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The extent of the funds which United States industry can make available to finance R&D activities is directly dependent upon the amount of domestic and foreign sales and profits realized. The loss of sales and profits, through inability of United States enterprises to obtain effective patent protection in many countries for the results of their R&D activities, could have a direct negative effect on the amount of funds available to support future R&D. The erosion of patent protection or the complete lack of it in certain fields of technology puts the innovative United States industry in an intolerable position by depriving it of the ability to defend itself against copiers of successful innovations who have not incurred heavy R&D expenses in creating and developing them. Turning large geographical areas and large current and potential markets into patent-free zones and subjecting United States enterprises to unfair competitive pressures by local enterprises and, increasingly, also by other multinational and state-owned enterprises, will inevitably result in serious erosion of United States technological leadership.

Foreign trade--in the form of direct exports, foreign investment in subsidiaries, and in manufacturing facilities--is an ever-increasing important part of the business of United States enterprises, particularly those which are highly researchintensive. In a number of industries, foreign business activities account for 50 percent or more of total corporate sales and profits.

In order to finance research and development, maintain United States technological leadership, and improve the balance of trade, it is imperative that the ability of United States enterprises to do business abroad shall not be impeded through the action of foreign governments or groups of governments denying patent protection.

The respect for patent rights, whether owned by the nationals of a country or by foreigners, formerly universally recognized as socially and economically desirable, would also in the long run directly benefit the developing countries in creating employment, attracting investment, and encouraging the transfer of technology. A strong United States posture for seeking improved patent protection in third-world countries, which would in all likelihood be supported by other Western nations, would therefore be not merely in the enlightened self-interest of the United States, but also in the long-term interest of the developing countries.

United States Government action, as outlined, to support the reestablishment and maintenance of a full and effective patent system in foreign countries would no doubt trigger resistance and protest from third-world governments, various international organizations and United Nations agencies. The United States might be accused of serving its own narrow self-interest, and inflammatory slogans such as “economic imperialism” or “neo-colonialism” might also be uttered. The good faith of the United States in striving to assist developing countries in their rapid development and industrialization might also be questioned.

Nevertheless, it is submitted that there is no inconsistency. The primary and essential factor in the industrial development of third-world countries through the transfer of technology is the voluntary, good-faith cooperation between the transferor and transferee. This is a two-way street where the security and protection of industrial property rights are an essential element. It is therefore also in the enlightened self-interset of the technology-recipient countries that inventions should enjoy meaningful patent protection.

PROPOSAL X
Patent rights to be available for new technological advances

The Constitutional purpose of the patent system is to promote the progress of the useful arts. The subcommittee believes in the patent system, and supports the use of the patent grant as a method of encouraging invention and innovation as broadly as possible under the patent law. The subcommittee supports the following statement of Judge Markey: "As with Fulton's steamboat 'folly' and Bell's telephone 'toy', new technologies have historically encountered resistance. But if our patent laws are to achieve their objective, extra-legal efforts to restrict wholly new technologies to the technological parameters of the past must be eschewed. Administrative difficulties, in finding and training Patent and Trademark Office examiners in new technologies, should not frustrate the constitutional and statutory intent of encouraging invention disclosures, whether those disclosures be in familiar arts or in areas on the forefront of science and technology."'?

By way of example, the subcommittee feels that patent protection should be accorded new life forms and computer programs.

See Patent Law Perspectives, Section A.2 at page 79. 2 In re Chakrabarty (CCPA, 1978) 197 USPQ 72 at page 76.

A. New Life Forms. It is difficult to accurately forecast the extent of the benefits that can be provided to mankind by technologies which produce new, useful and unobvious life forms. However, we have already seen a preview of these benefits in the reports of the production of insulin and somatostatin (Chemical and Engineering News, June 19, 1978, pp. 4,5) and through the promise of quicker, more complete cleanup of oil spills (National Geographic, September 1976, pp. 374, 375) by certain genetically modified microorganisms.

At present, two patent appeals, In re Bergy et al (Patent Appeal No. 76-712) and In re Chakrabarty (Patent Appeal No. 77-535) are near resolution in the Court of Customs and Patent Appeals. Bergy relates to a life form which was found in nature but which was isolated and purified to produce a useful product. Chakrabarty relates to genetic manipulation to produce a useful life form previously unknown in nature.

If the position taken by the United States Patent and Trademark Office in both cases that a living thing is not patentable subject matter under Section 101 of the Patent Act of July 19, 1952 is not overruled by the courts, it will be necessary to seek implementing legislation from Congress if non-plant life forms are to be patentable.

In the Bergy situation where life forms discovered in the natural state are isolated and propagated, the argument has been made that it is unlikely that such cultures are within the Congressional intent as to patentable subject matter. Analogizing to the content of the Committee Reports (Senate Committee Report No. 315, 71st Congress, 2nd Session, and House Committee Report No. 1129, 71st Congress, 2nd Session) accompanying the bills (S. 4015 and H.R. 11372) resulting in the Plant Patent Act of 1930, it is pointed out that Congress refused to provide coverage for the mere discovery of wild varieties of plants. It is argued that however meritorious the discovery of a new and useful microorganism in the wild state, like the wild variety of plant, such microoganism even after culturing remains the same as its relatives in the wild state awaiting rediscovery by others.

Therefore, the culture should not be patentable. However, there is already some case law supporting the patentability of substances extracted and concentrated in purified form, and there are good reasons for this. The purified form of the microorganism did not exist in nature, would never have been available but for the work of the researcher, and the benefits to the public would not have been available. Thus, there is logic for saying that the purified form is a manufacture, was certainly not obvious and patentability should attach. The availability of patents in this instance is certainly a stimulus to research, just as in the pharmaceutical fields, and seems justified for that reason.

In the case of the genetically modified bacteria as in Chakrabarty, there is a strong argument that a new "manufacture” clearly exists. As such, the argument of availability in nature does not attach, and the only contention against patentability is the proposition that Congress did not intend to afford the patent grant to living organisms. This contention is based at least in part on the fact that it took a special statute to make plants patentable and that the same is needed for other life forms. (This argument of course also applies in the case of the pure culture.) The counter to this is that Congress when it has passed patent statutes over the years could not possibly have foreseen what man would evolve in the way of manufacture. Space vehicles, jet engines, computers, etc., were certainly beyond the imagination of the national legislature when it provided for the first patent coverage, but yet there has never been any question as to these. If the progress of science is in the national interest, the term manufacture should be construed broadly, and patentability afforded to the useful bacteria resulting only from the efforts of man.

Another argument in favor of patenting certain new, useful and unobvious life forms is that it provides an alternative to the less desirable avenue of trade secrets. Practically speaking, an industrial user must fully contain the microorganism within his facility lest the trade secret be lost. Such containment will increase the costs of the process or product, costs which inevitably are passed on to the consumer. Maintenance of trade secrets also tends to stifle the free exchange by technology and hinders the progress of science by postponing the benefits to mankind of these technologies. Underhindered by the threat of piracy, there will be stronger incentives to invest money in new and useful technology under the protection of the patent system. In the circumstance where the living invention is itself placed in the stream of commerce, it is impossible to maintain it as a trade secret. There the protection of the patent system is needed to stimulate investment because once the invention is used, it is disclosed to the world.

B. Use-Specific Chemical Formulations.-United States industry has effectively competed in the development of agricultural and pharmaceutical products of benefit to mankind here and throughout the world and have made a major contribution to the United States balance of trade in these fields. Major fields of research in this application of the life sciences relate to the development of chemical formulations (such as herbicidal emulsions, insecticidal solutions, and pharmaceutical tablets) which include as the essential ingredient in their composition a chemical which exhibits a newly discovered biological activity. These formulations, after appropriate testing for environmental and health safety and efficacy, become commerical entities and important to agriculture and health. Under the present interpretations of the patent laws, protection is denied to such chemical compositions if the biologically active chemical is not itself patentable. Patent protection available under such circumstances has been limited to method of use patents to be asserted only against those actually using such chemicals in the agricultural or pharmaceutical application of such products, i.e., against one spraying corps, ingesting the pills, etc. Courts have concluded that the patent owner is prohibited from enforcing his patent against those who similarly formulate the active ingredient so that it may be used in accordance with the patentee's teachings. The subcommittee believes that the denial of useful patent protection for such use-specific formulations has had an adverse effect on investment in innovation in such fields. To encourage testing and innovation of chemcial compounds, unpatentable as such, for their potential use in agricultural and pharmaceutical applications, the subcommittee recommends that patent protection be extended to such use-specific chemical compositions since the composition is rendered novel by the inclusion of the active ingredient for the new use. Without such a possiblity for useable patent support, discoveries of new biological uses for known compounds will necessarily be withdrawn from the innovation sequence because of the recognized high cost of innovation in these fields.

Č. Patentability of Computer Programs. This topic is developed more full in the report of the Information section of the subcommittee. However, the Patent section of the subcommittee feels that patent protection should be accorded computer programs and computer software, provided the subject matter thereof meets the statutory definition of patentability.

SECTION 4

OTHER MATTERS CONSIDERED In addition to the proposals discussed above, the subcommittee considered a number of other proposals and recommendations which are set out in this Section of the report.

This subcommittee makes no recommendations with respect to these matters, either because of lack of time to complete a thorough study or lack of concensus as to the wisdom of adopting these proposals. A. Compensation of employed inventors

The committee as a whole agreed that corporations should be encouraged to motivate their employees to participate in all phases of the innovative process. This encouragement could be in the form of awards, promotions, release of unused inventions to the inventors and other systems presently being successfully used throughout industry in the United States.

Some members of the committee proposed that legislation requiring corporations to give employees a greater stake in their inventions would be a stimulus to innovation. The committee conceded that such legislation might increase the number of invention disclosures but not have a positive effect on the overall innovative process. In fact, the committee felt very strongly that an attempt to apply a uniform system on all corporations (such as is done in some European countries) would result in a singificant decline in overall innovation and could have the additional negative impact of flooding the Patent Office with patent applications directed to inventions of little or no commercial value. The results in countries that have initiated such systems bear out these results. The attached paper submitted by Mr. Richard C. Witte (Appendix G) entitled “Implication of a Federal Law Providing Employee Inventor Awards” sets forth in greater detail the implications of such proposed legislations.

Mr. Richard L. Garwin's paper presented to the subcommittee on November 16, 1978, and Mr. Eric P. Schillen's paper submitted to the subcommittee on December 8, 1978 set forth proposals for dealing with the inventions of employed inventors. Both papers are included in Appendix G. B. Financial stimulus of innovation

The subcommittee did not have the time nor the availability of information as to what the Government has been doing or is authorized to do in providing either

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venture capital to individuals or small businesses or financial assistance to inventors. Certain areas in which the Government is already active have been identified as warranting special attention in the area of energy-related innovations and in the area of encouraging minority enterprises. insofar as this activity may have been successful, other areas should be identified. As the concept of such assistance is believed to provide societal advantages, it is recommended that this type of assistance be provided in those and additional identified areas. C. Infringement of U.S. patents by the U.S. Government

Unfortunately, many agencies of the United States government appear to have a policy of doing as little as possible to resolve an administrative claim against them for patent infringement. A recommendations is that the Executive Branch of the United States government issue orders to all government agencies that any agency must render its final opinion on all claims for patent infringement no later than six months after the initial claim is filed. If such decision is not rendered at this time, it will be presumed that the patent is valid and infringed, and the agency cannot rebut this presumption. D. Different classes or forms of patents

Incontestable patents A trademark, after a certain period of use, can be regarded as incontestable, with certain exceptions, upon filing an appropriate affidavit.

One proposal considered by the subcommittee was that, five years after a patent has issued, it would be incontestable with respect to Section 103 (obviousness over the prior art) and, with respect to prior art, it could only be held invalid under Section 102-in effect, if the invention was, for all practical purposes, identically shown in the prior art. This would have the result that a patent could not be held invalid for obviousness over the prior art after a period of five years had passed after it was issued by the United States Patent and Trademark Office.

As Section 103 obviousness is probably the major ground for invalidity of patents, incontestable patents could significantly reduce the cost of litigation, although a patent could still be held invalid if it was clearly shown in the prior art as provided for by Section 102 and for the other reasons provided in Section 102 and other parts of the various patent statutes.

Another suggestion was that a patent could be held incontestable against all attacks, rather than only Section 103 attacks.

It would also be possible to make the patent incontestable if it has been used commercially for a certain number of years, such as five years, rather than have the period run from the issue date.

Any of these incontestable patents could reduce the cost of litigation and increase certainty as to the enforceability of patents.

Guaranteed patents This new class of patents would be guaranteed by the United States government to the owner as to its validity. If some party wanted challenge validity, they would sue the United States government, not the owner. If a court declared the patent invalid, the owner would be paid by the government under the guarantee, up to some maximum established by law, and consistent with the value of the patent had its validity not been contested. Guaranteed patents would not obsolete the present patent form.

The PTO would make a more thorough examination, perhaps with two examiners, of any application for patent under the new form. Because of less-than-perfect human performance, and less than complete file information, some new-form patents could still issue which would later be declared invalid. but the owner would be protected against this type of error by the government. Without this protection, innovation is reduced because of the great exposure of personal finances and time and effort which the small business and individual inventor need to devote to commercialize the invention. Government guarantee of validity would facilitate financing. Guaranteed patents could be made available only to small businesses and independent inventors.

Elite or super patents These patents would require the payment of a significant additional fee, such as $500, and a statement by the Applicant that a thorough prior art and validity search had been completed, within some specified period after the patent application was filed in the PTO. The results of this search, with comments, would be submitted to the PTO, and the PTO would then make a more comprehensive search and examination than usual. It is felt that the additional search and examination,

with the special made by the Applicant, would give the patent a stronger presumption of validity.

Petty patents Petty patents would require novelty but not unobviousness; would be limited in scope of exact copies and close variations of the invention disclosed; and would run for less than ten years, preferably six to eight years. Petty patents could be examined on the same basis as regular applications, except that they would not be subject to the rejection for lack of obviousness under 35 U.S.C. 103. The PTO would charge a lower fee for petty patents. E. Modification of patent term

Extend patent term in certain instances It is well known that the present patent term (seventeen years from patent grant) often fails to coincide with commercialization. This fact suggested the following questions:

(1) Should some sort of a tribunal be empowered to hear the facts, and make binding decisions as to extensions of life beyond the seventeen years?

(2) Because of the formidable problems individuals often face in commercializing their inventions, should unassigned inventions (independent inventors) automatically be granted patent life greater than seventeen years after date of issue?

(3) Should the seventeen-year term start after some event other than the date of issue? For example, after the date of first significant sales, provided due diligence commensurate with capability has been used to bring it into production and marketing? Or after the date of first payments to the inventor for assignment or licensing of his invention?

Certain principles would seem fundamental in any system relating to the extension of patent term:

(1) No extension of term would be warranted if a patentee had not made diligent efforts to commercially develop the invention.

(2) Delay in commercial development should be measured from the time the inventor had adequate evidence of the commercial embodiment of his invention.

(3) The patentee should be compensated with patent term extension equivalent to the period of delay and the period of extension should not be dependent upon the extent to which the patentee had or had not profited from his invention during the patent term.

It is clear that the equities determining whether extension should be granted would require review by some tribunal. Such review could occur either:

(1) By the patentee filing, at any time during the life of the patent but no later than some fixed period prior to normal expiration, a petition with a competent tribunal for extension of the patent expiration date. This petition would cite facts satisfying the statutory criteria for extension. Publication of the petition would be made and opposition to the extension could be entertained by the tribunal; or

(2) The date of an objective act on the part of patentee (such as first commercial sale) would be the date from which the patent term of seventeen years is measured. Notification of such act would be given by the patentee to a tribunal, and this notification would be published. The extension of the patent could be opposed by the filing of a petition by a party in interest to foreclose the extension. Patent term to run twenty years from earliest effective U.S. filing date

The term of a U.S. patent now extends for a period of seventeen years from the date of issuance. Measuring the term from this date sometimes results in patents which expire long after filing, for example, when the patent application is involved in an interference or lengthy appeal.· Setting the patent term to run twenty years from filing would prevent late issuing patents from disrupting industry, but could be inequitable to patentees whose patents had not issued promptly.

See Forbes, September 15, 1977, page 204: "Last month the U.S. Patent Office threw a stunner into the laser industry. After years of temporizing, it granted key patents potentially covering 90 percent of the lasers in this country to a physicist named R. Gordon Gould. Not that the industry had never heard of Gould. His claims had been around for years, and Refac Technology Development Corp. of New York, which finally pressed the claims, was not the first patent licenser Gould had approached to represent him.

"What exasperates the laser-makers, beyond a potential liability for Gould patent infringement, is the fact that they thought they were already paying royalties (2 percent) to the owner of the basic laser patents through Research Corp., another licensing firm.'

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