Although the title of this bill infers that we are talking about greater utilization of government technology, the present text deals only with transferring rights in patents and much of the value of the government-owned technology is not patentable nor would it automatically be transferred with the licenses spelled out in this bill. Some consideration should be given to a system of transferring related or supportive technolgy with any transfer of patent rights to the private sector.

The President's statement of October 31 proposed exclusive field of use licenses under government owned patents. This is clearly less desirable than assigning title to such inventions to the private sector for the reasons I have stated earlier. In addition, such a proposal would incorporate major problems in administation, not the least of which is the question of who would enforce the exclusive licenses and at whose expense.

Our committee considered a number of proposals for transferring the rights in inventions made by government employees at government expense. About half of the committee members favored giving title to such inventions to the employee and the other half favored assigning the rights to a government-run corporation similar to the Connecticut Product Development Corporation. However, relative to using a separate organization to sell licenses under unused patents and technology, the direct experience of many of our members was that these activities rarely brought significant benefits and clearly are not worth the cost and expenses of the activity. Many corporations have embarked on such programs in an effort to capitalize all their "fall out" technology and have had to abandon the operation as a failure. In conclusion, the thrust of S. 1215 is about as close to the recommendations of our committee of the Domestic Policy Review that I have seen and we would support the enactment of the Schmitt bill.

APPENDIX

TRANSFER COMMERCIAL RIGHTS TO GOVERNMENT-SUPPORTED RESEARCH TO PRIVATE

SECTOR

The United States patent system is designed to stimulate the progress of the useful arts by encouraging the public disclosure of new technology and making available to the public new products and processes utilizing this technology. It is not necessary to go through the expensive, time-consuming procedure of obtaining a patent to fulfill the function of disclosing information to the public. This can be accomplished by a simple publication. On the other hand, the patent grant has played an important part in commercializing inventions, making new products available to the public. The Federal Government does not normally participate in this function.

The theory of the patent grant is to give the inventor or his assignee the exclusive rights to his invention for a period of time so that he can invest the time and money necessary, commercialize the invention and develop a market for the product or process incorporating of developing inventions for commercial use, it has no need to own patents. On the other hand, the government is a substantial user of products and services and in that context needs, or at least can benefit from, a license to use patents.

Experience has shown that the government, as a purchaser or consumer of goods and services, is not in a position to take advantage of its ownership of patents to promote enterprise. Private companies, on the other hand, who are in a position to utilize the patent grant are ordinarily unwilling to take a nonexclusive license under a government-owned patent and commit the necessary funds to develop the invention, since it has no protection from competition. This is a major reason that over 90 percent of all government patents are not used. Another important reason is that the government obtains patents on technology which, in the opinion of the private sector, does not provide an attractive business opportunity.

Several years ago, the Federal Council for Science and Technology supported the most thorough study ever conducted on the issue of government patents, commonly referred to as the Harbridge House Report. The following findings were included in the report:

"Government ownership of patents with an offer of free public use does not alone result in commercialization of research results.

"A low, overall commerical utilization rate of government-generated inventions has been achieved; that rate doubled, however, when contractors with commerical background positions were allowed to keep exclusive commerical rights to the inventions.

" 'Windfall profits' do not result from contractors retaining title to such inventions.

"Little or no anti-competitive effect resulted from contractor ownership of inventions because contractors normally licensed such technology, and where they did not, alternative technologies were available."

The idea that what the government pays for belongs to the people is not only appealing, it is true. The question is: What instrumentalities can be brought to bear to maximize the possibilities that the people will indeed have available the fruits of their government's expenditures? Nonexclusive licenses to undeveloped inventions, offered by the government or anyone, of sufficient duration are much more likely to attract the money and talent needed to make and market real products to meet consumer needs.

If the results of federally sponsored R&D do not reach the consumer in the form of tangible benefits, the government has not completed its job and has not been a good steward of the taxpayers' money. The right to exclude others conferred by a patent, or an exclusive license under a patent, may be the only incentive great enough to induce the investment needed for development and marketing of products. Such commerical utilization of the results of government-sponsored research would insure that the public would receive its benefits in the way of products and services, more jobs, more income, etc. The cost of government funding will be recovered from the taxes paid by the workers and their companies. Therefore, all the members of this subcommittee recommend transferring the patent rights on the results of government-sponsored research to the private sector for commercialization. In the case of university or private contractor work sponsored by the government, the members of this subcommittee recommend that title to the patents should go to the university or private contractor, but some members feel the government should have "march-in-rights" (i.e., when the invention is not being used and it appears that there is a public need to use the invention, the government would have the right to transfer the patent rights to those in the private sector willing to use the invention). With respect to inventions made by government employees at government expense, the subcommittee members are divided about equally between those who feel that the government employee should have title to the invention, and those who feel that such inventions should be transferred to an independent, nongovernmental organization, perhaps modeled after the Connecticut Product Development Corporation, or auctioned to the private sector or transferred to the private sector in some other manner. In all cases, the government would retain a nonexclusive license to use and have made for its use inventions founded in whole or in part by governmental expense.

At the presnt time, the government has a portfolio of 25,000 to 30,000 unexpired patents. These include patents arising as a result of research and development work in government laboratories by government employees, and also from work done by non-government employees wherein the government retained title because it funded the work. In fiscal 1976, 2,646 patents issued to the government, of which 1,824 were for inventions by government employees.

Considerable sums of money are involved in government patent ownership, the patent budgets of the various government agencies including funding for patent attorneys, supporting staff and equipment being in the millions of dollars.

Our information indicates that the United States government has been filing in excess of 3,000 United States patent applications per year, which amounts to approximately 3 percent of the total workload in the United States Patent and Trademark Office. A decision not to file patent applications on behalf of the government would result in the PTO having available 3 percent of its total capability that could be directed to reducing the backlog in the PTO and handling special problems that have been created by the new reissued program and the anticipated reexamination procedures. In addition, this decision would save the time of government patent attorneys who normally prepare and prosecute the patent applications and the cost of having patent applications prepared by attorneys in private practice. Time and money thus saved could be utilized to provide needed services in other areas of the government.

According to this subcommittee's proposals, the decision to file a patent application would be made by the university or contractor; in the case of inventions made be government employees at government expense, the decision to file would be made by the employee, if he were to retain title, or by the independent nongovernmental organization (suggested above), which would obtain title to the patent. The subcommittee recognizes the argument that the government applies for patents to preserve its right to institute an interference with patent applications from the private sector. However, such interferences are a very rare occurrance under

present practices. Furthermore, establishment of prior invention by the government would generally constitute a defense in an infringement suit on the basis of prior invention. Prior invention may not be an adequate defense in instances where the government has not reduced the invention to practice, or has, for good reasons, kept the invention secret; special legislation may be required to provide adequate protection to permit royalty-free government use in such instances.

Senator STEVENSON. Thank you, sir.

Dr. Broseghini.

Dr. BROSEGHINI. I am going to make my comments very brief, by pointing out that the reason why I asked to testify is that 2 weeks ago, when I first heard about this bill, nonprofits weren't included in the administration's proposal which obviously got me a little upset as it did a number of my colleagues. Subsequently, nonprofits were included by incorporating essentially the Bayh-Dole provisions. This, we can support.

I don't think that I need to go over the record. However, I do have a statement, which I would like to have entered, which summarizes the peculiar problems that nonprofit organizations, such as Children's Hospital and universities have in dealing with companies and are addressed in provisions of this bill as well as other proposals.

We've been encouraged by the Government to establish a technology transfer program, as we call it, and for the past 4 years we have been actively pursuing relationships with industrial firms. We do have patents pending in the Patent Office now. We have been awarded patents.

Many of the things that I have been hearing in this room concerning the problems of titles and licensing and march-in rights are exactly the sort of things which we want to avoid. Getting title solves these problems. Companies will not even talk to us unless we do have clear title to an invention. Getting a license or anything similar to it, for a nonprofit corporation, of course, doesn't mean anything because we can't do anything with it; we don't have the financing.

I would have hoped that the administration would have supported one of the pending bills in the Congress now rather than coming up with its own proposal at this late date in the session.

I think Mr. Herz clearly indicated the general feeling of nonprofits, and I am pleased to hear that Senator Schmitt reassures us that this proposal will not derail things that are already pending. Obviously, we support S. 414. We can live with the administration's proposal if it goes through. We would obviously like to have something, and my testimony here is really to lend support to getting something this session.

Thank you.

[The statement follows:]

STATEMENT OF ALBERT L. BROSEGHINI, PH. D., DIRECTOR, OFFICE OF RESEARCH ADMINISTRATION, THE CHILDREN'S HOSPITAL MEDICAL CENTER BOSTON, MASS. The Children's Hospital Medical Center is one of the largest, independent, research hospitals in the United States. According to figures supplied by the National Institutes of Health, using that agency's research awards as a unit of measure, we are now the third largest such hospital in America. In fiscal year 1979 we received in excess of $15 million in research funds of which 65 percent came from federal sources. Our research programs range from the most basic laboratory investigations in recombinant DNA technology to research incorporating the state of the art in

computer technology and engineering as applied to medicine. Many of our research programs rely heavily upon collaboration with institutions such as Massachusetts Institute of Technology and Harvard University as well as industrial firms, both large and small. As with any organization oriented towards basic research we find ourselves increasingly faced with the problem of transferring technological advances made in our laboratories to the public sector. Accordingly, in 1976, at the urging of the federal government, we developed a technology tranfer program to ensure that technological advances made in our laboratories would receive the widest possible dissemination and use. Since then we have made great strides in maximizing our resources so that the greatest possible benefit will be gained from our research programs.

I am aware of the intense discussions that have transpired concerning federal sponsorship of research and the disposition of rights resulting from that research. Since The Children's Hospital Medical Center receives a majority of its research support from the federal government we are vitally affected by any policy that addresses these issues. We have supported, therefore, those individuals and organizations which have labored over the past few years to develop an awareness within the federal government that current federal policies relating to patents and technology transfer are in need of revision. To this end we endorsed S. 414, sponsored by Senators Bayh and Dole, as being a reasonable approach to improving the relationship between the federal government and the private sector in these matters. S. 414 establishes a precedent for further industrial innovation initiatives. It has a good chance of passage in this session. I believe that it is in the public interest for the Administration to support and endorse it. Indeed, President Carter implicitly did so when, in his message to the Congress on industrial innovation, he stated, "I will also support the retention of patent ownership by small businesses and universities, the prime thrust of legislation now in Congress in recognition of their special place in our society." We took this statement as endorsement of the provisions of S. 414 which has received strong support from virtually every corner of the public and private sector.

In contrast to the support S. 414 has received, it is my understanding that the Administration's patent proposal received little if any support from delegates attending the White House Conference on Small Business held last week. In fact, a majority of the delegates specifically endorsed S. 414 provided no major modifications were made. Since universities and non-profits have already indicated support for S. 414 it is this bill which should now be endorsed by the Administration. This would be consistent with the President's commitment contained in his technology message to Congress of October 31, 1979.

Unlike S. 414 which has been subject to intensive discussions and debate the Administration's proposal has only recently surfaced. For example, I received a copy of the final proposal yesterday and I must admit that the time available to me has not permitted the kind of analysis I would have liked to prepare for your committee. However, the fact that the Administration's proposal has not been widely circulated to those organizations affected by it is disturbing since the issue of federal patent policies is too important to receive this sort of treatment. When I first heard of the Administration's proposal non-profit organizations were excluded from it and it was this omission that led me to ask to testify first, on behalf of the Children's Hospital Medical Center and secondly, on behalf of other non-profits. Even when the Administration recognized the need to include non-profits it did so but defined them in such a way that many of them, including Children's Hospital, would have been classified as large businesses. The proposal now under consideration has rectified this treatment of non-profits by adopting the definition contained in S. 414.

I cite this very brief history of my involvement with the Administration's proposal because it illustrates clearly my uneasiness. During the past 10 days since I first became aware that the Administration was preparing a legislative proposal and I asked to appear before this committee, I have been exposed to widely conflicting descriptions of what the Administration's position on patents is. Given the legislative history of the various proposals dealing with Government patent policies it is difficult for me to understand why the Administration does not lend its considerable prestige behind one of the pending bills (S. 414 or S. 1860). Furthermore, given the events of the past week I have been led to believe that the Administration is not united on the issue of federal patent policies. Speaking for the Children's Hospital Medical Center I urge the Administration to support S. 414 which adequately deals with the problems of educational institutions, small businesses and non-profits and has received the endorsement of these groups. I am pleased to say that this request for enactment of S. 414 has the endorsement of the Association of Independent

Research Institutes. Dr. Walter D. Syniuta, President, Advanced Mechanical Technology, Inc., (Newton, MA), also supports passage of S. 414.

Attachments.

ASSOCIATION OF INDEPENDENT RESEARCH INSTITUTES

Addiction Research Foundation, Palo Alto, Calif.; American Type Culture Collection, Rockville, Md.

Boston Biomedical Research Institute, Boston, Mass.

Cancer Research Center, Columbia, Md.; Caylor-Nickel Foundation, Inc., Bluffton, Ind.

Eye Research Institute of Retina Foundation, Boston, Mass.

Forsyth Dental Center, Boston, Mass.; Friends Medical Science Research Center, Inc., Baltimore, Md.

Haskins Laboratories, Inc., New Haven, Conn.; Fred Hutchinson Cancer Research Center, Seattle, Wash.

Institute for Medical Research, Camden, N.J.; The Institute for Medical Research, San Jose, Calif.; The Institute of Medical Sciences, San Franciso, Calif.; Institute for Research in Social Behavior, Berkeley, Calif.

The Jackson Laboratory, Bar Harbor, Maine; W. Alton Jones Cell Science Center, Lake Placid, N.Y.; Joslin Diabetes Foundation, Inc., Boston, Mass.

The Lindsley F. Kimball Research Institute, the New York Blood Center, New York, N.Y.; Lovelace Foundation for Medical Education and Research, Albuquerque, N. Mex.

Virginia Mason Research Center, Seattle, Wash.; Medical Care and Research Foundation, Denver, Colo.; Medical Foundation of Buffalo, Inc., Buffalo, N.Y.; Mental Research Institute (MRI), Palo Alto, Calif.; Michigan Cancer Foundation, Detroit, Mich.

Alton Ochsner Medical Foundation, New Orleans, La.; Oklahoma Medical Research Foundation, Oklahoma City, Okla.; Oregon Research Institute, Eugene, Oreg. Pacific Health Research Institute, Honolulu, Hawaii; Palo Alto Medical Research Foundation, Palo Alto, Calif.;_ Papanicolaou Cancer Research Institute at Miami, Inc., Miami, Fla.; Pasadena Foundation for Medical Research, Pasadena, Calif.; Professional Staff Association, Harbor General Hospital, Torrance, Calif.

The Roche Institute of Molecular Biology, Nutley, N.J.

The Salk Institute for Biological Studies, San Diego, Calif.; Scripps Clinic and Research Foundation, La Jolla, Calif.; Southwest Foundation for Research and Education, San Antonio, Tex.

Trudeau Institute, Inc., Saranac Lake, N.Y.

The Wistar Institute, Philadelphia, Pa.; Worcester Foundation for Experimental Biology, Inc., Shrewsbury, Mass.

ADVANCED MECHANICAL TECHNOLOGY, INC.,

Newton, Mass., January 23, 1980.

Dr. ALBERT L. BROSEGHINI, Ph. D.,
Director, Research Administration,
The Children's Hospital Medical Center,
Boston, Mass.

DEAR DR. BROSEGHINI: I am writing in opposition to the "Government Patent Policy Act of 1979", as proposed.

I have had a long standing interest in government patent policies, especially as it pertains to small business, non-profit institutions, and universities. Our present government patent policy is counterproductive in stimulating innovation in the very sector that has shown the greatest productivity of innovation-small business. While the proposed act would take positive action with regard to small business rights to inventions, it would do so at the cost of a further increase of government involvement (Department of Commerce, Administration of General Services, the Secretary of Defense) through monitoring not just of contract inventions, but also of commercialization of inventions after rights have been relinquished by the government. Not only will this lead to higher government management and monitoring costs, but through its reporting requirements, it will also increse costs by the supposed beneficiaries of this policy.

The act also attempts to further the exploitation of inventions owned by the government. This is in no doubt in response to the government's present poor performance in this area. However, in my opinion the act merely establishes a