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It has been generally the Government's policy to grant upon request nonexclusive royalty-free licenses to all inventions for which it holds title. The policy of granting nonexclusive licenses is based on the belief that inventions generated with tax dollars should be made freely available so as to benefit all taxpayers. In your opinion, what effect has this policy had on the commercial development of Government-owned inventions? You commented in general on that. Can you be additionally specific?
Mr. RABINOW. Yes, I think it just kills the patent because if you make it free to everybody you don't have to bother about giving licenses. The Government simply sits back and does nothing. To give a license to anybody who writes a letter is just as easy as not answering the letter. The man knows he has a free license and he knows you won't sue him. So the question is, if the technology developed by anybody is made free to everybody, will people use it? The fact that Government spent money on it is incidental. The Government spends money on many other things it does for society. The answer is, it doesn't work. If the argument is correct that making Government patents free improves their use, then why have any patent system at all? This argument should also hold for private patents and the inventor should be rewarded in some other way.
What I'm saying is if the proposition is that making Government patents, the 28,000, free to everybody will promote their use, then why not do that to all the other 60,000 a year, free to everybody? That should also promote their use and all you have to do is reward the company or inventor in some other way, by a grant, by Nobel Prizes or small prizes or whatever you like. The fact is that no one in their right mind suggests this. They say that making private patents free to everybody is counterproductive, but somehow they feel a Government patent is different. The patent is the same, whether the Government produced it, or paid for it, or I paid for it. So if making it free improves its use, then all patents should be used freely by everybody and the patent system should be abolished and we should reward inventors by some kind of grant system. No one proposes this in the United States or anywhere else in the world, not even in Russia. So I think the argument is false.
To answer you specifically, the Government should grant exclusive licenses unless it's absolutely necessary not to do so and there are a few special reasons. Preferably the grant should go to the inventor or to the company that produced it. It is supposed to be good for 17 years but in practice it's much less. There are other controls that you can exercise over monopoly powers, abuse of Government privileges, and abuse of society these controls should be applicable to all patents, not only Government patents.
Senator SCHMITT. Mr. Rabinow, do you see any distinction between exclusive license and title?
Mr. · RABINOW. No, sir. In practice, it doesn't make much difference. As a private inventor, I prefer to give exclusive licenses because if the corporation goes bankrupt I can get the patent back. Once you give title and sell it as an outright purchase, usually you cannot get it back. But these are very minor differences. In practice, it's the same thing.
Senator SCHMITT. Take the Government situation now of exclusive license versus title. Do you see any distinction there between your own private inclinations and those of the Government?
Mr. RABINOW. It doesn't make much difference. I think the redtape is different. By the way, one of the things you have to worry about, gentlemen, is that if you start collecting royalties by giving exclusive licenses for a short period and recapturing because something happened, you will have to have a tremendous bureaucracy checking the books, checking the production and so on. When I give a license--and it's happened several times—I have been lucky—I do not check the books of the corporation. I assume that when they tell me they sold x number of units that they are telling the truth. I don't think a Government official could assume that. He would have to check the books. He would have to go in, or somebody would have to go in, and check the books of the corporation and make sure the royalties are paid and so on. I think this would be counterproductive and a waste of time.
I would rather see the Government give the company that invented it the rights so that it's your patent and we have no further interest in it.
Senator SCHMITT. So there is an important distinction between exclusive license with a royalty or a recapture and title?
Mr. RABINOW. Yes, sir. The mechanics are quite different. If you have recapture rights, then you certainly would end up with arguments and I see no need for this because in 17 years the patent dies anyway. Also, if you recapture the patent, the chance of another company using it is very small. Once the patent does not do well in one person's hands, nobody wants it. I have had a company turn back a patent to me and I found nobody else wanted it because business people copy each other and if it's failed in one place nobody else will touch it.
Senator SCHMITT. Now if the exclusive license were granted in a field of use—that is, some limitation of the license-implying that the Government then would find other fields of use where it would also grant exclusive license, would that be a workable procedure?
Mr. RABINOW. That could be done. The Department of Justice generally doesn't like this, at least for private patents-in their view, they feel it's extending monopoly right. My own feeling is it should be done when advisable. I would rather let the industry do that if you let them have the title. One thing about giving patents out and licensing people, you have to know the business very well. You have to be an expert in that. It's like a piece of property. You have to know not only what this lot is worth, but what are the neighbors doing, which way is the neighborhood going, what's going to happen 10 years down the line. This is true of patents.
So when you give licenses out you have to know a great deal more than just the patent itself. You have to know what is the strength of other patents, what is the prior art, which way is the industry going, is this likely to develop or die. This is a messy business. It's a very involved thing.
Senator SCHMITT. In order to define and administer a field of use exclusive licensing policy it would be a further addition to the bureaucratic problem?
Mr. RABINOW. Yes, particularly a license that's limited by field of use, or time, or something is a very involved business and to ask the Government official in the Department of Commerce to know the fields of use of 28,000 different patents and perhaps 2,000 or 3,000 different fields of technology is asking for a lot. It will cost the Government a great deal of money and while I'm a Government bureaucrat and feel that we do a good job at the Bureau in many ways, I feel that to ask the Government to evaluate patents to decide who should get it and who should not get it and so on is a very difficult job and I don't think it's worth it. I think the country would be better served if the inventor or his company got it and the Government just washed its hands of it. There may be some abuses, but there are abuses in all fields, and I don't think the abuses in this would be any greater than the abuses of the patent system, in general, and I'm convinced it works very well, in general.
Senator SCHMITT. As you know, it's been argued by some that acquisition of patents by big business is anticompetitive and leads to greater concentration of economic power in large corporations and we appreciate your earlier comments on that subject. Do you think the march-in rights of S. 1215 is an aid to protect the socalled public interest?
Mr. RABINOW. I don't believe in march-in rights. I think this is such a can of worms that I hope the Government does not do it. March-in rights mean you have a right to go in and not only demand certain rights for the immediate development for which you paid but you have a right for development which the company did long before it was involved with the Government. I don't think this is fair and I don't think any good corporation that has valuable patents would permit march-in rights. How do you decide which patents you're going to march in on and so on? I think the redtape is just unjustified. I don't really understand the ethics of this. A company says, “Build me a building but you have patent rights on some structures and you're going to use them in my building, but I want march-in rights so I can give contracts to somebody else and cross-license them.” I don't understand the mechanics of that at all.
Senator SCHMITT. If the march-in rights were limited to the situations where the use of the invention was not exercised in a number of years, would that be acceptable in your view?
Mr. RABINOW. Let's look at what you're saying. I have a patent to make clutches. I make 10 clutches a year just to keep the patent. You come in and say you didn't exercise it. I sold 10 or 50 or 100 and then you say that's not enough. Then the argument develops about what is utilization of the patent. I say a sale of 10 clutches is utilization or you say, no, you should sell many more and you get into these crazy arguments of utilization, and I say this is just not justified. I certainly wouldn't dream of giving such a license unless the number is very large and unless we define it specifically. But look how much knowledge I have to have in the business to tell a clock manufacturer that he must make a million clocks or I would not consider it proper utilization of my patent. I wouldn't dream of pulling that kind of argument with a manufacturer. Either you give him a license and get the heck out of it or you don't give him
a license. All the other hangover clauses, like if he doesn't do enough in 5 years you can force him to abandon the patent and he says 5 years wasn't enough, so you take him to court and you end up with a tremendous administrative problem which is not justified at all.
Senator SCHMITT. As I understand it, some agencies that have a waiver authority such as NASA also have a march-in right. Mr. RABINOW. Yes, sir.
Senator SCHMITT. It's also my understanding that march-in rights have never been exercised. Do you think it's because they realize the difficulty of exercising it?
Mr. RABINOW. The difficulty is tremendous. You're dealing usually with a group of patents, not one. You're dealing with portfolio of patents when you have an important patent and I don't know how you exercise this. This is like the mandatory licensing laws of Germany. Germany has a law on the books and has had it for many, many years that if another company wants a license and a patent he can go to court and demand the license be sublicensed to him. It's never been exercised in Germany, not in the whole history of Germany has that ever gone to court. They have such laws in Israel. They have never been exercised. There's this business of secondary rights, not of the basic patent or basic license, but some fringe rights which are very difficult to enforce even between industry, and I don't think the Government should get involved in litigation on march-in rights and I don't think they are ever exercised and I don't think they ever will be. I think if the case is strong enough that you want some of the patent rights, I think deals can be made for the secondary rights without having to have lawsuits. In other words, if you build a nuclear submarine and-by the way, Admiral Rickover doesn't seem to realize that the Government can always—he mentioned at the end of his testimony that to insure that the Government is not subsequently barred from using an idea of somebody else's patent-this is nonsense. You cannot bar the Government from using my patent. The Government has an absolute right to use any patent in the United States and I can only sue for reasonable royalties. In most countries of the worldEngland, for example, you do not have a patent against the government. In the United States you do not have a patent against the Government. The Government is always free to use any patent, private or public, by just using it, and all the inventor or the company can do is demand a reasonable royalty and get it settled in court, but he cannot bar the Government. Where Admiral Rickover gets the idea that you can bar Government from using a patent, I don't know. It's simply not so.
Senator SCHMITT. Mr. Chairman, I have a few more questions, but I would yield.
Senator STEVENSON. Go ahead.
Senator SCHMITT. Mr. Rabinow, let me ask if you think that an organization within the Government could effectively market, if you will, the 28,000 or so patents presently under Government jurisdiction?
Mr. RABINOW. It's been trying. The NTIS, that's the group that now tries to sell patent rights. It's very difficult as I can tell you from my own experience in trying to sell patents. I'm now trying to
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market, for example, a pick-proof lock and some other patents. Marketing a patent is a very difficult thing. You have to convince a manufacturer to start a new line. He doesn't want to change the line. You come to him with a new venetian blind and he says, “I make $16 million in blinds a year, why should I make your design? It's clever but I don't want to bother.” I went to the president of the Hamilton Watch Co. with an invention many, many years ago and he said, “It's brilliant. It's very clever. It will improve the watch, but we don't want to bother.” So selling a patent is not just coming in with a patent and saying here's an idea. They'll say, “Why should I buy it? I make a lot of stuff now." You say, “You'll make another $100,000.” When you go to a company who has sales of $4 or $5 billion a year and say you have a new gadget that will really make $1 million a year—“$1 million out of $4 billion, doesn't interest me.” So selling patents is a very personal business. It's not done on a business basis. It's done by throwing stardust in the buyer's eye. You have to convince the manufacturer that he is a leader. Money doesn't interest him as much as prestige. You have to convince him that he's going to be able to brag to the people with whom he plays golf that he's just got something new and different. You have to make him feel like a leader in the industry. You have to build his ego that the patent is a new toy. You don't sell patents strictly on $1 basis. You don't sell anything else on $1 basis. You have to appeal to his ego. If you just make Government patents free or simply say here's a patent, buy it; it won't sell. It wouldn't even sell if the inventor comes in and is all excited and he knows the business backwards and forwards and even if the prospective customer tells him how brilliant it is.
Senator SCHMITT. What about the National Research Development Corp. in England? Has it been effective?
Mr. RABINOW. Yes. As a matter of fact, it supported the British computer industry. It takes stock in corporations. It promotes patents, but it also spends money. It isn't just a selling agency that just supports development of inventions. In other words, it's a working corporation and it does succeed and it has done quite well. There's some real question whether it's a good thing for the United States to set up a thing that really produces inventions in the sense of a research lab. We do this only for the needs of the Government. Agriculture laboratories do it for agriculture; military laboratories for the military, and the Bureau of Standards does it for Standards and Commerce. I don't believe Government should, as a matter of policy, set up development laboratories, but I think the Government should as a matter of policy support small business with risk capital, which is not happening in the United States, and this is not the subject we were supposed to discuss today. Unless we support small business, the big businesses will undoubtedly become stronger; they will probably get stronger anyway, but unless we support small businesses to keep the big boys honest, the big boys will do less innovating and the management will get more conservative, more of the bookkeeping types, more business types who don't really care about inventions, and I think in this respect Admiral Rickover is correct. If you want to promote inventions in the United States you have to support small business. Don't worry about who gets the patents. Small business will get their share. But