curement with the patent holder or his licensees under these circumstances. Recent decisions by the Comptroller General, however, have prohibited awards to low bidders where it could be demonstrated that the Government had used without authorization the proprietary, but unpatented, designs of other concerns. This brings us to the somewhat unique conclusion that the inventor is in a more favorable position vis-a-vis Government procurement if he maintains his design as a "trade secret" than if he patents it. We believe that the present state of affairs completely overlooks the fact that more often than not the inventor seeks a patent on his discovery not so much in the hope of royalties but rather in the hope of enjoying some small preferential position in the manufacture of his brain child. Passage of S. 1809 would provide much needed protection to individual and small business patent holders without at the same time depriving the Government of means of circumventing the unrealistic demands of unreasonable or uncooperative patent holders.

AWARDS

From our association with inventors we feel that the awards provision (section 11) of S. 789 has much merit. Despite a formidable record of past contributions to our society, the individual freelance inventor is slowly vanishing from the scene-quite possibly in many instances due to his inability to live contently in the disciplined surroundings of most businesses.

RECOMMENDATIONS

The foregoing described legislation contains, in at least three of the bills, legislative language which is intended to alleviate most of the problems which we have discussed earlier in the statement.

We feel that the most nearly acceptable language is contained in S. 1809-McClellan bill-and we suggest the following amendatory language to accomplish revisions to implement our prior recommendations or to effect perfecting language:

1. S. 1809: In section 3(b) (5), pages 4 and 5, it is provided that an agency head may require licensing by a contractor who obtains principal or exclusive rights to an invention if he does not exert substantial efforts to bring the invention to the point of practical application. We believe that a minimum period of 3 years should be allowed such an owner to demonstrate his good faith. Accordingly we recommend that the words "for over a period of three years following issuances" be inserted between the words "efforts" and "to" in line 8 of page 5.

2. In section 3(b) (9), page 6, line 15, for purposes of clarity it is recommended that the words "by implication or otherwise" be inserted between the words "construed" and "as."

3. In section 4(a) (2), page 7, line 6, the word (public) "welfare” is used as a criterion. We believe this word is too broad and too indefinite in meaning in the context used here. It is conceivable that any invention developed in R. & D. programs could be related in some sense to public welfare. We believe this word should be defined or deleted.

4. We believe that the approach suggested in S. 789-Saltonstall bill-in section 3 (e) (5), page 7, lines 21-25, whereby small business would be accorded a prima facie entitlement to patents R. & D. inventions developed through its efforts, regardless of the scope of Government interest, has merit. We would incorporate an equivalent provision in S. 1809 by inserting a new section "(d)" after section 4(c), page 9, line 2, reading as follows:

(d) In making a determination under subsection (a), (b), or (c) of this section, the agency head shall acquire no greater rights than the nonexclusive license specified in section 3(b) (2) from any contractor who qualifies as a small business concern within the meaning of section 3 of the Small Business Act, unless he determines that this would not be in the public interest.

5. In section 8(a), last sentence, page 14, lines 23-25, page 15, lines 1 and 2, and section 8(b), page 15, lines 3-11, the assumption is made that the United States as a patent holder may exercise all rights of a private owner of patents. As we have pointed out, this is subject to severe constitutional questions. We believe that most Government patents should be placed in the public domain for free use without licensing, and that in only a few instances, to protect quality or control quantity should the Government have power to grant unrestricted, royalty-free licenses. We recommend deletion of this language and incorporation of appropriate language to reflect the foregoing.

6. In order to provide for an administrative procedure to permit fast and inexpensive adjudication of claims of patent infringement by the United States or contractors infringing patents in connection with Government contracts, and to limit authorized infringement of privately owned patents by the United States only to those situations where such infringement is justified in the interest of national security, we are recommending changes in section 1498 (a) as set forth at length in our statement.

It will be noted that this amendment abolishes the present remedy of a suit in the Court of Claims, a costly and time-consuming procedure which is generally regarded as being most unsatisfactory. There is substituted an administrative procedure-which could very well be vested in boards of contract appeals or similar agencies-with the right of appeal to the Court of Appeals of the District of Columbia or the court of appeals for the judicial circuit in which the appellant resides. 7. We further recommend that the language of section 11 of S. 789 be incorporated in S. 1809 at an appropriate place. This will fill a long-felt need for a system of rewards to compensate persons both in and out of Government who submit inventions or ideas which prove of substantial value to national security or the general welfare.

In conclusion, the National Small Business Association believes there are four areas of basic patent policy which urgently need change or clarification and which should be covered in future legislation reported out by this committee:

1. Clarification of the respective rights of contractors and the Government to commercial rights to patentable inventions made with government R. & D. funds.

2. Strengthening the rights of owners of privately developed patents against government infringement and improving the remedies providing compensation for any such authorized infringement.

3. Providing an awards system for inventors of meritorious inventions or discoveries, whether or not patentable, submitted to the Government, which represent significant contributions to National Security or to the Public Welfare, and

4. Increasing the meaningfulness of issued patents by authorizing more examiners, improving quality of searches, and establishing a separate court to determine validity of patents.

Senator MCCLELLAN. Thank you very much. Are there any questions Senator?

Senator BURDICK. No questions?

(The prepared statement of J. P. Perry follows:)

STATEMENT OF J. P. PERRY, CHAIRMAN OF SMALL BUSINESS PATENT POLICY COMMITTEE OF NATIONAL SMALL BUSINESS ASSOCIATION

Mr. Chairman, my name is J. P. Perry. I am appearing here as chairman of the Small Business Patent Policy Committee sponsored by the National Small Business Association of Washington, D.C. I am also president of Eastern Rotorcraft Corp. of Doylestown, Pa. I also have with me today Mr. Robert Custard who is patent counsel of the American Scientific Corp. of Alexandria, Va. and Mr. Henry J. Cappello, who is a consultant to the National Small Business Association on patent policy and Government procurement, and also secretary-treasurer of the Space Recovery Research Center, Inc. of Boca Raton, Fla.

A. HISTORICAL BACKGROUND AND PHILOSOPHY OF THE PATENT SYSTEM

Our committee represents a group of over 20 creative small businessmen who have a strong economic and philosophic interest in the patent system. We believe that the patent system was designed and has evolved, in theory at least, to benefit primarily the individual inventor and small business. Historically speaking the patent system evolved from English institutions wherein inventors and entrepreneurs of industries founded on new inventions were granted a limited monopoly, in derogation of the common law and the statute of monopolies which proscribed private trade monopolies granted by the Crown in ordinary commodities, such as salt.

Our forefathers in providing for limited monopolies for inventors in our Constitution drew on English law, and an ancient and worldwide institution which was and is still remarkably uniform. The patent system has been and remains a strong bulwark of our American economic and political institutions. We believe it to be one of the strongest economic forces in preserving individual freedom and initiative, and American creative small business. In our view a strong and meaningful patent system accomplishes many purposes.

1. It grants to inventors rights to the fruits of their inventiveness and ingenuity. It restrains the copyist and unimaginative manufacturer from appropriating that which in equity and good conscience do not belong to him. It prohibits pirating of ideas and creative effort.

2. It is a stimulus to creativity. Knowing that his creative efforts will reasonably belong exclusively to him gives the innovator and inventor the prospect of acquiring wealth in proportion to his contribution to society.

3. It is a source of real capital which contributes to the overall welfare of the Nation. Successful inventions are successful primarily because they add to the material wealth and well-being of a significant segment of society.

4. It provides a reward for risk taking in developing and marketing new inventions. Without the protection of the patent system many unproven inventions would be too risky to bring forth the capital necessary for successful commercial exploitation.

5. It is an incentive to disclosure of new ideas and technology thereby advancing the diffusion of knowledge. Without the protection afforded by a strong patent system, many inventors and manufacturers resort to protecting their economically valuable discoveries and innovations as secrets. With increasingly complex inventions and processes only strong and meaningful patents will discourage resort to "trade secrets" protection, because reverse engineering becomes increasingly difficult and costly.

6. It is a deterrent to concentration of wealth in the hands of the few. Raw economic power, in the absence of effective patent protection, can place small creative business and inventors at the mercy of the larger industrial elements of our society. The monopoly afforded by the patent system provides at least a reasonable opportunity to enter the market place with a superior or unique product, become established and prosper. A substantial proportion of creative industries which have achieved success from small origins in the recent past owe their success to a strong patent position which enabled them to overcome the competitive advantages of larger competitors.

7. It is a deterrent to the stratification of our institutions into preplanned and static industrial, economic and social patterns. As variety is the spice of life, so ingenuity and inventiveness gives the spark to economic, and social change. The ability to successfully introduce and market new products under the protection of the patent laws indirectly insures that men of wealth and power who might be satisfied by maintenance of an easy status quo, must remain alert to the threat to their security implicit in new patentable inventions, and so remain innovators themselves.

8. It is an incentive to competition, industrial progress and product improvement. In these days of diversity, many competing products are not identical or even reasonably similar. They fill the same needs, but the variety of substitutes, whether in foods, medicines, means of locomotion, entertainment, military hardware, or whatever, exhibit great deviations. The patented product provides a monopoly only in the most limited sense for most products. Basic inventions which do not allow for substitute devices to fulfill the same requirement are few and far between. Competition between substitutes based on factors other than price with more meaningful choices, usually exists in a market where there are patented articles. In the absence of an effective patent system, the only hope for survival of an industrial enterprise will be to make known things in cheaper ways, of cheaper materials. This will downgrade all products until we have shoddy goods to offer or no goods at all. New products of high quality will no longer be made; it will not be economically feasible to make them. We say that competition is enhanced in today's market by patents rather than restricted as claimed by many foes of the patent system.

9. It is the life blood of many small businesses. Many small companies exist and prosper on the basis of one or more basic patents which are central to their whole operation.

B. FACTORS WHICH ARE OPERATING TO DEGRADE THE PATENT SYSTEM

1. Uncertainty as to the validity or value of issued patents

In commercial practice it is a well-known axiom that a patent has no real validity until it has been litigated in the courts. There is no prima facie value to an issued patent. This situation has progressed to the extent that coordinated branches of the Government will accord no measure of value or validity to a patent which another branch of the Government, the Patent Office, has certified and issued. Greater assurance must be developed that issued patents are valid patents. Possible solutions to such an objective would be (1) to limit the time following issuance of a patent during which the validity of a patent may be contested, and (2) to provide that a patent can be invalidated only by way of a suit which is heard and determined by the Patent Office.

2. Confusion of patent policy and antitrust laws

We of the small business community are continually concerned by the attacks on patents from within and without the Government flowing from the implication that the issuance of patents promotes monopoly practices which contravene the antitrust laws. Mr. Justice Roberts, in his opinion in the celebrated Dubelier case (289 U.S. 177) distinguished a patent from true monopolies when he stated, "Though so often characterized a patent is not, accurately speaking, a monopoly, for it is not created by the executive authority at the expense and to the prejudice of all the community except the grantee of the patent ***. The term 'monopoly' connotes the giving of an exclusive privilege for buying, selling, working, or using a thing which the public freely enjoyed prior to the grant. Thus a monopoly takes something from the people. An inventor deprives the public of nothing which it enjoyed before his discovering, but gives something of value to the community by adding to the sum of human knowledge." So much of the current legislation, particularly restrictive patent riders, seems to be directly or indirectly justfied on the ground that by denying R. & D. patent rights to contractors

we are preventing them from obtaining a dominant position in the industry. This is antitrust law-not patent law. Denying patent rights to all R. & D. contractors, large or small, on this premise, is evidence of the confusion which has been injected into this issue. The principle of limited monopoly for all patent holders, large, small, dominant or dominated, should be clear and uncontroversial. Cutting down patent rights because of unfair trade practices incident to holding patients is unsound and unfair to the vast bulk of patent holders. The remedy for unfair trade practices on the part of patent holders is to prosecute them under the antitrust laws. In appropriate cases the courts may require patent holders to give unlimited licenses, with or without royalty, or in extreme cases to dedicate the patents to the public. No segment of business can be more adversely affected by devaluations of patent rights than small business. To the extent that the protecion of the patent laws is lost or diminshed, creative small business will suffer or disappear. We can only urge this committee and the Congress to examine the motivation and the credibility of anyone who attacks the patent system or grants of patents on the ground that this enhances the position of market dominance for the grantee.

3. Status of patents held by the Government

Up until very recently we had been of the impression that when a patent was acquired by the Government, however acquired, that the patent was in essence dedicated to the public. The most that has ever been required even for a license to use a Government-owned patent, to our knowledge, has been to submit certain reporting information to the Department requiring a license. The military departments which hold the bulk of the Government's patents do not even have a system for issuing licenses, but in the past seemed to assume that the patent held by them were dedicated for free use by the public.

It has come as somewhat of a shock to us to learn that the Department of Justice in a pending case has asserted Government patent rights to background inventions in general use in the electronics industry as a counterclaim to a suit for patent infringement of certain electronics patents by the Government.

We believe this is a reversal of former policy and unsound in principle. As a constitutional question it is doubtful that the Federal Government has any right or power to deal with its patents as an ordinary individual owner does with its patents. The only sound position for the Government, in our view, is to dedicate in essence its patents to the public for unrestricted use, the purpose of patenting by the Government being only to prevent unentitled persons from patenting the same technology due to failure of the real developer to do it. Reasonable reporting or other restrictions should be imposed where licensing is deemed desirable; for example, to control the quality of the product, but no royalties or limited licenses should be permited. To do this would be to place tremendous power and influence in the hands of bureaucrats who might be tempted to use it for their own advantage.

C. LARGE-SCALE GOVERNMENT R. & D. AND ITS EFFECTS ON THE PATENT SYSTEM

The explosion of technology following World War II and increased funding of Research and Development by the Government has led to a great deal of discussion as to what the proper relationship of Government and private industry should be in connection with ownership of patents to inventions derived through cooperative efforts in the field.

Before World War II the bulk of research and development work having commercial or scientific application was conducted with private funds. Recently the vast proportion of the complicated and expensive organized research and development has involved Government funding. Fifteen billion dollars or more is spent in R. & D. each year by the Government, while the amount spent by private industry is probably not more than one-fourth of that amount. Nevertheless, it remains true that a substantial amount of background, know-how and highly skilled and knowledgeable personnel still belong to private industry.

This new explosion of R. & D. has brought with it new types of private "think factories," laboratories, and builders of hardware completely oriented in Government work and without prior experience in commercial enterprise. For these new types of industries-founded with Government money and completely oriented to Government procurement, no one would seriously suggest any entitlement to ownership of patents except in the Government. Other areas of new technology-nuclear energy, space vehicles and equipment, research in agriculture and medicine primarily Government oriented or funded by the Government