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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, 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?

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 NASA 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.

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