Senator SCHMITT. We appreciate that. I do not feel it is irrelevant to the ultimate realization of all the benefits of all your work which has been considerable and that, in fact, what the questions we will present will do will present the facts and ask for your comment.

Admiral RICKOVER. Thank you very much for the opportunity for being here and also for permitting me to present quite a frank discussion, because you know I can't do otherwise.

Senator SCHMITT. Nor can I, and I appreciate it very much. Admiral RICKOVER. That's why I posed that issue about the plot of land that you owned and the Government owned and I wondered why they should be treated different, because I'm sure you're going to look out for the Government's land as much as your own.

Senator SCHMITT. If there weren't Government regulations, the Government land would be physically utilized and the people would be benefiting from the minerals and everything on it, the same as with our present patent law.

Admiral RICKOVER. I hope to persuade you otherwise, sir, although I doubt it because most of us by the time we reach even your age have our minds made up.

Senator SCHMITT. I hope I don't. I have changed it a couple of times in the last few years.

Admiral RICKOVER. You can't stop me from trying.

Senator SCHMITT. No, sir. I wouldn't want you to stop. Thank you.

Admiral RICKOVER. I have always felt people can think anything they please as long as they don't say it.

Senator SCHMITT. That's particularly true in politics.

Admiral RICKOVER. It's particularly true when you're a junior member of a committee.

Senator SCHMITT. Yes, sir.

Admiral RICKOVER. I know something about this political game. That's why I have never run for office.

Senator SCHMITT. Well, I'm glad you didn't run in New Mexico. I might have had problems.

Admiral RICKOVER. Senator, I have been asked whether I would ever run for office, and I have said, no, because I don't think I could be elected dogcatcher in a small community.

Senator SCHMITT. I think you underestimate your persuasive powers.

Admiral RICKOVER. Well, then, I have another answer. I have the same charisma that a recent Secretary of Defense had, one whose name starts with Mc, McNamara. We both have the political charisma of a chipmunk.

Senator SCHMITT. With that, we will recess the hearings. [The statements referred to follow:]

STATEMENT OF ADM. H. G. RICKOVER, U.S. NAVY, TO THE MONOPOLY SUBCOMMITTEE OF THE SENATE SMALL BUSINESS COMMITTEE ON DECEMBER 19, 1977

1977

GOVERNMENT PATENT POLICY

Thank you for inviting me to testify. For the past thirty years I have been responsible for the research, development, procurement, production, operation, and maintenance of the nuclear propulsion plants in U.S. Navy warships. During World War II, I was responsible for the design, procurement, and operation of the Navy's

shipboard electrical equipment. My comments today with respect to Government patent policy are, therefore, based on extensive dealings with various segments of American industry for about forty years.

The basic presumption in most laws concerning Government patents is that the Government retains title to patents developed at public expense. But, today, many Government agencies routinely grant contractors exclusive rights to these patents. I do not believe this practice is in the public interest. It promotes greater concentration of economic power in the hands of large corporations; it impedes the development and dissemination of technology; it is costly to the taxpayer; and it hurts small business. In my view, the rights to inventions developed at public expense should be vested in the Government and made available for use by any U.S. citizen. Under our patent laws, the holder of a patent enjoys a 17-year monopoly. During this time, he can prevent others from using the invention; he can license the invention and charge royalties; or he can manufacture and market the invention as a sole source supplier. If the invention is worthwhile, he is in a position to make exorbitant profits.

Patents are a survival of so-called letters patent which were issued in large numbers during the Middle Ages and through the Age of Mercantilism. These were open-hence the word "patent"-royal letters announcing to one and all that the possessor had been given exclusive rights by the monarch to some specified office, privilege, or commercial monopoly.

Originally, the purpose of letters patent granting industrial or trade monopolies was to promote the public interest; that is, to expand the nation's industry and trade-its national economy. It was then believed that the best, if not the only way, to induce people to invest large capital sums in new industries or trading ventures was to guarantee them freedom from competition, that is, to grant them a monopoly.

In time, the public interest came to be disregarded by monarchs. They granted letters patent to court favorites or sold them to the highest bidder in order to enrich themselves. In the reign of James I, the English Parliament finally put an end to the whole system of private monopolies and privileges through the 1624 Statute of Monopolies.

One type of letters patent was allowed to survive, the patent granted to inventors. For a limited time, a monopoly under the patent was allowed in order to encourage inventors to invest their brains, time, and money in research. It was believed that this was the best, if not the only, way to induce people to produce inventions. These basic ideas were subsequently incorporated into our own first patent law of 1790. While there are flaws in our patent system, I can see why the Government grants patent protection to private interests who invest their own time and money in making inventions. But the patent situation today is quite different from what it was in 1790. At that time, a patent was a matter that concerned the individual primarily; individuals in a preindustrial age were developing single items. Today, the development of patents generally involves large organizations and corporations. The U.S. Government alone is currently spending—in fiscal year 1978-nearly $26 billion for research and development. To grasp the significance of this sum, bear in mind that the total expenditures of the U.S. Government for the 11-year period, 1789 to 1800, was less than $6 million. It was not until 1917 that the entire Federal budget reached $1 billion.

Over the years I have frequently wondered whether, in this modern industrial age, patents are as important to industrial organizations as would appear from the statements made by the patent lawyers. It is probable that they are overemphasizing the present-day value of patents and it is quite possible our industry might not be hurt much if we restricted the items that could be patented.

I believe that today the important factor for an industrial organization is the know-how developed by it-the trade secrets and the techniques; these are not patentable qualities. They are things which are inherent in a company, in its methods; in its management and trained employees; in the kind of machine tools it has; how it uses these tools; and so on.

Up to the advent of the Atomic Energy Commission in 1946, and the Space Agency in 1958, most Government research and development consisted essentially of adaptations to existing technology. That is, an industrial organization would be called upon by the Government to take an item that it had already developed over a period of many years and modify it. But today, in many areas, the Government is in the forefront to technological development. As a result, it is actually the public that is financing development of entire new technologies. It is wrong, in my opinion, for the Government to grant a contractor exclusive rights for 17 years to inventions developed with public funds.

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There are those, notably Government contractors, and patent lawyers in a out of Government, who have argued the opposite-that the Government should grant to contractors exclusive rights to publicly financed inventions. From what I have seen the patent lobby consists primarily of a body of shrewd, so-called experts who have been needlessly confusing the simple principles on which the patent law rests. They have been successful to the point that today many Government agencies are giving away Government patent rights.

The Department of Energy continues to operate under patent regulations which were inherited from the Energy Research and Development Administration (ERDA). The ERDA regulations are a good example of how the obvious intent of a Federal law can be stood on its head by a Government agency. ERDA's responsibilities were set forth in the Atomic Energy Act of 1954 and in the Non-Nuclear Energy Act of 1974. Both of these laws remain in effect and applicable to the Department of Energy.

Under the Atomic Energy Act, the Government, historically, retained patent rights to publicly-financed inventions. That also seemed to be the legislative intent behind enactment of the Non-Nuclear Energy Act of 1974. The Congressional Conference report for that Act, states:

"Government patent policy carried out under the NASA and AEC Acts and regulations, and the Presidential Patent Policy statement with respect to energy technology, has resulted in relatively few waivers or exclusive licenses in comparison with the number of inventions involved. The conference committee expect that similar results will be obtained under Section 9 (of the Non-Nuclear Energy Act)." However, under the Atomic Energy Act and the Non-Nuclear Energy Act, the Department of Energy has authority to waive the Government's patent rights. The Government patent lawyers have prepared a regulation which actually invites contractors to request waivers, and urges the agency to approve them. The regulation states:

*

*To accomplish its mission, ERDA must work in cooperation with industry in the development of new energy sources and in achieving the ultimate goal of widespread commercial use. ** An important incentive in commercializing technology is that provided by the patent system. As set forth in these Regulations, patent incentives, including ERDA's authority to waive the Government's patent rights to the extent provided for by statute, will be utilized in appropriate situations at the time of contracting to encourage industrial participation, foster commercial utilization and competition and make the benefits of ERDA's activities widely available to the public."

This regulations also states that each potential contractor should be notified at the time of bid solicitation that he may request the Government to waive its patent rights, and that a request for waiver will not be considered as an adverse factor in evaluating bids.

With these new regulations the number of waiver requests in the energy field has increased dramatically. In Fiscal Year 1975, the Energy Research and Development Administration reported receiving two waiver requests; in Fiscal Year 1976, the number increased to 106. No doubt the number will continue to grow geometrically as the patent lobby pushes this policy.

To the extent a Government agency is not bound to the contrary by the provisions of a statute, it is supposed to be guided by the Presidential patent policy memorandum issued by President Nixon in 1971. This policy memorandum attempts in broad terms to strike a middle ground between giving away and retaining Government patent rights. However, like most attempts to reconcile irreconcilable positions, it has failed. The wording is so broad and so vague that agencies can construe what they wish from the_memorandum. The Department of Defense routinely gives patents away. The General Services Administration has published procurement regulations, for most other Government agencies, which do the same.

The patent lobby would have us believe that if companies are not guaranteed exclusive patent rights, they will not accept Government contracts. Obviously, if given a choice, most contractors would like the Government to give them exclusive rights to all patents that might result from Government contracts. But very few firms would, in my opinion and from my experience, reject Government business if they were not given patent rights.

These rights are not all that important to most firms. The Atomic Energy Commission operated successfully for more than 25 years under a policy whereby the Government retained title to inventions developed under AEC contracts. That agency had little trouble finding contractors and did an excellent job of developing technology. Likewise, I have no trouble finding contractors even though they know they will not receive patent rights on my Nuclear Propulsion Program contracts.

From what I have seen, most of the people who actually run the companies are interested primarily in profits and in the technology, experience, and know-how that comes from performing the contracts. This technology, experience, and knowhow is what helps the company get future Government and commercial contracts. Several studies, including a 1968 study by the Committee on Government Patent Policy, confirm that ownership of patents is usually not a major factor when companies decide what work to accept; that companies are interested primarily in how much money they can expect to make, and what they can learn.

Contractor lobby groups typically use the threat of refusing to take Government work when they try to persuade Congress to eliminate procurement safeguards or to take other actions that will benefit industry. The Defense contractor lobby, for example, has made similar threats year after year in relation to the Truth-inNegotiations Act, the Cost Accounting Standards Board, the Renegotiation Board, and so on. They say that defense contractors will leave the business unless the Defense Department increases profits or relaxes regulations. Yet, year after year, these very same defense contractors lobby Congress and the Defense Department for more business. Their actions belie their words; and this is also the case with respect to patents.

While companies contend that they should have the right to the inventions they make at Government expense, they apply an exactly opposite principle in dealing with their own employees and subcontractors. Employees are required to give their employer the rights to any inventions that they conceive on the job. Toward their employees and subcontractors, the companies' practice is that the one who pays for an invention should own it. But in dealing with the Government, they contend that the one who actually made the invention should own it, not the one who paid for it. This is a classic example of "Heads, I win. Tails, you lose." It is also an example of the double-talk which has caused the public to hold business in such low esteem. The patent lobby contends that contractors must be given exclusive patent rights to inventions developed under Government contracts or they will not invest in production facilities or in the future research and development work needed to commercialize an invention. This is one of the main arguments being used in promoting a giveaway patent policy.

It is nonsense to think that our technological growth will suffer unless contractors get exclusive rights to patents generated under Government contracts. From what I have seen over many years, the vast majority of patents both in and out of the nuclear industry are of little or no significance. Some individuals obtain patents as evidence of achievement,. much as Boy Scouts collect merit badges. Their ideas might be patentable, but nothing worth pursuing.

Large corporations file numerous patents that are not great new developments, but minor improvements or design features. Often they file these patents simply to discourage competitors or potential competitors—particularly small firms-from trying to enter the market. And if someone wants to challenge the validity of any of these patents, it can take hundreds of thousands of dollars and years of litigation. A high percentage of patents contested in court are ruled invalid. But not many firms are willing or able to sustain such a challenge. Thus, these patents tend to discourage competition.

Obviously, there are patents that do represent useful ideas. However, even without a patent, many of these inventions would be discovered and adopted in the marketplace based on their merits. In such cases, rather than motivating individuals or companies to come up with new ideas, the patent system has actually become a process for determining which of many firms first conceived an idea, and is therefore entitled to the royalty. If one company did not generate the idea another firm would have because of the nature of the work being done. Often, identical ideas crop up almost simultaneously in different companies. Further, many good ideas can be implemented or "commercialized," without special investment in R. & D. or new facilities. Or, they are sufficiently promising that companies will invest in them without patent protection.

There may be a few inventions arising under Government contracts which, in the absence of exclusive patent rights given to the contractor, might not be disseminated and used. The question then arises: Is it really worthwhile for the Government to promote the invention? Perhaps the idea is not all that good. Moreover, if the Government should decide it is in the public interest to promote or "commercialize” a particular invention, it might be better if the Government itself paid for further development, and made the results available to all citizens instead of granting to one contractor exclusive rights to the invention. And who is to say, in cases where the Government patents are waived, that the company performing the contract should automatically and exclusively get these rights. Since large corporations get

the major share of government contracts, they would be the ones to benefit most from such a practice.

The concept of granting a patent—a legal monopoly-is to encourage inventors to conceive new inventions, not to guarantee a market for already existing inventions. But companies now want to have their marketing development costs guaranteed by having a patent monopoly on Government-financed inventions. Since the public has paid for the development of the invention, the risks of marketing it should be no different in principle from other risks that are inherent in a true free enterprise system. How is the risk of marketing a publicly-financed invention different from the risk a man takes when he opens a new grocery or hardware store on a corner where none existed before? We would be going still further in abandoning our socalled free competitive enterprise system if we guaranteed legal monopolies for what are essentially normal business risks.

The patent lobby contends that, under a giveaway patent policy, the public is protected because the Government would have "march-in" rights. Under this concept, contractors who have been given exclusive patent rights to inventions developed under Government contracts would be required to submit reports explaining their efforts to commercialize the inventions. If a contractor did not commercialize the invention to the Government's satisfaction, the Government would then exercise its "march-in" rights and take the patent rights back or license it to others. This concept sounds good in principle. But, the patent lawyers well know that this is a cosmetic safeguard; it offers no real protection for the public. To administer such a program would require a large Government bureaucracy to receive, review, audit, and act upon contractor reports throughout the life of each patent. Currently, the Government would have to track contractor activity on about 30,000 unexpired patents. If the Government ever tried to reclaim its patent rights, more administrative effort, and probably much litigation would be involved..

In the real world, no one in Government would ever undertake this task; nor should they. Government agencies should concentrate on their proper functions rather than wasting time trying to keep track of how well contractors are promoting and commercializing patents.

It is relevant to note that, although Presidential patent policies since 1963 have required the Government to retain "march-in" rights where the principal or exclusive rights to a patent remain with the contractor, the Federal Council on Science and Technology reports that, as of December 1975, the Government has never exercised these rights.

The patent lawyers have observed that the number of patented inventions resulting from Federal funding is very small compared with the number generated by industry with their own funds. They attribute this, in part, to "the small incentive provided by present Federal patent policy.'

I believe the lower number of inventions reported under Government contracts does not show a stifling of inventions under Government contracts. In fact, most of the major advancements in technology in the past 20 years have come in areas where the Government invested heavily, such as space, defense, and nuclear energy. The lower number of Government-owned patents results from other factors, such as failure of contractors to report the inventions they develop under Government contracts; the patent rights giveaway policy followed by various Government agencies; and the Government's "Independent Research and Development" program. I have found cases where contractors filed patent applications for themselves on items that were conceived and developed under Government contracts. These come to light only because, by law, patent applications in the field of atomic energy must be reviewed by the Department of Energy and because in my area I insist on having them reviewed. In areas outside the field of atomic energy, there is no way for Government agencies to determine whether contractors are claiming, as their own, patents which rightfully belong to the Government.

The relatively small number of Government patents stems from the very fact that the Government has been giving them away; they have been patented by the contractors. The Defense Department, for example, does not acquire patent rights under production contracts. It retains patent rights only under contracts characterized as "research.” Even under R&D contracts, the Defense Department has criteria for giving away Government patent rights.

In my opinion, the Government's rights to patents developed at public expense should not depend on some arbitrary distinction between "research" and "production." Often the best ideas and technology come during manufacture of a product, rather than from the research and development work that preceded it. The Government should retain patent rights on Government contracts, regardless of the nature of the work, whenever the invention was developed at Government expense.