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across the table says, “Now, you understand we have got to get a lot of recoupment consideration built in here.” That is enough to turn you off to begin with.
I think there is no question it will be a disincentive to the best people in the technical field that the Government is trying to deal with. It is definitely a disincentive, and it would turn them off. I don't think there is any question about that.
Also, of course, it is a one-way street. If the contractor should not make out later on, is the Government going to donate some money to help cover his losses? Of course not. So it is a one-way street as far as the recoupment is concerned. It is all for the Government.
Senator SCHMITT. Well, to debate that a little bit with you, Pratt & Whitney is part of your organization. I think they are involved in some of the recoupment contracts with NASA and other engine companies that involve recoupment. In this case it appears there is a class of activities where there is a true partnership in which all parties invest and all parties receive a return. Aren't there a few categories where recoupment royalty might be appropriate? Mr. WITT. They are pretty limited. Senator SCHMITT. Could you define what those might be? Mr. Witt. In a case where it is something that the Government very definitely will be interested in and where there is very little commercialization-ideas out in the future, perhaps-and the Government wants to protect itself just in case something does break out in the future, I can imagine that.
Senator SCHMITT. That is not the case in the engine programs. Those technologies were already working their way into commercial use.
Mr. WITT. There is no question, as I said earlier, there is no question that there are cases where if we are going to stay in that sort of business, we will take a contract that we don't like. That happens every day. I assure you, having been on the Government side, we used to strike some very tough bargains. And when I was with the Navy, I saw us put a couple of people out of business by striking too tough a bargain. I imagine Mr. Lonsdale can discuss people like that, too.
Mr. McCLOSKEY. In part, it may depend on the application that you are trying to get recoupment on, if it is clearly defined, if it is quite capable of definition and there is no controversy associated with it. But the nature of inventions is their serendipity effect. There is a lot going on that was not part of the contract at all, which happens by virtue of the background of the particular inventor.
Senator SCHMITT. Mr. Lonsdale?
Mr. LONSDALE. Let's first recognize that what we are talking about is a gross departure from the long-standing patent policy of the United States. We are talking about giving firms like ours exclusive patent rights on our own inventions even when the Government pays for part of the development. It seems only equitable to return the Government investment, and I favor a royalty as opposed to simple recoupment for the reasons presented with respect to the cancer cure. That is, let the winners pay for some of the losers. Recoupment or royalties may be a small disincentive, but on the other hand, there is also an enormous incentive facing us, which is Government sponsorship of some of our R. & D. on which we retain domestic patent rights.
I would ask the gentlemen on the panel with me this question: without the recoupment clause, is it likely that such a bill would pass? As a citizen, I consider it a Federal giveaway.
Let me add this. The Small Business Administration held two meetings earlier this year attended by the presidents of small high technology companies and representatives of venture capital companies, and it was virtually unanimous among the 20 representatives of the small, high technology companies that we favor recoupment. We think it is equitable, and we think it will work. If you give us those patent rights, we are happy to repay the Government for its investment.
Senator SCHMITT. My intuition tells me that this issue will be one where great discussion is going to have to be made here in the Congress as to whether, by requiring royalty or recoupment provisions for inventions, we restrict the flow of inventions for the public benefit. Athough you may say it is a giveaway, without the invention the public gets nothing. One of the tasks we have around these tables is to try to find a consensus and a balance as to the most feasible approach. It may be there are some general categories of activities where a recoupment or royalty provision might be appropriate and there may be others where it would be a disincentive.
I hope that you all will think about that as you fly-or walkback to your respective businesses, and give us some guidance and see if we can, in fact, find an adequate middle ground.
On the issue of background rights, are there circumstances where the failure to acquire background rights would inhibit the public's access to a particular technology?
Mr. WITT. Failure to get hold of the background rights would inhibit the Government?
Senator SCHMITT. Inhibit the public's utilization of the invention—that is, the invention can only be utilized by or made available to the public through a broad base of activity if some of the background rights are available also. Are there circumstances like that?
Mr. HARR. I can't conceive of any, but your bill would take care of it. But I would like to say one thing about background patents, too. The enforced inclusion of them also discourages a very useful incentive motivation to design the existing patents. That has been a great source of technological advance in this country and elsewhere in the world. I will certainly get any further elucidation on the answer to your question.
Senator SCHMITT. Do you feel that the Government has acted reasonably with regard to background rights in the past?
Mr. HARR. We are constantly fighting the fight, but I would not say it is unfair.
Mr. Witt. I would say sometimes yes and sometimes no. There have been instances—and I checked into this—where we have refused to participate in a Government contract, and it was an area in which we had technology, because the Government insisted on having our background rights, and our people got together and looked at the pros and cons, and they said, “It's not worth it; go somewhere else.”
Senator SCHMITT. Do you remember what agency you were dealing with? Mr. WITT. DOE.
Senator SCHMITT. I would add to that list, the Department of Interior, because NASA decided not to participate to the degree we had originally planned when I was there with Interior. We checked with the industries that we had hoped would bid on the technology transfer contracts. And they said, “No way; if the Department of Interior insists on background rights, we can't get into it.”
Mr. McCLOSKEY. I became aware of one Friday that may or may not be pertinent. I couldn't get enough of the facts, but it had to do with the Department of Defense's program for the very high speed integrated circuit program and whether or not the Intel Corp. would participate in the R. & D. activity. As I understand it second hand, they are reluctant to do so because of the background issuethey feel that they are further along in the development program than anybody else and are not about to give away their competitive advantage by participating in that program.
Senator SCHMITT. I would appreciate any other thoughts you may have on how to find a balance here, because there may be certain circumstances where negotiation of the certain background rights would be appropriate? But your general feeling is that in most cases it is not necessary. Is that correct?
Mr. McCLOSKEY. Yes.
Mr. LONSDALE. I would like to raise a point of clarification concerning “background patent rights.” If the government is going to give us rights on Government funded R. & D., don't we retain those background patent rights as well?
Senator SCHMITT. In some cases the Government has insisted on acquiring rights to background technology developed with your capital. It has been an inhibitor. I think everybody admits it is inhibiting contractors from bidding. The question is, to what degree has it done that?
There are some horror stories that I think everybody can recite. Our biggest problem is how do we deal with this in terms of a patent policy without being overly restrictive on either side.
Mr. LONSDALE. I assume that if we have these rights that we are talking about in your bill, we also retain our background patent rights.
Senator SCHMITT. Not necessarily. All our bill says is nothing shall be construed to deprive the owner of background rights. But it doesn't say that under some other policy or some other authority an agency couldn't deprive you of background rights if you agreed to those conditions in the contract. I don't think either large or small business generally would like to give up rights they have developed under their own auspices to the Government in order to get the rights to inventions that might come under a particular contract.
But again I can see—at least theoretically-circumstances where you might want to do that, or that might be certainly desirable to the public to have that happen. So we have to deal with this one. But if you have any other thoughts, I would appreciate it.
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How important are the patent rights to, particularly, a big company. I am hearing more and more people say that it is not worth it. The rate of exchange is so fast, technological changes so great, that you have to get out there and get a return on your investment and don't worry about the patent. It takes too much time to get it anyway.
Mr. HARR. We probably each want to take a crack at that. We can't generalize, Senator. Probably that philosophy you are talking about is pretty pervasive as a general proposition, but when patents come along that are important, they are terribly important.
Mr. WITT. We looked at a couple of cases that I think really pins it down with specific instances. One I found, for instance, was a new coating that we got into. We feel this could be what we call a
in our business. It could have Government as well as commercial uses. But because we would lose a patent title, we refused to deal with the Government.
So we are going ahead with our own R. & D., but it is at a slightly reduced pace. In another case, we went into an alloy development which we considered very important. Talking with NASA about that, they said they wanted the rights and so forth. We turned them down and said it is not worth it. We were later checked into by the Department of Defense, and they took a different tack, which brings up the difference in policies in the Federal Government.
They essentially said: “We need to get this expertise, and we want you to develop it, but we will not insist on title to it.” So we went ahead and dealt with DOD after turning down NASA. I think these are the kinds of problems that you emphasize in your statement to the effect that we ought to have a uniform policy.
Senator SCHMITT. So long as it is a good one.
Mr. McCLOSKEY. I think patents are just one factor in the overall weighing of the company's desire to commercialize an invention. It is an important one in the world market where competitive developments are being fostered in other countries, and one has to have the capability of having some protection either in those countries or in his own market.
In addition, there are a number of cross-licenses that exist. That is the trading material that companies use, if you will, the quid pro quo. That is particularly true in the international market.
Mr. HARR. I think their absence would be severely noted in terms of motivation commercially and in investment if you didn't have patent protection.
Senator SCHMITT. There are some companies that because of the delay in obtaining patents just go ahead and market without them. Is that not correct?
Mr. HARR. The evaluation of the timing of the importance against the patent protection.
Mr. McCLOSKEY. That is true if that company is the potential owner of the patent, or is at least the licensed. They are reluctant to do it when the patent belongs to someone else.
Senator SCHMITT. What about these 28,000 old Governmentowned patents, that are sitting around that only a small percent
age, as we heard this morning, are being utilized. Do you have any guidance to the committee for what we ought to include in the legislation to deal with those? You heard my conversation with Mr. Johnson about working out some mechanism whereby, depending on the interests of some individuals, they could be dealt with on a case-by-case basis under the guidance of the legislation.
Mr. WITT. I certainly agree that there is the one line descriptions of them leave so much to be desired that we can't tell what they are talking about. I was looking at a list the other day, and it is so cryptic that it is very difficult to even develop the basic idea of what they are driving at-which technology you are approaching.
Mr. MCCLOSKEY. There are two options. One is passing the title to the companies that invented them originally and see what they would do with them. The other alternative-
Senator SCHMITT. Let them have the first crack at it, if they still exist and still want them.
Mr. MCCLOSKEY. The other is to let an entrepreneur go out and sell them, and I guess there are companies that do exist that try to handle the research of the product of the universities. Perhaps they could be salesmen for the patents on some form of an equity participation.
Senator SCHMITT. Mr. Lonsdale, would you search through these, if you had access, and try to find some.
Mr. LONSDALE. Our firm is too small to take advantage of them, but I would agree with Mr. McCloskey.
Senator SCHMITT. For the time being you are too small, but I'm sure your incentive is to get to a point where you aren't too small. Mr. LONSDALE. I would say let the companies invent them
Senator SCHMITT. Every small business is a big business way down inside.
Mr. LONSDALE. Probably so. But let the inventors have first crack at them, and I would add with recoupment. I believe in recoupment.
Senator SCHMITT. Gentlemen, I have to move on. We appreciate your testimony, and it is an exciting subject, even though not very many people may get excited about it. It is one which we have to come to some conclusion on. It is at the core of many of the problems that we have today.
Thank you. STATEMENTS OF HOWARD W. BREMER, PATENT COUNSEL, WISCONSIN ALUMNI RESEARCH FOUNDATION; AND DR. WILLARD MARCY, VICE PRESIDENT, RESEARCH CORP. Senator SCHMITT. Mr. Bremer, will you proceed first, please. Mr. BREMER. Yes. Thank you very much.
I appreciate the opportunity to participate in these hearings and present the views of academia. My remarks today are made on behalf of the University of Wisconsin, the American Council on Education which is the largest association of colleges and universities in the Nation, the Committee on Government Relations of the National Association of College and University Business Officers, and the Society of the University Patent Administrators.
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