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TABLE 16
TIME LAG FROM PATENT APPLICATION TO FIRST COMMERCIAL UTILIZATION

CONTRACTOR ACTIVITY FOR SAMPLE YEARS 1957 AND 1962

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*Years between filing and first expected commercial utilization. This column is not included in the row totals.

for conteSSINGHOF Ony. Hopefullye is in the chung

Senator SCHMITT. Can you suggest reasons why the commercial utilization rate of NASA-generated inventions is so much higher for contractor-owned patents than NASA-owned patents?

Mr. MOSSINGHOFF. I think Mr. Johnson indicated some of the reasons in his testimony. Hopefully we have selected the best contractor to do the job for NASA. He is in the business, he has the ability to evaluate inventions to discern which ones have greater commercial potential. He has the production, marketing, and engineering capability to develop the invention from an idea of the inventor to an item actually produced and sold in the marketplace.

I think Tenney Johnson gave a good summary of that reason.

Another element that should not be overlooked is that it has been my experience that the person most impressed with an invention is the inventor himself or herself. It is their baby and they want to see it used. They want to leave their footprint.

It seems to me that it is important, unless there is an overriding public policy to the contrary, to leave the commercial rights where that inventor is, so you have the single greatest champion of the invention working the problem.

I think those are the two principal reasons.

Senator SCHMITT. That is an interesting point. I think all of us in one way or another in science and technology would be impressed with that if we just thought about it-how protective we are of an idea that we may have had and how rapidly we try to advance that idea, whether it is an intangible idea or some piece of hardware. That is an excellent point.

Are you satisfied that the march-in rights, those which NASA retains under its present policy and those which would be required under S. 1215, are adequate to protect the public interest, and if so, why?

Mr. MOSSINGHOFF. It is difficult to imagine a situation where those march-in rights wouldn't be adequate to protect the public interest. I think when President Kennedy's statement was issued that was the heart of the policy concept, adopting a flexible policy vis-a-vis the Government and the contractor to retain rights. But if the contractor retained rights, it wasn't against the world. He had to act responsibly with those rights. As Tenney referred to, he couldn't just suppress the invention and it must be made available for public health, safety, and welfare reasons.

So the answer to your question is yes. I think that those rights are adequate.

Senator SCHMITT. So you are saying that the fact that march-in rights have not been exercised extensively is the best sign that they are working?

Mr. MOSSINGHOFF. Yes, I believe that. That experience brings into a realm of reality what until now has been a hypothetical issue of whether the cure for cancer is going to be suppressed or whether the carburetor that will get 100 miles to the gallon will be suppressed by some commercial operation.

While NASA has never exercised march-in rights as such, we do require periodic reporting from our waiverees of the steps they are taking to commercialize the invention. And where they are not taking such steps, or have no plans to commercialize the invention, we void the waiver. We have done that in more than 25 percent of the cases for a total of 266—with respect to a total of 266 inventions, we have voided the waivers and taken the patent back into NASA's portfolio and made it available for licensing.

Senator SCHMITT. How does that contrast with the march-in rights?

Mr. MOSSINGHOFF. It is a part of the march-in rights, but it was done voluntarily between NASA and the waiveree. We require periodic reports-

Senator SCHMITT. They have voluntarily agreed to release the waiver?

Mr. MOSSINGHOFF. In response to the fact that they have not brought the invention to the point of practical application within 3 years. When we find that out, they are put on notice that we are going to require the issuance of licenses if someone requests. And as a voluntary agreement with NASA, they agree to have NASA void the waiver and return title back to the Government. ·

Senator SCHMITT. In all of those cases you have been able to negotiate a march-in rather than actually having to impose one? Mr. MOSSINGHOFF. Yes, sir.

Senator SCHMITT. In your view, which patent policy would be more cost effective, NASA's present policy or the one generally outlined in S. 1215?

Mr. MOSSINGHOFF. I am not convinced that our policy is cost effective, Senator. I think there is a lot of Government effort that goes into evaluating inventions, doing patent searches on the inventions, acquiring the patents, and then putting it in the license portfolio. Those of us that participated in this recent analysis—that led to the conclusion that we are getting a commercialization rate of about 1 percent with respect to contractor inventions that we own patents on-we are disappointed by that.

I know the general counsel of NASA wants to go further in that analysis to determine whether or not what we are doing makes sense.

It seems to me that, again for reasons that Mr. Denny indicated, if you leave that invention with the contractor, he has the ability to evaluate it and decide whether he is going to file and whether the patent is going to become part of his portfolio, it will probably be cost effective for the Government.

Senator SCHMITT. S. 1215 specifically provides that the act shall not be construed to deprive an owner of a background patent. What is NASA's position on acquiring background rights to inventions, and do you think something more explicit ought to be included in this measure?

Mr. MOSSINGHOFF. As a general policy, NASA does not acquire background rights to inventions developed by the contractor using its own independent resources.

I think the number of times we have done that is probably between 6 and 12 times in the history of NASA.

Senator SCHMITT. Is there any general criteria that seems to have been met when you exercised background rights?

Mr. MOSSINGHOFF. Some of them, Senator, were when decisions had not been made in the communications satellite area and NASA was very reluctant not to get some assurances—and that is about all it amounted to-assurances that the contractor would not

enjoin others. It did not get into the terms of royalties or licenses that he would issue; but there have been instances when we did get assurances injunctions would not be sought.

I could provide a better answer for the record, if I may.
Senator SCHMITT. I would appreciate that.

[The following information was subsequently received for the record:]

NASA's policy on the acquisition of background patent rights is enunciated in Section 9.107-3(e) of the NASA Procurement Regulations wherein it states: "it is the policy of NASA to pay reasonable compensation for the acquisition of rights in any invention used or to be used by NASA which is covered by a valid patent thereon and enforceable against the Government.

It is further stated that: "nothing in [subpart 9.1) is intended to preclude the use of appropriate contract provisions concerning rights in contractor's background patents, but rights in background patents will normally not be acquired in contracts for supplies and services except by specific negotiation of such rights, unless the patents and the rights thereunder are listed and priced as a separate contract item.”

In other words, the acquisition of background patent rights in a contracting mode is the exception rather than the rule and is a matter of negotiation between the parties. The NPRS do not set forth any standard clauses for background patent rights nor are any guidelines provided therefor.

Historically, NASA has sparingly used background patent provisions. They have been limited to procurements of the type which involve products which are intended for commercial use or which may ultimately be required by Government regulations and with respect to which a management judgment is made that background rights are necessary to meet program objectives. Authorization to negotiate background provisions is granted only after program management at Headquarters identify a realistic need.

Because background provisions as used by NASA are subject to negotiation the terms of such provisions have varied. For example, a background patent provision may simply amount to an agreement by the contractor not to enjoin third parties from the use of the patented background invention. In essence the contractor is thus agreeing to negotiate a reasonable royalty or seek compensatory damages at law. A background provision may also provide the Government a license, royalty-free or royalty bearing, for the use of the patents for Governmental purposes. Sometimes there are express requirements to license other responsible applicants on reasonable terms and conditions to practice the background patents. Often, this requirement is limited to specific end-items or specifically defined program objectives rather than being applied across the board to the procurement. A common provision is that the background clause is not applicable where suitable commercial alternatives are available. Another variation with respect to background patents concerns whether the clause is applicable to foreign or domestic patents or both. A background provision will also usually contain a mechanism for resolving disputes as to facts such as what is a reasonable royalty or who is a responsible applicant. Occasionally, rights to a contractor's proprietary data (e.g., trade secrets) are acquired coextensive with rights to a contractor's background patents, depending on program objectives.

Programs which have used such provisions have been concentrated in the satellite communications area and in the quiet engine aeronautical program. For example, in the early 1960's NASA entered into an agreement with Hughes Aircraft Company containing a provision with regard to ten to twelve specifically identified patent applications which covered inventions useful in the first generation of geostationary spin-stabilized satellites that evolved from the SYNCOM program. Under this provision Hughes agreed not to enjoin any third parties from using these inventions. As mentioned earlier this is tantamount to an agreement to license the inventions on reasonable terms.

In another communications satellite program NASA negotiated a background patent provision for inclusion in the contract with Fairchild Industries for the Applications Technology Satellite F&G program. The provision was applicable to the parabolic antenna, including the reflector, deployment mechanism, primary feeds and support structure. As in the other cases, a background rights provision was deemed desirable in order to assure the accessibility of this potentially valuable technology to the future needs of the Government and the public and commercial sector.

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