Mrs. ARNOW. Yes. The estimate we received yesterday, a broad brush estimate, indicates roughly $200 million.

Mr. WRIGHT. About $200 million of that?

Mrs. ARNOW. Yes, in nuclear research and development under the Department of Defense funds.

Mr. WRIGHT. And I might add that that $200 million that would be, in general, part of that $4.4 billion white sector of that bar, would it not?

Mrs. ARNOW. I am certain about that.

Mr. WRIGHT. You do not know how much of it they might have spent?

Mrs. ARNOW. No, I do not know how much of that $200 million they spent in industry.

Mr. WRIGHT. You do not know how much they spend in their own laboratories and how much they contracted out?

Mrs. ARNOW. No.

Mr. WRIGHT. I might say where Defense does work in the atomic energy field the Government gets title the same way as it would under AEC contracts.

Senator MCCLELLAN. You mean of the white bar up there or where the Defense Department is spending or contracting with private industry in research, where they contract with respect to atomic energy, in the atomic energy field, their contract does provide that the Government gets the title to the invention?

Mr. WRIGHT. Yes, that is required by the atomic energy statute. Senator MCCLELLAN. That is required by the atomic energy statute. You cannot tell us how much of that $4.4 billion is spent in the atomic energy program by the Defense Department?

Mrs. ARNOW. No. My figure of $200 million relates to the $6.1 billion as a whole. Out of the $6.1 billion, $200 million is nuclear research and development, but I cannot tell you how to allocate it among the sectors.

Senator MCCLELLAN. Well, but that much of the total of $6.1 billion is what?

Mrs. ARNOW. $200 million.

Senator MCCLELLAN. $200 million that is expended.

Senator MCCLELLAN. That is expended in the atomic energy field. Mrs. ARNOW. Yes, nuclear research and development.

Senator MCCLELLAN. Nuclear research and development; those contracts would carry with them a provision under the law retaining the title to inventions in the Government; is that correct?

Mrs. ARNOW. I am not familiar with the patent arrangements. Senator MCCLELLAN. Very well. We will get that part of the record clear.

Mr. WRIGHT. Yes.

Senator MCCLELLAN. Anything further?

Mr. WRIGHT. I have nothing further.

Senator MCCLELLAN. Mrs. Arnow, we thank you very much, and we do appreciate your assisting the committee by preparing this chart for us. It will be very very helpful and will enable us to follow these

funds and to evaluate and assess these programs more easily than we could if we did not have some chart like that before us.

You were very kind to do that.

Mrs. ARNOW. We were very happy to do this, Mr. Chairman. Senator MCCLELLAN. All right. Thank you and you may be excused.

Call your next witness, Mr. Counsel, and we will proceed as far as

we can.

At this time I might say that I will undertake, if we can get permission to do it, I will undertake to come back at 3 o'clock this afternoon and continue for another hour or hour and a half.

(Discussion off the record.)

Mr. WRIGHT. Mr. Bannerman.

Senator MCCLELLAN. AII right. the chair will make this further observation that, Mr. Bannerman, I will ask you a question or two first, and that will enable you to make your statement.

State your name for the record and your present position with the Federal Government and how long you have held that position and how long you have been in Government service, if you will give us STATEMENT OF GRAEME C. BANNERMAN, DEPUTY ASSISTANT SECRETARY OF DEFENSE (PROCUREMENT); ACCOMPANIED BY HOWARD WILLIAMSON, SPECIALIST IN PATENT MATTERS, OFFICE, DEPUTY ASSISTANT SECRETARY OF DEFENSE (PROCUREMENT); R. TENNEY JOHNSON, OFFICE OF GENERAL COUNSEL, DEPARTMENT OF DEFENSE; AND MAJ. JOSEPH A. HILL, CHIEF PATENT COUNSEL FOR THE ARMY

Mr. BANNERMAN. My name is Graeme C. Bannerman. My present position is Deputy Assistant Secretary of Defense for Procurement. I have held that position for approximately 2 months.

I have been in the Federal Government for approximately 25 years, practically all of that time in procurement work; about 12, 13 years of that in the Department of Defense.

Senator MCCLELLAN. Very well, Mr. Secretary. You do have with you, do you, some assistants who will be assisting you in the presentation of your testimony?

Mr. BANNERMAN. Mr. Chairman, I have with me Mr. Howard Williamson, specialist in patent matters in my office; Mr. R. Tenney Johnson of the Office of General Counsel, Department of Defense; and Maj. Joseph A. Hill, who is chief patent counsel for the Army. Senator MCCLELLAN. You do have a prepared statement, do you? Mr. BANNERMAN. Yes, sir. I do.

Senator MCCLELLAN. If you wish, I will ascertain first whether you would like to read your statement.

You have indicated to the Chair in private conversation that you wished, you had hoped, to get your statement, your testimony, in the record without breaking the continuity of it.

You indicated that since the Chair announced we would have to recess promptly at 12 o'clock, I am wondering, trying to work this out to accommmodate you as much as we can under the circumstances, you would be willing at this time to place your full statement in

if

the record, release it to the press so that at least you will get the continuity insofar as any publicity regarding it is concerned, and then you can highlight it or read it, present it thereafter in any way you like, and we will undertake to accommodate you just as much as we can under the legislative situation and circumstances that prevail today.

Mr. BANNERMAN. That is entirely agreeable with me, Senator. I would like to read the statement rather than try to highlight it, but I will be glad to start

Senator MCCLELLAN. Very well. It has been passed out and, of course, for the public you can consider the statement as of now, but you may proceed to read it and we will try to follow you, and if we reach 12 o'clock we have no alternative, and we will just have to quit.

Proceed.

Mr. BANNERMAN. Mr. Chairman, it is a pleasure to appear before this subcommittee to discuss the patent policies of the Department of Defense. The Department welcomes the opportunity to gain wider public and congressional understanding of its policies in this difficult field and of why we feel that the ability to be flexible in administration is essential if the military research and development program is not to be seriously disrupted.

GENERAL BACKGROUND OF THE SUBJECT

There is a basic question as to whether the Government should acquire more than a royalty-free license to its contractors inventions. If the view of the Department of Defense on this question had to be put in a nutshell, it would be that there is no simple answer to the question. Of course, through the years the Department has found it necessary and desirable to limit its demands to the royalty-free license, in the great majority of cases. At the same time it recognizes that other agencies have different responsibilities and purposes, for which full title to contractors' inventions may be necessary and appropriate, and it has never tried to make other agencies adopt its policies or to persuade Congress that the liscense policy should be the only policy for the entire Government. Our purpose today is to lay before this subcommittee the reasons which persuade us that it is normally the best policy for the Department of Defense.

The question, should the Government acquire more than a royaltyfree liscense to its contractors' inventions, is not a new question. It has been argued many times in and out of the executive branch and debated many times by the Congress. We have seen strong views on the subject expressed by the heads of the old military departments as far back as 1935. The President's National Patent Planning Commission recommended in 1943 that as a general policy the Government should take no more than a license. The Attorney General's report of 1947 recommended that as a general policy the Government should take no less than full title. The Congressional Air Policy Board and the President's Air Policy Commission in 1948, headed by Thomas K. Finletter, disagreed and held that title should remain with the contractor subject only to a license for the Government. The Secretary of the War Department, Mr. Royall, said that a general policy of taking title "would wreck the War Department's research

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and development program. The Secretary of the Navy, Mr. Forrestal, said such a policy "might altogether imperil the prosecution of a vigorous and effective research and development program.' Similar views have been expressed by the suceeding heads of the military departments and the Department of Defense. The Attorney General himself said in 1948 that the Government should require title only when it had paid all of the costs of the project.

The Congress has considered the problem many times, and reached different solutions, depending upon the purposes deemed most important in the particular circumstances. In the work of the Atomic Energy Commission and the National Aeronautics and Space Administration, for example, the Congress has said that the Government is to acquire title subject to administrative discretion to waive the Government's rights. In certain public service areas, such as the TVA, Agriculture, and helium and coal research, the Congress has favored Government acquisition of title. However, the legislative history of the National Science Foundation Act indicates congressional rejection of a strict rule of taking title in favor of administrative discretion in the Foundation to make provisions "calculated to protect the public interest and the equities of the contractor." Most recently during the last session of Congress, after considerable debate, the House of Representatives strongly approved legislation to enable the National Aeronautics and Space Administration to write contracts acquiring only the royalty-free license, and rejected a proposed amendment to the Appropriation Act which would have required the Department of Defense always to take title to its contractors' inventions. The question of title or license can thus be seen to be quite complex and to involve a great many considerations. Underlying the whole discussion, of course, is congressional enactment of the patent system authorized by the Constitution, as an incentive to invent, disclose, and practice new ideas. Adding further difficulty to the subject is the very considerable increase in expenditures for research and development by American industry but especially by the Federal Government. Of course, much of this increased expenditure goes for the fantastically expensive equipment and materials for missile and rocket development, and there is certainly no correlation between the expenses of a development project and the number or worth of the patentable inventions which may occur.

Senator MCCLELLAN. What do you mean by that statement, if I may interrupt, "there is certainly no correlation between the expenses of a development project and the number or worth of the patentable inventions which may occur?"

I did not understand that.

Mr. BANNERMAN. Senator, if we conduct a testing program for a new missile at Cape Canaveral, and 10 of them fall in the waterSenator MCCLELLAN. And what?

Mr. BANNERMAN. And 10 of them fall in the water, say-
Senator MCCLELLAN. Yes.

Mr. BANNERMAN (continuing). You may spend a number of millions of dollars on that testing program, and those millions of dollars probably have not contributed one iota to patents or inventions.

It is part of a testing program. They are vastly expensive.

The same amount of dollars put directly into development of specific items, perhaps in much smaller contracts, would be quite likely to lead to substantially more inventions.

What we are saying is that some of these new weapons programs involve tremendous amounts of money for testing, for facilities for the conduct of the test, which money is not likely to produce specific invention.

Senator MCCLELLAN. I understand now. In other words, the opportunity for invention is not greater because of the greater expenditure of money.

Mr. BANNERMAN. That is correct.

Senator MCCLELLAN. That is what you said.

Mr. BANNERMAN. That is precisely what I am trying to say.
Senator MCCLELLAN. All right.

Mr. BANNERMAN. But it is clear that there has been a tremendous increase in research and development activity in the country, much of it funded by the Federal Government.

While what the proper patent policy for the Government should be in these circumstances can be discussed from a number of points of view, some social, some economic, the Department of Defense has always regarded certain practical considerations as compelling. These were expressed quite concisely in a letter dated November 10, 1949, from the then Secretary of Defense, Mr. Johnson, to the Director of the Bureau of the Budget, which I will quote from:

Now, the Department of Defense conducts research and development activities on a scale far larger than any other executive department. Moreover, these activities are different in kind from the research and development work of other agencies. Whereas most of the research and development work of other agencies is directed toward securing a direct benefit to some aspect of civilian life, military research and development is directed toward the meeting of military needs. The civilian applications of the results of military research and development therefore are merely byproducts. Although clearly the Government should not throw away these byproducts, we should not lose sight of the primary purpose involved.

The bulk of the research and development activities of the Department of Defense are carried on by nongovernmental organizations under contract. In selecting contractors for military research and development, it has been proven more efficient and economical to utilize for applied research and development, those organizations which possess the most relevant background in knowledge, techniques, and equipment. About four-fifths of the contracted research and development work is therefore done by industrial organization and we must negotiate the best arrangements possible with them. Our present patent policy for such contracts has been worked out over many years of negotiations. Although it is plain that they should not be considered immutable, sudden and sweeping changes would certainly disrupt the contracting operations of the Department of Defense.

Today, we wish to restate and endorse this historical position in opposition to a rigid policy of taking title to all patents which are conceived or first reduced to practice under our research and development contracts.

PRACTICAL CONSIDERATIONS FOR THE LICENSE POLICY IN DEFENSE

CONTRACTS

At the outset, I wish to make clear that I am talking about the area where substantially all the patentable inventions derived from our contracts occur; that is, in the development of military hardware. It is in this field that our patent policy has the greatest effect.