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or first option to title in the contractor approach is superior to any other approach on every count. Thus, public patents-public benefits are antonymous.

In reaching this conclusion it should be kept firmly in mind that we are not dealing in abstractions.

The number of patents granted to citizens of the United States has fallen off. In 1961 only 17 percent of the patents issued in the country were issued to nonAmericans; currently the ratio is up to about 35 percent. The statistics also indicate fewer "big" inventions-the rate of new drug introductions today is about onefourth the rate of 15 or 20 years ago—and it takes longer to put them in the market. In the chemical field it averages about seven years from the laboratory to the market; 15 years ago it took an average of two years.

We as a nation spending less on research, using fewer people, and producing fewer inventions; and fewer of the inventions we do produce reach the marketplace, and it takes them longer to reach it.

Under the accepted definition of an underdeveloped country which is "one that exports raw materials to maintain its balance of payments, while it imports finished goods to maintain its standard of living" we are now an underdeveloped nation. We are exporting our cotton, timber, grain, coal and other raw materials in order to pay for cameras, TV sets, radios, tools, steel, clothing and a host of other finished products.

Today science is being made subservient to politics with decisions being made not on scientific facts but on political opportunity. And efforts go forward to discredit and weaken our patent system which, over the history of our country, has provided the incentive for innovation. It is indeed a noble motive to give to the people the benefits of publicly supported research and we can agree that tax dollars should not be used as a means of enriching private parties. We must, however, be vigilant, for the views on the issues involved lend themselves to emotional molding. Outspoken claims to the guardianship of the public interest or public welfare is a rich field for cultivating political power. A deadening result of political emphasis on such guardianship is the proliferation and growth of the bureaucratic maze where accountability becomes the fear. Under such conditions the atmosphere generated tends to be one of self-protective caution with the danger that operation of the system will become a disproportionate part of the objective.

Effort is fundamental to the transfer of technology to the marketplace and wherever effort is needed incentive is required. In this country the patent system has provided that incentive through its exclusion privileges and can be considered to figure prominently in the economic equation.

E(x)=Px f(x)

where E(x) is the expected return, Px is the probability of success and f(x) is the total value of return.

The probability of success is most certainly enhanced by the existence of an intellectual property right-a patent. In today's technologically intensive atmosphere some protection for the heavy investment required in development is more than ever necessary. The lead time given by exclusive knowledge or patents is shorter than ever before. If that lead time disappears, through further weakening of the patent system, or weakening of the ability to extend exclusive rights to intellectual property, it may become economically sound to be second in the field. There is some evidence of that second-place philosophy in the medically-oriented and other fields today. Further erosion of the exclusive rights to intellectual property afforded under the Constitution could lead to a second-position attitude in U.S. industry. The next step is willingness to be a second-place nation.

Senator SCHMITT. Mr. Marcy, would you proceed, please-Dr. Marcy?

Dr. MARCY. I'm not a real doctor; I'm only a Ph. D.

Senator SCHMITT. Somebody stuck another title in front of my name and I lost track of the other ones.

Go ahead.

Dr. MARCY. My name is Willard Marcy. I am vice president of invention administration program, Research Corp..

Research Corp. is a private foundation. It is a nonprofit organization founded in 1912 and chartered by the State of New York. It is dedicated to the support of science and technology. In its present embodiment, it provides educational and scientific research institu

tions with invention evaluation, patenting and licensing services in accordance with the terms of prearranged invention administration agreements, and it devotes all of its income after expenses to support further research in college and university laboratories. I am honored to be asked to testify today regarding the provisions of S. 1215 and the need for a uniform policy directed toward the encouragement of participation by private industry in Federal research and development programs and commercial use of their results. In so doing, I should make it clear that the views I present here are mine as a private citizen, but I believe they reflect, in general, the feelings of my employing organization.

The basis for my thoughts and observations is grounded in over 15 years experience in the constructive use of the patent system for the transfer of technology primarily from nonprofit educational and scientific research institutions to industrial corporations. During this time I have worked intimately with universities, Government agencies and industry in attempting to translate the differing policies of Government contracting agencies into positive action to develop innovative concepts for public use.

Recently, in hearings on S. 1250, Chemical & Engineering News reported that Senator Brown identified 12 problem areas connected with innovation which warranted further congressional attention. I venture to say that there are at least another dozen and probably another dozen on top of that. I mean to imply that innovation, how to foster it and how to use it to the best advantage of the country, is exceedingly complex.

This is borne out by contemplation of the hundreds of thousands of man-hours spent on studying innovation, and the tons of reports analyzing the results of these studies. One recent report commissioned by the Office of Federal Procurement Policy, for example, contains a bibliography of no less than 206 references to various publications relating to the narrow area of the activity, or lack thereof, of small firms relating to Federal research and development.

I think the citizens of this country have now come to realize that past innovative activity has played a key role in making this country great, and that continued innovation is a necessity for keeping it great and for increasing its citizens' standards of living. In today's highly specialized society, it is no longer possible to take a laissez-faire attitude toward innovation, as was done at the beginning of this country's history; we must consciously and assiduously promote innovation. Not control it in an absolute sense, but promote it, for to control it unduly is to stifle it.

In my opinion therein lies the basic problem. Ever since the Federal Government began to finance research and development in a massive way, during and since World War II, greater and greater control of scientific and technological research, its development and the use of its results have been exercised by Government bureaucrats until innovation itself has become stultified and suppressed.

What seems necessary to me is to loosen these controls, and in addition, to provide incentives and encouragement to the large pools of scientists, engineers, entrepreneurs, managers and workers available in this country to innovate.

What I am suggesting is that the philosophy of Government input to the innovation process be rather drastically changed. At present this philosophy is, generally, a defensive one leading to a proliferation of rules, regulations, and controls which, in toto, defeat innovative minds and greatly hinder, if not prevent, development of new ideas.

In the present circumstances there are simply too many people advocating and enforcing too many control methods. This results in great confusion at the working level. Instead of spending time, effort and enthusiasm on innovating, innovators must try to find the right person in Government to approach, prepare proposals in depth with ironclad justification for funding-based on speculation, I might add-and then stand in line just to obtain funds for doing research and development.

They must then perform the research and report back frequently in tedious and unnecessary detail what they have accomplished, justifying each expenditure in order to satisfy rigid Government auditing regulations. And finally, they must go through extensive report writing and prepare quasi-legal arguments with contracting agency officials to be allowed to proceed to develop, manufacture and market new products or processes resulting from the research. Even when authorization is finally obtained, all sorts of restrictions are placed on how developing and marketing is to be handled, with a constant threat of the Government standing ready to take over at the first sign of difficulty. It is small wonder that innovation based on Government support has declined. The barriers are formidable.

In contrast, if all Government departments were united in the desire to help the innovator, to reduce barriers to his success, and to provide a positive atmosphere to his undertakings, innovative activity would greatly increase, the time between conception of an idea and its public use would be reduced and many more new ideas would surface.

What I propose, then, is that a highly positive approach be taken at the topmost levels of the Federal Government and that this attitude be actively promoted down through all the lower governmental levels.

In my view, a start in this new direction must be made in Congress through legislation. However, as noted previously, encouragement of innovation is a many-faceted and extremely complex endeavor. For this reason, I believe several pieces of legislation, each addressing one issue at a time, is preferable to a single omnibus bill which tries to resolve the whole problem in general terms.

Ideally, the several legislative proposals should dovetail and complement each other. When one issue at a time is addressed, later changes or modifications can be made more easily and promptly without disturbing companion legislation.

Consequently, it is heartening to me to see introduced into this session of Congress S. 414, which addresses the Government patent policy issue; S. 1215, which addresses the issue of the most suitable policy to follow in encouraging private industry to participate in developing federally funded innovative concepts; and S. 1250, which

addresses the issue of developing and fostering a climate conducive to the enhancement and improvement of the innovative process. These three bills complement each other and seek to improve the Government attitude toward innovation. If passed, they will be steps in the right direction, but will not provide the final answer. Additional bills along similar lines and addressing additional issues will need to be introduced and passed in the future to further improve the climate for innovation before measurable overall improvement can be perceived.

It is also gratifying to note that the constructive and forwardlooking institutional patent agreement approach, formulated and first used by Department of Health, Education, and Welfare patent staff personnel, and adopted later by the National Science Foundation, has served as a basis for some of the provisions in both S. 414 and S. 1215.

While the IPA is a small step, it is in the direction I advocate, that is, the removal of unnecessary recordkeeping, a major disincentive, and, through loosened, but not thoroughly relaxed, controls, the provision of a very real incentive to private organizations to undertake further development of innovative concepts stemming from federally funded research and development.

The provision in S. 1215 of a central authority to provide various services, such as evaluation, patenting and licensing, to the Federal contracting agencies is also gratifying. However, I would suggest setting up such an organization on a rather different basis than is proposed in the bill. I would not center it in an existing administrative agency, such as the Department of Commerce, but would recommend an entirely new quasi-governmental and semiautonomous organization independent of existing agencies along organizational lines similar to the National Research Development Corp. in England.

My reasoning is that many problems are bound to develop which could lead into serious conflict of interest situations, the solution of which would exceed the authority and administrative scope of an existing agency. This new organization should not only provide administrative oversight but would be responsible for the active development of innovative concepts all the way to the marketplace. Such an organization should function with as small an internal staff as possible and contract with private organizations outside of the Federal Government to undertake the bulk of the work to be done, including the licensing of patents to industrial concerns. This type of arrangement would benefit the Government, private industry and the public by bringing to bear more knowledgeable managerial, financial, manufacturing and marketing expertise than is available from solely governmental sources.

I believe that a better job could be done at less overall expense to the taxpayer with this type of operation. A successful model for such an organization already exists on a modest scale within the Federal Government. It is the Office of Energy Related Inventions, established by Congress in the Nonnuclear Energy Research and Development Act of 1974, and administratively attached to the National Bureau of Standards.

I have other comments to make on S. 1215 and on the general issue of providing incentives to encourage private industry partici

pation in federally funded research and development, but these will be included in a longer written statement for publication in the hearing record. Some of these comments may well be discussed, and have been this morning during the question and answer period following the opening statements.

I would like to interpolate a few comments about an article that I have in front of me that bears on this issue which I think is very important and which we haven't heard mentioned so far this morning.

Senator SCHMITT. Dr. Marcy, I will allow you to do that, certainly. I would say that your additional comments would be appreciated, even if they might be a little bit duplicative, and they will be included in our record.

It is always good to have the same thing said by different people. Dr. MARCY. Thank you. I will only spend a couple of minutes on this.

This is an article that appeared in the magazine Science in the issue dated May 25, 1979, by Peter F. Drucker, who is a well-known economist and student of social issues and a management expert. This is a talk that he gave before the American Association for the Advancement of Science in Houston, Tex., on January 7, 1979. The title of the article is, "Science and Industry: Challenges of Antagonistic Interdependence":

Science and industry in the United States used to enjoy a relationship of mutual respect based on an unspoken conviction that they depended on each other. That relationship, while distant, was uniquely productive for both science and industry. That is his opening paragraph. He goes on to say:

There has been a major change in this, not in the measurable realities of the relationship as between science and decisionmakers in industry and Government, but in the moods, the values and meaning of the relationship. There is today distress, disenchantment, mutual dislike, even, at worst, lack of interest in each other on both sides.

And he goes on to speak about the relationship between Government and scientists:

As to Government, there is now a strong tendency to judge science by what is politically expedient or fashionable, that is, to attempt to subordinate science, either pure or applied, to the value judgments that are incompatible with any criteria one could possibly call scientific. The values of industry, but equally of the Government decisionmaker concerned with effective policy, are in danger of becoming hostile to the needs, the values, views and perceptions of science.

One reason for this is the increased pressure, especially in inflationary periods, to produce results fast.

He goes on to say, in his view, that this is a period in which either industry or policymakers do not feel that they can take risks. He thinks this should be changed. He goes on to say-in referring to the effects of Government actions-that taxation is one of the more, as he puts it, "insidiously deleterious over a long period of time to the use of scientific results."

He also says, regarding regulations, that they not only add costs but they create uncertainties. And then he says this:

Regulation makes investment in research irrational, not only increasing the odds against research of producing useable results, but also making research into a crooked game.

He is very strong.

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