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.

It proposes the repeal of the provisions of the Atomic Energy Act.

It proposes the repeal of the provisions of the National Aeronautics and Space Act.

It proposes the repeal of the provisions of the Department of Agriculture, of TVA, of Department of Interior, in the National Science Foundation, Disarmament Agency, Energy Research and Development Agency, Consumer Product Safety Agency and every other piece of legislation enacted by the Congress to protect the public.

In addition-and this is especially startling-once the monopoly is given to the contractor, the public will be unable to find out what has happened to the results of the research it paid for. Such information as how it is being used, how much money is being made on it is removed from the scrutiny of the public. The bill provides: "That any such information shall be treated by the Federal agency as commercial or financial information obtained from a person and privileged or confidential and not subject to disclosure under the Freedom of Information Act." (Section 305(a)(1) p. 17)

So what it amounts to is this: not only will the contractor get the seventeen year monopoly of the patent but the public can't even find out whether and to what extent it is being exploited by unjustifiedly high prices or other restrictive meas

ures.

IMPLICATIONS OF PROPOSED LEGISLATION

In the United States, patents have traditionally been held out as an incentive "to promote the progress of science and the useful arts"-an incentive to private persons, willing to assume the necessary risks to earn the stipulated reward. They were never intended to reward persons who perform research at someone else's expense as part of a riskless venture. Therefore, as Professor Wassily Leontief, a Nobel laureate, points out, to allow contractors to retain patents on research financed by and performed for the Government" is no more reasonable or economically sound than to bestow on contractors who build a road financed by public funds, the right to collect tolls from cars that will eventually use it" or the right to close down the road altogether.1

Extensive hearings held by the Senate Small Business Committee's Monopoly Subcommittee while I was its chairman and then under Senator Nelson's chairmanship, inevitably lead to the conclusion that the provisions of S. 1215 and similar bills (S. 414 for example) are deleterious to the public interest. Witnesses at these hearings, which started as far back as December, 1959, included distinguished economists, a Deputy Attorney General of the United States, an Assistant Attorney General in charge of the Antitrust Division of the Justice Department, two Chairmen of the Federal Trade Commission and former staff members of the Council of Economic Advisors.

Without any exception these witnesses testified that when a private company finances its own research and development, it takes a risk and deserve exclusive right to the fruits of that risk. Government research and development contracts, however, are generally cost-plus with an assured market-the U.S. Government. There is, thus, absolutely no reason why the taxpayer should be forced to subsidize a private monoply and have to pay twice: first for the research and development and then through monopoly prices. When a contractor hires an employee or an agent to do research for him, the standard common law rule is that the contractor gets the invention. Surely the Government should have no less a right!

In addition to the problem of equity, economic growth and increased productivity require the most rapid dissemination of scientific and technical knowledge. Allowing private firms to file private patents would do just the opposite. Filing for a patent application is a secret matter, and technical information connected with the patent is not disclosed until the patent is granted, which takes an average of 31⁄2 years. In other words, instead of rapid disclosure, information is really bottled up for that length of time.

If a policy making technological advances available to all without charge were adopted and maintained for a considerable period, other things being equal, it would make a positive contribution to the efficiency of the economic system and the rate of growth, according to Dr. Lee Preston."

1

Hearings before Monopoly Subcommittee of the Senate Small Business Committee 1963, pp. 250 ff.

2 Economic Aspects of Government Patent Policy: Hearings of Monopoly Subcommittee of U.S. Senate Small Business Committee (1963), p. 249. Testimony of Dr. Lee Preston, then prof. of Bus. Admin., U. of Calif., Berkeley and former staff economist of Council of Economic Advisers.

Nobel prize winner Dr. Wassily Leontief, the developer of the input-output techniques and analysis, testified in 1963 that a government-wide policy whereby the results of research financed by the public would be freely available to all would increase the productivity of labor and capital, and estimated that the difference between restrictive (allowing the contractor to retain title) and open patent policies should account for one half of one percent in a 4-5 percent growth rate of the average productivity of labor, "I have no doubt," he stated, "that an open door policy in respect to inventions resulting from work done under governmental contract would speed our technological progress considerably."

John H. Shenefield, Assistant Attorney General, Antitrust Division, Department of Justice and Michael Pertschuk, Chairman of the Federal Trade Commission, categorically stated in December, 1977 that there is no factual basis for the claims that giving away title to private contractors promotes commercialization of government-financed inventions and that the available evidence shows just the opposite. They also stated that even if an exceptional circumstance arises-and no specific example could be found that would justify a waiver of the government's rights, it should never be done unless the invention has been identified and a study made of the impact of the waiver on the public interest. In addition, such proposals as "march-in rights" would be ineffective and valueless to protect the public against patent misuse."

At the same hearing in December, 1977, Stanley M. Clark, Chief Patent Counsel of the Firestone Tire and Rubber Company, said that:

"I believe in free enterprise and in a competitive system. But the proposal that the Government spend large sums of money for research and development and then hand the patents stemming from such research over to the private contractors is not consistent with free enterprise."

66# * *

Some have told you and will tell you that unless the research contractors are given title to patents which are produced at Government expense, the contractors will not accept Government research and development contracts. Don't you believe it. They want those Government funds and the rewards and advantages that come with such contracts and they won't turn them down. What they get, in many instances, can be very rewarding even without the patents; and in any event there are no risks involved; the Government assumes all of those." "

This bill (S. 1215) does not deal with patent problems at all; it is not concerned with the mechanics of securing a patent or the administration of the Patent Office. It involves simply the disposition of public property rights arising out of the huge expenditures of public funds-about thirty billion dollars at present-and it is dismaying to find that the same old claims-discredited years ago-to justify the giveaway of the public's rights are still being made today.

S. 1215 would wipe out every law on the books which reserves for the public the results of the research it pays for.

It would hamper the rapid dissemination of scientific and technological information and hence will retard economic growth and increased productivity.

Since the largest corporations do most of the government research, it would promote monopoly and concentration of economic and political power.

This proposed legislation is one of the most radical, far-reaching giveaways that I have seen in the many years that I have been a Member of the United States Senate.

As a Member of the Commerce Subcommittee on Science, Technology and space, I vigorously oppose the bill.

Senator STEVENSON. Our first witness is Dr. Jordan Baruch, the Assistant Secretary of Commerce for Science and Technology. STATEMENT OF DR. JORDAN J. BARUCH, ASSISTANT SECRETARY FOR SCIENCE AND TECHNOLOGY, DEPARTMENT OF COMMERCE; ACCOMPANIED BY CHARLES HERZ, GENERAL COUNSEL, NATIONAL SCIENCE FOUNDATION; AND DAVID A. GUBERMAN, STAFF

Dr. BARUCH. Mr. Chairman, with your permission, I would like to submit for the record my written testimony. I would also like to

4

The growth rate has declined since then.

Op Cit: Testimony of Dr. Wassily Leontief, p. 251.

Government Patent Policies: Harings before U.S. Senate Small Business Committee, Dec. 1977, Testimony of John H. Shenefield, p. 189 and 192, and Michael Pertschuk, p. 245 and 246. • Op Cit: Testimony of Stanley M. Clark pp. 215-223.

submit for the record the administration's proposed Patent Policy bill along with a statement of purpose and need in support thereof and a section-by-section analysis. The proposed bill may be cited as the Government Patent Policy Act of 1980.

Senator STEVENSON. They will be in the record.

Dr. BARUCH. Thank you. Before discussing the substance of the bill I would like to say that, after approximately 3 years with the Government, to appear before these committees and still be able to say with real sincerity that it is a pleasure to appear before you, is not something I expected when I first became Assistant Secretary. Mr. Chairman, Senator Schmitt, we share a common goal-a goal that is obviously shared by Senator Warner and by Senator Bayh.

The bill that the administration is presenting to you is based upon two facts. They are facts that are often railed against by those who wish the world were different, but I believe they must be considered facts because they cannot be contradicted with evidence.

Fact No. 1, the benefits to the public from an invention stem from its use. Reduced costs and improved productivity, industrial growth, and the introduction of new goods represent true advances in our life style. These are the kinds of benefits that the public receives.

Fact No. 2. Investments in developing and commercializing new inventions generally are or even 1,000 times as great as the cost of invention itself. The willingness of industry to develop those inventions and to commercialize them depends on industry's ability to earn a satisfactory return on those investments, recognizing their often highly risky nature, before others can copy cheaply what they have produced at such risk and expense.

Any bill, therefore, must provide for extensive use and for the incentives to enter into the development and commercialization phase. I mention extensive use, because we wish to insure through this bill wide utilization across many sectors of the civilian economy. We want to assure that inventions made in one industry are used to their maximum extent in others as well.

I won't belabor the old argument that has been going on for more than 30 years between those who believe in title in the contractor and those who believe in title in the Government, except to state that the proposed legislation that has been presented to you this morning is not simply a compromise between to those two politically difficult positions. It is, instead, legislation which we believe will maximize the utilization of federally funded inventions. Let me begin with the small business provisions of the bill. Senator Dole, Senator Bayh and others, have expressed eloquently their record of dynamism and the fact that small businesses as they grow need to, and effectively do, expand the fields in which they work.

When I participated in starting a firm-Bolt, Beranek, and Newman-one of the "Route 128" firms in Massachusetts, we started in the field of acoustics. Some 29 years later, when I severed my ties with BBN in 1977 to join the administration, the firm was in acoustics, computers, electronic instruments, communication, and a range of other fields. Its employment had grown 160 times from its