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combination such that you need that protection. Clearly, some of the characteristics would be that you cannot protect it on a proprietary secret basis. It may be that it takes you a long time to bring the product to market and that a premature disclosure would allow a competitor to bring that product to the market almost as soon as you can and then prevent you from therefore exploiting your advantage.

Another reason might be a significant capital expenditure in certain kinds of plant or equipment as discussed by your GE witness. All of those kinds of considerations would suggest that a development would not be exploited without adequate patent protection.

Another question was: what trends in the patenting process have diminished the value of patents. I don't want to be presumptuous here. As I said earlier, I'm not a patent lawyer, I'm not a lawyer, even. Our view-

Senator SCHMITT. You don't have to apologize for that fact.

Mr. LODGE. My view is that the most serious problem we have is that we have had doubts about the integrity of the patent office search. We have had three specific instances wherein we have had competent searches fail to surface an important issued patent. In some cases we have been directed by a company concerning the patent and we have been unable to find it. This is very disconcerting, when you are considering the investment of substantial amounts of money, when you can't even verify that someone does or does not have an issued patent in an area of interest to you. Another thing that has bothered us is that we have noted over the years that the opinions that we have gotten from patent counsels regarding the validity of a patent, either our own patent or someone else's patent, including the extent of the claims in those patents, have gotten less and less certain.

In other words, it is almost worthless to get an opinion because the hedges are so great. In other words, this tends to reinforce the increasing amount of uncertainty surrounding the entire business of patents because patent counsels are unwilling to give us clearcut opinions.

Senator SCHMITT. This is your own counsel?
Mr. LODGE. These are counsels that we have hired.

Senator SCHMITT. Do you have a patent counsel in your own organization? Mr. LODGE. No, we do not. We hire outside patent counsel.

Another perception that I have is that the patenting process takes more time and costs more money than necessary because of a perceived failure that I have seen in the examining process. It appears to the layman that the examiner could be better trained. It would be nice if he had some understanding of technology. It would be nice if he were required to update himself. It would be nice if there were a certain minimum level of proficiency.

As a result, it takes a great deal of time to explain to the examiner what it is that you are talking about.

I've been asked to comment as to what Congress should do to strengthen the patent system. I have a rather simplistic view of that. I think that clearly the number of examiners should be increased; clearly the quality of the examiners should be upgraded through better selection, improved training, mimimum proficiency, et cetera. I am aware of a variety of data retrieval systems available that would drastically improve the integrity of the patent file using current state of the art. I would think that is a clear cut priority.

And lastly I would like to emphasize the points made by some of the earlier witnesses that there should be some attempt to improve the environment as far as litigation is concerned. As a representative of the small company fraternity, we have been on the other end of the legal harassment, such things as excessive discovery et .cetera, that just literally snows the small management with inadequate staffs.

Second, although it has been adequately covered, I think it should again be mentioned that it is very disconcerting to find that different Federal courts given almost the same facts, will arrive at different decisions. I think that for business planning purposes one ought to be able to evaluate the merits of an invention. A patent counsel ought to be able to evaluate the merits of an invention, allow you to plan appropriately, take whatever risks are required in the marketplace, but hopefully not take the risk that you have been wrong in evaluating the validity of your patent. The only way that can happen, it seems to me, is that the courts are uniform in their application of the law.

I would just like to make one last general statement. Upon reflecting on this point, which I have not been reflecting on very often, as to the merits or the value of the patent system, it appears to me that the dollars spent in improving the patent system have a lot of leverage. In other words, I think that there will be a significant number of R. & D. dollars that will be unloosened and there will be a significant number of other dollars such as capital investment, plant and equipment, missionary marketing, et cetera, all hinged upon an improved patent portfolio.

And therefore I think the Congress would be well to spend the money in the event you do want to improve the innovative posture of the United States. I just have a few comments on S. 1215. In general, I endorse the aims of the bill. I think that if enacted it will have a substantial positive impact. As a director of a company, in some cases I have ordered management to avoid any Government contract for fear that they will taint their technology. Clearly, this offers an avenue where appropriate contractors who might be the most suitable to do a particular research contract will now feel they can do it without losing their technology.

I would suggest one modification. As to the rights of the Government, when a particular type of research contract is awarded, I would make the distinction between basic research and applied research. I think that the Government should retain title to any process or body or knowledge that is developed that could be defined as basic research.

I clearly, as I said earlier, am in favor of a contractor getting title to anything that would be applied, in other words a specific product or a process leading to a specific series of products. What I am trying to avoid is the patenting of science. I think it is in the Government's interest that universities and nonprofit institutions are funded and that they conduct investigations into basic science. I think it is in our country's interest that those results be promptly published so that everyone can read the results and we can get the cross-industry communication that I think causes the technology to advance. I think if the Government does not retain title and allow the private contractors to do so, it is possible that publishing will diminish. I am not very optimistic about the ability of universities to commercially exploit it, and therefore I feel that it would not be in the country's interest to do that.

That is all I have, sir.
Senator SCHMITT. Thank you. Mr. Rabinow?

BUREAU OF STANDARDS, DEPARTMENT OF COMMERCE Mr. RABINOW. I'm an electrical engineer and I have been inventing for some 60 years. I started when I was very young. About half my working life was spent in the Government and half in industry. I now hold 215 U.S. patents and about 100 in foreign countries which are essentially duplicates. My work now is as a part-time consultant at the Bureau of Standards and everything I say here is strictly my own. The Bureau makes sure that I say this.

Senator SCHMITT. That is standard. Mr. RABINOW. Yes, because they know that I don't always agree with official policy.

I was asked to comment first about the bill and then patents in general. One trouble with being the last speaker is that much of what you wanted to say has been said and said very well. One of the great advantages, however, is with the many things that were said with which I disagree very violently-and it gives me a chance to rebut.

I think that S. 1215 is very good. I think it is time the Goverment came to grips with this. I think it is flexible enough and you have to be flexible; for example, if the Government has patent rights on a nuclear submarine it has to treat them differently from patents on magnetic particle clutches. That is something that Admiral Rickover should well note. I think that the flexibility is good.

I think that the implication that the Government could collect, royalties is nonsense. It was said well enough earlier today that collecting royalties is a bureaucratic process. You have to have contracts, you have to check books, you have to have very involved legal procedures.

On the other hand, it is not as difficult in a technical sense, as was said earlier. For example, I would have no difficulty writing a contract on a blade of the third stage of a compressor in a turbine of an engine. I've done this for the clutch of an automatic transmission. There are formulas, there are logical ways of doing it; that is not the problem.

The problem is the general nuisance of checking books and checking production figures. In general, when our Government is a 50-percent partner-actually the State also collects a piece, there are taxes on employees, there are taxes on dividends-so the Government is much more than a 50-percent partner and I will make a deal with anyone who wants one of my patents that I would take 50 percent of the profits in exchange for royalties, any time.

Not only that, the 50 percent is not for the life of the patent, but forever. It also goes on all subsequent inventions made by the company based on the Government invention; in other words, the 50 percent is a tremendous return to the Government plus all of the other advantages of greater employment, increase of sales, and so on.

So I think that for the Government to insist, as it must, for political reasons—and I suppose it must-on collecting royalties is wrong. Because somebody may say that not collecting royalties is a giveaway, it may have to be done. But I'm sorry it has to be done. I wish it didn't have to be.

Senator SCHMITT. I'm not convinced it has to be done. We just want to be sure we're thinking about it.

Mr. RABINOW. It's pure unadulterated nonsense. The Government is not a private party; it does not have to make a profit in royalties in the sense that I do as an inventor. It has a completely different position. The Government does give away money when it has to, if it wants to, for example to farmers, to the underprivileged, to education, and so on.

So for the Government to say it must make a buck because it gave somebody a buck and a half is pure nonsense and it has to be countered. This business of giveaways—the Government does give away things in very curious ways. During the war we confiscated 15,000 German, Italian, and other patents. These were industrial patents owned by the great industrial organizations of Europe. They were unfortunately on the other side of the fence, so we confiscated them and made them available free to everybody.

And the result is that no one used them. This is an interesting case where the Government gave something away. We gave away free patents and they died. If we had licensed them to people on an exclusive basis where it made sense, they would have been used much more. The Government now owns 28,000 patents and it doesn't know really what to do with them. Very few are licensed. The returns are negligible to society.

So I think the bill is an excellent bill and I hope it is implemented. There's some problems with Government-owned patents that are derived from Government employees.

I have generated some 60 patents for the U.S. Government which were assigned completely to the Government. For example, I have a patent on a magnetic particle clutch which started a new subclass in the Patent Office. It was made free to everybody in the United States. It didn't do very well. It is used only occasionally, only when absolutely necessary. In Europe I owned the rights, and I sold them to Eaton who sublicensed them to Smith's and the invention was used in four automobiles. It is used a great deal more, relatively speaking, in Europe because it was promoted. I did make some money on the European rights. To be exact, I made $26,000, after taxes, which to me at the time was a large sum.

There were 22 countries covered with 42 patents. That cost a lot of money, but Eaton took over the patents and paid for most of this. The thing that's interesting is that giving good patents to the industry in general, free, means that nobody picks them up. Industry simply doesn't want to spend money on something available to everyone and they will do as little on it as they can.

sold then absoluteidn't do verwas made

On the other hand, when I worked on a reading machine for the Government, the Government gave me all commercial rights because at that time I was working on a military contract. This technology started my private business when I left the Government. I finally sold my company for a lot of money to Control Data and it became a division of that corporation.

The first reading machine I invented is now in the Smithsonian Institution. If I had not gotten the commercial rights, I certainly wouldn't have put in the great deal of effort to develop it because there's no sense for a small man like myself to develop something and then have it copied by somebody else.

I don't want to talk much more about the bill. I like it. I wish it well, and I think that when people talk about Government giveaways you just have to take it. This is a political piece of nonsense that has to be countered.

Now, about the U.S. patent system-

Senator SCHMITT. Excuse me, before you leave that, do you have any specific improvements on title IV of the bill which deals with the Government-inventor rights?

Mr. RABINOW. The bill proposes, as I understand it, that the Government will take title when the invention is made part of the job in the conventional sense, and the Government will own it. As I understand the bill, but it isn't very clear to me, the Government will be able to issue exclusive licenses on those patents. I believe this because the early paragraphs of S. 1215 say that whenever the Government owns patent rights it can issue exclusive licenses.

So I take it for granted, then, that even if the invention is made by a Government employee at the National Bureau of Standards, somebody in the Government-perhaps the Secretary of Commerce-would be able to issue an exclusive license. Is that correct?

Senator SCHMITT. Well, we welcome any suggestions you might have to clarify that position.

Mr. RABINOW. The bill is not clear on this. The bill lumps all inventions together, and at the end it has a separate part on the employee inventor. Frankly, I would like to see it clarified. I think it should be clearly stated that wherever possible the Government patents should be licensed exclusively. It would make better sense.

Now there are some problems. For example, yesterday in discussing this with some friends, they said: “Why not give it to the highest bidder?” I told them that I thought that would be socially objectionable because the highest bidder could well be the largest corporation in America or the world. And the Government is not in the business of necessarily increasing the power of very large corporations.

So I think there may be some conflicts. But I think that if one considers the social values and the economic value of the invention to the public, not to the Government-and this should be said over and over again the problems can be handled. It is more important to produce products and increase employment than for the Government to receive a buck from the highest bidder.

I think, then, that the Government could have a policy which states quite clearly that patents should be licensed exclusively to one or perhaps two companies, and it should be so licensed wherever possible. People have asked me: “What do you do with an

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