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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 fire-

Senator 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.

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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.

The carrying forward of the concept that small business is to be accorded title to inventions resulting from Government-sponsored research is received as a positive indication that more than lip service is to be given small business. It shows also that the President's initiatives of October 31, 1979, are indeed to be acted upon.

Furthermore, the proposed draft legislation contains a feature that may be attractive to small business. Namely, there is no recoupment. If that's going to be attractive, that's going to be there, we'll take it.

A recoupment section, however, is found in S. 414. In view of the aforementioned SBLC resolution, I have testified on previous occasions in favor of recoupment, even knowing that when big business gets title, under a standard Government patent policy of which Mr. Haskell just spoke, there will be no recoupment. Certainly if small business is treated favorably, the proposed draft legislation has some merit. Especially meritorious portions might even be included in S. 414 such as by deleting that particular section.

On the other hand, it is noted that S. 414 gives preference in receiving and giving exclusive licenses on inventions owned by the Government. No such section giving preferential treatment for small business is found in the proposed draft legislation.

Turning now to some more specifics found in the proposed draft legislation, small business would appear presumptuous to comment on the concept of awarding to large business preselected field of use licenses. While the concept at first interest appears to have an overall salutary benefit, and indeed appears to even possess procompetitive aspects, it is felt that such a concept is now only an invitation for establishing a dialog. It may appear that the concept is controversial, even though it may impact somewhat favorably on small business.

As discerned, the proposed draft legislation gives small business some discomfort as a result of the situation on deviation and waivers and portions of other sections. Small business believes that these sections, in fact, present untoward discretion in the governmental agencies to deviate from the general duties and rights described in the proposed draft legislation.

This kind of legislation could, if administered poorly, result in a nonuniform disposition of invention rights—just the opposite of what is being attempted.

Again, we submit that the proposed draft legislation, while having certain salutary features needs either additional explanation not so far given or modification or both.

Furthermore, the intent found in new title III of the proposed draft legislation covering dispositions on Government employee inventions is laudatory and, as we've said before, has merit. However, small business does not believe it can respond at this time to concepts that are new and untested.

It is submitted at this time that it should be considered at separate hearings.

From the foregoing paragraphs, it is apparent that the proposed draft legislation includes a number of new concepts that may be somewhat controversial which have not been the subject of consideration at additional congressional hearings.

On the other hand, it has been well documented and concluded that it is critical to ameliorate the heretofore treatment accorded small business in the disposition of invention rights resulting from Government-sponsored research.

The following statements are believed to be axiomatic. One, small business has been treated unfairly in the disposition of invention rights. Two, the taxpayer rarely if ever obtains commercial benefits from inventions resulting from Government-sponsored research, and that's been stated. Three, innovation is diminishing in the United States. Four, small business has a great track record in innovation, in creating new jobs, and being at the cutting edge of competition.

Therefore, the President's mandate of October 31, 1979, is best carried out by first attending to the enactment of S. 414, followed by continuing consideration of the proposed draft legislation if that is necessary. Small business is grateful to have found an ally in the President, whose presence complements the many allies already evident in the Congress.

I conclude my statement by saying that when small business is treated the same by Government in almost every activity, it is being treated unfairly and with discrimination. Consequently, S. 414 at least redresses this unfair treatment in at least one area.

That concludes my statement. Thank you.

[The statement follows.] STATEMENT OF ERIC P. SCHELLIN ON BEHALF OF THE NATIONAL SMALL BUSINESS

ASSOCIATION, SMALL BUSINESS LEGISLATIVE COUNCIL, AMERICAN SOCIETY OF INVENTORS AND NATIONAL PATENT COUNCIL Mr. Chairman and Members of the Committee; my name is Eric Schellin. I am Chairman of the Board of Trustees of the National Small Business Association (NSB), a multi-industry trade association representing approximately 50,000 small business firms nationwide. I am also Executive Vice President of the National Patent Council and Chairman of the Advisory Committee of the American Society of Inventors.

I am also appearing today on behalf of the Small Business Legislative Council (SBLC), an organization of national trade and professional associations whose memberships is primarily small business. SBLC focuses on issues of common concern to the entire small business community. The SBLC membership and their affiliates represent approximately four million small business firms nationwide. The SBLC list of members who have endorsed a policy position paper entitled “An Equitable Policy for Small Business Patents on Inventions made with Federal Assistance” is attached. This position paper and list of associations appear as Attachments A and B.

We commend the committees for the opportunity to address the issue of underuti- • lization of the results of Government-financed Research and Development, especially to complete the innovation process by making available to all of us alike the benefits resulting from such R&D endeavors.

The United States has been the leading innovative nation and has created many new industries. One need only look at the major new industries started within the last fifty years, such as those involving electronics, lasers, antibiotics, synthetic fibers, instant photography and xerography. Most of these industries began as small businesses. There is still room for further innovation and it will continue, especially by small business, if provided with a proper environment. Such an environment existed for years and produced outstanding results. Our patent system contributed significantly to an environment which promotes innovation. Unfortunately, there have been disturbing recent indications that there has been a decrease in the rate of innovation and in that portion of the R&D investment devoted to new product lines and basic research. It is incumbent on all of us to look everywhere to identify sources for innovation. One area not yet properly exploited is the arena of Govenment-financed R&D. Today, as is known, there are as many Government patent policies as there are Government agencies. It is submitted that any effort to establish a uniform government patent policy is commendable and if the policy provides

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