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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 underutilization 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

particular incentive to small business, such policy deserves accolades. Therefore, we fervently applaude with sincerity the fact that two committees of the Senate have been fit to take the time from other pressing business to thoughtfully consider a draft of a proposed bill, which is understood to be entitled, "To establish a uniform Federal system for management, protection, and use of inventions that result from federally-supported research or development, and for related purposes."

Before addressing some of the issues posed in the proposed draft legislation, permit me to share with you the mandate under which I am able to respond to the invitation to appear on this occasion. The Small Business Legislation Council (SBLC) has confronted the lack of a uniform Government patent policy. Many of the individual small business members of some of the member associations of SBLC have met with the stark reality that they are treated by Government contracting officials with discrimination for the sole reason that they are small business. In other words, even when a Government contracting official has discretion to grant title to an invention made under a Government contract, it will be refused to small business but granted to a larger business. Worse yet, any proprietary rights gained as a result of a developing expertise garnered before small business entertains funding under a Government contract may be jeopardized with a loss of such property rights ensuing. It will be recalled that a number of individual small business persons, some of whom are members of the National Small Business Associations, shared their experiences with the Committee on the Judiciary during hearings on S. 414 on June 6, 1979.

Because of the aforementioned inequities and the lack of uniform Government patent policies, the SBLC, after careful consideration, approved the following resolution:

RESOLVED

The Small Business Legislative Council urges and supports changes in current government patent policy in 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 patentably 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 marketplace.

This, then is my mandate. To summarize:

1. Small business is desirous of obtaining any patent rights on inventions made under Government sponsored research.

2. Small business wants a first right of refusal in obtaining exclusive licenses for such developed inventions not titled to small business.

3. Small business appreciates the necessity to permit government to recoup its funding that resulted in the development of the inventions.

A carefully considered proposed bill S. 414 contains the above summarized items and now stands amended to include protection to the small business contractor with regard to its background patent rights. S. 414 appears to the small business community to constitute a long sought very salutary conclusion to ameliorate a difficult problem facing small business.

President Carter in his October 31, 1979, Industrial Innovation Message to the Congress stated that he will support uniform Government patent legislation and "that legislation will provide exclusive licenses to contractors in specific field of use. More importantly to the small business community he stated: "I will also support the retention of patent ownership by small businesses and universities, the prime thrust of legislation now in Congress, in recognition of their special place in our society." (Emphasis supplied.) 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 "exclusive licenses to contractors in specific field 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, weighed, analyzed and repeatedly modified. It can be truly said that S. 414 has been given all the thoughtful consideration necessary

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through a thorough democratic process resulting in the wide consensus of approval of that which is now S. 414. Support by the President constitutes the capstone. S. 414 has also become a focus rallying point for small business as evidenced from the recent results culminating 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 come full circle.

It must be noted however that the proposed draft legislation being considered today contains features which are 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, that there is no recoupment by the Government of funds expended by the Government in the event the invention titled to small business makes money for the small business. A recoupment section can be found in S. 414. In view of the aforementioned SBLC resolution, I have testified on a previous occasion in favor of recoupment, even knowing that when big business gets title under extant government patent policies there will be no recoupment. Certainly, as small business is treated favorably the proposed draft legislation has considerable merit. Perhaps such especially meritorious portions should be included in already considered S. 414, such as by deleting the recoupment section.

On the other hand, it is noted that under S. 414 small business is given preference in receiving an exclusive license on inventions owned by the Government. No such section giving preferential treatment to small business is said to be in the proposed draft legislation.

Turning now, to some other 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 instance appears to have an over all salutary benefit and indeed appears to possess procompetitive aspects, it is felt that such a concept is now only an invitation for establishing a dialogue. It would appear that the concept may be controversial, even though it may impact favorably on small business.

As discerned the proposed draft legislation gives small business some discomfort as a result of the section on "Deviation and Waivers" and portions of certain 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, that this legislation could if administered poorly result in a non-uniform disposition of invention rights. Again, it is submitted that the proposed draft legislation, while having salutary features, needs either additional explanation and/or modification or both.

The intent found in Title IV of the proposed draft legislation covering disposition of government employee inventions is laudatory and has merit. However, small business does not believe that it can respond at this time. The concept seems new and untested. It is submitted that this subject should be considered at separate hearings.

From the mediate 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 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.

In conclusion the following statements are axiomatic:

1. Small business has been treated unfairly in the disposition of invention rights. 2. The taxpayer rarely, if ever, obtains commercial benefits from inventions resulting from Government sponsored research.

3. Innovation is diminishing in the United States.

4. 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, following by a continued consideration of the proposed draft legislation. Small business is grateful to have found an ally in the President, whose presence complements the many allies already evident in the Congress.

[Attachment A]

POSITION PAPER OF THE SMALL BUSINESS LEGISLATIVE COUNCIL-NATIONAL SMALL BUSINESS ASSOCIATION

An Equitable Policy for Small Business Patents on Inventions Made with Federal Assistance is supported, as of this date, by 31 members of the Small Business Legislative Council:

American Association of Nurserymen, Washington, D.C.; Association of Diesel Specialists, Kansas City, Mo.; Association of Physical Fitness Centers, Bethesda, Md.; Automotive Warehouse Distributors Association, Inc., Kansas City, Mo.

Building Service Contractors Association International, McLean, Va.; Business Advertising Council, Cincinnati, Ohio.

Direct Selling Association, Washington, D.C.

Eastern Manufacturers and Importers Exhibit, Inc., New York, N.Y.
Furniture Rental Association of America, Washington, D.C.

Independent Bakers Association Washington, D.C.; Independent Business Association of Washington, Bellevue, Wash.; International Franchise Association, Washington, D.C.; Institute of Certified Business Counselors, Lafayette, Calif.

Machinery Dealers National Association, Silver Spring, Md.; Manufacturers Agents National Association, Irvine, Calif.; Marking Device Association, Evanston, III.

National Association for Child Development & Education, Washington, D.C.; National Association of Brick Distributors, McLean, Va., National Association of Floor Covering Distributors, Chicago, Ill.; National Family Business Council, West Bloomfield, Mich.; National Home Improvement Council, Washington, D.C.; National Independent Dairies Association, Washington, D.C. National Independent Meat Packers Association, Washington, D.C.; National Office Machine Dealers Association, Zanesville, Ohio; National Paper Trade Association, Inc., New York, N.Y.; National Parking Association, Washington, D.C.; National Patent Council, Inc., Arlington, Va.; National Small Business Association, Washington, D.C., National Tool, Die & Precision Machining Association, Wasington, D.C.; National Wine Distributors Association, Chicago, Ill.

Printing Industries of America, Inc., Arlington, Va.

[Attachment B]

AN EQUITABLE POLICY FOR SMALL BUSINESS PATENTS ON INVENTIONS MADE WITH FEDERAL ASSISTANCE

One of our nation's greatest problems is the decline in the rate of productivity growth, and a major factor in this decline has been the discouragement of innovation at the small business level. Less than 5 percent of all federal research and development dollars go to small business, yet both a Department of Commerce study in 1966 and an Office of Management and Budget study in 1977 show that small business accounted for more than half of all scientific and technological developments since the beginning of this century. A National Science Foundation study for the period between 1953 and 1973 found that small firms produced 4 times as many innovatons for every research and development dollar as medium sized firms and 24 times as many as the largest firms.

It has become increasingly evident that many small innovative companies are avoiding the federal research grant process simply because of the uncertainty over whether or not they will be allowed to retain patent rights on inventions made under research sponsored by federal funds. This is a problem which appears to have a fairly simple solution-allowing small businesses to obtain limited patent rights on discoveries they have made with federal money.

Experience has shown that unless the private sector (including universities, individual inventors, and non-profit organizations) is given sufficient incentive to bring new innovation to the marketplace, the development of new technologies will decline. Given the rapid drop in U.S. productivity increases over the past few years, it is apparent that new technology development in the U.S. must be encouraged. The federal government itself is a prime disincentive for innovation development-inventions made under various agency grants have been allowed to waste away in government storerooms benefiting no one. The Departments of Energy and Health, Education, and and Welfare, for example, often take months and in some cases years to review petitions for patient rights on inventions developed with federal grants. And, when the government decides to retain patent rights on these inventions, there is little chance that they will ever be developed. Of the 30,000 patents that the government presently holds, less than 4 percent are ever success

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