more, specifically the rights the contractor would otherwise retain to the commercial use of the invention? If the Government acquires all rights, its historic policy has been to allow the invention to be used freely by anyone. (In recent years, some agencies have been granting exclusive licenses to use Government-owned inventions, on the theory that only with a limited period of exclusive use will private capital be available to develop those inventions to the point of commercial application.)

On the other hand, if the contractor keeps the commercial patent rights, they will function in the private sector pretty much as do the patents which are granted for inventions made in the course of private research and development.

First impression answers.-Under these circumstances, the answer which most immediately comes when you look into the subject for the first time is that because the Government paid for the contract work it should get the fruits of that work. By taking all the patent rights, the Government can make them freely available to all and remove artificial barriers which allowing the rights to stay in private hands would impose to stifle progress. Moreover, the Government will prevent the contractors from enjoying windfalls of commercial benefits from inventions paid for by the Government, keep the taxpayers from having to pay twice for the development and use of the inventions, and avoid creating industrial concentration or monopoly. This answer, however, becomes less and less satisfactory the more you examine what is really at stake-how people actually behave when they have a choice, rather than how one thinks they should behave—what it takes to bring an idea to practical application so that the public can get real benefits from it.

Will the Government get the best contractors and the best talent to perform research and development on the condition that they lose commercial patent rights in their inventions? Will industry actually invest private capital to develop ideas which are freely available to others? Or will it devote its own funds to other areas in which it can protect its investment long enough to earn a return on it? If the ideas are not developed, how will the public benefit from them?

The data.-I don't believe that the factual data accumulated on this subject to date points inexorably to one solution or another for every given case. Each new fact seems to be interpreted differently depending on one's preconceptions. If, for example, you note reports that only 5 percent of Government-owned inventions are ever exploited commercially, you might conclude that more inventions would be exploited if patent protection were available to stimulate private invention and development. On the other hand, you might also conclude that probably the other 95 percent are worthless anyway. Moreover, because the Government does not police the use of the inventions it owns, many more could in fact be in use without the Government knowing about it. As far as I know, no one has ever surveyed the whole list of Government inventions and made a judgment about the commercial potential of each one. In any event, I doubt whether anyone whose money is not actually at stake could effectively make such a judgment.

A policy issue.-In my view, therefore, this issue remains an issue of policy whose regulations ultimately reflects your views as to the proper roles and relationships of the Government and the private sector, as well as your views as to the nature of inventions and the proper and beneficial, or destructive and dangerous, role of self interest in promoting the national economy.

Preconceptions or myths.-I find in discussing this subject that people who have not thought much about it tend to form opinions quickly on the basis of several unexamined assumptions or preconceptions. I call these preconceptions "myths", because they are usually influential and widely shared, but also because they tend to be wrong.

Thus, a patent is generally thought to cover a wide area of technology, so much so that it will block out that whole area from study by others. Actually, almost every patent by itself covers only an infinitesimal area of technology, and generally speaks to but one of several alternative ways of doing things. Very few patents are seminal. It is highly doubtful, for example, that a “cancer cure" will be covered by a single patent, yet this possibility is always mentioned in discussion about Government patent policy.

Another related myth is that a patent blocks out development of alternatives. Actually in fact it acts as an incentive to come up with alternatives.

Another myth is that if a patented invention is freely available it will be exploited widely. Actually this tends to be true only when the invention has already been developed pretty well to the point of commercial application so that to exploit it will not require substantial private investment in development. But for most other inventions, which are not developed to the point of commercial application under the Government contract, it is likely they will not be developed with private capital unless there is some patent protection for the investment. Any particular company

has limited funds, and will tend to choose to develop a product or an idea in which its investment can be protected by exclusivity over one which its competitors can freely copy after the company has developed it. It is often said that if an idea is good it will be used by all, but this is not necessarily true. It depends on what has to be done to bring the idea into practical reality.

Which brings up another myth-that inventions made under a government contract are developed under the contract to the point of commercial application. This is the origin of the slogan, "The government pays all, the government should own all." In fact, this is the exceptional case. In most cases the agency is not seeking inventions per se-it is seeking a product that can do specific defined things. If in the course of developing the product, inventions are made, well and good. If not, also well and good, as long as the product is developed. Inventions are by-products. They may or may not be developed in the course of carrying out the contract. And if they are not, probably they can not be exploited without the investment of private capital. And if they are fully developed, it might well be that further private capital will be needed to put them in a commercial form for the private sector. Defense or space work, for example, demands products which in terms of both performance and cost are well beyond what the private sector needs or can buy. So when you ask what does it take to get an invention practiced, so that the public actually will obtain some benefit of it, one usually cannot say that the Government has "paid all."

A related myth is that patents can be used to sit on ideas, simply to prevent any development of them altogether. Actually, it is highly unlikely that courts will grant injunctions against use of a patent, when the patent owner or licensee is not exploiting the invention. Equitable remedies are generally not available, in other words, to dogs in the manger.

The last myth I will mention is that companies will readily take contracts under which they give up patent rights to the Government. Some will, it is true, especially the big firms which are heavily dependent on Government business. But there are companies who will not, particularly if the subject matter of the contract cuts to the heart of their commercial expertise. And these may be just the companies who could do the best job. Even if a company takes the contract, it may save its best people for work with a more protectable pay-off for the commercial side of the business.

Evolution of government patent policy. The patent policy question first arose as a major issue after the Second World War. Before that war, industry performed relatively little R&D for the Government. During the War, the predominant policy of the military departments was to leave commercial rights with the contractors. Atomic energy.-A notable exception was in the classified work on atomic weapons. Following the war, the Atomic Energy Act of 1946 and its successors clearly enunciated the policy that the Government should acquire all rights in inventions made in performing Government contracts involving atomic energy. Only a relatively few companies actually participated in the development of this brand-new technology, and their activities were almost entirely funded by the Government. A clear concern of the statute was to assure that in these circumstances no one company would be permitted to obtain a monopoly over the future commercial exploitation of atomic energy.

Justice study.-At the same time, the Department of Justice was concerned that a continuing program of heavy government sponsorship of R&D in industry would lead to industrial concentration and monopoly-particularly if the bigger companies obtained patent rights in their research for the Government. The Department published a massive three-volume study in 1947, which concluded that the appropriate policy for the Government was generally to acquire all rights to inventions which contractors produce in performing Government contracts and generally to make these inventions freely available to all comers, either by not enforcing the exclusive rights of the patents or by granting free licenses to any who sought them. Defense.-The Department of Defense resisted this policy, largely for the reason that it feared such a policy would deter the most highly skilled contractors—those with commercial positions in the areas of technology of interest to the Department—from pursuing the Department's contracts and thereby jeopardize the success of its R. & D. programs. The mission needs of the Department were thus considered paramount, and inventions made under Defense contracts would be developed only if useful for defense and not for commercial applications. The Government would acquire only a license of free use. President Truman ultimately did not force the Department to adapt the "title" position advocated by the Justice Department. No statute was enacted to govern the Department of Defense patent policy. Its policy thus was and is administrative only. Because of the size of the Defense R. & D.

programs, however, the great bulk of inventions made in Government contracts have remained in the hands of the contractors.

"Civilian" agencies.-At the same time, agencies with large in-house programs, like the Agriculture Department, with missions to develop new products and processes for immediate use in the civilian economy, took title to the inventions made in these programs and offered them freely to the public and to industry for use. Some were tremendously useful, such as frozen orange juice and the aerosol can, and received widespread application.

Thus, there was early established the division which is still to be observed between the "license" agencies and the "title" agencies, based primarily on the difference in agency missions.

NASA. The next major development in patent policy came in 1957 with the establishment of NASA. The Congress enacted without much discussion a policy under which NASA would take title to invention made in its programs but the administrator could waive some rights back to the contractors. It was vaguely felt that "space" was a new area of technology like Atomic Energy.

However, NASA itself subsequently sought to have this statutory policy changed, on the ground that rather than being new, its technologies and contractors were parallel to those of the Department of Defense. NASA feared that its more restrictive statutory policy put it at a disadvantage in attracting contractors. NASA wanted, in other words, simply to be like DOD.

Inroads on the "license" policy.-While the Congress was considering NASA's proposals, other voices-notably that of Senator Long-strongly attacked the license policy of the Department of Defense. In 1960, the Department reexamined its policies and affirmed them in the main, but revised its procurement regulations to specify instances in which contracting officers were to consider acquiring title to inventions instead of routinely acquiring only a license.

However, under the influence of these attacks on the "license" policy, most of the new R. & D. programs with "civilian" applications which were enacted during the sixties, such as the Saline Water Act or the Coal Research and Development Act, contained broad language requiring that the research results, including patents and inventions, be made freely available to the general public. This language was interpreted as requiring a title policy.

Presidential statement on patent policy.-The ferment over patent policy culminated in 1963 when President Kennedy issued a Statement on Patent Policy. This Statement was the first attempt to achieve a Government-wide patent policy. It is perhaps more accurate to say that the Statement was an attempt to state a rationale for the diverse patent policies which were then in existence.

Thus the Statement called for a "flexible" policy rather than a "uniform" one. The policy was intended to balance all the various themes we have noted: stimulate research and development, attract contractors, avoid monopolization, recognize the equities of both the Government and the contractor. Its central method was to determine what policy to appy to a particular contract by referring to the purpose of the Government in entering into the contract. If the purpose was, for example, to develop a product to the point of commercial application, title to inventions should be taken because private investment will not be needed. Or if the contract was in a new field of technology in which the Government was the principal developer and in which the first contractors might obtain preferred or dominant positions, title should be taken to help avoid that result. On the other hand, if the purpose was to develop a product for the Government's use, and the contractor had an established commercial position in the field of technology involved, the Government would take only a license to inventions, leaving ownership and commercial rights to the contractor, who was thought most likely to develop the inventions for commercial use and practical benefit to the public.

In cases which did not fall into either category, the rights were to be determined only after the invention was made and reported, and the decision was to be based on the extent to which incentives were needed to bring the invention to commercial application. Moreover, if the Government did not obtain title, it was to obtain what were called "march-in" rights-namely, the power to march in on the patent owner and obtain the title or compel the patent owner to license others, if after a certain number of years the patent owner was not taking active steps to commercialize the invention (and if someone else wanted to do so). Thus, the march-in rights were intended to deal with the dog in the manger and prevent it from sitting on a good idea while keeping others from using it.

I have sometimes thought of the Kennedy Statement as a "treaty of peace." Despite its imperfections, it in fact served that function. The debate on patent policy thereafter became quiet for a period of years. In 1971 President Nixon reaffirmed

the Kennedy Statement, but amplified it to encourage agencies to grant exclusive licenses to Government-owned patents where necessary to stimulate commercial applications of these patented inventions. In addition, agencies working in the areas of public safety, health or welfare-which were normally instructed to seek titlewere encouraged to consider leaving title with contractors in "exceptional circumstances." Thus, for example, the Department of Health, Education, and Welfare felt authorized to enter into a number of "institutional patent agreements" with universities which have established programs for licensing their inventions for commercial use on reasonable terms.

Harbridge house study.-During these years of relative calm on the patent policy front, the Federal Council on Science and Technology, in accordance with a directive in President Kennedy's Statement, contracted with Harbridge House for a study of the effects of Government patent policy on industrial participation in Government programs and commercial utilization of Government-owned inventions. This is the most comprehensive study yet attempted. I will not discuss these results of the study here. Some of your later witnesses are better able to do so. Suffice it to say that results did not conclusively resolve the title/license issue either way, and both sides found things to argue about. Nevertheless, the study did not identify factual harm to the public interest arising out of the policy to leave commercial rights with contractors and did support with factual examples certain benefits in terms of developed inventions.

Nonnuclear energy.—The most significant recent statutory enactment is Section 9 of the Non-nuclear Energy Research and Development Act of 1974, which now governs all non-nuclear R&D contracting by the Department of Energy. (It has also been made to apply to certain other programs such as Water Desalinification.) Succeeding witnesses will describe this statute in greater detail. Essentially, it requires the Department to acquire title to inventions but permits the Secretary in accordance with prescribed considerations to waive commercial rights back to the contractor either at the time of contracting or when individual inventions are reported. March-in rights are provided, as well as power to issue exclusive licenses to Department-owned inventions. One of the features of the statute is that it provides detailed criteria for the division of rights between Government and contractor.

In implementing the Act, ERDA—and now the Department-states in the regulations that patent incentives are among the incentives made available to the Government to stimulate commercial development of new energy technologies. The regulations go on to state that it is “intended, therefore, that waivers will be provided in appropriate situations to encourage industrial participation and foster rapid commercial utilization in the overall best interest of the United States and the general public" (DOE Regulations, § 9-9.107-3). However, the waiver procedure is necessarily cumbersome, and in practice waivers have been increasingly difficult to obtain. In 1970-72, the Commission on Government Procurement considered patent policy along with the myriad other aspects of government procurement policy. The Commission's judgment was that the Presidential Statement of Patent Policy, as modified in 1971, should be given more time to work. However, the Commission considered an "alternative" patent policy, and Commission staff actually drafted a statute to put it into effect. This was generally to allow contractors to retain title to their inventions, but provide a strong Patents Control Board to exercise march-in rights in the interest of assuring usage of the patents and avoidance of situations inconsistent with the antitrust statutes. The alternative was further refined by an interagency committee in 1975-76, but was not introduced as a legislative proposal. Today, the Congress is awaiting recommendations which may emerge from the various studies the President has set in motion on arresting the perceived decline in American technological innovation. Changes in patent policy may be among such recommendations.

Personal observations.-On the basis of my experience in Government, I very much support the objectives and provisions of S. 1215. It carefully defines the limited instances in which agencies are to acquire title, permits waivers even in these situations, and gives the contractor the option to retain commercial rights in other situations. (I would delete the requirement of title in classified situations, since patents related to national security can more properly be protected in the Patent Secrecy Act.)

Were S. 1215 to be enacted, I believe that commercialization of new ideas would be stimulated, while at the same time the public interest in competition could be protected. Needless destruction of patent incentives by taking title for the Government would be avoided, and a greater willingness to participate in government programs on the part of industry would be promoted. In some instances, title in the

Government may be justified, but I think relatively few. (One I would add is where the contractor's job is to guide and direct others. Taking title in this instance assures the other contractors of the lead contractor's disinterestedness toward their ideas.)

I believe generally speaking, that inventions owned by all will be developed by none. I also think that trying to decide at the time of contracting whether an invention which might be made in performing the contract will later more likely be commercialized if title is kept by the Government or the contractor is not a rewarding exercise.

My personal feeling is that patent incentives generally work best if they remain in private hands. I honestly believe that most inventions made in Government contracts are not significant enough to worry about or to create bureaucracy and paperwork procedures to deal with. Furthermore, I doubt whether the procurement agencies are well suited to run licensing programs for purposes of commercializing their Government-owned inventions. Nevertheless, I also believe that effective means should be provided to induce Government contractors to license use of their inventions to others on reasonable terms and that the Government should have, through a strong march-in procedure, power to deal with the few bad actors or dogs in the manger.

Thus, I would recommend creating a Patents Board to exercise the march-in rights. Would-be licensees, if turned down for a license by patent owner, could apply to the Board for relief. Government agencies seeking to compel wider licensing of significant inventions originated in Government R. & D. work and avoidance of situations inconsistent with the antitrust laws would make their case to the Board. The patent owner and its licensees would be hard as well. The Board would decide in accordance with statutory criteria favoring utilization of patent incentives and the equities of the particular situation. Would be licensees would have greater ability to obtain licenses on reasonable terms, since the patent owner would in all likelihood seek to make a suitable deal and avoid a hearing before the Board. On the other hand, patent owners would have some protection against unreasonable demands for free licenses, where the considerations favoring private investment warranted protection. Thus, patent owners and potential licensees would know that investions which were largely financed by Government funds would be the most likely to be required to be licensed widely, and even royalty-free. On the other hand, inventions whose commercial application more heavily depended on private investment would receive correspondingly greater protection from the Board.

In this way, the Government could concentrate its attention on the relatively few inventions which really matter and not waste its energies in disputes at the time of contracting over inventions not yet in being whose actual significance is unknown. I personally believe this function of a Patents Board would be preferable to the procedure in S. 1215 where a contractor would appeal to a Board a decision of a procurement agency to take title. As I have indicated, the likelihood of sound judgments at the time of contracting as to the future significance of inventions is slight. The procedure would also introduce an extraneous third party into what is fundamentally a bargaining situation, and the third party's primary interest would be in "uniformity" rather than accomplishment of agency mission.

I also believe that march-in rights are preferable to a policy that a contractor's exclusive rights would be extinguished after a specified number of years, unless the contractor justified an extension. I think that the extinguishing of rights would make it difficult to find others willing to develop the invention, and I am skeptical that the Government would be an effective licensing agent.

In certain instances, as for example in an energy production demonstration plant, in which the Government shares costs with private industry, provision would-and Í think property should-be made to provide a recoupment of the Government investment through sharing the proceeds of the enterprise. However, to uniformly make this a requirement for every invention would simply cost more in paperwork in both industry and government than it would return to the public trasury.

I also believe that Government efforts to acquire background patents-i.e., privately held inventions developed outside or before the Government work but necessary to it should be limited to those situations in which the Government is expressly trying to develop a particular technical solution to the point where it can be applied by many different people, with no need for further development expense on their part. Again, I think this is best handled by having the contractor agree to license others to use the background patents for the specific technical solution, rather than having the Government acquire and distribute the rights itself. I would handle these situations administratively, rather than by statute.