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Enclosed are six copies of a draft bill

"To establish a uniform Federal policy for
intellectual property arising from Federally-
sponsored research and development; to protect
and encourage utilization of such technology
and to further the public interest of the
United States domestically and abroad; and

for other related purposes," to be cited as the "Federal Intellectual Property Act of 1976," together with a statement of purpose and need and a section-bysection analysis.

We have been advised by the Office of Management and Budget there would be no objection to the submission of our draft bill to the Congress and further that its enactment would be in accord with the President's program. Sincerely,

H. Guyford Stever
Director
Office of Science and

Technology Policy

Elliott L. Richardson
Secretary of Commerce

Enclosures

Draft August 19, 1976.

STATEMENT OF PURPOSE AND NEED

The draft Bill, cosponsored by the Office of Science and Technology Policy and the Department of Commerce, is directed toward establishing for the first time a uniform Federal policy on patentable technology and other intellectual property resulting from Federally-sponsored research and development (R&D). To this end, the Bill sets forth a policy for the (1) allocation of rights to all inventions (contractor and Federal employee) which result from Federal R&D programs, (2) protection of these invention rights through domestic and foreign patenting, and (3) licensing and commercialization of the patented and related technology.

BACKGROUND

Since World War II, the Federal Government has increasingly supported the overall R&D effort of the United States, and, at least initially, the patent policies of the Federal agencies were generally fashioned without any central guidance or overall coordination.

Federal Employee Inventions

In 1950, President Truman, in an attempt to bring about consistency in the allocation of rights to inventions made by Federal employees, issued Executive Order 10096. This Executive Branch directive, generally based upon the common law principles for allocating invention rights to employees not otherwise under contract, covered most but not all Federal employees. The Executive Order recently was challenged successfully in a District Court of Illinois.?

Contractor Inventions

With the increase in size of the Federal Government's R&D effort, the individual Federal agencies reacted differently to the problem of allocating rights to inventions. Some agencies, notably the Department of Defense, acquired a royalty-free license to resulting inventions and permitted the contractor to retain title, or what might otherwise be described as exclusive commercial rights. Other agencies conducting research of interest to the private sector, such as the Department of Health, Education, and Welfare, decided to acquire full right, title and interest to inventions developed under their R&D contracts. Finally, some agencies simply ignored the issue, which, in effect, permitted the contractor to retain all rights to inventions.

As Congress became more concerned with rights to inventions, it enacted differing legislative policies for new R&D programs. In some instances, the Congress provided guidance for the entire R&D effort of an agency, while in others, for only a specified R&D program. Generally, the Congress required the Federal Government to take title to all inventions.

As the issues developed prior to 1963, most arguments, positions, and proposed solutions supported Government-take-all or contractor-take-all. That is, some believed that the Government should always take title to all inventions resulting from R&D contracts (normally referred to as the "title policy"), while others advocated that the Government shoud acquire only a license to use these inventions (normally referred to as the "license policy").

In 1963, President Kennedy issued a Statement on Government Patent Policy, to bring about more uniformity in agency practices. The policy applied to the R&D programs of all Federal agencies except where it conflicted with specific statutory requirements.

The 1963 Policy Statement took the approach of identifying certain types of contracting situations where it would appear that, under an initial presumption, the public interest would best be served by Federal acquisition of title, and other contracting situations where it would appear that such rights would best be retained by the contractor. In addition, recognizing that the policy solution was based upon basic assumptions and a limited amount of factual information, the policy specified exceptions to the general rules and provided public interest safeguards where undesirable results might occur.

An unsuccessful attempt to obtain uniformity through legislative action occurred in 1965. The result of Congressional hearings on the then proposed legislation was a Bill providing for a uniform Federal policy recommending substantially the same criteria set forth in the Kennedy Statement. While the Bill was reported out of Committee, no further Congressional action was taken.

In late 1965, the Federal Council for Science and Technology (FCST) established the Committee on Government Patent Policy for the purpose of assessing how the Kennedy Statement had worked in practice, to acquire and analyze additional information that would contribute to the reaffirmation or modification of the policy, and to identify principles that would underline sound legislation in this area. The prime impetus for creating this interagency Committee was that the Executive Branch was being pressed for its position on a uniform Federal patent policy bill, and the Committee, composed of policy level officials, provided a forum for developing such a position.

To fulfill its originating functions, the Committee supported what is perhaps the most extensive study ever conducted on the Federal patent policy issue. The results of this study, conducted by Harbridge House, Inc., of Boston, Massachusetts, are reported in a four-volume work." The Harbridge House study suggested that no single across-the-board policy is in the best interest of the public; that is, neither the "title" nor the “license" policy is a proper solution.

Based upon its analysis of the results of the Harbridge House study and the operating experience under the Kennedy Statement, the Committee concluded that the criteria specified in the 1963 Statement, with minor revisions, satisfied the policy needs identified by the Harbridge House study. Accordingly, in 1969 the Committee recommended that if legislation was to be proposed, it should follow the basic criteria of the Kennedy Statement. As an alternative, the Committee recommended that modifications be made to the Kennedy Statement directed primarily toward increasing the Federal agencies' flexibility under the policy, and providing direction to the agencies for the licensing of Federally-owned inventions. The Department of Justice did not concur in all the conclusions and recommendations made by the Committee, but it was in agreement with the reissuance of the Presidential Policy Statement. The Department of Justice believed additional studies and operating experience under a new Policy Statement should be obtained before a definite position on legislation should be taken. Accordingly, legislation was not sought at that time. Instead, President Nixon issued a revised Statement on Government Patient Policy incorporating the modifications recommended by the Committee.

LAWSUITS ON REGULATIONS IMPLEMENTING
THE 1971 PRESIDENTIAL STATEMENT

Federal Property Management Regulations (FPMR)

Section 2 of the 1971 Nixon Statement directs the Administrator of General Services to issue regulations for the comprehensive licensing of Federally-owned inventions. In January 1973, the Administrator issued an amendment to the Federal Property Management Regulations concerned with the licensing of Federally-owned inventions.?

The validity of this regulation was challenged in a complaint filed in the U.S. District Court by Public Citizen, Inc., et al. The prime allegation of the complaint was that the exclusive licensing of a Federally-owned patent constituted a disposal of property in violation of Article IV, Section 3, Clause 2 of the Constitution. The District Court found for the Plaintiffs and directed the Administrator to take immediate steps to void the licensing regulations. Accordingly, the Administrator suspended the licensing regulations and directed the agencies to take no action pursuant thereto until further notice.

The Government appealed, 10 and on June 16, 1975 the Court of Appeals adjudged that the appellees were without standing, in consequence of which it reversed the findings of the District Court. On October 1, 1975, the Administrator reinstated the licensing regulations." It is noted that the Court did not address the merits of the allegations made in the lawsuits. Accordingly, the legality of any exclusive license which a Federal agency, not having specific legislative authority, may grant under this regulation remains untested.

Federal Procurement Regulations (FPR)

Following the issuance of the 1971 Statement, regulations providing for standard patent rights clauses for use by all the Federal agencies were drafted and subsequently promulgated by the Administrator of General Services in August 1973.12

The validity of these regulations was also challenged in a complaint filed in the United States District Court for the District of Columbia.13 Plaintiffs alleged that whenever the Government acquired less than title in a Government contract, the Government was, in effect, disposing of property in violation of Article IV, Section 3, Clause 2 of the Constitution. In view of the lawsuit, the Administrator cancelled the regulations.

On July 24, 1974, the Court dismissed the complaint on the grounds that no plaintiffs had alleged sufficient standing to sue. The plaintiffs appealed the dismissal; however, on June 16, 1975, the Court of Appeals affirmed the judgement of the District Court.14

The regulations were reissued in May 1975;15 however, again, the court did not address itself to the merits of the allegations made in the complaint.

COMMISSION ON GOVERNMENT PROCUREMENT

In November 1969, Congress established, by Public Law 91-129, the Commission on Government Procurement to study and recommend methods "to promote the economy, efficiency and effective

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