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program and to slide inventions originating in other Government work under this umbrella.

Question. As you know, Senators Bayh and Dole have introduced a bill, S. 414, the Small Business and Universities Patent Procedures Act, which, with certain exceptions, would permit small business and university contractors to retain patent rights to inventions made in the course of Federal contracts. Would you give the Subcommittee your views on this legislation?

Answer. I testified before Senator Bayh's subcommittee on the Constitution regarding S. 414 on June 6, 1979. I testified that while I believed Government funded inventions should be freely made available to the public, I recognized that Congress sometimes felt the need to provide special assistance to small businesses. Under the guse of helping small businesses however, S. 414 included provisions which instead give large contractors the advantage. If that is not the intent, and the purpose of S. 414 is to help small businesses, it should be revised as follows:

(1) require that the Government retain title to all inventions developed at Government expense.

(2) give small businesses and universities an automatic 5-year exclusive license to inventions they develop under their Government contracts. At the end of this period the invention would fall in the public domain. This would provide limited protection, but not a 17 year monopoly. It would also obviate the need for the cumbersome safeguard provisions of the present bill, e.t. "march-in rights," "return of Government investment," and the vast administrative effort associated with them.

(3) revise the preamble to eliminate any implication that Government agencies should (a) actively and indiscriminately promote all inventions arising from Federally supported research or development, and (b) "protect the public against non-use of inventions." Only a small portion of the inventions patented by Government or industry turn out to be worthwhile.

(4) prohibit agencies from waiving the Government's rights to take title to patents developed at Government expense. Whenever such waivers are granted, small businesses or other firms are foreclosed from the opportunity to use the inventions. (5) prohibit contracts which automatically provide to the contractor exclusive licenses to any inventions developed under the contract, except as indicated in paragraph (2) above. Other firms should at least have an equal opportunity to use the invention non-exclusively or bid for the exclusive right to use it.

(6) require that the Commerce Department publicize the availability of patents to which the Government has title for a period of six months. If no one requests a nonexclusive license, the rights to an exclusive license could be granted to the highest bidder with small businesses having priority in the bidding.

(7) eliminate the statutory requirement for the GAO to conduct an annual review of agency performance in the area of patents. It does not seem appropriate to include this as a permanent requirement of the law.

Question. In your statement you expressed the opinion that most patents are of little or no significance. If this is so, what is the justification for the costly programs which are currently needed to administer the present patent policies? Also, if the inventions are worthless, why are you so concerned about the rights which the contractor might acquire in these supposedly worthless inventions?

Answer. My experience has been that most patents have little or no significance. However, it does not follow that all patents under government contracts are, or will be, worthless.

For those that are worthwhile, it would be wrong to give one contractor exclusive control over that invention simply because the contractor was fortunate enough to have obtained a Government contract to do the work. Another important consideration is that if contractors were allowed to retain patent rights under Government contracts, many contractors would patent trivial ideas not because they thought the concept important but to further encumber other companies from being able to enter into that line of business.

If the Government were to adopt a policy of giving its contractors exclusive rights to inventions developed under their government contracts, those contractors with the largest amount of Government-funded R&D work would undoubtedly end up with the most patents. In effect, the government would be helping to limit competition rather than enhance it. Such a policy would encourage even greater concentration of economic power in the hands of large corporations.

Question. The President's recently announced proposal for Government patent policy would, as you have suggested, give title to the Government but it would also give the contractor an automatic exclusive license for the life of the patents in the "field of use" of the contractor. What is your personal view of that policy approach?

Answer. For all the reasons outlined in my statement and in the answers to the prior questions, I do not agree that contractors should be given an automatic exclusive license for the life of a government owned patent in the "field of use." The proposal to retain public ownership of a patent's title while granting exclusive use to a contractor is a facade. I do not think that it is wise for the government to get in the position where it invests billions of dollars in research and development programs-which are supposedly aimed at the nation's foremost problem areas-only to give contractors sole control over the application of the results for the next 17 years.

"March-in rights" are once again advanced in the proposal as the means to protect the public. As I have noted before, march-in rights have been in existence since 1963 and have not been used. This lack of use speaks stronger than any theoretical argument over the protection they provide. Furthermore, concern has been expressed over the administrative system currently required to oversee Government patents, yet no consideration has been given to the far larger system that would be necessary for the Government to adequately police publicly owned patents controlled by Government contractors.

Question. In the United States the typical employment contract requires the employee to assign his or her rights to the company pursuant to the a pre-employment agreement. As presently drafted, S. 1215 would not affect the existing contractual relationship between the Government contractor and the employee-inventor. In your view, is there a need to provide greater incentives to the employee-inventor who has assigned his rights to the company? Is this a matter which should be dealt with by Federal legislation?

Answer. I do not believe there is a need for the federal government to provide greater incentive to the employee-inventor who has assigned his rights to the company. My experience has been that good ideas will come to the surface without the need for special incentives.

In any event, most companies have incentive programs for their employees. Moreover, any company concerned about increasing its size or enhancing its profitability will encourage and aggressively pursue ideas generated by its employees. Often overlooked in the continuing debate over Government patent policy is the need for any R&D contractor to demonstrate its ability to originate new processes and to make improvements to existing processes in order to justify follow-on contracts. This alone requires a contractor to encourage its employees to be innovative. It is worth noting the double standard that pertains in this area. The patent lobby creates the impression that companies cannot be creative unless they can get exclusive rights to patents developed under government contracts. Yet, they apparently find no difficulty in reconciling this position with the fact that companies require their employees to assign patent rights without any apparent concern over employee creativity.

QUESTIONS OF SENATOR LONG AND THE ANSWERS THERETO

Question. As I understand it, contractors who do research for the Government get a share of their research overhead paid for by the Government. Often they can train a staff of research workers and hold them in reserve for the time when they use them on their own private research projects. In addition, the research staff and the records of the contractor constitute a body of "know-how" which inevitably remains the property of the contractor and may be a very valuable asset.

Am I correct in this understanding?

Answer. Yes, sir. Government contractors receive funds, primarily through the DOD, for Independent Research and Development. These funds are given to the contractors to do any R&D they wish with only a broad requirement that there be some potential application to Government programs.

Contractors consistently abuse this concept. I have testified many times concerning these abuses.

Question. It is also riskless: is it not?

Answer. Yes, sir. There is no risk involved because no product is required from the contractor.

Question. Then, the contractor has a substantial competitive edge on possible competitors both in the commercialization of an invention or in securing future research contracts. Isn't that so?

Answer. There is no doubt that the Independent Research and Development payments give Government contractors advantages over companies without Government contracts.

Question. Do you have any specific or concrete examples of business firms that have withheld their research services from the Government because of their inability to receive patents on Government research?

Answer. No, sir. In fact, for my program contractors are constantly urging me to give them more work. Contractors know that I will not waive Government ownership of patent rights. Therefore, they do not attempt to scare me by stating they will not take my work unless they get the patent rights.

Question. Do you know of any case of an important product or process which people need and for which there is a demand, not being commercialized because of absence of monopoly rights?

Answer. I personally do not know of any valuable inventions that have not been marketed because of the Government's patent policy.

Question. So you would not give the patent away just to commercialize a product? If it is important, if it is needed, it will be produced. Is that right?

Answer. Yes, sir.

Question. One of the arguments used to justify giving away patent monopolies on Government-financed research is that exclusive rights; that is, patent monopolies, will bring about maximum utilization of the invention.

How can you maximize utilization if the contractor is put in a position to exclude other citizens, other members of the public, from practicing the invention?

In other words, the patent, which is a restrictive device, will do just the opposite, will it not?

Answer. Yes, sir. I believe it will. The purpose of a patent is to reward and give incentive to inventor who must fund their own work. The inventor is rewarded with a monopoly. This is a tradeoff by the public-eliminating competition for a set period in return for the inventor having assumed the risk of devising the invention. When the Government finances the work this is no longer necessary. The public has paid for the invention and should not be penalized.

When the Government finances an invention, I believe free dissemination of technical information is the best way to promote technology.

Question. Small business gets only a very small amount of research and development dollars-perhaps only 3 to 5 percent.

If the Government were to give contractors patent monopolies on publicly financed research and development, is not the Government actually shutting small businesses out of some of the most dynamic areas of our economy?

And would this policy not increase economic concentration and monopoly and ultimately destroy competition in many areas?

Answer. Yes, sir. The bulk of Government R&D work goes to large corporations. This increases economic concentration and hurts small business. The proposed bill would exacerbate this problem by giving these large corporations patent rights to Government financed inventions.

I testified to Senator Bayh's Subcommittee on the Constitution that, if Congress believes small business should be aided, small businesses should be allowed to retain an exclusive 5-year license to inventions they conceive under Government contracts. This would give them a shelter to develop a market without creating a long term monopoly.

Question. S. 1215 provides that when patents are given to the contractor—and in most cases it will be very large firms-information about what the contractor is doing with the Government research and development will be withheld from the public.

Would you care to comment on this provision?

Answer. The proposed bill provides that the Government withhold information until the contractor files for a patent. This is wrong and is part of the giveaway of publicly funded inventions. In effect, the Government would not only give the contractor the patent rights to these inventions but would aid and protect them while they obtained patents.

Question. The very distinguished economist Dr. Wassily Leontief (now retired frm Harvard University), the developer of the input-output techniques and analysis, testified before my monopoly subcommittee in 1963 that:

"A high license fee charged by the holder of a patent for its use causes some of the potential users of the new idea to spend time and money on research aimed at circumventing it. Such “inventing around” the patent is exactly like choosing a country road when there is a highway, just because you cannot afford to pay a toll. When this happens, the cost of technological advance are raised and its speed is slowed down."

Do you see this as a possible danger if patents ar given away to the contractor?

Answer. Yes, sir. I see no reason why anyone should have to "invent around" a patent that has been developed at public expense. Anyone should be able to use publicly funded ideas.

Question. Would you agree with Dr. Leontief that an open-door policy in respect to inventions resulting from work done under Governmental contract would speed our technological progress considerably?

Answer. Yes, sir. I believe the best way to facilitate the dissemination of technology developed under Government contracts is by making this technology freely available to the public rather than giving a single contractor monopoly rights over the invention.

[Whereupon, at 1:20 p.m., the hearing was adjourned.]

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