PATENT POLICIES RELATING TO AERONAUTICAL AND

SPACE RESEARCH

WEDNESDAY, AUGUST 16, 1961

HOUSE OF REPRESENTATIVES,

COMMITTEE ON SCIENCE AND ASTRONAUTICS,

SUBCOMMITTEE ON PATENTS AND SCIENTIFIC INVENTIONS,

Washington, D.C.

The subcommittee met, pursuant to adjournment, at 10 a.m., in room 214-B, New House Office Building, the Honorable Emilio Q. Daddario (chairman of the subcommittee) presiding.

Mr. DADDARIO. The meeting will come to order.

Mr. BELL. Mr. Chairman, I would like to take this opportunity to introduce to the committee Mr. L. L. Waite, vice president of engineering and planning, North American Aviation, Inglewood, Calif., and Mr. W. R. Lane, patent counsel of North American Aviation.

These gentlemen are leaders in a very important industry that is in California and in my district, the North American Aviation Co., which has been doing an outstanding job in this field. It is a real pleasure to have you here this morning.

(The biographical sketches of Mr. Waite and Mr. Lane are as follows:)

LAURENCE L. WAITE, SENIOR VICE PRESIDENT, ENGINEERING AND PLANNING, NORTH AMERICAN AVIATION, INC.

Laurence L. Waite, senior vice president, engineering and planning, has directed many of North American Aviation, Inc.'s most advanced projects since joining the company in 1940.

He was born in Grand Rapids, Mich., on March 22, 1907. After graduation from high school in Alma, Mich., he entered Massachusetts Institute of Technology, where he received his bachelor of science degree in aeronautical engineering in 1929. He joined the Berliner-Joyce Aircraft Corp., one of the antecedent companies of North American Aviation, as assistant chief aerodynamicist and in 1931 became chief of aerodynamics and flight test, which position he held into 1936.

For the next 2 years he was assistant project engineer for the Glenn L. Martin Co. and in 1939 was associated with the McDonnell Aircraft Co. as assistant chief engineer, remaining in that position to 1940.

Waite joined North American Aviation in 1940 as chief of aerodynamics and thermodynamics, and in 1943 was made chief technical engineer. In 1946, when he took charge of the company's advanced development programs, he was made assistant to the president. In 1951 he became a vice president of the corporation, and on June 1, 1957 was placed in charge of corporate engineering and planning. He became senior vice president November 21, 1958.

Prior to his assignment to head up engineering and planning, he was head of North American's Missile and Control Equipment (MACE) organization at Downey, Calif., which included the company's autonetics, atomics international, missile and rocketdyne divisions.

Active in aviation throughout his professional life, Waite was a member of the Air Corps Reserve from 1929 until 1945 when he resigned with the rank of captain.

A resident of Los Angeles, Waite is married and has two children.

WILLIAM ROY LANE, PATENT COUNSEL, NORTH AMERICAN AVIATION, INC.

William Roy Lane, patent counsel, North American Aviation, Inc., joined the firm March 1, 1946, following honorable discharge from the Air Force, Wright Field, Ohio, where he served as patent officer.

Born July 17, 1904, in Hastings, Nebr., he attended Hatins High School and received his B.S. in civil engineering in 1929 from George Washington University, Washington, D.C., and his LL.B. in 1934 from the Washington College of Law. He has been admitted to practice law in the District of Columbia and California. Lane is active on various committees of the American Bar Association and the American Patent Law Association. He also is a member of Sigma Nu legal fraternity, the Los Angeles Patent Law Association and the Palos Verdes Estates, Calif., Breakfast Club. He is a registered professional engineer.

Among Lane's hobbies is rifle shooting. He was a national individual rifle championship winner and a shooting member of a national intercollegiate championship rifle team.

Lane and his wife, Kathryne, reside at 821 Via Somonte, Palos Verdes Estates. They have two daughters, Virginia and Betty.

STATEMENT OF LAURENCE L. WAITE, SENIOR VICE PRESIDENT, ENGINEERING AND PLANNING, AND WILLIAM ROY LANE, PATENT COUNSEL, NORTH AMERICAN AVIATION, INC.

Mr. WAITE. Thank you, sir.

Gentlemen, as we have already been introduced, I will skip that. I think it important to mention, however, that Mr. Lane is our chief patent counsel. He has been with the company since 1946 and before that was a patent examiner in the U.S. Patent Office and a patent officer at Wright Field, Dayton, Ohio. Besides being a patent attorney, Mr. Lane is also a registered professional engineer.

North American Aviation is pleased to be of service to this committee in its deliberations, and I want to express my personal pleasure at being able to represent North American on this occasion.

I would like first to make a general statement concerning North American's research and development programs. Mr. Lane will then make a statement on North American's view of the patent_system and of the proposed change in the National Aeronautics and Space Administration patent provision embodied in H.R. 1934. Our statements will answer to the best of our abilities the questions that have been directed to us by the committee staff in the letter of July 13, 1961. As a background for North American's testimony on this subject, a few words about our research and development program may be appropriate. As you know, we are engaged in the fields of aircraft, missilry, electronics, rocket propulsion, and atomic energy.

In recent years this work has involved an increasing proportion of research and development effort, as distinguished from production. This is in line with the trend in national defense and space activity, in which the technical content of weapons and vehicles is increasing, the number of items produced is decreasing, and emphasis is placed on scientific advancement.

The growth in our research and development work is indicated by the percentage of sales covered by cost-type contracts, representing principally research and development work, in contrast to fixedprice type contracts for production. In the 1955 fiscal year North American's cost-type contracts represented 19 percent of total sales; in 1960 the figure was 77 percent.

Such research and development work is divided generally into two categories:

(1) That which is directed toward specific products, such as the development of an airplane or rocket engine; and

(2) That which is carried out as studies or research projects in specified fields, such as boundary layer air control, or the feasibility of a manned lunar landing expedition.

The rate of fee negotiated for research and development contracts varies generally between 6 and 7 percent of the estimated cost, with some fees being negotiated below 5 percent and some above 7 percent. The average would probably be approximately 62 percent. This is the negotiated fee; the realized fee is, of course, considerably lower than this.

In addition to this research and development work for which the company has direct contracts, primarily with the Government, North American also engages in considerable company-initiated research and development. Most of this is research to advance the state-ofthe-art and to enhance the company's capabilities in defense and space work. In the last 4 years (1957-60) the company spent $15,470,494 of its own money directly on such research and development. Over the same time period the company committed over $53 million for property, plant, and equipment to support research and development work.

This concludes my statement on the company's research and development activities. The remainder of our presentation will be given by Mr. Lane, our patent counsel.

Mr. DADDARIO. Fine. Would you proceed, please, Mr. Lane?

Mr. LANE. Thank you. With your permission I will turn now to North American's views and experience regarding the patent system. The extraordinary advancement of science and technology in this country and our high standard of living would seem to make it unnecessary to state that our patent system has lived up to its purposes.

We believe that patents have not only advanced the arts and sciences according to the constitutional intent but also, by protecting the inventor's efforts against imitation, have encouraged invention and promoted the spread of information.

At North American patents are obtained to protect our products and have them distinctive from products of others. To that extent patents are important to us. We do not, however, place primary reliance on our patents for the sale of our products.

In our fields of endeavor, engineering advances and improved manufacturing techniques are of major importance. We do nevertheless seek patents on inventions relating to our products, including those products designed for sale to the Government. In some cases, patents enable the development of products for use by others. For instance, our hi-shear rivet has been made available to the entire aircraft industry for a number of years under a license arrange

ment. This rivet has resulted in large savings in weight and cost of aircraft and has produced royalty income for North American.

All of our employees sign the company's employee invention agreement. This obligates them to assign to the company inventions which emanate from work to which they are assigned, or are made on company time or with company facilities, or pertain to company products. It also obligates them to transfer any rights in inventions necessary to fulfill contractual obligations to the company such as those contained in contracts which the company has with the Government. Inventions which fall outside the scope of these provisions belong to the employee.

Normally we do not hire employees to do specific research and development work. Our employees are hired because of their talents and background in particular fields, and it is expected that their work will develop products for us to sell. No particular difficulty has been experienced with employees under our invention agreement. One employee explained, when discussing the invention agreement, that he is very happy to make inventions to improve the products of North American because North American is in a position to market the products, thereby assuring him of a job.

Further, to encourage inventions we have an invention award plan by which employees inventing a patentable item receive a stipend and are entitled to an award where royalties result from patent licensing. In brief, they receive $100 at the time of filing the patent application, $500 when the patent is granted, and a special award in case the patent is licensed to produce royalty income. The special award is made at the discretion of an invention award committee, and varies according to the importance of the patent relative to other company patents, to the costs of the pertinent research and development work, and to other expenses. Usually it is a percentage of the license royalty received by the company.

In addition to this incentive, employees are advanced according to their value to the company. Those who are creative and develop items for North American to sell are recognized. Inventions and patents are often an indication of the creativeability of the employee and serve as a means of obtaining recognition.

Over the years, North American's invention award plan has been very beneficial to many employees. Some of them have made 30 to 40 disclosures and from these have been awarded perhaps a dozen patents. At the last invention award committee meeting, annual special awards to individuals ranged from $50 to $3,000. We also have a very active employee suggestion plan whereby employees are rewarded for suggestions which improve our products and operations. The suggestion plan is coextensive with the invention award plan and it is possible for employees to receive an award under the suggestion plan and also under the invention award plan.

We are, of course, aware that differences of opinion exist over whether the Government should take title to all inventions emanating from Government-sponsored research and development work as against a royalty-free license.

The various views on this subject are well outlined in Report No. 143 of the Subcommittee on Patents, Trademarks, and Copyrights of the Committee on the Judiciary, U.S. Senate, 87th Congress. The report

states that patents obtained or processes developed by public funds should be reserved for public use. However, Senators Wiley and Hruska of that committee disagreed with the conclusions of the report as being based on opinions and judgments without the development of all pertinent facts.

Generally speaking, we support the philosophy that the Government needs only a royalty-free license in patents for governmental purposes. The developing contractor thereby has the opportunity to adapt the inventions for commercial use and make the benefits available to the public. The resulting products must, of course, compete with items offered for sale in the open market both as to utility and price. No monopoly is created except the temporary protection given by the patent laws to promote the use of new products as intended by the Constitution.

If the policy of retaining title in the Government is continued in the patent provisions of the Space Act, the Government will be compelled to go into the patent business or allow the patents to lie fallow. It is understood that the Government presently owns thousands of patents and that very few of them are being used in commercial products.

The Space Administration has recently issued licensing regulations for promoting the use of Government-owned inventions. It will be interesting to watch the progress of this program in view of previous Government attempts to license patents.

For instance, during World War II licenses were offered under a large number of patents which the Government had seized from German nationals. The records will show that this program was a failure. It is understood that the British and Canadian Governments have instituted patent licensing programs which, to date, show little signs of promise.

A study made by the George Washington University Foundation on Federal Patent Policies and Contracts on Research and Development, volume 4, No. 4, 1960, indicates that the importance of the issue of patent rights in research and development contracts has been much exaggerated. It concludes that undue concentration in industry of inventions of some vital importance under the license policy is a possibility so negligible that it may be disregarded. The report further concludes that the National Aeronautics and Space Administration does not seem to have sufficient flexibility under the Space Act in accepting licenses rather than title.

From a review of the voluminous testimony and arguments for and against the title versus license policies, it does not appear that this problem will be settled for some time to come. The legislation proposed by H.R. 1934, although not settling the problem, would provide the Administrator of the National Aeronautics and Space Administration with the flexibility in handling patent matters indicated as being needed by the George Washington University Foundation.

It may be pointed out that the requirements of the patent provisions of the Space Act inflexibly require the Government to take title to certain patents. This is even more stringent than the patent provisions of the Atomic Energy Act. The Atomic Energy Commission is permitted under that act to negotiate for less than title at the time of entering into a contract. The Administrator of he Naional Aeronauics and Space Administration has formulated waiver regulations