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for the successful operation of a device which is the subject of the contract. 11

However, in all instances the contractor retains for its own private use and exploitation any resulting patents or inventions.

The patent contracting practice of the Bureau of Engraving and Printing differs from that of the Coast Guard in that the Bureau receives a royalty-free license to manufacture and use any inventions developed when it expends money either for procurement or for research and development. The Coast Guard, on the other hand, in most instances allows the contractor to retain full title and interest in any inventions developed through either procurement 12 or research and development contracts.

The Department of the Treasury has as yet made no grants to nonprofit organizations for research and development under Public Law 934 of the 85th Congress. 3. By the Internal Revenue Service

During the course of attempting collection of delinquent Federal taxes the district directors of Internal Revenue, under appropriate procedures, have occasion to accept assignment of various types of property to secure the future collection of such delinquent accounts. This property may be assigned by the taxpayer, or by a third person, who, at the time of assignment, usually agrees that if the taxes are paid as provided under the terms of the assignment, the property will be returned, or if they are not paid as agreed, the property will be sold and the proceeds used to satisfy the tax liability.

However, there is doubt as to the legal authority of the Government to reassign the patent if the taxes are paid, or to sell the patent if the taxes are not paid. The patent is a creature of Federal statute and, as such, is governed by the provisions of Federal law relating thereto. The assignee of a patent who has completed a timely recordation in the Patent Office acquires all the rights of the patentee. It has been held that even though the assignment of the patent is intended to be a mere mortgage of the patentee's right, the assignee nevertheless takes good legal title of the patent and the assignee's title is paramount to that of the assignor-mortgagor.14 Consequently, when a patent is assigned to a district director as security for the payment of delinquent taxes, it appears that title to such patent passes to the United States. As a result, if the taxes are subsequently paid, it is questionable whether the district director has authority to return the patent to the assignor. The district director is without authority under the internal revenue law to convey any personal property or rights to such property belonging to the United States except as specifically provided in section 7505 of the Internal Revenue Code of 1954; he cannot dispose of the patent under section 7505 because it limits sales to property acquired by levy procedures.

There is also some confusion as to the priority of a tax lien on a patent. Under the present internal revenue law a Federal tax lien arises at the time an assessment for unpaid Federal tax is made by the district director, and the taxpayer neglects or refuses payment after demand.15 This lien attaches to all property or rights to property of

11 Ibid. 12 See app. B, p. 11. 13 Water man v. MacKenzie (1891, 138 U.S. 252, 11 S. Ct. 334; Topliff v. Topliff (1892), 145 U.S. 156, 12 8. Ot. 825, 831. 14 Waterman v. MacKenzie, su pra. 18 Secs. 6321 and 6322 of the Internal Revenue Code of 1954. 26 U.S.C. 6321 and 6322.


the taxpayer and establishes priority as of the assessment date over all subsequent encumbrances or sales of the taxpayer's property, except with respect to mortgagees, pledgees, judgment creditors, and purchasers. The time for asserting priority with respect to these four classes is the time the notice of the Federal tax lien is filed as provided in section 6323 of the Internal Revenue Code of 1954,16

Since a patent is considered to be personal property of the taxpayer, the priority of the tax lien over subsequent purchasers, etc., is determined as of the date notice of tax lien is filed, and such a lien may not

a be defeated by a subsequent assignment of the property. The confusion exists as to patents because the notice of a tax lien is filed in the jurisdiction of the taxpayer's domicile and not in the Patent Office. The patent law provides that all patent assignments must be recorded with the Patent Office. The patent law being specific in this respect, it has become questionable whether the lien provisions of the internal revenue law are adequate to protect the Government's rights, without an appropriate amendment of the patent law to provide for the recordation in the Patent Office and priority of a tax lien against any subsequent assignment or sale of the patent.



The records of the Department of the Treasury do not indicate that any occasion has arisen which would require the Department to make applications for patents in foreign countries. In all instances the Department allows the employee to retain foreign patent filing rights.



1. Employees

The Department of the Treasury has no information regarding the use of an invention held by an employee-patentee. 2. Contractors and grantees

The Coast Guard has never obtained any patent licenses which would enable the Government to manufacture or use the inventions as a result of any of its research and development contracts.

The Department has no information regarding the use of any inventions made or held by contractors derived as a result of a contract made by the Department or its agencies. 3. Government

(a) Directly. The patents owned by the Department of the Treasury are available for royalty-free, nonexclusive licenses. However, the records of the Department indicate very little exploitation of them. The Treasury Department granted revocable, nonexclusive, and nontransferable licenses to manufacture and sell life lin projectiles covered by Patent No. 2,069,276 (granted February 2, 1937, by the Patent Office and assigned to the Department) to (1) R. F. Sedgley, Inc., Philadelphia, Pa. (now out of business) in 1939 and (2) Naval Co., Doylestown, Pa., in 1947. This patent has now expired.

16 26 U.S.O. 6323.

In addition, two patents (No. 2,377,865, June 12, 1945, and No. 2,453,700, November 16, 1948) covering improvements in life preservers for merchant vessels are available for the use of manufacturers of life preservers through award by competitive bidding. Patent No. 2 377,865 was assigned to the United States by the inventor. Patent No. 2,453,700 was issued to the individual inventor upon the successful prosecution of the application by the United States under which the United States obtained an irrevocable, nonexclusive license to manufacture and use the invention. Believing that these patents have made improvements widely available for the better safety of life at sea the Treasury has precluded possible patenting of these improvements by private parties who might restrict their use.

(6) Indirectly.The Department of the Treasury does not pay royalties or other compensation for the use of patents owned by others and it does not own any patents which are the basis for the payment of royalties to it.




The experience of the Treasury Department has been so limited that it feels it has insufficient information on which to base an opinion as to whether the ownership of patents has proven positively useful to the Government or in the public interest. Except for the Internal Revenue Service, which has been concerned with the aforementioned patent problems arising out of acts to collect Federal internal revenue taxes, the Department feels that there is presently no need or justification for a more flexible patent policy in the Department than now exists.

B. RECOMMENDATIONS AS TO FUTURE POLICY The Department of the Treasury believes its records do not reflect any specific instances in which a different policy might have proven useful to the Government or in the public interest except in the instance of the patent problems of the Internal Revenue Service explained in this report.

In view of the limited interest of the Department of the Treasury

the field of patents, the Department has stated that it does not wish to make any recommendations except in regard to those problems which arise out of the acquisition of patent rights in the collecting of taxes.

The Department believes it would be desirable for the patent laws to be amended to provide specifically that a patent may be assigned as collateral for the future payment of Federal taxes without depriving the assignor of the legal title. Such an amendment would allow the district director of the Internal Revenue Service, if the taxes were satisfied, to reconvey the mortgaged or assigned patent, or, if the taxes are not satisfied, to sell the patent or to utilize the usual lien foreclosure procedures provided by local or Federal law.

The Department believes it would also be desirable to amend the patent laws further to provide for the filing of tax lien notices involv

1 Letters dated Jan. 13, 1959, and Sept. 29, 1959, to Hon. Joseph C. O'Mahoney, chairman, Subcommittee on Patents, Trademarks, and Copyrights, Committee on the Judiciary, U.S. Senate, and to Robert L. Wright, chief counsel of the subcommittee, from Mr. Nelson P. Rose, General Counsel of the Department of the Treasury.

ing patents and the recordation of assignments made to secure Federal taxes. Such recordation would establish a definite time for determining priority against any subsequent assignment or sale of such patent rights.

It is felt by the Department that these amendments would not be burdensome, since such notices of tax lien and assignments would be filed in the Patent Office only when the Internal Revenue Service has reason to believe that the action is necessary to protect the interests of the Government.

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