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the "normal economic return" cannot be the subject of absolute proof. It is sufficient to have it demonstrated as a reasonable probability. Because the bill is intended as a "relief measure," its requirements must be liberally construed, so that its intended purposes will be achieved. The bill does not contemplate that impossible burdens of proof will be exacted, but that reasonable evidence will be accepted as what the "normal economic return" would have been, if the governmental restrictions had not been imposed. In most instances, the "normal economic return" for the period of impairment can be constructed from the actual experience both before the restrictions were imposed and after the restrictions were lifted. Recognition must be given also to the normal situation that a patent is most fruitful in the latter part of its term. Thus, even if the patent had not realized any substantial return prior to the restricted period, regard should be had to the subsequent performance in determining the extent to which its productive years had been delayed. Usually, the post-restriction results can be taken as an index of what the performance would have been during the period of restriction.
Now, permit me a word regarding the persons who may apply for an extension. Obviously, the application should not be limited to one who was and still is the sole or joint owner of the patent. During the period of governmental restrictions, some patent owners were obliged to sell substantial interests in their patents. Others disposed of the entire title, but retained a right to royalties or payments based on production. To do justice to these cases of greatest hardships, extensions should be permitted on the application of any person who had a substantial interest at the time of the impairment and who still has some substantial interest at the time of application.
I commend to your favorable consideration the concepts embodied in H. R. 4054, which bears my name. I believe that its underlying legal principles are sound and that its provisions will not be difficult to administer. The bill represents the combined efforts of several experts, whose judgment I value and whose work will insure the proper integration of the bill into the general laws. I believe that its passage is necessary in order to do justice to each injured patentee, to preserve the integrity of the Government's promise to him, and to perpetuate the benefits flowing to the Nation from a sound patent system.
STATEMENT OF JOHN HOXIE, CHAIRMAN OF THE COMMITTEE ON PATENT LAW AND PRACTICE, NEW YORK PATENT LAW ASSOCIATION
Mr. BRYSON. Thank you, Mr. Walter. Now, our next witness is Mr. Hoxie. Do you have a prepared statement, Mr. Hoxie?
Mr. HOXIE. Yes; I have submitted one.
Mr. BRYSON. Would you like to read your statement, or put it in the record and make comments on it?
Mr. HOXIE. I think it might be better to put it in the record and then try to say it in fewer words, if I am able to do that. Mr. BRYSON. That will be fine.
(The statement referred to is as follows:)
REPORT OF COMMITTEE ON PATENT LAW AND PRACTICE, NEW YORK PATENT LAW AssoCIATION, ON H. R. 323 AND H. R. 4054, TO PROVIDE FOR THE EXTENSION OF PATENTS
ANALYSIS AND COMPARISON
Both bills have the same general purpose of authorizing an extension of the term of a patent when the owner of the patent has not realized a "normal economic return" because of certain circumstances. They differ substantially as to the circumstances made effective to justify an extension.
H. R. 4054, introduced May 10, 1951, is the more limited bill. It provides for an extension only when the normal return was prevented, impaired, or delayed during a particular World War II period, viz, May 27, 1941, through November 14, 1945; and then only when this was due to the fact that materials required were subject to Government priorities or allocations.
H. R. 323, introduced earlier, provides for an extension under circumstances of wider scope, without limitation to World War II, so that it would become a continuing part of the patent law. It would authorize an extension when the normal return was prevented, impaired, or delayed by any of three types of circumstance (here restated to assemble like provisions together):
(1) The granting of a license to the United States at no royalty or a nominal royalty (sec. 1-a);
(2) Any circumstance beyond the control of the patent owner or holder (sec. 2-a);
(3) Any circumstance resulting from the existence in the United States of war or other national emergency (sec. 2-c); or specifically, any restrictions or prohibitions imposed by the United States, as a result of a war or national emergency (sec. 2-2).
Both bills have procedural provisions, on applications to the Commissioner for an extension, with review by the Court of Customs and Patent Appeals. Both provide certain exemptions which are essentially the same, including an absolute exemption of the United States from all liability during the extended term; an exemption for things made and sold in the period between expiration of a patent and its revival for an extended term; and a provision allowing licenses either to cancel or to continue on the same terms for the extended period.
Both bills provide for an extension for a period "commensurate with the extent to which normal economic return from such patent was so prevented, impaired, or delayed.
The committee is opposed to both bills in principle because it believes (1) that they rest on a misapprehension of what the patent right is; (2) that they are inherently discriminatory; and (3) that the administrative problem of granting extensions for the reasons made operative by these bills would be unduly great.
The committee is further opposed to H. R. 4054, and to H. R. 323 in its comparable effect, because too much time has elapsed to permit equitable redress now for World War II situations.
The committee also opposes the extension, under any circumstances, of expired patents; a result contemplated by both bills. As applied retroactively to World War II situations, such extensions-really revivals-would create inequity in their effect upon investments, commitments, and plans made in reliance on the normal expiration of patents. In its prospective application, H. R. 323 would create an uncertainty as to the expiration of all patents, which would unduly burden and impede industrial development.
If any bill of this sort is passed, certain changes in wording would be desirable in the interest of clarity, and other changes would be desirable to make the procedure more equitable. These changes are set forth below, following an explanation of the basic objections.
OBJECTIONS IN PRINCIPLE
In the past, the association has opposed legislation for the extension of patents; and almost universally the Congress has rejected proposals for extensions, both generally and in the case of special bills to extend particular patents. The law authorizing extension of veterans' patents stands on a unique footing, and was passed as an understood exception to an otherwise settled policy. In reporting that bill from the Committee on the Judiciary, Senator Wiley said:
"Representations were made and were seriously considered by the House committee that the benefits of such legislation should inure to all patentees who suffered losses by reason of being unable through shortages of materials or other reasons during the war to prosecute and exploit their patent rights. That committee, however, felt that to provide relief for all such persons who suffered losses in this manner would be to overlook the many thousands of persons in other walks of life who suffered grievous and irreplaceable losses in their fortunes because of the circumstances of war. For most of such persons no governmental relief has been or could reasonably be afforded, for such conditions cannot reasonably be considered by thinking persons the responsibility of the Government to restore.
"As to veterans of World War II, however, the committee could perceive a reasonable and logical distinction, for in these cases the circumstances of the removal of the patentees from the scenes of their livelihoods and occupations, and the involuntary (in most cases) nature of their having military or naval duties thrust upon them, effectively deprived them of their freedom to exploit their patent rights even if materials, etc., had been available."
This committee agrees with the views which the Judiciary Committee, at the time it was considering the Veteran Extension Act, apparently held with respect to legislation of the character now proposed and feels that the exception made in the case of veterans should not be further extended.
It is being urged in support of both bills, and especially H. R. 4054, that the Government should afford redress for the effects of its wartime restrictions on the use of critical materials because those restrictions impaired the value of the patent grant. The principle is invoked that a grantor should not do anything in derogation of his grant, unless he gives redress.
The committee finds this principle to be inapplicable. The only right which a patent purports to grant is the right to exclude others from making, using, or selling the patented invention. Wartime materials restrictions did not impair that right. Such restrictions may well have damaged certain patent owners in their own business ventures involving the patented inventions, or through the effect upon their licensees' ventures. But that is an adverse circumstance against which the patent offered no protection.
The patent system is not concerned with the effects of all circumstances which affect the success of a business-capital resources, managerial skill, whims of fashion, noninfringing competition, wars, strikes, or specifically shortages of materials. A patent offers protection against one circumstance alone, namely, imitative competition. It does not even protect against competition generally, if it is noninfringing. If the patent owner has received protection when and if infringement has occurred, he has received all that the patent can give or purports to give. If his business has been adversely affected by some other circumstances, no reason exists for attempting to make him whole by extending his patent protection. A cash award would be equally if not more appropriate.
The misapprehension that a patent does give an assurance of profit from the business ventures involving the invention appears to underlie both bills; and both exhibit some degree of confusion between the patent, on the one hand, and on the other the business in which the patent invention figures. In their respective paragraphs which define the permissible extension, both bills speak of the "normal economic return from such patent"; but elsewhere, and especially in H. R. 4054, the return from the patent is identified with the return from the business venture. Thus, in paragraph 1, H. R. 4054 speaks of the "normal return from the use, exploitation, promotion, or development of the patented invention." H. R. 323, in its corresponding passage, speaks of "the normal use, exploitation, promotion, or development of such patent." While this last phrase"of such patent"-is formally correct, the preceding words are difficult to apply to the patent right and seem to refer rather to the invention as a thing of commerce. The premise is therefore implicit that the patent assures success in the business venture over and beyond its protection against infringing competition; and that there is some impairment of the right granted by the patent when the
business venture is adversely affected by such a circumstance as a wartime materials shortage.
Because of the error of that implicit premise, the committee opposes both bills in principle.
The discriminatory aspect of the bill has two aspects. First, as applied to the effects of materials shortages, it discriminates in favor of patent owners and against others who were adversely affected by like shortages but did not happen to have businesses involving patented inventions. Second, in offering redress (to the one group) for one injurious wartime measure, it discriminates against the many who were injured in their businesses or their careers by other incidents of the war or the wartime economy.
The chief administrative problem which these bills would create, and which appears to the committee to present a difficulty out of proportion to the value of the possible results, is in the determination of a "normal economic return." It would require the Commissioner of Patents, or the contemplated board within the Patent Office, to estimate or speculate as to what the patentee's return would have been in the absence of the assertedly damaging circumstances. That return is not evidenced surely by the return in past years, because nothing is more "normal" in economic life than a variation from year to year as a result of the shifting weight of the many factors that influence profit. The problem is akin to predicting the future. It is doubted that the Patent Office is, or could be staffed to be, competent to make such economic appraisals, if indeed they are possible at all.
The administration of such a law might well require also an inquiry (a) as to compensatory gains by the patent owner from the same wartime condition which impaired his business involving the invention; (b) as to the extent of recoupment in the postwar period, when the business involving the invention may have expanded to meet a demand pent up during the war; and (c) as to whether the contribution made by the patented invention is worth more or less than the patentee has made out of it. Such economic inquiries would be quite elaborate, with problems of accounting and of estimate, in addition to those relating to the finding of the "normal return."
Finally, it seems unwise to inject into our patent system the idea of testing in individual cases the sufficiency of the 17 years term to compensate the patentee for the contribution made by the invention. It could lead, consistently, to the question whether in other cases the 17 years term is too long. The 17 years term is indeed arbitrary, and no one pretends it does exact justice in each case. But the system does not justify itself on the basis of an exact result in each case. It is a system which, in its over-all effect, promotes progress by inducing invention, disclosure, and investment through its promise of an exclusive right for a known term. It is the prospect that is the inducement. The promised term has to be arbitrary, and appropriate only as an average, because in advance no one can say what term would be appropriate in each case. It is not consistent with this over-all view of the patent system to turn about and reexamine the appropriateness of the patent term in particular cases; and if such reexamination is not wise generally, it would be a mistake to permit it partially and only at the behest of those who find it too short.
The committee submits the following particular comments and recommendations, if any such bills are to be passed.
1. As to H. R. 323, no consistent reason appears to compensate a patent owner, by an extension of his patent, for a license given to the Government at a nominal royalty or no royalty. Any such license is a free act, except possibly when it results from Government sponsorship of the development project, and then it is a matter of contract which should be respected.
2. As to the broad ground for extension provided by H. R. 323, in paragraph 2b, namely "any circumstance beyond the control of" the patent owner, there is some logical consistency in not confining extensions to those which would redress the effects of materials shortages alone. But the broad scope of this provision illustrates the reach of the premise that the patent grant offers protection against adverse factors other than imitative competition. This provision would embrace such factors as manpower shortages, financial shortages, lack of timeliness of the invention, and public taste or fashion.
3. An exclusive licensee should be entitled to the benefits of the bills, and could be included by adding a subsection 3 in paragraph 2c of either bill, as follows: "or (3) any person who, during the period when there existed the circumstances mentioned in section 1 hereof, was an exclusive licensee under the patent and who at the time of filing the application for extension hereunder
is an exclusive licensee or is otherwise entitled hereunder to file such application."
4. Section 3 of H. R. 4054 is preferable to section 3 of H. R. 323 in (a) omitting specific requirements concerning notice and hearing, which the Commissioner of Patents may fix pursuant to general principles of administrative procedure, and (b) in providing for opposition. But opposition should be confined to persons who would be affected by the extension, and such persons should have the same right to present evidence and to appeal that is afforded the applicant by sections 4 and 5.
5. Notice of the extension of a patent should appear on copies of the patent kept in the Patent Office files or sold by the Patent Office.
6. Section 6c of H. R. 323 and section 8 of H. R. 4054 incorporate provisions of the act respecting patents of veterans (Public Law 598) and language from the Boykin Act (35 U. S. C., sec. 101). The effect of that language is unclear, especially as to the key phrase "conflicting patents." Clarification would be desirable hut, lacking knowledge of the intended meaning, the committee can make no recommendation.
7. The committee reiterates its opposition to the extension (revival) of expired patents. The public is entitled to rely on the actual or expected expiration of a patent, absent advance notice of an extension; because in the exercise of its freedom to use the patented subject, or in anticipation of that freedom, members of the public have occasion to make expenditures which an extension would either render worthless or less valuable. The protection afforded by section 10 of H. R. 4054, and the corresponding provision in section 6c of H. R. 323 (p. 6, lines 9-16), is inadequate.
8. No valid reason exists for exempting the Government from liability for infringement during the extended term. If the principle of extension is sound, the Government has no equity not possessed as well by private persons.
Mr. BRYSON. Will you identify yourself for the record?
Mr. HOXIE. I am chairman of the committee on patent law and practice of the New York Patent Law Association.
Mr. BRYSON. You speak for that association?
Mr. HOXIE. I should make it plain that I speak not for the entire association in New York, but only for the committee on patent law and practice.
The reason why I can only speak for the committee on patent law and practice of the New York Patent Law Association is because our annual term ends in May, and there has not been time since the new board of governors came into office to have a meeting to consider these bills.
The committee on patent law and practice which ordinarily reports to the board of governors, who then act, for the association, considered H. R. 323 last year and earlier this year considered H. R. 4054; but there has been no opportunity for action by the governors.
The unanimous view of the committee both times when it considered this subject was that it should recommend the disapproval of the extension of patents.
I do not know whether you feel that I am out of place in opening in opposition to the bill, but I shall be glad to go ahead and state the views of our committee.
Mr. BRYSON. Well, Mr. Walter, the author and proponent of the bill actually opened the discussion, so there is no particular reason why you should not appear at this time, Mr. Hoxie.
Mr. HOXIE. Our statement which has been filed relates to both bills, and in the main our grounds of opposition to the bills are the same. The two bills do differ in some rather important respects, and I do not know whether you wish me to address myself to both bills or to Mr. Walter's bill only.
Mr. BRYSON. We will discuss Mr. Walter's bill first.