Inventions are not self-propelling into use. Far from it. The risks are too great. The mere fact that an invention has been made and a patent granted does not automatically get it into use. Nylon and color television had both been invented and patented before the major costs had started. A patent is no guarantee of success. It is an invitation to take risks. Even with a patent a company will seldom introduce a new product unless it fits into its existing engineering, manufacturing, and marketing facilities and experience. The company most likely to be interested is the company where the invention originated. Even then, someone with vision has to see the possibilities. Many highly successful products have been introduced only because some one man fought within his own company-sometimes for years-to get his company to undertake it. Bell with his telephone and De Forest with his oscillator had trouble getting financial support. Without patents they had nothing to sell. These are but well-known examples of the daily experience of industry. An invitation to risk must be attractive to be accepted. To whatever extent we decrease the attractiveness, to the same extent we decrease the likelihood of acceptance. What I have said applies particularly to small business, where patents are of greater importance to the introduction of new products. However, I am sure this will be brought out by others. It is therefore my recommendation that the present patent policies of the Department of Defense should be approved, and that the patent policies of the other departments and agencies should be modified where necessary to conform to those of the Department of Defense. I appreciate the courtesy of being permitted to submit this statement before this subcommittee. As I stated earlier, I am authorized by the American Bar Association only to present the resolutions which have been passed by its house of delegates. Nevertheless, I assure the subcommittee that I, and I feel sure that this applies to the great majority of practitioners of patent law, stand ready to assist this subcommittee in every reasonable way to reach a fair and equitable solution of the problem of rights in inventions made through the expenditure of public funds. Thank you, sir. Senator MCCLELLAN. Thank you, sir. Mr. Wright, any questions? Mr. WRIGHT. Just with reference to that last statement, if the chairman please, I would like to ask Mr. Crews if he is familiar with this compromise position that the Federal Aviation Agency has worked out under which the contractor is given the right to exploit the invention commercially but he repays a portion of what he gets from that exploitation to the Government up to the point where the Government recoups its research and development cost. In other words, as he explained it, it is a proposition where the contractor actually get the privilege of doing R. & D. work in his field for his benefit at Government expense, and all he has to do in return is if the R. & D. is successful and the end product is commercially profitable, he then pays to the Government a part, a percentage of what he realizes commercially up until the Government has recouped what it put into the R. & D. I wondered whether you think that is a reasonable compromise policy or whether it is unreasonable in any respect. Mr. CREWS. I have not heard of that before. So I have not thought of it. This is the first I have heard of it. My immediate reaction to it is that it would be exceedingly difficult to administer; the accounting problems would be so complex as to be almost insuperable. I don't know that that is necessarily something against it. Of course, there are many accounting problems that are complex that do not necessarily defeat something. Mr. WRIGHT. I don't understand how there would be any more. complexity to it than the complexity that is presented any time you license a patent and collect a royalty. Mr. CREWS. Well, that is a matter of bargain and sale. If the patentee is willing to take what the licensee is willing to give, then they get together. But here you have a contract in advance that under certain R. & D., under certain circumstances, there will be a certain refund and a company we will say takes a $10 million contract under that. How much of that $10 million is applicable to the particular R. & D. where the invention was made? How much of it, how much of the invention can be charged to it and then when the revenue comes in to the company, when the company starts manufacturing under that and makes some revenue under it, how much of that revenue is attributable to this patent? You take a modern television set today. I think you will see on it— I haven't looked at one recently-perhaps 100 or 200 patent numbers on the back, that number of inventions involved. How much of the value of that set is attributable to any one of those inventions? If one of those inventions had been made under R. & D., how much of that invention was attributable to that particular R. & D.? You can certainly get into some complex problems. Mr. WRIGHT. I can understand that. I think Mr. Howard was referring specifically to a product such as, for example, an airplane designed to perform a commercial task also being useful to the Government, and what he was talking about was recouping the Government's R. & D. investment through a percentage of the contractor's sales of the finish product, the plane. Mr. CREWS. Yes. Now if you could take the Boeing 707, let us assume for the sake of discussion that that was developed on Government R. & D. and it is a single product and it can be identified as such and the R. & D. can be identified, and then the company goes out and sells it. I see nothing wrong with that proposition under those cir cumstances. Mr. WRIGHT. Thank you. Senator MCCLELLAN. Thank you very much, Mr. Crews. Senator MCCLELLAN. The Chair wishes to announce that this now concludes this particular series of these hearings. It does not conclude the hearings. The hearings will be resumed, we hope at an early date, but I cannot now announce that date. Likely some 3 weeks to 30 days hence. We feel that we have made very good progress in these hearings during the 4 days that the committee has been in session this week. We have heard, the clerk tells me, from 11 agencies of the Government that are interested in this problem. We have also heard from seven associations representing private enterprise. The Chair is gratified that we have made the progress that we have. We are winding up about on schedule, about on time, and that is unusual. It doesn't often occur with a committee holding hearings on an issue that is so much involved, and we couldn't have achieved this result except with the splendid cooperation we have received from those who were invited to come and testify and who responded to the committee's invitation, and also the cooperation given us by those who sought an opportunity to appear and testify. I do believe, as I stated a moment ago, we have made progress. I do not know what the final outcome will be. But it will be our purpose to pursue this further as soon as we can do so, consistent with other duties we have to perform. I am thinking now, for the benefit of those who may be interested, that another series of hearings, another set of hearings, covering some 3 or 4 days of time may be adequate to serve the purposes of the committee. Again we are not going to deny anyone the right to be heard who has a real interest in this matter. We are going to continue to try to get cooperation that will get the facts before the committee that it needs to consider and that it needs to have for the Congress to be informed about when it undertakes to consider legislation in this field. A number of statements have been submitted for the record by witnesses representing interests that are concerned with this problem. These statements have been received. They will be examined, and if they are pertinent to what the committee has under consideration, they will be admitted to the record. If any statement has been received that the Chair determines may not be suitable or proper for the record, it will be returned to whoever submitted it with an explanation of the reason why it is not admitted. Again I thank all of those of you who appeared and who have cooperated with us. The committee is adjourned. (Whereupon, at 4:30 p.m., the subcommittee was recessed, to reconvene at the call of the Chair.) APPENDIXES APPENDIX A FEDERAL PATENT POLICIES ADDRESS BY SENATOR RUSSELL B. LONG (DEMOCRAT, LOUISIANA), CHAIRMAN, SUBCOMMITTEE ON MONOPOLY, U.S. SENATE SELECT COMMITTEE ON SMALL BUSINESS, DELIVERED ON MAY 3, 1960, BEFORE THE U.S. SENATE Mr. President, last year Mr. Khrushchev told us that his nation would bury us. When he visited our Nation in the fall, he revised his statement to mean that communism would displace capitalism just as capitalism replaced feudalism some few hundreds of years ago. Thus was given a meaning to the term "peaceful coexistence" which both sides should be able to understand. It does not represent a lasting thing. It is a mere timelag before communism overcomes capitalism or capitalism overcomes communism. Russia is the center and the prime example of one system. The United States is the center and the principal exponent of the other. The decision, if it is to occur peaceably, will probably depend upon how well each proponent makes his system work during the next 20 years. If peaceful coexistence ends in war, then the outcome-assuming that either side survives-will depend upon the scientific and technical progress achieved by the two powers during the next 5 years. In either event the period of decision is very brief when viewed in perspective. We here in Congress during this year and the next year will make a few decisions which may determine the outcome. Strangely enough, the deciding votes as in most controversial issues will be cast by Senators and Representatives who, at this moment, have little, if any, understanding of some of the basic issues upon which they will vote. Yet their votes, and a rather small number of presently uncommitted votes, will probably decide whether this Nation will improve its way of doing things to assure survival and victory for our system, or remain static while defeat and destruction overtake us. One of the changes which the survival of our system requires is a change of the patent policy of the Department of Defense. Mr. President, for almost 2 years, the Monopoly Subcommittee of our Small Business Committee has been studying the patent policies of the departments and agencies of the Federal Government and the effect of these policies on rate of growth of our economy and on the competitive, free-enterprise system. Our study culminated in 3 full days of hearings on December 8, 9, and 10, 1959. As the chairman and only Senator present at the hearings, I would like to report my conclusions. 1. EXTENT OF TOTAL AND GOVERNMENT RESEARCH AND DEVELOPMENT 2 During 1959, $7.9 billion of a total of $13.2 billion or 60 percent of all research and development performed by industry was financed by the Federal Government through research and development and procurement contracts. Of this amount $6 billion was spent by the Defense Department alone. This was in contrast to the comparable figure in 1953 when $1.4 billion of a total of $3.7 billion or 37 percent was performed by industrial firms for the Federal Government. 1 "Federal Funds for Science" (for fiscal years 1958, 1959, and 1960), National Science Foundation, table 1, p. 39. 2 "Business Week Estimates," Business Week, Dec. 26, 1959, pp. 50-51. 73601-61-pt. 1——19 285 In 1957-and these are the latest figures available3-of all research and development conducted in the aircraft industry, 85 percent was paid for by the Government. In the electrical equipment industry the Government paid for 61 percent of all research; in electronics, 54 percent; in fabricated metal products, 38 percent; machinery (except electrical), 38 percent; scientific instruments, 30 percent; petroleum refining and extraction, 4 percent. 2. INTERRELATIONSHIP OF RESEARCH FOR DEFENSE PURPOSES AND FOR CIVILIAN USESADVANTAGES OF GOVERNMENT R. & D. CONTRACTS We should recognize the close interrelationship of research for defense purposes and for civilian uses. Industrial research has produced items invaluable for use in the Defense Establishment. Equally, defense research has resulted in the creation of products and the accumulation of technology with highly profitable commercial application. Processed foods, electronic devices, and penicillin, to list only a few present-day commercial products, were all originally developed under research and development programs for defense purposes. The disproportionate share of total industrial research and development in the largest firms foreshadows a greater concentration of economic power in the future, for the benefits derived from Government-financed research, in addition to the profits* resulting from the performance of research and development and procurement contracts, are literally incalculable. As already stated, technological developments and know-how, resulting largely from the use of Government funds, have a multitude of commercial applications. Technological developments in new materials, e.g., synthetic rubber, aviation gasoline, plastics and other synthetic materials, plywood, magnesium, aluminum, alloying elements; new methods, e.g., in joining of metal by riveting, welding, or stretching, in heat-treating procedures, in metal spinning, in powder metallurgy, in casting, in metal spraying, and in inspection; and new products, e.g., aircraft design, bombsight and navigation devices, jet propulsion, gas turbines, radar, processed foods, penicillin and other antibiotics, DDT, electron microscope, and numerous other developments in the electronics field, have made their appearance as a result of research supported in whole or in part by Government funds. The independent commercial contractor, therefore, undertaking to perform research for the Government (except AEC) receives over and above his fees, all the financial and competitive advantages of the commercial applications of inventions, research on which has been paid entirely or in part out of the public purse. This leaves his own research allotments free for concentration on other products. A specific example is provided by the American Optical Co. which is selling a new type of lightweight sunglasses with straight sidepieces designed to slip on and off easily, but to remain firmly in place when worn. A $367,000 Air Force R. & D. contract financed development of the glasses, originally made to be used by flyers while wearing radio headphones. And this is not all, for the firms doing research for the Government in addition to enlarging their capacities from practical experience to use advanced knowledge, get an additional payoff from the byproducts of specific research projects, in the form of technical know-how, for example, in the development of less expensive production methods. Such "scientific capital" may be acquired wholly or in part at Government expense. An important competitive advantage thus accrues to the contractor. 5 The role of research and development in our national defense is, of course, a vital one. A good look at those things orbiting in the heavens is sufficient demonstration. The American people, through their Government, are making sacrifices measured at $8 to $9 billion a year to bring scientific knowledge into being. What is happening to this knowledge, and to inventions and discoveries resulting from it? Are they being used efficiently to bring about a better life and greater security to the American people and to mankind? Or have those in positions of public trust-whether through stupidity or insincerity-betrayed the interest of the American people? 8 "Reviews of Data on Research and Development, No. 14," National Science Foundation, August 1959, table 2, p. 4. Over 90 percent of R. & D. contracts (in dollar terms) were on a cost-plus-fixed-fee basis so there were no risks involved. 5 Wall Street Journal, June 10, 1959, reprinted in Congressional Record, App. A5307. |