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have a particular policy by legislation, such as NASA and the Department of Energy, while others do not.

At present, there are two Bills of primary significance in the Senate. The first is the Bayh-Dole Bill S. 414 which would give title to patents made under government contracts to the contractor in most circumstances when the contractor is a university or a small business. There are provisions for recoupment of some of the government costs out of royalties or profits made by universities or small business.

Another approach is that set forth in the Schmitt-Stevenson Bill S. 1251, where, in most cases, title would reside in the contractor with, of course, the government having a royalty-free license for its own purposes.

I understand, partly as a result of the recently-completed Domestic Policy Review of Industrial Innovation, and based on President Carter's message to Congress on Innovation, that the Administration may be proposing a Government Patent Policy Bill in the near future.

In general, my understanding is that this Bill will propose that title to inventions made under government contracts would reside in the contractor when the contractor was a small business or a university.

In other cases, title would remain with the government, with the contractor being able to obtain an exclusive license for certain fields, which the contractor can specify, if the contractor decided to file a patent application in the United States or other countries involved.

In general, I support the policy set forth in the Schmitt-Stevenson Bill S. 1215. However, if it is not feasible to get this legislation passed in the present Congress, I would certainly support the Bayh-Dole approach as a step in the right direction. The remainder of my comments will be addressed to my understanding of the administration's proposal.

THE VALUE OF PATENTS

Contrary to statements often appearing in print, patents are not a "monopoly❞ to do anything. Patents give you the right to exclude others from practicing your inventions.

This important distinction can be understood as follows: When Alexander Graham Bell got his original patent on the telephone, he got a legal right to keep others from making, using or selling a telephone. Later someone else invented, and got a patent on, a dial telephone, which gave him a legal right to keep others from making, using or selling a dial telephone. Thus, no one has a "monopoly" on a dial telephone because no one can legally make a dial telephone. Bell would need a license from the dial telephone inventor and the dial telephone inventor would need a license from Bell.

Thus, when you have a license under a patent, you still have to make sure your product will not infringe the patents of someone else.

While patents can be of significant value in the licensing business, the most valuable thing to licensees is the technical know-how for developing and/or manufacturing an actual product. The patent right may give us certain legal rights, but the best patent in the world will not give us the know-how to start immediate manufacture. Thus, when we are looking for a license, we are looking for someone who can give us manufacturing know-how so that we can get into the market as soon as possible with the least amount of expense.

Thus, when dealing with the government, all we are likely to get is an immunity from suit if the government owns the patent and it is very unlikely that the government will have adequate know-how itself to make it of interest to us. Even if the government should have this know-how, it may be very difficult to have real access to it and to encourage the government employees who have this know-how and provide the person-to-person continued contact permitted to make the best use of this know-how in our manufacturing. This is an even greater problem if the know-how is only possessed by a government contractor who has no incentive to help us.

Otherwise, with merely a license under a government-owned patent, all we really have is a license to do R. & D. and develop a product on our own at our own expense and over a significant amount of time.

GOVERNMENT OWNERSHIP OF PATENTS

Frankly, I think government ownership of patents is a waste of time and an unnecessary burden on the taxpayer. The taxpayer, which is all of us, must pay for staffs of government patent lawyers who tie up some of the U.S. Patent and Trademark Office in prosecuting their patents.

It is often heard that the government has many thousands of patents, with the figure of 30,000 being one which is frequently mentioned. Again in my opinion, the vast majority of these inventions, probably over 90 percent, would not be patented if they had been owned by a commercial organization, as the organization would not have thought it was worthwhile to spend the money to obtain a patent on these inventions.

In Itek's case, we are interested only in getting patents on products which we manufacture and we rarely, if ever, get patents on technology that we would only license. Our job is manufacturing and we can make more money by using our limited assets in this direction as opposed to developing technology for others to manufacture under a license.

INCOME TO THE GOVERNMENT

If contractor owned the patent right and the appropriate technology was developed for commercial use, the government would make more money in taxes from the profit made by the contractor or, in a few cases, the royalties taken in by the contractor, and also taxes on the profits made by the licensee, than the government would ever be able to make itself on any royalty basis. This is particularly true when the expense of organizing a major licensing effort is taken into account. In the regard, I would strongly recommend that if the government decides to go into licensing in a big way, the orgnaization budget be carefully checked and if after a very few number of years the organization is not making a net profit, but is providing a drain on the taxpayer, I do not believe it should continue in existence.

FIELD LICENSES

With specific respect to licensing by the government in a particular field, it becomes even more difficult than a general license. As I mentioned before, the licensee may have a legal right under the patent, but the government would be in no position to provide know-how in a variety of different fields of use suitable for commercial development.

Any licensing person would tell you that nothing is more difficult than attempting to license a naked patent right without know-how to go along with it. It can be done on occasion, but it often involves a lawsuit with hundreds of thousands of dollars spent in a non-productive manner.

If you can provide actual know-how and provide a real new product to the licensee, it is easy. If you cannot do this, it merely gives the licensee a legal right to practice under the patent and it is extremely difficult and often not worth the effort.

ITEK FLOFILM PROGRAM

I would like to give you an actual example of technology which was developed a number of years ago at Itek and how such technology can be made available to others in different fields. Our technical people developed an improved technique for processing photographic film. The invention related to the particular structure of the film processor and the manner in which the film passed through the photographic chemicals in such a way as to get very even contact between the chemicals and the film providing a fast relative flow between the chemicals and the film to give uniform and prompt development.

It turns out that this technology is useful in a wide variety of fields and at that time, and as far as I know this is still true today, there is no one or two companies which manufacture in all these fields. This because even though the basic technology and the patent and invention are the same for each of these fields, the size of the film being processed varies so widely that it takes quite different techology when it comes to manufacturing products for the different fields. For example, one field is the microfilm field in which you have very narrow film that requries a very small processor but presents particular problems in handling the small volume of chemicals in order to make sure that they evenly contact the film.

At the other extreme is the medical x-ray field. Those of you have had x-rays taken know how large this film is and you need a processor which is wider than the width of the chest x-ray you see in order to process the x-ray film properly As you see, there will be completed different characteristics required in a processor to handle something that will be working on films of 35 mm width, or less, as opposed to film that is 18 inches wide.

There are other fields which use this same technology. One is the government oriented field of processing aerial reconnaissance film. Another is the field known as industrial inplant processing, which is an intermediate range, which again requires different processing techniques.

Itek developed this technolgoy primarily for government use in the aerial reconnaissance field.

We were successful in finding licensees in the microfilm industry, in the industrial photography industry and in the medical x-ray industry.

Each of these companies was able to take the know-how we had developed, which gave them an excellent base, and make certain modifications which, frankly, we would not have known how to do. They were able to adapt this technology to their own particular need. Of course, as it turned out, the medical x-ray company which we licensed had no interest in or ability to design products in the microfilm field, much less have the knowledge and ability to market them. The opposite was true for the microfilm license. However, each licensee wanted an exclusive license, as they were required to spend a certain amount of money to modify this technology for their own use and did not want this technology then to become available to their competitiors. Why make significant investments if their competitors could merely copy?

Of course, in licensing you are really attempting to market technology and in order to market any new product you must give incentives to the customer to buy your product rather than someone else's or make his own. In this case, we were able, by giving an exclusive license in their field, to give them that incentive. Coupled with this was the right to borrow our prototype processor that we had developed for our own uses and which, while it could not be directly adapted to their use, gave them an excellent headstart. Also, we agreed to provide access to our engineers on a person-to-person basis both at our plant and at their plant which is a tremendous help and which they have found very valuable.

As a matter of interest, the agreement included an option which was exercisable at the end of the fifth year of the license and each year thereafter, where the licensee could elect to convert the license to a non-exclusive license if he wished, with the only change being that he would not have to pay the minimum royaliites which we required of him in order to keep his licesnse exclusive. This minimum royalty technique is a very common one in licensing and if it turns out that the technology is no longer of major interest, the exclusive licensee does not pay the minimum and the license may either terminate or may become non-exclusive depending on the particular arrangement negotiated.

Thus, by use of this exclusive field license technique and having our own technology available to all our potential licensees, we able to make this technology available to the public in a number of fields which resulted in improved film processing and better quality at less expense.

As is often true with technology, after a number of years, this particular invention was made obsolete by other inventions and our licensees and we ourselves have gone on to other techniques.

The patent was issued in 1965 and has two more years to run. At present, we have no licensees and we are not using the invention ourselves. If someone wanted a license under this patent, we would be delighted to make a reasonable arrangement with them. No one has approached us and we certainly do not intend to waste our time attempting to license this technology because it is obsolete.

This is an excellent example of how a piece of technology became available in a number of fields by a licensing operation and we were able to manufacture a product ourselves. It has now served its purpose and the area of technology has moved on to other things.

I might mention that with only the technology and without the patent, we would have a lot of difficulty in licensing the technology, because each of our licensees wanted protection so that their competitors could not copy their devices as soon as they appeared on the market. To our knowledge, competitors did not infringe our patent during the years that the licenses were active.

What does this mean in the subject context of government patent policy? In my opinion, it means unless you have the technology available to go with a patent, you will not be very successful in licensing it. On the other hand, if you do not have good patent protection, it is very difficult to license merely the technology. If the government had owned this patent, in my opinion, it would not have been capable of licensing this technology in the variety of fields necessary. Even if Itek had an exclusive license in the field it wished to develop, namely, aerial reconnaisance, the government would not have been successful in licensing other fields exclusively because it would not have had the real cooperation of Itek and the Itek technical people to give the person-to-person contact, to loan the equipment at some inconvenience to Itek, etc. Even within our own divisions, we find that we do not get good cooperation between technical people in different divisions unless it is to the benefit of the people providing the technology. We have developed, although we have not

had to use it yet, an internal policy of licensing which would provide actual royalties to the divisions involved if some of their technology was used by another division. This gives them the incentive to assign people to work on such a project. Without that incentive, particularly in a government oriented division, they have no budget to assign these people to and without a budget and a particular project, people will not be able to spend time on a project.

OTHER COMMENTS FOR THE GOVERNMENT PROPOSAL

Other points in the proposed legislation, as I understand it, would require the contractor to make his selction as to which field he wishes after the invention is made but as soon as he reported it to the government (Sec. 301(b)(3)). Often this is at a very early stage in the technology development and the contractor is in no position to know the exclusive field he may be able to develop later. It make take a number of years before he knows.

In addition, I understand that complete technical information (Sec. 301(b)(1)) must be given to the government when it is notified of the invention. While this sounds nice in theory, in practice it is very burdenson as there may actually be too much information in order to finally get complete technical information, which the government does not need anyhow. What the government needs is enough information to determine what the invention is. Under the present law if the government wishes to file a patent application on an invention, sufficient information to permit this is certainly available. However, complete information would mean possibly hundreds of pages of engineering drawings, voluminous reports, tremendous amounts of detail that is only found in the heads of the people working on it. This provision is quite impractical.

Another point is that I understand that Sec. 402 provides the government could publish information on the invention one year after it receives information. While in many cases this time period is appropriate, in many others it is not. The contractor may not have sufficient technical information to file a useful patent application in one's year time a number of circumstances. At Itek we have often had our divisions Patent Review Committee decide they wish to file a patent application on a piece of technology when it has reached sufficient level to file a patent application. However, the actual application would not be filed for two, or sometimes even three, years after this decision because this information was not yet available.

It is very difficult to legislate details in a complex field like this because in some cases they may be very appropriate and in some cases not.

It seems to me that this proposal would create a very complex administration within the government involved with these field licenses which can be very sticky in defining them. As a matter of fact, in my opinion, the most important part of any license agreement is always the definition of what is licensed and what is not licensed and this sometimes takes up a major part of the negotiations. If this decision must be made a very short time after the invention is made and before the technology has even been developed sufficiently so that the developer can see if there is a real product at the end of his development, it is premature and negotiations may be very difficult.

If the contractor sets forth these fields, the government is certainly in no position to know whether or not those fields are reasonable and to be able to negotiate what the government would or would not want as the government usually has no background in these areas of technology.

In my experience in negotiations in government patent matters with government people, it is often a very fruitless negotiation because even though they may be bright, dedicated and hard working, they don't have the experience and background in a particular technology involved to be able to react with confidence.

NEGOTIATING PATENT LICENSING AGREEMENTS WITH THE GOVERNMENT

One final point. When negotiating license agreements, lawyers may or may not be involved in a number of aspects of the negotiations but the final business decision is by management. In negotiating with the government, you often end up negotiating either with contracting officers or with lawyers who are not really management people and who don't have the management viewpoint.

As one illustration of this, personally, I would rather have a patent in the Soviet Union which I own and which the Soviet Union was infringing than have a U.S. patent in the U.S. which the U.S. Government is infringing. We have had Administrative Claims against the government pending for over nine years with no satisfactory resolution because we cannot get to anyone who has any business sense in the

situation. We are merely negotiating with lawyers who have absolute no incentive to settle or work out a reasonable arrangement. Many of my associates feel that filing Administrative Claims against the government is a waste of time so they go directly to the Court of Claims. They cannot really negotiate a license with many of the government agencies in a satisfactory manner.

CONCLUSION

Thus, on balance, I am not enthusiastic about the administration proposal although I think it is an excellent and creative try. I think it will run into many practical difficulties which will make life unnecessarily complex and would not really serve the government interest or, more importantly, the public interest. If I can give you any more comments or answer any questions, I would be happy to do so.

Senator STEVENSON. Thank you, sir. Mr. Haskell?

Mr. HASKELL. Thank you, Mr. Chairman and Senator Schmitt, I'm director of patents and licensing at Hughes Aircraft Co. Our company has some 50,000 employees, including 15,000 engineers.

We do about $2 billion worth of business a year, primarily in military electronics. So we do have a great deal of experience in dealing with our Government friends.

Some $700 million of our sales are in communications satellite systems and small electronic components.

Significantly, some of the technology developed primarily for our military markets has been very instrumental in the development of our commercial products. Communications satellites, weather satellites, cable television, laser cloth-cutters, and such all fall into that category.

Obviously, then, Hughes has a very definite interest in the U.S. patent system in general and in the Government patent policy related to sponsored technology, in particular.

I will skip over some of the comments that are in my prepared paper characterizing the bill and go directly to some of our concerns about the bill.

The procedure that is described in the administration bill, as we have reviewed it very quickly this morning, has a number of serious defects that would inhibit and significantly reduce the incentive value that sponsored technology patent rights has for Hughes Aircraft Co.

First, we fear that the standards to be specified for march-in rights may be applied in a nonuniform manner by different agencies, leaving the contractor without secure knowledge of his position relative to his investment of funds.

Second, the requirements to specify areas of technology for exclusive license rights under an invention at an early time, which, in spite of what we have heard this morning, may be rejected by the agency and will probably result in costly negotiation, create uncertainty, and drastically increase the burden on the contractors and the Government staffs.

Also, as was mentioned by Bob Benson, there is a serious question as to whether attorneys on the contractor's staff may properly and legally prosecute applications in which a company has an exclusive license for a limited field of use. Mr. Benson mentioned various aspects of this but one he did not mention is the very definite possibility of a conflict of interest arising.

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