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policy established by the Kennedy Memorandum of 1963, patent fights 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 cheinistry
program of NIH was performed to determine the effect
of patint 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?

(v)

Has sucli investment been made when everyone has been
free to use the invention?

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 developed, several factors were found to affect their actual use in commercial markets--the exient 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.

52-476 0

80 - ll

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 playel a critical role in the commercial products
in which they were used.

All but two resulted from DOD contracts.

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 commercial 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, and almost three-quarters were in use when a patent issued.

A factor instimental in the speed of litilization is prior experience. If rapid utilization is definei as occurring within three years of application for a patent, then firms !ith experience achieved rapid utilization over 80 percent of the time compared with half 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 conimercial or the government markets.

1. Effect of Agency Alission 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. Their commercial applications, therefore, were essentially a by-product of governmental uses and depended largely on coincidental overlap between government and commercial requirements. Thus, ser 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, computers 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 for 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. Vonvithstanding the commercial potential of these government inventions, agency promotion within industry was important in achieving utilization of Agriculture and TVA patents because of the need to convince firms of their commercial value. In several instances, utilizing firms acquired some measure of patent protection by developing patentable improvement to the government inventions.

Two causes predominated in cases where the inventions of these agencies did not achieve commercial utilization. Lack of full technical development of the inventions was the most frequent and important. No market need due to the complexity of the invention, its high cost compared with other methods or the availability of more practical alternatives was second in importance. It is probable that some measure of exclusive rights might have encouraged private firms to complete technical development of some inventions not fully developed by the government where adequate demand existed to make them attractive investment opportunities.

The R&D programs of HEW and Interior illustrate still another effect of mission on utilization. The programs of these two agencies are oriented to civilian needs, but in many aspects, are directed toward basic rather than applied research. The sample inventions that have resulted from their work have not, for the most part, been sufficiently developed to prove their commercial value. However, should their inventions reach that stage in programs like water desalination, and medicinal chemistry, broad commercial utilization could reasonably be anticipated because of the strong potential demand for commercial innovations in these fields.

2. Private Development costs

Information on private development costs required to apply sample inventions commercially was somewhat sketchy due to the age of the sample and the confidential nature of the data. But the information gathered showed significant differences in the types of costs incurred on DOD oricntud inventions (with exclusive rights owned by the contractor/utilizer in almost all cases), and civilian-oriented agency inventions (with nonexclusive licenses owned by the utilizers).

Private investment was heavily concentrated in technical development of DOD inventions. Fifty-six and eight tenths (56.8) percent of private dollars were spent for development compared with 22.7 percent for production facilities and 20.5 percent for marketing the product. In contrast, only 21.1 percent of private investment was required for technical development of civilian-agency inventions, while 52.2 percent was spent on production facilities and 26.7 percent on marketing.

The data confirms the relationships observed above between agency R&D mission and commercial potential of sample inventions. Civilian agency inventions, in general, are closer to commercial products when government development is complete than are DON inventions. Thus, users of civilian agency inventions

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