Mr. HERZ. It is subject to appeal to the Court of Claims, which, as I recall, reviews the matter de nova; that is, on its own from the start.

Dr. BARUCH. Right.

Mr. HERZ. It's not just an administrative review, unless I am mistaken about that. The last time I saw the bill, that's the way it

was.

Senator STEVENSON. That creates one potential for litigation. Mr. HERZ. I am sorry, sir?

Senator STEVENSON. It requires some subjectivity. Somebody has to determine what are reasonable efforts toward commercialization. That's going to be the Commerce Department, ultimately. Dr. BARUCH. When you want to accomplish something like increased utilization, it's going to require judgment on the part of the people pursuing it, no matter how we do it.

Senator STEVENSON. What happens to the DOD title-in-the-contractor policy, under your approach?

Dr. BARUCH. DOD's title-in-the-contractor policy would be replaced by a DOD exclusive licence in the contractor policy.

Senator STEVENSON. You don't think that's been a successful policy for DOD?

Dr. BARUCH. I think that policy has been successful in attracting competent contractors. However I don't think the new policy will be any less successful. The new policy, however, will be more successful in insuring utilization of those things developed for the DOD in areas outside of the Defense Department.

For example, right now, the Department of Defense has a major program called ICAM, integrated computer manufacturing system. It will have under it, and has already had under it, a series of inventions. It would be to the public interest to see those technologies moved out of just those areas of airframe manufacture, aircraft engine manufacture, to a wide range of industries to new startups to industries that are in trouble and can use those technologies to improve their products and reduce their costs.

The incentives of the large contractor to do that is minimal when his plant is loaded with defense orders, when he's got his executives thoroughly occupied wondering about overruns, negotiating contracts, and all those things executives worry about, including getting the production.

It behooves us as a government to exercise our efforts to insure that the fruits of the ICAM project are moved elsewhere in industrial use. It happens to be one of the most exciting projects the Government has going.

Senator STEVENSON. Thank you.

Senator Schmitt?

Senator SCHMITT. Thank you, Mr. Chairman.

Dr. Baruch, is this bill as it now stands consistent with the findings and recommendations of the private sector advisory group on this subject?

Dr. BARUCH. Mr. Chairman, this bill is our attempt to get the best blend between the findings of that group and the needs of the Federal Government.

Senator SCHMITT. What was this group's recommendations on the issue of title versus exclusive license?

Dr. BARUCH. Almost always in the private sector, when asked the response will be of title in the contractor. It's very hard to get someone in the private sector to take the kind of broad, statesmanlike view that Congress takes and that we're supposed to take and say what is best for the public as a whole.

Anything less than title is seen as something less for the private sector. So we would not expect anything other than title as a recommendation from the private sector.

Senator SCHMITT. So you ignored that recommendation because you don't expect it to be anything but a self-serving recommendation?

Dr. BARUCH. Quite the contrary, we didn't ignore it. We reached through it to see what was the motivation for it. We looked at essentially the legislative history of the recommendation, where were the discussions. The discussions were concerned with the need for exclusivity to promote investment. We agreed with that. We certainly did not ignore that.

Senator SCHMITT. Let's pursue that a little bit farther, then. What is the experience of the Government, for example, in licensing Government-owned patents, which is basically what you're suggesting except you're not going to license the whole patent, you're going to license a part of it in the field of use previously licensed? What is the experience?

Dr. BARUCH. It has been extremely poor.

Senator SCHMITT. Why do you expect it to improve?

Dr. BARUCH. I expect it to have the resources necessary to do the job and the kind of challenge that will attract the people that will do that job.

Senator SCHMITT. You say NASA does not apply resources in a very aggressive way to try to do this. What is their experience?

Dr. BARUCH. NASA has applied the resources. But NASA, because it's a mission agency with close ties to the aerospace industries and other high-technology industries, has had little opportunity to work closely with people in industries far afield from NASA's area of familiarity to apply those patents.

Senator SCHMITT. I think NASĂ might disagree with that. They have had an extensive technology utilization program, probably the best in the Government. They have been trying to market patents, and they have had a very low success rate.

Dr. BARUCH. If you take NASA as an individual agency rather than the whole Federal Government, their success rate has been no lower than commercial companies who also have patents.

Senator SCHMITT. Well, doesn't that give you pause?

Dr. BARUCH. No; that makes me think that a Government agency

Senator SCHMITT. Everybody that's been trying to do this, has had a low success rate, doctor. Why do you think adding a major effort in the Department of Commerce is going to be any different? Dr. BARUCH. Because NASA's success rate, Senator, has been about the success rate you get in companies that, because of their nature, have an active licensing program. I'm not knocking NASA's success. The Government as a whole has had a low success rate.

Senator SCHMITT. But when NASA waives title, which they presently can do, their success rate jumps markedly. Doesn't that bother you a little bit?

Dr. BARUCH. What do you mean, their success rate jumps?

Senator SCHMITT. They have something like a 15 to 20 percent commercialization rate when they waive title, versus about 2 percent when they try to push the exclusive license.

Dr. BARUCH. It's interesting to look and try to decide whether that correlation shows casuality, however. Do they get the commercialization because they waive title or does the contractor insist on waiver of title because he intends to commercialize?

Senator SCHMITT. I think you have to answer that question before you ask the Congress to approve something other than title in the contractor.

Mr. HERZ. Senator Schmitt, I think the point we were trying to make is that the policy the administration is now proposing is very similar to the policy of waiving title with regard to those fields of use in which the contractor wants to commercialize. In such fields we agree, it is likely to commercialize more succesfully than the Government or anyone else trying to license from the outside would do.

What this bill tries to do is to reserve to the Government those fields of use in which the contractor does not have an interest in commercializing the invention itself—and indeed does not have an interest in licensing the invention itself, because it has some advantage in licensing as well. As Dr. Baruch is saying, NASA's record in licensing in that sort of situation is probably about what we would expect. That success ratio is not very high but it is a lot higher than what we have been experiencing in other parts of the Government, particularly where the Government takes title to the whole patent-which is not at all what's being proposed here. Senator SCHMITT. Are you saying, then, doctor, that the exclusive license in field of use is essentially the full equivalent of title? Dr. BARUCH. Yes.

Senator SCHMITT. Now, do we have any experience in the Federal Government of success in a field of use licensing concept?

Dr. BARUCH. We haven't done this before in the Federal Government. We do have examples of success of licensing, the NTIS licensing program.

Senator SCHMITT. Tell me again, why do you feel that licensing a part of the field of use is going to be more successful than licensing the whole patent?

Dr. BARUCH. Let me answer that. This is not a zero sum game. We are not doing one thing or another. What we are trying to do in this game is to give the contractor who has the capability—we recognize that he has the capability-the right to exclusivity to this invention in any area where he wants to use it. If he got title, that's all he would be getting.

Now, what we are doing is reserving to the Government those things he does not choose to commercialize. If the Government has any impact at all through that program, we come out ahead of the title in the contractor program.

Senator SCHMITT. Unless we create a bureaucracy whose cost is far outweighed by the possibility that you're going to license the narrow fields of use.

Dr. BARUCH. Neither this administration nor the Congress would permit the creation of such a bureaucracy, Senator.

Senator SCHMITT. That's what you're proposing.

Dr. BARUCH. No, I'm proposing that we start this program, that we do push the utilization in other areas, and we treat that program as though it were any other business that can be monitored as to its success, expanding it only as it develops a clear payback for its investments, and cutting it off if it doesn't work.

At no point, at no point, regardless of its performance, need we be any worse off in terms of utilization under this bill than with a title in the contractor approach.

Senator SCHMITT. Doctor, we have to look at the experience of Government in this area, and maybe one advantage of having a diversity of patent policies through the agency is that it does give us some experimental evidence of what works. Where there have been concerted, long-term, quality attempts to license patents, it has been extraordinarily unsuccessful. Although there are a few spectacular individual successes, the overall effort has been very unsuccessful.

But when an agency-and there are others besides NASA-does provide title to the contractor, then the success rate jumps markedly.

Dr. BARUCH. We agree. Now what we would like to do is take the sum of those two success rates, which has to be greater than either one of them.

Senator SCHMITT. Not necessarily. You're saying that it's an arithmetic sum. It may not be. There may be an interference and you may actually get less.

no

Dr. BARUCH. But we have no experience in that area. We have

Senator SCHMITT. You are suggesting that we move into an area in which you have no experience. The experience you have is that the title in the contractor provides a high success rate of commercialization.

Dr. BARUCH. We agree. Our indicators show that exclusive license in the contractor will have the same rate of success.

Senator SCHMITT. I know you believe that, but you have no experience base to indicate that's true. In fact, the experience base indicates the contrary.

Dr. BARUCH. No, we have never tried that. So we have no experience base at all.

Senator SCHMITT. You have people trying to license patents in the Government. It has not been very successful. You're saying it's going to be more successful with less to license.

Dr. BARUCH. Senator, with this committee's concern for innovation and new things that have to be done to solve our economic problems, to say we can only make those efforts in which we have experience I think is inconsistent with our joint view.

Senator SCHMITT. It's not inconsistent at all, Doctor. If we have been successful in doing something, we ought to build on that

success.

Dr. BARUCH. We have successful experience in the NTIS of licensing patents that the Government held, that the contractor did not choose to utilize. We signed one license about 2 months ago that will have about $1 million revenue to the Federal Government. We have many others. It's a new program, has a very small bureaucracy. And I would be glad to give you-

Senator SCHMITT. Can you provide us statistical data on the number of patents that you manage and how you obtain those patents? Are you being selective in what you pick?

Dr. BARUCH. I'll be glad to submit that information for the record.1

Senator SCHMITT. Doctor, your present proposal includes the Bayh bill approach for small business and universities, which is basically title in the contractor. It includes a waiver, as I understand it, of title for licensing by all groups abroad so that they can obtain licenses in foreign markets. However, you would depart from this approach for all other business endeavors, with the concept of exclusive license in the field of use.

Is that a correct summary of the President's proposal.

Dr. BARUCH. Yes, sir.

Senator SCHMITT. The field of use would then be defined by the contractor?

Dr. BARUCH. Right.

Senator SCHMITT. I think this committee is going to have trouble understanding why title is good for small business, and if foreign licensing is pertinent for all with waiver of title, why isn't it good for everything in between? Why do you create more incentives by your policy than would be created by title in the contractor across the board?

Dr. BARUCH. We want to insure the use of inventions made with Federal sponsorship or support in this country in order to increase our economic base. We do not have the same motivation overseas to increase the use of these inventions by foreign companies.

Senator SCHMITT. No, but you do want our inventors to be able to license their inventions abroad; is that not correct?

Dr. BARUCH. We're more interested in their being able to use them abroad, so that it becomes an activity of an American company located elsewhere. But I'm not interested in encouraging the licensing abroad. I just don't think that's appropriate.

Senator SCHMITT. But your bill provides for waiver of title to a U.S. company or inventor so that they can license abroad and can have that net return on their patent; is that not correct?

it?

Dr. BARUCH. Yes. But as I said before

Senator SCHMITT. Why did you do it, then, if you don't care about

Dr. BARUCH. It was necessary for a couple of reasons. One is you can't prosecute a patent overseas unless you happen to be the titleholder. This was pointed out by NASA. But since we don't feel that those companies will in fact license very effectively overseas any more than we feel they would do it over here, we don't expect this to markedly increase the foreign use of American patents.

1 The information requested was not available at the time of printing. When received, it will be retained in the files of the Committee on Commerce, Science, and Transportation.

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