of use defined, or is it on the contractor to prove that they're within the specific field of use?

Mr. HERZ. In those rare cases where you actually had any difference on that

Senator SCHMITT. You say "rare", but you have no experience yet. So we don't know what the number of cases are.

Mr. HERZ. On that sort of thing, I think there's a lot of experience in the private sector, and also the realities are such that they would be rare. What we're talking about is a situation where the contractor has already issued a license or is itself commercializing in some field that's related to some other field in which the government has come up with a potential licensee or in which a potential licensee has appeared on its own motion.

That doesn't happen very often, and it certainly has not happened very often. It is, by the way, exactly the kind of situation we expect to run into with the march-in rights we have now.

As you say, the march-in rights are not exercised very often. I suspect they should be exercised more often.

Senator SCHMITT. If you want to give Congressmen and Senators some case work, yes.

Mr. HERZ. There's something to what you say. Our agency is about to exercise a march-in, by the way, in a particular case, and it's just that kind of situation.

Senator SCHMITT. Will you inform the Congressmen and Senators whose district is concerned before you exercise that?

Mr. HERZ. If▬▬

Senator SCHMITT. I'm being a little bit facetious, but I'm trying to give you an idea of some of the reasons we are concerned.

Mr. HERZ. In this case, the holder of title is a university. If it is sufficiently concerned-and I think candidly in this case it is not sufficiently concerned-we would, of course, do that.

Dr. BARUCH. Senator, my suspicion is, if it were a third party action that initiated this, we would have two Senators and Congressmen to notify, if they were from separate States.

Senator SCHMITT. Well, I'm sure you will. Fortunately, Mr. Chairman, in spite of what you may have heard this morning, I think the Congress has been moving in the last few years toward consensus. Certainly, the House and Senate committees have an interest in this. They have generally agreed philosophically. They are not yet fully in agreement as to scope, but they've agreed philosophically as to what history and commonsense tells us should be done.

I don't think the proposal by the administration is going to derail that effort. I don't know where Mr. Herz and Dr. Baruch feel their political support is coming from, because certainly the testimony before this committee and the House, and a great deal of the testimony before the Judiciary Committee has been supportive of the concept of the Commerce Committee bill which would go in a different direction. So hopefully you haven't derailed us. I don't think you have.

Mr. HERZ. We had no intention of derailing.

Senator SCHMITT. I know your intentions are good, but we in the Congress were moving in a fairly consistent direction. Now there's a new concept introduced which I don't think is supported by fact,

experience or commonsense. And for that reason I don't think it's going to hurt the progress that we were making before and I think will continue to make.

Mr. HERZ. What I would just like to say, Senator Schmitt, is that we have no intention of derailing. I agree with your statement about the movement of the Congress toward consensus, from what little I'm able to judge of it. I didn't mean to suggest anything to the contrary, and I would emphasize that I think that the administration's bill is entirely consistent with the kind of consensus that's been developing in the Congress, and I hope it will be seen that way.

What it adds, in terms of the field of use wrinkle, is a minor addition and intended to be a small contribution to supplement the effort that's already been going on. We don't regard this bill as inconsistent in any serious way with the consensus that's been developed.

Senator SCHMITT. My time is up. Thank you, Mr. Chairman. Senator STEVENSON. Well, now that I understand it better, I find it more interesting than I did before. Maybe it does offer, not a new possibility for derailment, but some new possibilities for compromise to make it easier to get some action-

Dr. BARUCH. And I hope it will broaden the consensus.

Senator STEVENSON. Well, we'd better keep moving. Thank you, gentlemen, for joining us.

Dr. BARUCH. Thank you, Senator. Thank you, Senator Schmitt. Senator STEVENSON. Our next witnesses are invited to come forward together. They are Robert Benson, director of the Patent Law Department of Allis-Chalmers; Homer O. Blair, vice president, Itek; James K. Haskell, director for patenting and licensing of Hughes Aircraft; Dr. Albert L. Broseghini, director of research administration at the Children's Hospital Medical Center in Boston; Eric Schellin, a patent and a trademark attorney from Arlington, Va., and Monte Throdahl, senior vice president of the Monsanto Co. I understand that Mr. Throdahl is going to have to leave soon, so we'll call on him first. But let me urge you all to summarize your comments, so we'll have some time for questions. Your full statements will be entered in the record.

Mr. Throdahl?

STATEMENTS OF MONTE THRODAHL, SENIOR VICE PRESIDENT, MONSANTO CO.; ROBERT B. BENSON, DIRECTOR, PATENT LAW DEPARTMENT, ALLIS-CHALMERS CORP.; HOMER O. BLAIR, VICE PRESIDENT, ITEK CORP.; DR. ALBERT L. BROSEGHINI, DIRECTOR OF RESEARCH ADMINISTRATION, CHILDREN'S HOSPITAL MEDICAL CENTER, BOSTON, MASS.; JAMES K. HASKELL, DIRECTOR, PATENTING AND LICENSING, HUGHES AIRCRAFT CO.; AND ERIC SCHELLIN, PATENT AND TRADEMARK ATTORNEY

Mr. THRODAHL. Thank you, Mr. Chairman.

I think I would like to speak to you this morning from the point of view of a person who is a nonpatent attorney, but who has had a professional lifetime of experience in the area involving the kinds of problems you've just been discussing.

Let me begin by saying that I think there are three basic factors that control the success of nearly all innovations, certainly those that I've been associated with. Let me list them for you.

First, the time usually measured in years, required for commercialization is almost always longer than our collective patience allows-I'll have some more comments on this later. Ten to fifteen years in high technology is not at all uncommon. Those may be averages.

The second factor is that the timing is really a narrow window that's open only for a short while. That occurs when the public readiness to accept the innovation coincides with the state of the art. We've got lots of examples of great innovations that came too early or too late. This factor is extremely difficult to predict and also bears on some points I would wish to make later.

The third factor I would cite is that the innovation process itself really proceeds erratically because there are no probabilistic calculations to guide the innovator. The events either happen or they do not, and this means that the inventor must proceed regardless of whether he thinks they will or will not happen. That's the one essential difference between uncertainty and risk.

Now the presence of these three factors-time and dealing with uncertainty-makes patent exclusivity a viable, positive force to help the entrepreneur over these various difficult conditions. And so, representing one sector of a high technology industry, we would say that exclusivity obviously has to be a must, and I don't sense there's a lot of disagreement on that point.

Then I would say that an invention is the key proprietary step in this long process of innovation, which culminates in the manufacture and sale of a product or an application of some new process. When normal commercial incentives are lacking, then the Government sometimes can offer financial support. Now the public as taxpayers do finance this research and development. Certainly, they haven't received the full benefits of these results, and that's been pretty well concluded this morning as well.

I think the reason for this is the understandable reluctance of private concerns to invest substantial moneys-and those substantial moneys begin after the invention is made usually-the talent that they have and these years of time and the highly uncertain quest for innovation when these rights to proprietary benefits are not exclusive.

The Patent Subcommittee of the Advisory Committee on Industrial Innovation recognized this when it recommended that patent rights on Government-supported inventions be transferred to the private sector for commercialization, and of course the Subcommittee on Federal Procurement Policy in the recent domestic policy review made a similar recommendation.

As we understand this administration bill, it does go far toward implementing this recommendation. And so, I applaud many of the forward looking provisions of the bill.

Many of these provisions should receive, it seems to me, reasonably universal support, certainly from our industrial colleagues. Everyone does recognize, I think, the value of a Government-wide policy that eliminates the present practice of the multitude of policies which vary from agency to agency. It doesn't seem to me

that anyone would disagree with that, nor would they disagree with government's retaining for itself a royalty-free, nonexclusive license.

We think that the provision in this administration bill, which permits an agency to move away from the provisions, is a practical approach. There are some problems that have arisen in past Government policy. We think this will protect the equity of the contractor in cosponsored cost-sharing and joint venture contracts, and certainly it does give the agency the flexibility to strike a deal with. the contractor best qualified to do the work.

The Government would retain march-in rights, so that it does have the opportunity to seek other parties. We think that makes

sense.

This concept, of course, is used extensively by businesses in licensing practices, and we certainly do that in our own corporation. In fact, we think that the march-in rights can provide the mechanism for accomplishing a good deal, if not nearly all, that the field of use provision attempts to do.

I would support the protection of the background patent rights. And it seems to me that this, then, would remove serious obstacles that in the past have prevented the Government from obtaining the most qualified R. & D. contractors. It would seem appropriate to me also that most of the provisions of the bill could have the wholehearted support of government and academe and business because they do protect the public interest while they do facilitate Government-sponsored innovation.

This is another way of saying, perhaps, that half a loaf is better than none.

Underlying the administration bill, as we understand it, as well as your bill, Senator Schmitt, and the Bayh bill, is the valid principle in granting exclusivity to the contractor, which will result in less cost and less adminstrative problems for both Government and contractor.

Both this bill and Senator Bayh's bill grant title to the university and small contractors. We think this is good. We expect that universities and small businesses will play an increasingly important role in the future as we hopefully rejuvenate U.S. innovation. But again, I come back to the point that we've dealt with so extensively just recently. If this principle is sound for universities and small businesses, why shouldn't it apply equally to other contractors? We would represent such an organization.

For the latter, meaning someone in the larger sector, such as ourselves, this bill places the title in the Government with the contractor receiving exclusive licenses in specified fields of use. We could live with that, but we wonder if this discrimination is wise and whether it will not discourage rather than encourage innovation in the long run?

But if this distinction is necessary, then it seems to me the bill does contain a few improvements over past patent policy. For that reason, I think we can go along with it.

Let me cite those three improvements:

The first one is that it offers the probability of greater exclusivity to all contractors.

Second, making larger contractors' exclusive license automatic unless the agency makes some sort of prompt determination to the contrary. It's an improvement over putting the burden of justifying a waiver of title on the contractor, as is now the case, I believe, with NASA and the Department of Energy.

Third, although there will be problems that will arise when the party filing for a patent doesn't hold title, certainly this bill would avoid Government expense by having the contractor file. It also puts the job of filing for the patent in the organization that will usually have the most information about the invention.

There is an unfortunate part here, that the exclusive license granted under these provisions is limited to the fields of use that are specified by the contractor as soon as the invention has been identified, and I think that's the key point. We think this is sort of unrealistic, because in most cases it ignores the way that inventions are developed. Let me try to explain that.

I would like to use three maxims for research, if I may, that will illustrate this. The first maxim is that researchers do not usually find what they're not seeking.

The second one is that most research is done usually where the light is best.

And the third one is that the first use of an invention is usually not the most important one.

Normally the developer commercializes the first use, and then he broadens into other uses after he has gained additional technical and market knowledge about the invention.

I have an example here that could well come from an organization like our own. Suppose, for the sake of this example, that we consider the fiber division of a large diversified company-in other words, a company such as our own that would have a number of small parts making up the bigger whole, where many of those small parts are completely dedicated to the idea of finding new applications for products that already exist, and finding new fields, new markets in which to serve.

So, suppose this division finds a way to improve the tensile properties of nylon in carrying out, say, a government contract to develop better truck tires.

Now the first field of use is tire cord, or perhaps, more broadly, fibers. The invention then would be tested. We'd make market studies, create a pilot plant. This is where the big expense starts. And we might make 100 or so tires, and we rigorously test them. This may take all the way from 2 to 5 years or more. And the costs at that stage would exceed by many-fold the costs of the research that would lead to the original invention.

Now, meanwhile the knowledge that would be gained in these tests might have suggested other uses for the improved nylon, such as injection molding of machine parts, or in plastic sheets, or in other uses, none of which would come within the original field of use that was expected.

And so then the contractor faces the disincentive-the Government may have already licensed others in these new fields of use. So, as it now reads in the bill, this provision seems to us to restrain innovation in the long run, because it does narrow the options.