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Order 10096. Generally based on common law principles for allocating invention rights to employees in situation not covered by contract, this Executive Order applied to most, but not all, Federal employees. The order was held to be an unconstitutional encroachment on Congress' power in Kaplan v. Johnson, 409 F. Supp. 190 (N.D. Ill. 1976). This decision was reversed, however, by the court of appeals on the ground that Congress had authorized the promulgation of the Executive Order through its enactment of Sections 301, 3301, and 7301 of Title 5 of the United States Code. Kaplan v. Corcoran, 545 F.2d 1073 (7th Cir. 1976). The present bill codifies longstanding Federal practice in this area.

LICENSING OF FEDERALLY-OWNED INVENTIONS-TITLE IV

Federal Property Management Regulations (FPMR)

Section 2 of the 1971 Statement directed the Administrator of General Services to issue regulations for the comprehensive licensing of federally-owned inventions. In January 1973, the Administrator issued an amendment to the FPMR concerned with the licensing of federally-owned inventions.

The validity of this regulation was challenged by a complaint filed in the United States District Court for the District of Columbia by Public Citizen, Inc., and others.10 The complaint alleged that the exclusive licensing of federally-owned patents constituted a disposal of property in violation of Article IV, Section 3, Clause 2 of the Constitution. The District Court found for the plaintiffs, directing the Administrator to take immediate steps to void the licensing regulations. This the Administrator did.11

On appeal by the government, the court of appeals held that the plaintiffs were without standing to sue, and reversed the judgment of district court.12 The Administrator then reinstated the licensing regulations.13 Since the court of appeals did not reach the merits of the plaintiffs' complaint, the legality of any exclusive license granted by a Federal agency under authority of this regulation remains untested. Federal Procurement Regulations (FPR)

Following the issuance of the 1971 Statement, regulations providing for standard patent rights clauses for use by all Federal agencies were drafted and subsequently promulgated by the Administrator of General Services in August of 1973.14 The validity of these regulations also was challenged by Public Citizen, Inc., in the United States District Court for the District of Columbia.15 The complaint alleged that, whenever the government acquired less than title to an invention made under government contract, the government, in effect, was disposing of property in violation of Article IV, Section 3, Clause 2, of the Constitution. The Administrator cancelled the regulations pending the outcome of the lawsuit.

The district court dismissed the complaint, finding that the plaintiffs lacked standing to sue. The plaintiffs appealed, but the court of appeals affirmed the judgment of the district court. 16 In May, 1975, the regulations were reissued.1 Again, however, no final judgment was had as to the merits of the complaint. The present bill provides for a comprehensive scheme for the commercialization of federally-owned patent rights in the public interest.

DRAFT BILL

Following the President's Message to the Congress, a drafting committee of CIPI members from the Departments of Commerce, Energy, and Justice, the National Science Foundation, and the Office of Science and Technology Policy, met for a

• Executive Order 10096: "Providing for a Uniform Policy for the Government with Respect to Inventions Made by Government Employees and for the Administration of Such Policy," President Harry S. Truman, January 23, 1950 (3 CFR, 1949-1953 Comp., p. 292); as amended by Executive Order No. 10930: "Providing for the Abolishment of the Government Patents Board and Providing for the Performance of its Functions," President John F. Kennedy, March 23, 1961 (26 F.R. 2583, March 28, 1961).

See note 6, p. 33.

10 Public Citizen, Inc. v. Sampson (C.A. No. 781-73 U.S.D.C.D.C.).

"FPMR Temp. Reg. A-10 to Federal Property Management Regulations Issued February 12, 1974 (F.R., Vol. 39, No. 34, February 19, 1974.).

12 Sampson v. Public Citizen, Inc. (C.A. No. 74-1619 D.C. Cir.).

13 Amendment A-10 to Federal Property Management Regulations Issued October 1, 1975 (F.R., Vol. 40, No. 199, October 14, 1975).

14 See note 7 above.

15 Public Citizen, Ipc. v. Sampson (C.A. No. 74-303 U.S.D.C.D.C.).

16 Public Citizen, Inc. v. Sampson (C.A. No. 74-1849 D.C. Cir.).

17 Amendment 147 to Federal Procurement Regulations Issued May 1, 1975 (F.R., Vol. 40, No. 89, May 7, 1975).

period of several weeks to develop statutory language embodying the President's policy. Their draft twice was circulated for comment to other Federal agencies. The present bill stems from the belief that inventions resulting from federallysupported research and development constitute a valuable national resource; that Federal policy with respect to the allocation of patent rights in such inventions should seek to stimulate innovation, promote contractor participation in government research and development work, foster competition, recognize the equities of government contractors and Federal employee-inventors, and provide small businesses and nonprofit organizations with special incentives.

This bill establishes a uniform policy regulating the allocation and use of invention rights that belong to the Government. It eliminates the piecemeal and often conflicting approach to this subject that has developed through a combined system of regulation by general Presidential guidance and specific program-by-program statutory direction. The bill amends or repeals all other Acts and supersedes all Presidential memoranda and Executive Orders concerning the allocation of invention rights resulting from federally sponsored or supported research and development and the licensing of federally-owned patent rights.

Title I states as the primary purpose of the bill the establishment of an effective Federal system for management and use of inventions that result from federally sponsored or supported research and development, based on the finding that such inventions constitute a valuable national resource which should be developed in a manner which stimulates innovation and recognizes the equities of Federal employees and contractors while safeguarding the public interest.

Title II of the bill allocates rights between contractors and the Government in inventions resulting from federal research and development contracts. When the contractor is a small business or a nonprofit organization, it may elect to acquire title in the invention in any country in which it files a patent application. Other contractors will receive exclusive licenses to practice contract inventions in whatever fields of use they choose to specify and agree to commercialize in whatever countries in which they file patent applications as long as their acquisition of such licenses would not conflict with the requirements of the agency's mission, the national security, or the Federal antitrust laws.

When the contractor receives title in or exclusive licenses to practice an invention, the Government will receive a nonexclusive, royalty-free, world-wide right or license to practice the invention or have it practiced for the Government. In addition, the Government will receive as to each invention the right to terminate the contractor's title or exclusive license, to require the contractor to grant appropriate licenses or sublicenses on reasonable terms to responsible applicants, or, if necessary, to grant such licenses itself. The Government may exercise this march-in right only if the contractor fails to commercialize the invention, if necessary to protect the national security, if necessary to meet requirements for public use specified by Federal regulations, if the contractor's rights in the invention would violate the antitrust laws were those rights deemed an acquisition of assets of another corporation, or if the contractor fails to comply with the reporting requirements imposed by the responsible agency.

The Office of Federal Procurement Policy is instructed to direct the issuance of regulations to implement Title II. The regulations will establish a standard patent rights clause allocating invention rights in according with the provisions of Title II. Generally, this clause will be included in Federal research and development contracts.

The contracting agency may deviate from the standard patent rights clause in furtherance of the agency's mission and the public interest. The agency may deviate on a class basis in accordance with the regulations issued under the direction of the Office of Federal Procurement Policy, and unless prohibited by those regulations, the agency also may deviate on a class basis pursuant to regulations that it issues itself. All other deviations must be authorized by the head of the agency or a designee on a case-by-case basis and must be described in the Federal Register. Such a deviation may permit the Government to acquire lesser or greater rights in an invention than it normally would receive under Title II. The agency may not, however, waive the Government's right to terminate the contractor's title or exclusive license for antitrust or national security reasons.

Title III of the bill allocates rights between Federal employees and the Government in reported inventions made by Federal employees. If necessary to protect the national security, the Government will acquire all rights in an invention that was made with Federal support. In addition, the Government will acquire all rights in any invention that bears a direct relation to the duties of the employee-inventor or was made as a consequence of the employee's employment. The bill creates a

rebuttable presumption that the invention was made incidental to the employee's employment when the inventor was employed or assigned to invent, improve, or perfect any patentable material; conduct, supervise, or coordinate federally sponsored or supported research or development work; or act as a liaison among agencies or individuals engaged in such work. Although the Government may receive all rights in a particular invention, if the agency finds insufficient interest in the invention to justify exercising those rights, it may assign some or all of them to the employee-inventor. Such an assignment, however, will be subject to the Government's reserved nonexclusive, royalty-free, world-wide right to practice the invention or have it practiced for the Government.

In all other situations in which an invention was made with Federal support, the employee-inventor will receive all rights in the invention, subject to the Government's national security rights and the Government's nonexclusive, royalty-free, world-wide license to practice the invention or have it practiced for the Government.

The employee-inventor is entitled to all rights in any invention that was not made with Federal support.

Finally, although the Government may be entitled to receive all rights in an invention, an agency may enter into agreements providing for the appropriate allocation of rights in inventions that result from research or development to which other parties have contributed substantially.

Regulations issued by the Secretary of Commerce will provide for the review of agency determinations allocating rights in employee inventions whenever the agency determines not to acquire all rights in an invention or an aggrieved employee-inventor requests a review.

Title III also authorizes the establishment of a monetary incentive awards program for the purpose of stimulating the production and disclosure of employee inventions. An additional incentive provision in the bill authorizes agencies to share income received from any patent license with the employee-inventor.

Title IV provides the authorities and responsibilities in Federal agencies necessary to administer effectively a program or programs for the domestic and foreign licensing of federally-owned patent rights. Exclusive and partially exclusive licenses may be granted, but only after public notice and opportunity for filing written objections and only if the responsible agency determines such licensing is necessary to commercialize the invention. No license may be granted if the responsible agency determines that the granting of the license would create a situation violative of the antitrust laws.

Title V addresses a variety of housekeeping issues raised by other titles. It authorizes any exclusive licensee under the bill to enforce its rights by bringing suit without joining the United States as a party. The exclusive licensee, however, must notify the Attorney General and the agency that granted the license and serve the Government with copies of all papers as though it were a party to the suit. Title V provides that the bill may not be construed so as to deprive an owner of its rights under any background patent.

Title V also provides that an agency may decide to terminate the title or exclusive license received by a person under Title II or IV only after public notice and an opportunity for a hearing in which the United States, any agency, or any interested person may participate. The agency will issue the rationale for any such decision in writing.

The United States or any participant adversely affected by any agency decision requiring public notice and opportunity for a hearing may appeal the decision to the United States Court of Claims. The Court of Claims will have exclusive jurisdiction to determine the matter de novo and to affirm, reverse, or modify the agency determination.

Title V states that nothing in the bill creates any immunities or defenses to actions under the antitrust laws.

Title V also sets forth the authority of Federal agencies to obtain, patent, license, transfer, and accept federally-owned patent rights. It also provides the Secretary of Commerce with authority to assist other Federal agencies and to otherwise engage in efforts to stimulate the transfer to the private sector of potentially-valuable federally-owned technology.

Finally, Title V defines the various terms used in the bill, includes a list of the statutes that the bill either will repeal or amend, and provides for the effective date of the bill.

CONCLUSIONS

Enactment of this bill would stimulate the industrial innovation process by contributing to the more effective utilization of inventions made in the course of

government-supported research and development work. Further, the bill would resolve longstanding policy issues, answers to which the Congress, the Executive Branch, industry, and the public generally actively have sought for a generation. The bill is designed to reduce the administrative burden now imposed upon contractors and government agencies alike. Further, the bill responds to the Commission on Government Procurement recommendations, set forth in the bipartisan report to the Congress, that legislation be enacted which would make uniform the Federal practices in the area of allocating the rights of contract inventions and make clear the government's authority to grant exclusive licenses under federally-owned inventions. The bill also would codify the basic policy concepts of Executive Order 10096, the provisions of which uniformily would be applicable to all Federal employees. In addition, passage of this Bill would overcome any remaining legal questions raised by past litigation.

It is anticipated that, following implementation of the Act, greater commercial use will be made of the technology resulting from the Federal government's research and development effort, in turn creating additional employment, a higher standard of living, and an overall economic benefit to the United States as a whole, while protecting the public against any possible wrongful contractor conduct.

Senator STEVENSON. Thank you,

you, sir.

Well, I would like to try to understand this approach a little better. I started with a strong preference for a conceptually cleaner, more far-reaching bill. You make distinctions for small businesses. Are they defined in the same way as in the Judiciary Committee bill? How small is small?

Dr. BARUCH. The bill uses the SBA definition, Senator Stevenson, which I think is 500 people.

Senator STEVENSON. That's implemented by regulation, is it not? In effect, it will be delegated to SBA to determine who gets what rights to Government-financed research?

Dr. BARUCH. That's an interesting point. If that concerns you, we can certainly put a more specific definition in the bill.

Senator STEVENSON. I don't know how much it concerns me at the moment. It's something that I don't feel very comfortable with, and I shouldn't think it would make businesses very comfortable. Mr. HERZ. Senator Stevenson, I have doublechecked here. I believe that is essentially the same definition that is in the BayhDole bill. It may be, however, that it would be better to have a more precise definition.

Senator SCHMITT. Or less precise.

Mr. HERZ. Possibly.

Senator STEVENSON. Another aspect of this that puzzles me: As soon as you pass the threshold, wherever it is, you get punished; you get punished by success. If a small company, as a result of its industry and its initiative, its innovation, becomes profitable, it gets punished, doesn't it?

Now, why shouldn't we be rewarding it instead of penalizing it for its success? Take Itek Corp., starting from nothing. As soon as it becomes what it is today, it doesn't qualify for the benefits accorded small business under your approach. What is the rationale for discriminating against success?

Dr. BARUCH. When you put it that way, Senator, we can never find a rationale for punishing success unless it's success at thievery or some other illegal act.

No; that's not the purpose. The purpose is not to punish success. Nor do we think it would be perceived as punishment by many of the companies, most of the companies. As the company gets larger, the limit of the span of business in which it can engage starts to be

reached. Its executive officers, senior people, and CEO, really are constrained to pay attention to what is their business.

Smaller companies, as they're growing, have a very fluid boundary to their business description. Our effort here is merely to recognize that as businesses grow larger their attention gets more narrowly focused. If we want to utilize patents throughout the society, we need a mechanism to do that. This is not punishing

success.

Senator STEVENSON. Well, I can agree with you up to a point. At least I am afraid there is a great deal of truth in what you say about the rigidities of big business. In some ways, it's like big government. But a moment ago you had a lot of nice things to say about big government, its capacity for innovation.

Dr. BARUCH. That's a very good point. I do have some nice things to say about big government. I have nice things to say about small parts of big government. I have nice things to say about small parts of big companies. I have nice things to say about many large companies.

When a company has a wide range of small parts or a wide range of businesses, it becomes perfectly possible for that company to define those fields of use when they seek an exclusive license under Government patent and be covered.

Senator STEVENSON. All right, let's talk about the fields of use, then. You said the company is going to define the fields of use. Dr. BARUCH. Yes, sir.

Senator STEVENSON. Doesn't the field of use get defined in the process of negotiation with the Government?

Dr. BARUCH. No, sir. Under this bill, the fields of use described by the company are not a subject of negotiation. The company would specify the fields of use in which it wants exclusivity, agree to commercialize in those fields of use, and get an exclusive license in those fields of use which can only be withdrawn if, in fact, it fails to utilize it in those fields of use.

Senator STEVENSON. It's automatic, then?

Dr. BARUCH. Automatic for the fields of use.

Senator STEVENSON. And for the life of the patent, assuming it does make reasonable efforts to commercialize?

Dr. BARUCH. Yes.

Mr. HERZ. Or, I might add, to license.

Senator STEVENSON. It does not have to develop the invention itself? If it really wants to license, it may do so?

Dr. BARUCH. Absolutely. Licensing is a form of commercialization. We don't want to take anything away from companies. That's not the purpose of the bill. The purpose of the bill is to insure the fullest use of federally, financed inventions.

Senator STEVENSON. I do think this is an improvement, assuming that it doesn't produce a lot of lengthy negotiation and regulation and uncertainty and litigation and so on.

Now, there is going to be some oversight by somebody to determine whether there is commercialization. Is that a decision that the Commerce Department makes, and, when made, is it subject to appeal? How does that process work?

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