accomplished; and accordingly the contractors is discouraged from introducing the improved solution. Under the conditions of a company-sponsored program the old solution would be quickly abandoned in favor of the new design with corresponding savings in time and energy.

In our field of endeavor, and from our observation we feel it likely to be the case in other fields, a new patented item merely represents a new and superior way of doing an old job; or a way of doing a new job which heretofore could not be accomplished with existing equipment. We do not, in all honesty, believe that other solutions do not exist to those jobs which are accomplished by our patented equipment. Indeed, we know of no instance in which if someone else had a patent on one of our devices, we could not design an equally effective piece of hardware without infringing on his patents. In furtherance of this reasoning, we believe it unfair and unrealistic to necessarily hold the position that a patent automatically creates a monopoly of any significant consequence.

It has been our experience and observation that patents held by large business have in no way adversely affected the progress and operation of this concern; and we are inclined to believe that commanding patent positions on the part of large business do not necessarily as such have an adverse effect on small business. We do, however, feel strongly that patents can and should provide a degree of protection and encouragement necessary for the growth of creative small business. Our society traditionally has looked to this segment of small business for leadership in the development of many of its new products and industries. Competition to creative small business comes not from large business but from other small businesses who have neither the ability nor the desire to introduce new and necessary improvements.

Under the circumstances presently existing, the developer concerns are at the mercy of all other concerns in connection with Department of Defense procurement. This is especially true if the developer concerns have relatively large and aggressive product development programs since they cannot possibly hope to match the production costs of those companies not having a similar development cost burden. As your committee no doubt knows, in the event of infringement in connection with a Department of Defense procurement, the patent holder's only legal recourse under statute (title 28 U.S.C., sec. 1498) is against the Government in the Court of Claims. This situation, therefore, prevents a leveling of any cease and desist action against the infringer; and results accordingly in forcing the patent holder into the normally unrewarding program of litigation against the Government. In the case especially of the smaller concerns such litigation requires time and energies which might better be spent on its continuing creative programs.

The circumstances noted above are not hypothetical since several of the products designed and patented by this concern with its own funds are presently being manufactured by others in such exact form as to appear to have been made by the patent holder. Efforts to obtain relief from these damages have not to date been successful. The attitude on the part of the infringer has often been one of blatant disregard of the patent holder's position since he well nows that the patent holder's only legal recourse is against the Government.

In summary, therefore, this organization does not believe that the monopoly supposedly created by the placement of extensive research and development contracts with large business is as great as has been visualized, nor does it have an aggregate adverse effect on small business as has been indicated by the Attorney General. Further, in this regard, it is believed that the creative portion of small business has been and continues to be adversely effected by Federal patent policy, particularly as such policy applies in the field of Government procurement. It is believed that if favorable circumstances were created by the Government that small business would develop with its own funds a virtual flood of new and improved materiel, beneficial not only to our military effort but also to our society as a whole; and this unquestionably desirable segment of small business asks for no special privileges-only fair treatment and encouragement.

APPENDIX VIII

PREPARED STATEMENT OF ROBERT A. BICKS, ACTING ASSISTANT ATTORNEY GENERAL, ANTITRUST DIVISION, DEPARTMENT OF JUSTICE

Hon. RUSSELL B. LONG,

Chairman, Subcommittee on Monopoly,

Senate Small Business Committee,

U.S. Senate, Washington, D.C.

DECEMBER 7, 1959.

MY DEAR SENATOR LONG: I am happy to transmit in accordance with your request of November 18, 1959, the views of the Department on Government policy as to rights in patents resulting from Government research and development contracts.

First, a necessary preliminary is definition of antitrust concern with the problem. Second, the development of the problems of Government research policy is briefly sketched. Third, some general observations are presented.

I

Industrial research, and the patents which flow from it may affect competition. The patent system, with emphasis on commercialization of the new commodity, the new technology or the new source of supply, seeks constantly to renew competition to established products and producers. Concomitantly, active competition in industry provides the best climate for industrial research, as companies strive against each other to bring new products from the laboratory to the production line. And so long as a company exploits its patents consistent with the terms of the patent grant, without abuse for anticompetitive purpose, antitrust and patent policy do not cross.

Patent abuse or misuse as part of an anticompetitive arrangement, however, will invoke antitrust. Particularly prejudicial to competition is domination of related fields of research by a few large companies, for the conscious engrossment of all vital patents covering an industry field by one or a few companies may stifle competition.

In the 18 years since the first modern antitrust judgment containing patent relief was entered in 1941,1 almost 1 of every 3 judgments have included provisions requiring compulsory licensing or dedication of patents. Included are not only cases of simple patent abuse involving one or two patents, but those where aggregations of patents dominate an entire industry.

Antitrust enforcement tools, carefully used, can remedy anticompetitive patent abuse, as other antitrust violations. For example, since the Eastman Kodak judgment, giving access to color film processing patents, more than 50 companies now compete for the color processing previously done by one. Manufacture of concrete blockmaking machinery, controlled by Besser Manufacturing Co. before 1949, is now shared by more than a dozen companies after an antitrust decree 3 opened up Besser's patents. The glass fiber products industry, the domain of Owens-Corning Fiberglas Corp. before an antitrust judgment compelled licensing under some 260 patents, has now some 72 licensees in the business. And the amassment of patents, inventions, and know-how on electronic and mechanical data processing equipment by IBM, alleged in the 1952 antitrust complaint,* required compulsory license provisions in the 1956 decree; and the resulting competition by many licensees has aided the rapid growth of this modern industry. In line with this objective and consistent with antitrust goals, Government's influence in advanced research should be shaped to promote free enterprise competition.

II

Industrial research as an organized activity is relatively recent to American industry. General Electric first instituted industrial research as a regular and independent activity in 1900. Government's role in industrial research is even more recent, assuming significant proportions just before World War II.

1 United States v. Kearney and Trecker, Civil 3337 (N.D. Ill. CCH Trade Cases 19401943), p. 571. 2 United States v. Eastman Kodak Co., Civil 6450 (W.D.N.Y.).

3 United States v. Besser Manufacturing Co., 96 F. Supp. 304 (E.D. Mich. 1951); affd. 343 U.S. 444 (1952).

United States v. International Business Machines Corporation, Civil 72–344 (S.D.N.Y.).

By about 1938, the annual cost of our country's industrial research was approximately $300 million. By 1941, it had doubled, and since World War II has had a mushroom growth. In 1956, total expenditures for industrial research and development reached the considerable sum of $6.1 billion, reported as increasing to $8.2 billion in 1958.

Future growth, too, promises to be rapid. According to a recent survey, industry was increasing its research and development expenditures for 1959 to over $9 billion, which represents an increase of 50 percent since 1956, and projects spending at the rate of $10.6 billion by 1962. Strikingly, it expected that at least 10 percent of the 1960 sales volume, for manufacturing as a whole, would be in new products not made in 1956.

Today, with industrial research a deliberate instrument of economic development, industries compete constantly to create new wants, new products to satisfy them, and thus new markets apear. Competition in fact begins in the laboratory. This kind of competition, called "the new competition" or "the quiet competition of the laboratory," is an effective part of business survival in a competitive world. As one business executive said, his company's experience showed that "every dollar spent to develop new products and improve technology earns approximately $5 in return." 6

Government's part in industrial research has become major. Although, according to a recent estimate of the National Science Foundation, 72 percent of scientific research is actually performed by industry, Government pays more than half of its cost. A share of industry's work for Government, too, depends upon information as to technical matters in Government's hands, much of which security requires to be classified against access by industry generally. Thus, the policies of Government in distributing research work and the patents which flow from it are especially significant.

Advantages accruing to any company performing Government research are numerous. First, it gets a fee for the job. Beyond that, it gains know-how in new products developments, or in the use of new raw materials and processes to manufacture existing products. It may also gain knowledge in new uses of existing products of competitive significance.

The company performing research may further benefit from resulting patents, by obtaining a legal monopoly over the subject of its invention the power to exclude others from the field. Moreover, companies able to have important technical research programs financed for them can attract scientists and engineers, providing a staff for the future. During nationwide shortage of the scientifically trained, this is a substantial advantage. Finally, Government work may give access to vital restricted data, not available generally for sound security reasons.

Relevant Government agency patent policies vary widely. The agencies of Department of Defense, with wide discretionary authority, normally take only a royalty-free nonexclusive license under patents resulting from research it finances. Atomic Energy Commission, and the new National Aeronautics and Space Administration, on the other hand, are governed by statutes requiring in the main that inventions made in the course of their research shall be the property of the United States. The National Aeronautics and Space Act, moreover, requires effective contract provisions for reporting technical information discovered in the course of their performance. The NASA legislation also grants the Administrator broad powers for protecting title to patents, for establishing conditions on which licenses may be issued, and for waiving the rights of the United States upon a determination that the interests of the United States will be served thereby. Other agencies follow variations on these basic policies.

Since World War II, agency patent policy has been the subject of two studies by the Department. In 1947, the then Attorney General urged full Government ownership of all patents resulting from Government contracts. In summary, that report urged this policy, with few exceptions, as being in the public interest to assure free availability of the technology to all American industry, not just

5 McGraw-Hill Publishing Co., 12th Annual Survey on Business' Plans for New Plants and Equipment (1959), p. 13.

M. W. Boyer, director, Standard Oil Co. of New Jersey, quoted in Oil and Gas Journal, Nov. 16, 1959, p. 131.

Atomic Energy Act of 1946, as amended, 68 Stat. 944 (1954), 42 U.S.C. § 2182 (1958); National Aeronautics and Space Act of 1958, $ 305, 72 Stat. 435 (1958).

81 Atty. Gen. Rep. 87-88 (Investigation of Government Patent Practices and Policies) (1947).

the immediate contractor; to avoid undue concentration of patents in the hands of a few large corporations; and to prevent possible suppression of inventions paid for by the public.

In November 1956, a report of the Attorney General under the Defense Production Act considered this recommendation and the opposing views of the National Patents Planning Commission." That Commission, with the War and Navy Departments and the Office of Scientific Research and Development, opposed Government ownership. They feared that such a policy would increase the difficulty and expense of obtaining contractors able and qualified to undertake urgent defense research and development projects. Many Government contractors, it was asserted, felt that Government payment did not cover the whole outlay of the ordinary research and development contract, meeting only immediate material and labor costs and some overhead, plus a small profit, leaving the contractor to furnish his previous investment of time, money, and personnel in the particular field of research

The 1956 report attempted factual analysis of the problem as the prerequisite of fair solution. As it noted, however, the complexity and volume of the Government's research needs and the urgency of much defense-related research, made analysis extremely difficult. It noted lack of data adequate to indicate the full scope of the problem, particularly with respect to industry's reaction to the differing policies of the important research agencies. It concluded that further careful study of the economic and defense questions presented by the agencies directly responsible, was warranted to elicit, if possible, the needed data.

Following that recommendation, the agencies concerned formed a study group under the Interagency Task Force for Review of Governmental Procurement Policies and Procedures to make a comprehensive review of Government patent policies and problems. The study group, by industry interview and questionnaire, has explored many facets of the problem. However, none of the approaches used resolved the basic complexities of the matter, or seemed to afford the means of achieving adequate factual basis for solution. At this juncture, it recommended a pilot study by George Washington University to recommend basic techniques for its solution. Pending completion of that pilot study and evaluation of results, the study group has not concluded its review or submitted findings or recommendations.

III

Legislative action, we urge, should await completion of this study. For relevant factors are complex. And resolution of conflicting considerations might well be aided by the judgments and experience of the study now underway. For example, the unusual complexities involved in the letting of research contracts may argue strongly against a detailed and precise legislative solution to the problem. Maintenance of a competitive economy is a most important objective. But so is defense; and the latter may have overriding necessities in particular situations. Such conflicts, then, must be handled carefully, with discretionary executive authority ample for flexible action.

However, Government research contracts with a company most frequently fall into the field of that company's previous work. A fair policy should allow account to be taken of previous investment of capital and time by the research contractor. A contractor close to reduction to practice of an invention at the time of initial Government interest and financial assistance seems quite differently situated than one undertaking an entirely new line of research at Government insistence.

Finally, satisfactory solution of the problem must recognize the need for fairness to the Government research contractor's competitors and the consuming public. Even with exceptions for stringent necessity, basic policy should recognize the requirements of future competition. Unavoidably, the use of a particular contractor for Government work will give him a future advantage in know-how. Whether, as a matter of course, he should also be given the right to exclude others from that technology, absent special necessities, seems more dubious. If research contracts and patent right grants could be equally distributed across the whole spectrum of competitors, no antitrust problem would be presented. Indeed, the resulting spur to commercialization of new developments might well be an aid to vigorous competition.

Report of the Attorney General under the Defense Production Act, Nov. 9, 1956, pp. 48-53.

Indications are, however, that Government research does tend to lodge in the hands of a relative few companies with immediate research capabilities and large resources. Defense requirements cannot always be held in abeyance pending a contractor's assembling the necessary facilities, even if he demonstrates satisfactorily his ability to do so. And, in a recent year, the totals reported by Defense to the Congress for certain contracts 10 for experimental, developmental or research work correspondingly show a heavy proportion of such contracts over two-thirds currently held by some 25 companies. While this, of course, would include substantially all of the industries manufacturing military aircraft and missiles," it also includes major members of other industries. This fact cannot be ignored in appraising alternative solutions to the problem of patents growing out of Government financed research. Sincerely yours,

ROBERT A. BICKS, Acting Assistant Attorney General, Antitrust Division.

APPENDIX IX

PREPARED STATEMENT OF CHARLES W. STEWART, PRESIDENT, MACHINERY AND ALLIED PRODUCTS INSTITUTE, WASHINGTON, D.C.

HON. RUSSELL LONG,

DECEMBER 29, 1959.

Chairman, Subcommittee on Monopoly, Select Committee on Small Business, U.S. Senate, Washington, D.C.

DEAR MR. CHAIRMAN: We appreciate very much the opportunity to present the views of the Machinery and Allied Products Institute and its affiliate organization, the Council for Technological Advancement, in connection with current subcommittee hearings on the patent policies of Federal departments and agencies.

As you may know, MAPI and CTA represent capital goods and allied product industries of the United States. Although the companies which constitute these industries are engaged for the most part in commercial-as contrasted to defense or other governmental-production, their existence and their progress are so thoroughly dependent upon the protection of patent rights and related proprietary technical information that they have a deep and continuing interest in the matters now under review by your subcommittee. To put it differently, capital goods and allied product industries might properly be called engineering industries, and the continuing excellence of their products is in large measure attributable to the opportunities offered and the security of investment guaranteed by the American patent system.

Your statement of December 8, 1959, identifies three questions to which the subcommittee is giving major attention currently. In order that our statement may be responsive to the purpose of the inquiry and because we think each of the questions posed deserves the attention now being given it, we repeat those questions in paraphrase:

1. Has the granting of patent rights to individual firms for discoveries which result from or are related to Government research and development contracts tended toward increasing economic concentration?

2. Is newly acquired technological information developed at Government expense and not of a classified nature diffused promptly and fully throughout our society?

3. Is the U.S. Government getting all it pays for from its research and development dollar? This issue includes two related questions, namely: Is the Government giving away more than it should in the granting of its research and development contracts, and is it possible to recover part, or perhaps all, of the Government's expenditures on research and development?

We agree, of course, with your conclusion that the magnitude of Federal moneys spent in this field makes it appropriate that the Congress should examine these questions most carefully. Before considering these questions directly, we

10 Those negotiated under the authority of sec. 2304 (a) (11) of the Armed Services Procurement Act. 10 U.S.C. 2301 (a) (11). 11 Report of the Attorney General under the Defense Production Act, No. 9, 1959, pp. 63-74.