INNOVATE Act

Bill Number

S. 853

Origin Chamber

Senate

Congress

119th Congress, Session 1

Policy Area

Commerce

Status

Introduced

Latest Action

2025-07-23: Committee on Small Business and Entrepreneurship. Hearings held.

Last Updated

2025-07-24T11:03:18Z

AI-Generated Summary

Summary of S. 853: The INNOVATE Act

Purpose

The INNOVATE Act aims to strengthen the Small Business Innovation Research (SBIR) and Small Business Technology Transfer (STTR) programs under the Small Business Act. These programs provide federal funding to small businesses for research and development (R&D) of innovative technologies, particularly those with commercial potential or national security benefits. The legislation seeks to increase participation, improve funding transitions, reduce administrative hurdles, protect against foreign risks, and promote commercialization while extending program authorization through 2028.

Key Provisions

The bill is organized into five titles, each addressing specific improvements to the SBIR and STTR programs:

• Title I: Promoting Transition for Battle-Ready Technologies
• Enhances STTR success by increasing the minimum Phase II award percentage to 50% (from 40%) and reducing the research institution share to 20% (from 30%).
• Introduces "strategic breakthrough awards" for the Department of Defense (DoD), allowing up to $30 million per Phase II award for high-readiness technologies meeting military needs, with requirements like 100% matching funds and a 0.25% budget allocation starting in fiscal year 2026.
• Mandates DoD briefings to Congress on implementation and requires fixed-price contracts (a contract type with a set price regardless of costs) for SBIR/STTR awards unless justified otherwise.

• Title II: Encouraging Small Business Innovation in All of America
• Creates a "Phase 1A" for new entrants, allocating at least 2.5% of SBIR funds for small grants (up to $40,000) via open-topic solicitations (broad calls for ideas without specific requirements), limited to businesses without prior SBIR/STTR awards.
• Limits total SBIR/STTR funding per business to $75 million, restricts principal investigators to one proposal per solicitation, and caps Phase I applicants at $40 million in annual receipts.
• Shifts focus from race, gender, or ethnicity-based preferences to geographic equity by prioritizing "emerging states" (top 25 states with fewest recent awards) and rural areas; prohibits considering diversity statements or offering supplemental funds based on demographics.

• Title III: Streamlining Participation in the SBIR and STTR Programs
• Defines "open topic announcements" as broad solicitations evaluating solutions' ability to meet agency needs without mandating specific technologies.
• Reduces administrative burden by limiting submissions: no more than 3 proposals per solicitation and 25 total per agency per fiscal year.

• Title IV: Protecting American Innovation from Adversarial Influence
• Defines "foreign risk" as ties (e.g., affiliations, investments) in the past 10 years to entities in "countries of concern" (e.g., China), including checks against U.S. sanction lists.
• Requires agencies to evaluate national security risks during award reviews, deny applications with foreign risks (without pre-notification), and strengthen due diligence for cybersecurity, patents, and ownership.
• Expands recovery of funds if intellectual property (IP) developed with SBIR/STTR awards is transferred to foreign entities (up to 10 years or indefinitely for security reasons), with exceptions for NATO allies.
• Develops best practices for protecting IP from foreign access via investor rights and mandates Government Accountability Office (GAO) reports on due diligence effectiveness.

• Title V: Simplifying SBIR-STTR Commercialization Standards
• Streamlines performance benchmarks: requires a 0.25 Phase II-to-Phase I award ratio for businesses with over 10 Phase I awards, escalating to 0.5 for those with over 25; ties commercialization to non-SBIR/STTR revenue (e.g., 65% of recent receipts) with penalties like award limits for non-compliance.
• Improves "direct to Phase II" awards (skipping Phase I for proven ideas), capping at 10% of funds agency-wide (30% for NIH and DoD), with limits for repeat recipients.
• Enhances data collection in SBIR databases and the Federal Procurement Data System to track award types (e.g., Phase 1A, strategic breakthroughs) and Phase III transitions (commercial sales).
• Streamlines administration by removing pilot program labels, adjusting STTR funding shares (e.g., to 3.5% for some agencies), and extending overall SBIR/STTR authorization to 2028.

Significant Changes to Existing Law

• Increases STTR budget minimums to 0.20% (from lower prior levels) and adjusts SBIR allocations (e.g., 3.45% starting 2026).
• Replaces demographic-focused incentives with geographic ones, prohibiting race/gender considerations in awards.
• Introduces Phase 1A for broader access and strategic breakthrough funding exclusively for DoD, replacing prior commercialization readiness programs.
• Bolsters security by mandating foreign risk checks against expanded lists (e.g., entity lists from Commerce, Treasury) and extending IP protection periods.
• Raises performance thresholds for repeat awardees and limits direct Phase II usage while improving tracking of commercialization success.

Potential Impacts

• Government Agencies: Agencies like DoD, NASA, and NIH will allocate more funds to early-stage and high-potential R&D, potentially accelerating military tech transitions but increasing administrative needs for security reviews. Fixed-price contracts may reduce costs but require justifications for alternatives.
• Citizens and Small Businesses: Easier entry via Phase 1A and open topics could boost innovation in underserved areas, creating jobs and economic growth in emerging states/rural regions. Limits on repeat funding encourage new participants, while security measures protect U.S. tech but may deter some international collaborations.
• International Relations: Enhanced scrutiny of foreign ties strengthens U.S. national security by limiting adversarial influence (e.g., from China), potentially straining relations with those countries but aligning with allies through IP exceptions. GAO reports could inform future export controls.

Main Stakeholders Affected

• Small Businesses: Primary beneficiaries, especially new or rural/emerging-state firms, through simplified access and funding; repeat awardees face stricter commercialization rules.
• Federal Agencies: DoD (largest impact via breakthrough awards and security), NASA, NIH, and others must implement changes, conduct due diligence, and report to Congress.
• Research Institutions: Affected by adjusted STTR partnerships, focusing on early-stage (technology readiness levels 1-3) research.
• Investors and Venture Capital: Guided by new best practices to avoid unintentional IP leaks to foreign entities.
• Congressional Committees: Oversight roles expanded (e.g., Small Business, Armed Services) with required briefings and GAO studies.

Notable Legal, Constitutional, or Political Implications

• Legal: Strengthens enforcement of IP rights and national security via expanded recovery authority and due diligence, potentially leading to more litigation over foreign risk denials. Aligns with existing sanction frameworks but adds SBIR-specific prohibitions.
• Constitutional: Promotes equal protection by shifting from demographic to merit/geographic criteria, avoiding potential equal protection challenges under the 14th Amendment while emphasizing free enterprise and innovation.
• Political: Signals a move toward color-blind, geography-focused policies, reducing emphasis on diversity, equity, and inclusion (DEI) in federal funding, which could spark debate on equity vs. merit. Enhances bipartisan national security priorities amid U.S.-China tensions, with extended authorization ensuring program stability through 2028.

This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.

Sponsor

Sen. Ernst, Joni [R-IA]

Recent Actions

• 2025-07-23: Committee on Small Business and Entrepreneurship. Hearings held.
• 2025-03-05: Committee on Small Business and Entrepreneurship. Hearings held.
• 2025-03-05: Read twice and referred to the Committee on Small Business and Entrepreneurship.
• 2025-03-05: Introduced in Senate

Bill Versions

• This Act may be cited as the — issued 2025-03-05 — PDF (57 pages)