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.

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 and synchronous communications satellites.

In the late 1950's and early 1960's, Hughes scientists, operating on company funds, invented the necessary hardware and techniques for assuring successful satellite operations. Our company then received a critical patent. Secure in its patent position and with knowledge of the great economic potential of military and commercial satellite communications as an incentive, Hughes invested heavily in capital and other resources.

Today, we have real-time worldwide communications. . . voice . . . television . . . facsimile... and data transmission, all at its fingertips. Comsat Corporation 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.

Obviously, the company prefers to spend most of its limited patent prosecution resources to acquire patents that arise from its own research and development efforts. 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 the patents thereon, to license or sell its own products, thus bringing sponsored technology with all of its benefits to domestic and foreign markets. Under the DOD patent policy, the contractor retains title to its inventions made under contract and grants the government a free license throughout the world for government purposes.

Hughes Aircraft has found that the DOD patent policy has been most productive for the contractor and the government. That policy encourages investment of a contractor's 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 commerical markets.

That, gentlemen, is a powerful incentive.

On the other hand, the "government take title" policy, which makes the outcome of patent rights uncertain, greatly inhibits independent investment and technology growth.

There is at least one alternative 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 Senate Bill 1215, known as the Schmitt Bill. Hughes Aircraft Company, and most of the industry with which we are acquainted, supports this bill as one that would provide the kind of incentive 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 own views on a viable patent policy. We seriously believe that a policy more in concert with current DOD practices would reverse the decline in incentive in the United States and stimulate renewed technological growth.

Senator STEVENSON. Thank you, sir. And Mr. Schellin.

Mr. SCHELLIN. All right, sir. Thank you very much.

As usual, small business is last. We're used to being last.

I would suggest that perhaps if somebody yelled fireSenator STEVENSON. You get the last word. You shouldn't complain. That's the position that is usually most sought.

Mr. SCHELLIN. I am afraid you're right. I was going to say if someone yelled fire in this room, the small business people would be the last out of the room but would stop long enough to put the fire out.

I think also that small business is being called upon to reverse that other conflagration, the diminishing of innovation that we're facing.

With that little prelude, let me request that I do have a statement which I've made available to the Senate staff. I would like to have it entered into the record.

I have a few comments that I want to make to embellish that particular record.

As you indicated, my name is Eric Schellin and you know where I come from: I'm chairman of the board of trustees of the National Small Business Association.

I'm also the executive vice president of the National Patent Council. I'm also here representing the American Society of Inventors. I am chairman of their advisory committee. I'm also representing the Small Business Legislative Council. The Small Business Legislative Council is an organization that was godfathered by the National Small Business Association, which is a generalist trade association.

The Small Business Legislative Council consists of over 70 different trade associations in the United States that have specific areas of concern.

So we represent not only the smokestack crowd, but we also represent the mom and pop shops.

We have given great consideration to what has happend in the last few years with regard to the diminishing of innovation. We have looked at the legislation of S. 414 and S. 1215. And now we've had the opportunity to look at the proposed legislation now being promulgated by the administration.

I have a specific mandate that brings me to this table and we are very appreciative of the fact that you have seen fit to ask us to respond.

The specific mandate came out of the fact that so many of our people, our constituency, were being discriminated against because they were small.

In dealing with the Federal Government, when it came to receiving title, as Mr. Haskell has mentioned, that it's a small matter to receive title from DOD, but it is not a small matter to receive title from a great number of other agencies.

One might fight for it.

We have been told time and time again, you will not have title in the invention that you have made because you are small. If you were big, you would get it. As simple as that, Mr. Haskell.

So as the result of that, my constituency resolved, and I'm going to read to you verbatim the resolution that was passed, after due consideration, after due polling of our members, so that there will be no mistake as to what we are for.

The Small Business Legislative Council urges and supports changes in current government patent policy to allow small businesses patent protection in inventions made under government-sponsored research, provided that allowance is made to permit the government to recoup its initial funding under certain circumstances. Small business innovations developed under federal contract should be patentable by the contractor, allowing that business a reasonable time to develop the new idea commercially.

Failing that, the government should provide exclusive license to such innovations with preference to small business. These actions will provide an increased incentive to the traditionally innovative small business sector to seek R. & D. contracts and to commercialize new and beneficial products for the market place.

We've already demonstrated that small business is innovative. This, then, is my mandate. Let me summarize.

Small businesses desiring of obtaining any patent rights of inventions made under Government-sponsored research. Small business wants a first right of refusal on obtaining exclusive licenses for such developed inventions not titled to small business.

Small business appreciates the necessity to allow Government to recoup its funding that resulted in the development of the inventions.

If we want a free ride, we'll go on welfare.

A carefully considered proposed bill, S. 414, contains the above summarized items and now stands amended to include protection of the small business contractor with regard to its background patent rights found in S. 1215 also.

S. 414 appears to the small business community to constitute a long sought, very sanitary conclusion to ameliorate a critical difficult problem that we now face.

President Carter, in his October 31, 1979 industrial innovation message to Congress, stated that he will support uniform Government patent legislation. That legislation will provide exclusive licenses to contractors in specific fields of use.

But more importantly, to the small business community, he stated:

I will support the retention of patent ownership by small businesses and universities the prime thrust of legislation now in the Congress, in recognition of their special place in our society.

While the President did not specifically identify the legislation about which he spoke, small business interprets this to mean S. 414. I would further opine that the President intended to incorporate the concept of an "exclusive license to contractors in specific fields of use" in legislation apart from S. 414.

Small business is, indeed, exhilarated by the support of S. 414 by the President. With such support, there is now before us the delightful prospect that there will be satisfactory fruition of the efforts of so many individuals who have devoted considerable time to assisting small business.

This proposed legislation favoring small business has been screened, reviewed, analyzed, and repeatedly modified. It can be truly said that S. 414 has been given all the thoughtful considerations necessary through a thorough democratic process, resulting in a wide consensus of approval which is now S. 414.

Support by the President constitutes the capstone of that activity. S. 414 has also become a focus rallying point for small business as evidenced from the recent results culminating in a week-long White House Conference on Small Business. The treatment to be accorded small business under S. 414 was indicated by the Conference as being worthy of inclusion in a high-priority list of recommendations which will be sent to the President.

One can validly say that the matter of presenting small business contractors with title to inventions made within the purview of a Government contract has now come full circle, and it's time to move on. It must be noted, however, that the proposed draft legislation that we're considering today contains features which are also of enormous interest to small business.