Two hundred were utilized by industrial contractors and 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 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 $210 million were sales by nonexclusive government All but $271, 000 of contractor sales were from DOD All but $57,000 of sales by licensees 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 About half the sales of licensees are attributable to three 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 instrumental in the speed of utilization is prior experience. If rapid utilization is defined as occurring within three years of application for a patent, then firms with 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 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. Their commercial applications, therefore, were essentially a by-product of governmental uses and depended largely on coincidental overlap between government and commercial requirements. Thus, over 70 percent of the reasons advanced by responders 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. Notwithstanding 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 oriented 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 DOD inventions. Thus, users of civilian agency inventions assume less financial risks in applying them than users of DOD inventions. This has a bearing on the degree of patent protection that may be needed as an incentive to utilization. All other factors being equal, more protection is required where the technical costs and financial risks are greater than where they are not. 3. Patent Rights as Incentives to Commercial Utilization The study data show that patent rights play widely different roles in the business affairs of organizations in the sample. The sharpest distinction occurs between educational and nonprofit institutions, on the one hand, who can only achieve utilization of their inventions by licensing others, and industrial firms, on the other, who can promote utilization through direct use and licensing. Educational institutions in the past have been much more concerned with publishing the results of their research than with promoting patents that may arise from it. Today, however, schools with large government research programis are taking greater interest in their patent portfolios and are seeking through a variety of means to promote them through licenses with industry. Nonprofit research firms also view their patents as a potentially useful source of income and actively seek to license others. In both cases, the inventions most frequently arise from basic research and require substantial private development before reaching the stage where they are commercially useful. Some measure of exclusive rights appears necessary to motivate licensees to invest in the work necessary to commercialize these inventions. Where the institution has an active promotional program and the government has none, commercial utilization would appear to be promoted more effectively by permitting the institution to retain exclusive rights. Where this is not so, more individual analysis is needed to determine what allocation of rights would best foster utilization. Industrial firms in the sample place differing weights on the need for exclusive rights in using government inventions. At one extreme were fs who rely heavily on patent rights to establish their proprietary position in commercial markets and would hesitate to invest in an invention in which they could not obtain exclusive rights. At the other, were firms so completely in the government market that they attach little or no importance to patent rights for commercial purposes. In between were firms for whom patents provide a variety of incentives. The nature and importance of these incentives to firms in the sample are outlined below. A'lack of interest in patents was characteristic of some researchoriented and manufacturing firms that do a preponderance of their business in the government aerospace and defense markets. No desire to expand into commercial markets and no mechanism for the commercialization of inventions were noted. When these firms obtain patents, their sole purpose is recognition within the company of technical competence. In a second group of firms patents were secondary to broad technical and management competence in maintaining their position in commercial markets, Firms expressing this attitude toward patents were generally manufacturers of complex systems and technical products, such as aircrafts, jet engines, computers, or communications equipment. Although as much as 75 percent of their sales may be direct to the government, these firms frequently sell similar products to commercial markets. Inventions developed during the course of R&D activities tend to be auxiliary components and subsystems or incremental improvements to the basic product. These inventions are not as important to these companies in sustaining sales or selling new products as is the basic engineering management and production capability of the firm. New ideas and inventions are incorporated in product modifications or in new models with little consideration given to the protection offered by patent rights. Using a new idea to enhance product performance is regarded as more important than assuring that the company owns the exclusive right to use it. A third group of firms believe that corporat e ownership of patents offers flexibility in design, both in the United States and abroad (through ownership of corresponding foreign patent rights), and provides trading material for cross-licenses with competitive firms. Ownership of a patent, however, as a prerequisite for new product development is a relatively minor factor compared with market considerations and investment requirements associated with commercialization of the invention. A change in government patent policy may affect firms in this category by causing them to choose more carefully the areas in which they are willing to undertake government research. Faced with the possibility of being unable to obtain title to patents they develop, these firms may refuse to contract in research areas that would impair their operational flexibility. A fourth group of firms actively seek ownership of patents, to establish and maintain proprietary positions in new technologies, as well as in established product areas. Invariably, however, estimates of market potential and corporate investment requirements determine which product areas are developed. The makeup of the patent portfolio may indicate the direction for product development in order to strengthen proprietary positions, but development is rarely, if ever, undertaken solely because patent protection is available. A change in government policy from license rights to title rights would limit the government-sponsored R&D activity of firms in this category because of possible conflict with company-sponsored research activities. Contract opportunities would be examined on an individual basis and, in many cases, the government might be refused. A fifth group of firms regard patent rights as essential to their business activities, and are careful to avoid government claims or conflicts over ownership of inventions. Their policies generally lead them into one of two business patterns. In the first pattern, firms will assure corporate ownership of patents before initiating work on a government contract. They may assure ownership either by negotiating contracts that permit them to acquire title to patents on inventions they may develop, or by developing and patenting basic inventions with limited private funds and then seeking contract work in order to develop additional |
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