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available for use by private industry in providing products and services for the general public, In many areas of the government, however, patent policies have been instituted either through statute or agency rule making, which seem to discourage commercialization of the federally funded R. & D.
Experience has shown that the entity most likely to carry the results of government-funded R. & D. to the market place is the contractor itself. If the contractor will be subject to a claim by the government under the patents, and/or if its competitors can quickly copy its product (as by reverse engineering) without any patent deterrent, there is much less reason for the contractor to risk its funds in commercialization. The same general theorem applies to the results of governmentfunded R. & D. work done by non-profit contractors, such as universities. Unless the universities get substantial rights from patents, there is absolutely no incentive for them to establish technology transfer and patent programs which may lead to a commercialization of the research. The government policies should support the profit motive no matter what the class of contractor, for it is the expectation of profits (or licensing income, in the case of the universities) which will encourage the investment of private funds necessary to commercial programs.
To enhance the possibility of government-funded R. & D. being used for commercial products, contractors should in most instances receive title to the inventions and patents made under government contract. This is not to say that the government should not keep a non-exclusive license for government programs and marchin rights allowing it to require the contractor to license others in certain circumstances, that is, if the contractor fails to produce enough products to supply the market.
There are some instances in which the government taking title may be the best course. For example, an agency may fund a development and then by regulation adopt it as a national standard for commercial products. To prevent economic dislocation, it is desirable that all competitors receive the same royalty-free right to use the required technology or feature.
A uniform government patent policy could be attained by passing a statute similar to the Thornton bill H.R. 6249, introduced in the 95th Congress, At the time, the Thornton bill received the support of various industry associations and various patent law associations.
Government patent policy should further extend to improved procedures within the government through which it can more promptly and more readily recognize valid patents of others bearing on government activities. Also important is discouragement of any contracting practices needlessly tending to appropriate background rights of the contractor in existing patents or data. II. Government-owned patents
A substantial portion of the government R. & D. funding goes to support laboratories and other acitivities which are integral parts of the government agencies. The unclassified technology developed by these laboratories has normally been patented, presumably to make sure that it becomes known to the public. .
The administration of patents on technology generated in government laboratories, however, presents a situation which is conceptually less straightforward than administration of patents generated from contractor-developed technology. Not having developed the technology, the commercially oriented engineers are likely to have, or at least envision, different ways of accomplishing the same end. Thus, there is at least some question as to whether the internally generated government patents serve as an effective tool for commercialization.
Such patents can certainly discourage manufacturers if they fear a claim being made under the patents by the government. The best course, therefore, is probably to license the patents on a royalty-free basis to all domestic manufacturers. In this way, the patents would serve to publish the technology, and at the same time, would not deter commercialization. (The patents could, however, serve to protect efficient domestic production from foreign dumping or the like; and in the rare instance where exclusive licensing might be needed to elicit money for commercialization, such licensing could be contemplated.)
In many instances, government patents are taken out solely for defensive reasons, that is, to publish results of the technical work without any thought of the patents having commercial value. Considering the very large number of patent applications filed by the government each year on inventions made by government employees (averaging 1332 applications per year for fiscal years 1963 through 1975), we believe that the workload of the Patent and Trademark Office could be substantially reduced if this so-called defensive filing were eliminated by the government agencies.
To do this, we suggest that a technical journal be established for publishing selected government inventions. This journal would publish descriptions of those inventions on which patents are not needed for national purposes. In this way the government would be protected against adverse claims by later inventors; the technology would be made available to those interested; the government inventors would receive recognition; the Patent and Trademark Office workload problems would be greatly reduced; and the government patenting costs would be decreased.
OTHER SUBJECTS CONSIDERED BY TASK GROUP I. Funding of Patent and Trademark Office
It was assumed for purposes of this report that there would be adequate funding of the PTO, since the level of funding bears a direct relationship to the quality of patent examination and, consequently, of issued patents. Despite this obvious relationship, the PTO's financial support is diminishing when taken on a constant dollar basis. Specifically, the 1979 budget results in a decrease of $1.692 million in constant dollars for the PTO, and the proposed 1980 budget will result in a further decrease of $1.633 million. The consequences, already started, will be a progressive deterioration in pendency time, and less reliable patents because search files will not receive needed updating.
We believe that funding of the PTO operating budget should at very least keep up with inflation. The imposition of addition duties (new reissue provisions and proposed reexamination of issued patents) makes this condition especially important, and additional funding beyond adjustment for inflation will be essential in the relatively near future if we are to avoid a substantial increase in the pendency time and in the PTO backlog. II. Mandatory licensing
Foreign patent systems often include provisions for compulsory licensing of patents, normally in the event of insufficient local use of the invention. Numerous studies of mandatory licensing for use in the United States have been made and, so far as is known, all have rejected the idea for one reason or another. We agree with this. A recent such study entitled “The Economic Effects Of Mandatory Patent Licensing” was reported by Prof. F. M. Scherer of Northwestern University at a public meeting of ERDA at Germantown, Maryland, on January 12, 1977. III. Return of Government seed money
At least one legislative effort was made in the last Congress to consider reimbursement of the Government for money it devoted to the making of inventions that later proved to be a commercial success. This effort took the form of the proposed "Small Business Nonprofit Organization Patent Procedures Act"-S. 3496. Section 204 of that Bill provided that when the commercial success involving utilization of any invention based on government-funded work reaches a designated threshold, the patent owner should begin to return to the government the money which the government originally invested.
It would be a substantial administrative burden to trace any given subject invention through a complex license program or to allocate appropriately any particular contributed value to such an invention. While patents are occasionally licensed alone, the more significant license programs tend to involve many patents, related technology and technical assistance in the form of person-to-person contacts. In that setting there is no value which is broken out as being attributable to rights under inventions in general, and certainly no allocation is made in respect to any given invention. Similarly, there is no reasonable way to determine the profits attributable to the use of any particular invention in any given product which incorporates varied technologies.
The cost of attempting to administer a broad repayment program would almost surely exceed any returns that might be expected. Thus, we urge that the government continue to regard increased general tax revenues and the better business health of the country as its return for priming the pump used by the contractors.
Although not related to the seed money concept, the Task Group notes that it sees no logic to the line drawn by S. 3496 between large and small government contractors. If it is desirable (as we believe it is) to place title to contract inventions in the contractors' hands for purposes of commercialization, the size of the contractor is irrelevant. IV. Petty patents
A number of other countries (notably Germany and Japan) have provisions for the grant of shorter term “lesser patents”, suited for the protection of more minor
advances in technology. The introduction of lesser patents might reduce the workload in the Patent and Trademark Office. In any event, experience with such patents in other countries should be studied and evaluated to determine if similar patents would foster innovation in the United States. V. Maintenance fees
Many other countries have patent systems under which the patent owner must make payments at fixed periods during the patent term to keep the patent in effect. Besides producing revenue, such a system tends to force reexamination of the worth of patents and thereby rid the patent rolls of worthless patents. We believe, however, that the institution of maintenance fees in the U.S. would not increase innovation. VI. Patents in third-world countries
Public officials in some foreign countries assert that their patent systems benefit only foreigners, leading to the conclusion that strong, national patent systems are not in their best interest. As a result there is little or no effective patent protection in large geographical areas of the world—notably, in Latin America, Asia, and Oceania (with the exception of Japan, Australia, and New Zealand) and in Africa (with the exception of South Africa). This movement toward ineffective patent systems can have an adverse effect on the more research-intensive segments of United States industry.
A U.S. posture looking toward improved patent protection in third-world countries probably would be supported by other western nations, and would be in the enlightened interest of the developing countries themselves. Specifically, reliable patent systems should help the third-world countries to enjoy more rapid industrial development. This is because the optimum transfer of technology between countries occurs through voluntary cooperation between the transferor and the transferee in a climate where valuable industrial property rights are protectable.
During the past ten to fifteen years, it appears that a number of inter-governmental organizations, particularly agencies of the United Nations, have been prime movers in skeptically viewing strong patent systems for third-world countries. Without any improper interference in the affairs of other countries, we believe that the United States should encourage, where appropriate, the establishment of effective laws to protect property rights in inventions and innovation.
Senator STEVENSON. Thank you, sir.
Mr. Arnold, you said that you took exception to one of the recommendations. Which recommendation?
Mr. ARNOLD. Senator, you've used a vague and indefinite word"you.” I am here on behalf of the American Patent Law Association, that has adopted a position contrary to one that I personally hold myself.
The first-to-file issue is a very controversial issue among the bar. Ten years or so ago I was active in fighting first to file in favor of our present first-to-invent system. And the American Patent Law Association, the last time they addressed the issue some years back, was divided on it but decided that they like the present firstto-invent concept.
Let me take just one minute to explain why.
The present system is the one of higher sophistication in pursuit of justice. Everybody would agree that it is a better effort to find the just patent owner.
The difficulty with it is that the cost of administering the first-toinvent system, as we call it, seems to me now as it did not 10 years ago when I was testifying on the same topic, to outweigh the value of chasing that extra justice.
It seems to me now-contrary to the majority of the Association, on behalf of whom I'm here—that first-to-file does have enough advantage in its simplicity, in its time-saving, in its money saving, in its certainty, to outweigh the circumstance that we may sometimes have the second inventor getting the patent instead of the first.
So I personally now agree with Mr. Manbeck's position. I must advise you that there is a lot of thought which I honor and respect, which is to the contrary view.
Senator STEVENSON. Mr. Arnold, Mr. Manbeck, at the close of his remarks, supported S. 1215.
We've heard that the administration may recommend legislation that would maintain the Government use public use distinctionthat is to say, in the case of military and perhaps space R. & D. contracts, the contractor would generally retain title.
With respect to civil R. & D. contracts, the Government would generally retain title.
We are told that the rationale for this distinction is that the commercialization of military-related inventions entails additional private investment and risk. But in the case of civil R. & D., the argument goes, Government assumes responsibility for carrying an invention to the marketplace and, therefore, exclusive contractor rights are unnecessary to achieve commercialization.
What do you think of that rationalization?
Mr. ARNOLD. I am sure that examples exist to support it. But I believe that those examples are far too de minimus in number as a proportion of the whole to persuade as to general policy. My personal experience suggests to the contrary, that in civil R. & D., whether it be in the work that I was involved in for Project Molehole that ended up aborting, or whether it be the electrodes that had to do with monitoring the health of the astronauts in space, that then became a technology to be transferred into local hospital operations.
In each of these instances, it has seemed to me, you still needed the extra effort of the private investor to successfully commercialize the invention.
Whether it be civil research or military research, in the vast majority of instances, I believe you still have the same need for some commercial undertaking to have the incentive to spend developmental money, technical or market developmental money.
Mr. Manbeck made reference to that when he said that the patent system not only supports research and development in the sense of technical development, but also the market development. And typically, the market development need is still there.
Senator STEVENSON. Mr. Manbeck said that most industrialized countries, except Canada, have the first-to-file system. Can you tell us more about the systems of other industrialized countries?
I address this to both of you. Do they have stronger patent systems that put us at a competitive disadvantage?
Mr. MANBECK. It varies from country to country, Senator. The Germans and the Swedes, I would say, have very strong patent systems, stronger than ours, perhaps.
Senator STEVENSON. What makes them stronger? Mr. MANBECK. In the first place, they have very rigorous examination systems in the Patent Office. The examiners are highly trained. They have excellent technical libraries and they do a very good job.
That is one thing.
rained. Ystems in the first places them
Second, there is a respect given to patents, and I'm speaking particularly of Germany, I must say in my experience, we have never been faced with a real controversy in Sweden.
In Germany, the courts are very respectful of the patent grant. In fact, to invalidate or nullify the patent, you have to go back to the Patent Office there. You can't even raise invalidity in the litigation, although it will be delayed until the Patent Office has had a chance to look at the invalidity question.
But they issue the patent only after very thorough examination and they give it very considerable respect after it's issued.
Now Great Britain, in my opinion, does not provide as good an examination. Their system is just plain different. Holland has good examination. France, in effect, and Belgium are registration systems. You litigate when you are done.
Really, everybody tends to look at the German patent. There is a new patent convention over there now, the European patent convention, however, where you can handle all your patents, all your prosecution through one central examination system. And this is probably going to take over more and more in the future because it is a cheaper way to get your overall bundle of patents which you must get to have adequate protection in the European countries.
And again, this will be a very thorough, well financed examining staff.
May I add just one more thing? So that we understand what we're talking about by the first-to-file system, we're talking about a system whereby the first inventor to present his application to the Patent Office becomes the owner of the patent-he still must invent it himself and not derive it from somebody else.
And the benefit here, as I said before, is certainty to investors, and also, certainty to the public in that there is in this way an early disclosure of the invention through the patent, which, after all, is one of the purposes of the system.
And to the extent that there are perceived inequities, this can be taken by giving a prior inventor who didn't submit his application quickly, a right to commercialize, provided he has been putting the funds in.
Remember, an inventor, small or large, can get to the Patent Office quickly.
Mr. ARNOLD. In Germany, you would typically spend $50,000 to $100,000 in the same litigation that in this country you would spend $400,000 to $500,000 on. That difference is representative of something important in what you give up in litigation sophistry. I would not give up as much as they do in Germany to keep those costs down, but I would sure like to save a lot of that money. I feel like we overdo our litigation, and their system functions better in part just because you can get a final decision for $50,000 when here you can not get a final one for $500,000 on some occasions.
Senator STEVENSON. If the patents are strong and the courts respect them, there is probably much less litigation, isn't there?
Mr. ARNOLD. Correct.
Senator STEVENSON. Can you give us information about the Japanese system?
Mr. MANBECK. I don't want to seem to be an expert. I will tell you what I understand. The Japanese, too, have a strong system-a