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.

NASA's quiet engine program was another program area, as mentioned earlier, that employed background patent and data provisions. The overall objective of this program was to improve noise reduction technology for the benefit of the public and the industrial sector. There was also an expectation that if successful, the results of the program would be required by Government regulation. Accordingly, the background provision was deemed necessary to assure the availability of the technology. [For example, contracts in this area with Boeing, General Electric and McDonnell Douglas included background provisions of varying scope.]

Senator SCHMITT. Mr. Denny, have there been examples of the Department of Energy or ERDA having exercised a retention of background rights? Are there any generalizations that can be made?

Mr. DENNY. In the patent area, it is a standard practice of the Department of Energy-I might first define what we consider a background patent. That is: A patent of sufficient breadth and strength that it is literally a blocking patent; that the technology we are developing under the contract cannot be used unless you use that patent. We defined a background patent that narrowly. And if there is one, the contractor, in our normal policies, provides two things:

First, a free research and development license to the Government. The concept there is if the contractor has introduced its background technology into our contract and we are trying to commercialize it, we don't want to be charged for it.

Second, if it is a blocking patent, the contractor may be required, if requested by DOE, to license others at reasonable royalties unless the contractor is satisfying market needs on its own.

So it is a very limited form. It is intended to address the suppression kind of concern, and we have up until now found no need to enforce it.

Senator SCHMITT. Do you think any comprehensive Government patent policy should include criteria for the retention of background rights?

Mr. DENNY. No, sir, I do not. We have it in our policy. It came very close to being placed in the ERDA statutory patent policy, and I tried-and this time successfully-my best to keep that from happening. It is an extremely sensitive issue. It is, probably more than anything else, a go-no-go kind of situation in cooperation. You need the utmost in flexibility. I pleaded with those who were developing the ERDA Act to give ERDA, and now DOE, an opportunity to show their responsibility in acquiring this kind of rightto show that it can be handled on an administrative basis where it is flexible, and where necessary it can be eliminated.

Mr. MOSSINGHOFF. I would agree with that. I think the way you treat background rights in your bill is adequate. It states that the bill should not be construed as affecting it either way.

Speaking for NASA, I believe we have acted responsibly in the few cases where we thought we needed assurances with respect to a blocking patent. I would think that that would be something best left for interpretation, and then if you see problems developing, it could be addressed later.

Senator SCHMITT. Mr. Mossinghoff, do you remember an exercise that the two of us went through with Mr. Johnson in trying to negotiate a patent agreement between NASA and the Department

of Interior where there was an insistence that background rights be retained. It had to do with underground coal mining?

Mr. MOSSINGHOFF. I remember it well. I am sorry it didn't work. Senator SCHMITT. We only spent 11⁄2 years on it.

Do you feel that the language in S. 1215 is sufficient to prevent that kind of an occurrence? Frankly, that is what first got me interested in patents. When we could not apply advanced technologies rapidly to the more efficient mining of coal.

Mr. MOSSINGHOFF. I think the provision in the bill, coupled with a strong element of good judgment, could prevent that from happening again. There is a need for judgment.

Senator SCHMITT. We would appreciate any further comments you might have in retrospect for the record. I would hate to see those kinds of things happen, particularly where there needs to be an interagency cooperative activity, and because of the difference in judgment or a difference in interpretation of the law in the two agencies, they can't get together.

In the example I cited, everybody agreed it ought to be done, but nobody could agree how it should be done.

Mr. Mossinghoff, would the present patent provisions apply to joint endeavors of NASA's plannings? For example, those involving materials processing in space?

Mr. MOSSINGHOFF. We looked at that very carefully earlier this year. As you know, we are proceeding with the issuance of guidelines for when we will cooperate with private concerns in conducting experiments using the Space Shuttle, and in connection with the materials processing space program particularly we looked at that.

We concluded that as long as a joint arrangement does not anticipate the flow of NASA funds to fund work on the other side of the NASA-cooperator interface, that strictly speaking section 305 of the Space Act will not apply.

I am sure we will obtain a broad Government license to any efforts that are undertaken. And I think we will also probably require assurances from the person we cooperate with that the results will be made available to the public in an expeditious or reasonable way. But the statutory patent policies of NASA will not apply.

If you wish, I could include in the record the memorandum of our Assistant General Counsel for Patent Matters, which details the basis for that conclusion we reached.

Senator SCHMITT. We would appreciate that very much.

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

To: G/General Counsel.

NATIONAL AERONAUTICS AND SPACE ADMINISTRATION,
Washington, D.C., June 19, 1979.

From: GP/Assistant General Counsel for Patent Matters.

Subject: Applicability of section 305 of the Space Act to Joint Endeavors.

This responds to your request that I address the issue of whether "section 305 of the National Aeronautics and Space Act of 1958, as amended [hereinafter "Space Act"] applies to inventions made in the course of joint endeavors; for example, endeavors undertaken in the materials Processing in Space Program.'

In this memorandum I will review the legislative history of section 305, discuss NASA's interpretation and application of the section over the years, summarize the experience gained, and state the conclusions to be drawn therefrom.

The basic legal issue is whether a "joint endeavor" is a contract of the Administration for the performance of work within the intent of section 305, such that any inventions made in the course of the endeavor are subject to the ownership requirements of subsection 305(a).

For the purposes of this memorandum, a joint endeavor is defined as follows: "A joint endeavor is an arrangement between NASA and a party or parties in which each undertakes to contribute to or participate in a project of mutual benefit, and which usually involves the use of equipment, facilities, services, personnel or information made available by one or more of the parties for use by the others. Such endeavors do not involve the transfer of funds or title to property between the parties, and are not considered a procurement or an assistance transaction within the purview of P.L. 95-224. Services which may be involved do not constitute the employment of one of the party's employees by the other."

In answer to the legal issue raised, it is concluded that a joint endeavor is not subject to the legal constraints of section 305. This conclusion is based on the Space Act and the long-standing administrative interpretation of section 305 by NASA that there are many arrangements which NASĂ may enter into, a joint endeavor being one such arrangement, that are not contracts covered by subsection 305(a). 1. Section 305 of the Space Act

The pertinent language in the Space Act [1] dealing with the allocation of property rights in inventions is as follows (emphasis added):

Subsection 305(a) requires that [w]henever any invention is made "—in the performance of any work under any contract of the Administration, and the Administrator determines that

(1) the person who made the invention was emplyed or assigned to perform research, development, or exploration work and the invention is related to the work he was employed or assigned to perform, or that it was within the scope of his employment duties, whether or not it was made during working hours, or with a contribution by the Government of the use of Government facilities, equipment, materials allocated funds, information proprietary to the Government, or services of Government employees during the working hours; or

(2) the person who made the invention was not employed or assigned to perform research, development, or exploration work, but the invention is nevertheless related to the contract, or to the work or duties he was employed or assigned to perform, or was made during working hours, or with a contribution from the Government of the sort referred to in clause (1)"

such invention becomes the exclusive property of the United States unless the Administrator waives rights thereto in conformity with the provisions of subsection 305(f).

Subsection 305(b) specifies that "[e]ach contract entered into by the Administrator with any party for the performance of any work" is to contain effective provisions for the reporting of inventions “which may be made in the performance of such work.

Section 305(j)(2) defines the term contract as meaning "any actual or proposed contract, agreement, understanding, or other arrangement, or subcontract."

It is the meaning, interpretation and application of the phrase "in the performance of any work under any contract of the Administration" when considered in the context of the whole statute, its legislative purpose and intent, and its long standing practical interpretation by NASA, that determines whether a joint endeavor, which meets the literal defnition of "contract" as set forth in subsection 305(j)(2), comes under subsection 305(a).

2. Legislative Purpose and Intent Behind Section 305

The legislative purpose and intent underlying section 305 is not set forth in the Space Act;[2] however, the legislative history of section 305 does provide insight in this regard. Although the legislative history of section 305 has been characterized as "extremely thin" and not providing guidance, or as "very scanty," requiring NASA to use "its best judgement as to what Congress had in mind" with regard to the interpretation of such difficult and complicated legislation,[3] a careful review of the report of the House-Senate Conference on the bill,[4] and the transcripts of the floor debate prior to its passage[5], does reveal a consistent thread of legislative purpose and intent underlying section 305.

The report of the conference, for example, after briefly setting forth the previous House and Senate actions that led up to the need for conference on the issue, states: "Operating on the theory that the Government's interests must be protected, but with the concomitant purpose of protecting private interests and of keeping private