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Why, therefore, shouldn't we apply the same approach, exclusive rights in identified fields of use, to small businesses? That would also overcome our problems in identifying what is small and what is big. We could treat everybody uniformly and we wouldn't have to leave it to the SBA or anybody else. And you wouldn't be punishing them, if that's the right expression, as soon as they become big. Success is rewarded.

Dr. BARUCH. Senator, it is not my view of big businesses that they are rigid, but I do believe that, because of their size, they have less flexibility in the kinds of changes they can make in their lines of business.

You are quite right that we will find small businesses which are as rigidly narrow as the worst conception one might have of a large business—I could name two or three-And you are quite right to ask, why give them title.

Senator STEVENSON. I am agreeing with you. Maybe rigid is the wrong word. I think big business tends to be rigid. You are being more favorable to big business, I suppose, than I am.

I am willing to assume the truth of whatever it is that you are saying. I think you used the word “fluid.” Let's just assume then that it's just a question of fluidity. Small business is fluid and big business is not.

What I'm trying to suggest is that there are other limitations on small business.

Dr. BARUCH. If those limitations interfere with the use of those patents, then the Government can-and in the unlikely occurrence a small business is not utilizing it, it is reasonable that it will — exercise the march-in rights the Government will retain.

Senator STEVENSON. Do you want to expand a little on your experience in march-in rights for Senator Schmitt?

Dr. BARUCH. Senator, there are certain areas in which you and I completely agree. One of them is utilization and the inability or unwillingness of the Government to exercise its march-in rights.

I would like to point out some of the biggest bars to small businesses for expanding fields of use, exercising patents, are financial ones.

Senator SCHMITT. And regulatory. Administration regulation. Big business has an advantage.

Dr. BARUCH. Let's take the financial one first, because the patent doesn't help them much in the other area. You're right; it does. I'm sorry. If we give them title, it's one less tie to the Government that they have.

But, in fact, if you give them title, they have an asset which provides a valuable tool for raising cash, either by borrowing against it or by using it for licensing and getting royalties without investments, and that kind of encouragement to the growth of a small business is in the national interest.

Senator STEVENSON. Senator Schmitt?

Senator SCHMITT. Mr. Chairman, if I understand correctly, one of the reasons, if not the reason, for the difference between small and large business approaches is to provide some extra advantages to small businesses. Is that correct?

Dr. BARUCH. No, sir. It's to provide for the opportunity for small business to utilize these inventions in a wide range of areas. It's

not an additional advantage, because we have put the big business under no disadvantage.

Senator SCHMITT. There's not complete agreement on that.
Dr. BARUCH. I'm clearly voicing the opinion of a witness.

Senator SCHMITT. If that's true, why change the policy as the business gets larger?

Dr. BARUCH. Because as businesses get larger, they become less likely to license those patents in fields of use other than those in which they're actually engaged.

Senator SCHMITT. Are we forgetting that there's a middle ground here in which most businesses fall? Can you point to statistics which show that the medium-sized businesses-whatever is between small business and the Fortune 500—in fact, do poorly in licensing?

Dr. BARUCH. No, sir. But as is the case with most executives, I frequently have to make decisions based on insufficient evidence, and I do the best I can.

Senator SCHMITT. Over here in Congress, some of us at least try to make our judgments based on experience and history and what the basic facts are.

Let me move in a little bit different direction, Mr. Herz. To the best of your knowledge, what is the university community's position on the President's proposal?

Mr. HERZ. Senator Schmitt, I would hesitate to speak for the university community. Among other things, since the President's proposal, as you correctly said, officially hit the streets sometime late last evening, it's a little early to ask the whole university community to react. We have talked with a few people. I think realistically—I'll try to be as candid as I can in answering that-I think the university community likes the administration bill substantively. Their worry is, “Hey, we have this bill that takes care of our problems, that's already been reported out of committee and may be less controversial. We're worried that by pressing the administration's bill, you'll jeopardize the chances for that bill.”

And what we have said to them at the very least is: “Wait and see. We think the administration's bill or some bill like it does have real political prospects. If you will support the effort to get such a bill, we certainly are for the same approach, that's in the bill the university community is concerned about.”

I think candidly that the university community will find that although the bills are essentially similar, the administration's bill is slightly more favorable to universities—or at least has fewer appendages, you might say.

One of those is one you pointed out earlier. There is no so-called recoupment requirement in the administration's bill-as there is not in yours—although I don't think that kind of requirement is so serious a requirement for universities or anyone else if it's done right. It is not in this bill, and I would find that better.

There are a number of other small things rather like that.

Senator SCHMITT. But as of now, you have not explored substantively with the university community how they feel about the details of the bill?

Mr. HERZ. I have explored it informally with a few of the most obvious representatives, and I think I have accurately stated their reaction. I think that they do like the administration bill as it affects universities substantively, and their worry is a political one about its impact on the other bill.

Senator SCHMITT. Outside NSF, what has been the reaction of the major Federal R. & D. agencies to the President's proposal? And I would include the R. & D. portion of HEW in that question.

Mr. HERZ. Senator, I would personally hesitate to speak for them, except to say, this is the administration's bill and they're supporting it.

Senator SCHMITT. They're expected to fall into line. Right?
Dr. BARUCH. As of yesterday, we had an agreement on this bill.

Senator SCHMITT. Was that agreement by Presidential edict? What was the advice that the agencies gave to the President with respect to this or other proposals?

Dr. BARUCH. It's a negotiated position throughout the administration, as are most positions.

Senator SCHMITT. Well, this committee has had testimony that would indicate that at least during those negotiations, there were very strong objections expressed.

Dr. BARUCH. To some other versions of the bill. Many changes have taken place in this bill.

Senator SCHMITT. In particular, to the concept of exclusive licensing.

Mr. HERZ. Senator, I think one thing would be helpful on this, and this goes back to the comment I made before I started my own formal, oral statement.

I think early on there was a lot of concern in a number of quarters, including the committee, that the exclusive license arrangement was intended to be something negotiated between the contractor and the agency. That would be very troublesome. It is, as we've tried to explain very carefully, not what's intended at all by the bill, and I think a lot of the concerns that were earlier expressed reflect that worry.

Senator SCHMITT. But you still have to monitor field of use, right? How is the monitoring of a license in the field of use going to be undertaken?

Dr. BARUCH. What do you mean, “monitoring.” I'm sorry.
Senator SCHMITT. You're defining a field of use, presumably.
Dr. BARUCH. Our policy asks the contractor to do that. Yes.
Senator SCHMITT. It's going to be self-enforcing?

Dr. BARUCH. In general, if you want to look at the practicality of using this, the question of whether the contractor is actually commercializing some field of use is most likely to be brought up, not by the government, but by some third party, who would like to get a license for that field and hasn't been able to do so—who claims that they're not using it; And that he want to commercialize it. That's about the only circumstance that I expect that the question of field of use adherence to come up.

Senator SCHMITT. You don't expect any definitional problems on whether this field of use of clothes includes hats or shoes or whatever?

Dr. BARUCH. No, I do not.

Senator SCHMITT. Well, where is the burden of proof in this? Is it on the Government to prove that the contractor is outside the field 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?

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.

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