product, it is purchased for Government purposes. It is not purchased with a view to exploitation for profit of any commercially valuable "fallout" which may result from research and development work conducted for purely Government purposes. The Government may, as we have seen, contract for research and development looking toward creation of a product or process to be used exclusively in the Government service, e.g., national defense. On the other hand, it may contract for research and development to advance the "state of the art” in some field such as agriculture or atomic energy. In cases of this latter type, the Government generally acquires full patent rights to any inventions connected with such research and development work, making available to the public at little or no cost, the results of such work, including the rights to use patented processes for commercial purposes. Such Government-sponsored research deserves special comment. It has been asserted that this latter policy insures that the public does not pay twice for the results of research and development-once in taxes and again in "monopoly", or at least higher, prices for the patented items. We would not argue that technological advancement will not occur under such a policy-as for example that of the Atomic Energy Commission. We have every hope that it will. But for reasons already detailed at length herein, we do not believe that the benefits of such research will be made available to the general public as quickly, as efficiently or as cheaply as they might be where individual companies are permitted to acquire patent rights. If, as we believe, the pace of technological advance is keyed in large part to the incentives of the patent system, then Government procurement patent policy ought to favor the granting of private patent rights regardless of the immediate purpose of the research and development contract. It seems to us that if we keep firmly in mind the distinction between purely governmental purposes underlying research and development work and the fortuitous development of commercially valuable inventions the answer to the general question is fairly simple. Insofar as it has received, upon completion of contract performance, the article, the process, or the new knowledge required by the agreement, then it seems to us that the Government has indeed received all that it paid for. We do not believe the Government contracted in the first place with a view to development of inventions which might be exploited for profit, nor do we think it should contract with any such intent. The committee's release of December 8 clearly implies that the Government should perhaps undertake the recoupment-presumably through licensing arrangements or otherwise of some part, or perhaps all, of its expenditures on research and development. For reasons already set out herein we think this would be unwise and uneconomic policy in the long run. There is one additional reason, moreover, that applies particularly to this suggestion and with which we should like to deal in some detail. The fact is that Government now receives, in our opinion-and in the opinion of many firms in defense work-considerably more than it pays for under research and development contracts. Contracts of this type are not awarded in a vacuum or in some completely sterile atmosphere devoid of preexisting knowledge of the art involved. Typically, the Government contracts for a particular type of research and development work with company A rather than company B because company A has a long history of experience and know-how in the field in question and, customarily, that advanced knowledge has been achieved partly if not wholly at private expense. Moreover, company A employs skilled people and possesses facilities especially suited to the Government's needs; the result of contracting with company A is that the Government accomplishes the work it must have done faster and more cheaply than would otherwise be possible. If the Government now were to adopt the policy of acquiring in every case full patent rights to inventions developed under research and development contracts-and with such inventions representing in most cases a partial product of private investment-it seems to us that the Government would necessarily have to pay more than it now pays to have its research and development work done for it. Private industry would not, we think, be willing to transfer to Government in addition to the immediate product of the research and development contract, all of its background know-how without demanding a substantially increased contract price. In very many cases the contractor would be selling a part of the value of its competitive position and that kind of purchase comes high by any standard of equity and reasonableness. INSTITUTE RECOMMENDATIONS In the light of our review of the three broad questions posed by the subcommittee's original announcement of this hearing and in the light of our discussion of those questions above, the institute makes the following specific recommendations: 1. The Government, in a matter of general policy, should limit itself to the acquisition of royalty-free, nonexclusive licenses to inventions first conceived or reduced to practice during the performance of Government research and development contracts. 2. This policy, which has been adopted by the Department of Defense, should be followed by all Federal agencies. We have one additional comment. It would appear that the subject of government procurement patent policy-and, necessarily, the future of the American patent system-is being considered in piecemeal fashion. Last May the patent policy of the Atomic Energy Commission was considered by the Joint Committee on Atomic Energy. Recently, the patent policy of NASA was the subject of a hearing before a subcommittee of the House Science and Astronautics Committee and now this subcommittee is considering procurement patent policies of all Government agencies from the standpoint of small business. Faced with explosive new technologies, the Government will almost certainly increase its research and development expenditures in the future, especially in those fields where mastery is essential to national security. From this scientific inquiry we may reasonably expect discoveries of commercial value; indeed we may not unreasonably suppose that basic technologies may emerge which in time will shoulder aside conventional technologies of this day. Given these possibilities are we not faced with some fundamental questions of national policy? Are the traditional incentives of the American patent system essential to rapid technological advancement in these new fields? Independent of the question of normal patent incentives should the Government become the economic master of its citizens by acquiring basic patent rights in these new fields of scientific and technical discovery? We think the ultimate issues are nothing less than these and their resolution, we submit, requires a comprehensive and unified study of the entire problem. In concluding our statement on the patent policies of Federal agencies, we should like once again to express our appreciation to the subcommittee for the opportunity of filing this statement of institute views. If we can be of any further assistance to the subcommittee in its consideration of this problem we shall, of course, be pleased to help. Respectfully, CHARLES STEWART, President. APPENDIX X PREPARED STATEMENT OF F. GERALD TOYE, WASHINGTON COUNSEL, GENERAL ELECTRIC CO., WITH ACCOMPANYING EXHIBITS WASHINGTON, D.C., January 11, 1960. Hon. RUSSELL B. LONG, Subcommittee on Monopoly of Select Committee on Small Business, U.S. Senate, Washington, D.C. DEAR SIR: I wish to thank you for the opportunity to place in the record this statement of the General Electric Co. regarding the testimony given before the subcommittee on December 8, 1950, by Mr. Harry Stern,1 president, Action Manufacturing Co. I have reviewed Mr. Stern's testimony with the cognizant operating department of the company and I find such testimony to be widely at variance with the facts as to this company's policy and practices in the repair and maintenance of aircraft instruments. Aircraft instruments are complex precision devices used for air navigation and in flight measurement of aircraft performance. Accuracy and reliability of these instruments is critical to the safety of life and property in the air. They 1 See p. 44 for Mr. Stern's testimony. require periodic inspection, calibration, maintenance, and overhaul to insure proper performance. As a manufacturer of these instruments, we must be able to assure our users of the availability of technically competent maintenance service in convenient locations throughout the country. Our factory production facilities are not designed for repair work and we do not solicit repair work for the factory. Instead, we provide this service both through independent service organizations (currently 27 in number) whom we have found to be qualified and through aircraft service shops maintained by this company at Ontario, Calif., Cincinnati, and Dallas. In the interest of customer convenience, we have endeavored to build up a number of qualified independent organizations, and to assist more firms to acquire and maintain the necessary competence we operate an aircraft instrument school for their personnel. There is no charge for attendance at this school; the attendant pays only for transportation and living expenses. Our current list of independent qualified repair and overhaul facilities for General Electric aircraft instruments is attached as exhibit A. Because of the importance of aircraft instruments to safety of life and property, we do not in general sell special tools and test equipment or replacement parts for General Electric instruments without satisfying ourselves that the purchaser is qualified to use them. However, it is our policy where the Government awards a contract to a facility which has not taken steps to establish its qualified status with our organization to nevertheless supply repair equipment and parts whenever the Government so requests. We do this at our prevailing prices and delivery terms, which are the same as would be available to any servicing facility on the attached list, were it to be awarded the contract. This arrangement was worked out with the Government in March 1959. Since that date, upon Government request, we have quoted and regularly sold aircraft instrument parts to any Government contractor, including Action Manufacturing Co. We have examined all quotations to Action Manufacturing Co. in our files for both replacement parts and test equipment, and in each case we quoted the prevailing prices and delivery dates that were likewise available to both independent and company-owned servicing facilities. In one instance we expedited a delivery date at the Government's urgent request, and this has apparently been misconstrued by Mr. Stern as a discrepancy in quoting the original delivery date. With respect to Mr. Stern's charge of monopoly of the repair and overhaul business, the three aircraft service shops owned by General Electric Co. received approximately $300,000 of aircraft instrument overhaul business for the first 11 months of 1959. While we do not have available the total amount of repair and overhaul business on General Electric aircraft instruments which has been received by all independent servicing facilities, we feel certain that a canvass by the committee would reveal that the great majority of this business is performed by independent organizations. The statement has been made that technical manuals for overhaul are deliberately or inadvertently made incomplete to assure the performance of the overhaul work in our factory. This company takes considerable pride in the clarity, accuracy, and completeness of its service manuals, and we feel that Mr. Stern's testimony on these points is utterly unwarranted. During the life of any Government production contract awarded to this company for aircraft instruments, we are obligated to prepare overhaul manuals and to make any necessary revisions every 90 days in order to keep them up to date. This company meticulously meets these obligations with full realization of the anticipated use of our service manuals by Armed Forces personnel and their authorized representatives. Further, before acceptance and publication, these manuals are inspected by a qualified representative of the Armed Forces. The listing of parts in such manuals by General Electric part number is done strictly in accordance with military specifications which require identification by vendor part number and, where applicable, any Federal stock numbers are likewise set forth. We trust that this subcommittee will find the foregoing completely responsive to Mr. Stern's charges. Sincerely yours, F. GERALD TOYE, EXHIBITS ACCOMPANYING STATEMENT OF GENERAL ELECTRIC CO. G. E. Aircraft Service Shop, Ontario, Calif. Aircraft Engineering & Maintenance, Oakland, Calif. Air Work Corp.. Atlanta Georgia A.I. R. Corp., Oakland, Calif. Air Instro. Inc.. Garden City, N. J. Bohling, Inc., Dayton, Ohio Carruth Labs, Dallas Texas Consolidated Inst., Teterboro, N. J. Garwin, Inc., Wichita, Kansas Durham Aircraft Co. Woodside, N. I Hays Aircraft, Birmingham, Ala. Instrument Associates. Great Neck. L. I. N. Y. Bobling Inc. Dayton, Ohio Consolidated Inst., Teterboro, N. J. Garwin, Inc., Wichita, Kansas Durham Aircraft Co. Woodside, N. I Hays Aircraft, Birmingham, Ala. Ideal Aerosmith, Los Angeles, Calif. Instrument Associates. Great Neck. L. L N. Y Midway Aircraft, Woodridge, N. J. Pan Air Corp., New Orleans, La. Spartan Aircraft. Tulsa, Okla. SMS Inst. Corp. Idlewild, N. Y Standard Products, Inc., Wichita, Kansas Scott Inst. Co. Los Angeles, Calif. Standard Aircraft Equip.. Mineola, L. I., NY AVCO, Nashville, Tenn. Standard Test & Eng. Oklahoma City, Okla. Gopher Aviation, Inc. Rochester. Minn. Aro Equipment Corp. Cleveland, Ohio. APPENDIX XI LETTER FROM FLOYD H. CREWS, CHAIRMAN, COMMITTEE ON PATENTS, ASSOCIATION OF THE BAR OF THE CITY OF NEW YORK, WITH ACCOMPANYING PREPARED STATEMENT OF WILLIAM H. DAVIS Hon. RUSSELL LONG, DARBY & DARBY, New York, N.Y., December 21, 1959. Subcommittee on Monopoly, Committee on Small Business, DEAR SENATOR LONG: I enclose a copy of a statement by Mr. William H. Davis, made before the House Subcommittee on Patents of the House Committee on Science and Astronautics during the week of December 1. Mr. Davis was speaking on behalf of the Committee on Patents of the Association of the Bar of the city of New York, and you will note he quotes a resolution of that committee on page 5 of his statement. 1 See p. 440. |