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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.
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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.
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 tech-· nology. 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.
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.
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