Senator LONG. Thank you very much. (The following information was subsequently supplied by the National Aeronautics and Space Administration:) EXHIBIT XII(A). NASA'S PATENT POLICY-LIST OF CONTRACTS Statements requested during hearings before the Subcommittee on Monopoly of the Select Committee on Small Business, U.S. Senate, December 9, 1959 Mr. Gordon asked whether NASA's1 patent policy has retarded the placing of important research and development contracts and Mr. Johnson asked Mr. O'Brien to reply to Mr. Gordon's question. Mr. O'Brien stated that the NASA patent policy, in his opinion, definitely has retarded the placing of important research and development contracts. Senator Long then asked for a list of some of the contracts that we have had difficulty in placing. The list follows with a discussion of the difficulties: Case No. 1.-The Westinghouse Electric Corp. believes that it has made some very basic and fundamental discoveries in the technique of maintaining and regulating an arc discharge in a gaseous medium. The discoveries which Westinghouse Electric has made in connection with arc discharge resulted from its studies over the years of the phenomena of arc discharge. It appeared to technical representatives of Westinghouse Electric that these recent discoveries could well have application to the development of high-velocity wina tunnels capable of producing velocity of the order of mach 15. Westinghouse Electric informally inquired of NASA whether or not a contract for research and development with NASA to apply its discoveries in the field or arc discharge to the development of a high Mach number wind tunnel would permit it to retain commercial rights in inventions made in the performance of such a contract. Westinghouse Electric appeared to believe that there would be further demand for such wind tunnels not only by the Government but by industry, and the retention of commercial rights in such inventions would enhance its competitive position in constructing wind tunnels, utilizing its techniques. Westinghouse Electric was advised that the only way in which it could accomplish this objective would be to receive a waiver under subsection 305 (f) of the NASA Act, as implemented by NASA regulations. Since subsection 305 (f) provides for the granting of waiver by the Administrator of NASA upon recommendation of the NASA Inventions and Contributions Board, no assurance could be given in advance that a waiver would be granted in a specific instance. NASA's patent waiver regulations provide that waiver may be granted if it shown that the invention has only incidental utility in the conduct of activities with which the Administration is particularly concerned, and has substantial promise of commercial utility. It would appear that any invention in the field of wind tunnel design would not be said to have only incidental utility in the conduct of activities with which NASA is concerned. Accordingly, this provision for waiver offered little promise that a waiver of the Government's rights in these inventions could be obtained. Another provision in the regulations for waiver is where it is shown that the invention is directed specifically to a line of business of the contractor with respect to which contractor's expenditure of funds in the field of technology to which the invention pertains has been large in comparison to the amount of funds for research and development work in the same field of technology expended under the contract of the Administration in which the invention was conceived or first actually reduced to practice. Whether or not inventions would qualify for waiver under this provision would depend upon facts not ascertainable in advance of a contract. None of the other provisions in NASA's regulations for waiver appeared to offer Westinghouse Electric better hope of obtaining commercial rights in new inventions. In view of these factors, Westinghouse Electric is still considering whether to submit a contract proposal to NASA. It should be added that Westinghouse Electric has contracts with NASA in fields of technology where it does not regard its commercial position as being so critical. Case No. 2.-The Motorola Co. has made certain discoveries in photographic processes and techniques which appear to have substantial promise of commercial utility. These discoveries in photographic processes and techniques were 1 National Aeronautics and Space Administration, Washington, D.C. made independently of any Government sponsorship and are presently the exclusive property of the Motorola Co. It appears, however, that these photographic processes and techniques may have application in the solution of problems of photography in space exploration. Officals of the Motorola Co. approached NASA to suggest a research and development contract to apply these techniques to problems in outer space photography but desired to ascertain whether such a NASA contract would result in the Government acquiring rights to any inventions involved in the foregoing discoveries. Moreover, the Motorola Co. desires to continue its own research and development program in the commercial applications of these new photographic techniques and processes, and, therefore, desires to retain commercial rights to all new inventions. It is the policy of NASA not to acquire, except by direct purchase, rights in inventions that have been actually reduced to practice prior to the placing of a contract with NASA. Because the investigations undertaken by Motorola are still in an experimental stage, some questions remain as to whether or not their present state of development would, in each case, be considered as an "actual reduction to practice." If any of the inventions were to be first actually reduced to practice in the performance of the NASA contract, subsection 305 (f) of the act would require that the Government retain, as a minimum, a license under such inventions even though the Administrator were to waive title to the contractor, as provided by the NASA patent waiver regulations. Whether or not the commercial rights to any new inventions conceived in the performance of the contract could or would be waived to Motorola would depend upon whether the invention qualified under the waiver regulations and upon the judgment of the Administrator acting upon the advice of the NASA Inventions and Contributions Board. In view of these considerations, the officials of Motorola are in doubt as to the desirability of making a contract proposal to NASA to support the investigation. Case No. 3.-The General Electric Co., under contract with an agency of the Department of Defense, had successfully completed the basic research and study to indicate the applicability to missile guidance of certain phenomena previously discovered by the General Electric Company relating to superconductivity. NASA desired to join with the Department of Defense in entering into a new contract with the General Electric Co. to apply these discoveries in superconductivity to space vehicle guidance. Such joint sponsorship would necessitate incorporation in the contract of the NASA patent provisions which are less favorable to the contractor than those of the Department of Defense. The contractor refused to take the contract under such joint sponsorship, and presumably this investigation, if undertaken, will have to be supported solely by the Department of Defense. It should be added that the General Electric Co. is participating under research and development contracts with NASA in many other areas of research and development. Its reluctance to accept NASA's support in this specific case evidently was attributable to its unwillingness to grant to the Government rights under inventions previously conceived but which might be first actually reduced to practice in the performance of such a contract, as it would be required to do by section 305 of the act. Case No. 4.-Narmco Industries, Inc., of San Diego, Calif. was requested by NASA to undertake some research investigations bearing upon the development of new structural materials for outer space application which would involve the impregnation into plastic or metal structures of fibers or disklike flakes of ceramic or glass materials. Narmco would be responsible for the development of the end material but would be required to seek from the glass or ceramic industries the improved fibers and disklike materials which were to be incorporated into the plastic or metal matrix. On investigation, Narmco found that the glass and ceramic industries were reluctant to participate in this program if their participation would subject them to the patent provisions of the NASA Act. Because of these difficulities, this proposed investigation did not materialize. However, it is understood that Narmco has accepted contracts from the military services for such work. Case No. 5.-The Associated Piping Engineering Co. of Compton, Calif., has apparently developed, independently of any Government sponsorship, a novel process for welding tungsten containing alloys. The company claims to have a well-established proprietary position in this field. It appears that the process developed by Associated Piping could be applied to tungsten or molybdenum to acheive a NASA objective which is important to the space program. The NASA patent provisions, which would be required in such a contract, are presently delaying the placing of a contract with this firm. Case No. 6.The Electric Storage Battery Co. was requested by McDonnell Aircraft Co. a prime contractor in Project Mercury, to accept a subcontract for the development of a battery to be used in the manned capsule. Since the research and development to be undertaking pursuant to this request would parallel the Electric Storage Battery Co.'s own sponsored research program, and since the inventions emanating from this undertaking would be subject to the patent provisions of the NASA Act, Electric Storage Battery refused to enter into this subcontract with McDonnell Aircraft Co. Had it not been for the development of an alternative power supply by another NASA contractor, the refusal of Electric Storage Battery to take a subcontract with McDonnell Aircraft merely because of the NASA patent provisions could have seriously impaired or delayed Project Mercury. Case No. 7.-The Lesona Corp. subsidiary of Patterson-Moof Corp. was approached by NASA to develop a carbon dioxide analyzer for use in Project Mercury. Lesona, the owner of patents for this subject matter, had granted an exclusive license to another firm under all inventions covered by its patents and all improvements therein. Under the NASA patent provisions required in the proposed NASA contract, the Government would acquire rights in all inventions made in the performance of work under the contract and Lesona might be held to have violated the terms of its exclusive license agreement. Even though Lesona wanted to accept the NASA contract, the company decided that it would be in its best interests to refuse the work with NASA. The foregoing examples typify the difficulties encountered as a result of the patent provisions of the NASA Act. However, there is reason to believe that many other industrial firms are reluctant to do business with NASA because of the patent provisions of the act. NASA would not be aware of this reluctance because these firms have not been seeking business with NASA. We understand that the Industrial Nucleonics Corp. has, in testimony before the Congress, indicated its reluctance to do business with the Atomic Energy Commission because of the patent policy of AEC. We also understand that Industrial Nucleonics, for the same reason, will not do business with NASA. It is also understood that the Garrett Corp. of Los Angeles would be unwilling to accept contracts with NASA in fields of technology related to their commercial business if inventions would be likely or necessary in the fulfillment of the work requirements of the contract. EXHIBIT XII(B). HISTORY OF THE PATENT PROVISIONS OF THE NATIONAL AERONAUTICS AND SPACE ACT OF 1958 The bill entitled "An act to provide for research into problems of flight within and outside the earth's atmosphere, and for other purposes (H.R. 12575),' passed by the House of Representatives on June 2, 1958, contained the following provision under the heading "Patent Rights" : "SEC. 407. (a) Any invention or discovery made or conceived under any contract, subcontract, arrangement, or other relationship with the Administrator, regardless of whether the contract or arrangement involved the expenditure of funds by the Administrator, shall be deemed to have been made or conceived by the Administration, except that the Administrator may waive the Administration's claim to any such invention or discovery under such circumstances as the Administrator may deem appropriate. "(b) In any case where the Administrator waives the Administration's claim to an invention or discovery as authorized by subsection (a), the Administrator shall retain the full right to use such invention or discovery in carrying out his functions under this Act and to license other persons on such terms and conditions as he may deem appropriate to use such invention or discovery in the conduct of any activities authorized by or under this Act. In any such case the Administrator may provide for the payment by the Administration or by the other persons licensed under this subsection, for the use of the invention or discovery, of a reasonable royalty fee determined by the Administrator in accordance with such standards and procedures as he may by regulation establish. 1 H.R. 12575 became Public Law 85-568, July 29, 1958 (85th Cong., 2d sess.). "(c) In any case where the Administrator does not waive the Administration's claim to an invention or discovery which is deemed to have been made or conceived by the Administration under subsection (a), the Administrator may grant to the person who made or conceived the invention or discovery, as compensation therefor, a cash award in an amount determined by the Administrator in accordance with such standards and procedures as he may by regulation establish." The report of the Select Committee on Astronautics and Space Exploration on H.R. 12575 (H. Rept. No. 1770, 85th Cong., 2d sess.) contains the following comment on the foregoing section: "Subsection (a) provides that any invention or discovery made or conceived under any contractual or other relationship with the new agency shall belong to that agency, unless the Administrator waives the agency's claim to such invention or discovery. "Subsection (b) provides that where the Administrator waives the agency's claim to an invention or discovery made or conceived under such a relationship, he shall retain the right to use the invention or discovery in carrying out his functions and to license it to others for use in carrying out the activities authorized by the act; and in any such case he may pay or require any licensee to pay the inventor or discoverer a reasonable royalty for the use of the invention or discovery. "Subsection (c) authorizes the Administrator, in any case where the new agency's claim is not waived under subsection (a) and the invention or discovery accordingly becomes its property, to pay the inventor or discoverer a cash award as compensation for the invention or discovery." The bill reported by the Special Committee on Space and Astronautics of the Senate on June 11, 1958 (S. 3609), contained a substantially similar provision. The report of the committee on the bill (Rept. No. 1701, 85th Cong.. 2d sess.) contains the following comment on this provision: "The bill provides that any invention or discovery made or conceived under any relationship of any character with the agency, whether or not agency funds are involved, is deemed to have been made and conceived by the agency, but that the Director may waive the claim of the United States under appropriate circumstances. "When the Director waives any claim, he is required to retain for the United States the full right to use the invention or discovery in carrying out his functions and to license other persons to use the invention or discovery in carrying out agency activities. The Director is authorized to provide for the payment by the agency or other persons a reasonable royalty fee in accordance with standards and procedures established by regulation. "When the Director does not waive the claim of the United States to an invention or discovery, he may grant to the inventor or discoverer, as compensation, a cash award in an amount determined by him in accordance with standards and procedures established by regulation." This provision of the bill was deleted on the floor of the Senate when the bill was passed on June 16, 1958. The conference report (H. Rept. 2166, 85th Cong., 2d sess.) contains the following comment: "The House bill contained a section on 'Patent Rights' which in essence provided that— "(1) The United States should receive title to any invention or discovery made or conceived under any contract or other arrangement with the Administration. "(2) The Administrator could waive title to such discoveries at his discretion, but in such instances was required to retain the 'full right' to use the invention for Government purposes. He could further license other persons to use the invention on terms and conditions to be promulgated by him. 66 “(3) The Administrator was authorized, in cases where title was retained in the Government, to make cash compensation awards in accordance with regulations to be determined by him. "The Senate eliminated a similar section entirely in order to permit further consideration of the problem in conference. "Operating on the theory that the Government's interests must be protected, but with the concomitant purpose of protecting private interests and of keeping private incentive and initiative at a high level, the committee of conference adopted entirely new patent provisions." PREPARED STATEMENT OF JOHN A. JOHNSON, GENERAL COUNSEL OF THE NATIONAL AERONAUTICS AND SPACE ADMINISTRATION Mr. Chairman, I appreciate your invitation to appear before this subcommittee in connection with its study of the patent policies of the departments and agencies of the Federal Government and the effects of these policies on economic concentration, competition, and small business. In accordance with your request, my statement today will outline the patent policies of the National Aeronautics and Space Administration, the economic effects of those policies, and the recommendations of the Administration for legislative changes. NASA'S PATENT POLICIES NASA's patent policies are to be found in section 305 of the National Aeronautics and Space Act of 1958, and in the patent and procurement regulations of the Administration. Section 305 of the act, entitled "Property Rights in Inventions," provides in subsection (a) that inventions made in the performance of work under NASA contracts shall be the exclusive property of the United States whenever the Administrator makes certain statutory determinations concerning the conditions under which the invention was made, unless the Administrator waives all or any part of the rights of the United States to such inventions. In its entirety the subsection reads as follows: "(a) Whenever any invention is made in the performance of any work under any contract of the Administration, and the Administrator determines that— "(1) the person who made the invention was employed or assigned to perform research, development, or exploration work and the invention is related to the work he was employed or assigned to perform, or that it was within the scope of his employment duties, whether or not it was made during working hours, or with a contribution by the Government of the use of Government facilities, equipment, materials, allocated funds, information proprietary to the Government, or services of Government employees during working hours; or "(2) the person who made the invention was not employed or assigned to perform research, development, or exploration work, but the invention is nevertheless related to the contract, or to the work or duties he was employed or assigned to perform, and was made during working hours, or with a contribution from the Government of the sort referred to in clause (1). such invention shall be the exclusive property of the United States, and if such invention is patentable a patent therefore shall be issued to the United States upon application made by the Administrator, unless the Administrator waives all or any part of the rights of the United States to such invention in conformity with the provisions of subsection (f) of this section." NASA has developed a special "Property Rights in Inventions" clause to facilitate administration of the foregoing statutory provision. This clause is required to be included in every NASA contract, or modification of a contract, which entails technical, scientific, or engineering work of a kind performed in a contract having as one of its purposes (1) the conduct of basic or applied research, (2) the design or development, or manufacture for the first time, of any machine, article of manufacture, or composition of matter to satisfy NASA's specifications or special requirements, (3) the development of any process or technique for attaining a NASA objective not readily attainable through the practice of a previously developed process or technique, or (4) the testing or experimenting with a machine, process, or technique to determine whether the same is suitable or could be made suitable for a NASA objective. NASA considers that a contract made by another Government agency on behalf of NASA is a "contract of the Administration" for the purpose of applying subsection 305(a) of the act. Accordingly, NASA has requested that its special contract clause be included in such contracts if they meet the foregoing criteria. These criteria, of course, exclude contracts for the purchase of standard commercial off-the-shelf items. The "property rights in inventions" clause provides that a contractor shall furnish to the contracting officer written reports containing full and complete technical information concerning any invention made in the performance of any work under the contract. Such reports shall be furnished promptly upon the |