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Notwithstanding the utilization programs employed by government agencies, none exe ept A FC has an express statutory mission to increase business competition in commercial markets for its own sake. When it does occur, however, it is an indirect result of their efforts to accomplish their basic mission. From our observations of the study inventions and insofar as the effect of patent policy is involved, competition does not appear to have been adversely affected by this lack of direct concern, for three reasons:

The rate of utilization of government inventions has been low.

(ii)

The agencies such as TVA and Agriculture, whose inventions
are most likely to be utilized --either developed them in-house
or took title to them when developed under contract.

(iii)

And industrial owners of government-sponsored inventions have
been willing to license them upon request or, where they were
unwilling to license, alternative technologies were available to
to competitors in the great majority of cases.

[Based on all observations of the sample inventions we have found little evidence

of adverse effects on business competition by permitting contractors to retain title to government-sponsored inventions.

D. Effect of Goverment Patent Policy on Industry Participation

in Government R&D Programs

The effect of government patent policy on industry participation in R&D programs was the most difficult factor to measure because of the difficulty of obtaining data on the question. However, a useful understanding of problems in this area was obtained by studying the medicinal chemistry program of the National Institutes of Health (HEW) and various contracts of the Department of the Interior. This aspect of the study attempted to answer such questions as:

(i)

Do competent business organizations refuse to undertake
government R&D work--either entirely or in selected
areas--beause of government patent policy?

(ii)

What effect doe's policy have on application of a contractor's
most advanced private technology to gov ment programs?

(iii)

Does patent policy have any influence on the flow of information
concerning new developments between a contractor's govern-
ment and privately sponsored work?

The data available to us only allows us to define some first-order effects of the policy in this il ca.

Industry's main concern about participating in government research has been the compronuse of private investment in research and invention. Frequent objection was made 10 the "peephole" effect of government programs, whereby the government receives righis in the accumulated results of private work. The "peephole" effect has its counterpart in patent matters where an invention has been conceived at private expense, but reduced to practice under a government program. The traditional patent provisions classify this as a government invention and dispose of its rights under the terms of the contract.

The reach of the contract has been extended in some program to background patents owned by the contractor at the time of contracting. This practice causes the sharpest industry reaction of all because firms feel caught between their wish to participate in government programs and the need to protect their private investment and competitive position.

The major adverse effects of patent policy on participation are program delay, loss of participants, diversion of private funds from government lines of research, and refusal to use government inventions and research when questions regarding a company's proprietary position are raised. These adverse effects occur selectively, but they live occurred at important points in government programs observed in the study.

The key to the participation question, however, lies in the attitude of prospective contractors toward the role of patents in their activities. As noted in connection with utilization, patents have varying importance to organizations doing business with the government. Industrial firms whose major business objective is participation in government work and systems-oriented companies in the study sample were at one end of the scale and were found to assign patents a secondary role compared with technical and management competence. Patents typically were used by the former to provide recognitition to technical personnel and to project the creative quality of their work to their government customers. Systems firms, on the other hand, were found to rely on patents to ensure design freedom, provide material for cross licensing agreements as well as to recognize creativity in their technical personnel. The data indicates that firms in these two categories are not likely to refuse to participate in government R&D for patent reasons. However, systems firms may encounter participation problems at the subcontract level if the government acquires titie tu all inventions developed under its program,

On the other hand, firms which place a high value on patents for defensive purposes tend to choose among the areas in which they are willing to undertake government research and may decline to participate in programs which inpair their operational flexibility. And, firms in research-intensive industries like electronics and new technically-oriented firms seeking to develop a proprietary product-line through government research were found to rely on patents to establish proprietary positions. These firms tend to be selective in their government-sponsored research and may decline to participate in programs which conflict with their privately sponsored research and development or which do not promote their growth objectives for

proprietary lines.

Firms which follow this policy even more fully try to assure corporate ownership of patents before initiating work on a government contract or may consciously isolate government work from their commercial operations. In the latter case, there is usually little interchange of technical innovations between the government and commercial activities of the firm and there may be some loss of relevant technical experience and applications to the government work.

Lastly, large diversificd firms often follow different patent polie ies in different divisions of the organization. Accordingly, they may be willing to participate in government programs with small concern for patents in some areas but with great concern for patent rights in others. It is difficult to generalize about these firms except to notice that their policies tend to follow the patterns of the industries in which their divisions participate. Their behavior may, therefore, resemble any of the categories of firms described above if their divisions have similar business profiles.

With respect to educational and nonprofit institutions refusal to participate for patent reasons is not normally a problem. However, instances were found in Department of Interior programs where patent problems were encountered because of conflicting institutional obligations arising from joint support of a research program or where rights in background patents were sought as a condition of the project. With the rising interest in nonprofit institutions in patents as a source of revenue, greater concern over patent rights can be expected from institutions with large research programs as financial pressures on these organizations continue to increase.

Viewing the participation problem from the standpoint of individual government agencies, the effect of patent policy varies with the nature of their R&D programs and the contractors that participate in them. Participation problems are not a concern to TVA which performs virtually all its research and development itself and, therefore, has little or no contractual interface with industry. They are also minimal in Agriculture programs since that agency contracts almost all its extramural research and development with educational and nonprofit institutions, In addition, the firms that do participate in its programs do relatively little research and development on their own and tend to be less patent conscious than those participating in defense/aerospace work.

The direct effect of policy on NSF and HEW programs also appears to be small because most of their contract research is eit her basic in nature, offering limited opportunities to develop patentable inventions, or is performed by nonprofit institutions who, for the most part, are interested in the research for itself. However, some problems may be encountered in instances of joint or overlapping research at nonprofit institutions where the rights of other parties may be involved. And, a significant indirect effect has been noted in an important HEW health program where voluntary

noncontractual participation by a patent sensitive industry was curtailed because of patent consideration,

The Department of Inierior, like HEW and NSF, has a number of programs --such as water desalination--which are oriented toward developing basic technologies, The Agency contracts in these areas with research-oriented industrial firms (many of whom are pateni conscivus), as well as educational and nonprofit institutions, and acquires title to patents arising under its programs. Under some programs, statutes on which they are based have been interpreted to require the agency to acquire rights in existing patents owned by contractors because of their relevance to the contract effort and future utilization of contract results. These factors--patent conscious organizations and acquisition of rights to contract inventions and existing patents--have resulted in several instances of hesitation or refusal to participate in the government program. Insufficient data was avail able to establish how widespread the reaction was or its overall effect on Interior programs.

The largest number of opportunities for participation problems occur, of course, in DOD, NASA, and AEC programs because of the size and scope of their contract effort. Only a limited amount of data was available on this question for these agencies but a few general observations may be made. At least as to the majoi ity of DOD inventions, to which contractors are normally permitted to retain title, no problem arises. In addition, NASA's policy of waiving title to inventions to promote utilization under appropriate circumstances provides a method for resolving competing government and industry objectives with regard to patents arising under contract. Lastly, interviews with industrial firms in the survey sample indicate that -- except where a large investment in private research, know-how, inventions and/or patents considered to be valuable in commercial markets exist--acquisition or improvement of technical skills is sufficiently important to them in most cases to justify participating in government programs in their areas of interest even though patent provisions are not completely suitable to them.

However, this does not mean that either a title or license policy will equally serve the government's interests under all the above circumstances, since the policy selected may also affect industrial decisions to use contract inventions commercially. Here again, a balancing of government objectives appears necessary to ensure that the net effect of the patent policy promotes the government's overall goals.

1

TABLE 1
CONCENTRATION OF R&D FUNDS (1965) IN RELATION TO AGENCY AND
GOVERNING POLICY CRITERIA AND PATENTS ISSUED (1957, 1962, 1965)

(S in Millions)

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0 0

1 1 4

1 0 2

Agriculture
Interior
HEW
VA
TVA
NSF

$ 61.7

38.5
682.7

.8

.3
183.2

$155.7

84.4
174.8
36.9

5.S
14.5

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1

$967.2

(9%)

$471.8

(16%)

2
0

Commerce
FAA
NASA
AEC

0
2

19.4
$ 41.7
3,999.9
1,233.6

48.5
$ 34.5
871.0
32.8

8
0

0
266

7
0
4

0
8
7
98

0

1
19
250

33

289

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274

39

300

113

270

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1(a)(1)- End item intended for

commercial use by general public.

1(a)(2)- Purpose of contract to

explore fields concerned with public health or welfare.

B. Public Service and

Mission-Oriented

1(a)(3) Contract pertains to new

fields with Government as
sole or principal developer.

1(a)(4)- Contract requires opera

tion of Government research
or production facility or
coordination and direction
of work of others.

(1(a)(1), (2) and
i(b) also applicable)

$5,294.6

(48%)

$986.8

(33%)

10) Contract builds upon existing

knowledge and contractor has technical competence and es. tablished nongovernmental commercial position.

11(a)(2), (3) and (4) also applicable)

• AEC rights in these inventions vary. In some it holds a nonexclusive license only.

In others it holds a general license with exclusive rights in field of atomic energy.

Source: Annual Report on Government Patent Policy,

Federal Council for Science and Technology,
June 1966, and study data.

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