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There are those, notably Government contractors, and patent lawyers in a out of Government, who have argued the opposite—that the Government should grant to contractors exclusive rights to publicly financed inventions. From what I have seen the patent lobby consists primarily of a body of shrewd, so-called experts who have been needlessly confusing the simple principles on which the patent law rests. They have been successful to the point that today many Government agencies are giving away Government patent rights.

The Department of Energy continues to operate under patent regulations which were inherited from the Energy Research and Development Administration (ERDA). The ERDA regulations are a good example of how the obvious intent of a Federal law can be stood on its head by a Government agency. ERDA's responsibilities were set forth in the Atomic Energy Act of 1954 and in the Non-Nuclear Energy Act of 1974. Both of these laws remain in effect and applicable to the Department of Energy.

Under the Atomic Energy Act, the Government, historically, retained patent rights to publicly-financed inventions. That also seemed to be the legislative intent behind enactment of the Non-Nuclear Energy Act of 1974. The Congressional Conference report for that Act, states:

"Government patent policy carried out under the NASA and AEC Acts and regulations, and the Presidential Patent Policy statement with respect to energy technology, has resulted in relatively few waivers or exclusive licenses in comparison with the number of inventions involved. The conference committee expect that similar results will be obtained under Section 9 (of the Non-Nuclear Energy Act).”

However, under the Atomic Energy Act and the Non-Nuclear Energy Act, the Department of Energy has authority to waive the Government's patent rights. The Government patent lawyers have prepared a regulation which actually invites contractors to request waivers, and urges the agency to approve them. The regulation states:

* * * To accomplish its mission, ERDA must work in cooperation with industry in the development of new energy sources and in achieving the ultimate goal of widespread commercial use. * * * An important incentive in commercializing technology is that provided by the patent system. As set forth in these Regulations, patent incentives, including ERDA's authority to waive the Government's patent rights to the extent provided for by statute, will be utilized in appropriate situations at the time of contracting to encourage industrial participation, foster commercial utilization and competition and make the benefits of ERDA's activities widely available to the public.”

This regulations also states that each potential contractor should be notified at the time of bid solicitation that he may request the Government to waive ics patent rights, and that a request for waiver will not be considered as an adverse factor in evaluating bids.

With these new regulations the number of waiver requests in the energy field has increased dramatically. In Fiscal Year 1975, the Energy Research and Development Administration reported receiving two waiver requests; in Fiscal Year 1976, the number increased to 106. No doubt the number will continue to grow geometrically as the patent lobby pushes this policy.

To the extent a Government agency is not bound to the contrary by the provisions of a statute, it is supposed to be guided by the Presidential patent policy memorandum issued by President Nixon in 1971. This policy memorandum attempts in broad terms to strike a middle ground between giving away and retaining Government patent rights. However, like most attempts to reconcile irreconcilable positions, it has failed. The wording is so broad and so vague that agencies can construe what they wish from the memorandum. The Department of Defense routinely gives patents away. The General Services Administration has published procurement regulations, for most other Government agencies, which do the same.

The patent lobby would have us believe that if companies are not guaranteed exclusive patent rights, they will not accept Government contracts. Obviously, if given a choice, most contractors would like the Government to give them exclusive rights to all patents that might result from Government contracts. But very few firms would, in my opinion and from my experience, reject Government business if they were not given patent rights.

These rights are not all that important to most firms. The Atomic Energy Commission operated successfully for more than 25 years under a policy whereby the Government retained title to inventions developed under AEC contracts. That agency had little trouble finding contractors and did an excellent job of developing technology. Likewise, I have no trouble finding contractors even though they know they will not receive patent rights on my Nuclear Propulsion Program contracts. From what I have seen, most of the people who actually run the companies are interested primarily in profits and in the technology, experience, and know-how that comes from performing the contracts. This technology, experience, and knowhow is what helps the company get future Government and commercial contracts. Several studies, including a 1968 study by the Committee on Government Patent Policy, confirm that ownership of patents is usually not a major factor when companies decide what work to accept; that companies are interested primarily in how much money they can expect to make, and what they can learn.

Contractor lobby groups typically use the threat of refusing to take Government work when they try to persuade Congress to eliminate procurement safeguards or to take other actions that will benefit industry. The Defense contractor lobby, for example, has made similar threats year after year in relation to the Truth-inNegotiations Act, the Cost Accounting Standards Board, the Renegotiation Board, and so on. They say that defense contractors will leave the business unless the Defense Department increases profits or relaxes regulations. Yet, year after year, these very same defense contractors lobby Congress and the Defense Department for more business. Their actions belie their words; and this is also the case with respect to patents.

While companies contend that they should have the right to the inventions they make at Government expense, they apply an exactly opposite principle in dealing with their own employees and subcontractors. Employees are required to give their employer the rights to any inventions that they conceive on the job. Toward their employees and subcontractors, the companies' practice is that the one who pays for an invention should own it. But in dealing with the Government, they contend that the one who actually made the invention should own it, not the one who paid for it. This is a classic example of "Heads, I win. Tails, you lose.” It is also an example of the double-talk which has caused the public to hold business in such low esteem.

The patent lobby contends that contractors must be given exclusive patent rights to inventions developed under Government contracts or they will not invest in production facilities or in the future research and development work needed to commercialize an invention. This is one of the main arguments being used in promoting a giveaway patent policy.

It is nonsense to think that our technological growth will suffer unless contractors get exclusive rights to patents generated under Government contracts. From what I have seen over many years, the vast majority of patents both in and out of the nuclear industry are of little or no significance. Some individuals obtain patents as evidence of achievement, much as Boy Scouts collect merit badges. Their ideas might be patentable, but nothing worth pursuing.

Large corporations file numerous patents that are not great new developments, but minor improvements or design features. Often they file these patents simply to discourage competitors or potential competitors-particularly small firms-from trying to enter the market. And if someone wants to challenge the validity of any of these patents, it can take hundreds of thousands of dollars and years of litigation. A high percentage of patents contested in court are ruled invalid. But not many firms are willing or able to sustain such a challenge. Thus, these patents tend to discourage competition.

Obviously, there are patents that do represent useful ideas. However, even without a patent, many of these inventions would be discovered and adopted in the marketplace based on their merits. In such cases, rather than motivating individuals or companies to come up with new ideas, the patent system has actually become a process for determining which of many firms first conceived an idea, and is therefore entitled to the royalty. If one company did not generate the idea another firm would have because of the nature of the work being done. Often, identical ideas crop up almost simultaneously in different companies. Further, many good ideas can be implemented or "commercialized,” without special investment in R. & D. or new facilities. Or, they are sufficiently promising that companies will invest in them without patent protection.

There may be a few inventions arising under Government contracts which, in the absence of exclusive patent rights given to the contractor, might not be disseminated and used. The question then arises: Is it really worthwhile for the Government to promote the invention? Perhaps the idea is not all that good. Moreover, if the Government should decide it is in the public interest to promote or "commercialize" a particular invention, it might be better if the Government itself paid for further development, and made the results available to all citizens instead of granting to one contractor exclusive rights to the invention. And who is to say, in cases where the Government patents are waived, that the company performing the contract should automatically and exclusively get these rights. Since large corporations get

the major share of government contracts, they would be the ones to benefit most from such a practice.

The concept of granting a patent-a legal monopoly-is to encourage inventors to conceive new inventions, not to guarantee a market for already existing inventions. But companies now want to have their marketing development costs guaranteed by having a patent monopoly on Government-financed inventions. Since the public has paid for the development of the invention, the risks of marketing it should be no different in principle from other risks that are inherent in a true free enterprise system. How is the risk of marketing a publicly-financed invention different from the risk a man takes when he opens a new grocery or hardware store on a corner where none existed before? We would be going still further in abandoning our socalled free competitive enterprise system if we guaranteed legal monopolies for what are essentially normal business risks.

The patent lobby contends that, under a giveaway patent policy, the public is protected because the Government would have "march-in” rights. Under this concept, contractors who have been given exclusive patent rights to inventions developed under Government contracts would be required to submit reports explaining their efforts to commercialize the inventions. If a contractor did not commercialize the invention to the Government's satisfaction, the Government would then exercise its “march-in" rights and take the patent rights back or license it to others.

This concept sounds good in principle. But, the patent lawyers well know that this is a cosmetic safeguard; it offers no real protection for the public. To administer such a program would require a large Government bureaucracy to receive, review, audit, and act upon contractor reports throughout the life of each patent. Currently, the Government would have to track contractor activity on about 30,000 unexpired patents. If the Government ever tried to reclaim its patent rights, more administrative effort, and probably much litigation would be involved.

In the real world, no one in Government would ever undertake this task; nor should they. Government agencies should concentrate on their proper functions rather than wasting time trying to keep track of how well contractors are promoting and commercializing patents.

It is relevant to note that, although Presidential patent policies since 1963 have required the Government to retain "march-in” rights where the principal or exclusive rights to a patent remain with the contractor, the Federal Council on Science and Technology reports that, as of December 1975, the Government has never exercised these rights.

The patent lawyers have observed that the number of patented inventions resulting from Federal funding is very small compared with the number generated by industry with their own funds. They attribute this, in part, to “the small incentive provided by present Federal patent policy."

I believe the lower number of inventions reported under Government contracts does not show a stifling of inventions under Government contracts. In fact, most of the major advancements in technology in the past 20 years have come in areas where the Government invested heavily, such as space, defense, and nuclear energy.

The lower number of Government-owned patents results from other factors, such as failure of contractors to report the inventions they develop under Government contracts; the patent rights giveaway policy followed by various Government agencies; and the Government's “Independent Research and Development” program.

I have found cases where contractors filed patent applications for themselves on items that were conceived and developed under Government contracts. These come to light only because, by law, patent applications in the field of atomic energy must be reviewed by the Department of Energy and because in my area I insist on having them reviewed. In areas outside the field of atomic energy, there is no way for Government agencies to determine whether contractors are claiming, as their own, patents which rightfully belong to the Government.

The relatively small number of Government patents stems from the very fact that the Government has been giving them away; they have been patented by the contractors. The Defense Department, for example, does not acquire patent rights under production contracts. It retains patent rights only under contracts characterized as "research.” Even under R&D contracts, the Defense Department has criteria for giving away Government patent rights.

In my opinion, the Government's rights to patents developed at public expense should not depend on some arbitrary distinction between “research” and “production.” Often the best ideas and technology come during manufacture of a product, rather than from the research and development work that preceded it. The Government should retain patent rights on Government contracts, regardless of the nature of the work, whenever the invention was developed at Government expense.

Another reason for the small number of Government patents is that contractors automatically get title to patents developed under the Government's so-called “Independent Research and Development” (IR&D) programs-even though all or nearly all of these costs are paid for by the Government. The Defense Department alone spends about $1 billion annually on this program, but the patents developed do not have to be reported to the Government.

Under present rules, any U.S. citizen, for a nominal fee, can get a non-exclusive license to use a Government-owned patent. There has been little demand for these non-exclusive licenses; but that does not mean the invention is not being used, as members of the patent lobby contend.

The reasons for the Government to patent its inventions are primarily defensive: to ensure that the Government is not subsequently barred by a private patent from using an invention whose development the Government itself paid for; to prevent the establishment of a private monopoly for an invention developed at Government expense; and to make the invention freely available to the public. If these same ends could be achieved by “defensive publication"—that is, by publishing information in a manner that would preclude others from patenting it-the public interest would be served as well as if the Government actually patented the invention.

This Committee will, I am sure, be lobbied to death by contractors and patent lawyers—both in and out of Government. There will be speeches extolling the virtues of a giveaway patent policy in relation to the patent system; the free enterprise system; the nation's declining technological growth; and the problems of small business. These are the standard speeches which lobbyists tailor to fit special occasions.

But here, the policy they advocate is contrary to the principles of free enterprise and competition. Rather than giving everyone in the marketplace equal access to publicly-financed inventions, they are advocating that the Government restrict the use of an invention to one company.

Small business, for its own advantage, should be against a giveaway patent policy. The vast proportion of Government business goes to large contractors. In Fiscal Year 1976, 50 percent of the total dollar value of research and development contracts placed by the Department of Defense went to only ten large corporations. In Fiscal Year 1977, two-thirds of the $35-$40 billion defense procurement budget went to the top 100 contractors. As conglomerates expand, this concentration continues to increase. If the rights to Government-financed inventions are given away to contractors, the Government itself will be promoting the concentration of economic power in the hands of a few large conglomerates.

To appreciate fully the implications of a giveaway Government patent policy, one need only consider a hypothetical case. Suppose, with the vast sums of Government money that will be spent in efforts to find solutions to the energy problems, a contractor, at public expense, develops a technological breakthrough. What would an ordinary taxpayer think when he learned that this company could, for 17 years, legally control the dissemination, use, and pricing of this invention?

For the reasons I have stated, I believe that the Government should have a strict policy of retaining, for all citizens, the rights to patents developed at taxpayer expense. Specifically, I recommend the following:

1. All Government agencies should be required by law to retain patent rights, except in exceptional circumstances, to all inventions developed at Government expense.

2. Prior to a Government agency waiving the Government's rights to any patent, the Attorney General should be required to make a written determination that the waiver is required to obtain performance of work essential to the mission of the agency and that granting the waiver will not adversely affect competition or small business.

3. All inventors should be required to certify on their patent applications that the invention was developed under a Government contract and duly reported; or that the invention was not developed under Government contracts. Criminal penalties should be provided for individuals or contractors who file, as their own, patents that have been developed at Government expense.

STATEMENT OF ADM. H. G. RICKOVER, U.S. NAVY, TO THE SUBCOMMITTEE ON THE CONSTITUTION OF THE SENATE COMMITTEE ON THE JUDICIARY, JUNE 6, 1979

UNIVERSITY AND SMALL BUSINESS PATENT PROCEDURES ACT Thank you for inviting me to testify on "The University and Small Business Patent Procedures Act.”

One stated purpose of the bill is to establish a uniform Federal patent procedure for small businesses and universities. As I understand it, the bill provides that, in almost all cases, small businesses and universities may elect to retain title to inventions developed under their Government contracts; the Government keeps a nonexclusive license to use the invention for Government purposes.

If the Government subsequently determines that the contractor is not effectively taking steps to achieve practical application of the invention within a reasonable time, the Government would have so-called “march-in rights”, under which the Government can require the patent holder to license the invention to others.

If in 10 years a small business or university makes more than $250,000 in aftertax profits from licensing the invention, or $2,000,000 on sales of products incorporating the invention, the Government is entitled to a share of all additional proceeds up to the amount of Government funds spent in making the invention.

In my opinion, Government contractors-including small businesses and universities—should not be given title to inventions developed at Government expense. These inventions are paid for by the public and therefore should be available for any citizen to use or not as he sees fit.

In private industry, the company that pays for the work generally gets the patent rights. Similarly, companies generally claim title to the inventions of their employees on the basis that the company pays their wages. In doing business with the Government, however, these same companies reverse the standard, contending that the patent rights should belong to the one who comes up with the idea, not the one who foots the bill.

In rationalizing their claim for title or exclusive rights to Government financed inventions, contractors often use the age old arguments of the patent lobby; they claim that the Government is stifling technology by retaining title to approximately 25,000 patents; that these patents reflect worthwhile ideas that are not being used; that without patent protection companies will not commercialize these inventions; and that the public therefore does not get the benefit of the Government's R&D expenditures.

Generally, these are the arguments of patent lawyers, contractors, and those unable to find sponsors for their inventions. Truly good ideas tend to be used. The reason so many Government-owned and privately-owned patents are not used stems from considerations other than the need for monopoly patent rights.

A vast majority of patents are of little or no significance. Many companies seem to file patents defensively; meaning that they file numerous patents for minor details primarily to keep someone else from getting a patent in that area or to discourage potential competitors. Some people file patents as status symbols; others simply misjudge the attractiveness of their ideas. The Patent Office itself, when in doubt, tends to patent questionable items on the assumption that, if the patent becomes important, the validity of the patent can be tested in court.

Finally, it is almost impossible to tell the extent to which patented inventions are being used, particularly in the case of Government-owned patents. Government agencies do not have a reason to search for patent infringement. The Government, unlike private parties, generally has no desire to prevent others from using its inventions. The reasons the Government should take title to these inventions are primarily to ensure the Government is not subsequently barred by someone else's patent from using the idea; to preclude the establishment of a private monopoly for a publicly financed invention; and to ensure the public has equal access to these inventions.

Patents are generally incidental to Government research and development work, not its primary purpose. When I place an R. & D. contract for a new design reactor, it is principally to work out the details of a design and to identify and resolve the problems of design, manufacture, and operation. If patentable inventions arise in the course of this work, they generally involve only small design features, not entirely new concepts. The bill however seems to be based on the notion that the Government-owned patents are predominantly good ideas which Government agencies should try to force out into the market place. The bill states “It is the policy and objective of the Congress to use the patent system to promote the utilization of inventions arising from Federally supported research or development ..." and to “Protect the public against non-use or unreasonable use of inventions.” (emphasis added)

Under this bill, Government agencies would be expected to promote actively the inventions that it now owns and those that arise under new contracts. The bill further requires that the General Accounting Office audit these agencies annually and report to the Congress on their progress in this effort.

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