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nate the economic institutions to the all-powerful Party, he failed, and very soon. Stalin's successors learned this lesson and so today do the successors of Mao in China.

Science, by contrast, has proved to be fragile, easily subordinated to tyranny, subject to dogmatic thought control and easily swallowed up in the bureaucratic apparatus of a totalitarian system. Science, in other words, has a greater stake in the survival of an autonomous and self-governing industry than industry has in the survival of an autonomous and self-governing science.

The deterioration in the science/industry relationship may be only a symptom of far more profound changes in world view way below the surface. But the change is in itself a dangerous, a disturbing, a painful symptom that deserves being treated. Most needed perhaps is an attitude of responsibility on the part of science. It is no longer permissible for scientists to dismiss the difficult question of the results the laity might expect from scientific endeavor and research. To say, as scientists are wont to do, that scientific knowledge is its own result beyond appraisal or measurement, could be justified when science was a marginal activity. For this is an argument with which one justifies a small luxury, or a harmless self-indulgence. We may never be able to measure scientific results, let alone to plan them. But science may-and should-be able to tell us what to expect, what to anticipate, and how to judge. Science is unlikely to be measurable. But it might hold itself accountable. Such a change in attitude may not cure anything. But it would enable science, industry, and government to function better and more productively. And the initiative clearly rests with science. We may never be able to work out the complex relationship between science, technology, and innovation—whether in the economy, in education, or in health care. But that the scientist has a stake in the relationship and in its productivity needs to be emphasized-and most by the scientist.

But industry and the decision-makers in government also need to change their attitudes and correct their vision. They know that slighting research and long-term work is dangerous and may even be suicidal. The means to convert this knowledge into action is systematic abandonment of the obsolete, the outworn, the no longer productive. In a few businesses this is understood. There every product, every technology, every process is considered as becoming obsolete, the only question being "how fast?" And then an attempt is made to assess the amount of the new, and expecially of the new science and technology that is needed to fill the gap, accepting that of every three major innovative thrusts, one at the most is likely to live up to its promise. For most businesses, however, this is still something only talked about-if not something stoutly resisted as a threat. Most businessses-and practically all governments-seem to believe that yesterday should last forever. The traditional relation between science and its customers in the economic and governmental system was based on mutual respect and understanding and a keen awareness of interdependence. American science must effect a return to these values however old-fashioned they now appear to be.

Senator SCHMITT. The hearing is in recess.

[Whereupon, at 1:05 p.m., the hearing was adjourned.]

PATENT POLICY

FRIDAY, JULY 27, 1979

U.S. SENATE,

COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION,

SUBCOMMITTEE ON SCIENCE, TECHNOLOGY, AND SPACE,

Washington, D.C.

The subcommittee met, at 9:40 a.m., in room 5110, Dirksen Senate Office Building, Hon. Adlai E. Stevenson (chairman of the subcommittee) presiding.

Senator STEVENSON. The subcommittee will come to order.

OPENING STATEMENT BY SENATOR STEVENSON

Senator STEVENSON. This morning we continue hearings on S. 1215, a bill introduced by Senator Schmitt to establish a uniform policy for determining the rights of the Government, its contractors and employees to exploit publicly financed inventions.

For energy development, health care, and transportation improvements, civilian applications of military and space advances, and a variety of other public purposes, the Government depends largely on private industry to commercialize the technology it develops. Federal support of research and development does not eliminate the risks to investors of turning its results into marketable products and processes. Indeed, the risks are high if competitors can legally copy an invention because the Government refuses to allow a producer exclusive rights for the period necessary to recoup his investment. The principle of granting temporary rights in return for public disclosure is the foundation of the patent system. It should be recognized in most Government R. & D. grants and contracts.

But the Federal research budget is only half of the Nation's total investment in R. & D. The returns on private expenditures are no less dependent on the security of commercial rights. We therefore want to examine the state of the Nation's patent system. What is the value of patents to inventors, entrepreneurs, investors, and firms of various sizes? In what circumstances is patent protection essential or not to the commercialization of innovative technologies? What, if any, trends in the patenting process and patent litigation have diminished the utility of patents? Is the alleged weakness of American patents a deterrent to domestic innovation or an incentive to the transfer of technology abroad? Finally, what should Congress do to strengthen the patent system?

To help us answer these questions we have invited a group of distinguished inventors, investors, and representatives of the private and corporate patent bars. Our first witnesses are Tom

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Arnold, president of the American Patent Law Association and Harry Manbeck, Jr., patent counsel, of the General Electric Co.

I will invite these gentlemen to come forward at the same time. We will hear from both of them and then return to both with questions.

Mr. Arnold is a senior partner in the Houston law firm of Arnold, White & Durkee. He was a member of the industry advisory group on patent and information policy to the administration's Domestic Policy Review on Innovation. In addition to serving as general patent counsel for GE, Mr. Manbeck chairs a Committee on Economic Development task force on patents, part of a larger CED innovation study that parallels the administration's effort. Gentlemen, we welcome you. We are grateful for your help. If you would like to summarize your statements, I would be happy to include the full statements in the record.

Let's proceed with you, Mr. Arnold.

STATEMENT OF TOM ARNOLD, PRESIDENT, AMERICAN PATENT LAW ASSOCIATION, ARNOLD, WHITE & DURKEE

Mr. ARNOLD. Thank you, sir. It is certainly my pleasure to have an opportunity to represent the American Patent Law Association before the committee, and perhaps also to share with you the personal views of one of those who went through the study of the Advisory Committee on Domestic Policy Review on Industrial Innovation, because some of the views that some of us developed out of that study were, of course, not includable within the ultimate report.

First, as to S. 1215, I might say that the American Patent Law Association is for it. We have suggested a few amendments which will appear in my written statement. But we feel basically that the idea of that bill is very excellent and we support it in every way that we know how.

I have been prompted by the invitation that you have sent me to spend the bulk of my time today, however, addressing the role of the patent system in industrial innovation.

I lead off with the observation that industrial innovation is clearly on the decline. The decline of industrial innovation in our Nation is very serious in quite a number of ways, not the least of which is the international balance of payments deficit as to which the decline in our industrial innovation is very fundamental.

This decline is the result, not just of deficiencies in the patent system, but also of many non-patent-system factors that are involved.

This morning, however, I will address only the role of the patent system in the decline of industrial innovation.

What is the role of the patent system in industrial innovation? Well, the Constitution concept of the patent system was not to make inventors rich at the expense of the public, but rather, by holding out the carrot of a property right in any inventions to induce investors of sweat, investors of intellect, and investors or capital to invest in research and development whereby the public would enjoy a wealth of new and better things. This is a high-risk investment with cost overruns as certain as death and taxes and

success as unpredictable as the weather, so strong incentives are needed to induce major investments in R. & D.

The constitutional clause, if you will recall, is that, "the Congress shall have the power * * * to promote the progress of science and useful arts by securing for limited times to authors and inventers the exclusive rights to their respective writings and discoveries.' That, of course, is the focus that we are addressing this morning, the promotion of the progress of the useful arts.

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The system announced in our Constitution and enacted in our statutes has certainly worked well for us over most of our history. Every responsible study has concluded that the patent system does, in fact, promote the progress of the useful arts. It does, in fact, induce the commitments of sweat, intellect, and capital into research and development.

If the patent system works so well, and there are so many of these non-patent-oriented factors that I referred to, that have contributed to industrial decline, that might imply that the patent system is not at fault. But that is not correct. I regard the shortcomings of the patent system as being a serious contributor to the decline in innovation.

The Constitution and the patent statute promised to the inventor and his financial backer the exclusive right to their invention, title to their invention, as it were, as a piece of property.

No one can use your property without your permission and you can ask anything you want to for the privilege of somebody using your property.

But the modern egalitarian sophistry of our divided power system of government now makes the promise of the Constitution and the statute into a deception upon anybody who would rely upon their promise of an exclusive right because the system simply does not deliver that exclusive right, at least in the vast majority of instances.

For the most part, the system offers half a loaf, the right to license, as distinguished from the exclusive right that the statute and the Constitution purport to promise.

The system is fairly well riddled with deficiencies. I will approach it in four general categories:

First, the cost of using the patent system, which is hideously excessive.

Second, the time delay in using the patent system, which is hideously excessive.

Third, the uncertainty of result of using the patent system, which is hideously excessive.

And fourth, an unrealistic standard of what inventions are patentable, as applied at least in many of our courts.

Let's start in the Patent and Trademark Office as an example. I often use its old name, simply Patent Office or its nickname "PTO." Owing directly to chronic underfunding of the Patent Office by the Congress, and I might add, to some extent owing to inefficiencies in Patent Office management-my office is not perfectly managed, the Senate is not perfectly managed, and neither is the Patent Office-we find that the Patent Office has no computerized search facility for either patents or trademarks.

In this day and time, that is just a crime.

Further, there are in the PTO search shoes, which contain the prior art references that engineers search to find out whether they're being asked to reinvent the wheel that has already been invented, and that lawyers and patent examiners search in order to find out whether the alleged invention is, in fact, new or whether it is old.

Those search shoes in the Patent Office are incomplete. In many of them 8 or 10 percent of the references are missing. Perhaps that's the average of the references that are missing from those search shoes. People borrow references and fail to return them. Some few of the search shoes, in the most interesting and active arts of the day, have been found to be missing 28 percent of the references that are supposed to be there.

So the lawyer spends perhaps $300 performing a patentability search for his client and does not find the best references.

The lawyer then spends $3,000, perhaps, to draft an application for a patent and prosecute that patent to issue for his client. And the patent examiner performs a search, and he, too, does not find the best references. And he has less time now to study the references that he does find than he did a number of years ago.

And so the patent examiner is bound by circumstances that deter him from doing a good job and he issues a patent that perhaps he shouldn't issue.

When the patent is issued and the accused infringer comes along, he's got a lot at stake. So he spends perhaps $100,000 in a search, searching in poor search facilities and elsewhere. He finds new references that were not found by the inventor's attorney, nor by the patent examiner.

Now if those new references should invalidate the patent, then all of this effort has been for naught. But it is much worse than that.

If bankers or if investors committed capital based upon the protection of the invention which was soberly promised in the patent issued by the Patent Office under the great seal of the United States, then those bankers and investors have effectively been swindled by the great seal of the United States on the patent that was issued when it should not have been issued.

So you see: Poor search facilities and poor PTO examination deters investors from investing in patents that so frequently are poor patents because the Patent Office was not given funds for management by which to do its job well.

Further, the law is also acutely uncertain on a number of substantive points. Even when two courts have the same references before them, some courts apply one standard of patentability and other courts apply other standards of patentability. And our systems of judicial process by which the Supreme Court does not reconcile all of those conflicts has left us with the situation where we've got different standards of patentability in different courts. Some judges have sat for 20 years and never found a single patent valid.

One result of all of this is that lawyers advising their clients tend in this area perhaps more than any other to render inconsistent opinions and that beget litigation.

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