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services. While the element of reward is one factor in the patent system, it is probably the least important. The patent system is an incentive system calculated to do two things, principally. First, it stimulates work, research, development, invention and discovery by holding out the prospect of profit. Second, in exchange for and as a condition of patent protection, it secures a full disclosure of the invention. Promotion of the useful arts takes place through the combination of these two factors, the doing of the work and the disclosure of the results thereof."

Moreover, S. 1215 is particularly timely in this respect. All of us share the deep concerns of both the Congress and the Administration about the sharp decline in industrial innovation in the United States and the resulting adverse impact on our economy and national technological base. We believe the enactment of S. 1215 into law would tend to reverse that trend.

In closing, it is worth noting that for the past thirty years or more, government contracting has operated under multiple patent policies, most of which are title policies—that is to say, the government takes title to inventions made under government research and development contracts. The title policy has failed to achieve maximum utilization of the technology resulting from the substantial sums of public funds spent on government R&D. For example, the “Report on Government Policy” issued by the Federal Council for Science and Technology, indicates that as of 1976 the U.S. government had 28,021 unexpired U.S. Patents available for licensing, of which only 1,252 or about 4.5% had been licensed. The time has come to try a policy, such as proposed in S. 1215, under which a contractor would have the option to retain title to inventions made under government R&D contracts.

That concludes my statement. I shall be pleased to answer any questions you might have.

Mr. Witt. I'm with the United Technologies Corp. from Hartford, Conn.

We design, develop, manufacture, and market a variety of technological products for industrial, commercial, and government needs, worldwide.

The corporation employs more than 189,000 people, operates more than 280 plants and maintains marketing and service representation throughout the world.

It serves its markets with diverse products in three principal lines of business:

Power: Aircraft jet engines, industrial gas turbines; and rocket engines, motors and boosters.

Flight systems: Aeronautical and space systems and equipment; and commercial and military helicopters.

Industrial products and services: Elevators and escalators; automotive products and systems; conductors, controls and devices for the transmission and application of electricity; automotive diagnostic and test systems; and air conditioning and related equipment.

Our company funded research and development program is a balanced mix of short-term and long-term projects.

Some of them are aimed at developing new technology; others at creating new products; still others at improving existing products.

Our purpose-really our R. & D. strategy-is to put the corporation in a competitive position with new and improved products long before we have to compete in the marketplace. Our R. & D. commitment is a cornerstone of our future growth. Only a handful of companies—all of them substantially larger than United Technologies—spend more on R. & D.

As a company we have a deep-rooted commitment to industrial innovation. However, the generation of new technology, new products, and their commercialization are each enormous undertakings.

It is always necessary for us to apportion the company commitment in time, talent, and physical resources to insure that we

tions which nor the pub:commites, are in decisions

make the best use of these resources. We do view research and development as an investment in our future.

We would not tell you, nor in fact is it the case, that the "patent situation” is always the crucial factor in our R. & D. decisions, whether company or Government-sponsored, but it is often a factor.

The decisions are frequently impacted by the question whether or not "the path trod by us may soon be trod by others who have saved their energies," as one writer has phrased it.

We can tell you that the likelihood of significant patent rights is viewed as a positive factor in our R. & D. decisions-an incentive. We, as is true of most companies, are in the business of selling products and our R. & D. commitment is directed toward that end. Neither we nor the public benefit from the results of our inventions which never reach the marketplace.

In connection with our company programs, we utilize the patent system and benefit from the rights which that system provides, and we believe the public benefits as well. But the patent incentive exists only when the rights are in the hands of the party seeking to utilize the invention.

The Government does not require the patent incentive, for the Government is seldom, if ever, the commercializing party.

Our experience indicates that commercial ventures are seldom successful on the basis of patent rights alone-I emphasize that "alone.”

Most of our licensees, for example, are not interested in bare patent licenses but require other assistance from us as well. Normally this assistance simply cannot be provided by the Government.

It explains, in many cases, why the Government is singularly unsuccessful in its license programs. It is usually the party making the invention that has the expertise necessary to commercialize the innovation by its own further efforts or by licensing. I think Tenney Johnson emphasized that in his testimony.

It is also usually the party making the invention that is best able to recognize the commercial potential.

The process of obtaining a patent itself involves an investment of time, talent, and financial resources-and a not inconsiderable one.

At United Technologies the decision whether or not to seek patent protection is itself a business decision. If the existence of a patent is or may be of assistance in fostering the return on investment, then we would see the pursuit of patent rights as appropriate.

Of course, the reverse is also true. When we see no use of a patent in connection with a given innovation in the marketplace, we typically do not seek patent protection on that invention.

In a case where the patent rights to inventions are vested in the Government, as is the case when the Government acquires title to those inventions, the patent incentive simply cannot enter into our business decision.

In fact, not only is there no patent incentive relevant to the commercialization question, there is no business justification for the filing of a patent application. For this reason, we seldom can justify the filing of patent applications on inventions where the Government acquires title.

In considering participation in Government R. & D. contracts, a title in the Government policy often has its greatest adverse impact in those areas where we have the greatest private investment. In those cases, not only are we looking at those investments that may be required of us in the future, but we necessarily must consider the impact on those investments that we have made in the past.

Parties coming to the contract table with the greatest expertise should be those able to solve the particular problem at hand in the shortest possible time and at the least cost. It is indeed an anomaly that in many cases agency policy is such as to provide the greatest lack of patent incentive, or even disincentive, in such circumstances.

Federal patent policy, if it is to maximize the R. & D. investment of the Government, simply must be such as to enlist the services of the most qualified parties and to promote commercialization.

And I think, sir, that is the thrust of your proposed legislation.

Title in the Government simply does not do that. We believe that restoration of the patent incentives to the private sector is essential. And because S. 1215 restores those incentives, it is our belief that it will foster "the progress of science and the useful arts,” which is the basic thrust of the whole patent concept.

Retention of a license by the Government insures that there would be no impact of patents resulting from Government-sponsored inventions in the products that Government is buying. The patent incentives would be important in the development of those incentives for non-Government products.

We have long been a major participant in Government R. & D. programs and, regardless of the Federal patent policy ultimately adopted, we will continue to participate in and have an interest in such programs.

At the present time we are participating in Government contracts where title to inventions made in the performance thereof will reside in the Government.

As we have mentioned, there are many factors that enter into participation decisions and a "patent situation,” as I said earlier, it is only one factor that we consider.

In such cases we have determined that other factors outweigh the lack of patent incentive. However, we do believe that a policy of acquisition of title by the Government is a deterrent to participation and to commercialization in many cases.

We believe that the disposition of patent rights must be clearly established at the time of contracting, as would be the case if this bill is adopted. It is difficult to base R. & D. decisions on uncertain possibilities of later acquisition of rights, as by waiver procedures, after contracting

It is also our experience that such procedures involve tedious administrative endeavors in which we participate only with great reluctance.

Adoption of this bill will not only provide uniformity and certainty to the Federal R. & D. arena, but will also restore the incentive of the patent system to the process of industrial innovation and commercialization. The public will simply never receive the benefits of inventions that are never made or commercialized.

For the above reasons, we urge your support of this legislation. Thank you.

Senator SCHMITT. Mr. Lonsdale. Mr. LONSDALE. First, I would like to thank you for inviting me to these hearings. It is gratifying that someone wants to hear our opinion. I have prepared a formal written statement, but I don't plan to read it at this time. I would rather make my remarks informally if I may.

Senator SCHMITT. Your statement will be included in the record. Mr. LONSDALE. I represent Bend Research, Inc., located in Bend, Oreg. We have 25 employees, and most of us are chemists. We are inventors, and would-be innovators.

I believe I am the only representative from small business at these hearings, so in a sense I respresent the 4 million small businesses in the United States.

But more to the point, I represent small, high technology companies, of which there are only a few thousand. I feel some responsibility for speaking for those people, because I think they made substantial contributions to the growth and economic success of this country.

Several Government studies have shown that these small high technology companies have been inordinately successful at technological innovations in this century. They have kept us at the economic forefront of the world and made us a world power.

So, with some respect and humility, I feel that I am representing Frank Carlson before the introduction of xerography, or Edwin Land before the introduction of the Polaroid camera. All of these people started as small entrepreneurial inventors. The development of these small, high technology companies is now stifled for a number of reasons.

Changes in SEC regulations and tax laws have made it difficult. And equally important is inflation. That is, people with capital find it more profitable to speculate in land than they do in investing in small high technology companies at the crucial early stage where seed capital is so important.

It is difficult for us now to raise capital, and this is a widely recognized problem. There have been bills introduced into the Congress to try to solve this problem. Senator Bentsen has introduced four bills recently to try to help small high technology companies in this country. For the first two decades after World War II we were doing very well in technological innovation. We still lead the world, but our lead is shrinking. How can we reverse this trend and thereby create jobs and improve our balance of payments?

One way is the way you indicated in your bill, Senator: Give us the exclusive patent rights on our own inventions. We can use these rights to attract the investment needed to get our ideas going.

If the Government retains the rights, as we have seen from other testimony, these patented ideas are essentially lost. That is my own testimony and that of others. I think less than 5 percent of all Government-owned patents have been licensed or used.

I would like to give you an example of our own. We have invented a process that we call “coupled transport”. I won't give you a detailed description, but it is a membrane process for recovering metal ions from solution. It is an important new process that has application in hydrometallurgical recovery of metals from lowgrade ores and in pollution control.

The invention is ours. We made it about 4 years ago. But to develop the invention, we went to the Bureau of Mines for support. They insisted on vesting all patent rights in the Government.

Senator SCHMITT. You should have talked to me first.
Mr. LONSDALE. I wish we had.

We gave up the domestic patent rights of necessity. We are now 4 years into that development. In that time it has progressed from the concept stage to a very practical thing. We plan to build a pilot plant on a uranium mine in New Mexico this fall. The Government has participated to the extent of about $300,000 to $400,000 in the development up to the present.

We have discussed the process with about 20 American companies, in an attempt to interest them in further development of the process. Several of them are very large firms in the petroleum or mining industries: Gulf Oil, Continental Oil, Kerr-McGee, Westinghouse, Kennecott, Anaconda, and others.

None of them expressed strong interest. As an example, I would like to read two sentences from a letter from the Galagher Corp. of Salt Lake City, a mining company, signed by Hartman Mitchell, vice president for mineral processing.

"The processes which you desribe are very interesting. However, we do not see at this time that there would be enough proprietary equipment for us to be interested.”

That is typical of the response we got from all of these people, because we have no exclusive American patent rights to offer any of these American companies.

We do have foreign patent rights, however. We have therefore discussed our process with some foreign companies and we have filed patents on this process in eight countries, the eight most important countries in our opinion. One large Japanese firm has taken a strong interest in the process, and they are in the process of developing it in their country now.

We may well see the process coming back to the United States under a foreign label in due course, which worries me substantially as a citizen.

We favor bills such as S. 1215 which would alter this unfavorable patent situation. Other bills have been introduced, as you know, dealing with this matter. Senator Kennedy has introduced S. 1074. Senators Bayh and Dole introduced S. 414 which also deal with this subject.

There are four key features that I would like to see in such legislation, some of which are in your bill, Senator Schmitt. Some are in the other bills, but none of the currently pending bills combine all of these key features. First, give us exclusive U.S. patent rights. All of the bills I have mentioned will do that, with some exceptions, but I think those exceptions are justified.

Second, I favor giving those rights only to small businesses. I don't have a very defensible position here, but I do think that since

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