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Since our study efforts did not encompass this question, we are not in a position to take a meaningful position. Our main point is simply that clear statutory authority to grant exclusive licenses is needed.
be promptly and uniformly implemented by the agencies. At the time of preparation of this report, most agencies had not published regulations or revised their regulations in accordance with the Presidential policy. We urge that they do so. Efforts are underway to develop uniform regulations for use by most civilian agencies through the Federal Procurement Regulations. This is a step in the right direction.
Some agencies cannot, because of statutory provisions, adhere completely to the Presidential policy. In most such cases, these agencies are required to follow a so-called "title policy.” 18 To allow truly Government-wide implementation of the Presidential policy and any future modifications of it, we believe that inconsistent legislation should be appropriately amended or repealed. 19
Recommendation 2. Enact legislation to make clear the authority of all agencies to issue exclusive licenses under patents held by them.
One of the potentially most significant aspects of the revised Presidential policy is the new emphasis on exclusive licensing. As discussed previously, it appears that there is some confusion as to the exact scope of the authority of the individual agencies and the General Services Administration to grant exclusive licenses. We believe uncertainty in this area could interfere with the effectiveness of the exclusive licensing program. Accordingly, we favor legislation granting agencies clear-cut authority to issue exclusive licenses.
Section 12 of the draft bill at Appendix A to this report could serve as a model for such legislation. However, that section is drafted in broad terms without any guidelines limiting the authority granted. We wish to emphasize that this does not mean that we either oppose or favor the inclusion of statutory guidelines.
Recommendation 3. Supplement the Presidential policy by the adoption of uniform procedures for application of the rights reserved to the Government under the policy.
There is one area of the Presidential statement that could use additional and immediate supplementing—the procedures for the adminstration of its march-in rights provisions. Based on figures assembled by the Federal Council for Science and Technology it does not appear, at least through 1970, that the marchin rights retained by the Government have ever been exercised.20 This could be accounted for by a variety of explanations, one of which is that before the early 1970's there were few, if any, inventions old enough to be subject to march-in provisions as required by the Presidential policy. In the coming years, this will no longer be the case. Moreover, the apparent trend toward increased research in nonmilitary areas, coupled with the increased opportunities under the revised policy for civilian agency contractors to obtain greater rights in inventions, could lead to greater need for the exercise of the Government's march-in rights. That is, more inventions of direct commercial value may be made in the future. The new emphasis on cancer, automobile safety, and environmental research exemplifies what appears to be a reordering of priorities toward the civilian sector of the Government.21
The Presidential policy supplies no real guidance as to the mechanics of implementing its march-in rights provisions. Many of the civilian agencies, with minimal staffing and expertise in the patent law area, will be left to devise their own procedures. This could lead
18 One statute, the Solid Waste Disposal Act, requires adherence to the 1963 statement. 42 U.S.C. $ 3253 (c) (1970).
19 Section 14 of the draft legislation at Appendix A could be used as a guide as to the legislative action necessary. Hov:ever, some of the provisions amended or repealed in section 14 are of sufficient flexibility to allow adherence to the Presidential policy and, hence, would not have to be amended in order to allow uniform implementation of the Presidential policy as it presently reads.
20 U.S. Federal Council for Science and Technology, supra note 1 at 94-95.
21 Statistics prepared by the Federal Council for Science and Technology show that generally the total funds obligated for R&D by the civilian agencies has been rising and that DOD's share of the total dollars obligated for R&D has been decreasing. lbid.
to, at worst, no implementation and, at best, inconsistent implementation. Efforts should be undertaken immediately to develop regulations and procedures to be followed by all agencies in implementing the march-in provisions of the Presidential policy.
Possible Weaknesses of the Presidential Policy
Reservations have been expressed as to whether the Presidential policy is the optimum policy. A system which generally allows contractors or inventors to obtain commercial rights subject to a strengthened march-in rights procedure under the control of a central board may hold greater promise of fulfilling the goals of patent policy. However, these reservations should await the test of actual experience.
Experience may prove the Government should not routinely take principal rights in all of the situations listed in section 1(a) of the Presidential policy. This is particularly true with respect to contracts which have as a principal purpose exploration into fields which directly concern the public health, safety, or welfare. It is not clear why the incentives needed for further development of products in these fields are any different than those needed in others, 22 although the need for safeguards in these areas is clear.
The Presidential policy relies on deferred determinations and the granting of greater rights in identified inventions. Reliance on deferred determinations and after-the-fact disposition of patent rights has several potential shortcomings, particularly as a greater share of the Government's research funding goes into research contracts falling within section 1(a) of the Presidential policy, which requires the Government to take principal rights at the outset. These shortcomings include deferred utilization, increased administrative costs, and a lessening in the willingness of some firms to participate in Government research work.
The uncertainty of ownership involved in a deferred determination policy may discourage some particularly competent contractors from
participating in Government programs. A contractor whose privately-financed background position might be jeopardized by newlygenerated inventions made under a contract might decline to enter into such a contract if he were unsure of obtaining exclusive rights in the inventions. His refusal to participate would probably result in the use of a less qualified contractor at a greater cost. Admittedly such cases would be relatively isolated and rare. It is also true that the Presidential policy attempts to overcome this problem somewhat by allowing the waiver of section 1(a) in exceptional circumstances. We believe that experience under the Presidential policy should be noted with particular care in evaluating the overall efficacy of the policy.
More importantly, the long processing periods inherent in a deferred determination policy will often delay prompt development and utilization of Government-sponsored inventions, since a participating contractor would wish to establish his rights before investing his risk capital.23 Utilization could also be adversely affected by the administrative burden of petitioning the Government for exclusive commercial rights and the probable requirement that the contractor file patent applications to protect the property rights during the petition period. These tasks may destroy contractor interest in inventions that appear economically marginal on first review.
Finally, increased administrative costs to both the contractor and the Government for the drafting, submission, and review of petitions on a case-by-case basis may prove out of proportion to the results achieved by placing reliance on after-the-fact determinations.
The cost of administering an exclusive licensing program may prove high. Where a patent has a commercial potential, a costly and time-consuming proceeding would have to be held to determine which company or companies would be granted rights in the invention. It seems certain that a hearing with appropriate notice, as is outlined in the proposed GSA licensing regulations, would be required. It is questionable whether many agencies have sufficient manpower to carry on active licensing programs. In many cases the licensee, if any, will be the original contractor/developer since he will have a jump on others in terms of the technical know-how behind the invention. 24
22 For an example of the problems which can be created, see U.S. Comptroller General, Report B-164031(2), Problem Areas Affecting Usefulness of Results of Government-Sponsored Research in Medicinal Chemistry, Aug. 12, 1968. See also Harbridge House, su pra note 6.
23 Harbridge House, su pra note 6, at II-47-60.
An Alternate Approach
If evaluation of experience under the revised Presidential policy indicates a need for further policy revisions, we urge consideration of an alternative approach generally allowing contractors to obtain commercial rights but subjecting these rights to a strengthened “march-in” procedure. Such an approach was developed in detail and recommended by our Study Groups and staff during the study phase of our activities.
The alternate approach involves the repeal of all existing legislation concerning the disposition of rights in inventions made under Government contracts. This legislation would be replaced by a statute of Government-wide application. We believe uniformity is practical and desirable. Since this alternate policy is not compatible with current legislation, repeal of that legislation would be necessary. New positive legislation would be needed, as it would be difficult to implement the alternate approach on a strictly administrative basis.
In presenting this alternate approach, we recognize the dilemma involved. The path to comprehensive patent policy legislation is fraught with obstacles. Experience indicates that a broad patent statute is extremely difficult to enact, as shown by unsuccessful efforts in past years.
We have not proposed a time limit for testing the efficacy of the Presidential policy. Wide differences of opinion as to how well it is working may make assessment difficult.
The primary purposes of the statutory alternative are to establish (1) a stronger policy of promoting the commercial exploitation of patentable inventions arising under Government contracts; (2) greater uniformity in Government agency execution of this policy; and (3) a special board to administer the Government's march-in rights. Enactment of a
general statute would require the repeal of existing statutory provisions applicable to the Atomic Energy Commission, the National Aeronautics and Space Administration, and several other Government agencies. These existing provisions reflect a desire to prevent monopoly control or undue private enrichment in the use of inventions made possible by public expenditures. We believe that a new general statute, if enacted, should take explicit account of such concern.
The terms of the legislation should strike a reasonable balance between the public and private equities involved and recognize the multiple values embodied in the public interest. The public will benefit from a patent policy which not only promotes commercial applications of the patents, but also insures maximum public benefits from the expenditure of public funds.
The alternate approach reflects reservations which have been expressed with the requirement of the Presidential policy that the Government take principal rights in each of the four classes of situations listed in section 1(a). The alternative would allow the contractor or inventor commercial rights at the outset except in two situations where it appears that the granting of commercial rights to contractors would not promote or be necessary to promote utilization. The first such situation is where it is the intention of the Government to fund the inventions made under a contract to the point of commercial application. Here there is no real need or equity in allowing the contractor to obtain commercial rights. Secondly, if the contract is with an educational or other nonprofit organization utilization would not be fostered by granting the contractor title unless it was determined that inventions likely to flow from a given contract will be promoted in a manner consistent with the objectives of utilization and maintenance of competition.
Another situation under the Presidential policy where the Government normally takes title at the time of contracting is where it is expected that use of inventions will be required by Federal regulation, as might be the case, for example with research into improved antipollution devices for automobiles. In such cases, there would be no need for patent incentives to ensure utilization. It is unlikely
24 A few agencies have already initiated exclusive licensing programs. One of these is HEW. Under its program the only exclusive license issued to date went to the developing contractor. See Drug Research Report, vol. 14, no. 15. Apr. 14, 1971.
that the inventions that may fall out of a particular research effort will later be required for use by regulation. Accordingly, under the alternative policy, this would not be the basis for the Government to take commercial rights in inventions. Instead the Government “march-in” rights would apply in such situations. The “march-in” rights procedures under the alternate policy are developed more fully below.
In all cases, the Government would retain, as it presently does, a royalty-free, nonexclusive license for use of the invention for governmental purposes. In return for allowing contractors to generally obtain exclusive commercial rights; and in lieu of a policy placing primary reliance on deferred or after-the-fact determinations and exclusive licensing, the alternate policy would establish a strengthened system of march-in rights, including, possibly, the recovery of governmental investment, to safeguard the public interest. Safeguards would be built into the policy to ensure that utilization does occur, that it occurs on reasonable terms, and that the public's equity in the invention is recognized.
As part of the alternate approach, a central agency would be established and designated the “Government Patent Review Board,” to administer the march-in rights retained by the Government. The Government, through the Board, would retain the right to require compulsory licensing of inventions made under its contracts (1) after the contractor had been given a reasonable opportunity to develop the invention commercially and had failed to do so, and (2) where he had developed the invention, but refused to either sell or license it on reasonable terms. The current Presidential policy would apply to inventions necessary to fulfill health or safety needs or required for use by governmental regulations. Thus, there would be no time limit on the exercise of the Government's march-in rights in such cases.
The Board would also be empowered to revoke all rights of the contractor if he (1) failed to disclose an invention promptly, (2) supplied materially false information concerning the invention, or (3) used the patent on the invention in such a way as to violate the antitrust laws.
Consideration could be given to developing
a mechanism to prevent unconscionable profits on inventions made under Government contracts. The Board could be empowered to require payments to the United States from the contractor out of any profits on an invention so as to recognize the relative equities of the public and the contractor. However, there are many difficult problems to be worked out in developing such a mechanism, and there are no such provisions in the draft legislation at Appendix A.
Initially, the Board's workload would be minimal since it would be some time before patents subject to the Board's jurisdiction would begin to be issued. To fill this initial void, the Board could be assigned responsibility for the development of implementing rules and regulations under such legislation as is enacted to implement the alternate approach. The Board could take the lead in coordinating efforts to develop uniform contractual clauses and procedures. Possibly, also, the Board could be assigned responsibilities in the related area of Government employee inventions, since many of the policy considerations and the need for “march-in” rights appear to be analogous. As this phase of patent policy, presently governed by Executive Orders 10096 25 and 10930,20 is beyond the scope of our charter, we have not conducted any studies in this area.
Consideration was given to the placement of the Board within the framework of an existing agency such as the Department of Commerce. Due to the rather narrow scope of its functions and its primarily quasi-judicial function, this was felt impractical.
USE OF PATENTED INVENTIONS BY OR FOR THE GOVERNMENT
A second major area of concern with respect to Government patent policy centers on the infringement of privately held patents by the Government or its contractors or subcontractors. For example, the Government may award a contract for the design and production of a piece of electronic equipment. The most effective way of designing and producing the equipment may require the use of a particular item or process covered by a patent belonging to a third party who has licensed neither the Government nor the contractor.
25 3 CFR, 1949–53 Comp., at 292.
26 3 CFR, 1959-63 Comp., at 456. Executive Orders 10096 and 10930 are included in the notes to 35 U.S.C. ch. 27 (1970).
LEGAL REMEDIES FOR "INFRINGEMENT"
Normally, a patent owner may sue for damages and to enjoin the infringement of his patents by others. However, where a patent is being used “by or for” the Government, the patent holder's only remedy in most cases is suit against the United States in the Court of Claims for money damages. A suit directly against an infringing Government contractor either for money damages or injunctive relief is not available if the patented invention is being used by the contractor with the "authorization and consent” of the Government. This result obtains from the provisions of 28 U.S.C. $ 1498(a), which reads, in part, as follows:
Whenever an invention described in and covered by a patent of the United States is used or manufactured by or for the United States without license of the owner thereof or lawful right to use or manufacture the same, the owner's remedy shall be by action against the United States in the Court of Claims for the recovery of his reasonable and entire compensation for such use and manufacture. For the purposes of this section, the use or manufacture of an invention described in and covered by a patent of the United States by a contractor, a subcontractor, or any person, firm, or corporation for the Government and with the authorization or consent of the Government, shall be construed as use or manufacture for the United States.
There are, in addition, a few other statutes of limited application which provide judicial remedies for misuse of patents by the Government. These include the Invention Secrecy Act,27 the Atomic Energy Act of 1954,28 the Foreign Assistance Act,29 and the Tennessee
Valley Authority Act.30 These provisions do not significantly impact on the development of our primary recommendations.
The basic philosophy of 28 U.S.C. § 1498(a) is that Governmental programs should not be interrupted or delayed by injunctions granted in patent infringement actions. Money damages are considered an adequate remedy in such cases.
The history of 28 U.S.C., § 1498 illustrates this underlying philosophy. In 1910, legislation was passed which for the first time waived the Government's sovereign immunity with respect to patented inventions "used by the United States.” 31 In 1911, the Supreme Court, interpreting this Act, refused to enjoin the manufacture of patented guns by the Army in its own arsenals.32 However, in 1918, the Supreme Court ruled that the Act did not provide Government contractors with immunity from suits to enjoin their infringements.33 As a direct result of this decision, legislation was enacted which provided an exclusive remedy of suit in the Court of Claims to recover “reasonable and entire compensation" when a patented invention was “used or manufactured by or for the United States" without license.34
The next major development in the evolution of 28 U.S.C. § 1498(a) was the addition of language making the statute applicable to infringement by the contractor only where the use of the invention was with the "authorization and consent" of the Government. This language first appeared in the Royalty Adjustment Act of 1942 35 and was incorporated into title 28 in 1951.36
THE GRANTING OF AUTHORIZATION AND CONSENT
The granting of authorization and consent precludes injunctive action against Government contractors for patent infringements. It has been the policy of most Government agencies to include a rather broad authorization and consent provision in contracts calling for
30 16 U.S.C. $ 831 (r) (1970).
27 35 U.S.C. $ 183 (1970).