Mr. BANTA. No, no. I said we did not get a contract. We did not get a contract.

Mr. STULTS. You did not get a proposal submitted?

Mr. BANTA. Under our basic policy-we got no contract under the basic policy.

Mr. STULTS. Your exception here was for speed. Do you know if there is any formal or informal arrangement whereby Company A with whom you have a contract, let us say, has made a certain breakthrough, and that Companies B, C, D, E, and F with whom you have contracts know the extent and the type of breakthrough in the cancer area? Or are they all behind closed doors holding their scrimmages behind the sealed stadiums?

Mr. BANTA. I don't know about that. require that inventions be reported to us. Mr. STULTS. We have a question

Of course,

our contracts

Mr. BANTA. I imagine you can tell me, Mr. Bissell; how many have been reported?

Mr. BISSELL. There have been no inventions reported under the cancer chemotherapy contracts.

Mr. STULTS. We could assume, however, that each of these companies would not consider it an invention until he had everybody 100 percent cured of cancer.

Mr. BANTA. I do not think we can. We reserve the right to march in anyway.

Mr. STULTS. Have you marched in on any of them yet?

Mr. BANTA. No, we have not. No invention having been reported to us, we have not marched in.

Mr. STULTS. I would not assume that because the invention has not been reported there has, in fact, been no invention.

Mr. BANTA. Under our policy we have reserved the right under all of the contracts, with all of the contractors, to look over their shoulders just to see what is going on.

Mr. HILLER. Ordinarily, sir, our contracts provide for the designation of a project officer whose responsibility is, as a matter of program, to maintain a very close liaison with the contractor, and this includes periodic visits with the contracting organization, tours through their plant to see exactly what is being done as a supplement to the formal progress reports that are submitted from time to time. In this way we are kept apprised of what is being developed and the extent of any advances that are being made.

Mr. STULTS. Thank you, sir.

Mr. GORDON. Mr. Banta, do you scrutinize carefully what the contractor does with the invention, that is, if you do give away the title?

Mr. BANTA. Are you speaking now of the invention that might be made under one of these contracts?

Mr. GORDON. Yes. Do you have any provisions where you make sure that everything he does is in the public interest?

Mr. BANTA. Yes. We have a provision with a right reserved in the Public Health Service, for example, in the Surgeon General, to cancel out their right to use it, and to make to grant sub-licenses himself in areas where he determines that it is not sufficiently available to serve the public interest either from the standpoint of quantity, quality or price.

Mr. GORDON. Incidentally, Mr. Banta, I noticed the provisions which enable you to do this.

Mr. BANTA. You mean in our regulations?

Mr. GORDON. This is in your regulations, and in your procedures. It is No. 4, "Failure to Meet Health Needs." If a company did not meet the requirements that you established, you would have a devil of a time getting the patent away from him or at least making him license somebody else.

Mr. BANTA. Are you referring to paragraph four, 4(a), entitled "Failure to Meet Health Needs"? (See p. 372.)

Mr. GORDON. That is right; sections small a., small b., and small c. of par. 4 of your regulation.

Mr. BANTA. Yes.

Mr. GORDON. That is quite a procedure, wouldn't you say?

Mr. BANTA. Yes, sir; I would. I would say it is some departure from procedure which I have found in other contracts.

Mr. GORDON. Is this kind of an exception to your policy, which, on the whole, I think, is very admirable, is this generally left to the determination of a contracting officer?

44

Mr. BANTA. Oh, no. It is for determination by the Surgeon General, and in our Department, as is pointed out, I think, in the statement which I filed, we have a departmental patents board which is composed of responsible officials of the Department, representing such of its agencies as the Food and Drug Administration, the Office of Vocational Rehabilitation, the Office of Education, and the Office of the Secretary. We also have a patents officer who has certain review and advisory functions. We have a group of very competent advisers, therefore, to the Surgeon General and, in turn, to the Secretary in this field.

Mr. GORDON. If you licensed other companies, would they have to pay a royalty? Or are they royalty-free?

Mr. BANTA. Oh, no; they are all royalty-free. I think you will find in our statement on policy, too, all licenses are royalty-free, and they are all nonexclusive.

Mr. GORDON. How about an invention which comes under the chemotherapy exception? Suppose the company that gets the patent rights under this exception, licenses another company-company A gets the patent rights, company B is licensed. Company B would have to pay company A a royalty, wouldn't it?

Mr. BANTA. Well, that would be true certainly, but you understand our march-in clause is one which gives the Surgeon General the right to nullify this patent right, and the contractor's title to it, and all subcontractors, if there are subcontractors, in the event he finds that there are unreasonable restrictions of any kind, that the price is not reasonable or that the quality or quantity is inadequate. So, you see the Government is really in this respect in a position to require the same thing of the contractor that it would do if it owned the title, I am reasonably sure.

Mr. GORDON. This will be my last question, and this may have been asked before by the Senator.

As a result of dedicating an invention to the public, have you found a reluctance on the part of business in exploiting it?

44 Prepared statement of Mr. Banta, p. 361

Mr. BANTA. I do not believe we have had any experience in that area. I am sure I would say, "no." The answer is no.

Mr. ANSBERRY. Have any significant discoveries come out of your research program to date?

Mr. BANTA. Do you mean in our total research program or do you mean in our field of contracts?

Mr. ANSBERRY. In your entire research program.

Mr. BANTA. Oh, yes; in the entire research program.

Mr. ANSBERRY. Have any of them been developed commercially as yet?

Mr. BANTA. Yes, sir; some of them.

Mr. ANSBERRY. Can you give us some outstanding examples?

Mr. BANTA. Well, I guess the most, perhaps the most important, most recent one, is the NIH discovery of-it is known to me only by number-the number is 7519. It is a synthetic drug that is used as an analgesic and

Mr. ANSBERRY. Is that the morphine substitute?

Mr. BANTA. Yes. Perhaps, by the layman it can be said to be a substitute for morphine.

Mr. ANSBERRY. With less deleterious side effects?

Mr. BANTA. Presumably.

Mr. ANSBERRY. Has that been developed commercially or is that solely an NIH product?

Mr. BANTA. Licenses have been issued by the Secretary to six firms, upon the recommendation of the Bureau of Narcotics although many more firms have indicated interest in the drug.

Senator LONG. I want to thank you very much.
(The prepared statement of Mr. Banta follows.)

PREPARED STATEMENT BY PARKE M. Banta, GENERAL COUNSEL, DEPARTMENT OF
HEALTH, EDUCATION, AND WELFARE

Mr. Chairman, and members of the committee, permit me to express the appreciation of Secretary Flemming for the invitation extended to him to appear before this committee and to inform you of the policies of this Department with respect to patent and invention rights. Secretary Flemming regrets his inability to respond in person to your invitation.

You no doubt know that the Department of Health, Education, and Welfare makes comparatively limited use of contracts in its research and development activities; with two exceptions hereinafter referred to, such contracts reserve to the Government the right to determine the ownership and disposition of any resulting invention and that to date only one invention under a research contract has been reported although we have been informally advised that two others will be reported in the near future. The one invention reported was made at a State university and it has now been dedicated through publication. (Incidentally the two inventions which we expect to be reported soon arose under a contract with a firm which is included on the "List of Small Companies for Research and Development Work" issued by the Small Business Administration in May 1958.)

One of the two exceptions noted above relates to research contracts with nonprofit institutions. When, after review of the patent policies and procedures of the institution, it has been determined that they are such as to reasonably 'assure that any inventions will be made available without unreasonable restrictions or excessive royalties, the contract may provide that inventions will be left to the institutions for disposition in accordance with its accepted policies (with such stipulations in the contract as may be deemed necessary in the public interest). We have made contracts with four universities under this exception. We have no reports of inventions having been made under these contracts.

The second exception relates to our cancer chemotherapy industrial research contract program, under which the research contracts may grant a conditional 49646-60-24

right to the contractor to patent and exploit certain inventions arising under the contract. We have made contracts with a number of companies under this exception.

However, in any case where the contractor is permitted to retain invention rights, we reserve to the Government an irrevocable, royalty-free, nonexclusive license to practice the invention. In addition, in any case where a contractor is allowed to take title to an invention pursuant to the Department's patent policy in the administration of the cancer chemotherapy industrial research program, the Department reserves the right to license other companies or to dedicate the invention after complying with appropriate procedural safeguards, in the event that the contractor fails to meet the public need for the invention with respect to supply, quality, or price.

Having rather summarily highlighted certain aspects of the Department's policies as they affect patent rights resulting from Government financed contracts entered into by us, I believe it would be helpful for me to give you some more complete information about the nature of the patent policies of this Department and how they conform to the authority and responsibilities of the Department. Perhaps a brief statement regarding the Department's activities and responsibilities may be helpful as a backdrop to the discussion of its patent policies. As you may be aware the Department of Health, Education, and Welfare, having within its structure such agencies as the Food and Drug Administration, Social Security Administration, Public Health Service, Office of Vocational Rehabilitation, is primarily concerned with the well-being of the people of this Nation.

Keeping in mind our responsibilities and concern for the well-being of the public at large, as well as our statutory responsibilities for dissemination of information and making public the results of research, the Department has, over the years, formulated patent policies which are based on the position that the public interest will, in general, be best served if inventive advances resulting from its research activities be made freely available to the Government, to science, to industry, and to the general public. As early as 1949, the then Federal Security Administrator established an Agency Patents Policy Committee, under the chairmanship of Miss Mary E. Switzer, then assistant to the Administrator, now Director of the Office of Vocational Rehabilitation, to study the patent problems of the Agency and to formulate recommendations for an agencywide patent policy. Upon the issuance of Executive Order 10096 on January 23, 1950, the committee drafted an Agency order (FSA Order No. 110, July 10, 1950) setting forth the patent policy and procedures of the Agency, and in that order, approved by the Administrator, the Agency Patents Board was established. After the establishment of the Department of HEW, this Board was converted into the Department Patents Board.

At the outset it may be noted that the bulk of the Department's research activity is in the field of medical research. Additionally, it should be noted that the Department's research activities are carried out cooperatively with public and nonprofit agencies and with individual members of the scientific community. This activity is largely accomplished through the administration of a substantial number of grant programs.

The policy of the Department of Health, Education, and Welfare with respect to inventions arising from research conducted with the aid of grants or in the performance of contracts for research is set forth in regulations of the Department (45 CFR, pts. 6-8). These were recently amended to provide more explicitly for contract research and to authorize special alternatives for industrial contracts for the cancer chemotherapy research program. Specific authority to contract for research is comparatively new for this Department, and applies to relatively few programs. Research grant authority is of long standing, and applies to a greater number of programs, including most of those in which there is now authority to contract for research.

The distinction between contracts and grants for research is, roughly speaking, a distinction between a procurement or purchase and assistance or support. Under the research contract authority research for which the Government is to pay is undertaken by an institution pursuant to contractual obligations and in accordance with specifications imposed by the Government. A research grant, on the other hand, is made in support of research activities or projects proposed by an applicant institution. The patent policy has been framed in the light of these distinctions as well as with regard to the basic policy objectives of all research programs of the Department.

The regulations of the Department are controlling on the various constituent agencies of the Department (such as the Public Health Service) in the award grants and in the negotiation of contracts and also in determining the disposition to be made of rights in inventions in accordance with the terms of such awards or contracts.

In the formulation of the patent policies a study by a group of Department officials representative of the various operating agencies resulted in the development of several basic theses. In the first place, it was determined, consistent with Executive Order 10096, that inventions made by employees which are directly related to their official functions or to which the Federal Government has made a substantial contribution, should be owned and controlled by the Government for the public benefit. Patenting in the name of the United States would have significance only as a means to assure the availability of the invention to the public health and safety. In the case of grants for research the basic objective is the same: i.e., the development of knowledge and techniques for use as broadly as possible, for the public health and welfare. In this connection, the responsibility for dissemination of information is a specific duty for the achievement of such objective.

To the accomplishment of such objectives the Department has issued three separate regulations. Title 45, Code of Federal Regulations, subtitle A, parts 6, 7, and 8. As was stated in section 6.1 of part 6:

"Inventions developed through the resources and activities of the Department are a potential resource of great value to the public health and welfare. It is the policy of the Department:

"(a) To safeguard the public interest in inventions developed by Department employees, contractors and grantees with the aid of public funds and facilities; *

In order to accomplish and thus safeguard the public interest "it is the general policy of the Department that the results of Department research should be made widely, promptly, and freely available to other research workers and to the public. This availability can generally be adequately provided by the dedication of a Government-owned invention to the public by publication" (sec. 6.2, ibid).

The provisions of part 7 (dealing with disposition of invention rights to employee inventions) and part 8 (dealing with disposition of invention rights resulting from research grants, fellowship awards, and contracts for research) are all designed to meet the basic objective to safeguard the public interest.

For the convenience of the committee we are supplying at this time copies of the three regulations alluded to above.

Section 8.1 of part 8, relating to research grants, provides in the alternative that:

"(a) That the ownership and manner of disposition of all rights in and to such invention shall be subject to determination by the head of the constituent unit responsible for the grant, or

"(b) That the ownership and disposition of all domestic rights shall be left for determination by the grantee institution in accordance with the grantee's established policies and procedures, with such modifications as may be agreed upon and specified in the grant, provided the head of the constituent unit finds that these are such as to assure that the invention will be made available without unreasonable restrictions or excessive royalties, and provided the Government shall receive a royalty-free license, with a right to issue sublicenses as provided in section 8.3, under any patent applied for or obtained upon the invention."

It will be noted that the alternative of leaving invention rights to a grantee institution is conditioned upon the availability, under such institution's administration, of the invention rights of any invention without unreasonable restriction or excessive royalties. Section 8.2 provides the criteria for the head of the constituent unit responsible for the grant in determining what disposition shall be made of invention rights. Each of the four alternatives provided by this section is calculated to meet the objective of securing the wide availability of the invention. It will be seen that there is thus provided the criteria for disposition of invention rights in the field of employee inventions, research grants, fellowships and research contracts which are designed to enable the Department to fulfill its responsibilities for the dissemination of scientific and technical information and for serving the health, safety, and welfare of all segments of the population.