Basically, we will choose as target companies only those firms which have highly ethical reputations regarding outside inventors. We will deal only at the Chairman or President level, and only after afforded a personal introduction by someone of honesty and integrity. Basic to our negotiation posture will be that the details of the technology will never be disclosed until a contract, non-disclosure, and non-competition agreements have been signed. The technology will be sold based upon performance characteristics only. Particularly, a "Black Box" electric car will be central to proving that our battery produces mileage performance unequalled in the marketplace. In closing, while I am sincerely interested in improving the patent system, I am far more interested in successfully marketing our technology so it can have a real impact on our domestic energy situation. I must request that you honor my requirement for personal anonymity at this stage. You may read the entire body of this letter into the Senate Record, providing my name be withheld. Should you wish to contact me further, please do so via Glenn Stephenson. A brief résumé is attached for your review. Sincerely, (Name withheld by request.) NATIONAL SOCIETY OF PROFESSIONAL ENGINEERS, HON. ADLAI STEVENSON, Chairman, Subcommittee on Science, Technology, and Space, DEAR CHAIRMAN STEVENSON: The National Society of Professional Engineers, a nonprofit organization representing nearly 80,000 individual members working in every aspect of the engineering profession, recently conducted a survey of its patent policy experts regarding the problems and promises of the current patent system. I am enclosing a copy of the results of this survey for your information and review. I believe they will be useful in your Subcommittee's review of Federal patent policy. We appreciate this opportunity to present to you this information. We respectfully request that it be made a part of the official hearing record. Very truly yours, Enclosure. HERBERT G. KOOGLE, Professional Engineer, Chairman. SURVEY ON PATENT POLICY AND POTENTIAL SOLUTIONS TO PATENT PROBLEMS (By Michael M. Schoor, Director, and Joan E. Porte, Legislative Assistant, Legislative and Government Affairs Department) NOTE.-This Legislative Opinion Request was sent to the Society's Exective Committee, Board of Directors, State Presidents, State Presidents-Elect, State Secretaries or Administrators, Practice Division Executive Boards, Legislative and Government Affairs Committee, and Experts. Nineteen people responded, primarily Experts and members of Practice Division Executive Boards. Not all of the respondents answered all of the questions. 1. S. 414, introduced by Senator Birch Bayh (D-Ind.) provides an option to inventors to seek patents and have exclusive use of products invented under government contract and allows the government to recoup money back from the inventor when the patented invention makes over a certain amount. (a) Will this increase innovation in government-funded projects? Probably (3). Yes, but government should recoup only business taxes (1). No, too much-a government inhibitor (1). (b) Is the concept of this bill too broad or too narrow? Both (1). Narrow (7). Broad (2). 52-476 0 80 29 The bill should also stop the Department of Justice from regarding patents as permanent monopolies; Government should not limit profits and collect taxes on patents; bureaucratic strings should be cut to increase innovation; People should exclude individuals specifically engaged by the government for research; The bill should require an agreed amount to be recouped and should define contractors, subcontractors and inventors; Payback should be limited to the amount of government input-repayment schedule be favorable to the inventor; There should be some split of the royalties after costs are recouped; If the government supplies the equipment and money, they should have all "rights"; Government must not retain title under any circumstances. 2. Should there be a time limit in which an employer must apply for a patent application for new products or lose that right to the employee-inventor? Yes (17). No (2). If so, What is a reasonable time limit? 1 year (3). 2 years (2). 7 years (1). 4 to 5 years (2). 1 to 2 years (2). 9 months (1) 6 months (1). If employers do not commercialize a patent within a reasonable time period, should the patent be released to the employee? Yes within one year (1). Yes (11). Yes in two years (1). Yes in five years (1). Yes in 12 years for market research items (1). Comments: Time limits should be established but should be flexible to allow the inventor to release his patent rights-when someone is given a salary, equipment etc. by a company, that company has the freedom to deal with that person's invention; If the invention is out of the scope of the business, it should release rights to the inventor; If the employee's duties include research, the employer should have the option to commercialize; If the invention leads to an unexpected windfall for the employer, the employee should receive an award not to exceed one-third of the estimated value of the windfall and not to be less than one-twentieth; Employees should not be able to commercialize unless the item is a trade secret which the inventor shares; If the rights are released the employer should also have the right to use it at a later date. 3. Should employee-inventors receive remuneration on patents commercialized by the employer? Yes (13). Employer's option (2). Comments: Employee should get raises plus one to two percent royalty; If the employee is "hired to invent" the profits should go to the employer, if the employee is "not hired to invent" he/she should receive support; This should be agreed to in advance. 4. What do you feel are the major problems of current patent policy? How do you propose they be solved? Contracts that employees must now sign stifle innovation-these contracts should specify that patent ownership will revert to the inventor if the corporation does not patent/market within a specific period of time; Engineers should be employed on a contractual basis so they would not be terminated before a specific date without notice; The government should not maintain ownership of patents; The patent policy has nothing to do with productivity-other factors intervene; It is too easy to get a patent-there is an "allow the patent and let them fight it out in court mentality"; It is too time consuming and expensive to get a patent (stressed several times); The government should standardize its policy towards handling intellectual property with its contractors; "Patent courts" with technically oriented judges should be instituted; Strict laws against patent infringement should be made (stressed several times); Invention promotion is too risky (stressed twice); There is too short a time (one year) between conceptualization and filing for a patent; Products for sale vs. patents for company machinery to make products for sale under the products for sale royalties can be calculated, under the patents for machinery it is more difficult; it can possibly be a percentage of the annual cost reduction achieved or a flat payment and an annual percentage of sales. Other comments: The U.S should reward inventors and examine the invention incentives now in use in Europe; Risk capital should be recovered first followed by government expenses; Strict time and documentation requirements regarding the employees specific assignment and specific concept must be filed by the employer not involved in specific R&D programs in order to acquire full rights to the patent. INTERNATIONAL BUSINESS MACHINES CORP., Hon. ADLAI E. STEVENSON, Chairman, Armonk, N. Y., August 6, 1979. Subcommittee on Science, Technology, and Space, Committee on Commerce, Science, and Transportation, U.S. Senate, Washington, D.C. Dear Chairman STEVENSON AND SENATOR SCHMITT: Thank you for inviting our comments on S. 1215 introduced by Senator Cannon and you to establish a uniform Federal policy on the management and use of inventions developed under Federal contracts. In view of the lagging pace of American industrial innovation and productivity, this is an extremely important bill. As Vice President, Commercial and Industry Relations for IBM, I supervise the company's worldwide patent operations as well as its contracts and licensing activities. In addition, I am a member of the Advisory Committee on Patents to the U.S. Department of Commerce. We think enactment of S. 1215, with some relatively minor changes suggested below, would be very much in the public interest. In our judgment, the different patent policies of the various departments and agencies are confused and confusing, and tend to discourage commercialization of patents developed under Government contract. Further, they inhibit bids from qualified companies because of the potential demand for access to background patents owned by the contractor, and particularly in those areas where work performed for the Government draws significantly on the experience and knowhow developed with private funds. The proposed legislation would clarify the conditions under which title to an invention would go to the Government and would give the contractor the option of retaining the title in all other situations, preserving march-in rights for the Government in certain cases. This seems to us to be an eminently sensible approach, assuring that the Government will be able to keep title where necessary and at the same time giving contractors and potential contractors a much clearer understanding of their position. The legislation will reduce the administrative burdens imposed by the necessity for deciding the type of patent rights clause to be included in thousands of research and development contracts annually and by the processing of large numbers of waiver petitions. We believe that S. 1215 is a fair and balanced bill overall. It is an improvement over S. 3627 in the last Congress because of the addition of Section 302(b) which guarantees contractors a license to use an invention to which the Government takes title. Since we called attention to this point in our comment on the previous bill, I want to record our appreciation of the change. However, we think Section 302(b) still falls somewhat short of what is needed. It should be amended to allow the coantractor to grant sublicenses to subsidiaries, affiliates and existing licensees. For that purpose, we suggest the addition of the underlined language: "(b) When the Government obtains title to an invention under Section 301, the Contractor shall retain a non-exclusive, royalty-free license which shall be revocable only to the extent necessary for the Government to grant exclusive license. Contractor's license to practice the invention, or to have it practiced on Contractor's behalf, shall include the right to grant sublicenses of the same scope to subsidiaries and affiliates within the corporate structure of Contractor's organization and to existing licensees who Contractor is legally obligated to license or to assure freedom from infringement liability." We think the march-in rights principle, embodied in Section 304, has merit. However, we believe that consideration should always be given in a march-in proceeding to whether the contractor already offers a fair and reasonable license to responsible applicants. We also think that once a license has been granted by the contractor, it should not be abrogated by the Government. Lastly, where the contractor is using the invention or has made a substantial investment toward such use, we propose that the contractor should retain an irrevocable and non-exclusive license, We believe this is extremely important if the incentive for the contractor to engage in commerical use of the invention is to be maintained. These objectives can be attained by adding the following language to the end of Section 304(b) after the word “Secretary": "Provided, such rules, regulations, and procedures shall include a provision that agency action under subsection (a) may not be proper whenever Contractor offers a license to responsible applicants upon terms reasonable under the circumstances; and shall not be proper to the extent that such action would cause termination of any license previously granted by Contractor other than licenses to subsidiaries and affiliates within the corporate structure of Contractor's organization; and Provided further, such rules, regulations, and procedures shall reserve to the Contractor an irrevocable, non-exclusive and royalty-free license under such invention where Contractor is using or has made a substantial investment leading to the use of such invention." In our view S. 1215 represents a logical culmination of efforts which began in the Kennedy Administration and continued in the Nixon Administration to deal with problems resulting from a title-in-Government policy. We believe the legislation which you and your co-sponsor have introduced is a reasonable balance-increasing the incentive for contractors to commercialize inventions made on Government contract while protecting the Government's interests and rights. With the changes suggested in this letter, we support S. 1215 and urge its enactment. If you or your staff wish to discuss this matter further, I will be happy to provide additional information and clarification as needed. Very truly yours, WALLACE C. DOUD. AMERICAN PATENT LAW ASSOCIATION, Hon. ADLAI E. STEVENSON, Chairman, Hon. HARRISON SCHMITT, Subcommittee on Science, Technology, and Space, U.S. Senate, Washington, D.C. GENTLEMEN: I received your letter of invitation to testify before you on July 27 after I had already prepared my written paper, and since I felt that my subject was addressed to these specific questions in your letter of invitation in generality, and was short on time to address your questions specifically, I proceeded to deliver what I had previously prepared. However, your letter contained some specific questions that perhaps I might answer, seratim, by dictating more or less off the top of my head. Your question. What is the utility of patents to individual inventors, entrepreneurs, investors, and small medium and large firms? * Answer. The Constitutionally recited purpose is a real purpose for all these different participants in technology. You will recall the Constitutional phrase is that "the Congress will have the power * * to promote the progress of science and the useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries". The concept, of course, is that if you hold out the carrot of a property right in the results of an investment in research and development, you will induce persons to invest sweat, intellect, and capital, not only in the technical undertaking of conceiving an invention but in the market and technical undertaking of developing the invention for useful applications and bringing it to market-these latter steps sometimes being the more expensive and higher risk undertaking, giving the nature of today's market place. There are, however, some differences in the way the patent system functions with respect to the different classes of interested parties, inventors, entrepreneurs, investors, and small, medium-size and large firms. Large firms often use patents in the conventional patterns known to entrepreneurs and inventors, but in some industries the large firms have tended sometimes to develop a portfolio of patents in the area of their major business competition with other large firms, and then to use this portfolio in patterns that are referred to as "defensively". In this pattern, we find that the several major oil companies are unlikely to sue each other for infringement of their patents on secondary oil recovery methods. Why? Because each company knows that he is infringing the other companies' patents in this area; a suit will beget a counter-suit; the expense will be great; the result will be uncertain; and we are better off spending our money on research in this area than paying lawyers to try to sort out the relative values of our respective rights as against each other, using the judicial system which is not really competent to do this job well, anyway. Even this defensive use of a patent portfolio purchases for the proprietor a freedom from charge of infringment by the similar portfolios of patents owned by large competing firms, and thereby the "defensive" portfolio purchases a freedom from royalty obligation to others, and this is an important part of the value that such firms get for their R. & D. in these areas where the "defensive" pattern has developed. Only if they compete significantly in research and development in the subject areas, can they maintain a good defensive portfolio, so the defensive practice that some firms slip into is still serving the public interest in fostering R. & D. In response to your question it is to be noted that the defensive value of a portfolio of patents is not commonly available to the new entrepreneur or investor. These persons much more commonly are forced to take their patent to court and seek to enforce it in order to realize the value they absolutely need from it, to protect their high risk investment in a new business endeavor. Thus, to whatever extent big companies live by defensive use of patents without going to court, to that extent the significant costs and shortcomings of the judicial system of patent enforcement tend in a way to be visited more heavily upon inventors, entrepreneurs and investors in new entrepreneurship-all of the smaller business undertakingthan upon the larger firms. This, of course, is no fault of the big firms but an unhappy result of the short-comings of judicial enforcement of patents. And indeed, when the big firms depart from the heart of their major competitive lines into new entrepreneurship, they too tend to slip into the same mode of patent system utilization as described for the smaller entrepreneurships. There are other important values in the so-called defensive portfolio of patents. Commonly, larger companies build up a portfolio of patents and knowhow but for a variety of international regulation and foreign investment reasons cannot attempt, or do not want to attempt, to build a foreign plant or launch major sales efforts abroad. Thereby, major markets for the technology are not being reached and no income is being derived from those markets. The know-how is kept confidential from all who might use it competitively with the owner who developed it. But if the owner can license its know-how (whether or not protected by foreign patents) and not license its United States patents, the owner protects its local profiton-sales (often two to five times what royalty income is on the same sales) while reaching new markets with its technology. Thus, the defenisve portfolio of patents when it becomes commercially valuable, also becomes its own pressure for foreign licensing, and a pressure for licensing not just patents but know-how which often has its own great importance. Similarly, when a technology has use, shall we say, on aircraft propellers and also on motorboat propellers, the defensive portfolio of patents becomes a pressure for licensing domestically in field of use not served by the proprietor of the technology. One of the least understood but still tremendously important aspects of technology economics, is the role of know-how and the importance and unpatented knowhow in the total picture, together with the relationship of patents to that know-how. So perhaps I should spend a paragraph on that topic. Patents address primarily new concepts by contrast with masses of detailed knowhow, the "wrinkle technology" which permits one to take the patented concept of, for example, the internal combustion turbine (a subject of my 1940's engineering degree paper) and make it into the J-59 jumbo jet aircraft engine with high power/ weight ratio, low noise levels, high fuel efficiency, etc. After the second wave of patents relating to internal combustion turbines as applied to aircraft engines had expired, it still took half a billion dollars to develop the J-59, and Rolls-Royce's effort to develop a competitive engine flat bankrupted the company.-Mostly unpa |