(h) The Contractor shall, at the earliest practicable date, notify the Contracting Officer in writing of any subcontract containing one or more patent rights clauses; furnish the Contracting Officer a copy of each of such clauses; and notify the Contracting Officer when such subcontract is completed. It is understood that with respect to any subcontract clause granting rights to the Government in Subject Inventions, the Government is a third party beneficiary; and the Contractor hereby assigns to the Government all the rights that the Contractor would have to enforce the subcontractor's obligations for the benefit of the Government with respect to Subject Inventions. If there are no subcontracts containing patent rights clauses, a negative report is required. The Contractor shall not be obligated to enforce the agreements of any subcontractor hereunder relating to the obligations of the subcontractor to the Government in regard to Subject Inventions.

(i) When the Contractor shows that it has been delayed in the performance of this contract by reason of the Contractor's inability to obtain, in accorance with the requirements of (g) above, the prescribed or other authorized suitable patent rights clause from a qualified subcontractor for any item or service required under this contract for which the Contractor itself does not have available facilities or qualified personnel, the Contractor's delivery dates shall be extended for a period of time equal to the duration of such delay. Upon request of the Contractor, the Contracting Officer shall determine to what extent, if any, an additional extension of the delivery dates and increase in contract prices based upon additional costs incurred by such delay are proper under the circumstances; and the contract shall be modified accordingly.

EXHIBIT III (C)

Revised 15 October 1958

ARMED SERVICES PROCUREMENT REGULATION

9-107 Patent Rights. 9-107.1 General.

(a) Under any contract or modification thereof having experimental, developmental, or research work as one of its purposes, the Government should receive a royalty-free, nonexclusive license to practice or have practiced any inventions conceived or first actually reduced to practice in the course of performing such work or in the course of performing any prior experimental, developmental, or research work done upon the understanding in writing that a contract would be awarded. The contract cost or price should in no event be increased merely by reason of the inclusion of a patent rights clause.

(b) Except as expressly provided in this paragraph 9-107, and except with respect to contracts to be performed outside the United States, its Territories, its possessions, or Puerto Rico, patent license rights shall not be requested in the negotiation of contracts (other than contracts where the primary item of procurement is a license under or an assignment of a patent). It is the policy of the Department of Defense, except as otherwise provided in (a) above, to pay a reasonable compensation for the use of a valid patent enforceable against the Government, but the question of infringement, validity and enforceability of the patent shall be determined by personnel having cognizance of patent matters for the Department concerned.

9-107.2 License Rights-Domestic Contracts.

(a) Exclusion of Inventions from the License Grant. Upon request of the contractor, the contracting officer shall carefully consider and may exclude from the grant in the Patent Rights clause any invention which has not been actually reduced to practice, if it is covered by a United States patent issued or application for patent filed by or on behalf of the contractor prior to the award of a contract when he finds one or more of the following circumstances to be established:

(i) the contractor has expended sums in developing the invention (as represented by research and development costs and expenses for preparing and prosecuting the patent application) which are relatively large in comparison to the amount of the proposed contract or such portion of the proposed contract amount as can be allocated in advance for the development of such an invention (in determining the sums expended by the contractor there shall be included ouly amounts which can be allocated to the invention which is to be excluded; such sums shall not include the

entire cost of a research department or program which cannot be allocated as above provided);

(ii) the practicability of such an invention has been established as by engineering design;

(iii) the invention covers a basic material and it is not the purpose of the contract to develop such material; or

(iv) the invention is useful only for military purposes and the conɩractor does not have facilities for furnishing the item to the Government in production quantities.

Any inventions to be excluded from the license grant by reason of the foregoing circumstances shall be specifically identified and listed in the contract Schedule.

(b) Contract Clause. The clause set forth below shall be included in every contract having as one of its purposes experimental, developmental, or research work which is to be performed within the United States, its Territories, its possessions, or Puerto Rico, except as provided in ASPR 9-107.7 with respect to contracts on behalf of the National Aeronautics and Space Administration. See ASPR 16-809 for an approved form for optional use by contractors in reporting information required by paragraphs (c)(ii), (c)(iii), and (h) of the clause. In the administration of paragraph (e) of the clause, a request for conveyance of foreign rights to the Government is not required when the contractor does not file an application for patent in a foreign country under the conditions provided in that paragraph, unless the Government intends to apply for such patent.

PATENT RIGHTS.

(a) As used in this clause, the following terms shall have the meanings set forth below: (i) The term "Subject Invention" means any invention, improvement, or discovery (whether or not patentable) conceived or first actually reduced to practice either—

(A) in the performance of the experimental developmental, or research work called for or required under this contract; or

(B) in the performance of any experimental, developmental, or research work relating to the subject matter of this contract which was done upon an understanding in writing that a contract would be awarded;

provided that the term "Subject Invention" shall not include any invention which is specifically identified and listed in the Schedule for the purpose of excluding it from the license granted by this clause.

(ii) The term "Technical Personnel" means any person employed by or working under contract with the Contractor (other than a subcontractor whose responsibilities with respect to rights accruing to the Government in inventions arising under subcontracts are set forth in (g), (h), and (i) below) who, by reason of the nature of his duties in connection with the performance of this contract, would reasonably be expected to make inventions.

(iii) The terms "subcontract" and "subcontractor" means any subcontract or subcontractor of the Contractor, and any lower-tier subcontract or subcontractor under this contract.

(b) (1) The Contractor agrees to and does hereby grant to the Government an irrevocable, nonexclusive, nontransferable, and royalty free license to practice, and cause to be practiced by or for the United States Government, throughout the world, each Subject Invention in the manufacture, use and disposition according to law, of any article or material, and in the use of any method. No license granted herein shall convey any right to the Government to manufacture, have manufactured, or use any Subject Invention for the purpose of providing services or supplies to the general public in competition with the Contractor or the Contractor's commercial licensees in the licensed fields.

(2) With respect to:

(i) any Subject Invention made by other than Technical Personnel;

(ii) any Subject Invention conceived prior to, but first actually reduced to practice in the course of, any of the experimental, developmental, or research work specified in (a) (i) above; and

(iii) the practice of any Subject Invention in foreign countries;

the obligation of the Contractor to grant a license as provided in (b) (1) above, to convey title as provided in (d) (ii) (B) or (d) (iv) below, and to convey foreign rights as provided in (e) below, shall be limited to the extent of the Contractor's right to grant the same without incurring any obligation to pay royalties or other compensaion to others solely on account of said grant. Nothing contained in this Patient Rights clause shall be deemed to grant any license under any invention other than a Subject Invention.

(c) The Contractor shall furnish to the Contracting Officer the following information and reports concerning Subject Inventions which reasonably appear to be patentable:

(i) a written disclosure promptly after conception or first actual reduction to practice of each such Invention together with a written statement specifying whether or not a United States patent application claiming he Invention has been or will be filed by or on behalf of the Contractor;

(ii) interim reports at least every twelve months, commencing with the date of this contract, each listing all such Inventions conceived or first actually reduced to practice more than three months prior to the date of the report, and not listed on a prior interim report, or certifying that there are no such unrepoted Inventions; and (iii) prior to final settlement of this contract, a final report listing all such Inventions including all those previously listed in interim reports.

(d) In connection with each Subject Invention referred to in (c) (i) above, the Contractor shall do the following:

(i) if the Contractor specifies that a United States patent application claiming such Invention will be filed, the Contractor shall file or cause to be filed such applica

tion in due form and time; however, if the Contractor, after having specified that such an application would be filed, decides not to file or cause to be filed said application, the Contractor shall so notify the Contracting Officer at the earliest practicable date and in any event not later than eight months after first publication, public use or sale.

(ii) if the Contractor specifies that a United States patent application claiming such Invention has not been filed and will not be filed (or having specified that such an application will be filed thereafter notifies the Contracting Officer to the contrary), the Contractor shall:

(A) inform the Contracting Officer in writing at the earliest practicable date of any publication of such Invention made by or known to the Contractor or, where applicable, of any contemplated publication by the Contractor, stating the date and identity of such publication or contemplated publication; and

(B) convey to the Government the Contractor's entire right, title, and interest in such Invention by delivering to the Contracting Officer upon written request such duly executed instruments (prepared by the Government) of assignment and application, and such other papers as are deemed necessary to vest in the Government the Contractor's right, title, and interest aforesaid, and the right, to apply for and prosecute patent applications covering such Invention throughout the world, subject, however, to the rights of the Contractor in foreign applications as provided in (e) below, and subject further to the reservation of a nonexclusive and royalty-free license to the Contractor (and to its existing and future associated and affiliated companies, if any, within the corporate structure of which the Contractor is a part) which license shall be assignable to the successor of that part of the Contractor's business to which such Invention pertains; (iii) the Contractor shall furnish promptly to the Contracting Officer on request an irrevocable power of attorney to inspect and make copies of each United States patent application filed by or on behalf of the Contractor covering any such Invention;

(iv) in the event the Contractor, or those other than the Government deriving rights from the Contractor, elects not to continue prosecution of any such United States patent application filed by or on behalf of the Contractor, the Contractor shall so notify the Contracting Officer not less than sixty days before the expiration of the response period and, upon written request, deliver to the Contracting Officer such duly executed instruments (prepared by the Government) as are deemed necessary to vest in the Government the Contractor's entire right, title, and interest in such Invention and the application, subject to the reservation as specified in (d)(ii) above; and

(v) the Contractor shall deliver to the Contracting Officer duly executed instruments fully confirmatory of any license rights herein agreed to be granted to the Government. (e) The Contractor, or those other than the Government deriving rights from the Contractor, shall, as between the parties hereto, have the exclusive right to file applications on Subject Inventions in each foreign country within:

(i) nine months from the date a corresponding United States application is filed; (ii) six months from the date permission is granted to file foreign applications where such filing had been prohibited for security reasons; or

(iii) such longer period as may be approved by the Contracting Officer. The Contractor shall, upon written request of the Contracting Officer convey to the Government the Contractor's entire right, title, and interest in each Subject Invention in each foreign country in which an application has not been filed within the time above specified, subject to the reservation of a nonexclusive and royalty-free license to the Contractor together with the right of the Contractor to grant sublicenses, which license and right shall be assignable to the successor of that part of the Contractor's business to which the Subject Invention pertains.

(f) If the Contractor fails to deliver to the Contracting Officer the interim reports required by (c)(ii) above, or fails to furnish the written disclosures for all Subject Inventions required by (c)(i) above shown to be due in accordance with any interim report delivered under (c)(ii) or otherwise known to be unreported, there shall be withheld from payment until the Contractor shall have corrected such failures either ten percent (10%) of the amount of this contract, as from time to time amended, or five thousand dollars ($5,000), whichever is less. After payment of eighty percent (80%) of the amount of this contract, as from time to time amended, payment shall be withheld until a reserve of either ten percent (10%) of such amount or five thousand dollars ($5,000), whichever is less, shall have been set aside, such reserve or balance thereof to be retained until the Contractor shall have furnished to the Contracting Officer : (i) the final report required by (c) (iii) above;

(ii) written disclosures for all Subject Inventions required by (c) (i) above which are shown to be due in accordance with interim reports delivered under (c) (ii) above, or in accordance with such final reports, or are otherwise known to be unreported; and

(iii) the information as to any subcontractor required by (h) below. The maximum amount which may be withheld under this paragraph (f) shall not exceed ten percent (10%) of the amount of this contract or five thousand dollars ($5,000), whichever is less, and no amount shall be withheld under this paragraph (f) when the amount specified by this paragraph (f) is being withheld under other provisions of this contract. The withholding of any amount or subsequent payment thereof to the Contractor shall not be construde as a waiver of any rights accruing to the Government under this contract. This paragraph (f) shall not be construed as requiring the Contractor to withhold any amounts from a subcontractor to enforce compliance with the patent provisions of a subcontract.

(g) The Contractor shall exert all reasonable effort in negotiating for the inclusion of a patent rights clause containing all the provisions of this Patent Rights clause except provisions (f) and (i) in any subcontract hereunder of three thousand dollars ($3,000) or more having experimental, developmental, or research work as one of its purposes. the event of refusal by a subcontractor to accept such a patent rights clause, the Contractor shall not proceed with the subcontract without written authorization of the Contracting Officer or unless there has been a waiver of the requirement as hereinafter provided. The

In

Contractor, if unable to comply with the requirement that such a patent rights clause be included in a subcontract after exerting all reasonable effort to do so, may submit to the Contracting Officer a written request for waiver or modification of such requirement. If, within thirty-five (35) days after the receipt of such request, the Contracting Officer does not mail or otherwise furnish the Contractor written denial of such request or modification that the Government requests the Contractor's cooperaion with the Government, which the Contractor agrees to provide, in negotiating with the subcontractor for the acceptance of a suitable patent rights clause, the requirement shall be deemed to have been waived by the Contracting Officer as to all patent rights provisions with respect to Subject Inventions, except such provisions, if any, relating to the production or utilization of special nuclear material or atomic energy. Such request shall specifically state that the Contractor has used all reasonable effort to comply with said requirement and shall cite the waiver provision hereinabove set forth. The Contractor is not required, when negotiating with a subcontractor, to obtain in behalf of the Government any rights in Subject Inventions other than as provided herein. However, the Contractor is not precluded from separately negotiating with a subcontractor for rights in Subject Inventions for the Contractor's own behalf, but any costs so incurred shall not be considered as an allowable charge or cost under this contract. Reports, instruments, and other information required to be furnished by a subcontractor to the Contracting Officer under the provisions of such a patent rights clause in a subcontract hereunder may, upon mutual consent of the Contractor and the subcontractor (or by direction of the Contracting Officer) be furnished to the Contractor for transmission to the Contracting Officer.

(h) The Contractor shall, at the earliest practicable date, notify the Contracting Officer in writing of any subcontract containing one or more patent rights clauses; furnish the Contracting Officer a copy of such clauses; and notify the Contracting Officer when such subcontract is completed. It is understood that with respect to any subcontract clause granting rights to the Government in Subject Inventions, the Government is a third party beneficiary; and the Contractor hereby assigns to the Government all the rights that the Cotractor would have to enforce the subcontractor's obligations for the benefit of the Government with respect to Subject Inventions. If there are on subcontracts containing patent rights clauses, a negative report is required. The Contractor shall not be obligated to enforce the agreements of any subcontractor hereunder relating to the obligations of the subcontractor to the Government in regard to Subject Inventions.

(i) When the Contractor shows that it has been delayed in the performance of this contract by reason of the Contractor's inability to obtain, in accordance with the requirements of (g) above, the prescribed or other authorized suitable patent rights clause from a qualified subcontractor for any item or service required under this contract for which the Contractor itself does not have available facilities or qualified personnel, the Contractor's delivery dates shall be extended for a period of time equal to the duration of such delay. Upon request of the Contractor, the Contracting Officer shall determine to what extent, if any, an additional extension of the delivery dates and increase in contract prices based upon additional costs incurred by such delay are proper under the circumstances; and the contract shall be modified accordingly.

9-107.3 License Rights-Foreign Contracts. A patent rights clause shall be included in every contract having as one of its purposes experimental, developmental, or research work which is to be performed outside the United States, its Territories, its possessions, or Puerto Rico. The clause set forth below may be used except as provided in ASPR 9-107.7 with respect to contracts on behalf of the National Aeronautics and Space Agency; however, any other clause tailored to meet requirements peculiar to foreign procurement may be used in lieu thereof provided it incorporates the principles of the clause below, except that principles of paragraphs (c) and (d) thereof may be omitted if, in the opinion of the contracting officer (on a case-by-case basis), the inclusion of withholding or other enforcement provisions is neither desirable nor necessary.

(Prepared statement of Mr. Reichard follows:)

PREPARED STATEMENT ON BEHALF OF AEROJET-GENERAL CORP., PRESENTED BY EMERSON S. REICHARD, JR., DIRECTOR OF CONTRACTS

Aerojet-General Corp. wishes to express its appreciation for the opportunity to present its views before this committee.

We understand that your committee is primarily interested at this time in determining whether the policy of certain Government agencies, in particular the Department of Defense, with respect to the disposition of patent rights arising out of Government sponsored research and development contracts, should be continued. Such contracts now permit retention of title to inventions arising out of such research by the contractor, subject to the granting of a nonexclusive royalty-free license to the Government. This arrangement effectively prohibits the establishment of any monopoly on such inventions with respect to sales to the United States Government, but permits the retention of a commercial monopoly in the contractor with respect to such inventions.

It has been suggested that the continuance of this policy will eventually result in a concentration of economic power in a few very large firms to the exclusion of small business. We do not believe that this will come about.

This contrary opinion is based on our own experience as a company almost exclusively engaged in defense activities. In pursuance of this, we wish to

present a brief summary of our experience in respect to patent rights and Government contracts since our beginning in 1942 as a small business.

Aerojet-General Corp. has been granted a total of 110 United States patents of which 87 were either made or conceived in the course of Government sponsored research. We have currently pending before the United States Patent Office 307 patent applications of which 250 were either made or conceived in the performance of Government-sponsored research. Our records show that of all the inventions for which Aerojet-General Corp. is entitled to obtain patent protection, including those for which patent applications have not been filed as yet, some 60 percent were either made or conceived in the performance of Government-sponsored research and development. Since this committee is probably most interested in the commercial advantage obtained by us as a Government contractor engaged in research and development activities, we consider it appropriate and important to point out that of our 400 or more pending and issued United States patents only three products are involved of any significance which can properly be described as "commercial." These are our 15KS-1000 commercial JATO unit, our 15NS-250 Junior JATO unit and a pressure sensing device which is the principal product of a small business in Pasadena, Calif. whose principal customer is ultimately the U.S. Government. We feel that our experience in terms of acquiring a commercial patent position is significant and demonstrates the fact that, although a substantial number of inventive contributions have been made by Aerojet-General Corp. in the performance of research and development contracts, it has not resulted in the creation of any substantial commercial monopoly. We might go further and state that in our opinion whether or not we were able to obtain patent protection for our commercial JATO units, (for which no patents have been issued to date), our sales of these items would not have been affected in any respect. This is emphasized by the fact that patents protecting these units have not been granted to date. Nor do we think that the sales of the small business to which we referred above have been affected in the least way by the issuance of a patent for the device which is their principal product. The truth of this assertion is demonstrated by the fact that the company to which we refer was established without patent protection, although it has since acquired the exclusive rights in the commercial field to the device mentioned.

Why then does Aerojet-General Corp. continue to file patent applications when it obtains no commercial advantage? There are a number of reasons for this. One, of course, is the hope that at some future time a commercial market for one or more of the products involved will be developed, which would permit this company to broaden its line of commercial products. Another important reason is the fact that we are faced with the problem of preventing others from rediscovering an invention made by us in the performance of classified work and obtaining a patent which would hinder or impair our activities under United States Government contracts or induce the Government to grant production contracts to the later discoverer by reason of the patent obtained by him. This problem stems from the fact that an organization such as ours is not permitted in the usual course of events to publish articles disclosing simple improvements and discoveries so as to place them within the public domain because of security restrictions governing most of our work. Thus the only certain way open to us for preventing the acquisition of an adverse patent by another and perhaps later discoverer is to file an application before the U.S. Patent Office to obtain a firm record date for the invention, thus establishing our priority. Another reason, often overlooked, is the professional stimulus which results from the maintenance of an aggressive patent policy by a corporation such as Aerojet-General Corp. The professional esteem which is associated with the issuance of a U.S. patent to an inventor as well as the modest financial remuneration given the inventor under Aerojet-General Corp's Patent Award Plan is considered by us to be a substantial stimulus to original and inventive thinking in the performance of our work. We consider this stimulus important in view of the practical impossibility of monitoring the thoughts and work of individuals in an organization as large as ours to be certain that all inventions are promptly reported so that appropriate action can be taken toward obtaining patent protection and also to insure that inventive contributions are brought to the attention of those who are in a position to implement and use them to advace the state of the art.

We think it most important to bring to your attention our experience in subcontracting activities, in particular our subcontracting relationships with small businesses. In 1958 about 55 percent of our total business was derived from

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