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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 develop ment 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.]


DRAFT REPORT ON PATENT POLICY A Draft Report of the Advisory Subcommittee on Patent and Information Policy of the Advisory Committee on Industrial Innovation established as part of the Domestic Policy Review, December 20, 1978.

Notice. This report represents the views of the Subcommittee on Patent and Information Policy of the Advisory Committee on Industrial Innovation, an advisory committee convened by and reporting to the Secretary of Commerce. The views of the Subcommittee do not necessarily represent those of the Department of Commerce or any other agency of the Federal Government.

ADVISORY SUBCOMMITTEE ON PATENTS AND INFORMATION Herbert R. Brinberg, cochairman, information, president, Aspen Systems Corp.

Robert B. Benson, cochairman, patents, director, patent law department, AllisChalmers Corp. Rudolph J. Anderson, Jr., associate general counsel, Merck & Co., Inc. *Tom Arnold, Arnold, White & Durkee. Henry L. Bachman, vice president, quality, Hazeltine Corp. Gerard M. Beaugonin, vice president, Control Data Corp. *Homer Blair, vice president, patents and licensing, Itek Corp. Gloria Cohen, consultant, Information Services. * Joseph A. DeGrandi, Beveridge, Degrandi, Kline & Lunsford. * Joe Engelberger, president, Unimation. *Charles Heiken, Esq. H. E. O'Kelley, president and chief executive officer, Datapoint Corp. Dan Lacy, vice president, McGraw-Hill. *Pauline Newman, director, patent and licensing, FMC Corp. Donald J. Quigg, patent counsel, Phillips Petroleum Co. William Ragan, vice president, research and development, Becton & Dickinson Co. * Eric P. Schellin, Esq. Clarence Spangle, president, Honeywell Information Services. *David E. Šunstein Leo J. Thomas, Jr., director of research, Eastman Kodak. Lawrence Welke, president, International Computer Program.

SUMMARY In general, the patent system has served the country well. Major overhaul of the patent system is not recommended. Nevertheless, some modification to the system could have a beneficial effect on innovation. The most serious problems with the patent system are the uncertainty about the reliability of patents and the long time and high costs associated with resolving such uncertainty through litigation. When proper consideration is given to these problems as they relate to those independent inventors and small businesses whose success—and indeed very existence-depends upon the innovation process, it becomes clear some changes must occur. These problems deter investment of the money required to commercialize an invention (a necessary and expensive step in the innovative process). It is here that modifications to the patent system can have their most beneficial impact. Steps should be taken to increase the assurance that a patent is a valuable piece of property, something that offers protection to subsequent investment.

The committee has identified four major goals to which attention must be addressed to enhance the innovation process through improvement of the present patent system:

1. Enhancement of the reliability of the patent grant to the inventor and those investing in the commercialization of his invention;

*Member of the Working Group on Patent Policy.


2. Reduction in the cost-both in time and money-of judicial enforcement of the rights derived from the patent;

3. Extension of the availability of commercial exclusivity derived from patents to technological advances presently denied patentability; and

4. Development of systems transferring the commercial rights to government supported inventions to those in the private sector capable of their innovation.

We have three major recommendations to improve the reliability of the patent grant.

(1) Upgrade the Patent Office by:

(a) Providing an adequate examining staff to assure a rigorous high quality examination. This would increase confidence in the patents that are issued.

(6) Providing modern search tools that increase the probability of finding the relevant prior art. This would be a cost-effective investment by reducing search time per examiner, as well as reducing the frequency of subsequent proceedings to argue the prior art.

(2) Provide a reexamination process-available to all interested parties-in order to ensure that the patentability of the invention described in the patent has been considered by the Patent Office in the light of all relevant prior printed publications.

(3) Provide a central court to hear patent appeals. This would provide greater consistency in judicial decisions, thus reducing uncertainty.

To reduce the present cost of judicial enforcement of the patent grant, a request should be directed to the Supreme Court, and the Judicial Conference, to require each federal court to exercise a high degree of control over the conduct of patent litigation, with particular concern for the time and expense of discovery.

To foster commercialization of inventions made in governmental laboratories, under government research contracts and in university laboratories supported with federal funds, the subcommittee recommends that the commercial rights in such inventions be structured in a manner capable of being transferred to industrysmall or large-to insure capital investment in their development. Such transfers should be subject to a license right reserved to the government to insure no further payment for governmental use of the invention.

The subcommittee also recommends clarifying the statutory standard of patentability and permitting licensees to agree not to attack the validity of licensed patents. An adequate extension of the patent term should be provided when commercialization of patented inventions is delayed due to federal regulations.

The subcommittee recommends establishment of foreign policy which encourages other countries to provide United States innovators the right to obtain enforceable patent rights, thus extending the incentive to commercialize United States innovations in international markets.

Further, study should begin of the appropriate extension of patent rights to presently unpatentable technological advances, with consideration to be given to patentability of new life forms for industrial applications, use-specific chemical formulations based upon unpatentable biologically active ingredients and computer software.


BACKGROUND The United States has been the leading innovative nation in modern times and has created many new industries. One need only look at the major new industries started within the last fifty years, such as those involving electronics, laser, antibiotics, synthetic fibers, instant photography and xerography. There is still room for further innovation and it will continue if provided with a proper environment. Such an environment existed for years and produced outstanding results. Our patent system contributed significantly to an environment which promotes innovation. [1] Unfortunately, there have been disturbing recent indications that there has been a decrease in the rate of innovation and in that portion of the R&D investment devoted to new product lines and basic research.

Capital investment is growing more slowly in the U.S. than it is elsewhere: 14 percent in the U.S., 30 percent in Japan, 20 percent in Germany, and the U.S. trading position, even in high technology products, has deteriorated.

An even more dramatic indicator of the innovation decline is evidenced by the recent decrease in investment capital obtained by businesses. This decline can be readily seen from the following table that shows the capital acquired by firms with less than $5 million in net worth from public offerings since 1969:

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