and then turning around and dedicating it to those constituting the Government, namely, the public. Moreover, any such suggestion strikes at the heart of the patent system and the constitutional provisions under which it has been established and the long and well-recognized history demonstrating the tremendous value of that system to the growth of the economy of this country.

We wish to express our appreciation of the opportunity to present our views in this communication.

Very truly yours,

WILLIAM H. WEBB, President.

APPENDIX VI

LETTER FROM REYNOLD BENNETT, EXECUTIVE PATENTS COMMITTEE, NATIONAL ASSOCIATION OF MANUFACTURERS OF THE UNITED STATES OF AMERICA, NEW YORK,

N.Y.

Hon. RUSSELL B. LONG,
Senate Office Building,
Washington, D.C.

DECEMBER 7, 1959.

DEAR SENATOR LONG: This is with reference to the Senate Small BusinessMonopoly Subcommittee hearings December 8-9, relating to patent rights under Government research and development contracts. Because of the magnitude of the subject involved, it is hoped that no conclusion will be reached on isolated instances, and without a full and comprehensive inquiry into the many aspects of the matter.

It should be noted that the National Association of Manufacturers consists of some 20,000 members of which 83 percent have less than 500 employees, and 28 percent have less than 50 employees. Moreover, our policies in relation to the subject at hand have the unanimous approval of NAM's entire patents committee. At this time, we note particularly that the normal patent laws are essential to industrial incentives and the greatest progress in the useful arts. The limitation of patent rights under Government research and development contracts would operate to discriminate against the public interest and especially against small businesses.

To point out briefly one aspect of the entire matter, smaller companies are normally more heavily dependent for existence upon a single important patent right than are their larger competitors. To illustrate this, it might be noted that if a reasearch and development contract is awarded to one of the large companies (e.g., in the computer field) the ownership of any resulting patent would be of minor significance in relation to the body of patents already owned by such a company. If it is awarded to a very small contractor, on the other hand, the ownership of the resulting patents and the opportunity to engage in commercial exploitation thereof are likely to be of primary importance to such a company. Considering the prospect of eventual commercial development of related products, the small company, if awarded the development contract may eventually be enabled to use the commercial rights in the resulting inventions to overcome, wholly or partly, the patent advantage held by large companies with their great numbers of background patents.

We would appreciate having this letter entered into the record of your hearings and would be pleased to discuss this matter more fully with your subcommittee at your early convenience.

Yours respectfully,

REYNOLD BENNETT, Executive Patents Committee.

APPENDIX VII

LETTER FROM J. P. PERRY, PRESIDENT, EASTERN ROTORCRAFT CORP., DOYLESTOWN, PA., WITH ACCOMPANYING STATEMENT FOR THE RECORD

Senator HUGH SCOTT,

DECEMBER 18, 1959.

Senate Office Building,

Washington, D.C.

DEAR SENATOR SCOTT: This is to acknowledge and thank you for your letter of December 10 regarding my interest in the study being conducted by the Monopoly Subcommittee of the Senate Small Business Committee.

In accordance with your suggestion that I submit a statement for presentation to this committee, I am forwarding, herewith, an expression of my views together with a somewhat generalized review of this concerns experiences in this field. I have refrained from providing specific cases since I feel that quite possibly this subject matter perhaps more properly belongs in a field other than that now being handled by this subcommittee. I note from your letter that you also

are inclined to share this view.

As you will no doubt appreciate, I have discussed this matter at some length with Congressman Curtin; and I am taking this opportunity to supply you with a copy of a recent letter to him dealing with specific cases. Quite possibly this information will be of interest to you in your study of this matter.

I understand that the Strategic Industries Association has or will introduce into the next Congress certain leigslative recommendations ot help correct current patent law practices in military contracts. Briefly they will consist of the following:

1. That section 305 of the Space Act of 1958 be withdrawn and substitute, with minor modification, the language of section 9, ASPR.

2. That all acts of Congress containing restrictive patent clauses in conflict with article 1, section 8 of the Constitution be similarly amended.

3. That Congress, by formal legislative action, reaffirm the constitutional guarantee of the citizen's exclusive right for a limited time to the fruits of his inventions and discoveries.

I believe on the basis of our experience in this field that the foregoing recommendations would provide substantial correction to this matter as such effects this concern.

I would like to take this occasion to acknowledge the helpfulness and interest shown by your Mrs. Guyon in connection with my attendance at these hearings. Sincerely yours,

J. P. PERRY, President.

PREPARED STATEMENT OF J. P. PERRY, PRESIDENT, EASTERN ROTORCRAFT CORP., DOYLESTOWN, PA.

To the Chairman and Members of the Monopoly Subcommittee of the Senate Small Business Committee:

I appreciate the opportunity to submit to your committee a statement reflecting the experiences and the views of this concern in connection with various phases of the current study of Federal patent policies.

Eastern Rotorcraft Corp., Doylestown, Pa., which I represent as president, was founded in 1947 and is a small business activity. This concern has an average annual employment of 100 persons and average annual sales of $1,500,000. A major portion of its current sales is to the Department of Defense.

This company's present product line consists principally of mechanical or electromechanical equipment for use in accomplishing the following tasks: (a) Securing airborne cargo.

(b) Securing aircraft to aircraft carrier decks.

(c) Transporting external cargo by helicopter.

(d) Adjusting and retaining guy wire members in portable antennae systems.

While this concern has from time to time sought and obtained Governmentsponsored research and development programs its experience in the processing of such contracts has been generally discouraging. On some occasions the cost of preparing and submitting proposals has been nearly as great as the cost of actually developing the end-item called for by the contract. In addition, the details associated with proposal submittal, proposal evaluation and contract award have often been as great as the time required to actually develop the hardware in question. A further deterrent, with regard to Government-sponsored R. & D. programs, is that under the contract terms the contractor is obligated to develop a design bearing a close relationship to that outlined in his proposal. As is often the case during the course of development, new and improved solutions are generated, which are so superior as to suggest abandoning the approach set forth in the contract. Attempts to revise the contract so as to have it read on the new concept are not easily

accomplished; and accordingly the contractors is discouraged from introducing the improved solution. Under the conditions of a company-sponsored program the old solution would be quickly abandoned in favor of the new design with corresponding savings in time and energy.

In our field of endeavor, and from our observation we feel it likely to be the case in other fields, a new patented item merely represents a new and superior way of doing an old job; or a way of doing a new job which heretofore could not be accomplished with existing equipment. We do not, in all honesty, believe that other solutions do not exist to those jobs which are accomplished by our patented equipment. Indeed, we know of no instance in which if someone else had a patent on one of our devices, we could not design an equally effective piece of hardware without infringing on his patents. In furtherance of this reasoning, we believe it unfair and unrealistic to necessarily hold the position that a patent automatically creates a monopoly of any significant consequence.

It has been our experience and observation that patents held by large business have in no way adversely affected the progress and operation of this concern; and we are inclined to believe that commanding patent positions on the part of large business do not necessarily as such have an adverse effect on small business. We do, however, feel strongly that patents can and should provide a degree of protection and encouragement necessary for the growth of creative small business. Our society traditionally has looked to this segment of small business for leadership in the development of many of its new products and industries. Competition to creative small business comes not from large business but from other small businesses who have neither the ability nor the desire to introduce new and necessary improvements.

Under the circumstances presently existing, the developer concerns are at the mercy of all other concerns in connection with Department of Defense procurement. This is especially true if the developer concerns have relatively large and aggressive product development programs since they cannot possibly hope to match the production costs of those companies not having a similar development cost burden. As your committee no doubt knows, in the event of infringement in connection with a Department of Defense procurement, the patent holder's only legal recourse under statute (title 28 U.S.C., sec. 1498) is against the Government in the Court of Claims. This situation, therefore, prevents a leveling of any cease and desist action against the infringer; and results accordingly in forcing the patent holder into the normally unrewarding program of litigation against the Government. In the case especially of the smaller concerns such litigation requires time and energies which might better be spent on its continuing creative programs.

The circumstances noted above are not hypothetical since several of the products designed and patented by this concern with its own funds are presently being manufactured by others in such exact form as to appear to have been made by the patent holder. Efforts to obtain relief from these damages have not to date been successful. The attitude on the part of the infringer has often been one of blatant disregard of the patent holder's position since he well nows that the patent holder's only legal recourse is against the Government.

In summary, therefore, this organization does not believe that the monopoly supposedly created by the placement of extensive research and development contracts with large business is as great as has been visualized, nor does it have an aggregate adverse effect on small business as has been indicated by the Attorney General. Further, in this regard, it is believed that the creative portion of small business has been and continues to be adversely effected by Federal patent policy, particularly as such policy applies in the field of Government procurement. It is believed that if favorable circumstances were created by the Government that small business would develop with its own funds a virtual flood of new and improved materiel, beneficial not only to our military effort but also to our society as a whole; and this unquestionably desirable segment of small business asks for no special privileges-only fair treatment and encouragement.

APPENDIX VIII

PREPARED STATEMENT OF ROBERT A. BICKS, ACTING ASSISTANT ATTORNEY GENERAL, ANTITRUST DIVISION, DEPARTMENT OF JUSTICE

Hon. RUSSELL B. LONG,

Chairman, Subcommittee on Monopoly,

Senate Small Business Committee,

U.S. Senate, Washington, D.C.

DECEMBER 7, 1959.

MY DEAR SENATOR LONG: I am happy to transmit in accordance with your request of November 18, 1959, the views of the Department on Government policy as to rights in patents resulting from Government research and development contracts.

First, a necessary preliminary is definition of antitrust concern with the problem. Second, the development of the problems of Government research policy is briefly sketched. Third, some general observations are presented.

I

Industrial research, and the patents which flow from it may affect competition. The patent system, with emphasis on commercialization of the new commodity, the new technology or the new source of supply, seeks constantly to renew competition to established products and producers. Concomitantly, active competition in industry provides the best climate for industrial research, as companies strive against each other to bring new products from the laboratory to the production line. And so long as a company exploits its patents consistent with the terms of the patent grant, without abuse for anticompetitive purpose, antitrust and patent policy do not cross.

Patent abuse or misuse as part of an anticompetitive arrangement, however, will invoke antitrust. Particularly prejudicial to competition is domination of related fields of research by a few large companies, for the conscious engrossment of all vital patents covering an industry field by one or a few companies may stifle competition.

In the 18 years since the first modern antitrust judgment containing patent relief was entered in 1941,1 almost 1 of every 3 judgments have included provisions requiring compulsory licensing or dedication of patents. Included are not only cases of simple patent abuse involving one or two patents, but those where aggregations of patents dominate an entire industry.

3

Antitrust enforcement tools, carefully used, can remedy anticompetitive patent abuse, as other antitrust violations. For example, since the Eastman Kodak judgment, giving access to color film processing patents, more than 50 companies now compete for the color processing previously done by one. Manufacture of concrete blockmaking machinery, controlled by Besser Manufacturing Co. before 1949, is now shared by more than a dozen companies after an antitrust decree opened up Besser's patents. The glass fiber products industry, the domain of Owens-Corning Fiberglas Corp. before an antitrust judgment compelled licensing under some 260 patents, has now some 72 licensees in the business. And the amassment of patents, inventions, and know-how on electronic and mechanical data processing equipment by IBM, alleged in the 1952 antitrust complaint,* required compulsory license provisions in the 1956 decree; and the resulting competition by many licensees has aided the rapid growth of this modern industry. In line with this objective and consistent with antitrust goals, Government's influence in advanced research should be shaped to promote free enterprise competition.

II

Industrial research as an organized activity is relatively recent to American industry. General Electric first instituted industrial research as a regular and independent activity in 1900. Government's role in industrial research is even more recent, assuming significant proportions just before World War II.

1 United States v. Kearney and Trecker, Civil 3337 (N.D. Ill. CCH Trade Cases 19401943), p. 571.

2 United States v. Eastman Kodak Co., Civil 6450 (W.D.N.Y.).

3 United States v. Besser Manufacturing Co., 96 F. Supp. 304 (E.D. Mich. 1951); affd. 343 U.S. 444 (1952).

4 United States V. International Business Machines Corporation, Civil 72–344 (S.D.N.Y.).

By about 1938, the annual cost of our country's industrial research was approximately $300 million. By 1941, it had doubled, and since World War II has had a mushroom growth. In 1956, total expenditures for industrial research and development reached the considerable sum of $6.1 billion, reported as increasing to $8.2 billion in 1958.

Future growth, too, promises to be rapid. According to a recent survey, industry was increasing its research and development expenditures for 1959 to over $9 billion, which represents an increase of 50 percent since 1956, and projects spending at the rate of $10.6 billion by 1962. Strikingly, it expected that at least 10 percent of the 1960 sales volume, for manufacturing as a whole, would be in new products not made in 1956.

Today, with industrial research a deliberate instrument of economic development, industries compete constantly to create new wants, new products to satisfy them, and thus new markets apear. Competition in fact begins in the laboratory. This kind of competition, called "the new competition" or "the quiet competition of the laboratory," is an effective part of business survival in a competitive world. As one business executive said, his company's experience showed that "every dollar spent to develop new products and improve technology earns approximately $5 in return."

996

Government's part in industrial research has become major. Although, according to a recent estimate of the National Science Foundation, 72 percent of scientific research is actually performed by industry, Government pays more than half of its cost. A share of industry's work for Government, too, depends upon information as to technical matters in Government's hands, much of which security requires to be classified against access by industry generally. Thus, the policies of Government in distributing research work and the patents which flow from it are especially significant.

Advantages accruing to any company performing Government research are numerous. First, it gets a fee for the job. Beyond that, it gains know-how in new products developments, or in the use of new raw materials and processes to manufacture existing products. It may also gain knowledge in new uses of existing products of competitive significance.

The company performing research may further benefit from resulting patents, by obtaining a legal monopoly over the subject of its invention-the power to exclude others from the field. Moreover, companies able to have important technical research programs financed for them can attract scientists and engineers, providing a staff for the future. During nationwide shortage of the scientifically trained, this is a substantial advantage. Finally, Government work may give access to vital restricted data, not available generally for sound security reasons.

Relevant Government agency patent policies vary widely. The agencies of Department of Defense, with wide discretionary authority, normally take only a royalty-free nonexclusive license under patents resulting from research it finances. Atomic Energy Commission, and the new National Aeronautics and Space Administration, on the other hand, are governed by statutes requiring in the main that inventions made in the course of their research shall be the property of the United States. The National Aeronautics and Space Act, moreover, requires effective contract provisions for reporting technical information discovered in the course of their performance. The NASA legislation also grants the Administrator broad powers for protecting title to patents, for establishing conditions on which licenses may be issued, and for waiving the rights of the United States upon a determination that the interests of the United States will be served thereby. Other agencies follow variations on these basic policies.

Since World War II, agency patent policy has been the subject of two studies by the Department. In 1947, the then Attorney General urged full Government In summary, ownership of all patents resulting from Government contracts.8

that report urged this policy, with few exceptions, as being in the public interest to assure free availability of the technology to all American industry, not just

5 McGraw-Hill Publishing Co., 12th Annual Survey on Business' Plans for New Plants and Equipment (1959), p. 13.

M. W. Boyer, director, Standard Oil Co. of New Jersey, quoted in Oil and Gas Journal, Nov. 16, 1959, p. 131.

Atomic Energy Act of 1946, as amended, 68 Stat. 944 (1954), 42 U.S.C. § 2182 (1958); National Aeronautics and Space Act of 1958, 8 305, 72 Stat. 435 (1958).

81 Atty. Gen. Rep. 87-88 (Investigation of Government Patent Practices and Policies) (1947).