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I once mentioned this to the president of a very large corporation and he said, “We have a third platoon to explain to the Government later why the gadget didn't work.”
I think that if the patents were left with the corporations so the benefits of this brilliance could be their own, these two platoons would not exist. They would be perfectly happy to do Government research with the same quality people they use on their own research. This is not true today.
Let me tell you about the Government experience when it owns good patents. During the war we confiscated all the patents belonging to enemy aliens that is, patents belonging to Germany, Italy, Austria, and many others. There were about 15,000 such patents. These were not Government patents. These were patents which were applied for in the United States by the industries of the world. These patents were administered after the war by John Green, who was then Chief of the Office of Technical Services. These patents died. Nobody asked for a license. They were available on a nonexclusive basis for the payment of $7 and I can assure you that if you didn't pay the $7, you certainly could use the patents. And John Green told me that the patents “died on the vine.” These were his words because, he said, “Nobody wants to develop and put into production something his competitor will do after him for less money and do it better.” The reason the competitor can do it for less money is because the market is established; he knows what people are buying; he therefore can do it without the usual market risks. The reason he can do it better is because he's second, and the second model is always better than the first.
People have asked me, as an inventor, why don't I invent the second model first? I'd like to do that but I don't know how.
The experience with Government patents, besides these 15,000, has been very informative. As mentioned by Senator Schmitt, the Government owns more than 20,000—nobody knows exactly how many-and these patents are doing very badly. I'll give you some cases from my own experience.
In 1947, I invented the magnetic particle clutch. It consisted of two metal plates and some iron dust. The patent was basic. This contradicts the testimony of Admiral Rickover that everything that needs to be done will be done anyway. I have also heard this from the Department of Justice people many years ago, that "anything that needs to be done will be done.” Here's a clutch that could have been done by any kid in 1850. There was no principle of physics that wasn't known for 200 years, except it just didn't happen. I invented this clutch and it started a new subclass in the Patent Office. The Government issued no exclusive licenses so no one wanted to spend the millions of dollars it would have taken to get rid of the problems that arose, problems of the heat dissipation, shielding of shafts, settling of the powder, and many other problems that arise in industrial applications. I was given the foreign rights, however, and I sold these to Eaton and Eaton licensed many European companies. It was developed in Europe to a much higher extent than here. It was used in four European automobiles. It was never used in a car in the United States. It's used in airplanes only when absolutely necessary. This was a basic invention, simple, but because it was a free patent to everybody nobody spent the money it would have taken to develop it fully.
The question of whether the royalties would have come to me if I had given the patent rights is really immaterial. It's not whether Jack Rabinow makes money. The question is whether the invention is used by the public to create jobs and create exports.
All these arguments about "why should the Government give somebody the right to make some money” should never be asked about a patent. The question is, does it get used? Do people produce it? Do people use it? Does it help our export business and does it help create jobs? And whether somebody does or doesn't make money for a few years is completely besides the point. I had no objection assigning it to the Government. I received a gold medal for it and it raised my salary $250 a year. This is not the point. But the Government should have given somebody an exclusive license so the couple of million dollars it would have taken to get it on the market could have been spent. It wasn't.
I'd like to contrast this with another one of my experiences. While in the Government I invented a reading machine. It's now in the Smithsonian at the Museum of History and Technology. The reading machine read the print of a portable typewriter. This was done in 1952 through 1954. In that case the Government did give me the commercial rights because it was done when I was a member of the Harry Diamond Laboratories. Under Department of Defense rules the commercial rights were given to the inventor.
I did start a company with that basic patent and the company was sold to Control Data for more money than I would like to mention in public. The fact is that the basic patent was the basis for many inventions that followed, made by myself and by my staff. We did have an incentive and I could and did get Wall Street money and the business was quite prosperous. Here's the same guy, the same Government. In one case the patent rights belonged to the Government and I have no rights and nobody spends any money. In the other case, I do have the rights and the money is spent and an effort is put into it and the thing becomes a great commercial success and today nearly all reading machines are based on that first patent on a reading machine.
Questions come up like, “What about things like cures for cancer; suppose the Government contractor develops a cure for cancer. Should he be given commercial rights?” My feeling about this is that this is one of these questions like “Do you beat your wife every Friday?” The cure for cancer would have enough moral controls on it, enough social pressures, so that I wouldn't worry about it. Besides, if a company did cure cancer and did make a billion dollars, I think society would well make that deal. But I think these are academic questions and I think that there would be enough other ways that the company would benefit from a cure for cancer so that we don't have to worry about the operation of the patent system of the United States because somebody may invent a cure for cancer.
I have been asked by Bill Gibb in a telephone conversation a few days ago about what I thought about mandatory licensing. This is a policy where the Government would require the exclusive licensee or licensor to license others. I don't like mandatory licensing, which often destroys the value of a patent. If a patent is valuable, it is valuable because of the control it gives the owner. Mandatory licensing reduces this control. The fact that a company could make some money out of mandatory licensing is academic. The question is, will it use the money to develop the invention further. I have many doubts.
One of the interesting things about the patent system-and Admiral Rickover's testimony is basically directed not only against the Government policies but against all patent systems—is the belief that people will extort money and the inventor will get rich and his company will get rich and monopolies will be set up and so on. This is the basis of the general philosophy that patents are really not necessary-I have heard these arguments most of my life. I have heard this from the Department of Justice, which used to be opposed to patents, but which is much less so now. “Why should we pay inventors to invent? They have so much fun doing it that they will do it anyway.”
I invent things and I often find them in the Patent Office files and I drop them. It's fun to invent, but it's not fun to develop the invention. If I cannot make it commercial for myself or my employer, I certainly do not follow it. There's no point in developing something that's available to everybody else. Development is very expensive and very difficult.
One of the most interesting things about the patent system that you gentlemen should remember is that the original system was invented in Venice in 1474, and since that time all the countries of the world, including the Communist countries, have adopted patent systems; and yet I once heard a Department of Justice attorney tell me-and Admiral Rickover would probably agree—"patents are unnecessary.” And I said, “Then how come all the countries of the world, with the exception of China, have adopted a patent system?” His answer was, “Everybody is crazy.” This does not deserve any comment. The fact is that Russia has a patent system and their inventors who all work for the Government nevertheless collect royalties. The chief of the patent system of Russia once told me that they have one inventor who so far has over 100 patents and he's earned 1 million Russian rubles in royalties. A million Russian rubles is not hay even in Russia. They also reward him with honors. They have found it does promote invention. China is now studying our patent system with a view of setting up their own patent system.
I think our laws should be quite clear in that the normal procedures should be that in nearly all cases the patent should be given to the company that invented it. If you're concerned about the fact that very large corporations would have too much power-this should be true not only of government patents but of all patentslet the antitrust laws take care of this matter. Most of our large corporations do not sue small companies. I never was sued by IBM. I'm sure GM would not sue me if I wanted to make an automobile. This fear that large corporations ride roughshod over small companies is essentially nonsense.
Nevertheless I would like to see the power of large corporations curtailed. I agree with Admiral Rickover when he says that our conglomerates are an evil. I think they are. This is not the subject of today's discussion, but I think our conglomerates and our multinational conglomerates destroy American technology and ultimately I suspect they will destroy the capitalistic system as a whole, but that's another subject.
When we talk about patents, we talk about a very small part of the power of the conglomerate and it has nothing to do with the fact whether the Government gives them licenses or not.
There's some question about what government should do about patents granted to government employees. I think the Government should reward them and I sincerely hope that when the Government gives an award to an inventor, which occasionally it does, it doesn't tax the money. I know a case of a government employee who received an award of $50,000 for one of his inventions, and the taxes on it took more than half of it back. I think there's something somehow chintzy about the Government rewarding you with one hand and taking back most of it with another.
Mr. Whipple, who invented the jet engine in England did receive an award from the British Crown or from Parliament. I believe it was L750,000, the British apparently have a way of doing this which is much more elegant than that of our Government when it gives an award.
I'd like to make a few specific comments about the written testimony of Admiral Rickover and I'm really sorry that he's not here. I would have loved to hear his comments about what I have said.
First of all, there are some elements of fact. For example, he says, “From what I have seen over many years, the majority of patents are of little or no significance." There's been a study made of how many U.S. patents are used during the patent life. It may surprise you to know that more than 50 percent of all patents issued are used in industry before they expire. People seem to think it's 2 or 3 percent—this is not true. You must realize that these so-called minor patents which Admiral Rickover speaks of, are minor only to him. They are not minor to the industry that develops them. To a man who makes nuts and bolts, the shape of the thread is important. So when you and I may look at inventions that seem trivial, they are not trivial to the industry. He also talks about patent policies reducing attractiveness of government contracts and he says he doesn't think so. I think in nuclear energy he's right. Government will build nuclear submarines and need not worry about patents. That's not the kind of problem we have when you want to build a computer or post office equipment. I might tell you my experience with the Post Office.
I was the contractor who developed letter sorting machinery. The machinery was based on an invention of mine and of one of my engineers. There are now 400 of these machines sorting mail in the United States. The Government kept all the necessary rights. The result is that there was no incentive to me to improve the machinery. The machinery was developed by my staff but it was built in production by Burroughs and I spent no money to develop the machines further. If I had had the rights, even the Post Office rights, the Government might have made me richer, but I would have developed subsequent machinery which was obviously needed because the machinery is badly out of date. Burroughs has no rights. I have no rights. The Government has all the rights, and therefore the machine is the same machine that was built in 1956. It should be replaced by much more advanced equipment.
Admiral Rickover says that if patents were free, then any citizen would pick them up. He doesn't seem to realize that "any citizen" will most likely be a large corporation. It will pick up a worthwhile idea before anybody else and certainly will run with it, leaving the individual and the small company far behind
I'd like to close with two things. First, I'd like to read his paragraph which says:
In my opinion, the proposed bill would impede, not enhance, the development and dissemination of technology; would hurt small business; would inhibit competition; would promote greater concentration of economic power in the hands of large corporations; and would be costly to the taxpayer.
I think all of these statements are incorrect. I once talked to the vice president for patents of one of the largest corporations in the world and he said to me:
Patents are an unmitigated nuisance. If there were no patent systems in the world we would save a great deal of money in direct patenting and in the cost of litigation. We would not do as much R. & D. because we wouldn't have to defend our future with patents on things which may be necessary and may not be necessary in the future. We would build whatever we like.
The power of our large corporations depends on their marketing, their production capacity, their advertising, their service all over the world, this is why the vice president said, “Patents to us are just a nuisance.” This was echoed, by the way, by the chief patent attorney of one of our largest automobile companies, and by many others.
So when Admiral Rickover speaks that, “If the patents were available to everybody it would help small business," he's talking nonsense. If patents were not granted and were not given to small businessmen who invent something, companies like my own would not exist. The large corporations would wait calmly until we made a product and proved its commercial viability and then would take the business away from me, and the only thing that permits small business to exist in high technology industries is the fact they had strong patents. If the patents were weak or made free to everybody, they are just pretty paper. I think people who believe naively that if you make everything free, everybody will use it don't know what they're talking about.
I invented an automobile clock that couldn't be sold for 9 years, even though the royalties finally were 112 cents on a $5 clock. The reason was the industry simply didn't want to bother, and I can tell you of many such experiences. People do not adopt things which are free, and they do not take things even when you give it to them. So to hope that if everything is free and easy everybody will do the right thing, is childish and I'm sorry to see a man of Admiral Rickover's importance believing this.
I think that's all I'd like to say.
Senator STEVENSON. Thank you, sir. Your full statement has been entered in the record.
Senator STEVENSON. Senator Schmitt.