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.

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

invention for a cure for cancer?" My answer is that invention will take care of itself. I think the Government could well afford to give the inventor a billion dollars if he cures cancer. I believe society would be perfectly willing to make that deal. That is something one doesn't have to worry about in the patent bill.

Senator SCHMITT. Mr. Rabinow, in about 5 minutes, I will have to go vote. So if you could complete your testimony, and then I will be able to dismiss the panel and we can all have lunch.

Mr. RABINOW. It is very hard to discuss a patent system, with which you've worked so hard for so many years, in 5 minutes. First of all, I believe the U.S. patent system is much better than the foreign systems. I don't believe in the "first to file." I think that it is a mistake to change to that system. The fact of the matter is that we've done very well with over 100 years of our system, and Europe has not done as well. And the inventors I spoke to—and I spoke before large groups of them in Europe and Asia-all say that our system is better than theirs. They would like to work under our system. It does lead to interferences, which are a big pain in the neck, but the interference procedures can be speeded up. There are regulations that could be changed so the interference could be resolved quickly.

The problems of interference procedures are not a good reason to abandon our patent system just because it is a little cheaper to use the other system. And that is the only argument-that the "first to file" is cheaper for the Patent Office. It is not cheaper for the country. I don't believe that running to the Patent Office with every trivial invention to get in first makes any sense, and this is what they do in Europe. And they keep their mouths shut; they don't talk to their associates; they don't talk to their own families, because if they do, somebody will hear of what you're working on and immediately invent the same thing. Or if he has an idea like it, he will run to the Patent Office and win a patent case because he was there first.

I think this is basically not good. It doesn't work well, contrary to some popular conceptions.

Second, I would like to talk about the quality of the patent system. I agree with Mr. Lodge that we should have more examiners and better examiners. The fact is that our "take" from foreign licensing alone-I'm not talking about imported equipment: I'm talking about imported dollars on what we license to foreigners-is over a billion dollars a year. I don't know the figures for internal taxes. I know what they were for people like Mr. Lemelson and myself I know that the taxes are heavy.

I would like to see a change in the Internal Revenue forms, not in the tax laws, that would report royalties-U.S. royalties and royalties from foreign countries. The present income tax form does not distinguish royalties on patents from royalties from music and books, and nobody knows what the patent royalties are. If the Internal Revenue would change its forms, we would know finally what the Patent Office earns for the U.S. Government. Computers could easily break out this information and you would know for once that the Patent Office is much more than self-supporting in actual dollars. And I'm not talking about cross-licensing or anything else of that kind.

I would like to agree that the courts' procedures are terrible. This, in spite of the fact that none of my 215 were ever held invalid. I've never sued anybody. I'm not as pessimistic about justice of the system. I think that the patents that get into court are not a sign of weakness or of the strength in a patent. When it goes to court, according to Professor Kayton, who is a Professor of Patent Law at George Washington University, it is when the royalties are very much larger than the cost of the suit. It has nothing to do with the weakness or strength of the patent. In other words, if you're going to pay $2 million in royalties and it's going to cost you $50,000 or $100,000 to test the validity in court, you will go to court, particularly if you've got an even chance.

Very few cases go to court, as was said earlier. I think that if the inventor is reasonable, he may have to take less royalties than he otherwise would get. But that is no different from any other busi

ness.

I do believe that all validity cases should be tried in the CCPA. They should not be tried by courts all over the country. I think it is a tragedy that you can win nine cases and lose the last one and lose your patent. I think that this should stop. And it would stop if it were tried in one court.

I do not believe in opposition proceedings because they do not work. What happens in opposition proceedings is this: You are getting a patent, and I know you're going to get it. I know that I can easily come in and destroy it. I will keep my mouth shut because as long as I don't compete with you until later, there's no reason for me to destroy your patent. I am perfectly willing to let you have it, so that other people stay out of the business. And when, finally, I decide to go into the same business, I will come to you and say, "You know, Mr. Schmitt, I have some evidence that your patent is not really as good as you say, but I'm a nice guy and you're a nice guy, and we don't want to go to court. How about a cross-license?" And you look at my new evidence and you say, “You know, you've got a point there," and you give me a cross-license, and we keep third parties out of it. This is exactly what happens in many of the countries that have opposition proceedings. The general idea is, if my evidence is really good, it can always be used later. There is no requirement that it be brought in as the patent is being issued. Therefore, if you're not going to use the patent, why bother? It costs money to come in with evidence, and who wants to read 60,000 patents a year to see what is new and old about them. I look over the patents issued every week, and I would be damned if I would come in with opposition just because I know some of the patents are invalid. If I'm not interested in the business, I will just keep my mouth shut. I can always use that argument later if I must.

I do like the idea of reexamination. If I'm going to fight you on validity, I think that it should first go back to the Patent Office by court order, and not because I want to annoy anybody. The court should say, "This is worth looking into. We have some new evidence." The Patent Office should look it over again and be required to give a decision within a year, and then the court can settle whatever differences there are left. This is the way I would like to treat it.

I feel that American technology is dying. I think it is in terrible condition but not for the reasons stated earlier today. It isn't because the courts are tough or the patent system isn't working. I think the management of our large businesses is very bad. I can give you evidence. Here is an article about the organization man (Newsweek, June 18) that says they checked 3,600 top management people, and they find that, as you would expect, they are WASP's, they're fathers of families, and other such blah details, but they do not like innovation. They do not like new things. These are too risky.

My experience with industry supports this. I'm sorry that I don't have time to give you examples. I would love to give you several cases. Our American technical industry, by and large, now is run by bookkeepers and not engineers. Commander MacDonald, the man who founded Zenith, is dead. People like this are very rare now. There is still Mr. Land at Polaroid and a few others. Most of our industries now are run by people who don't give a damn about the technical products which they produce or the service they render. All they care about is the "bottom line."

Some time after I licensed Harman-Kardon for my record player and talked to the manager, I said, "Why don't you build a new model that plays both sides of the record; you have a good patent on it." And he said: "Jack, it will take 3 years to develop it; we are owned by Beatrice Foods; they own 400 companies; we never meet the management; I will lose my job if I start innovating and developing something new; I have to show profit every year, and the best way to do it is to make few changes.'

Harman-Kardon was just sold to a Japanese company, and now my record player will be built in Japan. This means that it will have the name of Harman-Kardon but all of the equipment will be built in Japan. My record player invention is now also built by Bang and Olufsen in Denmark and Revox in Switzerland. The basic patent expired and now many companies will be building it next year. I understand all high-fi fancy record players will be built under my expired patent. I'm very proud of this. I have no regrets. The only thing I do regret is it is not being built in the United States. It is being built in Japan.

[The statement follows:]

STATEMENT OF JACOB RABINOW

My name is Jacob Rabinow. I was born in Russia. I was educated in the schools of New York and received two degrees in Electrical Engineering from the City College of New York. I have been working in Washington since 1938. At the present time, I am a part-time employee of the National Bureau of Standards. I retired from fulltime Government service in 1975, after having spent some 20 years in Government service and roughly an equivalent time in industry. I am an inventor who has been granted 215 U.S. patents. Another two or three patents have been recently allowed and there are some still pending. I also hold perhaps 100 patents in foreign countries.

Of my U.S. patents, about 57 were assigned to the Government and another 10 were partially licensed to the Government and I retained certain commercial rights. Of the rest, 18 were assigned to clients for whom I was a consultant and 128 are owned by me or by companies which I headed and which eventually became parts of other corporations.

The fields of technology in which I have patents are ordnance, computer equipment, Post Office automation, photography, sound recording and reproduction, ho