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Europaudvalget 2006-07
Det Europæiske Råd 20/10-06 Bilag 2
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COMMISSION OF THE EUROPEAN COMMUNITIES

Brussels, xxx

COM(2006) yyy final

COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN COUNCIL

(INFORMAL MEETING IN LAHTI – FINLAND, 20 October 2006)

An innovation-friendly, modern Europe

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COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN COUNCIL

(INFORMAL MEETING IN LAHTI – FINLAND, 20 October 2006)

An innovation-friendly, modern Europe

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I. I

NTRODUCTION

The world has become a more intensely competitive environment in a relatively short period

of time as more and more countries have entered the global market place. Meeting at

Hampton Court last October, Heads of State and Government recognised that to be successful

in a global economy and achieve the rates of growth necessary to sustain our living standards,

Europe must do more to harness its creative power and ability to convert knowledge into high

quality products, services and new business models for which there is strong global demand.

Progress on innovation will be central to the success of the renewed Lisbon Strategy for

Growth and Jobs.

Europe has a proud tradition of inventing solutions that have improved people’s lives all over

the world: from life-saving medicines to advanced mobile telecommunications. Innovation is

key to tackling the main challenges we face now, such as climate change, detection and

prevention of diseases, congestion, insecurity, and social exclusion.

The Commission has already presented an overall framework designed to foster innovation in

Europe and a 10 point action plan

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to foster innovation which was recently discussed by the

Competitiveness Council. This paper focuses on a small number of specific issues which have

a European dimension and which, if strongly supported by the Heads of State and

Government, have the potential to produce very significant benefits (in a relatively short time-

scale).

II. W

HERE DOES

E

UROPE STAND

?

The innovation performance of the EU as a whole is still lagging behind its main competitors,

even though some Member States' economies are amongst the most innovative in the world.

China and India, who have long challenged us in the traditional labour-intensive sectors, are

now taking huge steps forward in innovation and technology. Economic reforms are turning

them and other emerging economies into serious global competitors across a wide range of

high growth sectors. Many emerging economies are taking a strategic approach to innovation,

investing heavily in their high-tech infrastructure and producing large numbers of talented,

highly educated workers.

Europe and its Member States possess many innovation assets. But we also suffer from a

number of paradoxes:



We invent but frequently do not convert our inventions into new products, jobs and patents



There are many small, highly innovative start-ups but they do not easily grow into big,

globally successful companies



In certain sectors, such as telecommunications, the adoption of (ICT) innovations has

resulted in important productivity gains, but in others, such as financial services and

distributive trades, this has failed to happen

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"Putting knowledge into practice: a broad-based innovation strategy for the EU", COM (2006) final,

13/09/06

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There are a number of innovation drivers at work:

First of all, providing high-quality education is critical in preparing our citizens to meet the

challenges of globalisation. Ultimately, if companies cannot find enough people with the right

skills in Europe, they will look elsewhere to invest. The average EU adult is significantly less

educated than adults in other industrialised countries.

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We also invest considerably less in

higher education than many of our competitors.

In the past, the skills people learned remained valid for decades. Now, people need to

constantly update and renew their skills but we are still not doing enough to stimulate

continuous education and retraining programmes.

The EU, like many other parts of the world, will experience large demographic changes as the

baby boom generation ages. Between now and 2030, the working age population will fall by

6.8%. This will exacerbate skilled worker shortages. In many Member States, there is already

a shortage of highly skilled staff, particularly researchers and science and engineering

graduates, who are the foundation of technology advancement.

Demographic change will have wider implications for Europe. Less than twenty years from

now about half of Europe’s population will be over 50 years old compared to only one in

three today; fewer younger people will inevitably affect society's ability to reform and

innovate.

But perhaps the greatest challenge to our education systems is organisational. Europe's

education system remains fragmented; universities do not co-operate with each other as much

as they should. In the US and Japan, many successful innovations have emerged from close

collaboration between academia and business. Europe has joined this game rather late and has

a lot of catching up to do.

Another handicap to greater innovation is that Europe's R&D investments are much lower

than those of other industrialised countries. If Member States' commitments are realised,

Europe’s R&D expenditure is expected to reach 2.6% of GDP by 2010

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, from the current

level of 1.9%. But achieving this implies considerable efforts at both national and EU levels,

notably to make Europe more attractive to R&D investment. The research investment deficit

in Europe arises mainly from much lower R&D investments by the private sector, which in

turn reflects less favourable framework conditions and a concern about profitability.

Finally, in many areas, there are still obstacles hindering economic dynamism. Many

companies face access barriers in specific markets, scarcity of venture capital and bottlenecks

in our regulatory framework or red tape which impede innovation and hinder the diffusion of

ideas. In addition, outdated structures and customs make it more difficult to adapt to rapid

change.

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For example, in 2005, only 22.8% of the EU working age population (25-64) had attained tertiary

education compared to 39% in the US and 37% in Japan (sources: Eurostat, OECD)

The overall EU R&D target for 2010 is 3% (of which 2% by the private and 1% by the public sector).

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III. T

HE KEYS TO UNLOCKING

E

UROPE

’

S INNOVATION POTENTIAL

While technological innovation is important, there is at least as much scope for non-

technological innovation, for example through changes in business models, better design and

process organisation. In fact, organisational change is usually needed to get the best out of

technological advances.

Action in the following areas would significantly boost Europe's innovative capacity:

1) Establishing European leadership in future strategic technologies

To date, Europe continues to suffer from a dispersion of limited resources

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. The European

Technology Platforms (ETPs) are an excellent instrument for greater collaboration and the

achievement of critical mass. They bring together a wide range of public and private

stakeholders to define and implement long-term research and technology agendas. They

address from an early stage the framework conditions for bringing results of R&D work

successfully onto the market. A strong commitment from national and regional public

authorities to help ETPs to realise their goals would boost their prospects of success.

Some ETPs have achieved such a scale and scope that achieving their key objectives now

requires the setting up of dedicated public-private partnerships – i.e. the creation of "Joint

Technology Initiatives" (JTIs) – which will lead to higher and more stable commitments for

research investment over the longer term.

Promising areas where the launch of JTIs is envisaged:

- Hydrogen and Fuel Cells

- Nanoelectronics

- Innovative Medicines

- Embedded Computing Systems

- Aeronautics and air transport ("Clean Sky")

- Global Monitoring for Environment and Security (GMES)

European industry stands ready to invest considerable sums of money in these initiatives

provided their investments are matched by EU funding (through the 7th Framework

Programme), complemented by individual Member States' contributions. Launching

ambitious public-private partnerships on solid economic and governance foundations is an

opportunity we cannot afford to miss if we want to establish European leadership in the

technologies of tomorrow. The European Institute for Technology could build on initiatives in

these and other promising fields.

The Commission will include, in its Progress Report on the Growth and Jobs Strategy due for

the end of this year, a road map for the early launch of the most mature JTIs.

2) Forging much stronger links between universities, research and business

In the past, universities would develop new knowledge and, when it was mature, it might be

picked up by business for commercial application. Far too much knowledge remains locked

up in universities and the development of new knowledge takes too little account of the needs

of business. This innovation model is out of date. Today, innovation is build around

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The Innovation Policy Trend Chart lists 1340 innovation support schemes in use in 28 countries.

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knowledge networks which, by sharing, developing and accumulating knowledge, facilitate a

rapid development of products and services out of new ideas.

Such cooperation between universities, large and small companies, research and knowledge

transfer institutes, investors or even associations of users and consumers is best realised

within clusters – geographically delimited areas which allow for a direct interaction between

existing stakeholders and which also attract new ones. In fact, there is strong and growing

evidence that companies co-operating in clusters are amongst the most innovative in Europe

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.

Cluster policy has therefore become an important element of Member States' innovation

strategies and should be encouraged further.

Member States and universities can do much themselves– and are already doing - to foster

closer co-operation. But significant benefits can be reaped if we manage better to exploit the

knowledge and capabilities available across the EU. The proposal to create a European

Institute of Technology (EIT) presents an innovative model for strong cooperation between

universities, research centres and the business community. The EIT will contribute to

improving the competitiveness base of the Member States by involving partner organisations

in integrated innovation, research and education activities at the highest international

standards. The EIT will help to pool Europe's resources, mobilise private sector funding for

cutting edge research, attract the best researchers from all over the world, stimulate spin-offs

of innovative SMEs, and in so doing could become a symbol of Europe's ability to work

together and innovate.

3) Improving the framework conditions

Turning knowledge into successful commercial applications does not depend on luck.

Investing in R&D alone does not suffice. There are a number of general as well as sector-

specific framework conditions that, if present, significantly improve the environment for

innovation and the chances to achieve commercial rewards. After having set a common target

for R&D spending, Europe must now focus on getting the most out of this investment by

creating the right framework conditions.

General framework conditions

A genuinely integrated Single Market

A pre-requisite for more innovation is effective competition and a fully-functioning single

market which offers sufficient scale to help large companies and many SMEs to compete

globally.

Financing innovation

It is obviously vital that individuals with good ideas can find the financing to get their ideas

off the ground. This has never been easy but for early stage financing it has become more

difficult in recent years. Venture capital funds have become less interested in very small scale

investments. This has created what many call the equity gap. As a result, many promising

ideas do not get off the ground. Further, far too many fast-growing SMES have to look

elsewhere (to America) to find the capital they need.

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Cf. Innobarometer 2006 – www.europa-innova.org

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There are no magical solutions to solving this problem. Some Member States have offered

fiscal incentives to so-called "business angels" willing to invest in small, high risk, start-ups.

The exchange of good practice will be encouraged and other public policy angles explored

which could possibly be brought to bear on this problem.

An intellectual property policy for the 21st century

Once an idea is mature, it is important for the owner to secure legally the rights to its use.

Intellectual property rights (IPRs) is typically the core asset of many companies and the

source of their competitive advantage.

Whilst views may differ on the design of the most effective framework, most agree that

Europe's current industrial and intellectual property rights regime has failed to keep pace with

fast (single) market integration, rapid technological change and changing business methods.

Europe urgently needs a clear and coherent legal framework for IPR protection fit for purpose

in the 21st century – one which embodies the following principles:



high-quality:

IPRs should be based on tough examination standards for novelty and

inventive step. A low-quality patent system is a source of legal uncertainty and litigation;



affordable:

affordable patent procedures, that balance cost with quality and legal certainty,

are a priority, especially for SMEs;



convergence:

common interpretation of laws and unified court proceedings enhance legal

certainty and significantly reduce costs;



balance:

between rewarding valuable creations and ensuring that ideas can circulate easily

in Europe’s dynamic information society.

The adoption of a cost-effective Community Patent is the most important step. In the

meantime, in order to lift a significant barrier to innovation, the Member States and the

Commission should together make the existing patent system more efficient by improving the

means for litigation through a Community instrument. The European Council should indicate

that breaking the logjam in this area is a high priority and task the Council and the

Commission to come forward with solutions within a time frame which it could set. Beyond

this, the Commission has embarked on a wide-ranging review of IPR policy as a whole, and

will propose concrete steps towards a modern and affordable framework before the 2007

Spring European Council.

Faster setting of open and interoperable standards

Even as ideas are leading to commercial products, it is important that European standards

emerge to guarantee that a product can be put on the market and work smoothly with other

applications.

Standards can determine the success or failure of new technologies. Without the single GSM

standard agreed in 1987, and deriving from EU-funded R&D, Europe would not have

achieved its global leadership position in mobile communications.

However, for fast-moving markets such as high-technology products, our standard-setting

process has become too slow – and increasingly standards are set outside Europe in ad hoc

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bodies, where European companies have only limited influence. In response to this,

standardisation bodies have introduced new, less formal ways of working which allow

agreements to be reached more quickly but which have, as in the recent case of mobile TV

standards, led to the setting of multiple, non-interoperable standards. This means no single

market can develop with all the ensuing costs for users and producers of devices and services.

This situation cannot be allowed to continue. The Commission will urgently consult industry

and make proposals which will allow standards to be developed quickly enough to cope with

very short innovation cycles whilst ensuring full inter-operability.

Sector-specific conditions

Whilst improving the general framework conditions will help all companies to innovate,

global success also depends on creating the right conditions in specific sectors.

The current tendency for technologies to go wireless will accelerate. Without a real common

European approach to manage spectrum the development of these technologies will be

hampered. As far as renewable fuels are concerned, another promising technology, solutions

will need to be found to resolve infrastructure and distribution constraints. These are

examples where the right public policy decisions can give European industry a decisive head

start.

In other areas, such as resource-efficiency and eco-innovation, the role of governments is to

provide legal predictability to enable companies to plan their investments. They can set an

example by ensuring that their public buildings meet the highest standards. Instead of buying

standard products off the shelf, they can make smart use of their large procurement budgets

by requesting innovative solutions. In so doing, they can create the necessary demand for the

development of, for example, more energy-efficient buses or highly sophisticated waste

treatment facilities.

In sectors such as health and education where the government itself is a major actor, there is

significant scope for using its funding or organisational prerogatives to promote innovative

applications that increase quality and efficiency of the services. More generally, governments

can positively influence innovation by modernising their public administrations, particularly

through e-government applications.

Within its initiative to promote the emergence of lead markets, the Commission will

undertake a sector-by-sector analysis – drawing on outside expertise – in areas which hold

potential for creating demand for new innovative products and services. This analysis will

identify obstacles that need to be removed and will assess how best to use public policy

instruments so that promising applications, across cutting edge as well as more traditional

sectors; can get to the market and grow into global success stories.

IV. C

ONCLUSION

There are many facets to promoting innovation. The success of some countries and regions in

creating a genuinely favourable environment to innovation is largely due to a conscious

political decision to take a strategic approach to innovation, by focusing policy on a key set of

framework conditions and ensuring that its implementation is a matter followed up at the

highest political level.

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The Lahti informal European Council offers Europe’s leaders the opportunity to give clear

guidance in concrete areas which can boost innovation in Europe, thus contributing to the

goals set by the renewed Lisbon strategy for growth and jobs. There is no need to create new

structures. Making sure that progress on these measures proceeds rapidly should be monitored

within the context of the Lisbon strategy at future Spring European Council meetings.

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