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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(aX1) 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 measures.

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."

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 342 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.?

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

? 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 4-53 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.5

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."

"** * 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 SECRE


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

3 The growth rate has declined since then.

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

size when we first started it-a growth which is approximately 20 percent per year compounded.

I would like to point out that much of that growth, especially in the early years, was financed by royalties from the patents that the firm held. So we share Senator Bayh's view that it is imperative for small businesses to retain title to its patents and not to be constricted in the fields of use in which they can exercise that title.

In addition, universities, other 501(c)(3) organizations like the Salk Foundation, Sloan-Kettering, Childrens Hospital, and others should also be treated specially because of the special characteristics they have in our society.

But while we believe in title in small businesses and universities, they are special cases. Small business has testified-and Senator Bayh has just mentioned-that at best small business does only a minute fraction of Government R. & D. Despite the other efforts of the administration and the Congress to increase the share of Government R. & D. in which small business engages, their share will continue to be small.

So if we are to do other than deal only with the very tip of an iceberg, it's imperative that we deal with the larger businesses as well.

In the businesses in which they engage, larger contractors often are the most effective commercializers of patents that they develop. Production efficiencies, economies of scale, and so forth accrue to large businesses and enable them to pursue effectively the fruits of the patents that they develop with Government support.

If we cared only that these patents be utilized in the commerical fields of interest to those contractors, we would not argue about the question of title in the contractor. We want and need, however, to achieve the widest possible use of patents developed under Federal sponsorship of support across a wide range of industries. We particularly want and need to increase the availability of those patents to small businesses to explore new areas of commercialization, often too small, too risky, or requiring too much additional technical input to catch the interest of the large firm.

If one were to design an ideal bill to meet these goals, one would like the larger contractor to have the same degree of exclusivity in its areas of commerical interest that it would have from title and yet have the Government hold title in other areas, so that the Government could pursue an active course in marketing those patents to small businesses and others willing to explore other commerically interesting areas.

Many of the inventions coming out of Government R. & D. represent radical invention. They have extensive potential for use far afield from the commerical interests of the contractor which develops them. The present bill provides for the Government to encourage utilization in those other fields.

It is often said that the Government can't do this job. Evidence is posted by those who say we never have done it. I came down here with a skeptical view of Government's capabilities. My skepticism stemed from contact as an outsider. I got here, I had my nose rubbed in those prejudices.

I find that Government agencies, when challenged by a stimulating task and given the resources to pursue that task, can attract

the kind of people who make it possible for them to do an outstanding job.

We have not yet gotten to the point where we trust the national defense to the private sector. There are other jobs that the Government can do well. Mr. Chairman, Senator Schmitt, I think that the President's bill embodies the best of S. 414, embodies the best of S. 1215, and provides the additional extension for utilization in areas that neither of those bills attempt. I would hope that we can join together in supporting the President's proposal.

Thank you, Mr. Chairman. [The statement and materials referred to follow:] STATEMENT OF JORDAN J. BARUCH, ASSISTANT SECRETARY FOR SCIENCE AND

TECHOLOGY, U.S. DEPARTMENT OF COMMERCE Mr. Chairman, members of the Committees, I appreciate this opportunity to appear before you today to discuss government patent policy-the allocation of rights in patentable inventions made in the course of federally sponsored or sup ported research and development. Government patent policy bears a major responsibility for the pace of industrial innovation in America and for the ability of the Federal agencies to attract the most qualified contractors to participate in their research and development work. In addition, government patent policy provides us with an opportunity to further the special role in our society played by small businesses and nonprofit organizations.

THE INDUSTRIAL INNOVATION PROCESS President Carter, in his Industrial Innovation Message to the Congress of October 31, 1979, emphasized that:

"Industrial innovation—the development and commericalization of new products and processes-is an essential element of a strong and growing American economy. It helps ensure economic vitality, improved productivity, international competitiveness, job creation, and an improved quality of life for every American. Further, industrial innovation is necessary if we are to solve some of the Nation's most pressing problems-reducing inflation, providing new energy supplies and better conserving existing supplies, ensuring adequate food for the world's population, protecting the environment and our natural resources, and improving health care."

Industrial innovation is primarily the responsibility of the private sector. In our economic system, the management of every firm must decide whether to innovate. Innovation is possible either by developing and marketing new products or by finding and employing new ways of making existing products. Since new products offer opportunities for increased sales, and since new processes can offer cost savings, the profit motive provides a powerful stimulus to innovative activity by the private sector.

While it is the private decision-maker who determines whether innovation takes place, the Federal government can establish a climate which either encourages or discourages innovative activity. Federal actions affect innovation within the firm to the degree that they affect the ability of the firm to innovate or the decision calculus of its executives. The importance of patent rights

The progress of an invention from idea to commercial product or process ordinarily is long and expensive. The temporary patent monopoly provided for by the Constitution encourages an enterpreneur to invest risk capital to develop an invention secure in the knowledge that, if his efforts are successful, he will have an opportunity to obtain a return on his investment before his competitors are free to copy cheaply what he produced with such difficulty.

Patent rights affect positively the entrepreneur's ability to raise risk capital. Patent rights offer the successful inventor-entrepreneur a respite from competition in which to enjoy the fruits of success.

Patent rights are particularly important to small firms. Firms which do not already possess competitive advantages such as a popular trade name, manufacturing experience, established channels of distribution, or size, are more likely to need exclusive commercial rights to attract risk capital and recover commercialization costs than firms which do enjoy such advantages. Given our present concerns, this is an important point.

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