INTRODUCTION

Congress in its wisdom has acknowledged a willingess

to spend as much as $20 billion over the next decade for ERDA grants, contracts and other forms of funding for research, development and demonstration projects and ventures pursuant the Federal Nonnuclear of 1974. Energy Research and Development Act/ The mere fact that all of this money is being pumped into the energy field will surely divert the talents of many companies and individuals in other industries and technologies who would be happy to get funding with energy projects to keep them going in the present sluggish economy. Indeed, a recent unpublished survey conducted by the Licensing Executives Society shows that most government contractors do not expect to get any future commercial benefits once their contracts are completed.

But what about the corporations and small businessmen already in the energy field? Will these firms with the energy expertise rush for these ERDA handouts? Will these firms also not expect to exploit the results of their government contracts?

THE QUICKEST WAY TO ENERGY INDEPENDENCE

The end product desired by Congress is readily available low-priced solutions to our energy problems. This end result is attainable only after commercialization of the most promising of many different technological approaches and innovations in the energy field. One of the ways in which this end result can be achieved in the fastest possible manner is motivating the research and develop

ment contractor to invest his private funds in bringing the results of energy R&D for ERDA to the marketplace.

What is the ideal combination of incentives to motivate

the commercial application of ERDA within the energy industry? The
basic motivations for budgeting R&D for ventures in any industry
are well established; the prime incentive being a satisfactory ROI.

If the potential rate of return on investment is high enough, the entrepreneur will take a reasonable gamble with his or his backer's capital. The key to decision-making here is what is a reasonable garble. The risk that ROI objectives may not several be reached is dependent on

fundamental factors, the most important, in the mind

of the venture capitalist, being the degree of competition.

Now we get into the venture capitalists' mentality. Protection against

etition serves as the insurance that the venturer and his capital sources will recoup the investment together with a reasonable profit should the research and development prove fruitful. Without some form of protection, carpetitors would immediately copy the innovation after technical feasibility and initial marketing success has been shown by the entrepreneur. This would put the venturer at a financial disadvantage since the competitors would be able to underprice the innovator, who must charge enough to recoup his substantial pioneering investment in both the laboratory and the marketplace, in addition to his fixed manufacturing cost.

Competition in America is normally minimized or at least controlled by the new product venturer through the use of a number of well known techniques. Nost of these techniques are only available to the giant corporations that have well-financed and

ssive R&D, marketing and distribution capabilities. It is unfortunate that entrepre neurs, small businesses and medium sized companies have less options in dealing with cam

petition because our nation must rely more heavily on them than the giants for our energy 'utions. It is a fact that more than 60% of the major innovations of the twentieth

It therefore be

tury are based on inventions of individuals and small business. comes vital that small business in America be given other forms of protection against namely, patent and trade secret protection, competition/if our country is to have an adequate supply of energy innovators and financial backers willing to gamble on profits from energy technology.

HOW WILL THE PROPOSED POLICIES AND PROCEDURES OF ERDA ON PATENT,
DATA & COPYRIGHTS AFFECT COMMERCIALIZATION OF ENERGY R&D?

The proposed ERDA policy is that the contractor will normally get nonexclusive license, the government will get full title and ownership, and the government will have the right to license third parties on the patent and trade secret rights conceived and reduced to practice under and during the course of a contract as well as background rights necessary for practicing the work product developed during the contract. A contractor has the right to apply for a waiver to obtain a revocable exclusive license; vided, it can persuade the ERDA that numerous conditions involving the public interest and the equities of the government and the contractor are satisfied.

firms

bid

Let's take a look at a hypothetical situation where the ERDA asks bids from to conduct research on the feasibility of bioconversion of waste into methane. If the R&D firm is large enough to have in-house counsel, it may for the contract with a request for an advance waiver in the hope of obtaining an exclusive license on the patent and trade secret rights evolved during the course of the contract. If a company is small and does not have access to expensive legal advice, it

may

bid without a request for the advance waiver, especially in view of all the red tape involved and the possibility that the waiver could be revoked later on anyway. Even in the case of large companies, they may not wish to bid with an application for adprefer not to get bogged down in studies and negotiations and will varce waivers because of the feeling that the ERDA will/select another bidder who has not requested an advance waiver. The waiver statistics of government agencies in the past indicate will be ERDA grants/on a nonbeen almost futile to do so in the past. sive basis,notwithstanding the opportunity to request a waiver because it has/Because

that most small companies and many large ones will assume that

; of size and finanical resources, some of these large companies will go on to commercialize the breakthroughs developed during the government contracts because they do not need to 요. 34.

waivers for

tection; however, the small companies will not be able to risk their or their backer's ital for commercialization of any breakthroughs on a nonexclusive basis.

But does it really matter whether these government contractors commercialize the discoveries they made during performance of their government contracts? The government has obtained title and ownership to these discoveries and can license them to other firms. Unfortunately, other firms do not even have the original expertise that the and they government contractors did/will not have sufficient incentive to commercially introduce the discoveries to the marketplace because of immediate competition from other companies commercial asking the ERDA for a nonexclusive license. This is the reason why/utilization of patents in private industry is five to ten times that of government patents and the reason why 7/8 of government patents are never licensed at all.

If the firm bidding on the bioconversion contract has already conducted its own R&D in this area of technology, it risks having its existing patents and trade secrets 1icensed to its competitors if an irrevocable waiver is not obtained and such rights are quired to practice the work product developed during the contract. For many established companies in the energy field, the revenues received for a government contract are only a fraction of the expected commercial benefits to be derived from background patented discoveries and trade secrets. The venture capital decision is a gamble at best, based upon certain facts from which objective conclusions can be reached, but in the end a subjective judgment. A fundamental factor in the psychology of such a risky decision is first considering the critical variables, those that by themselves can spell failure for the venture. Nonexclusive licensing would be just this type of psychological or irrational, if you will, factor that would make venture capitalists think twice about putting money into applied research and development. The average company or inventor does not care that exclusive licenses are sometimes granted and are not revoked. It does not know that, chances are, its background rights will not be compulsory licensed. It only cares about its own particular cumstances, its innovation, its sweat, its risk and its money.