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Senator SCHMITT. Is there a lack of trust in your mind or the President's mind that draws a distinction between small and large business?

Dr. BARUCH. No, sir, it is not at all based on trust. It's based on our experience with the growth, the dynamism, the contribution that small business makes to our industrial base, and the fact that they have fluidly changing areas of use for their patents.

Senator SCHMITT. You don't change that if you allow medium and large businesses to obtain title also.

Dr. BARUCH. They don't have the same fluidly changing boundaries to their exercise.

Senator SCHMITT. Some do, some don't.

Dr. BARUCH. A company can select as many fields of use as it intends to commercialize by developing or licensing the invention, and that seems to me to take care of the case of the large company. Senator SCHMITT. Mr. Chairman, I have a few more questions, but I will yield.

Senator STEVENSON. Thank you.

If the contractor designates the field of use, couldn't he stretch his imagination and designate every conceivable field of use, come in with a laundry list that designates everything?

Dr. BARUCH. That's a question of trust, Mr. Chairman.

The contractor also agrees to commercialize in all those fields of use, and we don't believe that business will agree to commercialize in the fields of use where it really has no intention of doing so. Senator STEVENSON. Can he select fields of use outside his line of business?

Dr. BARUCH. Certainly.

Senator STEVENSON. What if he designates the field of use, gets this exclusive right and then later conceives another, perhaps related field of use or finds a potential licensee who wants to develop it; can he go back to the agency for another license?

Dr. BARUCH. If it has not already been taken by some action of the agency with another industrial firm. Certainly.

Senator STEVENSON. Let's go back to Senator Schmitt.

Senator SCHMITT. Thank you, Mr. Chairman.

Senator STEVENSON. Excuse me, Senator Schmitt, I neglected to mention earlier, and I think you did, too, Dr. Baruch, that you are accompanied by Mr. Charles Herz, the General Counsel of the National Science Foundation.

Dr. BARUCH. And, Senator, by David Guberman, who did substantial staff work for me in developing this legislation.

Senator STEVENSON. Thank you.

Did you have a statement also, Mr. Herz?

Mr. HERZ. I do have a written statement for the record, Senator, and I am prepared to speak briefly from it. I would like to submit the written statement for the record.

Senator STEVENSON. It will be entered in the record. Why don't you proceed now. If you can remain a few minutes, Dr. Baruch, we will be able to come back to both of you.

Mr. HERZ. Thank you, Senator.

Before I launch into the few things I have to say, I would just like to expand a little bit on the line of questioning Senator Schmitt was following.

One answer Dr. Baruch gave was so short that its importance might have been missed. You asked whether-I think maybe Senator Stevenson asked whether exclusive license in these fields of use is the equivalent of title and Dr. Baruch said yes.

I think that's important. We are not proposing that in any field of use where the contractor is interested either in developing itself, or in licensing that it get something less than title. Technically an exclusive license has a different name, but has the same effect. If I might add to that remark, I think its too bad that the patent policy debate has been carried on for so long as if the argument was between title and license. I think that is not only confusing for a layman not familiar with the technical terms, but it is also confusing for anyone because the legal effect of a license can be the same as the effect of title.

A license is to a patent as a lease is to a building. As you know, a 99-year lease renewable for another 99 years can be the equivalent of title. So I think it's important to recognize what Dr. Baruch is trying to say. Yes, we are giving the equivalent of title to the large business every place that the large business wants to undertake commercialization.

In those other fields of use where it doesn't, then that is a matter of trust. As Senator Stevenson brought out, we are saying, let's let the Government do what it can, recognizing that the Government probably will not exceed the success rate that NASA has achieved with its very active and vigorous program. Hopefully it will exceed the success rate that has been achieved with less active and vigorous programs. Together with the contractor's effort, it should give us a better utilization rate than either could alone.

That's what we are trying to say.

What I would like to say for myself is this: Dr. Baruch has outlined the general case for the proposed act in the larger context. From our special perspective at the National Science Foundation, I would like to dwell on its merits in three particular respects. From a personal perspective I might add a fourth that is not in my written statement.

First, the Foundation is the agency of the Government whose special responsibility is to maintain and stimulate science and scientific research for the benefit of the public. Because of that responsibility, the NSF has a deep interest in the working out of science for the use of the public. And we think the proposed Patent Policy Act would do much to bring the fruits of science to the public.

Second, we are a research-support agency, and most of the research we support is performed by universities and by small businesses. We therefore share with other research-support agencies a concern for the impact of Government patent policy on research performers, and we have a particular concern for its impact on universities and small businesses. And we think the proposed Patent Policy Act would be a major plus for them.

Third, we have had a special interest, deriving in part from the President's special interest, in drafting legislation and regulations so that they are as clear and comprehensible as the substance and the subject can permit. In drafting the proposed Patent Policy Act, the administration has tried very hard to develop a logical and

comprehensible structure and to use plain English. We believe that the difference is deeper than cosmetics.

Yesterday, Mr. Merrill of the committee staff asked me why, coming from the National Science Foundation, I was so interested in this particular legislation. I gave him the three answers I have just given to you, and which are expanded in my written statement. But, you know, reflecting since, I realize that as we have gotten into this subject a fourth reason has emerged, at least for

me.

The Government patent policy issue presents in microcosm a test of our ability to govern effectively in our complicated system of representative democracy.

This patent policy debate has been going on since Mr. Carter was a midshipman. We have yet to reach a sensible and coherent resolution.

I think the major reason is that on this issue what seems most plausible and even obvious to a fairminded citizen who comes to the issues for the first time, turns out after deeper consideration and some experience, to be least workable and the least effective.

I have touched on some of the reasons for that in my written statement. Dr. Baruch has elaborated them further, and I would be preaching to the converted to go into them further.

What we have now, and what we have ended up with, is a briar patch. Our contractors and grantees have to deal with 20-plus different statutes and sets of regulations, all overlain by the President's statement on Government patent policy, which has the effect of an Executive order. There are two other Executive orders in the area covered by this bill. Nor, in my opinion, is it any satisfactory solution to layer yet another statutory scheme that affects only nonprofits and small business on top of all that and congratulate ourselves that we have resolved very much-even though we favor the approach of that proposal, as you know.

Until today, neither the Congress nor the executive branch has been able to achieve a sufficient consensus to come up with an effective solution of this matter.

The proposed Patent Policy Act would cut through all of that, through all the mass of inconsistent laws, executive orders, and regulations, and would replace it with a single statute covering all classes of contractors and grantees. It would be implemented by a single Government-wide set of regulations and a single Government-wide standard patent clause.

Though agencies would retain reasonable flexibility to reflect the peculiar needs of their own programs, or the peculiar circumstances of individual cases, they would all be working from the same basic framework and set of policy decisions instead of 20-odd different ones.

From the standpoint of universities and small businesses who are our principal performers, the proposed Patent Policy Act is particularly favorable. It's essentially similar to S. 414 about which we heard this morning, and which has been favorably reported from the Judiciary Committee. The virtues of the approach adopted in that proposal were well developed in hearings there and have been developed further this morning.

The only departures in this bill are in drafting style and elimination of a few restrictions on nonprofit and small business contractors that the administration considers unnecessary and undesirable. The major difference of course, is that this legislation would not deal with the problem only for nonprofit and small business contractors, but with the whole problem, and it would prune the present legal thicket not add to it.

In my written statement I discuss briefly the effort that was made to provide the proposed act with a logical structure and to couch it in language that is as comprehensible as the subject and substance will permit. I don't argue that we have succeeded completely, just that we have done our best, and, I think have succeeded considerably. That, too, I would argue is more than a surface matter and has something to do with effective government.

Not far from the surface, "plain English" drafting reduces the length of legislation and makes it easier to understand. All those who have to work with it, especially laymen and those who are new to the subject, but even experienced practitioners, are therefore going to be saved both effort and frustration.

A deeper contribution of the plain-English drafting effort is to the substantive formulation and subsequent operation of the statute. By making what is said plainer, it insures that those that have to implement or comply can easily understand what's expected of them. It also minimizes unintended ambiguities that create disputes in the administration of the statute. It thus enhances the effectiveness of the law and the respect paid both to its spirit and to its letter.

Most deeply of all, plain English highlights remaining flaws and issues that unfamiliar legalisms and convoluted structure would obscure. This is a vital and substantive service for drafters, for legislators, we hope, and for the public.

To us at the National Science Foundation, indeed, that's one of the great virtues, not only the style in which the proposed Patent Policy Act is drafted, but of the act itself. Whether it represents an ultimate resolution of the issues in government patent policy remains to be seen. But its speedy enactment, hopefully in this Congress, would remove the thicket of laws, executive issuances, and regulations that now obscure this area. It would highlight the issues and allow us to move on to refinement of a coherent Government-wide policy.

It would also allow us to move on to related and probably more important issues from which the tedious and seemingly endless debate on Government policy has impeded us.

Thank you.

[The statement follows:]

STATEMENT OF CHARLES H. HERZ, GENERAL COUNSEL, NATIONAL SCIENCE

FOUNDATION

The National Science Foundation wholeheartedly supports the proposed Government Patent Policy Act that has just been presented to you in draft. It deserves to be enacted in this Congress.

From our perspective at the National Science Foundation I would like to make three points about the proposed Act.

First, the Foundation is the agency within the Government whose special responsibility is for maintenance and stimulation of science and scientific research for the benefit of the public. Because of that responsibility the NSF has a deep interest in

the working out of science for the use of the public. The proposed Patent Policy Act would do much to bring the fruits of science to the public.

Second, the Foundation is a research-support agency and most of the research we support is performed by universities and small businesses. The NSF therefore shares with other research-supporting agencies a concern for the impact of Government patent policy on research performers and has a particular concern for its impact on universities and small businesses. The proposed Patent Policy Act would be a major plus for them.

Third, the Foundation has had a special interest, deriving in part from the President's personnal interest, in drafting legislation and regulations so that they are as clear and comprehensible as the subject and the substance permit. In drafting the proposed Patent Policy Act the Administration has tried very hard to develop a logical and comprehensible structure and to use plain English. We believe the resulting difference is more than cosmetic, and I would like to say why. Bringing the Fruits of Federal Research to the Public

The current state of Government patent policy reflects our historic difficulty in achieving consensus on the subject. The reason for that difficulty is not hard to find. Government patent policy is a topsy-turvy world where what seems most plausible, even obvious, to a sensible citizen coming to the subject afresh turns out after deeper consideration and experience to be least workable and least effective.

A common and quite reasonable first reaction is this: "The public paid for these inventions; why shouldn't the patents on them be freely available to all members of the public?"

As it turns out, however, if the patent is available to everyone, the invention is likely to be available to no one. Ordinary citizens, even ordinary businesses, can make no use of a patent as such. The invention must first be developed into a product or process and made available on the market before it does anyone much good.

The research that spawns an invention typically involves only a small fraction of the costs and the risks entailed in bringing it to market as a usable innovation. Most of the costs and the risks of development, production, and marketing remain to be borne by the developer. And those costs and risks are usually very considerable. As a result, only a small fraction of the patentable inventions that are madewith or without Government support-ever reach the public as usable innovations. Fewer still would reach the public without patent protection. Without patent protection the firm that takes the costs and risks of initial development, production, and marketing would have no protection against other firms (particularly firms with dominant market positions) who might otherwise move in for a "free ride" by imitating the fully-developed invention and exploiting the developed market. The narrow and temporary patent "monopoly" on the invention permits the firm that takes the costs and the risks a protected return on its investment and so provides incentive for it to take that enterpreneurial plunge.

Indeed, furnishing investment protection and an incentive for develpment after the invention is made may be the most important of the functions our patent system now serves.

Inventions made in the course of Government R&D contracts and grants are not different from other inventions in this regard. The cost of the research that led to the invention, all or part of which the Government has borne, typically is a small fraction of the costs that remain to bring the invention to market. Thus, the risks that remain-that the invention will not pan out in development, that production costs will greatly exceed what is hoped for, and that the finished product or process will be rejected by the market-are the really high-stakes risks.

In short, the investment protection and incentive to innovation provided by the patent system are as vital for inventions initially conceived under Government R&D contracts and grants as for those initially conceived under purely private auspices. But now we come to a second common reaction of a reasonable person coming new to the subject: "Granting that someone should have patent protection to bring an invention made with Government funds to the point where it will be useful to the public, why should the contractor have an inside track? Why shouldn't the Government license or auction the patent to any company willing to develop the invention?"

One answer is that the contractor very often has some equities in the matter, having contributed money, expertise, and other resources to the making of the invention and perhaps to some initial development. In such a case cutting the contractor out would not seem fair. But one could, of course, make an exception for such cases-understanding that it would be a quite commonly used exception.

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