able to engineers and others in the firm who can apply that knowledge to products and processes.

There has been various testimony that it is not the holding of a stock of patents but the availability of research facilities for the production of new knowledge that is critical in the industrial competition. Mr. Kettering, onetime vice president of General Motors, testified to the Temporary National Economic Committee to this effect.

Senator LONG. Mr. Kettering himself is regarded or was regarded at one time as a pretty good inventor.

Mr. MELMAN. That is correct. In fact, he so described himself on many occasions, proudly, and indeed, we have every reason to acknowledge Mr. Kettering's creative ingenuity.

Senator LONG. Isn't he the man who invented the original selfstarter in the automobile, which could start the car without cranking it up?

Mr. MELMAN. To him, sir, is ascribed the first design of the selfstarter. May I quote from the TNEC hearings,23 page 16311:

Mr. O'CONNELL. It occurred to me that even in the absence of any patent laws at all, the mere force of competition in the industry would probably require the type of organization you have been describing.

Mr. KETTERING. I imagine so; yes. But I am a terribly optimistic person on what can be done if we get coordinated right.

Mr. O'CONNELL. I do not want to press the point, Doctor, but apparently organizations such as yours would undoubtely continue to function and would be forced by competition to function even were there no patent laws.

Mr. KETTERING. We don't run our organization for the purpose of taking out patents. We think only of the general problems.

I do not know of a more eloquent way of summarizing the informed judgment of a man who has himself participated in various types of design activity, and who was responsible for the management of large engineering facilities.

Senator LONG. Was he speaking as a General Motors executive at the time he testified before the TNEC?

Mr. MELMAN. Well, he was in that capacity at the time, certainly, sir.

Senator LONG. Will you help us at this time with the appropriate tables and quotations in your documents here which support the statement you have made? While we do not propose to print the pamphlet you are holding in your hand, we would like to take from that the particular charts, the statistical data, which you say, support some of your statements here.

I think that should be in the record in connection with these hearings. (See exhibit IX, p. 231.)

Mr. MELMAN. I would be delighted to counsel with Mr. Gordon and call to his attention these particulars and data.

Senator LONG. Let them be inserted in the record at this point. If you can spare it I would like to have a copy of that. Thank you so much for your presentation here, Mr. Melman.

Mr. ANSBERRY. I have a question. I understand, Dr. Melman, that one of the chief arguments for what you might call the patent bonus

23 Hearings before the Temporary National Economic Committee of the Congress of the United States. 76th Cong., 3d sess. (pt. 30). 1940.

under the Department of Defense policy is that the percentage profit accorded on a cost-plus-fixed-fee research and development contract is considerably less than most successful businesses except to make on a similar dollar volume of sales, which are not in the research field.

In other words, if they make an automobile they expect to make 20 percent and not 6 percent before taxes; and for this reason they should have the bonus of the later possible commercial development of the patents resulting from the research.

Do you have any comment on that argument?

Mr. MELMAN. Yes.

Mr. GORDON. This is a cost-plus-fixed-fee.

Mr. MELMAN. One of the major types of justification that is given for private profit as an incentive is that profit is a return to management for risk taking. The firms that you allude to, sir, who ask for this patent bonus, are precisely taking rather less risk than firms engaged in the production of products that are offered on the public market.

Senator LONG. I must say, Professor Melman, that when I hear some of these people talk about the great risks they take on a cost-plus-fixedfee contract, it makes me feel that the only risk is that they might lose their contract. They might misplace it in the desk drawer.

Mr. MELMAN. There are other types of risks. There can be mistakes by accountants in the computing of costs.

Mr. GORDON. That can be rectified, can it not?

Mr. MELMAN. I would think so, sir. These are administrative risks of trivial order of magnitude.

But the essential point is clear. Firms operating on a Government contract, are paid for their costs, which include costs of managing, but are also offered a return on capital. They are being offered a guaranteed profit.

It would be a new theory of business enterprise that argues that profit is separable from risk taking. Perhaps we should ask some of the spokesmen for this point of view to elaborate on that. It might be very instructive.

On the other hand, since the theories and system of understanding of profit involve no clearly definable limit as to what is a sufficient profit, it is plausible that persons who work for a profit, so to speak should appear and request legislation that gives them opportunity to take a larger profit.

The problem before such a committee, sir, if I may venture to put it, is: What is the objective of the committee? Is it the objective of the committee to sponsor the profitability of large firms as a primary objective? It is the objective of the committee to sponsor the particular profitability of any sector of firms of any size or of any industry? Or is it the objective of this committee to seek out policies that are to the benefit of the United States as a whole? Mr. ANSBERRY. And small businessmen too.

Senator LONG. Thank you very much, Professor Melman.

Mr. MELMAN. It has been a privilege to be able to serve you today. Thank you.

(Excerpts from the monograph prepared by Professor Melman follow :)

EXHIBIT IX

EXCERPTS FROM COMMITTEE PRINT ENTITLED "THE IMPACT OF THE PATENT SYSTEM ON RESEARCH", ISSUED BY THE SUBCOMMITTEE ON PATENTS, TRADEMARKS, AND COPYRIGHTS, SENATE COMMITTEE ON THE JUDICIARY (STUDY NO. 11), 85TH CONG., 2D SESS.

A study of the Subcommittee on Patents, Trademarks, and Copyrights of the Senate Committee on the Judiciary (Study No. 11), 85th Cong., 2d sess., prepared by Professor Melman)

Modern scientific and engineering research is increasingly characterized by the integrated application of the work of various specialists. The resulting conditions of interdependence in inquiry render the concept of the inventor obsolete to a considerable extent. The functions once embodied in the solo inventors who dominated the technical scene are now more often than not performed by various persons working in a cooperative group effort. To the extent that this is true, the traditional patent system, with its emphasis upon the protection and reward of the inventor, necessarily becomes less attuned to the purpose that it was set up to perform (p. 18).

Scientists and engineers are now largely employees paid to exercise their occupational skills. This pavment is on a time, not a unit of production, basis, and is substantially independent of patent taking. Much of the scientific work is done in nonprofit institutions, and here it is carried on with virtually no accompanying patenting activity (p. 21).

There are no established and accepted ways of evaluating the money worth of patents, either in terms of cost or in terms of market value. The cost aspect is of greatest interest here. The difficulty in evaluating the cost of producing a given patent stems from the character of research. Where the activities of many persons must be integrated as necessary conditions for the production of given knowledge there are no known methods for obtaining an objective measure of the total worth of the inputs required to produce a given result (p. 22).

It is noted that the factors influencing industrial research activity are the changing circumstances of interfirm competition, much more than the availability of patents. Likewise, the conduct of research in universities and other nonbusiness groups is largely independent of patent considerations, since in the nonbusiness laboratories knowledge is produced for its own sake and the search for knowledge irrespective of its commercial and industrial value, is a primary criterion in selecting research projects (p. 26).

a. patent activity and business-sponsored research

Among persons who are active in the patent field, there is substantial agreement that the opportunity to obtain patents has been a potent incentive for research outlays by industrial firms. If this assumption is valid, it supports

the contention that patenting is an important factor in industrial research. But do the facts support the assertion? One way to find out is to examine the relation between patenting and research activities. The relation between research and patent activity can be approached in two ways, to wit, in aggregate terms and through the detailed records of particular firms.

For the period 1941-54 there are reliable estimates of the total number of research scientists and engineers in the United States. These data can be compared with the number of patents granted on inventions by the Patent Office. The data of table 1 show a dramatic growth in the number of scientists and engineers from 87,000 in 1941 to 194,000 in 1954, an increase of 120 percent. During the same period the number of patents issued shows a marked fall. Even if allowance is made for administrative problems of the Patent Office and other factors, the larger picture that emerges is plain enough. There has been no growth in the number of patents taken on inventions that matches

the increased number of scientists and engineers in the industrial and other research laboratories in the country.1

TABLE I.-The number of patents granted for inventions in relation to the growth of research scientists and engineers

1 Department of Defense, Office of the Secretary of Defense (Research and Development), The Growth of Scientific Research and Development, at 12 (1953). 2 Department of Commerce, Historical Statistics of the United States, 1789-1945, at 312 (1949); Statistical Abstract of the United States, 1954, at 520 (1954); id., 1955, at 505 (1955).

Even more striking is the lag that appears when one examines technological effort generally. Activity in patenting as compared with change in the total number of scientists and engineers, not just those engaged in research and development work, is shown by table 2. As this table shows, from 1900 to 1954 there occurred a massive expansion in the number of scientists and engineers from 42,000 to 691,000, an increase of 1,600 percent. In contrast, over this same period the largest increase shown in any given year in the number of patents granted was only 83 percent over the number granted in 1900 and in most years the increase was even smaller than this. The relationship between the growth of the number of scientists and engineers and the number of patents granted is reflected in the fifth column of table 2, by dividing the index of patent growth by the index showing the growth in scientists and engineers. The data show a steady and persistent decline from 1900 to date in patenting as compared to overall scientific and engineering employment. In other words, activity in taking out patents has lagged increasingly behind the total activity in science and engineering, as indicated in the growth of the total population of scientists and engineers, until today it is less than one tenth of what it would be had it kept pace (pp. 27–28): B. Emphasis upon patenting weakens the universities as scientific centers

Insofar as concern with patenting spreads through the universities, they become correspondingly less valuable as producers of new knowledge. This results from: (1) the tendency to select problems for research on the basis of whether they will lead to patentable inventions, not whether they will add to the store of knowledge as an end in itself; (2) the introduction of managerial decision making over investigators; (3) restrictions on publication; and finally, (4) adverse effects on the students themselves. These effects on the characteristics of university-located research are independent of the availability of larger budgets, better buildings, and more staff (p. 40).

1 One may properly ask whether it takes more manpower and costs more to make a given invention today than it used to? The data available here do not give a direct answer to this question. The several tables shown in this chapter do show, however, that the differences in rates of development between technical employment (and budgets) and patenting are large, both in the long run (1900-1954) and during shorter periods (1941-54, 1950-55, 1940-55, and 1942-54). It seems unlikely that changes in the state and circumstances of science and production technology during these shorter periods have been sufficiently great to explain the lag in patenting activity shown by these statistics. The writer is advised that there is no indication of any steady upgrading, over the decades, in the Patent Office standards of invention which would account for the reduction in patenting at least to an extent beyond that which would balance the increased competency of technicians. Whitmore, "What's Got Into the Office Lately?" 29 J.P.O.S. 869 (1947); cf. hearings before the Senate Subcommittee on Patents, Trademarks, and Copyrights, 84th Cong., 1st sess., at 72-95 (Oct. 10-12, 1955).

2 It may be suggested that the growth in Government-contracted research work during recent years may involve the employment of technical men on work that is not conducive to patenting by the contractor firm, since the patents would be Government-owned. This would not, however, explain the decline shown in table 2, which shows relative patenting activity since 1900. Nor does it explain the situation among the individual firms, as shown in tables 3 to 6 and in figure 1. Of the firms, only one is very active in Governmentcontracted research and development, and the data for this firm have been adjusted to exclude the Government-contract research staff,

Pressures for aggressive patenting start in universities in the interest of securing additional funds for research and teaching. However, the managerial characteristics of the directed research efforts that tend to flow from this policy and are undertaken toward this end, abridge the free pursuit of knowledge as an end in itself. In turn, these methods tend to have a weakening effect upon the functioning of universities as centers for scientific work. Thus, in the long run, pressures for patenting and similar efforts, if sustained, could exhaust the resources of the university that are essential for the training of new investigators and the pursuit of knowledge as an end in itself (p. 43).

Patent-oriented control of research, as one aspect of the use of knowledge as property, leads to effects that run contrary to the requirements of efficient promotion of science. Business criteria, like any other closely defined criteria for selection of research problems, restrict the scope of acceptable problems and the freedom of the investigator. Business requirements for keeping knowledge secret block the free publication that is a necessary part of the process of inquiry.

The effects noted here are especially important in the promotion of science because of the interdependence and need for integration of knowledge which was described in chapter III, above. Under such conditions, the people who decide on research projects, the criteria used, and policies on publication affect the degree to which scientist and engineers may participate in the necessarily integrated effort of the expansion of technical knowledge. Insofar as the pursuit of patent rights contributes to research and publication policies that contradict the requirements of interdependence and integration, it may be said that the direction of effects of a patent system contradicts the requirements for the progress of science and technology (p. 48).

There is nothing to indicate that the absence of the patent system would diminish the scope or character of scientific research in the universities. Indeed, insofar as patent pressures were removed from university scientists, this would probably strengthen the universities as producers of science and technology. Moreover, business expenditures for research, in the estimate of this writer, would not be appreciably diminished by the elimination of opportunities for claiming patent rights. It is true that in the absence of patenting, some of the characteristics of industrial research might be revised. Competitive pressures along product and production cost lines, that now impel the expansion of industrial research outlays would, however, continue to be operative (p. 56).

The evidence and analyses of this study indicate that there is a growing disharmony between the efficient production of new technical knowledge and the effort, through the patent system, to treat that knowledge under property relations. This disharmony is intensified as the division of labor in science increases and, as a consequence, the conduct of inquiry becomes increasingly social production that requires the integration of interdependent technical skills. These developments make it increasingly difficult to specify what is new, what is invention, and who is an inventor. The effects from these factors would not be essentially altered, in this writer's opinion, by variation in the rules for establishing property rights to knowledge.

The effort to operate a patent system formulated for the technological conditions of a century ago has proved to be increasingly awkward. The problems of patent-system operation, however, do not stem primarily from administrative shortcomings or from the absence of ingenuity among the able attorneys, judges, and Patent Office staffs who administer the system. Rather, they stem from the inability to apply the conceptions of a bygone era to the contemporary conditions under which technical knowledge is produced. At the same time, there can be little doubt that the patent system has been a useful instrument in industrial management's competitive process.

In this investigation, attention has been focused on the problem: Does the patent system now fulfill the constitutional purpose of promoting science and the useful arts, as indicated by the operation of industrial and nonprofit research laboratories? On balance, based upon the study of selected typical industrial and nonprofit research laboratories, the answer is "No."

The patent system in the contemporary scene has not, as a rule, promoted conditions that facilitate research in science or the industrial arts. On the contrary: In universities the effect of patenting pressures has been to inter49646-60-16