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Manager, Programing and Control Staff, Office of Research and Engineering.

The Post Office Department entered into the research and development contract field in 1949 when the Congress enacted the first statute directing that it embark on this type of activity, and the citation for that staute is title 39 United States Code, section 847 and 847(a). The purpose was to introduce modern practices in the postal field service, with emphasis on the development of new mail handling machinery and equipment.

The first Post Office Department developmental contract was let in fiscal year 1952. The initial momentum was giving to the program with the Department's establishment of the Office of the Chief Industrial Engineer early in 1953. That office eventually was designated as the Office of Research and Engineering.

The Department has entered into a total of 39 contracts of this type since 1952 and their objectives have been and are for the development of, as example, facing and culling machines, mail sorters, electronic reading machines, and the like.

The Post Office Department had 14 research and development contracts in force as of September 21, 1959. The total amount of money obligated was $7,511,320. Of these contracts, nine were held by what may be designated as small businesses. In fact, the Department has and continues to seek the active engagement of this type of business concern in this work.

Since the Post Office Department entered into this field relatively recently, when, in its understanding, a general Government patent practice had been established, it naturally fell into line with that practice and adopted the Armed Services Procurement Regulations clause on patent rights. The Department has felt not only that it did not have the experience necessary to strike out in a direction different from other Government contracting agencies, but also felt that any major deviation from the general practice would result in confusion.

Therefore, the policy of the Post Office Department with regard to patent rights under research and development contracts is to require the contractor to grant to the U.S. Government an irrevocable, royaltyfree license to practice, and cause to be practiced, by or for the U.S. Government, throughout the world, each subject invention in the manufacture, use, and disposition, according to law, of any article or material, and in the use of any method. The type of organization involved as the contractor is immaterial.

The Government's license, so granted, is nonexclusive. The contractor is free to grant licenses to others, and the Government may not, under its license, manufacture, have manufactured, or use any subject invention to provide services or supplies to the general public in competition with the contractor or any of his commercial licensees. However, it is further provided in our contracts that the U.S. Government, acting through the Post Office Department, may grant or authorize the granting of a sublicense to one or more foreign governments for use, in such instances, solely in that Government's mail handling activities.

This policy leaves the contractor free to hold title to all patents, either domestic or foreign, on any subject invention, to grant licenses to others, and to avail himself of all commercial applications and

benefits, while permitting the U.S. Government to avail itself of all applications for governmental operations and purposes, and to sublicense foreign governments when such is advantageous to the United States, either politically or in connection with an exchange of technical information.

In all research and development contracts, regardless of the type of organization involved, it is the Post Office Department's policy to include provisions whereby the Government may duplicate, use, and disclose in any manner and for any purpose whatsoever, and have others so do, all subject data delivered under the contract. It is provided also that if any subject data are, at the time or any time thereafter, covered by copyright, the contractor will grant to the Government, its officers, agents and employees acting within the scope of their official duties, a royalty-free, nonexclusive, irrevocable license throughout the world, to publish, translate, reproduce, deliver, perform, dispose of, and to authorize others so to do.

As a result of its research and development program, the Department is beginning to collect technical data of various types. Thus far, it is not aware of any desire on the part of business for access to these data. However, should requests be made for such access, the Post Office Department would consider them sympathetically, of

course.

In Senate Report No. 97, Senate Judiciary Committee, dated March 9, 1959, it was stated on page 1 that "*** the President's budget for 1960 submitted to Congress asked for over $5 billion for research and development ***"The Post Office Department requested $52 million, or about eleven-tenths of 1 percent. All of this money does not go for funding research and development contracts of the nature we are discussing here, in the sense that a portion pays for the salaries of employees, and like uses. The comparison does appear to support the proposition, however, that the Department's effect upon the economy in the area in which this subcommittee is interested is insignificant.

The Department has entered into 39 research and development contracts since the beginning of its program in 1952. Contractors have reported the filing of 25 applications for the granting of patents under the program, four of which have been granted.

This Department is aware of the controversy as to whether commercial title to inventions made under research and development contracts should be retained by the contractor or the Government. Thus far, Congress has not spoken. Absent a definitive decision by the Congress, each Government agency must decide for itself what disposition of interests in inventions made as a result of research and development contracts will best promote the Government's interest. We believe that the policy which this Department has followed best serves the Government's interests.

Mr. WARBURTON. Thank you.

Senator LONG. We will go ahead with questions from counsel. Would you like to ask some questions, Mr. Gordon?

Mr. GORDON. What is the basis for your statement on page 2 that a general Government patent practice had been established? My impression was that it had not been established.

Mr. WARBURTON. Mr. Gordon, when this program was initiated, we had no patent experts in the Department. We made what was

to us as good a survey as could be made by inquiry and it appeared to us that there was the general Government practice to which I refer

here.

Mr. GORDON. There is no general Government practice, is there? Mr. WARBURTON. Let me say it this way, sir, that it appeared to us that the predominant number of the agencies which were involved in the type of activity we were about to embark on seemed to follow this Government patent practice which fell in line with the Armed Services Procurement Regulations clause on patent rights. This is the best information that we have been able to develop, sir, as to how our present procedure initiated.

Mr. GORDON. You stated that the Department of Defense is engaged in performing the same type of functions you perform.

Mr. WARBURTON. In the sense that we basically seek to secure as the end product of our research and development contracts, hardware which is basically and primarily intended for the purpose of the Post Office Department.

Mr. GORDON. Are you acquainted with the Senate Patent Subcommittee's report?

Mr. WARBURTON. Yes, to an extent.

Mr. GORDON. Do you recall the discussion of the particular clause by which the contractor is free to grant licenses to others and that the Government may not under this license manufacture, have manufactured, or use any subject invention to provide services or supplies to the general public in competition with the contractor or any of its commercial licensees?

Mr. WARBURTON. That is right, sir.

Mr. GORDON. Now, the Railway Express Agency and other such firms believe that you are in competition with them in the handling of parcel post for example. You are aware of that, are you not?

Mr. WARBURTON. I think that without question a similar type of service is performed in certain areas.

Mr. GORDON. Conceivably, they could regard their activities as being in competition with those of the Post Office?

Mr. WARBURTON. I imagine that could be their attitude, Mr. Gordon. Mr. GORDON. If that is their attitude, then, it is not possible that they can block you from using those very machines which you paid to have developed?

Mr. WARBURTON. Could I ask you to repeat that question, Mr. Gordon?

Mr. GORDON. If they decide that they are in competition with you, they can probably block the use of those machines which you paid to have developed. Isn't that correct?

Mr. WARBURTON. No, sir, because we have the license and even though Railway Express, for example, in the performance of its function, contracted with the contractor with whom we originally contracted to procure that type of machine for their purposes, this wouldn't block us from securing that type of machine for our purposes. Mr. GORDON. Wait a second. It says here in your contract that the contractor is free to grant licenses to others in competition with the Post Office Department. Is that correct?

Mr. WARBURTON. That is right, sir.

Mr. GORDON. And the Government may not under its license manufacture, have manufactured, or use any subject invention to provide

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services or supplies to the general public in competition with the contractor or any of his commercial licensees.

Mr. WARBURTON. Our understanding of that clause, Mr. Gordon, is that we consider that their purpose is distinct from that of the parcel post service and we therefore feel that the clause does not have the result that you indicate it might have.

Mr. GORDON. Before the Senate Post Office and Civil Service Committee, the Railway Express Agency regarded the Post Office Department's parcel post service as a competitive service.

Mr. WARBURTON. That is right, sir.

Mr. GORDON. Now, they can probably take you into court and say, "Look, we are in competition with you even though you may have paid for the development of this particular item."

Mr. WARBURTON. Well, the Railway Express Agency on that basis is entering into court and I don't think it would prevail, because it is not legally able to enjoin the Federal Government and the Department, but by the same token, as I indicated, we have not experienced under this clause the situation that you seem concerned about. Mr. GORDON. But don't you put yourself in a position where you expose yourself to such action?"

Mr. WARBURTON. It could be. I presume, Mr. Gordon, the Department could become involved in a controversy on that clause as on any other clause.

Mr. GORDON. But this particular clause seems to be an invitation to a lawsuit.

I am an economist not a lawyer, and when I read this it seems to be quite obvious to me.

Mr. ANSBERRY. Mr. Warburton, are you putting your argument on the basis that sovereign union would protect the Government from suit in this case?

Mr. WARBURTON. No, we are putting our argument on the initial basis that we felt, as demonstrated by the fact that this clause is included in the ASPR as we adopt it in our contracts, that this language does not raise the basic difficulty to which Mr. Gordon refers. We can be involved in a legal controversy, including this; even if we were involved in a controversy on this score we could still prevail on the legal merits. We do not rely solely on that latter ability. If that were our situation, we as attorneys would not have this included in our contracts.

Mr. ANSBERRY. I think the two clauses in your contract a little bit inconsistent.

Mr. WARBURTON. Which are those, sir?

Mr. ANSBERRY. There is one clause that says the Government has got a nonexclusive

Mr. WARBURTON. Well, that is irrevocable in a sense.

Mr. ANSBERRY. Yes. There is another that says it can't use that in competition with the inventive contractor for public benefit, benefit of the general public.

Now bear in mind that money that you are spending is presumably spent for the general welfare.

I don't see how, having spent the money for the general welfare, we cannot have a clause that says you cannot use it for the benefit of the general Government but you can use it for the benefit of the general public. The two are essentially the same thing.

Mr. WARBURTON. Essentially the same parties, yes.

Mr. GORDON. I could very well understand why the armed services would-although I don't agree with it—have a clause like this because nobody is going to produce arms and planes for use in commercial markets in competition with the Government. But the Post Office is clearly a civilian organization and I cannot understand why the ASPR clause which may be suited particularly to the kind of materiel that the defense services are interested in, could be applied to civilian items.

Mr. ANSBERRY. Let me ask you this question:

Did you investigate, for instance, the patent policy of the AEC and the patent policy of the Department of Agriculture before adopting a DOD policy?

Mr. WARBURTON. As I indicated earlier, sir, according to the best historical information that we can determine, at the time we entered on this program, beginning with the statute in 1949, there was apparently an examination made of the various policies of the various agencies.

I could give you no precise information, sir, because we have been just unable to find it in the files.

Mr. ANSBERRY. Going back to my previous question, do you think those two parts of the clause are consistent with each other?

Mr. WARBURTON. We have not thought of it previously as being inconsistent.

I would like to think about that and give you an answer to it.15 Senator LONG. The point that impresses me is that made by the Patent Subcommittee of the Committee on the Judiciary. I would presume that that committee staff has a lot of good lawyers on it and the chairman is regarded as a good lawyer himself. Incidentally, he was Assistant Postmaster General at one time. Here is the language:

Instead, he is required to grant to the U.S. Government an irrevocable, free license. With this license, the Government may practice or cause to be practiced throughout the world, each invention but with the limitation the Government may not use this license in competition with the contractor or any of his commercial licensees.

Now, that would mean this to me, that the Government cannot license any other firm to manufacture this piece of equipment developed with Government funds because that firm would be in competition with the contractor who did the research for the Federal Government. So you couldn't license anybody to manufacture the equipment in competition with the contractor, if the contractor wanted to manufacture and sell this equipment. If he gave a license to the Railway Express, you couldn't use it even if you bought it.

Can you see any other interpretation on that?

Mr. WARBURTON. Excuse me, just one second.

Senator, the premise that we have gone is the thought that there is no inconsistency; that first we can have it manufactured for us, for the Post Office Department, and secondarily, we are not in competition. Now, Mr. Gordon, of course, indicates he feels that the Railway Express Agency has specified they are in competition in parcel post and has raised this question in his mind.

15 See exhibit VIII, beginning p. 213, for information subsequently submitted for the record.

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