Page images
PDF
EPUB

the fruits of this labor. Because universities presently conduct 68 percent of all of the basic research in this country, they must be allowed to fully explore promising new ideas.

Government patent policies have had a detrimental effect on other contractors such as large and medium sized businesses. While the loss of patent rights are usually not as serious to these companies as they are to a small business, they are being prevented from making full use of patentable discoveries that they make while working for the Government.

I agree with President Carter that the solution to this problem lies in a two-tier approach: One patent policy for small businesses, nonprofit organizations, and universities that will both encourage innovation and promote competition, and another policy for the other contractors to insure their ability to bring new products to the public which is supporting our research and development efforts. The draft legislation that we are considering today is a commendable effort in this direction, but I must say in all candor that I think it is a serious mistake to try and to lump both of these policies under one piece of legislation. Because the formulation of a patent policy covering large businesses is such a complex undertaking and because there is now wide agreement on the needs for changing the present policies regarding small companies and universities, it is simply unfair to force those whose problems are so clearly in need of immediate redress to wait until agreement is reached on what to do about the larger contractors. My own experience with the Judiciary Committee, which reported S. 414 out favorably to the Senate by a voice vote, reinforces this view. I am certain that it would have been impossible to have had the same success with a more encompassing bill.

I was quite heartened to see the President state on October 31, 1979, that he supports the thrust of S. 414 and I am looking forward toward working with the administration to insure its quick enactment.

The efforts of Senators Stevenson, Schmitt, and Cannon to redress the problems of the medium and larger contractors also deserve to be commended. I am certainly willing to join with them in this effort and I feel confident that we will be successful in addressing this more difficult question. We do not need to fear, however, that if all of the problems are not solved in one bill they will never be resolved. The problems of innovation and productivity are so serious that the Congress will be forced to address them for years to come. It is worthwhile to proceed with well thought-out legislation to remedy the problem.

We are all heading in the same direction, and I feel strongly that by working together and supportig each other's efforts this problem can be solved to everyone's satisfaction.

Senator STEVENSON. Thank you, Senator Bayh. I'm sure I speak for all of my colleagues when I say we do want to cooperate with you. You have been working a long time in this effort and are ahead of us.

As you mentioned S. 414 has already been reported, and I, for one, would welcome an opportunity to work together, using that as a vehicle. I hope that you would consider changes that might go

even further to promote the objectives which you eloquently described.

I think we are all interested in an approach that is conceptually sound and also easily administered, creating as little litigation, regulation, and bureaucracy as possible in order to carry out those objectives effectively.

So, if there is any difference, I think it is only because of some concerns about implementation. We ought to go even further. Just to mention one issue, I understand, notwithstanding your rightful interest in small business, that under S. 414 small businesses and universities would have to pay the government for their rights in successful inventions, whereas the large businesses that contracted with the same Federal agency or agencies would not. For example, the large defense contractors under your approach would continue to receive title but not be required to pay.

So there are, I believe, some grounds here for cooperation. Our objectives are basically the same. I will do all I can do to promote these objectives through cooperation. Senator Schmitt?

OPENING STATEMENT BY SENATOR SCHMITT Senator SCHMITT. Thank you, Mr. Chairman, Senator Bayh.

I am pleased to have another opportunity to participate in a hearing on this extremely important subject and even the broader subject of intellectual property in this country. This is the fourth in a series of Commerce Committee hearings on Government patent policy.

I note our colleagues on the Judiciary Committee have joined us–Senator Bayh, in particular-in sponsoring today's hearing, and I'm hopeful in the coming weeks our two committees will work closely for what I am confident is the common objective of maximizing the return to the public from our past and current investment in science and technology research and development.

For nearly two centuries, the U.S. patent system has served this country well in fulfilling its constitutional mandate to "promote the progress of science and the useful arts.” Business, both large and small, universities, manufacturers, and individual innovators alike have all profited from our patent system, which has provided the necessary incentive for the investment of research, development, and marketing funds so essential to the identification and the diffusion of new products and processes into the marketplace.

Senator BAYH. Will the Senator yield?
Senator SCHMITT. Yes.

Senator BAYH. Prior to this, I mentioned I have another mission before the Budget Committee. I don't want to be rude, but I didn't want to leave without asking him to look at the nice things I said about him before he got here.

Senator SCHMITT. I will certainly do that.
Why I would be the last one to assume that you were being rude.
Senator BAYH. Excuse me for interrupting.

Senator SCHMITT. No, that's fine. Thank you again for joining with us in today's hearing.

More recently, however, many problems in the patent system have surfaced. Attention at hearings of this committee has focused

largely on the Federal Government's policy for managing the fruits of the billions of dollars of expenditures on the development of new technologies. However, there are other problems, and they have been discussed by some of our witnesses, and they are problems that are going to have to be addressed.

I know the administration recognizes the problems. Whether we agree on the ways in which they should be addressed is another issue. Without exception, the witnesses before our committee with respect to the Federal patent policy have stressed the need to reform the existing maze of costly, cumbersome regulations, statutes, and executive orders.

None of these have effectively dealt with the need to mobilize the incentives built into the concept of patents-a very worthy and fundamental concept. Ultimately it is the American consumer who has suffered and will suffer in the future from these misguided policies unless we change them.

Various legislative proposals have been suggested to remedy this untenable situation and establish a truly uniform patent policy across the breadth of the Federal Government which stimulates the transfer of Government-sponsored technology.

Together with Senators Stevenson and Cannon, I have sponsored a bill that will uniformly allocate title to the individual most likely to see that new ideas reach the marketplace—that is, the inventor and not the Federal Government. Under the able leadership of Senator Bayh, the Judiciary Committee has reported out a bill similar in objectives but more limited in scope. A similar bill is under active consideration on the House side, and we expect action there also

Today we will hear the administration's somewhat novel approach to portions of this long-standing controversy. While I must confess some skepticism as to the feasibility of the President's proposal, I nevertheless look forward to a more detailed explanation of its provisions by Dr. Baruch and what promises to be an interesting exchange with our other witnesses.

Thank you, Mr. Chairman. I want to welcome our panel.
Senator STEVENSON. Senator Warner?

Senator WARNER. Mr. Chairman, may I interject? I have to leave for another hearing.

This is a subject that has been of great interest to me for over 542 years. I was chief executive officer for the Navy Department and they have a good policy that has worked well in DOD, and I am certain it will work well across the Government.

Senator Schmitt, I would like to be a cosponsor of your legislation. Forgive me for having to absent myself.

Senator SCHMITT. Thank you, sir. We are happy to have had you.

Senator STEVENSON. We will also receive a statement from Senator Long, which will be entered into the record.

[The statements referred to follow:]

STATEMENT OF HON. HOWARD W. CANNON, U.S. SENATOR FROM NEVADA Last October, the Commerce, Science, and Transportation Committee completed hearings on S. 1215, a bill to establish a uniform policy for allocating rights to inventions made under Federal research grants and contracts. In December, the Judiciary Committee reported S. 414, allowing universities and small business contractors to acquire rights to their inventions. Two committees of the house have

begun to consider similar legislation. President Carter's decision to recommend legislation represents a resolution of internal executive branch differences that no previous administration has been able to achieve.

Together, these developments create a unique opportunity to resolve the controversy over government patent policy in a way that will encourage commercial applications of publicly sponsored research and development and thus benefit the economy. The purpose of this hearing is to examine the novel features of the administration's new proposal. The Senate will then be in a position to choose the best approach or combination of approaches. I look forward to working with the judiciary committee toward that end, and I appreciate the cooperation of Chairman Kennedy and Senator Bayh in arranging this hearing.

STATEMENT OF Hon. GAYLORD NELSON, U.S. SENATOR FROM WISCONSIN Mr. Chairman, I am pleased to have this opportunity to discuss U.S. patent policy and the patent problems facing small business.

There is no doubt of the pressing need for a uniform patent policy. Numerous attempts have been made to achieve that goal but they have been relatively unsuccessful and as a result, policy has developed over the years on an agency-by-agency basis. There are wide variances in the way agencies have interpreted policy and as a result, 24 different patent arrangements are employed by the various Executive agencies.

When Senator Bayh and I introduced a series of patent law reform bills last year, we did so in specific recognition of the problems being created by the current maze of patchwork patent arrangements and in particular, of the problems these arrangements are creating for small business. The bills we introduced, S. 414, the University and Small Business Patent Procedures Act; S. 1679, the Patent Law Amendments Act; and S. 2079, the Independent Patent and Trademark Office Act, would go a long way to overcoming the confusion with patent policy. The University and Small Business Patent Procedures Act allows small business to retain exclusive patent rights on inventions made under federally-supported research. The Patent Law Amendments Act enables the Patent and Trademark Office to arbitrate patent disputes and thereby reduce the cost of patent re-examinations from an average of $250,000 per case to $1,000. And, the Independent Patent and Trademark Office Act, creating an independent Patent and Trademark Office would help make that office more responsive to patent needs in the modern era. According to one former Patent Commissioner, "dry rot” has set in the PTO. Making it an independent office would help correct that problem. Both S. 414, and S. 1679 have been incorporated as a key part of S. 1860, the Small Business Innovation Act which I introduced last year and which is cosponsored by 20 of my colleagues.

The Senate Select Committee on Small Business has held numerous hearings on the problems facing innovative small businesses. Based on our hearings, we concluded that because of the impressive record of small companies as sources of bold, new innovations, it is in the public interest to secure greater small business participation in the Federal research and development effort.

Yet, in our hearings, witnesses have repeatedly pointed out that one of the greatest discouragements to such companies interested in participating in this research effort are the current Federal patent policies. These policies require small businesses seeking Federal contracts to give up patent rights to discoveries made while doing federally sponsored research. In addition, these policies can require small businesses to relinquish their "background rights”, which consist of privately financed patents or other materials relating to the invention made under Federal contract, to competitors who later work under Federal research of development programs. This constant threat is a very serious one to the innovative small business which is trying to compete in the marketplace against large corporations. Technological edges are the one advantage that small companies have, and when they are forced to license this out to competitiors, their ability to successfully compete can be jeopardized or ruined.

The University and Small Business Patent Procedures Act (S. 414) has been reported out of the Judiciary Committee and is ready for full Senate action. I hope the Senate can take speedy action on this bill. The loss of small business participation under present policies is a serious loss to the general public. A National Science Foundation study shows conclusively that although smaller firms were responsible for half of all major industrial inventions and innovations since World War II, these firms received only 3.4 percent of Federal research and development money. This, in spite of the fact that small firms produced 24 times as many major innovations per research dollar as did large firms.

The present 24 patent policies in effect in the Federal agencies are of a much greater burden for the small business that for the large corporation which can afford to retain large legal staffs. Moreover, when small businesses are afraid to involve themselves in Government research and development programs because of fears of losing rights to important patents, it can be very difficult to find alternative means of financing their research and development efforts.

All too often, the only alternative open to small business is to license out their promising technologies to larger companies who can afford to conduct expensive research and development programs. The ultimate effect of present patent policies has been de facto contribution toward greater economic concentration by discouraging the growth of innovative, small and independent businesses and cutting them off from the use of Government research and development money.

Again, I want to commend the Administration for its patent policy reform efforts. However, the patent problems faced by small business are serious and acute. The University and Small Business Patent Procedures Act is a significant step toward solving the problems and creating a more effective uniform patent policy. The bill has been reported out of Committee to the full Senate. I hope we can pass it without delay.

STATEMENT OF Hon. RUSSELL B. LONG, U.S. SENATOR FROM LOUISIANA Mr. Chairman, the sponsors of S. 1215 state that "Current Federal policy with respect to the allocation of rights to the results of federally sponsored research and development deters contractor participation in Government contracts, delays technological progress, and stifles the innovative process.”

During the many years I have studied this subject there has not been even a shred of evidence to support these claims.

DISPOSITION OF GOVERNMENT RIGHTS The disposition of rights resulting from Government research and development can increase monopoly and the concentration of economic power or, alternatively, can spread the resulting benefits throughout society with consequent benefit to the maintenance of a competitive free enterprise system and more rapid economic growth. The Congress has always recognized these principles and whenever it has spoken has always provided that the United States Government should acquire title and full right of use and disposition of scientific and technical information obtained and inventions made at its direction and its expenses, and in some cases subject to waiver of Government title when the equities of the situation so require. The basic premise is that inventions should belong to those who pay to have them created, and Congress has asserted on numerous occasions that title should be held by the United States for the benefit of all the people of the United States if made in the performance of a government contract. Despite the vigorous opposition from industry groups and from the organized patent bar, Congress has applied this principle to the following agencies of Government:

The Atomic Energy Commission, the Department of Agriculture, the Tennessee Valley Authority, the National Aeronautics and Space Administration, the Office of Coal Research and Development, the Department of Health, Education, and Welfare, the Veterans Administration. In addition, what came to be known as the Long Amendment is an integral part of a host of laws, such as the Federal Coal Mine Health and Safety Act of 1969, the National Traffic and Motor Vehicle Safety Act, the Helium Act Amendment of 1960; the Solid Waste Disposal Act; the Disarmament Act; the Saline Water Act; the Solar Energy Act, and others. The purpose was to insure that no research would be contracted for, sponsored, cosponsored, or authorized under authority of a particular piece of legislation unless all information, uses, products, processes, patents, and other developments resulting from such research will be available to the general public. Only a few years ago, the late Senator Hart, Senator Nelson and I convinced the Senate that such a provision should be included in the Energy Research and Development Act.

PROPOSED LEGISLATION It is dismaying, therefore to find that S. 1215 provides for contractors to receive gifts of ownership of taxpayer-financed research, and could well constitute one of the greatest giveaways in our history. It gives everything away; it doesn't leave even a sliver of meat on the bone. It applies not only to those areas uncovered by legislation but it also repeals every law on the books which reserves for the public the results of the research it pays for.

« PreviousContinue »