mine, out of the mass of data required to be submitted under such Government contract, what represents patentable inventions and what are their worth. The Government attorneys will be far removed from the inventor and except at substantial expense will be unable to work out with him, in the detail which takes place at the private company level, the full specification and claims. The work of careful preparation of patent applications which has to be done will be less likely to be done and the flood of data resulting if S. 1176 should be adopted would make it less possible for the Government patent attorneys to engage in such careful preparation.

Thus, the scientific and technical knowledge now available in published patents will, to some extent at least, be buried in the mass of technical data and never become available for the information of the public.

H. The system of management of Government-owned patents, as proposed in S. 1176, is cumbersome, expensive, and wasteful

S. 1176 proposes the creation of a Federal Inventions Administration, which would take title to Government-owned patents, administer them, enforce contractual obligations to turn patents over to the Government, take custody of all documents and data, collect and disseminate scientific and technological information, license the use of Government-owned patents and technical information for a fee, and perform a series of other duties made necessary by the Government ownership of patents.

EIA believes that there would be created another large and expensive bureaucracy which could not be self-supporting. This agency would gradually acquire an unhealthy and dangerous power over American private industry. It would deter the dissemination and development of new inventions, and would decrease the risk-taking exploitation of new ideas which has, in the past, contributed so heavily to the health, welfare, and happiness of the American people.

I. There should be no intermingling within a single statute of patent problems with those involving proprietary rights

S. 1176, because of its broad definitions, reaches beyond the field of patents and into the field of common-law rights to unpatentable, uncopyrightable knowhow, technical data, and proprietary rights. These are different and even more controversial subjects with only superficial similarity to patent problems. EIA recommends that if legislation as to these other fields should ever be deemed desirable, it should be separately considered and not intermingled with patent matters which stem from constitutional provisions. It therefore, believes all references in S. 1176 to other than patents should be deleted.

CONCLUSION

We have shown that the traditional system of treatment of inventions made under Government contracts, exemplified by current Department of Defense practices, has worked successfully. The research and engineering the Government has needed has been well done, and the supplies it has required have been effectively designed and engineered. The public has been the beneficary of the greatest outpouring of useful products in history, many stemming from inventions generated under Government contracts. Small businesses have had a means of reducing to practice, while serving their Government, ideas which have made them successful commercial competitors with the largest companies. Engineers and scientists have been stimulated to their greatest creativity and have been well rewarded. Thousands of jobs have been created.

At a time when the United States is involved in a scientific and technological struggle for its very existence, the proponents of changes in our patent system which are so sweeping and radical as those proposed in S. 1084 and S. 1176 must bear the burden of showing that the system of patent ownership by which they would supplant this successful system represents an improvement.

Furthermore, these proponents have to prove that the benefits of what they propose is worth the changes to the patent system that will result, because, as has been inferred by eminent Government patent counsel, these changes will

14

14 "Federal Patent Practices," an address by Gerald D. O'Brien, Assistant General Counse for Patent Matters, National Aeronautics and Space Administration, at briefing conference on Government contracts, sponsored by the Federal Bar Association, in Philadelphia, Pa., on Feb. 9, 1961.

"so dilute the American patent system through the abolition of private property rights in inventions made under Government contracts as to make it unrecognizable."

It is submitted that no such showings have been made.

The present patent system, stemming directly from a grant of authority to Congress under the Constitution, has contributed meaningful and rewarding incentives to inventors, to the dissemination of scientific knowledge, to the improvement of the business and industrial life of the country, to the employment and prosperity of the people, to the tax revenues of the Nation, and to the health, happiness, safety, and defense of our citizens. It should not be diluted except on the basis of proof that something much better is at hand.

Neither S. 1084 nor S. 1176 offer such promise. The Electronic Industries Association urges this subcommittee, therefore, to report them unfavorably to the full Committee on the Judiciary.

BIBLIOGRAPHY

The following is a partial list of significant and current writings on the subject of patent ownership which support, in whole or in part, the views of the Electronic Industries Association. It is submitted for the information of the members of the subcommittee and their staff:

"Patents and Public Purpose," Senator Clair Engle (Democrat, California) Aerospace, March 1961.

"The Department of Defense Patent Policy at the Crossroads; an Argument for the Retention of Traditional Incentives," Arthur John Keeffe and David M. Lewis, Jr., Catholic University of America Law Review, vol. X, No. 1, January 1961.

"The Formulation of Federal Procurement Patent Policy-An Administrator's View," Graeme C. Bannerman, Howard C. H. Williamson, and R. Tenney Johnson, Federal Bar Journal, vol. 21, No. 1, April 1961.

"Toward a Sound National Policy for Disposition of Patent Rights Under Government Contracts," Elmer J. Gorn, Federal Bar Journal, vol. 21, No. 1, April 1961.

Testimony Before the Subcommittee on Patents and Scientific Inventions of the Committee on Science and Astronautics, U.S. House of Representatives, Dec. 1-5, 1959, No. 47, p. 317 et seq.

"Federal Patent Policies in Contracts for Research and Development." the Patent, Trademark, and Copyright Journal of Research and Education, published by the Patent, Trademark and Copyright Foundation, the George Washington University, winter 1960, vol. 4, No. 4.

Report No. 8, National Association of Manufacturers, Current Issues Series, Economic Problems Department, November 1960.

"Federal Patent Policy," published by Machine and Allied Products Institute, Council for Technological Advancement, 1960.

Mr. HANNAH. Thank you, sir.

We represent this afternoon, Senator McClellan, the Electronic Industries Association. This is the trade association of the electronics industry and consists of about 350 members, more than half of which are classified as small business. This industry manufactures more than 2,000 types of products.

Senator MCCLELLAN. More than what?

Mr. HANNAH. 2,000 types or classes of products. The members of the industry account for about 80 percent of the sales of the electronics industry. The industry itself is composed of about 3,500 members and has been perhaps the fastest growing industry in the United States over the past 20 years.

In 1939 the industry had only about $340 million of sales. At the present time it employs about 750,000 persons and has 110,000 scientists and engineers working for it. Its total sales are about $975 billion at the present time.

Senator MCCLELLAN. One out of every seven is either a scientist or an engineer.

Mr. HANNAH. A very high percentage.

To illustrate the growth, I might take the case of my own company, Raytheon. In 1939 it had about 350 employees and sales of $4 million. This past year its sales were over $500 million. It had 40,000 employees and it helped to support 8,500 small businesses, concerns classified as small businesses, in the New England area. This industry, and my own company as an illustration, did not know prior to hearing Mr. Loevinger's testimony that we were victims of a monopoly. Senator MCCLELLAN. I didn't understand that.

Mr. HANNAH. I say our industry did not know that we were victims of a monopoly as indicated by Mr. Loevinger because our group has been very largely dependent upon the patent policies of the Department of Defense, and we also have been very dependent over the years upon the research funds which have flowed from the U.S. Government. Senator MCCLELLAN. The Government has provided much of the finances or contracted with your company in many areas to do research and development for it?

Mr. HANNAH. That is correct, and with the entire industry, Senator McClellan.

Senator MCCLELLAN. The what?

Mr. HANNAH. And with the entire industry.

Senator MCCLELLAN. Not only your company but all the entire industry.

Mr. HANNAH. That is true. And our growth has been largely dependent upon the present Department of Defense patent policies. Senator MCCLELLAN. In other words, you think your group would not have occurred, would not have flourished as you have, had the Government had the policy of taking patent rights or taking ownership.

Mr. HANNAH. That is right, sir, and may I give one illustration? Senator MCCLELLAN. Yes.

Mr. HANNAH. Many, many years ago an invention that was made pursuant to a Government contract had important application commercially in the radar field. This invention was patented with, of course, the Government having a Government license, and the patents became a very, very important element of trade in dealing with RCA, one of the giants in the industry. We were able to get for ourselves the benefits of RCA patents as a result of being able to trade our invention against a great many of their inventions.

Senator MCCLELLAN. Does that apply to your company only now? Mr. HANNAH. This would apply to our company, but it has been characteristic of the industry as a whole because by and large the industry has been characterized by a policy of cross-licensing at reasonable royalty rates.

Senator MCCLELLAN. In other words, because you own the invention and title to the-not the instrument, but because you had title to the patent, you were in a bargaining position with a giant company. Mr. HANNAH. That is true.

Senator MCCLELLAN. Whereby you could trade that particular invention that you had the exclusive rights to, save the licensing to the Government for its own use, you were in a bargaining position with the larger company to get some of the things that it had that you

needed.

73601-61-pt. 1- -18

Mr. HANNAH. That is true. And we have found

Senator MCCLELLAN. Now, what would have been the effect had the Government taken title?

Mr. HANNAH. Well, we would have had no bargaining position, of course, in that instance.

Senator MCCLELLAN. Do you think the result of that bargaining position, the trade you were able to make, stimulated the growth of your company and other similar companies in the industry?

Mr. HANNAH. I have no doubt about it at all, Senator McClellan. And the history of the electronics industry is a refutation of the arguments that were presented by the Department of Justice.

Senator MCCLELLAN. Well, I can understand if you own something, if you have it and the other fellow doesn't have it, and he wants and needs it, you are in a bargaining position. I can understand that; there is no question about it, and I was trying to relate this now to the Government, had the Government had that patent, had taken it, and what would have happened.

Would not you and others been able to have gone to the Government and gotten the use of this particular item by getting a license to use it? Mr. HANNAH. That is true. We would have been able to get a license to use, but we would have nothing to trade against the privately financed patents.

Senator MCCLELLAN. You would have had the benefit of that patent, but you would not have gotten the benefit through the industry generally of the exclusive patent, the rights owned by the giant company. That is what you are saying?

Mr. HANNAH. That is true.

Senator MCCLELLAN. In other words, with this you had a leverage. You were able to pry loose from them

Mr. HANNAH. Right.

Senator MCCLELLAN. For the benefit of the entire industry?

Mr. HANNAH. And that example can be repeated hundreds of times, not only in the past of the electronics industry, but in the present, and it will continue in the future, so long as the present policies of the Department of Defense are permitted to continue.

Senator MCCLELLAN. Now, you have worked on contracts with the NASA and Atomic Energy Commission? Do you have contracts with them?

Mr. HANNAH. We do have a few contracts, Senator McClellan. And this illustrates another point that I wanted to make. The electronics industry and a very large part of the industry today is dependent upon Government-sponsored research. It is absolutely essential for the keeping of the jobs, for the development of the industry, that we have this research. We would not want it, of

course, if we did not have the defense needs, but today there is this degree of dependence.

Now, also a second point that I would like to make, and this I think is fundamental. The Government

Senator MCCLELLAN. Whereas your industry depends on Government, Government in turn depends upon you.

Mr. HANNAH. We think that is true, and the Government is not asking us to make inventions. The Government is asking us to produce articles which it needs or to make discoveries which it needs, to

develop the art that will accomplish the objectives that the Government has.

Senator MCCLELLAN. Thus, the Government contracts with you to use the facilities that you have that are adaptable and available for that purpose.

Mr. HANNAH. That is true.

Senator MCCLELLAN. Instead of setting up its own.

Mr. HANNAH. That is true.

Now, the ownership of the commercial rights to patents under the present DOD and other policies has had another important impact. It has enabled small businesses to obtain necessary financing, which is very important to them, because an investor has to see some area of protection to a small business before he is willing to put his money into the business. So the ownership of commercial rights has been helpful there.

There is another area which has not been brought out today in which the ownership of these patents by industry is very, very important, and that is protection against foreign competition.

As you may know, our industry and most industries in America pay wages which are far above the scales that are paid abroad. Onefourth of all of the patents which are taken out in the United States are taken out by foreign inventors, and the patents which our industry owns are important weapons in the fight to keep the jobs for our own people, and to avoid the inundation of foreign goods with which we cannot compete.

In Japan, for example, a first-class engineer is paid $110 a month, as contrasted with more than $1,000 a month in the United States, and we need the ownership of the commercial rights to these patents to protect ourselves against foreign competition.

Now, what is the position of the electronics industry? It is very adequately and fully stated in our statement, but I would like to brief it.

We believe that incalculable harm will be done to our industry, to its 750,000 employees, and to its 110,000 engineers and scientists, and we therefore oppose this legislation or any legislation which would operate to direct, authorize, or permit Government agencies through the massive force of their bargaining power to require contractually or otherwise that, as a general rule, an inventor or an assignee of inventions be deprived of the benefits of commercial exploitation of those inventions.

Secondly, we will welcome legislative action which reaffirms the traditional actions of principles of private ownership of patents, and which will authorize Government agencies in general to rely upon nonexclusive royalty-free licenses.

Third, we take the view that the ownership of a patent is a valuable property right entitled to protection against seizure by the Government without just compensation. We therefore will support any legislation which will define just compensation to be inclusive of both all the actual costs incurred by the creation of the patented items and of the intrinsic value of the patent itself for its remaining life.

Conversely, we oppose any legislative or regulatory actions premised upon a concept that the Government is entitled to ownership of the patent when anything less than just compensation had been paid by the Government.