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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(bX1)) 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.

As far as we are concerned, these defects may effectively remove the incentive for Hughes Aircraft Co. to acquire patent rights under such a policy.

Let's take a look at a patent situation that has created an entirely new industry resulting in thousands of new jobs and untold benefits to society the world over.

I'm speaking about patents in synchronous communications satellites.

In the late 1950's and early 1960's, Hughes scientists, operating on company funds, developed and invented the necessary hardware and techniques assuring successful satellite operations.

The company then received a critical patent.

Secure in its knowledge of its patent position and with knowledge of the great economic potential of satellite communications as an incentive, we invested heavily in capital and other resources. Today, we have real time worldwide communications-voice, television, facsimile, and data transmission, all at our fingertips.

Comsat Corp. was born to capitalize on this new technology breakthrough. Canada was able to link its east and west through its domestic satellite system. Indonesia did the same.

And several American companies have invested heavily in human resources and capital to establish vastly improved transcontinental communication capabilities based on satellite transmission.

To take another example, the laser industry began with the operation of the first laser being done under company-sponsored research and development.

This effort was followed by a substantial number of DOD contracts to further develop the technology and under which the Hughes Aircraft Co. obtained additional patents.

This industry has now spread from the military to the recording, building, mapping, communications, clothing, and medical industries, among others.

There was no way in 1960 that we would have been able to foresee the scope of these applications.

Obviously, the company prefers to spend most of its limited patent prosecution resources to acquire patents that arise from its own research.

It does, however, spend substantial amounts of money to secure patents based on Department of Defense sponsored technology. And the company uses such technology and such patent rights thereon to license and sell its products; thus bringing sponsored technology with all of its benefits to domestic and foreign markets.

Hughes Aircraft Co. has found the DOD policy has been most productive for the contractor and the Government.

That policy encourages investment of contractors' funds to compete for Government programs with the best available technology.

When the contractor wins the contract, he knows, in advance, that improvements made upon such technology may be retained by the company for its foreign and domestic commercial markets.

That, gentlemen, is a powerful incentive.

On the other hand, the Government take-title policy, which makes the outcome of the patent rights uncertain, greatly inhibits investment and technology growth. There is at least one alterna

tive that holds much promise. Several years ago, the Congressional Commission on Government Procurement recommended that the revised Presidential Statement of Government Patent Policy be implemented promptly and uniformly.

This policy generally is the one embodied in S. 1215, known as the Schmitt bill.

Hughes Aircraft Co., and most of the industry with which we are acquainted, supports this bill as the one that would provide the kind of incentive that American inventors require, the kind of incentive that would reverse our declining innovation trend.

Again, thank you for this opportunity to discuss the merits of the proposed legislation and to express our views on a viable patent policy.

We seriously believe that a policy more in concert with the current DOD practices would reverse the decline in incentive in the United States and stimulate renewed technological growth.

[The statement follows:]

STATEMENT OF JAMES K. HASKELL, DIRECTOR, PATENTING AND LICENSING, HUGHES

AIRCRAFT Co. Mr. Chairman and members of the committees, I am James K. Haskell, director of Patents and Licensing for the Hughes Aircraft Company. Our company has some 50,000 employees, including 15,000 engineeers, and does about $2 billion of business a year, primarily in military electronics. Some $700 million of our sales comes from commercial communications satellites systems and small electronic components.

Significantly, some of the technology developed primarily for our military markets has been instrumental in the development of nonmilitary products. Communications satellites, weather satellites, cable television, and laser cloth cutters fall into that category. Obviously then, Hughes Aircraft Company has a substantial interest in the U.S. Patent System in general and in the government patent policy related to sponsored technology in particular. And we welcome the opportunity to express our views on the Administration's proposed new patent policy.

It is my understanding that the issue we are dealing with in the patent policy to be proposed focuses on ownership and licensing rights involving contractor inventions made under federal contracts.

Let me state that Hughes considers patents to be property rights that encourage further innovation stimulated by the potential rewards of the market place. An incentive system of this type encourages maximum innovation and application of new technology while keeping contractor and government administrative expense at a minimum.

Let's take a look at some of the salient features of what we believe the proposed uniform patent policy will be and the probable impact on contractors, such as Hughes Aircraft Company.

* It is assumed that the policy will require all government agencies adopt a standard policy wherein the government would acquire title to any patent based on an invention made under a federal contract, and that the contractor will receive an exclusive license in the technology areas he elects under patents covering inventions made under federal contract.

This procedure has a number of serious defects that would inhibit and significantly reduce the incentive value that sponsored technology patent rights has for Hughes Aircraft Company.

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

Additionally, costs would increase drastically for a contractor striving to meet all the requirements of the proposed policy.

Also, there is a serious question as to whether attorneys on a contractor's patent staff can legally file and prosecute applications in which the company only has an exclusive license for a limited field of use.

These defects may effectively remove the incentive for Hughes Aircraft Company to acquire patent rights under such a policy.

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