation is becoming increasingly important 
for  innovation,  and  at  the  same  time  increasingly  unfit  for  purpose  both  for  what  concerns  its 
overall design,  and even more  importantly its enforcement. This is particularly important for ICT-
enabled  innovation.  Renda  et  al.  (2015)  and  Renda  (2016b,  for  JRC)  highlight  that  digital 
technologies  make  it  extremely  easy to  combine  existing  content  in  order  to  develop  new  artistic 

21  The  new  EU  Commissioner  for  Competition  Margarethe  Vestager  announced  on  April  15,  2015  that  the 
Commission had sent a Statement of Objections to Google, arguing that the giant IT company abused its 
dominant  position  in  the  “general  Internet  search”  market  and  also  in  the  market  for  mobile  operating 
systems,  apps  and  services.  Most  importantly,  Ms  Vestager  is  accusing  Google  of  having  awarded 
preferential  treatment  to  its  own  online  comparison  shopping  service,  to  the  detriment  of  competing 
services.  By  exploiting  its  very  large  share  of  the  general  search  market,  Google  has  thus  allegeldy 
leveraged its market power into a neighbouring market, thus foreclosing competitors from such market and 
thwarting  competition  on  the  merits.  In April  2016  the Commission  took  additional  action  against  Google 
for  possible  abuses  in  the  field  of  smartphone  operating  systems,  where  Google  is  accused  of  having 
illegally tied the license for Android to the pre-installation of a suite of Google applications. 

22   See Kovacic 2004; Calkins 1982; and Renda et al. 2007. 
23  https://www.whitehouse.gov/the-press-office/2016/04/15/executive-order-steps-increase-competition-and-

better-inform-consumers  

19 

 
                                                 
works and services, and that in Europe it is still uncertain whether the unauthorised scanning and 
digitisation of literary works which are not displayed to users but are merely used for purposes of 
data24 and text mining25 infringe copyright or not.26 Considering that text and data mining entails a 
temporary  reproduction  of  copyright  works,  as  a  technical  necessity,  the  issue  is  whether  or  not 
such a reproduction should be  regarded  as  transient or incidental under the mandatory exception 
of Article 5(1) of the InfoSoc Directive27. The issue is so urgent  that  the  UK  started  developing a 
comprehensive  reform  plan  that  resulted,  in  2014,  in  the  enactment  of  new  copyright  exceptions 
that included an exception covering text and data mining for non-commercial research, which was 
not  contemplated  in  the  list  of  exceptions  originally  included  in  the  2001  Information  Society 
Directive.28 UK law now allows researchers to make copies of any copyright works for the purpose 
of computational analysis if they already have lawful access to the copyright work, without having 
to obtain additional permission from the copyright-holder to make the necessary copies.  

The  OECD  recently  observed  that  “the  potential  for  productivity  gains  in  the  creation  of  scientific 
knowledge  are  ...  huge.  However,  questions  have  emerged  about  whether  current  copyright 
regimes are appropriately calibrated with regard to ‘automatic’ scientific knowledge creation”. The 
OECD  quotes  the  JISC  (2012)  analysis  of  the  value  and  benefits  of  text  mining,  which  concluded 
that “the barriers limiting uptake of text mining appeared sufficiently significant to restrict seriously 
current  and  future  text  mining  in  UKFHE  [UK  further  and  higher  education],  irrespective  of  the 
degree  of  potential  economic  and  innovation  gains  for  society.”  Copyright  has  been  identified  as 
one these barriers, which has led to debates between the scientific community and the publishers 
of scientific journals.  

Research on TDM techniques has advanced considerably in recent years. The OECD reports that the 
number  of  academic  articles  published  on  the  subject  of  TDM  since  the  beginning  of  the  1990s 
reveals  that  the  United  States  has  so  far  produced  46.6%  of  the  publications  dealing  with  TDM, 
followed by the United Kingdom (11.1%), Taiwan (8.8%), Canada (5.7%) and China (4.6%). The 
OECD argues that “Whether current copyright regimes are promoting or hindering TDM is an open 
question”. According to a recent JISC report on the value and benefit of text mining (JISC, 2012), 
licensing  agreements  represent  a  key  barrier  to  the  use  of  text  mining  techniques  in  the  higher 
education  and  research  communities  in  the  UK.  Recent  OECD  analysis  has  highlighted  how  the 
context in which IP frameworks operate has been changing substantially. In this evolving context, 
the way copyright laws address TDM is not always clear in all jurisdictions (OECD, 2015). According 
to  the  same  report,  there  is  some  (disputed)  evidence  that  researchers  in  certain  jurisdictions 
(such  as  the  European  Union  and  Brazil)  are  inhibited  from  engaging  in  TDM  due  to  fears  of 
infringing copyright in the process.  

One  step  further,  the  blossoming  data  analytics  sector  seems  to  be  increasingly  reliant  on  open 
source  software  rather  than  on  traditional  copyright  protection,  possibly  as  a  consequence  of  the 
difficulties connected with the copyright regime29. Many data processing and analytic tools that are 
now spreading across the economy as enablers of new data-driven goods and services were initially 

24   ‘Data mining’ is normally referred to as the extraction of implicit, previously unknown, and potentially useful 
information from data. Data mining is in many ways conceptually similar to ‘reading’ and ‘research’. It is a 
way  for  software  to  perform  tasks  such  as  reading,  comparing  and  analysing  large  quantities  of  data  in 
order  to  draw  conclusions.  It  has  become  a  ‘copyright  suspect’  since  the  above-mentioned  tasks  are 
achieved through technology.  

25   ‘Text mining’ indicates finding structural patterns in texts, extracting information out of these patterns and 

combining them with data on the use of works such as data on searching and accessing works.  

26   On automated text processing and data mining Borghi & Karapapa point out that automated data processing 
can  pursue  commercially  valuable  objectives  such  as  data  analysis,  sophisticated  text  analysis  (e.g.  the 
content of a book or the whole production of a specific author), analysis of metadata on patterns of use of 
digital copies (e.g. to create databases of user profiles) and computational analysis (which includes image 
analysis and text extraction, linguistic analysis and automatic translation and indexing and search) (Borghi 
& Karapapa, 2013). 

27  See  the  so-called  “Hargreaves  Report”  to  the  European  Commission,  “Standardisation  in  the  area  of 
innovation  and  technological  development,  notably  in  the  field  of  Text  and  Data  Mining,  at 
http://ec.europa.eu/research/innovation-union/pdf/TDM-report_from_the_expert_group-042014.pdf 

28   See  UK  Intellectual  Property  Office  (2012),  Modernising  Copyright:  A  modern,  robust  and  flexible 
framework, 20 December, p. 16. Other areas in which the document announced legislative intervention are 
educational  uses,  quotation,  parody,  research  and  private  study,  disabilities,  preservation,  public 
administration and reporting.  

29  Clark,  J.  (2013),  Text  Mining  and  Scholarly  Publishing,  Publishing  Research  Consortium;  European 
Commission  (2014),  “Standardisation  in  the  area  of  innovation  and  technological  development,  notably  in 
the  field  of  text  and  data  mining”,  Report  from  the  Expert  Group;  Filippov,  S.  (2014),  “Mapping  tech  and 
data  mining  in  academic  and  research  communities  in  Europe”,  Lisbon  Council,  16/2014;  OECD  (2015a), 
Inquiries into Intellectual Property’s Economic Impact, OECD Publishing, Paris; JISC (2012), The Value and 
Benefits of Text Mining, JISC, www.jisc.ac.uk/sites/default/files/value-text-mining.pdf.  

20 

 
                                                 
developed by Internet firms. Apart from the already-mentioned Hadoop, a well-known example is 
R, a GPL-licensed open source environment for statistical analysis, which is increasingly used as an 
alternative to  commercial packages  such  as  SPSS  and  SAS.  Today  R  is  also  an  important  part  of 
the product portfolio of many traditional providers of commercial database and enterprise servers 
such  as  IBM,  Oracle,  Microsoft  and  SAP,  which  have  started  integrating  R  together  with  Hadoop 
into  their  product  lines.  The  OECD  report  also  mentions  a  study  by  Muenchen  (2014),  which 
suggests that the most popular statistics software (SPSS, SAS) is declining in popularity, while R is 
becoming  more  and  more  popular;  and  a  survey  by  the  data  mining  website  KDnuggets  (2013) 
confirms the trend that a large number of data analysts are using open source or free software for 
data  analysis30.  More  specifically,  RapidAnalytics  (free  edition),  R,  Excel,  Weka/Pentaho,  and 
Python  were  the  top  five  data  analytics tools  used  in  2013.  All  but  Excel  are  free  or open  source 
tools. 

4.3  Data protection in the age of big data 

Besides  copyright,  legislation  on  data  protection  is  of  course  an  essential  driver  of  innovation 
incentives. Too rigid  regulatory  frameworks on data  protection can inhibit data-driven innovation; 
but at the same time, insufficient protection of citizens’ privacy can reduce demand for innovative, 
data-based  solutions,  and  create  regulatory  uncertainty  for  entrepreneurs.  Striking  a  dynamic, 
comprehensive  balance  between  the  needs  of  data-driven  innovation  and  the  protection  of 
personally identifiable data is thus a challenge that all governments are facing, and the U.S.  – still 
considered by the CJEU as providing for “inadequate protection” of individuals’ privacy  – provides 
no specific best practice in this field. Still, it is worth mentioning a number of developments, which 
make the U.S. potentially more open to data-driven innovation than the EU. 

First,  the  U.S.  legal  system  considers  privacy  as  a  property  right,  whereas  the  EU  legal  system 
holds  privacy  as  a  fundamental  right  (Renda  2015).  Following  authoritative  literature,  this 
dichotomy  has  been  often  presented  as  a  chasm  between  approaching  privacy  as  an  aspect  of 
liberty,  and  privacy  as  an  aspect  of  dignity31.  This,  in  turn,  implies  that  agreements  between 
private  companies  and  end  users  based  on  the  possibility  to  use  personal  data  in  exchange  for 
more customized, welfare-enhancing services  is in  principle more  possible in the U.S. than in the 
EU.  

Second, and relatedly, the focus of US legislation on privacy mostly falls on government intrusion 
into  the  private  sphere  (as  derived  from  the  Fourth  Amendment),  whereas  in  the  EU  most 
legislation focuses on the use of personal data by private players. This provides for a more flexible 
regulatory  approach  to  privacy  in  the  U.S.,  where  the  Federal  Trade  Commission  is  mostly 
empowered to enforce legislation that affects the interplay between private parties with respect to 
privacy,  under  various  statutory  legislation  and  also  based  on  Section  5  of  the  FTC  Act  on  unfair 
trade practices and commercial conduct. 

Third, the FTC itself has decided to adopt a case-by-case approach to enforcing privacy, which has 
resulted in no slowdown in enforcement, but thus at the same time created a more open regime for 
new business models. The trade-off to be struck, here, is very  challenging: on  the  one  hand, the 
EU  legal  system  exhibits  a  much  more  comprehensive,  coherent  and  incisive  legislation  on  data 
protection, even more now that the General Data Protection Regulation has been signed into law. 
On  the  other  hand,  the  FTC’s  case-by-case  approach,  now  reinforced  with  new  rules  on  email 
privacy  (adopted  in  April  2016),  appears  more  potential  prone  to  innovative  business  models, 
provided that the FTC is able to signal consistency and regulatory quality to regulated stakeholders.  

The rigidity of the EU  framework  has been extensively discussed in the literature.  Already in the 
early  days  of  discussions  on  the  reform  of  EU  data  protection  rules,  Berkeley  Professor  Paul 
Schwartz  (2013)  observed  that  the  new  rules  would  significantly  affect  U.S.  companies’  daily 
practice  of  authorizing  the  sharing  of  personal  information  through  simple  “notice  and  consent.” 
More specifically, Internet companies would not be able to justify processing by a party’s consent if 
they  offer  take-it-or-leave-it  terms  for  the  processing  of  personal  data  or  provide  services  for 
employees  or  other  parties  that  lack  effective  bargaining  power.  As  a  consequence,  Schwartz 
concludes that U.S. IT companies will not be  able  to rely on one-sided click-through  agreements. 
The  new  rules  are  also  far-reaching  also  in  terms  of  jurisdiction,  since  the  proposed  Regulation 

30  OECD  (2015),  Data-Driven  Innovation:  Big  Data  for  Growth  and  Well-Being,  OECD  Publishing,  Paris.  DOI: 

http://dx.doi.org/10.1787/9789264229358-en  

31 See Whitman (2004), at 161, quoting Post (2001), and arguing that “Continental privacy protections are, at 
their core, a form of protection of a right to respect and personal dignity …By contrast, America, in this as 
in so many things, is much more oriented toward values of liberty, and especially liberty against the state”. 

21 

 
                                                 
potentially subjects all cloud  services  to  EU  privacy law32. The  same  concerns have recently  been 
expressed  also  on  the  new  proposed  German  law  on  data  retention,  which  would  require  the 
government to delete certain statistical data it collects about firms after 10 years: such a change is 
thought to potentially harm important economic research that depends on longitudinal data (Castro 
and MacDonnell 2016)33.  

Importantly,  the  U.S.  have  recently  started  a  thorough  re-appraisal  of  the  balance  to  be  struck 
between  security,  privacy  and  big  data.  Following  the  U.S.  President's speech   on  reform  of  the 
National Security Agency's bulk metadata collection program under Section 215 of the USA Patriot 
Act, White House counsellor John Podesta announced "a comprehensive review of the way that 'big 
data will affect the way we live and work; the relationship between government and citizens; and 
how public and private sectors can spur innovation and maximize the opportunities and free flow of 
this  information  while  minimizing  the  risks  to  privacy."  This  was  the  first  major  privacy  initiative 
announced  by  the  White  House  since  the  release  of  the  Consumer  Privacy  Bill  of  Rights  in  2012. 
The  undertaking  involved  key  officials  across  the  federal  government,  including  the  President's 
Science Advisor and the President's Council of Advisors on Science and Technology. 

On  May  1,  2014,  the  White  House  released  the Big  Data  Privacy  Report.  The  report  noted  that 
"[b]ig  data  technologies  will  be  transformative  in  every  sphere  of  life"  and  that  they  raise 
“considerable  questions  about  how  our  framework  for  privacy  protection  applies  in  a  big  data 
ecosystem.”;  but  also  that  “data  analytics  have  the  potential  to  eclipse  longstanding  civil  rights 
protections in how personal information is used in housing, credit, employment, health, education, 
and  the  marketplace”.  On  the  same  day,  the  President's  Council  of  Advisors  on  Science  and 
Technology  ("PCAST")  released  a  report  on  the  same  day,  entitled, "Big  Data  and  Privacy:  A 
Technological  Perspective."  PCAST  wrote  that  "[t]he  challenges  to  privacy  arise  because 
technologies  collect  so  much  data  (e.g.,  from  sensors  in  everything  from  phones  to  parking  lots) 
and analyze them  so  efficiently  (e.g.,  through data  mining and other kinds of analytics) that it is 
possible  to  learn  far  more  than  most  people  had  anticipated  or  can  anticipate  given  continuing 
progress.  These  challenges  are  compounded  by  limitations  on  traditional  technologies  used  to 
protect privacy  (such as de-identification).  PCAST  concludes that  technology alone  cannot protect 
privacy, and policy intended to protect privacy needs to reflect what is (and is not) technologically 
feasible." 

In  February  2015,  the  White  House  released  an interim  progress  report on  its  big  data  initiative. 
The  administration  wrote  that  "[p]olicy  development  remains  actively  underway  on  complex 
recommendations  [from  the  report],  including  extending  more  privacy  protections  to  non-U.S. 
persons and scaling best practices in data management across government agencies.” Later during 
the  year,  in  November  2015,  the  National  Science  Foundation  announced  four  awards,  totalling 
more than $5 million, with the aim to establish four Big Data Regional Innovation Hubs (BD Hubs) 
across  the  nation.  These  will  be  followed  by  Big  Data  Spokes,  each  focused  on  a  specific  Hub 
priority area  and addressing one  or  more of three selected key issues: improving access to data, 
automating  the  data  lifecycle,  and  applying  data  science  techniques  to  solve  domain  science 
problems or demonstrate societal impact. 

4.4  Precaution and risk: comparing the U.S. and the EU 

One  of  the  most  often  quoted  differences  evoked  in  the  debate  the  innovation-friendliness  of  the 
U.S. and EU legal systems is the alleged existence of a more precautionary approach to regulation 
in Europe, which would act as a constraint to innovation by inhibiting risk-loving behaviour that it 
typical  of  entrepreneurs,  and  shutting  the  door  to  innovative  products  for  fear  that  they  would 
cause harm. This approach has been extensively quoted in areas such as environmental standards, 
health and safety, chemicals, etc. One authoritative scholar, David Vogel, has concluded in a widely 
read book that the EU has gradually come to overtake the US in the area of risk regulation over the 
past three decades, mostly by bringing in a more precautionary approach to regulation. The issue 
of the precautionary approach is so heavily felt in Europe that a broad debate has emerged on the 
need to incorporate an “innovation principle” in EU policymaking. 

The innovation principle was proposed in 2013 by a group of industry representations, think tanks 
and  large  companies’  CEOs,  and  was  vibrantly  advocated  as  a  necessary  change  in  the  EU  policy 

32 Schwartz, Paul M. (2013), EU Privacy and the Cloud: Consent and Jurisdiction under the Proposed Regulation. 

BNA Privacy and Security Law Report 12: 1–3. 

33  https://www.datainnovation.org/2016/04/germanys-proposed-data-retention-law-for-government-statistics-

would-harm-economic-research/  

22 

 
                                                 
process34.  Its  aim  is  to  ensure  that  “whenever  policy  or  regulatory  decisions  are  under 
consideration  the  impact  on  innovation  as  a  driver  for  jobs  and  growth  should  be  assessed  and 
addressed”35.  One  of  the  key  concerns  voiced  by  the  signatories  is  the  negative  effect  that 
increasingly  risk-averse  legislation  is  having  on  European  innovation;  that  said,  the  innovation 
principle is said to be complementary to the precautionary principle. The innovation principle is also 
said  to  be  open  to  “anyone  who  is  interested  in  promoting  an  ‘innovation  friendly’  and 
environmentally  responsible  regulatory  environment  in  Europe”,  which  potentially  makes  it 
consistent with long-term decarbonization objectives, which appear to be the only responsible way 
to tackle environmental issues today. The innovation principle was certainly received with a degree 
of  sympathy  in  some  parts  of  the  European  Commission,  and  its  proponents  articulated  the 
proposal in a more comprehensive way over the past year, as exemplified in a recent monograph36. 
That  said,  the  methodology  behind  the  innovation  principle  is  still  not  very  detailed,  whereas 
methodological quality would be a decisive  factor for the usefulness of adding yet another test to 
the  already  quite  complex  ex  ante  impact  assessment  process.    The  current  description  of  the 
innovation principle  does not  add  much to the already existing guidance  available as “Tool 18” in 
the  European  Commission  guidelines  on  impact  assessment,  now  part  of  the  integrated  Better 
Regulation  Guidelines37.  The  Council  conclusions  of  27  May  2016  have  specifically  called  on  the 
European  Commission  to  further  develop  the  concept,  also  with  respect  to  the  precautionary 
principle38.  

Against  this  background,  it  is  useful  to  reflect  on  a  number  of  open  questions,  which  too  often 
received standardized, not carefully pondered answers.  

First,  the  statement  according  to  which  the  EU  legal  system  follows  a  more  precautionary  (some 
would  say,  anti-innovation)  approach  does  not  appear  to  be  fully  substantiated  in  practice.  While 
Vogel (2010) and others have reported this trend based on a limited number of specific, selected 
cases, a ten-year-long research effort culminated in the publication of a thorough report (Wiener et 
al.,  2011)  found  that  reality  is  way  more  complex,  and  there  are  important  cases  in  which  U.S. 
regulation  is  way  more  precautionary  than  the  EU  one.  Examples  include  the  U.S.  standards  on 
particulate  matter  (so-called  PM2.5),  which  are  way  more  stringent  than  in  Europe,  and  are  also 
more  strictly  enforced.  More  generally,  the  authors  have  expanded  the  number  and  diversity  of 
qualitative  case  studies  to  risk  connected  to  food  safety  (genetically  modified  foods,  beef 
hormones,  mad  cow  disease),  air  pollution,  climate  change,  nuclear  power,  tobacco,  chemicals, 
marine  and  terrestrial  biodiversity,  medical  safety,  terrorism  and  precaution  embodied  in  risk 
information disclosure and risk assessment systems. In addition to detailed case studies, they also 
presented  a  broad  quantitative  analysis  of  specific  precaution  based  on  a  sample  of  100  risks 
drawn from a dataset of nearly 3000 risks from the 1970s up to 2004 in both the United States and 
the EU. The the results suggest that the degree of precaution exhibited in European and American 
risk regulation is very similar: averaging across the 100 risks sample in a 35 year period, there are 
36  risks  that  show  greater  US  precaution  and  31  risks  that  show  greater  EU  precaution.  In  the 
quantitative analysis the authors find no difference between the relative levels of precaution. 

Second,  there  is  not  strong  evidence  in  the  literature  confirming  that  the  precautionary  principle 
can harm innovation. Ashford and Renda (2016) survey existing wisdom in this field and argue that 
in many cases, precaution coupled with adequate stringency, appropriate timing and overall quality 
or  the  legal  rules  is  a  very  important  stimulus  for  innovation,  and  especially  of  the  type  of 
innovation that more directly contribute to addressing specific societal grand challenges.  

Third, the overall effect on innovation of legislation in the field of risk regulation must be appraised 
in  a  more  comprehensive  way,  in  particular  accounting  for  the  enforcement  and  compliance 
phases. Simply comparing the text of the rules makes very little sense, if one does not account for 
the  incentives  that  follow:  perhaps  the  clearest  example  is  the  existence  of  completely  different 
litigation and enforcement systems in the U.S. and the EU: a rule that is apparently more flexible 
and lenient in terms of ex ante controls (e.g. U.S. legislation on chemicals, as opposed to REACH) 
might end up being more effective thanks for the threat of opt-out class-actions fuelled by lawyers 
paid through contingency fees, and seeking punitive damages with the help of relatively favorable 
access to evidence rules – of course the opposite could also occur and outcomes would have to be 
judged on a case by case  basis. In  Europe, the absence  of a strong litigation system  (no opt-out 
and  in  many  countries  not  even  opt-in  collective  litigation;  no  contingency  fees;  no  punitive 
damages;  high  cost  of  access  to  evidence  in  court)  implies  that,  once  ex  ante  regulation  were 

34 Initially 13 CEPS in 2013, then became 22. The 22 CEOs sent a letter to Juncker upon his election. 
35 ERF 
36 http://www.riskforum.eu/uploads/2/5/7/1/25710097/monograph_innovation_principle.pdf  
37 http://ec.europa.eu/smart-regulation/guidelines/tool_18_en.htm 
38 See http://data.consilium.europa.eu/doc/document/ST-8675-2016-INIT/en/pdf.  

23 

 
                                                 
relaxed,  very  little  means  would  remain  to  incentivise  virtuous  conduct  on  the  side  of  regulated 
businesses.  

Accordingly,  it  is  fair  to  state  that  there  is  insufficient  evidence  in  support  of  revisiting  the 
precautionary  approach  as  an  obstacle  to  innovation.  In  a  recent  speech,  Commissioner  Moedas 
announced the introduction of the innovation principle but contended that “this does not mean that 
there is anything wrong  with the precautionary principle. Quite the opposite. If the precautionary 
principle is understood correctly, it should support innovation”39. The judgment must thus be made 
on a case-by-case basis: existing literature only confirms that it is bad regulation (including badly 
enforced regulation), not the precautionary approach, that can stifle innovation. Once this myth is 
dispelled,  of  course  it  remains  to  be  seen  if  certain  regulatory  practices  in  the  U.S.  foster 
innovation more than the homologous EU ones.  

4.5  Is the EU stifling innovation through regulation? 

The previous sections have analyzed specific cases of horizontal policies, such as competition, data 
protection, intellectual property, and risk regulation, with the overall aim to reach a conclusion on 
the  possible  anti-innovation  features  of  EU  policy  as  opposed  to  the  U.S.  Based  on  the  findings 
from these sections, the claim that the “innovation emergency” denounced in the EU is a result of 
specific policy choices such as the precautionary principle appears unsubstantiated. That said, there 
are a number of features in existing horizontal policies, which deserve careful scrutiny in the near 
future,  as  they  potentially  hamper  the  overall  environment  in  which  innovation  can  occur.  These 
are  listed  below,  and  then  again  described  in  Section  3  of  this  report,  which  draws  overall 
conclusions form this study.  

First,  competition  rules  (and  all  regulation  that  heavily  depends  on  them)  should  be  carefully  re-
appraised to match the specific economics of emerging new sectors, in which innovation is bringing 
into  the  market  entirely  new  business  models,  often  challenging  incumbent  ones.  Evident  cases 
include FinTech and the collaborative economy, which breaks barriers between sectors and leads to 
disruptive  entry  in  markets  such  as  public  transportation  or  hotels  and  accommodation. 
Importantly, it is not the actual principles  behind competition rules that are at stake: rather, it is 
the proxies and instruments that are used to implement those principles in practice that appear to 
have gone into trouble in many sectors starting with ICT and now extending into the many sectors 
that are being disrupted by ICT-enabled innovation. 

Second,  copyright  law  must  not  be  exclusively  focused  on  the  right  of  original  copyright  holders, 
but  rather  on  a  multitude  of  objectives,  which  include  the  right  for  end  users  to  produce  user-
generated content, to access as much information and data as possible, and to process these data 
through  mining  techniques  and  big  data  analytics.IN  this  respect,  copyright  law  appears  as 
fundamental  as  data  protection  law  as  a  possible  driver  of  data-driven  innovation:  as  such,  the 
reform  of  the  EU  copyright  law,  and  in  particular  of  the  Information  Society  Directive,  should  be 
inspired by the need to create easy access to non-personal data in aggregated form, and to allow 
for  analysis  of  longitudinal  data,  which  can  create  new  avenues  for  both  research  and  innovative 
business models, let alone smarter government.  

Third, data protection rules can and should be stringent to avoid the cannibalization of the personal 
sphere  in  the  name  of  data-driven  progress:  at  the  same  time,  imposing  too  burdensome 
requirements on data controllers can result in an important hurdle to innovation, and can scare the 
most innovative entrepreneurs away. It can also hamper basic research, including citizen science. 
If one considers that the overwhelming majority (some say 98%) of data available for processing 
have  been  created  in  the  past  two  years,  then  it  become  clear  that  creating  the  right  setting  for 
data  science  and  innovation  is  a  promising,  and  urgent,  priority  for  all  governments.  Without 
emulating  the  U.S.  piecemeal  (or  case-by-case)  approach  to  data  protection,  the  EU  could  do 
something  to  lift  the  burdens  on  smaller  companies  and  create  a  more  flexible  setting  for  data 
protection for entrepreneurs.  

Fourth,  there  is  no  solid  evidence  that  the  EU  adopts  a  more  precautionary  approach  to  risk 
regulation than the U.S. From beef hormones to climate change, from automotive emissions (NOx 
and  CO2),  from  nuclear  power  to  fisheries  or  toy  safety,  cases  in  which  the  U.S.  has  used  more 
precaution  than  the  EU  abund.  And  even  where  the  EU  has  adopted  a  more  precautionary 
approach, this does not automatically translate into an anti-innovation stance: to the contrary, the 

39  See  Commissioner  Moedas’  speech,  “Better  Regulation 

for 

Innovation”,  26  May  2016,  at 

https://ec.europa.eu/commission/2014-2019/moedas/announcements/better-regulation-innovation_en.   

24 

 
                                                 
stringency,  appropriate  timing  and  overall  quality  of  regulation  can  only  be  a  stimulus  to 
innovation, as increasingly recognized also by the European Commission.  

Box – Planned adaptive regulation: where Europe leads on smart regulation 

There is widespread consensus among scholars that regulation in a number of fields must become 
more adaptive and flexible, often to remain in tune with breath-taking technological development. 
Nowhere is adaptive regulation more explicitly  invoked than in  the field  of drug  development  and 
testing,  where  the  cost  of  developing  new  drugs  is  increasing,  and  policymakers  have  to  solve  a 
number  of  trade-offs  such  as  that  between  the  need  for  a  timely  introduction  of  drugs  into  the 
market, and the need for reasonable certainty about the effects of the drug on patients. Over the 
past  few  years,  several  countries  have  experimented  with  prospectively  planned  adaptive 
approaches to drug licensing by using various labels, including staggered approval, managed entry, 
adaptive  approval,  and  progressive  authorization.  Recently,  a  paper  co-authored  by  several 
representatives of institutions and academia proposed a working definition of “adaptive licensing”, 
as  “a  prospectively  planned,  flexible  approach  to  regulation  of  drugs  and  biologics.  Through 
iterative  phases  of  evidence  gathering  to  reduce  uncertainties  followed  by  regulatory  evaluation 
and license adaptation, [adaptive licensing] seeks to maximize the positive impact of new drugs on 
public  health  by  balancing  timely  access  for  patients  with  the  need  to  assess  and  to  provide 
adequate  evolving  information  on  benefits  and  harms  so  that  better-informed  patient-care 
decisions can be made.”  

Adaptive licensing seems to feature a number of very important prospective benefits in the form of 
earlier  access  to  treatment,  and  better  monitoring  of  risks  (Eichler  et  al.  2015).  In  this  field,  the 
proactive and enlightened approach of the European Medicines Agency and its authoritative Senior 
Medical  Officer  have  placed  Europe  in  the  driving  seat  when  it  comes  to  the  development  of 
adaptive pathways, which build upon the experience of Conditional Marketing Authorizations in the 
EU (and Accelerated Approvals in the US). The introduction of an observational phase between the 
experimental pre-licensing phase and the post-approval phase is expected to improve accuracy of 
approval  and  time-to-market  for  proposed  treatments.  In  all  this,  data  collection  and  sharing  is 
absolutely  of  the  essence,  and  authorities  both  in  the  U.S.  and  in  the  EU  still  have  not  defined  a 
viable way to enable sharing of clinical trial data without compromising privacy and confidentiality 
of  information.  Possible  future  improvements  in  this  respect  could  consist  in  the  creation  of  a 
shared,  distributed  platform  (of  the  types  used  by  the  blockchain)  shared  by  pharmaceutical 
companies  and  coordinated  by  regulators,  in  which  access  to  clinical  data  could  be  granted 
selectively to market players and not to other third parties.  

Against  this  background,  the  example  of  adaptive  licensing  is  not  only  a  possible  precedent  for 
many  other  fields  of  policy  (and  indeed,  the  UK  “regulatory  sandbox”  approach  in  FinTech 
resembles  this  approach);  but  it  is  also  a  good  example  of  regulatory  flexibility  and  data-driven 
regulatory innovation that are made possible, in Europe, by the innovation-oriented mindset of the 
EMA and its senior staff. A reassuring testimony that adaptive regulation is possible also in Europe; 
and possibly a sign that open data in the U.S. is still not a reality in many policy fields.   

5

  NEGOTIATED REGULATION IN THE UNITED STATES, AND ITS RELEVANCE FOR 

EU INNOVATION DEALS 

Since  the  mid-1970s,  many  commentators  in  the  United  States  have  advocated  the  use  of 
negotiated  rulemaking  as  a  more  efficient,  sensible  alternative  to  the  traditional  "notice  and 
comment"  procedure  typically  followed  by  federal  agencies  in  the  development  of  regulations. 
Occasionally  in  the  1970s,  and  more  often  in  the  1980s,  EPA,  OSHA,  and  other  federal  agencies 
used the negotiation process as an aid to the development of certain regulations. During the 1990s 
and  the  early  2000s,  the  U.S.  Environmental  Protection  Agency  has  been  very  active  in 
experimenting with flexible regulatory solutions to offer incentives for the private sector to invest in 
environmentally innovative solutions. The underlying idea, as summarized by Caldart and Ashford 
(1999;  2007),  is  that  negotiation  is  more  efficient  than  more  adversarial  regulatory  approaches 
since  it  saves  resources  and  allows  a  more  effective  management  of  incentives.  This  idea,  which 
seems  to  come  close  to  the  underlying  approach  of  the  Dutch  “Green  Deals”,  has  however 
produced  mixed  results  in  the  U.S.,  and  was  later  superseded  by  different  approaches  to 
regulation. 

25 

 
 
5.1  The anatomy of “Reg neg” 

In  1990,  Congress  formally  endorsed  negotiated  rulemaking  with  the  passage  of  the  federal 
Negotiated  Rulemaking  Act,  and  both  the  Clinton  Administration  and  the  current  administration 
have  been  among  negotiated  rulemaking’s  strong  supporters.  Those  who  advocate  negotiated 
rulemaking – including Congress - tend to identify two primary benefits that are expected to flow 
from  its  use:  reduced  rulemaking  time,  and  decreased  litigation  over  the  final  rule.  In  practice, 
however, it is not at all clear that negotiated rulemaking delivers on either of these promises. Of all 
the federal agencies in  the United  States, EPA  has  used negotiated rulemaking the most often. A 
study by Penn’s Cary Coglianese (1997) concluded that: (a) on average, the promulgation of EPA 
rules  through  negotiated  rulemaking  took  no  less  time  than  did  the  promulgation  of  a  “control” 
group  of  similar  EPA  rules  through  traditional  notice  and  comment  rulemaking;  and  (b)  50%  of 
EPA's twelve finalised negotiated rulemakings were the subject of legal challenge, compared with a 
litigation rate of 26% for all EPA rules issued during the period from 1987 through 1991.  

Caldart  and  Ashford  (1999;  2007)  observe  that  there  are  three  major  instances  in  which 
negotiation has been used to make or effectuate policy within the federal administrative system of 
the  United  States:  (i)  negotiated  rulemaking,  wherein  negotiation  is  used  to  help  set  regulatory 
standards;  (ii)  negotiated  implementation,  where  negotiation  is  used  to  determine  how  a 
regulatory  standard,  once  set,  is  to  be  applied  to  a  particular  firm  (or  other  member  of  the 
regulated community); and (iii) negotiated compliance, where negotiation is used to determine the 
terms by which regulatory standards will be enforced against a particular firm (or other regulated 
entity) that is out of compliance with a particular regulatory standard.  

Cases of negotiated rulemaking in the early years included (Caldart and Ashford, 1999): 

  The  woodstoves  rule,  aimed  at  regulating  woodstoves-one  of  the  primary  contributors  of 
polycyclic  organic  matter  -  as  “stationary  sources”  of  air  pollution  under  Section  111  of  the 
Clean  Air  Act40.  To  devise  such  a  national  emission  standard,  EPA  convened  an  advisory 
committee  consisting  of  representatives  from  industry,  environmentalists,  certain  states,  a 
consumer  group,  and  the  agency  itself.  Agreement  on  a  single  national  standard  was 
complicated,  however,  by the  fact  that  there  were  two  major  categories of  woodstoves on  the 
market-  those  that  utilised  catalytic  combusters  and  those  that  did  not.  It  was  clear  that,  at 
least  in  the  short  term,  the  stoves  with  catalytic  combusters  were  capable of  meeting  a  lower 
(more protective) emission standard than those without catalytic combusters. Because catalytic 
combusters  require  a  higher  degree  of  maintenance,  however,  there  was  some  question  as  to 
whether  they  would  continue  to  deliver  this  greater  level  of  emission  reduction  over  the  long 
term. Rather than resolve this technical issue, the negotiating committee agreed rather early on 
to adopt the industry position on the matter, and to-propose two standards - one for stoves with 
catalytic combusters and the other for those without. Thus, the opportunity to diffuse what may 
well  be  a  superior  emission-reduction  technology  throughout  the  woodstove  industry  was  lost 
(as was an opportunity for innovation through the development of new woodstove technology).  

  The  coke  oven  emissions  rule.  In  1992,  EPA  estimated  that  some  3.5  million  pounds  of  toxic 
chemicals, including benzene, phenol, toluene, and polyaromatic hydrocarbons, were emitted to 
the air annually from coke ovens operating in the US Based on this estimate, EPA put the cancer 
risk to exposed individuals at 1 in 100. Many of the materials emitted by coke ovens are subject 
to regulation as hazardous air  pollutants under Section 112 of the Clean Air Act, and the 1990 
amendments to the Act specifically required that Section 112 standards for coke oven emissions 
be promulgated by December 31, 1992. In early 1992, after meeting with representatives of the 
steel  industry,  relevant  labour  unions,  states,  and  environmental  groups  "to  discuss  available 
data  to  be  used  as  the  basis  of  [a  Section  112  regulation],"  EPA  convened  a  negotiated 
rulemaking  committee  that  drew  from  all  of  these  constituencies.  After  several  negotiating 
sessions, the committee agreed on a draft  rule that  was proposed by the agency in December 
1992, and was published as a final rule in October 199341. At the conclusion of the negotiated 
rulemaking  process,  participants  from  environmental  groups,  labour,  industry,  and  state 

40 Section 111 of the Clean Air Act requires that a New Source Performance Standard (NSPS) reflect the level of 
emission  limitation  achievable  through  the  application  of  the  "best  system  of  emission  reduction...[that] 
has been adequately demonstrated." 

41 In general, Section 112 of the Clean Air Act takes a two-tiered approach to the regulation of hazardous air 
pollutants.  EPA  is  first  to  set  technology-based  emission  standards,  on  an  industry-category  by  industry-
category  basis.  These  are  commonly  known  as  the  "MACT"  standards,  because  they  are  to  be  set  with 
reference to the application of the maximum achievable control technology that the industry category can 
currently achieve. 

26 

 
                                                 
governments  all  expressed  their  satisfaction  with  the  negotiated  rule42.  Caldart  and  Ashford 
(1999)  argued  that  the  chief  contribution  of  negotiation  to  the  rulemaking  process  appears  to 
have  been  to  afford  the  industry  the  opportunity  to  negotiate  a  standard  that  actually  is  less 
stringent than that which was mandated by Congress.  

  The wood furniture coatings rule, another Section 112 regulation that was drafted, in large part, 
through  negotiated  rulemaking.  After  a  series  of  public  meetings  with  representatives  from 
industry,  environmental  groups,  and  state  government  in  late  1992  and  early  1993,  EPA 
convened  a  negotiated  rulemaking  committee  to  attempt  to  formulate  a  rule  governing  wood 
furniture (surface coatings) nation-wide. The final rule - virtually unchanged from the proposed 
rule - was promulgated on December 7, 1995, although portions of the rule were challenged in 
court  by  the  chemical  industry.  Based  on  the  committee's  work,  EPA  determined  that  wood 
furniture  manufacturers  performed  four  basic  operations  in  producing  a  finished  product  - 
finishing, gluing, cleaning and washoff - and the proposed rule contained standards for each. All 
but the gluing operation standards were drafted by the committee. The standards for the gluing 
operations  were  developed  "outside  of  the  regulatory  negotiation  process,  because  adhesive 
suppliers  were  not  represented  on  the  Committee."  The  wood  furniture  rule  might  well  be 
viewed  as  a  compromise  of  the  stringency  of  emission  levels  in  exchange  for  a  clear  focus  on 
pollution  prevention  (as  opposed  to  simply  "end-of-pipe"  emission  control).  Concerns  were 
expressed as, despite a number of technical concerns, EPA simply accepted the proposed rule as 
written  by  the  negotiated  rulemaking  committee  (Caldart  and  Ashford  1999).  Nonetheless,  it 
does  appear  that  the  use  of  negotiated  rulemaking  facilitated  the  agency's  focus  on  pollution 
prevention  in  the  development  of  the  rule.  It  seems  likely  that  the  active  participation  of 
industry  representatives  (who  are  in  the  best  position  to  identify  productive  opportunities  for 
pollution  prevention)  helped  to  both  deepen  and  legitimise  the  committee's  efforts  to  build 
pollution  prevention  into  the  rule.  Moreover,  the  committee  negotiations  produced  an 
agreement, outside of the parameters of the rule, under which the industry will prepare a semi-
annual "trends report," beginning in 1994, which is to contain "a brief discussion of technologies 
being  used  by  the  industry  to  reduce  emissions,  and  a  discussion  of  evolving  technologies 
including  new  finishing  materials,  adhesives,  and  improved  application  equipment."  This 
agreement  reflects  the  belief  -  apparently  shared  by  many  committee  members  -  that  "new, 
lower  emitting  (both  VOC  [volatile  organic  compounds]  and  HAP)  technologies...-  are...on  the 
threshold of demonstration." In addition, to help determine whether the rule actually results in 
the  targeted  reductions  in  hazardous  air  pollutant  emissions,  and  to  determine  whether  those 
emission  reductions  are  being  met  through  the  substitution  of  other  hazardous  chemicals  that 
are not regulated as hazardous air pollutants, the trends report is to include a chemical use and 
emission survey from a representative sample of the industry. 

Caldart  and  Ashford  (1999)  provide  a  comparison  table  of  these  three  negotiated  regulations, 
shown below, and argue that:  

  The  woodstoves  rulemaking  did  not  seek  to  push  the  envelope  of  woodstove  technology,  and 
focused instead on the diffusion of existing control technology: the mixed rating stems from the 
fact that it set a different emission standard for each of the two types of woodstove technology 
on  the  market,  rather  than  seeking  to  devise  a  standard  that  would  diffuse  the  superior 
technology throughout the industry. This resulted in short-term environmental gain, but did not 
create  a  strong,  consistent  signal  designed  to  encourage  the  kind  of  innovation  in  woodstove 
technology that might produce greater environmental gain in the long-term.  

  Similarly,  the  coke  oven  rule  focused  on  the  use  of  readily-available  control  techniques  to 
improve  the  performance  of  the  dominant  existing  (byproduct  recovery)  technology,  and  has 
resulted in short-term environmental gain. Further, by setting a standard for new facilities that 
is  not  tied  to  the  performance  of  the  cleaner  existing  technology,  and  by  setting  a  2010 
standard for existing facilities that many firms were meeting easily in 1993, the negotiated rule 
provides  clear  incentives  for  keeping  the  dirtier  technology  in  operation  longer,  thus  actually 
reducing long-term environmental gain. 

42 Eight years later, the agency is to set a more stringent, health-based standard if further emission reductions 
are  deemed  necessary  to  provide  "an  ample  margin  of  safety  to  protect  public  health."  A  health-based 
standard  for  carcinogens  must  be  set  if  the  technology-based  standard  fails  to  "reduce  lifetime  excess 
cancer risks to the individual most exposed to [the] emissions...to less than one in one million." For coke 
oven  emissions  in  particular,  however,  Section  112  offers  an  alternative  whereby  a  source  may  delay 
compliance  with  the  health-based  standard  until  2020  if  it  meets  a  different,  more  stringent  technology-
based  standard  in  the  interim.  The  committee  followed  this  framework  in  drafting  its  proposed  rule,  and 
steel industry representatives said afterwards that, because they viewed any likely health-based standard 
as  "essentially  a  shut-down  standard,"  they  expected  all  plants  except  those  that  planned  to  go  out  of 
business in the near future to choose this "extended compliance" option. 

27 

 
                                                 
  The wood furniture coatings rule, in contrast, had both a focus on pollution prevention - denoted 
as  "+(PP)"  -  and  a  focus  on  innovation.  It  can  thus  be  expected  to  diffuse  existing  pollution 
prevention technologies and, especially given industry's agreement to prepare the semi-annual 
trends report, has a real potential to produce innovation (and, concomitantly, to produce long-
term environmental gain). 

Table 1. Technological and environmental impact of three negotiated air emission standards 

Diffusion 

Innovation  Short-term 

environment gain 

Long-term 
environment gain 

Woodstoves 

Coke ovens 

+/- 

+/- 

 

 

Wood 
furniture 

+(PP) 

+(PP) 

+ 

+ 

+ 

 

 

+ 

Source: Caldart and Ashford (1999) 

5.2  Negotiated implementation 

A different type of negotiated rulemaking is so-called “negotiated implementation”. Cases in point 
are the so-called “innovation waivers” and EPA’s Project XL initiative. More specifically: 

  Various  US  environmental  statutes  have  had  provisions  allowing  EPA  to  issue  innovation 
waivers  to  qualifying  firms,  thus  allowing  them  additional  time  to  develop  innovative 
approaches  to  compliance.  The  Clean  Air  Act  and  Clean  Water  Act  both  contain  provisions 
authorising EPA to  grant innovation  waivers in certain  circumstances. Under  these  provisions, 
EPA  is  authorised  to  extend  the  deadline  by  which  a  firm  must  meet  emission  or  effluent 
limitations, so long as the agency is persuaded that the firm is actively pursuing an innovative 
approach to compliance that shows real promise of coming to fruition. Innovation waivers are 
meant to focus squarely on the innovation of new technology, and are not designed to promote 
diffusion of an existing technology. Basically, the innovation waiver exempts the firm from such 
penalties  during  a  designated  trial  period,  and  offers  it  the  prospect  of  the  cost  savings  that 
may be derived from the development of a superior technology. Although it may be unrealistic 
to expect EPA to use innovation waivers to promote radical process innovation, because of the 
long time generally needed to develop the innovation, the agency might well use such waivers 
to  encourage  both  incremental  process  innovation  and  the  acceleration  of  radical  innovation 
already underway. 

  A similar approach was adopted by EPA through the Excellence in Leadership Project, popularly 
known  as  Project  XL.  The  Clinton  White  House  announced  this  program,  with  considerable 
fanfare, in a 1995 policy statement, and EPA published a set of guidelines for approving Project 
XL proposals in 1996. The basic idea of Project XL was to allow regulatory flexibility, in return 
for superior environmental performance, at selected facilities, on a facility-by-facility basis. As 
conceived,  the  cornerstone  on  which  Project  XL  was  to  rest  is  negotiation  among  the 
regulators,  the  facility  owners,  and  the  affected  community,  resulting  in  a  Final  Project 
Agreement  ("FPA")  governing  environmental  performance  at  the  facility.  The  underlying 
rationale  for  Project  XL  was  the  belief  that,  for  appropriately  selected  (new  and  existing) 
facilities,  such  negotiations  could  produce  a  plan  for  limiting  pollutant  discharge  from  the 
facility  that  will  both  cost  less,  and  reduce  environmental  and  public  health  risks  more,  than 
would  have  been  the  case  under  existing  regulations43.  The  program  was  far  from  a  clear 
success,  and  no  new  applications  were  taken  after  January  2003.  Few  FPAs  have  been 
negotiated, and some of those that have are the subject of considerable debate and opposition. 
A  fundamental  problem  with  Project  XL  was  that  it  envisioned  a  kind  of  regulatory  flexibility 

43  Negotiation  between  the  agency  and  the  facility  owner  (sometimes  also  involving  environmental  groups 
and/or  local  community  groups)  is  commonplace  in  the  permitting  process.  Project  XL  negotiations  were 
different, however, in that they purported to replace current standards with an alternative approach, while 
traditional permit negotiations generally are over the proper way to apply current standards to the facility 
in question. Thus, XL purported to be the negotiation of environmental policy, albeit on a facility-by-facility 
basis. 

28 

 
 
 
                                                 
that  has  not  been  authorised  by  Congress;  in  addition  XL  fell  short  of  defining  the  relevant 
“community” and its composition, and thus to trigger a real multi-stakeholder process44.  

5.3  Negotiated compliance 

A third approach to regulatory flexibility was negotiated compliance, where negotiation was used to 
determine the terms by which regulatory standards was enforced against a particular firm (or other 
regulated entity) that was out of compliance with a particular regulatory standard. By its nature, of 
course, almost all enforcement involves some amount of negotiation between the enforcing agency 
(or,  in  the  case  of  citizen  enforcement  suits,  the  enforcing  citizen)  and  the  alleged  violator.  Of 
interest  here  are  those  compliance  negotiations  that  result  in  compliance  through  the  use  of 
innovative technology, and/or environmental gains beyond compliance. Since the early 1990’s, EPA 
has  pioneered  the  use  of  what  it  terms  "Supplemental  Environmental  Projects"  in  an  attempt  to 
meet these goals within the compliance context. The key to the SEP policy is the trade-off between 
penalties and SEPs. The  EPA 2015 Updated  SEP Policy  revises  and supersedes the February 1991 
Policy on the Use of SEPs  in EPA  Settlements, the May 1995 Interim  Revised SEP Policy, and the 
May 1998 EPA SEP Policy. It also reflects and incorporates by reference all the policy and guidance 
documents  listed  on  this  site  (which  may  contain  more  detailed  discussions  of  certain  issues). 
Where  there  may  be  inconsistencies  between  these  documents  and  the  Update,  the  Update  shall 
supersede the memoranda and guidance documents. 

5.4  Regulatory reinvention 

Finally, a fourth type of policy-relevant negotiation – regulatory reinvention –was launched during 
the  Clinton  administration,  and  continues  today  in  evolving  forms.  The  most  prominent  early 
example  was  EPA's  Common  Sense  Initiative  (CSI),  wherein  the  agency  assembled  groups  of 
interested  parties  to  focus  on  regulatory  issues  concerning  a  particular  industry  sector  (e.g., 
automobile  manufacturing),  with  an  eye  toward  developing  "cleaner,  cheaper,  smarter"  ways  of 
reducing  or  preventing  pollution.  Started  in  July  1994,  the  CSI  was  perhaps  the  most  similar 
scheme to the “green deals” applied in the Netherlands. As a matter of fact, contrary to the Project 
XL  this  scheme  had  an  industry-wide  focus,  and  was  governed  with  the  help  of  six  advisory 
committees,  one  for  each  of  six  industrial  sectors:  automobile  manufacturing,  computers  and 
electronics,  iron  and  steel,  metal  finishing,  petroleum  refining,  and  printing.  Each  advisory 
committee  consisted  of  representatives  from  EPA,  the  relevant  industry  sector,  state  and  local 
regulatory  agencies,  national  and 
labour,  and  community 
organisations. The work of these committees was overseen by a separate Council, the membership 
of which was drawn from the same sources. The Council was chaired by the EPA Administrator, and 
each of the six sector committees was chaired by an EPA official. The work of the Council and the 
committees was assisted by EPA staff. 

local  environmental  groups, 

In December 1998, arguing that the CSI approach had been proven a success, EPA announced that 
CSI itself would be phased out, but that the lessons learned from the initiative would be expanded 
to  other  industry  segments  in  a  future  action  plan.  However,  as  reported by  Caldart  and  Ashford 
(1999),  the  results  of  the  CSI  experiment  were  mixed.  While  the  initiative  brought  together  six 
groups  of  people  representing  a  diverse  set  of  interests,  and  encouraged  an ongoing  dialogue  on 
issues  that  are  important  to  the  future  development  of  environmental  policy,  CSI  has  been 
criticised  for  its  lack  of  substantive  results.  A  series  of  reviews  of  CSI  have  raised  this  issue, 
including a 1997 report issued by the U.S. Government Accountability Office45. The most important 
problems experienced were: 

44 Probably the best-known Project XL agreement to date, for  example, pertains to Intel Corporation's newest 
semiconductor  production  site  in  Chandler,  Arizona.  The  five-year  project  agreement,  which  covered 
operations at a 720-acre site, was negotiated among the company, federal and state regulators, and five 
Chandler  residents.  Although  the  participants  apparently  were  satisfied  with  the  FPA  negotiated  through 
this  process,  many  non-participants  were  not.  Two  vociferous  critics  were  the  Silicon  Valley  Toxics 
Coalition,  a  California-based  group  that  addresses  pollution  problems  in  the  semiconductor  industry,  and 
the  Natural  Resources  Defense  Council,  a  national  environmental  group.  These  two  groups,  who  were 
concerned  about  the  national  and  industry-wide  implications  of  this  agreement  as  much  as,  if  not  more 
than,  its  local  environmental impacts,  mounted  a  high-profile  campaign  against  the Intel  agreement,  and 
against  Project  XL  itself.  This  level  of  opposition  clearly  indicates  that  the  negotiating  committee  that 
devised the regulatory plan for the Intel facility was not representative of the "relevant" community. 

45 http://www.gao.gov/products/RCED-97-155  

29 

 
                                                 
  Slow  progress in  negotiations  and  results.  The  reasons  for  CSI's  slow  pace, GAO  found,  were 
multifold:  the  time  necessary  to  collect  and  analyse  data;  the  variations  in  the  participants’ 
understanding of the technical issues involved; the time taken by the participants "in reaching 
consensus  on  the  approaches  needed  to  address  large,  complex  issues  or  policies;"  the  time 
taken by participants "discussing how they would carry out their work and developing their own 
operating  standards;"  and  the  difficulties  experienced  by  some  participants  in  making  the 
necessary time commitment. None of this should be particularly surprising. Indeed, when one 
adds to this list the overall need to establish a degree of trust among the participants in each 
sector  group  sufficient  to  permit  a  meaningful  discussion  on  substantive  issues,  it  is  not 
particularly difficult to understand why substantive progress was slow in coming. 

  No formal legal context. Contrary to cases of negotiated rulemaking (see above), the CSI was 
lacking a formal legal context and a legal backstop. Moreover, it proved difficult to reconcile the 
industry’s  interest  in  cutting  red  tape  and  reducing  compliance  costs  with  the  environmental 
groups’  interest  in  high  levels  of  environmental  protection.  Thus,  it  should  not  be  surprising 
that the petroleum and automobile industries decided to abandon their participation in the CSI 
Initiative. Effective participation in negotiations of this nature takes a considerable commitment 
of  resources.  As  noted  by  the  American  Petroleum  Institute  in  a  letter  to  EPA  explaining  the 
withdrawal  of  its  member  companies  from  the  CSI  negotiations,  the  companies  “believe  the 
refining industry's resources...can be more productively directed toward other approaches.”  

 

Information  asymmetries  and  lack  of  trust.  Another  problem  was  informational  asymmetries, 
fuelled by the participants' unequal access to relevant data. If effective strategies to encourage 
pollution prevention are to be  crafted by consensus, reliable technical information  -  especially 
information  relating  to  the  technological  potential  for  pollution  prevention  -  is  likely  to  be 
important.  Much  of  the  relevant  data,  of  course,  will  be  in  the  hands  of  industry.  Without  a 
clear  incentive  to  make  these  data  available  to  the  other  participants,  industry  is  likely  to 
prefer to pick and choose what it will share, thus making meaningful negotiations all the more 
difficult. This reportedly has been a major issue, for example, in the computer and electronics 
work group. Firms reportedly have been reluctant to divulge information because "they feared 
that regulators would use data to extract further concessions," and because they believed that 
environmental  groups  would  "use  any  information  divulged  during  CSI  meetings  to  mount 
lawsuits."  This,  in  turn,  contributed  to  a  sense  of  mistrust  among  the  environmental  group 
participants. 

  Lack of focus on pollution prevention. The bulk of the CSI negotiations reportedly did not focus 
on  pollution  prevention  strategies,  let  alone  innovation,  thus  falling  well  below  EPA's  original 
expectations.   

5.5  The Performance Track initiative: rise and fall  

In  1999,  two  years  after  the  GAO  report,  EPA  issued  a  report  by  an  independent  contractor 
evaluating some 40 CSI projects (Bruninga, 1999).  The report concluded that, although there had 
been  a  small  number  of  sector-specific  modifications,  EPA  had  made  little  progress  in  addressing 
broad regulatory changes through CSI, and CSI successes were not being integrated into core EPA 
programs.  The  program  was  later  replaced  by  the  Bush  Administration’s  National  Environmental 
Performance Track program, which focused on creating partnerships with individual firms in which 
the  firms  agree  to  exceed  regulatory  requirements,  implement  environmental  management 
systems,  work  closely  with  their  communities,  and  set  three-year  goals  to  continuously  improve 
their environmental performance, in exchange  for reduced priority status for inspections, reduced 
regulatory, administrative, and reporting requirements and positive public recognition. In a recent 
paper, Coglianese and Nash (2014) argued that the results of the Performance Track program were 
also disappointing: for example, although 500 industrial facilities participated in Performance Track 
at  any  given  time,  they  note  that  this  number  represents  a  tiny  fraction  of  facilities  potentially 
eligible to apply. 

Overall,  the  key  problems  with  negotiated  compliance  programs  at  EPA  were  low  participation, 
loose  governance  and  the  lack  of  dramatic  environmental  progress.  Low  participation  was 
attributed  to  insufficient  inducements  to  encourage  industry  participation  and  disincentives  that 
cause firms to consider participation undesirable46. Loose governance ended up resulting in lack of 

46  For  example,  EPA’s  notoriously  underperforming  Climate  Wise  program  has  been  strongly  criticized  for 

relatively weak participation incentives. 

30 

 
                                                 
real  monitoring  of  compliance,  especially  in  Performance  Track47.  In  addition,  scholars  like  Lyon 
and Maxwell asserted that public voluntary programs “are generally weak tools adopted when the 
political will to  take stronger  action  is missing”; in  other words, voluntary programs were utilized 
specifically  because  the  agency  lacked  statutory  authority  to  regulate  more  stringently,  and  also 
due to Congressional stalemate in addressing environmental policy.  

A final addition to this list of problems, not fully identified in the literature, is the likelihood that the 
public,  voluntary  nature  of  these  programs  led  to  some  degree  of  adverse  selection:  in  other 
words,  rather  than  the  firms  willing  to  lead  on  environmental  performance,  the  firms  willing  to 
“greenwash”  would  be  the  perfect  candidate  for  the  Performance  Track.  For  example,  Coglianese 
and Nash (2014) report that “while Performance Track members are not necessarily the strongest 
environmental performers, they appear to have been generally strongest in their desire for public 
recognition”.  

5.6  Consequences of the U.S. experience for the “innovation 

deals” in Europe 

In  its  Staff  Working  Document  on  “Better  Regulation  for  Innovation-driven  Investment”,  the 
European Commission announces that it will pilot so-call “innovation deals”. More recently, a more 
detailed explanation of the Innovation Deals was provided by the Commission along with a first call 
for participation, which will lead to the selection of up to five deals48. The Commission has clarified 
that these deals would be a new way to address EU regulatory obstacles to innovation in an open 
and  transparent  manner,  in  the  form  of  a  voluntary  cooperation  between  innovators, 
national/regional/local authorities and Commission services to better achieve EU policy objectives. 
In  addition,  Innovation  Deals  are  being  piloted  as one  of  the  actions  under  the  Circular  Economy 
Action  Plan  and  in  the  pilot  phase  will  operate  only  in  the  area  of  the  Circular  Economy.  An 
important feature of Innovation  Deals is that they seem  to be destined to specific cases  in which 
legislation must be clarified, or interpreted, not amended. They are, in this respect, presented as a 
“bottom-up”  tool  for  addressing  cases  in  which  legislation  is  difficult  to  interpret  for  new  players, 
but  never  as  a  way  to  change  EU  or  national  law.  That  said,  of  course,  in  case  the  evidence 
gathered reinforces the view that a regulatory or legislative obstacle acts as a barrier to innovation, 
the  Commission  services may  consider  launching  further  evaluation,  consultation  and  assessment 
of  the  impact  of  this  regulatory  obstacle,  thus  complementing  and  feeding  into  the  REFIT 
programme. 

Based  on  the  U.S.  experience  described  in  the previous  section,  there  are  important  concerns  on 
the  suitability  of  innovation  deals  as  a  stand-alone tool  that  could  foster  systemic  innovation  and 
promote progress. First, is it important to avoid that  Innovation Deals are inspired by  a desire to 
reduce  regulation,  rather  than  to  improve  it.  As  already  mentioned  above,  regulation  often  has  a 
positive impact on innovation, and certainly a clearer regulation, other things being equal, is better 
than  an  obscure  one.  But  this  does  not  mean  than  less  regulation  should  be  the  objective  in 
innovation  deals.  So  far,  the  Commission  seems  to  have  confined  Innovation  Deals  to  cases  in 
which there are “perceived” regulatory and legislative obstacles to specific types of innovation, and 
the Commission can work in the direction of clarifying the regulatory framework and its application 
to  avoid  chilling  effects generated by  regulatory  uncertainty.  But  only  the  first  pilots  will  clarify  if 
requests coming from stakeholders will aim at mere clarification of the application of EU legislation, 
or will take the form of simplification requests.   

Second,  the  likely  nature  of  innovation  deals  make  them  ill-suited  for  more  disruptive,  systemic 
innovation. As a matter of fact, due to their negotiated nature innovation deals can suffer from an 
“incumbency” problem, and as such would lend themselves more easily to incremental innovation, 
rather than substantial market reshuffling.   

47  See  Coglianese  and  Nash,  2014.  In  January  2006,  the  non-profit  advocacy  group  Environmental  Integrity 
Project (“EIP”) joined with about thirty local and regional  environmental organizations to support Walke’s 
letter.  EIP  argued  further  that  some  Performance  Track  members  were  delivering  less  than  top 
performance — noting that fourteen members “appear to have violated one or more federal environmental 
laws” at least six times in the previous twelve quarters. EIP also issued a briefing paper that argued that 
“some of  the  manufacturers  reaping  Performance  Track  rewards  are releasing more  toxic  pollution  to  the 
environment than they were before signing up for the program.”258 EIP questioned the wisdom of relaxing 
inspections and reporting requirements for facilities that were increasing their pollution levels.259 At about 
the  same  time,  EPA’s  Office  of  Inspector  General  (“IG”)  opened  an  investigation  into  Performance  Track 
and,  in  a  report  issued  in  2007,  reached  conclusions  similar  to  those  expressed  by  the  environmental 
groups. 

48 See https://ec.europa.eu/research/innovation-deals/index.cfm; and  

31 

 
                                                 
Third, and relatedly, the governance of Innovation Deals should be clarified in a number of aspects. 
How will Innovation Deals be  selected,  where would the applications originate (REFIT stakeholder 
platform),  whether  there  would  be  multi-stakeholder  advisory  boards  to  avoid  incumbency 
problems,  whether  the  Regulatory  Scrutiny  Board  would  advise  on  their  implementation  and 
compatibility with existing regulatory frameworks; how would trust be built and nurtured, and what 
arrangements will be in place to sufficiently avoid adverse selection problems (offering an easy way 
out to firms that cannot comply with legislation for reasons related to their own inadequacies). In 
addition,  there  are  important  question  marks  on  how  to  offer  legal  certainty  (guidelines  on 
selection,  due  process,  time  horizon,  monitoring  of  compliance,  evaluation);  how  to  ensure 
technology  neutrality  and  avoid  the  incumbency  problem;  and  how  to  deal  with  multi-level 
governance,  especially  for  what  concerns  the  powers  of  the  European  Commission  to  request 
clarifications  in  national  and  local  legislation.  Since  it  seems  clear  that  it  will  be  Member  State 
authorities  that  will  have  to  report  on  their  implementation  and  results,  it  is  still  unclear  how 
Innovation  Deals  are  going  to  work,  in  a  context  in  which  communication  between  the  EU  and 
national level is not always effective and rapid. The involvement of all levels of government should 
also be accompanied by the involvement of all relevant stakeholders. And also, a weak rule of law 
in specific Member States should be taken into account.  

Overall,  it  is  important  to  offer  more  certainty  as  regards  the  scope  of  the  instrument.  If  the 
Innovation  Deals  are  only  related  to  possible  “clarification,  enhanced  guidance,  existing  flexibility 
and/or  demonstration  of  the  innovative  solution”  (see  the  SWD of  15  December  2015),  then it is 
also  important to  clarify  that  their  use  is  not  going  to  be  a  “magic  bullet”  solution  that  will  bring 
Europe back to growth, let alone sustainable development. If anything, it would mark an enhanced 
attention to possible obstacles to innovation disseminated throughout the “downstream” phase  of 
EU legislation, i.e. the delivery and enforcement phases. The reasonable expectation is that most of 
these  obstacles  will  be  found  in  national  legislation,  or  at  least  in  national  practices  in  the 
implementation  and  enforcement  of  EU  rules:  that  said,  it  is  not  clear  whether  the  Commission’s 
attempt to clarify or streamline national enforcement practices would be well received by Member 
States, or if it will be seen as a wild card for the Commission, which will lead it to go ultra vires and 
bypass other EU institutions to recommend and de facto impose regulatory changes on lower levels 
of government.  

6

  MAIN FINDINGS AND POLICY IMPLICATIONS FOR THE EUROPEAN UNION 

There  is  a  lot  that  Europe  can  and  should  learn  from  the  U.S.  experience  described  above, 
particularly  in  the  field  of  introducing  pro-innovation  governance  arrangements  in  individual 
administrations,  in  regulating  for  innovation,  and  in  the  domain  of  flexible  approaches  to 
regulation. The main findings can be summarised as follows: 

 

The new strategy for American innovation contains very interesting new initiatives such as the 
creation of smart, mission-led innovation agencies (e.g. ARPA-E), the launch of innovation labs 
and toolkits as well  as digital service  teams inside  agencies, and more generally all efforts to 
mainstream  innovation  in  all  administrations  through  a  “whole  of  government”  approach, 
functional i.a. to open government and open innovation.  

  While the better regulation agenda per se does not provide very useful suggestions for the EU, 
pro-innovation  stances  are  to  be  found  in  horizontal  policies,  as  well  as  in  dedicated 
approaches adopted by individual Federal agencies such as the FTC, and in horizontal policies 
such as competition policy.   

  On  the  contrary,  there  is  no  strong  evidence  that  confirms  that  European  innovation  is  being 
hampered  by  the  precautionary  principle.  Solid  research  demonstrated  that  in  many  policy 
fields the U.S. has adopted a more precautionary approach than the EU. Accordingly, there is 
no strong argument in favour of replacing the precautionary principle with a more risk-oriented 
approach to regulation. This finding  is further  consolidated by the observation  of the different 
balance  struck  by  the  two  legal  systems  between  ex  ante  risk  regulation  and  ex  post  control 
exerted  by  the  litigation  system  (in  particular,  tort  litigation).  Of  course,  this  does  not  mean 
that the EU regulatory system cannot be made more innovation-friendly: impacts on innovation 
could be more adequately taken into account in the ex-ante and ex post evaluation of policies, 
and, albeit at the margin, through clarification instruments such as innovation deals.  

 

The  experience  of  the  U.S.  with  “Reg  Neg”  allows  to  draw  a  general  lesson:  the  idea  of 
consensus-based regulation and the practice  of  negotiated rulemaking and other forms of co-
regulation  present  the  risk  of  embedding  incumbency  interests  into  the  overall  regulatory 
scheme,  tilting  its  balance  against  new  entrants  and  smaller  players.  For  example,  even 
scholars that have largely praised  Reg  Neg  for its results (Freeman and Langbein 2000) have 
noted  “the  disproportionate  costs  it  imposes  on  smaller  groups  with  comparatively  fewer 

32 

 
resources”, and reported that “whether or not to participate in a reg neg proved a more difficult 
decision  for  environmental  organizations  and  other  similar  groups  than  for  larger  parties  like 
big  business  or  state  government  regulators.  Smaller,  poorer  groups  also  reported  suffering 
from resource deficits as compared to their larger, richer negotiating partners”.  

 

The  risk  of  embedding  an  incumbency  bias  into  regulatory  schemes  is  a  serious  one,  which 
deserves adequate mitigation strategies.  

o  First, the European Commission should seek adequate multi-stakeholder representation 
in  all  groups  that  will  be  formed  to  address  problems  raised  by  regulated  entities 
invoking  an  innovation  deal.  Should  the  request  be  purely  referred  to  the  need  for 
clarification,  the  overall  impact  on  the  market  (but  then,  also  on  innovation)  is 
expected  to  be  minimal;  but  when  stakeholders  request  important  changes  in 
implementing  measures,  the  impact  of  such  changes  on  all  stakeholders  should  be 
adequately gauged.  

o  Second,  the  European  Commission  should  always  ensure  that  management-based 
regulation  and  forms  of  co-regulation  are  accompanied  by  adequate  monitoring  and 
enforcement,  in  order  to  avoid  being  captured  by  information  reported  by  incumbent 
players.  

o  Third, when collecting data and information on possible strategic, systemic changes in 
policy, the Commission should avoid focusing only on costs, and asking only incumbent 
players whether there is a need for  reform  (as currently occurs at least in cumulative 
cost assessments).  

33 

 
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36 

 
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Regulation  has  for  a  long  time  been  considered  mainly  as  an  obstacle  to 
innovation,  especially  with  respect  to  rules  that  create  so-called  “red  tape”,  or 
administrative  burdens.  But  academics  have  demonstrated  that  regulation  can 
greatly  facilitate  innovation,  by  creating  markets  for  existing  ideas  and 
stimulating  entrepreneurship  and  inventions  that  contribute  to  social  welfare. 
looks  at  the  US  experience  with  pro-innovation  regulatory 
This  paper 
approaches, and finds it to be a useful reference for the EU, particularly for what 
concerns  pro-innovation  governance  arrangements  in  individual  administrations, 
and in the shaping of innovation-friendly regulation,  including through adaptive, 
flexible  regulatory  approaches.  The  new  strategy  for  American  innovation, 
released  in  October  2015,  contains  very  interesting  initiatives  such  as  the 
creation of smart, mission-led innovation agencies; the launch of innovation labs 
and  toolkits  as  well  as  digital  service  teams  inside  agencies;  and  efforts  to 
mainstream  innovation  in  all  administrations  through  a  “whole  of  government” 
approach.  Importantly,  an  analysis  of  the  US  experience  suggests  that 
consensus-based  regulation  and  negotiated  rulemaking  can  present  the  risk  of 
embedding  incumbency  interests  into  the  overall  regulatory  scheme,  tilting  its 
balance  against  new  entrants  and  smaller  players.  This  risk  deserves  adequate 
mitigation  strategies,  and  should  be  taken  into  account  when  introducing  new 
features  such  as  the  “innovation  Principle”  and  “innovation  deals”  in  the  EU 
policymaking process. 

Studies and reports 

ISBN 978-92-79-59001-6