Section 301 right of the government

We recommend that Section 301 state a positive presumption of title to the contractor and then list the exemptions.

Throughout our consideration of the provisions of S. 1215 we have had in mind the words of Adam Smith: "The uniform, constant, and uninterrupted effort of every man to better his condition * is frequently powerful enough to maintain the natural progress of things toward improvement, in spite both of the extravagance of government and of the greatest errors of administration."-Wealth of Nations, 1776.

We look upon S. 1215 as an effort and perhaps means to curb both the extravagance of Government and its errors of administration in addressing technological innovation.

Thank you for the opportunity to express these views.

Mr. Chairman, with your permission I would like to submit an additional document for inclusion in the record. This is a paper entitled: "Public Patents-Public Benefit Synonyms or Antonyms?” which I prepared for a meeting of the State Bar of Wisconsin and which discusses the impact of Government patent policy on competition, innovation, public health, economic growth and jobs, and foreign competition.

PUBLIC PATENTS-PUBLIC BENEFIT SYNONYMS OR ANONYMS?

Since the term "Public Patents" used in the title of this paper can mean different things to different people, it is to be understood that for purposes of this paper it means those patents to which title resides in the United States Government and under which a royalty-free nonexclusive license is generally available.

Introduction

To enable us to consider the question posed by the title to this paper we must look at the constitutional basis for patents and the development and impact of Government patent policy with regard to the allocation and disposition of property rights resulting from research and development activities sponsored and funded in whole or in part by the Government operating through various of its Agencies.

Of all the controversial subjects which have been addressed by members of Congress and discussed by newspaper editors and columnists over the years, none appears to be less understood than the policy governing the allocation and disposition of rights to inventions arising out of Government-financed research and development.

The basic issue is whether the Government should always take the commerical rights to patentable inventions generated under a Government sponsored contract or from Government-funded research or whether such rights would better be left with the contractor or fund recipient to permit him to utilize the patent system in transferring the technology developed to the public sector for its benefit.

The talent of invention-an expression of intellectual originality-must be given the maximum encouragement by providing the inventor with all necessary stimuli to inventive activity. The patent laws provide the major stimulus to such activity for they are intended to afford the inventor protection for his intellectual property. Technological advance is essential to this country maintaining its international leadership and there can be little such advance without adequate reward for the inventive mind. Therefore, a viable and sound system of patent laws is essential to the economic well-being of this country. As Abraham Lincoln said “The patent system added the fuel of interest to the fire of genius."

Constitutional basis

As we all know, the Constitution was drafted in the context of a struggle with a Government which had abused its obligations to defend the rights of its citizens. It was no accident, therefore, that the salient portion of the Constitution drafted for the purpose of protecting your liberties, the fifth amendment, made the Government the servant and protector and not the master of your individual rights. The fifth amendment of the Bill of Rights provides that: "No person shall - be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use without just compensation."

Thus, the fifth amendment provides generic protection for all individual property. Since there is little doubt than the term "property"; as used in the fifth amendment includes intellectual property, it would seem that the protection afforded the individual by that amendment would be adequate. Yet the framers of the Constitution felt compelled to be even more explicit about intellectual property and provided the

following language in Article 1, Section 8: "The Congress shall have Power Το promote the Progress of Science and useful arts, by securing for limited Times to Authors and Inventor the exclusive Right to their respective Writings and Discoveries."

Why this special handling of intellectual property?

There was no recorded debate in the Constitutional Convention on September 5, 1787, when Article I, Section 8, was presented and it was approved unanimously. That the products of the mind should prospectively receive legal protection, even from a centralized Government to be formed, was a principle upon which no one disagreed.

As evidenced by subsequent statement by Madison, the chief architect of the Constitution, his interest in intellectual property did not end with the Constitutional Convention. For example, in the Federalist on January 23, 1788: "The utility of this power will scarcely be questioned. The copyright of authors has been solemnly adjudged, in Great Britain, to be a right of common law. The right to useful inventions seems with equal reason to belong to the inventors. The public good fully coincides in both cases with the claims of individuals. The States cannot separately make effectual provision for either of the cases, and most of them have anticipated the decision of this point by laws passed at the instance of Congress."

Then later, in a letter to Thomas Jefferson on October 17, 1788, he made a more important insight: "With regard to monopolies, they are justly classed among the greatest nusiances in Government, but is it clear that as encouragements to literary works and ingenious discoveries they are not too valuable to wholly renounced? Would it not suffice to reserve in all cases a right to the public to abolish the privilege at a price to be specified in the grant of it? Monopolies are sacrifices of the many to the few. Where the power is in the few, it is natural for them to sacrifice the many to their own partialities and corruptions. Where the power, as with us is in the many, not in the few, the danger cannot be very great that the few will be thus favored. It is much more to be dreaded that the few will be unnecessarily sacrificed to the many." (Italics added.)

In the above statement, and particularly in the last sentence, the answer to the need for specific protection of intellectual property, notwithstanding its inclusion in the generic term "property" in the fifth amendment, seems apparent. By use of the word "monopolies" Madison conveys that he was aware that the nature of an individual piece of intellectual property is such that it could be useful to all people and yet could be owned by one person, while diversity of ownership of all other categories of property precluded the possibility of monopoly. The strong possible argument against an indefinite monopolization of valuable intellectual property and its end product under only the fifth amendment and his recognition that "The States cannot make effectual provision", suggests that Madison was aware that the rights of the creative few would be in danger without clarification in Constitution. Thus, a compromise was struck under which intellectual property was to be owned for only a limited term during which the creator had the right to exclude others.

The power given under this clause is not general. Hence, it expressly appears that Congress is not empowered by the Constitution to pass laws for the benefit of protection of authors and inventors except as a means to “promote the Progress of Science and useful arts."

Under this specific power the present patent statute, Title 35 of the United States Code, was enacted. It is significant that the face of the patent document contains the following statement: "-these Letters Patent are to grant unto the said claimant(s)—the right to exclude others from making, using, or selling the said invention throughout the United States."

and that 35 USC 261 characterizes this right to exclude as a property right.

There is little if anything in the foregoing remarks that would appear subject to question and certainly not among those of you who deal with intellectual property on a day-to-day basis. Even those who have difficulty with the intellectual property clause do not advocate its repeal. Their argument has not been directed against the Government's responsibility for protection of private property and the special reward promised by the intellectual property clause. Rather their thrust has been to erode the concept through efforts to convince that there is an immediate need to limit the reward "in the public interest" or because of some public involvement, e.g. through partial funding by Government, in the difficult and generally imperfectly understood delivery process through which intellectual property must move before reaching the public in usable form. These arguments, used in inappropriate situa

In this sentence Madison appears to distinguish between past monopolies on commodities granted as personal favors and the suggested monopoly for intellectual property.

tions are likely what Madison considered "to be dreaded" since then indeed "the few will be unnecessarily sacrificed to the many.”

The issue

The issue presented by the title to this paper has become much more sharply focused because of the apparent loss of technological leadership by the United States with its attendant negative effect upon the balance of payments and has been emphasized by the recent attack upon the dollar. How did that issue arise? Historical

During the early history of our country very little technical development work was done by the Government and therefore, as a practical matter, the question of the Government owning a patent never arose. Gradually Federal agencies begun to undertake the practical kind of development work which led to inventions. Since prior to World War II almost all Government-financed research and development work was conducted in Federal laboratories by full-time Government employees, there was a small but recurring problem of what to do with inventions resulting from such work-inventions which, if made by private parties, would have become the subject of patent applications.

This situation changed rapidly during and after World War II when the technological requirements imposed by more and more sophisticated military requirements as well as the increasing complexity of support services made it quickly evident that there were not sufficient resources within the Government to undertake all the scientific projects necessary to a winning war effort. The absolute necessity to utilize the best technical ability available, regardless of its locus, spawn a rapid proliferation of Government-sponsored and -funded research and development contracts.

The proper disposition of rights to patents resulting from this work was theoretically as important then as now but was never seriously addressed as a major problem because of the exigencies of wartime needs.

Post World War II the technological strides made under the impetus of a wartime footing and the obvious necessity for continued technological superiority, at least in defense-oriented efforts, made it imperative to continue to provide public support for science. Nor was this support limited to the military. For example, in 1950 Congress finally provided an annual budget limit of $15 million for the National Science Foundation to conduct basic scientific research at universities.

During this same period, hundreds of millions of dollars were appropriated by the Government in the area of medical research in the beginnings of an all-out attack on disease.

With the rapid expansion of scientific projects being undertaken and supported by the Government, the same shortage of technical ability and facilities continued to prevail as it had done under the pressures of World War II. Because the Government could not do all the necessary work in its own facilities, qualified private companies, universities and non-profit organizations were sought out to perform many of the programs via contractual arrangements. And the same old problem of ownership of patent rights existed in every one of the contracts.

Since there was no single or overriding patent policy which the Government had to rely upon, each governmental Agency which supported a research and/or development effort, through either or both of contractual or grant arrangements, developed its own policy. The obvious result was that many policies evolved. At the one extreme, some of the Agencies advocated the "title" policy. At the other extreme was those Agencies advocating the "license" policy. There were also many and varied policies between those two extremes.

Governmental agencies operating under the "title" policy insisted on acquiring title to all contract-generated inventions and patents on them, including inventions which were only incidental to the major purpose of the contract, and then dedicated them to the public through publication, or by offering a license on a nonexclusive, royalty-free basis under any patents obtained to all who requested it. The argument was that all these inventions, including the incidental inventions, should be ac

2 See Physics Today, Apr. 1978, p. 96-An Editorial by Betsy Ancker-Johnson, former Assistant Secretary of Commerce for Science and Industry; "The Innovation Recession", Time, Oct. 2, 1978; "Something's Happened to Yankee Ingenuity", The Washington Post, Sept. 3, 1978; "Vanishing Innovation", Business Week, July 3, 1978; "U.S. Losing Ideas Race-Other Nations Chip Away at America's Technology Empire", The Atlanta Journal, The Atlanta Constitution, May 21, 1978.

quired because they had been "paid for" by the Government and should therefore be owned by the Government.3

Agencies which adopted the "license policy" permitted the contractor to take and keep title to inventions and patents arising under the contract, while reserving a royalty-free license in the Government to practice the invention for Governmental purposes. The theory which these Agencies applied was that inventions and patents are only incidental to the specific research or products contracted for and that equity demands nothing more than a royalty-free right for the Government to use the inventions.

Other theories and contentions made by the advocates of the two policies, each in support of its own position, tended to finally so polarize the two groups that compromise seemed impossible.

Memorandum and statement of government patent policy

In 1963, Jerome Wiesner, President Kennedy's Science Adviser, recognizd a need for some guidelines to effect a more uniform Government policy toward inventions and patents on a Government-wide basis. The results of Dr. Wiesner's study culminated in the Policy Statement issued on October 10, 1963 by President Kennedy' to establish Government-wide objectives and criteria, subject to existing statutory requirements, for the allocation of rights to inventions as between the Government and its contractors which would best serve the overall public interest while encouraging development and utilization of the inventions.

Since the policy, as promulgated, would most likely have to be revised after experience had been gained in operating under it, a Patent Advisory Panel was established under the Federal Council for Science and Technology to assist the Agencies in implementing the Policy, acquiring data on the Agencies' operations under the Policy, and making recommendations regarding the utilization of Government-owned patents. In December 1965, the Federal Council established the Committee on Government Patent Policy to assess how the Policy was working.

The studies and experience of the Committee and the Panel culminated in the issuance of a revised Statement of Government Patent Policy by President Nixon on August 23, 1971.5 The changes effected in the Nixon Policy Statement were made as a result of analysis of the effects of the Policy on the public interest over the seven years from the Kennedy Policy Statement. It was stated that the studies and experience over the seven years indicated that:

(a) A single presumption of ownership of patent rights to Government-sponsored inventions either in the Government or its contractors is not a satisfactory basis for Government patent policy, and that a flexible, Government-wide policy best serves the public interest;

(b) The commercial utilization of Government-sponsored inventions, the participation of industry in Government research and development programs, and commercial competition can be influenced by the following factors: the mission of the contracting agency; the purpose and nature of the contract; the commercial applicability and market potential of the invention; the extent to which the invention is developed by the contracting agency; the commercial orientation of the contractor and the extent of his privately financed research in the related technology; and the size, nature and research orientation of the pertinent industry.

(c) In general, the above factors are reflected in the basic principles of the 1963 Presidential Policy Statement.

The considerations basic to the Statement of Government Patent Policy are the following:

(a) The Government expends large sums for the conduct of research and development which results in a considerable number of inventions and discoveries.

(b) The inventions in scientific and technological fields resulting from work performed under Government contracts constitute a valuable national resource.

(c) The use and practice of these inventions and discoveries should stimulate inventors, meet the needs of the Government, recognize the equities of the contractor, and serve the public interest.

See, Public Citizen v. Sampson, 379 F Supp. 662 (D.D.C. 1924) aff'd, 515 F. 2d 1018 (D.C. Cir. 1975); Press release by Senator Gaylord Nelson (Wis.) of the Senate Monopoly Subcommittee of the Senate Small Business Committee on Dec. 9, 1977 re the Government giving rights to inventions to contractors; Also, hearings held by Senator Nelson on GSA proposed changes in the FPR issued Mar. 18, 1978; Hearings before the Subcommittee on Monopoly and Anticompetitive Activities of the Select Committee on Small Business United States Senate, 95th Congress, 2nd Session on Government Patent Policies, May 22, 23, June 20, 21, and 26, 1978.

♦ Presidential Memorandum and Statement of Government Patent Policy (FR Vol. 28, No. 200, Oct. 12, 1963).

5 Presidental Memorandum and Statement of Government Patent Policy (FR Vol. 66, No. 166, Aug. 26, 1971).

(d) The public interest in a dynamic and efficient economy requires that efforts be made to encourage the expeditious development and civilian use of these inventions. Both the need for incentives to draw forth private initiatives to this end, and the need to promote healthy competition in industry must be weighed in the disposition of patent rights under Government contracts. Where exclusive rights are acquired by the contractor, he remains subject to the provisions of the antitrust laws.

(e) The public interest is also served by sharing of benefits of Governmentfinanced research and development with foreign countries to a degree consistent with our international programs and with the objectives of U.S. foreign policy. (f) There is growing importance attaching to the acquisition of foreign patent rights in furtherance of the interest of U.S. industry and the Government.

(g) The prudent administration of Government research and development calls for a Government-wide policy on the disposition of inventions made under Government contracts reflecting common principles and objectives, to the extent consistent with the missions of the respective agencies. The policy must recognize the need for flexibility to accommodate special situations.

Although there is evidence that the guidelines did bring the patent practices of the Agencies into greater harmony, divergent policies still exist and there is a strong presumption, if not evidence in terms of the transfer of technology to the public sector, that the more restrictive the policy of the Agency, i.e. the more "title" oriented the Agency is toward inventions and patents generated under its funding, the less the likelihood exists that the technology will be transferred for the public benefit.

Notwithstanding the President's Statement of Patent Policy one must remember that such Policy establishes guidelines only and that today there are as many as 19 variant patent policies among the various Government Agencies, all presumed to exist within those guidelines.

Current agency practices

A. General

Executive Agencies have traditionally interpreted the provisions of the President's Statement on Government Patent Policy, or applicable statutes, to require the use of patent rights clauses in contracts (and in grants where universities and other non-profit organizations are involved-grants are not available to commercial or profit-making organizations) to provide either title in the Govenment in inventions generated in the performance of such contracts (or under such grants) or a deferred allocation of patent rights, the allocation of the rights taking place after the invention has been identified.

Even when the title clause is used by the Agency, and even where the disposition of patents rights is statutorily controlled as, for example, with the National Aeronautics and Space Administration and with the Energy Research and Development Administration, the clause many times may permit the contractor or grantee to request and obtain the principal rights in the invention with the Agency's agreement after the invention has been indentified.

Thus, there are three clauses which can and are used by the various agencies: (1) The license policy clause; (2) The deferred patent rights clause; (3) The title policy clause with waiver privileges.

Exemplary of patent policies of Government Agencies which provide the bulk of research and development monies are the following:

Department of Health, Education, and Welfare-deferred determination, but permits Institutional Patent Agreements under which certain grantees and contractors are afforded first option on title to inventions made during the course of a grant or contract."

National Science Foundation-deferred determination, but permits the use of Institutional Patent Agreements with certain contractors and grantees.

National Aeronautics and Space Administration (NASA)—statutorily controlled; has title policy with waiver possibility.

Energy Research and Development Administration (ERDA)—statutorily controlled; has title policy with waiver possibility.

For listing of current statutes, regulations, orders, manuals, memorandums and materials governing allocation of rights to inventions arising from Government-sponsored research on agency-by-agency basis see Report on Government Patent Policy by Federal Council for Science and Technology, U.S. Gov't. Printing Office 1978-281-067-289 available from the Superintendent of Documents.

7 For historical interest re Institutional Patent Agreements and early DHEW practice see Report to the Congress on "Problem Areas Affecting Usefulness of Results of GovernmentSponsored Research in Medicinal Chemistry" by the Comptroller General of the United States, Aug. 12, 1968.