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PATENT POLICY

FRIDAY, JANUARY 25, 1980

U.S. SENATE,

COMMITTEE ON COMMERCE, SCIENCE, AND

TRANSPORTATION AND COMMITTEE ON THE JUDICIARY,

Washington, D.C.

The Committee on Commerce, Science, and Transportation, and the Committee on the Judiciary met jointly at 10:05 a.m. in room 235, Russell Senate Office Building, Hon. Adlai E. Stevenson presiding.

OPENING STATEMENT BY SENATOR STEVENSON

Senator STEVENSON. The committees will come to order. This morning we continue-and I hope complete-hearings on Government patent policy.

In the last session, the Commerce Committee and the Senate Judiciary Committee held extensive hearings on legislation to set a uniform policy for allocating rights to exploit the results of Federal research development. Today, these committees examine the proposal of President Carter in his message to the Congress on industrial innovation.

We received the administration's bill only yesterday. It is a draft bill. But the bill conforms to the principles which were outlined by the President 3 months ago, and so we urge our witnesses to focus on this proposal.

If, after they have had more time to examine it, they find the details in the bill on which they wish to comment, we can receive those comments later.

With only one exception and minor qualifications, the testimony has supported the legislation before our committees. As a result, in part, of Dr. Baruch's efforts, the remaining objections within the executive branch have been removed. There is a growing recognition that we must encourage commercial use of publicly financed R. & D. in the face of the Nation's lagging productivity and competitiveness in world markets.

This subject has been on the agenda since the 1940's. We need to move on to the agenda of the eighties. It is time we acted, and I'm optimistic that we will do so soon.

I have a statement by Senator Cannon which will be entered into the record without objection.

Senator STEVENSON. Senator Bayh?

(457)

STATEMENT OF HON. BIRCH BAYH, U.S. SENATOR FROM

INDIANA

Senator BAYH. Mr. Chairman, I appreciate the opportunity to join with you this morning. I regret that I can only stay for a few moments because of a commitment to appear before the Budget Committee.

I would like to ask unanimous consent to put into the record a statement by Senator Gaylord Nelson, who is chairman of the Small Business Committee.

Senator STEVENSON. That will be entered in the record.

Senator BAYH. One of the greatest threats to our economic-and ultimately political-well-being is the recent alarming slump in American innovation and productivity. Certainly my colleagues who are here today and the representatives of the administration do not need to be reminded of the statistics that confirm what many of us have been privately fearing-American industry is simply not keeping up with its international competition in too many fields. While Government patent policy is by no means the only cause of the problem; it is certainly a contributing factor. As the author along with Senator Bob Dole of S. 414, the University and Small Business Patent Procedures Act, I have become acutely aware of the heavy burden that the present patent policies have placed on the most innovative segment of our economy-the small businesses. Universities and nonprofit organizations which are now conducting by far the biggest percentage of basic research in this country are also not able to fully explore patentable inventions because of the restrictions and uncertainties arising from current Federal patent policies. The harrassment and discouragement of these proven innovators has hurt all of us through lost jobs, delayed or aborted new products, and a worsened inflation rate.

Government patent policy has also become a barrier to increased competition. While small businesses have made over one-half of the most important inventions since World War II and are the leading source of new jobs in this country, they receive less than 4 percent of our Federal research and development contracts. This is not because small companies cannot perform this work, but the denial of patent rights to important inventions resulting from Government-supported work can be a devastating threat to a struggling small company. The result is that these companies simply cannot afford to take the risk of getting involved with the Government. The recent White House Conference on Small Business adopted as its sixth recommendation out of 60 the enactment of new patent policies as contained in S. 419. We simply cannot afford to wait to address this critical problem.

With university and nonprofit organizations the present patent policies have had a detrimental effect in many areas, but none more serious than the denial or delay in delivering potentially important medical discoveries to suffering patients. Senator Dole documented many cases where important medical discoveries were delayed for months and even years before any decision could be made by the funding agencies on who should own the patent rights. The real losers in this situation are the American taxpayers who are investing billions of dollars in research, but are being denied

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 51⁄2 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

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