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Again, if I bear in on the exclusivity factor, I think I testified before your bill, Senator Stevenson, S. 1215, that I would be willing to see a payback to Government funding agencies that would be the result of successful commercialization.

I like to use the term "bringing to the public good." I really believe that's one way to get over that emotional hurdle that seems unfair when you first think about it. But that's a small price to pay to get that particular-

Senator SCHMITT. That may be a small price to pay for Monsanto, but it's a very large price to pay for a small company, to have that hanging over their heads if and when they're trying to go out and raise funds based on the existence of a patent that they're eventually going to have to pay back on.

And I think those arguments have to be discussed.

Mr. THRODAHL. Certainly.

Senator SCHMITT. But it's not at all clear to me that the overall public interest is served by that kind of requirement. It can inhibit the commercialization process.

Mr. THRODAHL. I agree with you, sir. And I think it's more imaginary than real. But again, on the whole premise

Senator SCHMITT. It's not imaginary if you're a small business trying to raise capital.

Mr. THRODAHL. I understand what you're saying, sir. I was really speaking that it's more imaginary in the general public's mind that somebody is getting an unfair advantage because he would get an exclusive license out of a patent granted by the Federal Government, paid for by the general taxpayers' funds.

Senator SCHMITT. But I think that's starting to break down. Mr. THRODAHL. I'm glad to hear that.

Senator SCHMITT. There's a greater understanding in the Congress of the issue now and more discussion. Your testimony and the testimony of your colleagues will help in that.

Thank you very much.

Mr. THRODAHL. Thank you.

Senator STEVENSON. Thank you, sir.

Mr. BENSON. Could I ask Mr. Throdahl one question before he leaves? This has to do with the statements we heard earlier about the fluidity of big business.

Monte, what percentage of the product that Monsanto markets today weren't on the market 10 years ago? Do you have an idea? Mr. THRODAHL. Were unmarketed or were not on the market? Mr. BENSON. Were not on the market 10 years ago.

Mr. THRODAHL. Well over half. Well over half.

That would mean that we now have more than trebled our size, I would think, in the last 10 years. But our constant struggle is how do we fight the obsolescence of what we have because of the fastmoving nature. I would say that certain people who are representing my own industry struggle very, very hard to avoid this obsolescence, and I have testified to this point. The presence of a regulation is not a totally unwelcome thing, because, in fact, we should have been more far-seeing in years past than we have been now or than we are now.

I would think that, for the most part, we struggle very hard to keep an open mind on how is it that we bring to the public good

and, therefore, to our shareholders' good, that would be lost to us if we don't have the capability for fair innovation.

Mr. BENSON. It's essentially true, that if you don't do that you are going to fall behind in market share and basically you are not going to prosper.

Mr. THRODAHL. That is correct.

Senator STEVENSON. Gentlemen, that is why we are here, because we are falling back in our market share in the world. And usually, those products are not generated exclusively by internal research, but more and more frequently, it's under license from foreign corporations.

Mr. THRODAHL. That's right.

Senator STEVENSON. Thank you.

Mr. THRODAHL. Thank you, sir.

Senator STEVENSON. We better keep pushing.

Mr. Benson, can we proceed with you next?

Mr. BENSON. Thank you.

I was asked to testify primarily on the Patent Advisory Subcommittee of President Carter's domestic policy review on industrial innovation. I was chairman of that committee. My prepared statement includes a complete copy of that report, so I will limit my remarks to some of the features and some of the background of that report, and I will try not to be repetitious of some of the things that have already been said.

As you know, one of the four major recommendations of that subcommittee was that the Government should develop a better system of transferring the commercial rights to Government-supported research to the private sector.

The conclusion of our committee, unanimously, was that if the Government really wanted to increase the amount of Governmentowned technology incorporated in products which actually get into the marketplace, it must find a way to transfer the rights to that technology to the private sector in a sufficiently attractive form that would induce members of the private sector to make an additional investment. Clearly, the preference of our committee was that you just give them the title.

Now, you have to understand what a businessman faces everyday. He has only so much money to spend on various projects, and he has to look at them, compare their merits, their potential, the likelihood of return, and make a decision. So, therefore, any grant from the Government that has restrictions on it is less attractive than one which comes out of our own labs.

When you put restrictions on the grants that you're giving to people in the private sector, you make it less attractive to them. That is one of the reasons why some of this Government technology has never been commercialized. In fact, I would go a little bit further than some of the other people that spoke today. I think that the whole concept of march-in rights is a disincentive. If anyone especially a small corporation, is asked to invest millions of dollars in developing the market, with the threat hanging over their head that because they didn't develop this particular part for some area of the market, someone else is going to come in and get an exclusive license over them this threat certainly has to be a deterrent.

I think that S. 1213 would be much more likely to achieve its goals if the march-in rights were deleted.

I had something in my statement about the windfall profits, which we hear all the time, is bad. I think that's a very misleading thing. When you look at what is accomplished if a person or a corporation takes some unused technology, invests money in it and makes it successful-and, after all, that's the only way he can make any money is to be successful-the rewards to the general public, the citizens, is tremendous. They have something which they never had before.

The results to the Government are pretty good, too. You figure that a corporation has to pay a 46-percent tax on their profit, and I will tell you, that's a very good royalty. So, we think that that argument really doesn't have much merit.

We feel very strongly that the title should go to the private sector, not only to the contractor, but if the Government transfers commerical rights to it own developed inventions, they ought to be transferred in somewhat the same way that the contract inventions are transferred.

I just want to make some mention of the fact, during the committee report, we were told that the Government had 30,000 patents. Less than 10 percent of them are used. I have read some literature more recently which would indicate that it's an even smaller percentage of that-1 or 2 percent. I have to observe that that's a pretty poor record, and I can assure you that none of us in private practice or industry would survive with that kind of a performance.

When we're talking about a uniform Federal patent policy, one of the things that should be addressed is: How are decisions being made on what patent applications are being filed? After all, the Government filings represent 3 percent of the total workload in the U.S. Patent Office, and a reduction in that would solve some of the problems that Senator Bayh is concerned about, with budgets and personnel, over in the Patent Office. So, I think that's one thing that is not addressed in these bills very well, and perhaps should be.

Your bill talks about the utilization of technology. What the bill is really talking about is transferring of patents, and many times very valuable technology is not patentable in the first place. Maybe it wasn't the intention of your committee to direct attention to that particular problem, but it does not appear to be addressed in your bill.

The President's statement on October 31 mentions the exclusivefield-of-use licensing, and, of course, you heard all about that today. All I can say is that from our committee's viewpoint, that is a much less desirable alternative to title. We can see many administrative problems in that particular area, some of which Monte talked about, not the least of which is, who's going to enforce this exclusive license. Patent suits cost a quarter of a million to a half million dollars apiece. If I were to have a license which included, say, 30 percent of the total market, am I then expected to enforce that patent for the benefit of the Government and the other licensees in the other 70 percent of the market.

And the other concept, is whether people in the private sector would really feel comfortable in filing a lawsuit based on a patent owned by the Government. For example, take a major corporation filing a lawsuit against a small corporation based on a Government patent. After all, it's the Government's patent, not theirs. And so I think that particular concept, has some problems.

There are some other problems in connection with exclusive licenses. The way the bill reads, as I understand it, the licensee would be expected to prosecute the patent application. That creates both practical and ethical problems. Many States consider the filing of patent applications as the practice of law, and in most States corporations are not entitled to practice law. So, the preparation filing and prosecution of patent applications on behalf of the Government, at least in some States, would create problems for the corporations who are the licensees.

The practical problem is that you put yourself in a awkward situation if you prosecute patent applications for somebody else. We don't do it; and I think most corporations insist that the licensor get his own patent. To give you an example, let's assume that you prosecute in good faith a patent application, but for one reason or another the claims turn out to be too narrow. The licensor and other licensees are upset. If you did a poor job in prosecuting that patent application do I have some liability to the other parties?

One other point I want to mention. When we were doing our study on industrial innovation, we were concerned with the total innovation process, not just the patent area, and patents are just one step in a long process. One of the things we're talking about today is, who's doing the R. & D., who's coming up with the inventions? But the real problem with getting a product to the market is that point between coming up with a concept and coming up with something which is practical and can be sold in the marketplace. That skill is a different skill than the innovation of the original idea. That skill, in many cases, is very strongly lodged in the corporations who have been successful in marketing. That's their strong point, and you need them. Small corporations and individual inventors often turn to the larger corporations for assistance in marketing and for the refinement of engineering to make things practical. We need that skill. There is no reason, in my view, to discriminate against the large corporation in this area, where your real goal is to get things into the marketplace.

In conclusion, of all the things we've seen, we like S. 1215. We think that's as close to the recommendations that our committee has made, in spite of the fact that I personally think you can drop out the march-in rights and have a much better bill.

Thank you.

[The statement follows:]

STATEMENT OF ROBERT B. BENSON, DIRECTOR, PATENT LAW DEPARTMENT, Allis

CHALMERS CORP.

My name is Robert B. Benson of Milwaukee, Wisconsin. I have been practicing Patent Law for over 25 years. I am the Immediate Past Chairman of the Patent, Trademark and Copyright Law Section of the American Bar Association and during the last year I served as Chairman of the Advisory Subcommittee on Patents of the

President's Domestic Policy review on Industrial Innovation. I have also been active in other Bar Associations.

I have been asked to testify about the findings and recommendations of the Patent Advisory Subcommittee of the Domestic Policy Review on Industrial Innovation as they relate to this proposal. As you know, the development of a system of transferring Commercial rights to government supported research to the private sector was one of the primary recommendations of our committee. I have set forth the full text of the committee report as an appendix to this statement. I will limit my comments to some of the more significant parts of the recommendation.

The members of our committee were very clearly against the idea of the government owning U.S. patents. The nature of the government activities is such that it does not need the right to exclude people from using its inventions. The patent grant which gives the patent owner the right to exclude others from using his patented invention is normally used during the period of time that the patent owner is developing a market for the product. Since the government is not in the business of marketing products, it has no need for these rights.

Our committee concluded unanimously that if the goal of the government is to increase the amount of government-owned technology that is incorporated in products which actually get to the market place, it must find a way to transfer the rights to this technology to people in the private sector in a sufficiently attractive form that would induce members of the private sector to make the necessary additional investment required to commercialize the technology. Clearly the preference of our committee was that the rights in government patents be assigned totally to a party in the private sector who has expressed an interest in commercializing the patented invention.

Any restrictions which are put on the grant, detracts from the overall incentive and could be the difference in having the invention utilized at all. The term of a patent is only 17 years, which is really a very short time in the history of the country. Many inventions are not commercialized in that period of time in spite of efforts to do so. In other cases, patents and technology become obsolete before the patents expire. Therefore, the concept of march in rights as set forth in Section 304 of this bill are a disincentive to commercializing government inventions and technology. The concept that such march in rights protect the public, in my opinion, is misleading and it would be very rare circumstances in which such rights would be exercised, especially since the government retains a license in these patents to use and have made for its own purposes the products and processes covered by these patents. The granting of title to government-owned patents to individuals or corporations in the private sector is a very small price to pay for the potential benefit to both the government and the public and the title should not be clouded by such things as march in rights except in very unusual circumstances. S. 1215 would more likely achieve its goal of greater utilization of technology resulting from government sponsored R. & D. if Section 304 march in rights were deleted from this Bill. Our committee was aware of the claim that large windfall profits are a likely result of granting of title to inventions resulting from government sponsored R. & D. to people in the private sector. We think such claims are very misleading, particularly when you consider the alternative that the technology remains unused. If a party acquires title to government technology and patents and, in fact, makes a substantial profit through its use, the benefits to the government are substantial. The government receives 48 percent of the profit in the form of taxes which turns out to be a very satisfactory royalty rate. In addition, citizens receive the benefits of the products which are made available to them. Additional jobs are provided, which in turn, result in a tax benefit to the government because of the income tax paid by the employee, who might not otherwise be employed. Just how much of a return is the government entitled to for the utilization of its technology.

Our committee was informed that the government owned approximately 30,000 patents and that less than 10 percent of them were being used and even in the area where contractors took title the percentage of usage was not significantly higher. This is a very poor performance that would not be tolerated in most commercial organizations. Our committee felt very strongly that the government could and should make better decisions on the inventions on which to seek patent protection. Much greater emphasis should be given to the potential commercial utilization of such inventions.

Our report points out that approximately 3 percent of the load in the Patent and Trademark Office is due to the filing of patent applications on government-owned inventions. A reduction in this number of applications based on more astute decisions on the potential commercial value of these inventions would have a significant positive impact on the operations of the Patent and Trademark Office.

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