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iness, I feel, bestence of the Repecommendationouse

small business increases incrementally at a rate of 1 percent per year until 10 percent is reached.

The Small Business Legislative Council's point on that-we also have a resolution on that that I won't read to you now-goes to 25 percent, but we are talking about an area-we're talking about S. 414—that is small, a small area that we can test with, so I say that if we can get this going where heretofore we had nothing to go with except the Presidential orders of 1971 and some of the other legislation that's embodied in some of the agencies—I say let's go with this while we can, and then perhaps have oversight hearings sometime in the future to consider whether or not large businesses also ought to be accommodated in this field.

But let's get the small business people out there and give them that extra break that they need that they don't get now.

As I said before at the very end, if you treat us all equally, then you're going to treat small business unequally, because this has happened time and time again. I think, Senator Stevenson, you mentioned that yourself that this kind of happenstance occurs with regard to Federal regulations, et cetera, that we need not go into today.

But small business, I feel, because of its track record should be preferred at this time in the existence of the Republic.

Senator SCHMITT. I'm sure some of the recommendations-I haven't had a chance to study them all-at the White House Conference would imply, if not explicitly state, that the principal problems that small business has today is capital formation and handling the regulatory environment in which they're trying to compete with everybody else.

Large businesses do have an advantage in that respect in terms of internal financing and in terms of being able to handle administrative overhead. I hope that the Congress in general can treat those two problems very soon in very specific ways.

Mr. Blair, when Itek was formed did you spin off with title to a specific technology or was that licensed to you by the university?

Mr. BLAIR. I think in our case, Boston University permitted the individuals in the laboratory to form a corporation. The university got no return from it. The individuals formed the corporation separately. The corporation obtained contracts based on their expertise and their past background, and they went on from there. They had no continuing relationship with the university, and there were no patents involved when they were originally formed. It was just because of their general expertise in designing these very large and sophisticated optics.

I think some parts of the Government felt that there wasn't really anybody in industry at that time that had the capability of designing and manufacturing the things that these people had designed. So they encouraged them, and some Rockefeller money helped them get off the ground, and then they went out and got Government contracts.

Senator SCHMITT. Mr. Chairman, the panel has selectively and in aggregate covered almost all of the questions that I had put together.

I would like a final comment, though, from those of you that do a great deal of DOD contracting. Mr. Haskell has already to some extent commented on that, but can you say that your approach to competing for DOD contracts would change if the policy proposed by the President became the law of the land?

Mr. HASKELL. Yes, sir.
Senator SCHMITT. Would you stop competing?

Mr. HASKELL. No, sir. We would compete less vigorously and with less of our best technology.

Senator SCHMITT. You would give up that area to somebody else? Mr. HASKELL. What we would try to do-Senator SCHMITT. I want you to be as objective as you can. Mr. HASKELL. What we'd try to do—I discussed this subject with our chief executive officer and chairman of the Board, and the general view is that what we would try to do is do all the good things on independent R. & D. and then try to do whatever we could in the way of contracting.

Senator SCHMITT. With the Government? Mr. HASKELL. With the Government or whatever customer we could find.

Senator SCHMITT. So you'd try to get the patents before you went into the competition for contracts?

Mr. HASKELL. Yes, sir. We would otherwise feel we would not have sufficient protection for our investment.

Senator SCHMITT. Mr. Blair, your company does a considerable amount of DOD contracting.

Mr. BLAIR. I think the net result would be something like Mr. Haskell. We would certainly compete just as vigorously for the contracts. We might have a little bit of difference in a corporate sense in putting more of our good things into our commercial business and less into the government contracts business. But our Government divisions operate very independently within the company.

The Government-oriented divisions want to get those contracts in the worst way, but they might very well consider some internal changes as to what people are putting into the Government contract.

Senator SCHMITT. You're saying that what this would force you to do is not so much to back away from Federal contracting completely, but to try to end run the problems you defined within it, that is, the legal problems as well as the basic marketing problems?

Mr. BLAIR. Right. We would still definitely go out and get contracts, but we would probably handle our internal matters somewhat differently.

If we can get title, that's something we can use. We can license that if we don't use those things ourselves. If we have part of the title, if you want to call it that, the exclusive part in some limited areas, that's better than not getting anything, but it's certainly not as good as title and permitting us then to develop the technology.

If we ourselves can't use it, fine. We'll license it to somebody else in other fields, but we can often use the basic technology–which we have, as I mentioned in my example-to show other people what we have, and they can modify our technology and make the things that they can do.

In the example mentioned in my testimony if we only had the exclusive right in the aerial reconnaisance field, the rest of that technology would never have been developed, and this would never have had the products that these other people were able to make and pay taxes to the Government on them.

Senator SCHMITT. Mr. Benson, would you care to comment?

Mr. BENSON. We do not do a lot of DOD work. In fact, we do not do an awful lot of Government work.

Senator SCHMITT. Is that by choice or because you can't compete? Mr. BENSON. No, we can compete. It's by choice.

We have some different problems than just patent problems, which maybe it's inappropriate to talk about now, but we have technology problems.

We have a wealth of know-how, and many of the reasons that we would be a desirable contractor under Government contracts is because of maybe 30 or 40 years of work in a particular process. We know how to do things.

But when you get involved with the Government, aside from patent problems, they want your background technology, and they want to give that away and for, say, a modest, $100,000, or $150,000 contract, they want maybe a million dollars worth of background technology, and it doesn't make any sense.

In the experience we've had with the Government, we have more often than not pursued our development to the point where we really pretty well had it made, and where our amount of investment in a particular area was so high relative to what we were asking from the Government, we were able to work out a position where we could portect our technology in a particular area. I think it's different in every situation. If you're going to go into an area where you have absolutely no background and no rights to protect, so to speak, take the Government money. But when you have a great risk because of prior work and investment, then you have to take a second look at what you're doing.

Senator SCHMITT. Thank you.

Senator STEVENSON. Gentlemen, you've been very helpful to both of these committees. It's been a good discussion, and we are grateful.

Thank you. The committee stands adjourned.
[Whereupon, at 1 p.m., the hearing was adjourned.]

ADDITIONAL ARTICLES, LETTERS, AND STATEMENTS

MOLECULON RESEARCH CORP.,

Cambridge, Mass., January 4, 1980. ALLEN NEECE, Legislative Counsel, Select Committee on Small Business, U.Š. Senate, Washington, D.C.

DEAR ALLEN: This letter is in response to your request for comments on the Commerce Department draft of the “Government Patent Policy Act of 1979.” I have examined it only from a small business perspective and have not considered its effect on universities or large companies.

On the whole I find the small business provisions reasonable, but I am quite concerned that tying large companies into the same bill will cause considerable delay and loss of support for the current legislation (S. 1860 Title II and S. 414). It has been over twenty-five years since the last significant piece of patent legislation was passed by the Congress, and it has taken a long time to get to the point where a politically acceptable bill has evolved for small business. I am under the impression that a number of public interest groups and liberal Senators would not support a bill that provides additional patent benefits to large companies. The small business aspect of the current bills seems to be a politically important feature. On the other hand, I understand that large companies have no objection to S. 1860 Title II or S. 414.

Although I could compare specific provisions of the bills, the overriding consideration is whether we want to see a small business and university patent bill become law during this session of Congress, or whether we are prepared to wait for some future time when it might be possible for a broader scope patent bill to be passed. I personally have talked with enough people about the small business/large business distinction to feel confident it is a critically important factor.

I am sorry I cannot join your meeting on January 10, but this letter should convey the thrust of my viewpoint. If you wish to discuss this further during the following week, I shall be at the White House Conference on Small Business staying at the Washington Hilton. Sincerely,

ARTHUR S. OBERMAYER, President.

INTERNATIONAL BUSINESS MACHINES CORP.,

Armonk, N. Y., February 5, 1980. Hon. ADLAI E. STEVENSON, Chairman, Subcommittee on Science, Technology and Space, U.S. Senate, Washington, D.C.

DEAR CHAIRMAN STEVENSON: On August 6, 1979, I wrote you to offer IBM's support for S. 1215 introduced by Senators Cannon, Schmitt and yourself to estab lish a uniform Federal patent policy.

This letter is in a sense a follow-up to my earlier one; in this case, to express a concern regarding President Carter's approach to Federal patent policy in his recently announced Industrial Innovation Initiative. Specifically, my concern with the President's approach is that it would establish a basic policy of title in the government, with an exclusive license to a contractor only when the contractor agrees to commercialize the invention. That approach would not provide appropriate freedom of action for contractors and would act as a disincentive for technically competent organizations to participate in government contracts.

Your approach, which normally leaves title with the contractor but provides for title to the government in certain essential cases, is a more preferable approach. The Administration's approach will be burdensome for both the government and the contractor because of the inherent uncertainty in determining in advance who is going to have what rights. Your approach, with the suggestions for modification which I made in my letter of August 6, would have a far more positive impact on industrial innovation.

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If you or your staff wish to discuss this matter further, I will be happy to provide additional information as needed, or meet with you or your staff for discussions of the issue. Sincerely,

WALLACE C. DOUD,

Vice President.

AEROSPACE INDUSTRIES ASSOCIATION OF AMERICA, INC.,

Washington, D.C., February 14, 1980. Hon. HOWARD W. CANNON, Chairman, Committee on Commerce, Science and Transportation, U.S. Senate, Washington, D.C.

DEAR MR. CHAIRMAN: It is understood that the Record of the joint hearings held on January 25, 1980 on Federal Patent Policy has been left open to receive Statements from interested parties. It would be appreciated if you would include the attached Statement of this Association in the Record. Very truly yours,

KARL G. HARR, Jr. Attachment.

STATEMENT OF AEROSPACE INDUSTRIES ASSOCIATION OF AMERICA, INC. The Aerospace Industries Association of American, Inc. (AIA) is the national trade association representing the manufacturers of aircraft, spacecraft, missiles and related components and equipment. Being at the leading edge of high technology, our member companies have long recognized the incentives of the U.S. Patent System and, in particular, the manner in which such incentives have fostered and continue to foster the development and advancement of our nation's technological base and industrial innovation. It is for such reasons that AIA has supported and will continue to support proposed legislation and government policies which best utilize such incentives.

The many years of combined experience of AIA member companies in industrial innovation, corporate diversification and government research and development (R. & D.) contracting have led to the conclusion that a Federal Patent Policy allocating the rights to inventions made under government research and develop ment contracts should balance the equities of the parties involved, i.e., the government, the public and the contractors, both large and small. Such a policy should utilize the incentives inherent in the U.S. Patent System, in order to reduce the most competent firms to compete for government research and development contracts and to apply the most talented personnel to the performance of such contracts, as well as to commercialize the new technology in inventions which may result from such efforts.

In the past, AIA has urged Congress, the Executive Branch and the Commission on Government Procurement to promulgate a single Federal Patent Policy to replace the several policies now in existence. AIA believes that such a policy should make maximum use of the incentives of the patent system by providing that a contractor would have the option to retain title to inventions made in the performance of government contracts for research and development (R. & D.).

AIA strongly believes that the real issue, as to the allocation of title, is whether the government or the contractor is in a better position to assure that new technology and inventions will be brought to public use. Clearly, the contractor has working experience in the technology of his patentable inventions. In fact, one of the major factors in the government's decision to award a contract to a particular contractor is the background knowledge and know-how of that contractor. Moreover, the contractor generally has both an existing marketing capability and the profit incentive to commercialize such inventions.

On the other hand, unless the government contemplates a new role as a competitor to American business in commercial markets, the government has neither the expertise to determine which of the many inventions that are made under government R. & D. contracts have a commercial potential nor the capability (or perhaps even the incentive) to bring such inventions to the marketplace. History has proved that it is rare for other companies to develop marketable products from government-provided patents in any more productive fashion than the firms which created the new technology in the first place.

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