other thing In these two areas, the Missouri River basin and the Colorado River Basin, we have allocated pretty near all of the water at the present time back to the States, so we are going to have to deal with States' rights as far as the water is concerned.

Now, we know that even a fair-sized prototype operation is going to take a considerable amount of water, and then we have the environmental concerns that go with taking the energy resource in the first place. Then how do we leave the area when we are through with it? These two matters are of grave concern, I would say. To say that we are going into a research and development program without first considering the water aspects and the environmental aspects, we would be in deep trouble to start with. I think if we can provide in this authoriz ing legislation, some recognition to these problems we are going to be a long way ahead toward perfecting a bill that would do the job.

Mr. HOSMER. Thank you. Somewhere back in this continuing series of efforts by way of hearings to keep the Jackson proposals alive, some witness suggested that it might be possible to dig out from deep formations salt, salty and other low-quality liquids and augment the available supply by that means, which could be used for industrial purposes. Now, do you know of any reason that could not be something that might be a good idea to look into?

Mr. JOHNSON. Well, I think there is considerable brackish water or polluted waters throughout the various parts of the country, but, in these areas that we are talking about, there is not too much of that kind of water available at the present time. Now, you know and I know that in our own State of California, since we have moved inland to site our large generating facilities, we are troubled now with a source of cooling water. At the present time, they are considering the use of return flow from the irrigated land. Maybe we can collect them. convey them to the site of a very large generating facility and using that poor quality water for feed water as well as cooling water. Now, I imagine something like this could be worked out for prototype plants for energy. But, when you get into a large development-a commercial operation for developing the coal and the shale, and generating the power, you are going to have to put your hand on a considerable amount. Now, whether there is that much of that type of water there, I do not know.

Mr. HOSMER. If it were

Mr. JOHNSON. It could be used.

Mr. HOSMER. It would probably have to be reinjected in some way and isolated in some way from the normal environment in any event. Mr. JOHNSON. That is right.

Mr. HOSMER. Thank you, Mr. Chairman.

Mr. UDALL. Any other questions?

If not. Bizz, we very much appreciate your efforts here this morning. and they have been very helpful.

Mr. JOHNSON. Well, thank you, Mr. Chairman, and members of the committee. We will continue to work with you on the problems that we

see.

Mr. UDALL. The other witnesses we have scheduled this morning will be dealing with a very serious question in the Senate-passed bill that will have to be resolved if we reach any action here in the House, and this is the problem of patent policy and the so-called Hart-Long

amendment which was adopted with S. 1283 in the Senate. We are going to hear three witnesses on this question, and we will start with Mr. Thomas Kauper, Assistant Attorney General, Antitrust Division, Department of Justice.

Before we begin, our colleague from New York, Mr. Koch, has submitted for the record a statement on this patent problem, and without objection that statement will be made a part of the record at this point.

[The statement by Mr. Koch follows:]

STATEMENT OF HON. EDWARD I. KOCH, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF NEW YORK

Mr. Chairman, in May 1972, 21 Members of Congress joined in a protest to the Secretary of Agriculture over the proposed issuance of exclusive royalty-free licenses of Government-owned patents to two companies, the Upjohn Company and Weich Foods. We asked that the regulations be withdrawn on the grounds that the GSA has neither the constitutional or statutory authority to grant exclusive rights to use government-owned patents and inventions. Following the rejection of our petition, we took the case to court.

On January 17, 1974, Judge Barrington Parker of the U.S. District Court for the District of Columbia ruled that the granting of exclusive rights on government-owned inventions by the Executive Branch constituted a violation of Article IV of the Constitution which authorizes only the Congress to dispose of government property.

This ruling was the result of a lawsuit brought by 11 Members of Congress including myself represented in the litigation by a public lawfirm known as Public Citizen organized by Ralph Nader. The other Members of Congress were Mr. Badillo, Mr. George Brown, Mr. Drinan, Mr. Eckhardt, Mr. Harrington, Mr. Helstoski, Mr. Moakley, Mr. Moss, Mr. Rosenthal and Mr. Stark.

This decision of the court restores to the Congress some of the authority which is rightfully theirs, but which the President has been continually trying to usurp. On January 22, 1974, the following Members of Congress, Mr. George Brown, Mr. Harrington, Mr. Moakley and Mr. Rosenthal, myself and our attorney, Public Citizen, wrote to GSA asking Mr. Sampson to rescind the new regulations published in the Federal Register on September 4, 1973 because they authorize the disposition of government property-viz. future rights in patents and inventions developed under federally financed research and development contracts when there has not been any congressional authorization for such disposition. These regulations are scheduled to become effective on March 4, 1974. The fact that the new regulations attempt to dispose of future rights in patents and inventions, whereas the earlier ones disposed of currently existing rights, does not cure the constitutional defect in the new regulations.

There are cogent reasons why the title should continue in the government and the patents be made available on a non-exclusive basis. They are:

1. The American public has paid for the research and development in connection with the invention with tax money and the results of this research should be made available on a non-exclusive basis for the benefit of that public. 2. Private industry customarily requires research employees to assign title to the employer. The government should do no less since the private contractor is an employee of the government, title should then reside with the government. 3. A private contractor gets costs plus a fixed fee. If patent rights were given at the time of contracting, they would be in the nature of windfall profits in that the contractor does not reduce his fees in such cases, and would not, not knowing the value of these future inventions.

4. The purpose of execlusive rights under patent is to reward the inventor for the risk he is taking in developing the invention. However, under governmentfinanced research, it is the government that takes the risk.

5. There is no merit to any moral claim by the contractor for such rights. What he has done can be analogized to one who produces goods for a profit. 6. A private contractor does not need title to make him accept these government contracts for research. He is already on the inside when the new technology is developing; his research facilities are expanded; his personnel trained; and he acquires know-how. He gets government data and expertise unavailable to his

competitors. The most important thing he gets is lend time-he can be out in front on marketing, a tremendous advantage for him.

7. A competitor can close off technology to competitors if given exclusive rights. In that position he is able to file improvement patents, fencing in patents and umbrella patents.

The President's patent policy memorandum of August 26, 1971 begins with a general policy statement that the government should normally take title to government financed research in certain broad areas. One of these is where "a principal purpose of the contract is for exploration into fields which directly concern the public health, public safety, or public welfare." Surely this would include the crucial issue of energy. Unfortunately, the mmeorandum then lists such a host of exceptions as to make the policy meaningless. The GSA regulations to implement the President's memorandum simply opens the way for whatever policy the heads of agencies may care to follow. This will result not only in wide diversity in practice among government agencies, but inevitably it will initiate abuses of all kinds with the power to issue monopoly grants.

Some of the country's largest corporations have a vast portfolio of patents. Why should their monopoly position be further enhanced by receiving title to government financed inventions?

The following is a list of the corporations receiving Department of Defense contracts in 1972 for research, development, test, and evaluation work and the amount of those contracts.

1. McDonnell, Douglas Corp., $440,496,000

2. North American Rockwell, $397,196,000

3. United Aircraft, $378,904,000

4. Lockheed, $372,710,000

5. Western Electric. $303,497,000

6. Boeing, $298,560,000

7. General Electric, $202.483.000

8. Grumman Aerospace, $200,930,000

9. Raytheon, $180,117,000

10. Hughes Aircraft, $163,969,000

11. General Dynamics, $131,920,000

12. Mass. Institute of Technology, $126,410,000

13. RCA. $125,969,000

14. Westinghouse, $98,719,000

15. Avco, $74,325,000

I believe that the time has come for the Congress to act in this important matter. Let us adopt the basic policy principle contained in the President's memorandum, but let us not reduce it to a nullity by riddling it with exceptions. Let us not destroy credibility in a basic principle using loopholes that may well result in legal giveaways of federal property to a favored few. Ownership of rights in public financed research should reside with the government as the trustee for the country's citizens, and their use should be made fully available on a nonexclusive licensing basis. For this reason, I fully endorse the provisions incorve rating this policy in H.R. 11856.

STATEMENT OF THOMAS E. KAUPER, ASSISTANT ATTORNEY GENERAL, ANTITRUST DIVISION, DEPARTMENT OF JUSTICE, ACCOM PANIED BY RICHARD SAYLER, SPECIAL ASSISTANT, AND JEFFERSON HILL, PATENT SECTION, ANTITRUST DIVISION

Mr. UDALL. Would you identify your associates and state your name and then proceed with your testimony.

Mr. KAUPER. Yes. I am Thomas Kauper, Assistant Attorney General for the Antitrust Division, U.S. Department of Justice. I am accompanied by my special assistant, Mr. Richard Sayler, and Mr. Jeffer son Hill of our Patent Section.

Mr. UDALL. We have your prepared statement of some 23 pages. Ie you care to read it, or do you wish to summarize it? What is your reference?

Mr. KAUPER. I do not have it marked for summary, Mr. Chairman. I can try, as I am going through it, to exercise some judgment. Mr. UDALL. All right.

Mr. KAUPER. Where I can anticipate what is coming, I will summarize.

Mr. UDALL. We will have about an hour and a half for three different witnesses, and there is going to be some contention and a good deal of questions, so to the extent that you could shorten your basic presentation, it will be helpful.

Mr. KAUPER. All right. I will endeavor to do so as we go along. On behalf of the Department of Justice, I appreciate the opportunity to testify here today on the patent provisions of H.R. 11856 and H.R. 11857. sections 113 and 10, respectively. In testifying on these provisions, we express the views of this Department only. Moreover, we have not otherwise considered, nor are we prepared to comment on, most of the other substantive measures of these bills.

The patent provisions of these bills raise two fundamental issuesfirst, disposition of Government-financed inventions, and second, the mandatory licensing of patents. These two issues, however, arise here in a specific context-that if proposals to spend massive sums of research and development money quickly and aggressively to aid all Americans to meet a "critical shortage of environmentally acceptable forms of energy."

For approximately 20 years, controversy has existed over the proper disposition of rights to inventions and patents resulting from federally financed research and development work. On the one hand, advocates of what has been called the title policy have proposed that title to Government-financed inventions should normally be retained in the United States, with subsequent dissemination of these rights on a nonexclusive basis to all qualified applicants. On the other hand, advocates of what has been called the license policy propose that the private contractor should be given title to Government-financed inventions, while the Government is to be given a royalty-free license to practice the invention for its use; under this arrangement, there would be no obligation on the contractor to let other qualified applicants have access to the products of the Government-financed research. To the extent Congress has acted in this area, it has generally followed a title-oriented policy providing for waiver of title by the Government in some cases after an evaluation of considerations such as the field of technology involved, its intended use, and its importance to public health, welfare, and safety. Congress has provided, in a number of specific circumstances, that whenever the Government finances the research work, it is entitled to any patent arising from such research. In a more limited number of particular circumstances, Congress has provided that the Government is entitled to a license of its contractors' background patents as well, to the extent that such patents are needed for utilization of the first patent. There is, however, and I stress this. no general legislation requiring a title policy-or any other policy-with respect to Government-funded research activity.

Absent such general legislation, the executive branch follows neither a uniform title policy nor a uniform license policy. A Presidential statement of Government patent policy was issued in 1963. It set forth

general guidelines applicable to all Federal agencies, including in general terms the conditions where Federal agencies would normally take title to Government-financed inventions, and those conditions where contractors would normally acquire rights to exclude competitors from Government-financed research. Because this policy statement reflected a compromise among the positions of many different Federal agencies, and was designed to deal with a wide variety of different patent programs, it necessarily spoke in generalities and left a good deal of leeway concerning its interpretation to the various agencies that were to operate under it.

At that time, the Department of Justice acquiesced "in an experimental use of the policy as outlined"-recognizing that the experience gained in operating under that policy statement would be most useful in making sound policy judgments in the future. With some changes, this Presidential statement of Government patent policy was reissued in 1971. The Department of Justice, for reasons to be discussed below, then also agreed to the policy, once again because we felt that further operating experience, Government-wide, under the policy statement was desirable.

As I will now explain, the Department of Justice supports the title policy adopted by section 113 (a) of H.R. 11856.

In the past, when commenting on proposed legislation, the Department of Justice has generally taken the position that title to Government-financed patents should normally go to the Government. Alsoagain in the context of commenting on legislation-this Department has asserted that waiver of this right should generally occur only after identification of the invention, after evaluation of its public and commercial significance, and after review of the circumstances then existing.

Both the Congress and the Department of Justice-in cases where specific legislation has been proposed that deals with the issue of ownership of inventions arising out of Government-financed researchhave normally accepted a title-oriented approach. Analysis of the actual operating experience under the two Government-wide policy statements is insufficient, we believe, to justify deviating from that approach. particularly in the context of a research effort as critical as the one proposed in these bills. The reasons for this are simple. First, if public moneys are used to purchase something, then the public as a whole should benefit from it-not one contractor to the exclu sion of his competitors.

Second, there is a real question whether there is any worthwhile purpose served by giving a contractor a right to exclude competitors from patentable inventions that arise out of Government-financed research. Rather, such patents seem to be in the nature of a windfall gift to the contractor. The Government purchases the contractor's research and development effort, often on a cost-plus basis. The contractor does not lower his contract price because of a Government agreement to grant him patent rights. At the time of contracting, of course, the value of such rights in unidentified and as yet unmade inventions is too speculative to measure.

Third, we do not believe-as a general matter that contractors need to be granted exclusive rights in Government-financed inventions to induce them to accept Government R. & D. contracts. Participation