of these patents, it can take hundreds of thousands of dollars and years of litigation. A high percentage of patents contested in court are ruled invalid. But not many firms are willing or able to sustain such a challenge. Thus, these patents tend to discourage competition.

Obviously, there are patents that do represent useful ideas. However, even without a patent, many of these inventions would be discovered and adopted in the marketplace based on their merits. In such cases, rather than motivating individuals or companies to come up with new ideas, the patent system has actually become a process for determining which of many firms first conceived an idea, and is therefore entitled to the royalty. If one company did not generate the idea another firm would have because of the nature of the work being done. Often, identical ideas crop up almost simultaneously in different companies. Further, many good ideas can be implemented or "commercialized," without special investment in R&D or new facilities. Or, they are sufficiently promising that companies will invest in them without patent protection.

There may be a few inventions arising under Government contracts which, in the absence of exclusive patent rights given to the contractor, might not be disseminated and used. The question then arises: Is it really worthwhile for the Government to promote the invention? Perhaps the idea is not all that good. Moreover, if the Government should decide it is in the public interest to promote or "commercialize" a particular invention, it might be better if the Government itself paid for further development, and made the results available to all citizens instead of granting to one contractor exclusive rights to the invention. And who is to say, in cases where the Government patents are waived, that the company performing the contract should automatically and exclusively get these rights. Since large corporations get the major share of Government contracts, they would be the ones to benefit most from such a practice.

The concept of granting a patent-a legal monopoly-is to encourage investors to conceive new inventions, not to guarantee a market for already existing inventions. But companies now want to have their marketing development costs guaranteed by having a patent monopoly on Government-financed inventions. Since the public has paid for the development of the invention, the risks of marketing it should be no different in principle from other risks that are inherent in a true free enterprise system. How is the risk of marketing a publicly-financed invention different from the risk a man takes when he opens a new grocery or hardware store on a corner where none existed before? We would be going still further in abandoning our so-called free competitive enterprise system if we guaranteed legal monopolies for what are essentially normal business risks.

The patent lobby contends that, under a giveaway patent policy, the public is protected because the Government would have "march-in" rights. Under this concept, contractors who have been given exclusive patent rights to inventions developed under Government contracts would be required to submit reports explaining their efforts to commercialize the inventions. If a contractor did not commercialize the invention to the Government's satisfaction, the Government would then exercise its "march-in" rights and take the patent rights back or license it to others.

The concept of granting a patent—a legal monopoly—is to encourage inventors to conceive new inventions, not to guarantee a market for already existing inventions. But companies now want to have their marketing development costs guaranteed by having a patent monopoly on Government-financed inventions. Since the public has paid for the development of the invention, the risks of marketing it should be no different in principle from other risks than are inherent in a true free enterprise system. How is the risk of marketing a publicly-financed invention different from the risk a man takes when he opens a new grocery or hardware store on a corner where none existed before? We would be going still further in abandoning our so-called free competitive enterprise system if we guaranteed legal monopolies for what are essentially normal business risks.

The patent lobby contends that, under a giveaway patent policy, the public is protected because the Government would have "march-in” rights. Under this concept, contractors who have been given exclusive patent rights to inventions developed under Government contracts would be required to submit reports explaining their efforts to commercialize the inventions. If a contractor did not commercialize the invention to the Government's satisfaction, the Government would then exercise its "march-in" rights and take the patent rights back or license it to others.

This concept sounds good in principle. But, the patent lawyers well know that this is a cosmetic safeguard; it offers no real protection for the public. To administer such a program would require a large Government bureaucracy to receive, review, audit, and act upon contractor reports throughout the life of each patent. Currently, the Government would have to track contractor activity on about 30,000 unexpired patents. If the Government ever tried to reclaim its patent rights, more administrative effort, and probably much litigation would be involved.

In the real world, no one in Government would ever undertake this task; nor should they. Government agencies should concentrate on their proper functions rather than wasting time trying to keep track of how well contractors are promoting and commercializing patents.

It is relevant to note that, although Presidential patent policies since 1963 have required the Government to retain "march-in" rights where the principal or exclusive rights to a patent remain with the contractor, the Federal Council on Science and Technology reports that, as of December 1975, the Government has never exercised these rights.

The patent lawyers have observed that the number of patented inventions resulting from Federal funding is very small compared with the number generated by industry with their own funds. They attribute this, in part, to "the small incentive provided by present Federal patent policy."

I believe the lower number of inventions reported under Government contractsdoes not show a stifling of inventions under Government contracts. In fact, most of the major advances in technology in the past 20 years have come in areas where the Government invested heavily, such as space, defense, and nuclear energy.

The lower number of Government-owned patents results from other factors, such as failure of contractors to report the inventions they develop under Government contracts; the patent rights giveaway policy followed by various Government agencies; and the Government's "Independent Research and Development" program.

I have found cases where contractors filed patent applications for themselves on items that were conceived and developed under Government contracts. These come to light only because, by law, patent applications in the field of atomic energy must be reviewed by the Department of Energy and because in my area I insist on having them reviewed. In areas outside the field of atomic energy, there is no way for Government agencies to determine whether contractors areclaiming, as their own, patents which rightfully belong to the Government.

The relatively small number of Government patents stems from the very fact that the Government has been giving them away; they have been patented by the contractors. The Defense Department, for example, does not acquire patent rights under production contracts. It retains patent rights only under contracts characteracterized as "research." Even under R&D contracts, the Defense Department has criteria for giving away Government patent rights.

In my opinion, the Government's rights to patents developed at public expenseshould not depend on some arbitrary distinction between "research" and "production." Often the best ideas and technology come during manufacture of a product, rather than from the research and development work that preceded it. The Government should retain patent rights on Government contracts, regardless of the nature of the work, whenever the invention was developed at Government expense.

Another reason for the small number of Government patents is that contractors automatically get title to patents developed under the Government's so-called "Independent Research and Development" (IR&D) programs-even though all or nearly all of these costs are paid for by the Government. The Defense Department alone spends about $1 billion annually on this program, but the patents developed do not have to be reported to the Government.

Under present rules, any U.S. citizen, for a nominal fee, can get a non-exclusive license to use a Government-owned patent. There has been little demand for these non-exclusive licenses; but that does not mean the invention is not being used, as members of the patent lobby contend.

The reasons for the Government to patent its inventions are primarily defensive: to ensure that the Government is not subsequently barred by a private patent from using an invention whose development the Government itself paid

for; to prevent the establishment of a private monopoly for an invention developed at Government expense; and to make the invention freely available to the public. If these same ends could be achieved by “defensive publication”— that is, by publishing information in a manner that would preclude others from patenting it-the public interest would be served as well as if the Government actually patented the invention.

This Committee will, I am sure, be lobbied to death by contractors and patent lawyers both in and out of Government. There will be speeches extolling the virtues of a giveaway patent policy in relation to the patent system; the free enterprise system; the nation's declining technological growth; and the problems of small business. These are the standard speeches which lobbyists tailor to fit special occasions.

But here, the policy they advocate is contrary to the principles of free enterprise and competition. Rather than giving everyone in the marketplace equal access to publicly-financed inventions, they are advocating that the Government restrict the use of an invention to one company.

Small business, for its own advantage, should be against a giveaway patent policy. The vast proportion of Government business goes to large contractors. In Fiscal Year 1976, 50 percent of the total dollar value of research and development contracts placed by the Department of Defense went to only ten large corporations. In Fiscal Year 1977, two-thirds of the $35-$40 billion defenseprocurement budget went to the top 100 contractors. As conglomerates expand, this concentration continues to increase. If the rights to Government-financed inventions are given away to contractors, the Government itself will be promoting the concentration of economic power in the hands of a few large conglomer

ates.

To appreciate fully the implications of a giveaway Government patent policy, one need only consider a hypothetical case. Suppose, with the vast sums of Government money that will be spent in efforts to find solutions to the energy problems, a contractor, at public expense, develops a technological breakthrough. What would an ordinary taxpayer think when he learned that this company could, for 17 years, legally control the dissemination, use, and pricing of this invention?

For the reasons I have stated, I believe that the Government should have a strict policy of retaining, for all citizens, the rights to patents developed at taxpayer expense. Specifically, I recommend the following:

1. All Government agencies should be required by law to retain patent rights. except in exceptional circumstances, to all inventions developed at Government expense.

2. Prior to a Government agency waiving the Government's rights to any patent, the Attorney General should be required to make a written determination that the waiver is required to obtain performance of work essential to the mission of the agency and that granting the waiver will not adversely affect competition or small business.

3. All inventors should be required to certify on their patent applications that the invention was developed under a Government contract and duly reported; or that the invention was not developed under Government contracts. Criminal penalties should be provided for individuals or contractors who file, as their own, patents that have been developed at Government expense.

We now have a university panel of Dr. Frederick N. Andrews, vice president for research, Purdue University; Howard W. Bremer, Wisconsin Alumni Research Foundation, and president, Society of University Patent Administrators; and Neils Reimers, manager of technology licensing, at Stanford University, and president of the Licensing Executives Society.

Dr. Andrews, I am going to ask you to go first for three reasons. One, I understand you have a plane to catch.

Two, this will be the most alphabetically feasible thing to do.

And perhaps most importantly of all, because you are from Purdue University. [Laughter.]

I admit my normal prejudice with all respect to the other gentlemen..

TESTIMONY OF A PANEL CONSISTING OF: FREDERICK N. ANDREWS, VICE PRESIDENT FOR RESEARCH, PURDUE UNIVERSITY, LAFAYETTE, IND.; HOWARD W. BREMER, WISCONSIN ALUMNI RESEARCH FOUNDATION, AND, PRESIDENT, SOCIETY OF UNIVERSITY PATENT ADMINISTRATORS, MADISON, WIS.; AND, NIELS REIMERS, MANAGER OF TECHNOLOGY LICENSING, STANFORD UNIVERSITY, STANFORD, CALIF.

Dr. ANDREWS. Thank you very much, Mr. Chairman, and members of the Senate Judiciary Committee. I am Fred Andrews, vice president for research at Purdue University and vice president and general manager of the Purdue Research Foundation.

I am responsible for the general supervision of sponsored research at the university. During the 1978 fiscal year, this involved approximately 1,500 separate research projects which received some Federal support.

Now, having heard Admiral Rickover asking for some people who have practical experience, and while I had not intended to include this as part of my testimony, I must say that I am an inventor myself; I have three patents which are of variable importance, according to Admiral Rickover's method of analysis or evaluation.

But one of these patents is used worldwide in animal production for stimulating the growth of animals. I have personally worked on that development for nearly 20 years to bring to that state of worldwide use. It takes a great deal of effort because no invention will sell itself. It is extremely rare for an invention to be so self-evidentially applicable that the general public would be able to use it without further development.

Continued input on the part of the inventor to ultimately bring a discovery to use. Now, I mentioned that my invention is used worldwide for animals. This same material which actually involves two compounds which we derived from molds which grow on corn—and which, Mr. Senator, we have a great deal of in Indiana-this same material could be used in the treatment of certain hormone deficiencies in women.

Now because of the various Federal regulations which are required for testing to bring any such compound to use in the case of human medicine, and including the requirement that the material be tested for 10 years on monkeys, and when we realize that the life of a patent is only 17 years, there are many difficulties in bringing any inventions to practical use. I might say that difficulties in human medicine are greater than in an inanimate object like a submarine which Admiral Rickover has considerable experience with.

Now, if I may return to my prepared statement. Having given some credentials for practical experience of a period of time, I am here to testify in support of S. 414 because I believe that it is one significant step that can be taken to help university research unchain this creative giant that is America.

During my career at Purdue University I have seen our country move from a position in the world of unquestioned technical super

iority to some lesser position not yet well-defined; and I do support. the testimony given by Dr. Ancker-Johnson which emphasizes the decline in the applications of inventions made in the United States by comparison with certain foreign countries.

Although much university research involves fundamental information about the physical and biological world in which we live, and as often characterized as abstract by the general public, we have as our ultimate objective a determination to put new knowledge to work for the benefit of society. Time does not permit a recapitulation of the contributions of research to the improvement of the basic condition of man. But I can not restrain from mentioning a few discoveries which have created entirely new industries and worldwide applications.

The discovery of the basic principles of genetics made possible new varieties of corn, wheat, rice, and sorghums and other food crops which resist disease and insects and have made the United States the envy of the entire world.

The discovery of penicillen which was referred to in some detail by Dr. Ancker-Johnson, did open the way for a succession of other antibiotics which virtually revolutionized the treatment of disease and created new industries involving thousands of people.

Now, it is true that the development of penicillen was very greatly delayed and had it not been for the emergency of World War II where crash programs were developed to bring that invention to useful application I don't know what ultimately would have happened.

But the important thing about penicillen is that it opened up to the rest of the world the possibility that there were other substances which would have similar properties, and beneficial effects. And these discoveries did create wholly new industries which did indeed revolutionize the treatment of disease and which provided employment for literally thousands and thousands of people in wholly new industries. The discoveries in solid state physics which made modern computers possible may have done more to change technical and business procedures than anything since the development of languages themselves. That is a broad, sweeping statement but I believe it to be true.

We at Purdue believe that the patent and copyright policies which were developed in earlier years in the United States are a basic part of a democratic society and the free enterprise system. These policies were meant to stimulate and protect creativity.

Now, it has been said that he who pays the cost should benefit from it. In the case of creativity, if we think for example of a work of art,. should the individual who pays for the painting of a portrait-for example, should the person who pays for the painting of this portraitSenator BAYH. Let's-in light of certain publicity-let's point over here, Doctor.

Dr. ANDREWS. OK.

Senator BAYH. That particular picture of our former chairman is: a subject of some controversy, as you know. [Laughter.]

Dr. ANDREWS. In order that I may be less controversial. let me say it this way. Should the person who pays for the future portrait which will hang on that wall receive more accolades than the artist who paints the portrait?

I think not.