Significant Funding and Tax Credit Opportunities in the CHIPS and Science Act

On August 9, 2022, President Biden signed into law the CHIPS and Science Act—a massive, $280 billion bill to boost public and private sector investments in critical and emerging technologies.

We anticipate significant opportunities and an evolving regulatory landscape for companies, associations, universities, and others who work in various technology sectors, including:

• High performance computing, semiconductors, and advanced computer hardware/software
• Advanced communications technology and immersive technology
• Advanced energy and industrial efficiency technology (including batteries, nuclear)
• Advanced materials science (including composites 2D and next-generation materials)
• Artificial intelligence, machine learning, autonomy, and related advances
• Quantum information science and technology
• Biotechnology, medical technology, genomics, and synthetic biology
• Data storage/management, distributed ledgers, and cybersecurity (including biometrics)
• Natural and anthropogenic disaster prevention or mitigation
• Robotics, automation, and advanced manufacturing

Below is an overview of the legislation and the funding and tax credit opportunities it provides for entities that participate in the research, development, production, education, or transfer of critical and emerging technologies, especially semiconductor manufacturing and research and open-RAN technology.

Overview

Headlining the bill are $54 billion in appropriations to fund the Creating Helpful Incentives to Produce Semiconductors (“CHIPS”) for America Act, which was authorized in 2021. The bill also includes $1.5 billion in appropriations for a wireless supply chain innovation fund under the Utilizing Strategic Allied Telecommunications Act, which was similarly authorized in 2021. Across these two sets of appropriations, over $40 billion are allocated for direct financial assistance in the form of competitive grants for which private companies will be able to apply. The law also authorizes over $200 billion in new programs across the federal government, paving the way for additional grants, public-private partnerships, and technology transfer opportunities.

Funding and Tax Credit Opportunities for Semiconductor Manufacturing and Research

The bill’s $54 billion is allocated over five years and includes the following programs to incentivize investment in facilities and equipment in the United States for semiconductor fabrication, assembly, testing, advanced packaging, or research and development (“R&D”):

• CHIPS for America Fund ($50 billion)
  • $39 billion to provide direct financial assistance to companies in the form of competitive grants (up to $3 billion per grant) administered by the Department of Commerce to construct, expand, or modernize semiconductor manufacturing facilities in the United States; and
  • $11 billion to the Department of Commerce to implement advanced microelectronics R&D programs, including the National Semiconductor Technology Center, the National Advanced Packaging Manufacturing Program, and workforce development programs.

• CHIPS for America Defense Fund ($2 billion)
  • $2 billion to the Department of Defense to establish a public-private partnership incentivizing consortia of companies to ensure the development and production of measurably secure microelectronics, including integrated circuits, logic devices, memory, and the packaging and testing practices that support these microelectronic components by the Department of Defense, the intelligence community, critical infrastructure sectors, and other national security applications.

• CHIPS for America International Technology Security and Innovation Fund ($500 million)
  • $500 million to the Department of State to promote international information and communications technology security and semiconductor supply chain activities, including to support the development and adoption of secure and trusted telecommunications technologies, secure semiconductors, secure semiconductors supply chains, and other emerging technologies.

• CHIPS for America Workforce and Education Fund ($200 million)
  • $200 million to the National Science Foundation to promote growth of the semiconductor workforce.

• Advanced Manufacturing Tax Credit
  • A 25% advanced manufacturing investment tax credit for the construction or acquisition of property integral to a facility whose primary use is to manufacture semiconductors or semiconductor manufacturing equipment.

Companies taking advantage of semiconductor incentives under the bill or the advanced manufacturing investment tax credit will be subject to “guardrail” provisions that potentially constrain the companies that receive the incentives from undertaking certain business activities in China and other foreign countries of concern. In short, these guardrail provisions would restrict CHIPS recipients from engaging in material expansions of semiconductor manufacturing capacity in China for 10 years after receipt of a CHIPS Act award. However, the guardrails are subject to exceptions, including for certain transactions involving expansion of manufacturing capacity related to legacy semiconductors, and in some cases the restrictions may be waived in exchange for the implementation of government-approved measures to mitigate national security risks. The bill’s guardrails are in addition to an already enacted CHIPS Act technology clawback provision, which restricts recipients from engaging in any joint research or technology licensing effort (a) with a foreign entity of concern, or (b) that otherwise relates to a technology or product that raises national security concerns.

Funding Opportunities for Wireless Supply Chain Innovation

The bill’s $1.5 billion is allocated over five years to the National Telecommunications and Information Administration to award competitive grants (up to $50 million per grant) for companies working in the following areas:

• Promoting and deploying technology, including software, hardware, and microprocessing technology, that will enhance competitiveness in 5G and successor wireless technology supply chains that use open and interoperable interface radio access networks.
• Accelerating commercial deployments of open interface standards-based compatible, interoperable equipment, such as equipment developed pursuant to the standards set forth by organizations such as the O-RAN Alliance, the Telecom Infra Project, 3GPP, and the Open-RAN Software Community.
• Promoting and deploying compatibility of new 5G equipment with future open standards-based, interoperable equipment.
• Managing integration of multi-vendor network environments.
• Identifying objective criteria to define equipment as compliant with open standards for multivendor network equipment interoperability.
• Promoting and deploying security features enhancing the integrity and availability of equipment in multi-vendor networks.
• Promoting and deploying network function virtualization to facilitate multi-vendor interoperability and a more diverse vendor market.

The remainder of the bill authorizes over $100 billion dollars in government programs to support R&D, technology transfer, innovation, and science, technology, education, and mathematics (“STEM”) education. They contain important policy developments and may present significant opportunities for businesses, nonprofits, and educational institutions to bolster their R&D efforts and to partner with the federal government. Funds will need to be appropriated for many of these programs for them to be effective, though not necessarily in all instances: for example, the bill establishes a new directorate at the National Science Foundation which already launched this past spring and announced its first funding opportunity to support “Regional Innovation Engines,” a program authorized under the bill, earlier this summer.

The bill authorizes $81 billion over five years to the National Science Foundation to implement more than a dozen initiatives. Of those funds, $20 billion are allotted for the agency to stand up a new Directorate for Technology, Innovation, and Partnerships to support the research, development, and commercialization of critical technologies. Many of the Directorate’s new programs are focused on partnerships between public, private, and nonprofit entities. The bill also authorizes $13 billion to support STEM efforts, including research and engagement of students at all levels of education; STEM learning opportunities, including before-school, after-school, and out-of-school programs and summer activities; and workforce development.

The bill also includes significant funding authorizations for the Department of Commerce ($11 billion), the National Institute of Standards and Technology ($10 billion), and the Department of Energy ($50 billion). The primary charge for the Department of Commerce is to designate at least 20 “regional and innovation technology hubs” and award grants to consortia composed of one or more institutions of higher education, political subdivisions, state governments, and “industry or firms in relevant technology, innovation, or manufacturing sectors,” to develop and deploy critical technologies in those hubs. The bulk of authorized funds for the National Institute of Standards and Technology is directed at scientific and technical research and services. The bulk for the Department of Energy is directed at administering R&D programs in many areas, including basic energy sciences, advanced scientific computing, clean energy, and microelectronics.

These new programs all appear to be part of a larger and in many ways unprecedented effort to create the conditions for the United States to compete globally. For example, the Director of the Office of Science and Technology Policy is charged with developing and submitting to Congress a comprehensive national science and technology strategy to maintain and advance U.S. leadership in science and technology, including in key technology focus areas. The Director must also coordinate with other agencies to review the national security strategy with regard to U.S. research, innovation, and technology transfer activities, including patenting and licensing, that support the national strategy. The bill contemplates consultation with nongovernmental partners as part of that review. These efforts could be groundbreaking in enabling U.S. enterprises to compete effectively with foreign competitors, some of which are financed heavily by their governments. We anticipate various notice and comment rulemakings, requests for information, and other regulatory developments where industry will have the opportunity to inform and influence the direction of these programs, reports, and strategies.

Covington has been involved in advising on and shaping the legislation for clients since its original draft was introduced in April 2021, and we stand ready to advise on its contents and specific opportunities for individual clients. If you have any questions concerning the material discussed in this client alert, please contact the members of our Public Policy and Government Contracts practices.