As I said, in the early part, the three concerns of ours are in terms of the uncertainty. Events either do or do not happen, and they're very unpredictable.

We'd also suggest that since the first use of anything is rarely an important one, this might turn out to be a key point. So I would urge in this bill that the field of use concept be reconsidered. But if, in the judgment of those who will be passing it, it is retained, I'd like to suggest two improvements if we're going to do that:

First, the contractor ought to have the right to designate the field of use any time within some fixed period, such as 3 years or so. Preferably there should be no designation until the agency has concluded that it is necessary to hasten some commercialization or broaden the exploitation of the invention. At least that gives us some sort of time frame in which to put the contractor, and that's not all bad.

The second suggestion for improvement would be this. I believe that once a contractor has chosen a field, or fields, for use he ought to have the right of first refusal of any new uses as they may be identified by the agency, either on its own or by some other party who seeks a license from the agency. That may seem a little unfair, but I think it would be practical.

In sum, gentlemen, I think overall this bill is a move in the right direction from past policies. I would certainly urge that it be considered whether it is necessary or wise to distinguish between the large businesses and small businesses.

And, as I said earlier, I wonder if the field-of-use concept is necessary when the Government's right of march-in would achieve all that the field of use is designed to do.

But with these qualifications, as I have explained them, I believe that you have before you a bill that has many excellent provisions stemming from the President's initiatives in improving the climate for innovation. It seems to me this bill combines many of their best proposals on Government patent policy.

I think proper patent policies can help rejuvenate our American innovation, to the benefit of everyone. This is a bobtail version of our thoughts of necessity. We would certainly be glad as an organization to meet and work with anyone of your choosing on implementing our thoughts in a further detailed manner.

[The statement follows:]

STATEMENT OF MONTE C. THRODAHL, SENIOR VICE PRESIDENT, MONSANTO CO.

The recent Domestic Policy Review concluded that innovation is indeed lagging in this country. While there are many proposed solutions to the problem, there is no doubt that improved government policies concerning federally-funded inventions would have a positive impact.

Three basic factors control the success of nearly all innovations. First, the time from idea to commercialization is almost always longer than patience allows. Ten to 15 years is not uncommon. Second, timing is really a narrow window, open only for a short while, that occurs when the public readiness to accept the innovation coincides with the state of the art. This factor is very difficult to predict. And third, the innovation process really proceeds erratically because there are no probabilistic calculations to guide the innovator. Events either happen or do not, and the innovator must proceed regardless. The presence of these three factors makes patent exclusivity a vital, positive force to help the entrepreneur over these difficult conditions.

An invention, then is the key proprietary step in the long process of innovation, which culminates in the manufacture and sale of a product or the application of a new manufacturing process. Where normal commercial incentives are lacking, the government sometimes offers federal support for the project. However, the public, who as taxpayers finance this research and development, have not received full benefits from the results. Less than five percent of the patents held by the government have been commercialized.

The reason for this is the understandable reluctance of private companies to invest money, talent, and years of time in the highly uncertain quest for innovation when the 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. The Subcommittee on Federal Procurement Policy made a similar recommendation.

As I understand the Administration's draft "Government Patent Policy Act of 1980," it goes far toward implementing this recommendation. As one whose entire career has been that of encouraging innovation in business, I applaud many of the forward-looking provisions of this bill.

Many of these provisions should receive universal support. Everyone recognizes the value of a government-wide policy, thereby eliminating the present multitude of policies which vary from agency to agency. Nor does anyone disagree with the government's retaining a royalty-free non-exclusive license.

I also think the provision which permits an agency to deviate from the provisions of the bill is a practical approach to some problems that have arisen under past government patent policies. This permits protection of the equity of the contractor in co-sponsored, cost-sharing, and joint-venture contracts, and it gives each agency the flexibility to strike a deal with the contractor best qualified to do the work. The government would also retain march-in rights, so that it has the opportunity to seek other parties to commercialize an invention if the contractor is not moving appropriately to do so. This concept is used by businesses in their licensing practicies, and it sound for the government to use it. In fact, march-in rights provide the mechanism for accomplishing much, if not all, that the "field-of-use" provision attempts to do.

I support the protection of background patent rights. This removes a serious obstacle that in the past has prevented the government from obtaining the most qualified R&D contractors.

It would seem appropriate that most of these provisions should have the wholehearted support of government, academia, and business because they protect the public interest while they facilitate government-sponsored innovation.

Underlying this bill as well as the Schmitt Bill, S. 1215, and the Bayh-Dole Bill, S. 414, is the valid principle that granting exclusivity to the contractor will result in less cost and administrative problems for both government and contractors.

Both this bill and S. 414 grant title to university and small business contractors— subject of course to march-in rights. This is good. I expect universities and small businesses to play increasingly important roles in the rejuvenation of U.S. innovation. But if this principle is sound for universities and small businesses, why would it not equally apply to other contractors as well?

For the latter, this bill places title in the government with the contractor receiving an exclusive license in specified fields of use. I wonder if this discrimination is wise, whether it will not discourage rather than encourage innovation.

But if this distinction is considered necessary, the bill does contain three improvements over past patent policy.

First, it offers the probability of greater exclusivity to all contractors. This is obvious in the case of universities and small contractors. The larger contractor, which is often the most capable of carrying an invention through commercialization, would be more attracted to government-sponsored research.

Second, making the larger contractor's exclusive license automatic, unless the agency makes a prompt determination to the contrary, is an improvement over putting the burden of justifying a waiver of title on the contractor-as is now the case with NASA and DOE.

Third, although problems may arise when the party filing for the patent does not hold title, this bill would avoid government expense by having the contractor file for the patent. It also puts the job of filing for the patent in the organization with the most information about the invention.

Unfortunately, the exclusive license granted in these provisions is limited to fields of use specified by contractor as soon as the invention has been identified. This is unrealistic in most cases, for it ignores the way inventions are developed.

At least three maxims prevail in research. One, researchers do not usually find what they are not seeking. Two, most research is done where the light is best. Three, first use of an invention is usually not the most important one. Normally, the developer commercializes a first use, then broadens into other uses after it has gained additional technical and market knowledge about the invention.

For example, suppose the fiber division of a large diversified company finds a way to improve the tensile property of nylon in carrying out a government contract to develop better truck tires. The first field of use is tire cord, or perhaps more broadly fibers. The invention is tested, market studes are made, a pilot plant is constructed, and a hundred or so tires are rigorously tested. This may take two to five years, and the costs exceed by many times the costs of the research leading to the original invention.

Meanwhile, the knowledge gained in the tests may have suggested other new uses for the improved nylon-such as in injection molding of machine parts, or in sheets, or in other uses, none of which come under the original field of use. So the contractor faces the disincentive that the government may have already licensed others in these new fields of use. As it now reads, this provision seems to me to restrain innovation in the long run because it narrows the options.

I urge that the field-of-use concept be reconsidered. But if it is retained, I would like to suggest two improvements.

First, the contractor should have the right to designate the field of use anytime during a fixed period such as three years. Preferably, there should be no designation until the agency has concluded that is necessary to hasten commercialization and to broaden exploitation of the invention.

Second, I suggest that once a contractor has chosen a field or fields of use, he should have the right of first refusal of new uses as they are identified by the agency on its own or by a third party seeking a license from the agency.

Overall, this bill is a move in the right direction from past policies. I do urge you to consider whether it is necessary or wise to distinguish between universities and small businesses, on the one hand, and large businesses, on the other. And, as I said earlier, I wonder if the field-of-use concept is necessary, when the government's right of march-in achieves all that field-of-use is designed to do.

But with these qualifications, I believe you have before you a bill with many excellent provisions. Stemming from the President's initiatives in improving the climate of innovation, this bill combines many of the best proposals on government patent policy. Proper patent policies can help rejuvenate American innovation-to the benefit of government, business, and especially the tax-paying American public. Senator STEVENSON. Thank you, sir.

I recognize that you must leave very shortly, so we'll see if there are questions for you, and then you are free to leave.

I have just one. Are you suggesting that if the Congress were to accept the field-of-use approach, with or without your modifications, that it should be applied to small businesses as well as to larger businesses?

Mr. THRODAHL. We would say so, yes. We don't really find the distinguishing between small and large very helpful. The arguments that you were carrying out earlier I think would share our views quite well.

Senator STEVENSON. Senator Schmitt.

Senator SCHMITT. Pursuing that field-of-use question a little bit further, it would seem to me, that by your proposed modifications you are basically saying you might as well go to title with march-in rights.

Mr. THRODAHL. We would prefer that. I think we would say that. But, on the other hand, if the mood of the Congress would be to not deal with the title question, we could live with this. That's what we're really saying.

Senator SCHMITT. You could live with it. You have a considerable record of contracts with the Federal Government, so you can see into the organization. What would you think would be the effect of

the President's proposal on the activities of the agencies with which you've had your principal dealings?

Mr. THRODAHL. I hadn't thought about that in those terms. I would suspect it might improve the receptivity of the agencies to us for the contractor. I think our main concern would be exclusivity; and that if we had to choose between exclusivity by license, and title, we'd take title. And I'm not sure we would work any more diligently. Hopefully we would be more inclined to move into some of the other use areas that I tried to illustrate earlier that we normally just would not think about.

I can tell you that we had some contracts-gee, this is many, many years ago-it must be 15-with the Office of Saline Water. And these were in regard to dealing with clarification of brackish and saline water.

Some of that work lay fallow for many, many years. And long after some of the original patents might have expired we carried on some of the legacy of that work into fields that were allied but distinctly different. And now, well over 15 years later, we end up with what we hope is a promising set of new applications for what you'd say would be the son of the initial work we did.

But we would never have done it under the basis of the original relationships we had with the Office of Saline Water, because any patents there would have been nonexclusive, so we would have had no incentive at that time.

But, again, to repeat, sir, I think if we have to take the choice between two, we'd rather have exclusivity by way of title. We think it would be much simpler.

Senator SCHMITT. Well, we do, too. But your testimony basically is that there are tremendous definitional problems and practical problems in the field of use, contrary to the testimony we've had from the administration.

Mr. THRODAHL. Yes. And that is one of the most difficult things we have internally to deal with.

Senator SCHMITT. And this would be particularly true if, as I understand, the President's proposal, the definition by the contractor has to be with sufficient peculiarity to allow the Government to identify those fields of use not accompanied by the described field. Mr. THRODAHL. We find it very difficult.

Senator SCHMITT. You don't know what the field of use is going to be for years after the invention.

Mr. THRODAHL. That's right. That's why we would say put a time limit in it at least. I don't mind time pressure; I think that's not bad. But there's just no way that I'm aware of that people are imaginative enough to come up with other uses at the outset. Senator SCHMITT. Well, I'm concerned that if you're going to have field-of-use, or even if you had an aggressively pursued march-in program, which is an alternative approach, that the bureaucracy that it would take for the individual agencies to exercise that in a responsible way would be very large. Many of the things that are done now, for example, in the Department of Defense by people not trained in legal matters would probably not be possible; would you agree with that?

Do you deal with the Department of Defense in these contracts?

Mr. THRODAHL. I do not personally deal with the Department of Defense.

Senator SCHMITT. Monsanto does.

Mr. THRODAHL. Yes.

Senator SCHMITT. Is it your understanding that much of the negotiation work is done with military officers on assignment to that particular endeavor for some short period of time?

Mr. THRODAHL. Yes, it's difficult for them. In fact, it's difficult for anybody to deal with an area that's not his own.

Senator SCHMITT. Do you feel that the Presdent's proposal would require a different approach by the Department of Defense to contract negotiations in terms of the personnel assigned?

Mr. THRODAHL. I couldn't answer that, but I would certainly think it would take a different kind of understanding than we've seen in the past. Therefore, that might be a logical conclusion, that there would have to be a different sort of personnel assigned. Senator SCHMITT. Finally-and then I'll let you go-the President's proposal precludes a contractor from acquiring even an exclusive license if it would be contrary to the requirements of the agency's mission. Does that give you any pause?

Mr. THRODAHL. It certainly would. It would give pause. But, again, I came to this table with the thought that if we could break the barrier of nonexclusivity versus exclusivity-if we could break that barrier, I would like to see that barrier broken in favor of exclusivity with the understanding that, for the reasons I gave, that it's the most critical thing for anyone who has to go through the uncertainty and the patience and the commitment of lots of resources beyond the invention stage to make it come to the public good, so that the public benefits and the organization that assumes the risks and the uncertainty benefits.

Then it seems to me that that's the main thing that we have to get over. And I'd be willing to compromise a good deal to get that part of exclusivity in any kind of bill.

Senator SCHMITT. Well, we have to be very careful. I think the Congress and the Administration-at least in their rhetoric-agree that we need to be aiming toward a uniform policy.

Mr. THRODAHL. That's correct.

Senator SCHMITT. And the exclusivity, in itself, is important. The controversy is going to come down to what does the administration proposal really represent, a uniform policy? It clearly does not, in terms of the definition of business and other entities. It does not in terms of giving the agencies latitude to make decisions on whether they apply the President's proposal.

Uniformity is not there nearly as much as many of us would like to see. I'm afraid that it has potential for building in the same kind of problems that we have all faced whether we've been in Government or out of it with the diversity of patent approaches and background of approaches that one finds in the Federal Government today.

Mr. THRODAHL. I would say, Senator, that there are many features of the two bills, S. 1215 and S. 414, along with this one. And I think with some judicious melding we could come up with most of what all of us would think fair.