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Before examining in detail these factors and our conclusions as to the proper policy that should be followed, it is necessary to explore briefly the nature of patent rights and certain fundamental facts of the invention process.
THE NATURE OF PATENT RIGHTS
The Government invests some $15 billion per year in research and development programs. A great deal of this is carried on under contracts or grants. During the course of such programs, some 9,000 inventions per year are made by contractors or grantees.?
This activity has necessitated the development of policies respecting the disposition of rights in such inventions. Should the Government take all rights to an invention arising under its contract? Or should the contractor/ inventor be allowed to retain the commercial rights in the invention, subject to a license in the Government for free use of the invention for Governmental purposes? These are the two generally recognized extremes. In between, a multitude of combinations could be devised. The policy ultimately chosen can have a number of important effects. One is on the probability that the particular invention will be developed to the point of commercial utilization. Another is on the willingness of some organizations to enter into Government contracts, thus affecting the quality or cost of the
Article I, Section 8 of the Constitution empowers Congress “to promote the progress of ... the useful arts, by securing for limited times to ... inventors the exclusive right to their ... discoveries." The present patent system has developed in accordance with this authority.
Congress has provided that the "grant” of a patent shall provide that “for the term of seventeen years” the patentee shall have the "right to exclude others from making, using, or selling the invention throughout the United States." 3
Applications for patents must normally be made by the "inventor" of the invention to be patented, and patents are normally issued to the "inventor.” 4 The inventor or patentee can, however, contract away part or all of his rights to others. A myriad of combinations a 35 U.S.C. & 154 (1970). * See generally, 35 U.S.C. $$ 111-22 (1970).
? U.S. Federal Council for Science and Technology, Annual Report on Government Patent Policy, at 43 (1969-70).
? Ibid. at 44.
of rights can be sold, licensed, or otherwise disposed of by a patentee. For example, he might issue exclusive or nonexclusive licenses, free or for a royalty, or licenses limited to the use of the invention but not permitting its manufacture or sale. This flexibility of a patentee to dispose of his rights is important in any study of Government patent policy, since it involves the disposition of the patent rights of the inventor (normally, under Government contracts, an employee of a contractor who has agreed to assign his rights to inventions to his employer).
THE NATURE OF THE INVENTIVE PROCESS
Not every invention or discovery made can be patented. In accordance with 35 U.S.C. § 101 the invention must be "new and useful.” However, it should be emphasized that though an invention is patentable, it may still be far from having been developed to the point where it can be moved into the stream of commerce. Considerable expense and investment are normally necessary to move an invention beyond its patentable stage to a point where it is commercially viable and, hence, available to all. A great deal of engineering effort may be necessary before an item can be produced commercially. And a marketing apparatus and effort will be necessary to make the product's availability known. In some cases the costs of making the invention may be only a small proportion of the total cost of developing the invention into a product useful to the general public. It has been estimated that the cost of bringing the typical invention to the marketplace is ten times the cost of making the invention.5
Underlying the patent system are three fundamental assumptions. First, it is believed that the patent system promotes the making of inventions. Second, it is believed that the system provides the necessary incentives to develop inventions commercially once they are made. Finally, it is believed that the public
disclosure required by the patent law promotes scientific and technological knowledge.
of these three assumed benefits, only one would appear to be significantly affected by Government patent policy—the commercial development of inventions. Public disclosure of inventions made under Government contracts can take place under the contract terms no matter what policy is chosen. The effect on the incentive to invent would also appear minor since the Government, in paying for research and development work, has supplied much of the incentive for invention. In addition, there are many motivations other than the patent system which lead to invention.
On the other hand, Government patent policy can directly affect the degree to which the patent system promotes the development of inventions, once made, to the point of commercial utilization. The exclusivity of the patent system plays an important role in spurring the development of inventions, although there are undoubtedly cases where a particular invention might be commercialized just as quickly without any exclusivity. Effective patent policy must take advantage of the fact that development will normally be promoted by exclusivity; at the same time, it must provide for others to exploit an invention if exclusivity does not produce the desired result of utilization on reasonable terms. We believe that without exclusivity many Governmentsponsored inventions would lie dormant, thus benefiting no one. Entrepreneurs would be unwilling to invest in the development of an invention if others could take advantage of their efforts by producing the same product without the initial expenses involved in the creation of markets or developing and demonstrating that the item can be produced economically.
A major point to be kept in mind while weighing alternative Government patent policies is that the patent will be of little benefit to the public if the Government takes the commercial rights but fails to take such additional steps as would be likely to promote the further development of the invention to a com
* U.S. Dept. of Commerce, Technological Innovation: Environment and Management, at 8–9. See also the Patent Management Subcommittee Report on practice of granting limited exclusive licenses in U.S. Federal Council for Science and Technology, supra note 1 at 111.
& For documentation as to the benefits of generally allowing exclusivity to promote utilization, see IV Government Patent Policy Study made by Harbridge House, Inc., for the U.S. Federal Council for Science and Technology, Committee on Government Patent Policy (hereinafter Harbridge House).
mercially usable state. If the Government does not plan either to finance continued develop ment of an item itself or to grant exclusivity of some degree to others, then, in many cases, the possibility for further exploitation of the invention will be significantly reduced.
The Present Policy and Its Evolution
POLICY PRIOR TO THE PRESIDENTIAL POLICY STATEMENT OF 1963
It was not until World War II that inventions developed under contracts became a matter of specific congressional concern. Until that time (and even up to the present in the case of most agencies), this was a matter left to administrative control. After World War II Congress began to take an interest in this area. This interest is reflected in a number of statutes establishing policies for specific agencies or specific programs within agencies. Congress has not yet, however, established a unified policy in this area. Rather, legislation has been piecemeal and lacks consistency.
One of the earliest instances in which Congress set a patent policy was in the establishment of the National Science Foundation in 1950. At that time, Congress went no further than to provide that each contract of the Foundation should "contain provisions governing the disposition of inventions produced thereunder in a manner calculated to protect the public interest and the equities of the individual or organization with which the contract or other arrangement is executed." ; The first detailed statement of patent policy came as part of the Atomic Energy Act of 1954.5 This act provides that title to inventions in the field of atomic energy made under AEC contracts vests in the Government.9 However, the Commission is given the authority to waive these rights in appropriate circumstances. Since the technology and developments in the field of atomic energy had been largely financed by the Government from the outset, Congress felt that the grant1 42 U.S.C. & 1871 (a) (1970). * 42 U.S.C. & 2011 (1970). 9 42 U.S.C. $ 2182 (1970).
ing of rights to contractors was not necessary to ensure exploitation and development of the inventions. A similar statutory scheme, applicable to all fields of technology, was included in the legislation creating NASA in 1958.10
One factor underlying much patent policy legislation is the idea that allowing contractors to retain patent rights in inventions developed under Government contracts is a "give-away.” This concept explains the language included in a number of acts related to specific research and development programs that have been construed by some agencies as requiring the taking of title in patents by the Government. As an example of the language commonly employed, the Arms Control and Disarmament Act provides:
All research within the United States contracted for, sponsored, cosponsored, or authorized under authority of this Act, shall be provided for in such manner that all information as to uses, products, processes, patents, and other developments resulting from such research developed by Government expenditure will (with such exceptions and limitations, if any, as the Director may find to be necessary in the public interest) be available to the general public. This subsection shall not be so construed as to deprive the owner of any background patent relating thereto of such rights as he may have thereunder. 11
While, as some would argue, the Government may be "giving something away" if it does not exercise its bargaining power to take full title in inventions made under its contracts, the acquisition of full rights by the Government will do the taxpaying public little good without a program of further development. In very few instances does the Government actually provide the additional investment necessary to move inventions into public use.12 Likewise, there has been little effort to promote the exploitation of Government-held patents by the issuance of exclusive licenses or other means designed to take advantage of the main reason for granting these patents in the first place. There have been some recent moves in that direction, discussed more fully below. Such movement may be hampered by a lack of clear-cut statutory authority for each agency to grant exclusive licenses.13
10 National Aeronautics and Space Act of 1958, 42 U.S.C. $ 1257 (1970).
11 22 U.S.C. $ 2572 (1970). Other similar provisions include 7 U.S.C. 8$ 427 (i), 1624 (a) (1970) ; 15 U.S.C. $ 1395 (c) (1970) ; 30 U.S.C. $8 216(a) (2), 666 (1970) ; 40 U.S.C. app. $ 302(e) (1970) ; 42 U.S.C. 88 1954 (b), 1961 (c) (3), 3253(c) (1970); 50 U.S.C. $ 167 (b) (1970).
12 Commonly cited examples of such efforts include TVA work in the fertilizer field and the Department of Agriculture's marketing studies with respect to potato flakes and frozen orange juice, but such efforts are a rarity. See Harbridge House, su pra note 6, at IV-123-124.
Legislation with regard to the allocation of patent rights is far from complete. For instance, no legislation controlling Department of Defense policy in this area has ever been enacted. As a result, DOD and other agencies without statutory coverage developed their patent policies independent of legislative constraints. But administrative approaches prior to 1963 proved as varied as the legislative. DOD followed the so-called "license" approach, obtaining only a nonexclusive license for governmental purposes in patentable inventions developed under its contracts. The contractor was allowed to retain exclusive commercial rights. Other Government agencies not subject to statutory provisions, such as the Federal Aviation Administration and the Public Health Service, took full rights in patentable inventions.14
While the Presidential statement did not affect statutory requirements, it was worded to accommodate such legislation as there was. The Presidential statement struck a balance between the “license" and "title" approaches. The statement rejected the concept of a single presumption of ownership, wherein the Gorernment or the contractor acquires title in all the inventions resulting from contract performance. Instead, criteria were provided by which all departments and agencies (not otherwise governed by statute) should allocate patent rights between themselves and contractors.
Under the Kennedy formula, initial determination of patent rights is usually made at the time of contracting. Normally, the Government takes exclusive patent rights if the principal purpose of the contract (1) is to develop products for use by the general public, or (2) is directly related to public health or welfare, or (3) is for work in a field of technology basically developed by the Government and exclusive rights might lead to contractor dominance of the field, or (4) is for the operation of a Government-owned facility. In other cases, the contractor may retain exclusive patent rights at the time of contracting if the subject matter of the contract is directly related to an area where the contractor has an established commercial business. When the contractor does not obtain exclusive patent rights at the time of contracting, disposition of patent rights is considered on a case-by-case basis, after the inventions have been identified and reported to the Government. The main criteria governing this disposition of rights concern the nature of the invention and the plans and intentions of the contractor to market the invention.
When the contractor retains exclusive patent rights, the Government reserves a royalty-free license to practice the invention for any governmental use. The Government also reserves the right to require the contractor to license others to protect the public interest in the health area and to make the invention accessible if the contractor fails to take effective steps to commercialize or license the invention. These are commonly referred to as “march-in rights."
Fresident Nixon, in August 1971, issued a
THE PRESIDENTIAL POLICY STATEMENT
Recommendation 1. Implement the revised
In 1963, the first attempt was made to establish a degree of uniformity in Government patent policy. In that year President Kennedy issued a Statement of Government Patent Policy.15 This statement, with recent amendments, has provided the framework for Government patent policy. The Armed Services Procurement Regulation patent provisions, for instance, are closely aligned to this policy statement, as are the recently proposed provisions of the Federal Procurement Regulations.
13 See the Memorandum of the Assistant Attorney General, Office of Legal Counsel, dated Sept. 18, 1967; U.S. Federal Council for Science and Technology, supra note 1 at 120–23.
14 For a history of the development of Government patent policy generally, see R. Nash and J. Lasken, Patents and Technical Data, Government Contracts Monograph 10.
15 Presidential Memorandum and Statement of Government Patent Policy, 28 Fed. Reg. 10943 (1963).
and “would create the greatest likelihood that the invention would be developed and put into commercial use.” 17
The second major change places emphasis on licensing of Government-owned inventions. The General Services Administration is charged with developing regulations to promote the availability of and development of Government-owned inventions. For the first time, exclusive licensing is specifically mentioned as one means of accomplishing this. It will take several years to evaluate the effectiveness of this policy in promoting utilization.
Based on our assessment of current law and practice, we have concluded that any substantial changes in the law and policies in this area should await further assessment of the actual experience under the revised Presidential Statement of Government Patent Policy. We do believe that some minor changes are needed, and that continued emphasis should be placed on executive agency implementation, with policy review by the Committee on Government Patent Policy established under the Federal Council for Science and Technology.
new Memorandum and Statement (reproduced in Appendix C) which is substantially in accord with the 1963 statement except that several revisions to encourage utilization have been made.16 He reaffirmed the need for flexible, Government-wide policies designed to protect the public interest. The Nixon revisions, based on a study of patent policies by the Federal Council for Science and Technology, attribute the degree of commercial utilization of Government-sponsored inventions, commercial competition, and participation of industry in Government research and development to several important factors. These include the mission of the contracting agency; the purpose and nature of the contract; the commercial applicability and market potential of the invention; the extent to which the invention is developed by the contracting agency; the promotional activities of the contracting agency; the commercial orientation of the contractor; the extent of his privately financed research in the related technology; and the size, nature, and research orientation of the pertinent industry.
One group of revisions to the Presidential policy concerns the granting of greater rights to contractors in identified inventions, even though at the outset the Government acquired principal rights. The Kennedy statement provided that such greater rights could be given only if "the invention ... is not a primary object of the contract." This was changed as a result of the problems experienced by agencies such as the Department of Health, Education, and Welfare and the National Aeronautics and Space Administration under the previous policy. Another change allows afterthe-fact granting of greater rights where "the Government's contribution to the invention is small compared to that of the contractor.” This change appears to be designed to assist in those cases where firms may be reluctant to enter into research contracts for fear of jeopardizing their background positions. Lastly, new language was added providing that where the invention is not a primary object of the contract, greater rights may also be granted to the contractor under specified criteria. According to the Federal Council for Science and Technology these criteria are “less stringent”.
Need to Evaluate the Presidential Policy
The recent changes to the Presidential policy were designed to overcome several shortcomings in that policy. Whether, in practice, these changes will fulfill their purpose remains to be seen, but we feel it is premature to disturb this latest effort by the President to achieve a more workable patent policy. Much thought and expertise have gone into the drafting of the Presidential policy. This should not be dismissed lightly. Any major departures in the patent rights area should be deferred until the revised policy has been evaluated by the Federal Council for Science and Technology in the light of actual agency experience. This evaluation should be made in such a way as to take into account and evaluate the factors discussed below.
Need for Prompt and Uniform Implementation of the Presidential Policy
In order to allow an adequate evaluation of the Presidential policy, it is important that it
17 U.S. Federal Council for Science and Technology, supra note 1, at 155.
16 Presidential Memorandum and Statement of Government Patent Policy, 36 Fed. Reg. 16887 (1971).