rology (clocks and watches), electrical and mechanical equipment of all types, and some labeled "Miscellaneous."

I was asked to speak today by Mr. William C. Gibb, Minority Staff Counsel for Senator Schmitt, and Mr. Steve Merrill of Senator Stevenson's staff. I was particularly asked to comment about the Bill, S-1215, that deals with Government ownership of patents, to express some general comments about the patent system of the United States and to relate some of my personal experience with it. I was told that I would have 15 minutes for my initial presentation and, hopefully, will have an opportunity to answer questions. I would like to make two comments bout the invitation to speak here today.

One is that it is impossible to say much in 15 minutes about a subject that has been my primary interest for some 60 years. Secondly, everything I say here represents my personal opinions and in no way should be taken to mean that I am speaking for the National Bureau of Standards or for anyone else. My talk was not reviewed or approved by anyone else and I can only hope that my opinions do not disagree seriously with those of the management of the National Bureau of Standards-an organization and people for whom I have the greatest respect.

In general, I agree with the spirit and wording of Senate Bill 1215. I think it is high time that the Government come to grips with the realities of the real world which may use the technologies developed directly by the Government or under its sponsorship.

No single set of rules can apply to all Government patents. Obviously, patents on weapons and on atomic energy have to be treated differently from patents on ordinary machinery, patents in agriculture, or patents in drugs. “Free license" policies may well operate in the field of agriculture where no farmer can have a large share of the market and where he cannot afford to do basic research that affects the whole industry. Such patents have to be treated differently from patents on my magnetic particle clutch that would have taken $1,000,000 for development and which did not get full development because no one was able to obtain an exclusive license.

I agree with the proposed bill that the Government should issue exclusive licenses wherever possible and the only criticism I have of the bill is that the granting of such licenses is made more or less permissive. I am afraid that a timid Government bureaucrat would prefer to take the easy and, for him, the safe route of not issuing exclusive licenses so as not to be accused of "Government give away." I would prefer to see the law strengthen so that the granting of exclusive licesses could be the normal and easy procedure and not granting exclusive licenses would require strong justification.

There is an implication in the bill that the Government may collect royalties and fees on Government-granted patent licenses. I think this is unnecessary and counterproductive. The Government is not a private company; it collects taxes on more than half of the profits. In addition, any profits made on the invention result in taxes not only to the Federal Government but to State and city Governments also. There are also taxes on wages, on dividends, etc., and I believe that because of this it is unnecessary to go to the trouble of contracts, inspections, bookkeeping, and other legal difficulties in royalty collections. The collection of taxes is much more straightforward and is well organized and accepted. I cannot help but express the thought that I would be very happy to take half of the profits made on any of my inventions in lieu of royalties, particularly when this profit sharing will run not for the length of the patent grant but for the full life of the corporation and, in fact, will apply to all inventions and develpments made as a result of my invention by others and for all eternity.

The experience with Government-owned patents has, in general, been disastrous. One needs only to cite the history of the patents owned by enemy aliens during World War II. These were taken over by the U.S. Government and made available free to all. The 15,000 patents involved "died on the vine." It should be remembered that these were highly valued industrial patents obtained by the Germans and others over a period of years, many of which protected very profitable products. I need not mention that the U.S. Government now owns some 28,000 patents and their exploitation has not been profitable, either to the Government or to our nation as a whole. When considering patents owned by the Government, the question is not "Who should have it?" or "Who owns it?" but rather, "What will happen to the technology?"

I have often heard arguments that, at least in the case of Government owned patents, they should be made free to everyone because then their use would be assured and widespread. If this argument is correct, then one cannot justify the existence of any patent system at all. One could the argue that no patent should

ever be issued, that results of inventions should be made free to everyone, and that the inventor should be rewarded in some other way as, for example, by special honors, awards from the Government and/or industry, and so on. It is a curious fact that the patent system, as we know it, was first put into practice in Venice in 1474 and has since been adopted by all the nations of the world with the present exception of only China. Even communist countries like Russia and others have a system that reward inventors and yet a Department of Justice attorney once told me that patents are unnecessary. When I related the above history, he told me that the whole world was wrong.

The other subject I was asked to comment on today was the general question of the value of patents and particularly the U.S. patent system. I must repeat that my time here for even a cursory discussion is much too short but I will try to be as brief as I can. The U.S. patent system is unique in that the inventor is the kingpin of the system. The first one to invent wins the patent, not the person who gets to the Patent Office first, as is true in all the rest of the world. This does lead to some difficulties in "interferences" when more than one person applies for a patent on the same invention within a reasonable time of each other. I was in interference twice. While interferences are costly and sometimes lengthy, they do not occur too often and procedural changes could and should be made in the system by which interference should be kept to a minimum and resolved promptly. This is the only serious, basic, criticism I have of the U.S. patent system.

Our patent system suffers from some other difficulties. One is that the “arts" are getting much more involved and the examination of the technologies much more difficult. There are some 10,000,000 patents that have to be searched, to say nothing of the staggering amount of technical literature that may be pertinent. The arts are more difficult to search not only because of quantity but because new inventions are very often related to many old inventions in many diverse fields. Therefore, the searching requires more expertise and more time. This leads to the simple and inevitable conclusion that the staff of our Patent Office should be increased, both in quantity and quality; that is, the training required should be higher and the number of examiners should be much greater. It is amazing that they do the job as well as they do with the means at hand today. That this increase of quantity and quality will cost money is beyond question, but is should be remembered that Government taxes, as a direct result of patents, are many times greater than the cost of the Patent Office. For example, the income from licensing our technologies to foreign countries, alone, brings to the United States an income which has been estimated to be between one and two billion dollars. There are no statistics on the amount of internal royalities but if one assumes that most of this money is taxed roughly 50% by the Federal Government, and even if one disregards cross-licenses, the direct returns of cash to the Government are many times greater than the possible cost of the patent system. Moreover, since many people, including myself, think that the patent system is of direct benefit of our society as a whole and the increase in productivity and technology helps us to maintain our high standards of living, then no one should quibble about the cost of the patent system as it exists today or the increased cost of a still better organization.

It would be very useful to all discussion of our patent system if the Internal Revenue Service could make a slight change in the income tax form so that income from royalties on patents should be reported on a separate line, or preferably two lines-one for domestic patents and one for foreign patents. Then, computer printouts could tell use the amounts of royalties collected and taxes paid on these. It is time we stop guessing.

There have been proposals made that the patent examination and searching should be computerized. Somehow or other computers are to be substituted for human brains to see where my invention is similar to or different from the invention of others. I have been involved in computer work as an engineer and in studies involved with the Patent Office. I think the dream of using computers to do the intelligent part of the patent search and evaluation is basically nonsense. Computers can be used for rapid retrieval of patents when you know their numbers or the name of the inventor; they can be used to produce copies when necessary and, in general, reduce the "leg work” involved, but the judgment of concepts is not in the computer's power, and the judgment of concepts is what inventions and the patent systems are all about.

The patent system of the United States is also in very serious trouble because of the procedures in our courts and the cost of litigation. Patents are often tried in courts before judges and juries which have not technical training whatever. Important decisions have to be made on infringements or on the validity of a patent where the technology is subtle, and the questions involved would cross the eyes of

the greatest scientists. In some districts of the United States, courts have almost always held patents invalid, while in other courts the percentage of validity is higher, perhaps half of those tried.

Contrary to popular belief, the patent cases that go to court (where the subject of infringement and validity of the patent are involved) are not based on the strength of the patent. It is simply a matter of economics. Irving Kayton, Professor of Law at George Washington University, has well pointed out many years ago that where the royalties are much greater than the cost of litigation modified by the probability of winning, the patent is challenged. This has very little to do with the strength of weakness of the patent.

There are two items to remember about patents that end up in court. One is that the percentage is very small, only a fraction of one percent; and, secondly, that the question of whether an invention if or isn't obvious, or is or isn't completely new, is basically a subjective matter. Becasue the case is usually decided in court many years after the invention is made, it is not at all difficult to see why the invention looks perfectly obvious when presented to a non-technical court by expert witnessess who point out that the invention is simple and obvious and anyone "well versed in the art" could have done it. The fact of the matter is that the very great inventions are simple and it is true that many others could have made them, but the important thing is that they did not.

I am firmly convinced that all technical matters that concern patents such as infringements, validity, and settlement of interferences should be tried only in the Court of Customs and Patent Appeals and in no other Federal Court except the Supreme Court. Only matters that are non-technical, such as contracts, financial matters, and such others, should be left to the District Courts, This would eliminate one of the greatest injustices of the present system. An inventor may have to defend his patents in many District Courts and while he may win in many, he may have his patent destroyed when held invalid by only a single court. If all of the cases were tried in a single court, it is obvious that the same battle would not be fought many times, as in the present practice.

In the recent past, the patent system of the United States has suffered from attacks on it by some misguided members of the Antitrust Division of the Department of Justice. I am glad to say that the Department of Justice is taking a more rational point of view today. For many years, the Department of Justice felt and stated that patents are monopolies and, as such, their power should be curtailed. I have been told by members of the Department of Justice that there is no reason to have a patent system at all since inventors have so much fun inventing things that they would do it even if they were not paid. I was also told that if I or someone else did not invent a particular device, it would be invented by someone else when it was needed. When I pointed out that my watch regulatory and magnetic particle clutch could have been invented by any competent engineer 100 years before me and that they weren't, their answer was that this was due to pure accidents. Such comments about the "fun" of producing and developing inventions and the automatic inevitability of inventions are not worth discussing.

In my opinion, the conflict between the Antitrust Laws and the Patent Laws should be resolved by Congress and should not be done by case law.

Judge Rifkind has put it well by saying in a speech before the American Patent Law Association several years ago, that it is time to divorce the patent laws from the antitrust laws. As an inventor, I would like to know my rights by a clear statement of law rather than the vague and risky interpretation of a large number of court cases.

When discussing patents, it is important to point out that they have different values to different segments of our society. To a private inventor, such as myself, it is absolutely necessary to have a patent if I am to receive any reward for my efforts. If I have an idea that cannot be protected by patents, I make no effort to develop it, to promote the invention by manufacturing it, or to sell it to anyone else. The value of patents is also great for a small business because a small technical company has nothing to sell but innovation and rapid changes in technologies, something which is not of the same importance to a large corporation.

Patents to a drug firm are very important because the cost of development and proof of performance is very expensive but the cost of manufacturing the drug is relatively small. Without patent protection, anyone can make a drug after another company has developed it and proved its value.

Patents have different values to a chemical company as compared to patents to large corporations that make machinery such as automobiles and computers. A large computer company does not depend on royalties for its profits. It depends on the economics of engineering and production and particularly on distribution and

service. This is also true of automobile companies. For such companies, patents are an unmitigated nuisance. They force them to do basic research in new fields so as not to be frozen out of new technologies. The patents cost them large sums of money for attorneys, patent fees and litigation in scores of countries. The officials of these companies frankly admit that if the patent system did not exist they would need to do less R&D, they could manufacture anything they wished and that their success depends on their economic strength, marketing abilities and their worldwide distribution of sales and services.

I believe that the present practice (due to the efforts of the Antitrust Division) that many large corporations must license others at some reasonable rate should be codified into actual legislation, that any corporation that has more than, say, 25 percent of an industry and has a gross income of more than, say, $500,000,000 must issue non-exclusive licenses are reasonable rates.

I wish to emphasize most strongly that patents are a means for increasing competition both by limiting the power of our large corporations and by forcing competitors to improve upon the patents developed by others. Patents are the main means of rewarding the brave soul who is willing to do something different. In a country without patents, power would be completely in the hands of those who have large sums of money and the chance for an innovative small company to become large or strong would be essentially zero.

Innovators suffer today because of the disillusionment of our investors, particularly Wall Street, with R&D. They also suffer because of the high interest rates that money can now earn. When capital can earn 12 or 13 percent essentially without risk, and double itself in some six years, and when a rich investor can double his money without paying taxes in about ten years, why should anyone invest in some new high technology with its attendant risk? Society must recognize that invention and innovation is basically risky and that many new ventures must fail. No intelligent society could or should make use of all new inventions that are produced in a given period. The fact that an improvement exists does not justify the necessary scrapping of an old device or an old process which is still economically viable. Society must pick and choose and the inventor must have hope that he or she will sometimes be chosen. Without that possibility, our economy dies. The United States must produce an ever larger pie to be divided among its people if the standard of living is to rise. It cannot do this by conquering other nations or exploiting them. It does not have enough raw materials to simply sell in exchange for foreign goods. Farming involves only 5 percent of our population and certainly cannot support all of us. The only way we can raise our standard of living is to produce more goods and services for every hour of our work. This means that our technologies must always improve; we must produce ever better products and ever more efficient services, not only for ourselves but to trade with others. Unless we do so, our average standard of living shall fall and we shall become a second-class nation. Attached is a curve of patents issued to domestic corporations, independent inventors and foreign corporations from 1954 to roughly the present time. Attached is a list of important innovations that were made outside of the laboratories of large corporations.

Thank you.