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NASA's Patent Waiver Regulations also take into account the "exceptional circumstances" and "special situations" provisions of the Presidential Memorandum and Statement.

Examples of exceptional circumstances recognized by NASA include: a contract where participation of the contractor may only be secured through the grant of waiver and the contractor is deemed essential to a NASA program; a contract having as a principal objective the application of aerospace-related technology to other uses in accordance with an established NASA technology application program and where the grant of the waiver would materially advance this objective; or, a cooperative endeavor where the contract calls for a significant contribution of funds by the contractor to the work to be performed.

Also, in the case of an individual invention identified prior to contract execution, exceptional circumstances may be found (1) where waiver is a necessary incentive to call forth risk capital and expenditures to bring the invention to the point of practical or commercial application and (2) where either the contractor has established substantial equities at his own expense in the development of the invention or, the grant of an advance waiver will significantly advance availability of the invention to the general public.

Examples of special situations include: a newly formed company having a definite program for establishing a nongovernmental commercial position in the field of the contract or a directly related area; an established company lacking an established nongovernmental commercial position in the field of the contract or a directly related field, but having established plans and programs for achieving such a position; and an educational or nonprofit institution having an established patent policy and an effective program for acquiring rights to inventions and bringing the results of such inventions to commercial application by itself or through others. For calendar years 1959 through 1978, NASA received 906 petitions for advance waivers. The Administrator granted 463. Contractors reported 216 inventions or classes of inventions (on which they intended to file patent applications) under these contracts.

Individual waivers

NASA's ICB will recommend grant of a waiver after identification and reporting where the Board makes the following findings:

(1) The invention is not directly related to a governmental program for creating, developing, or improving products, processes, or methods for use by the general public at home or abroad.

(2) The invention is not likely to be required by governmental regulations for use by the general public at home or abroad.

(3) The invention does not directly concern the public welfare.

(4) The invention is not in a field of science or technology in which there has been little significant experience outside of work funded by the Government, or where the Government has been the principal developer of the field and the acquisition of exclusive rights in the invention would not likely confer on the petitioner a preferred or dominant position.

The Board must also find that, in view of the petitioner's plans to bring the invention to the point of practical application, the incentives provided by waiver will increase the likelihood that the benefits of the invention would be readily available to the public at an early date.

If the Board is unable to make one of the four findings to support a waiver, the Board may still recommend that waiver of rights be granted by the Administrator if it finds that such waiver is a necessary incentive to call forth risk capital and expenditures to bring the invention to the point of practical application, or that the Government's contribution to the invention is small compared to that of the contractor.

NASA contractors reported 31,357 inventions to the agency for calendar years 1959 through 1978. They requested 1,366 waivers and the Administrator granted 1,035. About 3 percent of the inventions reported were waived.

PATENT UTILIZATION

NASA believes that one of its objectives under the Space Act is to enhance the leadership of the United States in aeronautical and space activities and make the results of these activities available to the public. Thus, NASA has implemented various programs to promote the commercial development and utilization of aeronautical and space technology. NASA said its patent policies and procedures have been adopted to augment these programs and its decisions regarding the allocation and utilization of patent rights are made with this objective in mind.

Patent utilization/licensing

NASA's program for licensing inventions to which it has acquired title is based on Section 305 of the Space Act and is implemented by NASA Patent Licensing Regulations (14 C.F.R. 1245.2). Both nonexclusive and exclusive licenses are available.

In order to locate prospective licensees who want to commercialize an invention, NASA uses a variety of methods to inform the public of its technology available for licensing. Abstracts of the agency's inventions appear in its publications. Additionally, NASA inventions available for licensing are listed in the Federal Rgister and the Official Gazette of the U.S. Patent and Trademark Office.

The National Technical Information Service also publishes a weekly journal entitled "Government Inventions for Licensing" which includes NASA abstracts and licensing information. NASA said that it has not been able to identify or relate any licensing inquiries for agency owned inventions to the NTIS journal. NASA also said it holds and participates in licensing conferences and workshops and its Industrial Applications Centers disseminate both abstracts of inventions available for licensing and information on how to obtain licenses.

NASA promotes nonexclusive licenses, but may grant exclusive licenses if it determines that the invention is not likely to be brought to commercialization under a nonexclusive license or by further Government funding and that the exclusive license will provide the necessary risk capital to achieve commercial use of the invention. NASA normally does not require royalties for a nonexclusive license but may for an exclusive license.

Domestic licensing

Each application for a domestic license is initially reviewed in NASA's Office of General Counsel. If the application conforms to the regulations and the license requested appears appropriate, the application is forwarded to the Inventions and Contributions Board. The ICB recommends to the Administrator whether a nonexclusive or exclusive license should be granted and any terms and conditions of the license.

If a determination is made to grant a nonexclusive license, the terms and conditions are negotiated by the Office of General Counsel. If the determination is made to grant an exclusive license, notice of this intent, along with the identification of the invention, licensee, and special terms and conditions, are published in the Federal Register. The exclusive license will be granted unless, within 30 days of the notice, a statement is received from any person setting forth reasons why it would not be in the interests of the United States to grant the proposed license, or an application for a nonexclusive license is received which states that the invention is likely to be brought to practical application within a reasonable period of time. As of December 31, 1978, NASA had 251 licenses in force on 133 of its 3,512 domestic patents and applications. Nine of these licenses were exclusive and 242 nonexclusive.

NASA negotiates a specific date for commercialization with its licensees and requires that the invention be practiced for the term of the license, which usually is less than the term of the patent. Licensees are required to report annually on their progress in commercializing the inventions. NASA recently inquired about commercialization efforts of its 242 nonexclusive licensees; 138 or 57 percent responded. Fifty, or about 20 percent of the total licensees, reported they were pursuing development and marketing efforts.

Foreign licensing

Inventions on which NASA obtained patents in foreign countries are available for licensing in those countries. NASA's foreign licensing objectives are to further the interests of U.S. industry, enhance U.S. economic interests, and advance U.S. international relationships.

Foreign licenses can be either exclusive or nonexclusive. In granting foreign licenses, preference is given to the applicant who has previously been granted a license for the invention in the United States. NASA requires royalties or some other consideration under all foreign licenses.

As of December 31, 1978, NASA had 787 foreign patents on 184 inventions. Fiftynine were licensed exclusively to 7 licensees.

Patent utilization/waivers

Where NASA waives property rights to inventions made under its contracts, the Inventions and Contributions Board periodically monitors the waiver recipients. Through 1977 NASA waived rights to 1,046 inventions, but subsequently voided 258

of these. NASA said that 193 or about 18.5 percent of its waived inventions were utilized or commercialized.

NASA's data on 523 inventions waived prior to 1975 showed: 84 in use in a commercial process, product, or service; 15 fully developed with Government use; 91 under development; 68 available for licensing; 228 without active commercialization or licensing efforts; and 37 obsolete.

Waiver recipients reported that the 15 fully developed inventions wre ready for commercial use, but they had found only Government use in additon to NASA's use. Most of the 91 inventions under development were being developed by the waiver recipient. Where development was being done by licensees, the inventions resulted primarily from university and nonprofit research organizations.

The only effort being undertaken for 68 inventions was to find a licensee. Many of these inventions resulted from universities and research organizations which did not have manufacturing capability. In some cases where the waiver recipient was a manufacturer, the invention was reported as being outside of its business or manufacturing activity.

NASA believed the 228 inventions without commercialization or licensing activity may have some utility. The agency, however, attributed the lack of interest in these to the following: no commercial need or market; inventions too costly to develop; inventions not cost competitive; technology too sophisticated; market too small to justify production; funding not available; and invention shelved indefinitely because of other priorities.

Thirty-seven inventions were obsolete because (1) other or better products and methods were available; (2) they were superceded by other technology; (3) they were not compatible with present systems; or (4) the state-of-the-art had passed them by.

MARCH-IN RIGHTS

NASA includes march-in rights in its waiver instrument. The Administrator reserves the right to require the granting of a nonexclusive or exclusive license for the practice of the invention:

(1) Unless, within 3 years after the patent is issued, the waiver recipient has taken effective steps to bring the invention to the point of commercial application and thereafter continues to make its benefits reasonably accessible to the public, or (2) Unless, within 3 years after the patent is issued, the waiver recipient has taken effective steps to make such patent available for licensing on terms that are reasonable, or

(3) As may be appropriate to satisfy governmental regulation for public use or as may be necessary to fulfill health or safety needs or other public purposes.

Under the terms of the waiver instrument, the recipient agrees, if requested by NASA, to provide a written report to the agency not more often than annually on the commercial use of the invention. NASA evaluates these reports to ascertain compliance with conditions of the waiver.

NASA has not enforced its "march-in" rights by directing waiver recipients to license others under the conditions specified in the waiver instrument. Rather, when the recipient does not comply with requirements, the waiver is voided and title to the invention is taken back by NASA. The invention then is made available for licensing to third parties under the agency's licensing regulations. On December 31, 1977, NASA had voided 258 waivers. All of these were voluntary on the part of the waiver recipient. NASA said that most of the waivers were voided at the request of the recipient and not for failure to comply with "march-in" provisions in the waiver instrument.

Senator SCHMITT. Gentlemen, we are going to have to move on to a panel of business representatives.

want to thank you again for this discussion, and if you happen to be talking with anyone in the administration, whoever they may be, would you make the suggestion-and you can attribute it to me, that they, as soon as they are ready to talk, will find some people over here in the Congress ready and willing to talk with them in the formulation of a Government-wide patent policy.

Mr. DENNY. I will make sure that message is delivered.
Senator SCHMITT. Thank you.

Our next panel are four gentlemen representing certain aspects of the inventing and contracting industry, Mr. Peter F. McCloskey,

president, Electronics Industries Association; Karl G. Harr, Jr., president, Aerospace Industries Association of America; Hugh E. Witt, director, Government Liaison, United Technologies Corp.; Harold Lonsdale, president, Bend Research, Inc., Bend, Oreg.

STATEMENTS OF PETER F. MCCLOSKEY, PRESIDENT, ELECTRONIC INDUSTRY ASSOCIATION; KARL G. HARR, JR. PRESIDENT, AEROSPACE INDUSTRIES ASSOCIATION OF AMERICA, INC.; HUGH E. WITT, DIRECTOR, GOVERNMENT LIAISON, UNITED TECHNOLOGIES CORP.; AND HAROLD K. LONSDALE, PRESIDENT, BEND RESEARCH, INC.

Senator SCHMITT. If you want to submit your full testimony for the record, it will be so included. Please summarize your statement, if you can, so we will have time for some questions and answers. Don't leave out anything that you think is of importance for today's discussion.

Mr. McCloskey, would you begin?

Mr. MCCLOSKEY. Thank you, Senator.

I am Peter F. McCloskey, president of the Electronic Industries Association-EIA-and appear today on its behalf.

We appreciate the opportunity to testify on S. 1215, the Science and Technology Research and Development Utilization Policy Act. EIA is made up of over 300 domestic manufacturers of electronic products with an annual sales volume of $68 billion. The range of companies encompass both small and large firms. The industry engages in research and development of $6 billion a year. Of this amount, $2.7 billion is federally sponsored R. & D.

Therefore, the electronic industry, which is noted as being a high technology industry, has a direct and vested interest in protecting the resulting intellectual property innovations and therefore in the patent policy of the various Federal agencies.

As you can see, it has a direct vested interest in the patent policy of the various Federal agencies.

We support S. 1215. While there are some areas of the legislation we would like to see clarified, or where additions would be helpful to implementing its overall intent to increase innovation, the bill as a whole properly balances the role of Federal R. & D. and the overall U.S. industrial innovation process.

The association has long been involved in the debate on Federal patent policy with a dual interest.

First, member companies have found the diverse policies of the various agencies to be somewhat confusing and at odds with each other.

Consequently, we have long sought a uniform policy in the interest of heightened contractor involvement.

Second, there is a pervasive feeling that the uniform policy should be one to encourage contractor participation. Stated otherwise, the policy should remove disincentives to perform Federal R. & D. work. Satisfaction of these interests would clearly work to the benefit of the economy and the public at large.

S. 1215 appears to be a rational approach in addressing those two interests. Viewed from the public's perspective, this is particularly true when acknowledging the additional safeguards built into the legislation to protect the public's interest through appropriate

march-in rights and ancillary provisions to protect fully the Government's interests.

Placing title in the contractor for inventions under federally sponsored R. & D.-and doing so for all agencies-can only work to assure broader contractor participation, a higher quantity and quality of innovation and an attendant flow down to the American consumer of the benefits from commercialization of these inventions.

This point has been obscured in the recent evolution of agency patent policies. This most likely has resulted from attempts to serve ulterior purposes or from a basic misunderstanding of the underlying incentives to innovation. S. 1215, however, refocuses attention to two vitally important points.

First, those existing agencies with a policy calling for the Government taking of title in all cases lessen the incentive to subsequent commercialization which would otherwise be present if the contractor held the patent.

More importantly, however, the taking of title by the Government in those cases traditionally is accompanied by attempts to make rather significant demands on the so-called background rights, and patents, of the participating contractor.

This valuable know-how, involving proprietary information in many cases, was initially developed by the contractor at private expense. It serves as the technological driving force behind innovative companies.

To ask a company to give up some of this know-how unnecessarily in order to undertake a Federal R. & D. project raises a difficult judgment question. Ironically, the most successful firms-the best innovators-are faced with giving up more of this valuable background technology.

This penalty then becomes a greater disincentive to these firms. What results is a dichotomy that those with the most to contribute to the Federal R. & D. effort face the greatest disincentives.

Our statement is made up of two segments. The first deals with some questions and suggestions as to the specifics presented to us in the letter from Senator Stevenson inviting our participation in these hearings.

Turning to those questions-the first deals with the effect of agencies 'patent policies on participation by contractors in federally sponsored R. & D. and the subsequent impact on commercialization of inventions.

It is difficult to quantify the exact effect of such policies. We have been made aware of instances where an agency title policy was a sufficient disincentive to cause a contractor not to participate.

Contractors who have spent private resources to develop valuable technological know-how and background patents must be reticent of participation in a program which tends to dissipate this competitive advantage.

In effect, the contractor must balance the impact of this participation in a Federal R. & D. program with the need to protect the investment of the company's shareholders, represented by background rights and know-how.

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