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Summary and Analysis of Findings

A. Study Objectives and Approach

The primary purpose of the Harbridge House study has been to provide government policy inakers with data to evaluate the effectiveness of government patent policy in achieving policy objectives. The study sought answers to three basic questions which underlie the government's objectives concerning patents arising out of government contracts:

(i)

How does parent policy affect commercial utilization
of government-sponsored inventions?

(ii)

llow does patent policy affect business competition in
commercial markets?

(iii)

How does patent policy affect participation of contractors
in the government's research and development programs?

A three-phase study effort was undertaken to answer these questions: In phase
one, existing data was gathered to determine what relevant information was al-
ready available. Phase two consisted of a utilization questionnaire survey to gather
a broad body of new data on a large sample of government-sponsored inventions.
And, phase three involved case studies of inventions and contractors in the utiliza -
tion survey to develop a fuller understanding of the effects of patent policy on them.

The first phase involved four separate tasks. A literature search was conducted to determine what existing data were available on the study questions. In addition, three research tasks were conducted within government activities to (i) determine the promotional programs of eight government agencies; (ii) review reported instances of industry hesitation or refusal to participate in programs of the Department of Interior and the National Institutes of Health (NIH) for reasons relating to patents; and (iii) examine 100 contractor NASA waiver requests to determine the basis for waivers of patent title granted by NASA. These tasks, useful in themselves, also provided background information in conducting phases two and three of the study.

In the second phase of the study, commercial utilization of all governmentsponsored inventions patented in 1957 and 1962 'were surveyed through questionnaires to gather data on utilization and licensing of a large and statistically significant group of patents. A two-year sample was selected to ensure against bias in patents issued in a given year, and the years 1957 and 1962 were chosen to allow enough time for sample inventions to be applied commercially. Although the sample predates the current

For government agencies other than DOD, AEC and NASA all patents issued from 1956 to 1966 were included because of the small number of patents issued on inven

tions of those agencies in 1957 and 1962. 2 Copies of the questionnaires are included in an appendix to this report,

policy established by the Kennedy Memorandum of 1963, patent tights in sample inventions were allocated in different ways under various programs making it possible to project the results of the study in terms of current polidy.

Questionnaires on each invention were sent to organizations which developed them regardless whether the contractor or the government retained title, Similar questionnaires were also sent to firms which requested licenses to government-owned inventions, whether developed under contracts on in government laboratories, to compare conditions under which inventions might be used with and without exclusive rights. Both included questions on the size and business orientation of the responder; the nature of the invention; the role it played in its commercial use; the speed with which it was applied; the type and amount of private funds invested in applying it; the sales attributable to the invention; the extent to which it was available for and resulted in licenses by patentee; and the reasons for nonutilization where it was not used commercially.

Questionnaire responses were received on about 60 percent of the sample inventions and were analyzed to determine the patterns of utilization, and the effect of patent rights and other factors on commercial use, licensing and business competition. The data were also used to select areas for case research in phase three of this study.

The case research in phase three gathered more detailed data on selected government contractors and inventions to understand better the factors which control decisions to utilize government-sponsored inventions, the utilization process, the effect of utilized inventions on business competition and the factors affecting willingness of contractors to participate in government-sponsored R&D programs. Five groups of case studies were conducted:

(i)

Twenty-one high and low utilizers of sample inventions
were interviewed to determine the reasons for their
performance.

(ii)

All sample inventions of TVA, and the Department of
Agriculture and Interior were investigated to determine the
effect of agency mission on invention utilization.

(iii)

Sixteen educational and nonprofit institutions representing a
cross section of all types and sizes of organization were
interviewed to determine what role they play in promoting
utilization of government-sponsored inventions.

(iv)

All sample inventions involved in infringement suits were
investigated to identify what effect they have on business
competition.

(v)

An industry study involving the medicinal chemistry
program of NIH was performed to determine the effect
of patent policy on voluntary industry participation in,
and utilization of the results of the government program.

B. Effect of Government Patent Policy on Commercial Utilization

The study sought answers to several key questions concerning commercial utilization of government-sponsored inventions. Among these were:

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(iv)

Has substantial private investment been required to
develop government-sponsored inventions for commercial use?

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Several factors were found to have an important bearing on the answers to these questions. The intended uses of the sample inventions were found to have a primary effect on their commercial potential. Their intended uses, in turn, were determined by the R&D missions of the sponsoring government agencies. Once the invention was developer, several factors were found to affect their actual use in commercial markets--the extent of market demand for products employing them, the degree of promotion by government agencies which sponsored them, the size of private investment required to apply them, the prior experience and attitude toward innovation of organizations that developed them, and the type of patent rights available to protect the user's investment in bringing the inventions to market.

These factors have had the following net effect on utilization of sample

inventions:

Of 2,024 contractor inventions in the two sample years for which information was available, 251 were used commercially.

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Two hundred were utilized by industrial contractors and
all but seven were owned by them. Twenty-six of these were
utilized by their licensees.

An additional 51 inventions not utilized by contractors
were utilized by their licensees. Ten of these inventions
were owned by educational and nonprofit institutions.

Fifty-five played a critical role in the commercial products
in which they were used.

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The study also reviewed 126 government-owned inventions from all sources, in-house and contractor, patented in 1957 and 1962 for which a license was issued to firms other than the inventing contractor. Ten of 126 inventions were reported used by some 50 licensees. Utilization is concentrated in TVA and Agricuture inventions which account for 60 percent of the utilized patents and 90 percent of the coinmercial users.

Measured in sales, commercial utilization of the inventions studied amounted to $616 million through calendar year 1966:

$406 million were sales by contractors who owned the
inventions.

$2 10 million were sales by nonexclusive government
licensees.

All but $271, 000 of contractor sales were from DOD
inventions,

All but $57,000 of sales by licensecs were from inventions
of agencies other than DOD.

Sales of inventions, both with and without exclusive rights, were heavily concentrated in a few patents:

88 percent of contractor sales where the invention played
a critical role are attributable to five patents in the fields
of transistors, vacuum tubes, numerical control devices,
computers, and gas turbine engines.

About half the siles of licensees are attributable to three
patents on the manufacture of potato flakes.

Study inventions that were used commercially found quick application in their commercial use. About one-third were applied by the time a patent application was filed, ind almost three-quarters were in use when a patent issued.

A factor instumental in the speed of utilization is prior experience. If rapid utilization is defineius occurring within three years of application for a patent, then firms with experience achieved rapid utilization over 80 percent of the time compared with hall that for firms without.

The mix of government and commercial work within a firm also has an important effect. Firms in the middle range of government activity (20 to 80 percent government business) use inventions much more quickly than companies predominantly in either the commercial or the government markets,

1. Effect of Agency Mission and Commercial Potential of Sample Inventions

on Utilization

The R&D mission of the sponsoring government agency was found to have a critical effect on the commercial applicability of the sample inventions. The Department of Defense, NASA and AEC accounted for some 90 percent of contracted research and more than 98 percent of the patents arising under contract in the years under study. Inventions covered by these patents were designed to meet operating requirements of these agencies rather than civilian needs in the great majority of cases. Then commercial applications, therefore, were essentially a by-product of governmental uses and depended la

1 coincidental overlap between government ind commercial requirements. Thus, sver 70 percent of the reasons advanced by risponders as most important to nonutilization of sample inventions relate to their limited commercial potential. This in no way measures their value for their intended use, but simply indicates the effect of differences between operating requirements of the government and civilian needs in commercial markets.

On the other hand, commercial inventions with significant utilization were among the patents of these agencies in the fields of transistors, vacuum tubes, numerical control devices, con?puters and gas turbine engines, where the necessary commercial overlap did exist.

The sample inventions of other agencies--such as the Department of Agriculture and Interior, and TVA --were highly oriented to civilian requirements reflecting the civilian orientation of their R&D missions. Since most of the Agriculture and TVA R&D programs are conducted in-house, the sample included few inventions developed by their contract programs. However, these were supplemented with inhouse inventions 10r which the agencies granted licenses. All that were used commercially, were used without exclusive patent rights. This was largely attributable to three factors: the commercial orientation of the inventions, good potential demand for their use, and sufficient government development of the inventions to show their commercial feasibility. Vorvithstanding the commercial potential of these government

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