Patent Policy: Government, Academic, and Industry Concepts

Patent Policy Government, Academic, and Industry Concepts Willard Marcy, EDITOR Research Corporation

A symposium sponsored by the ACS Division of Industrial and Engineering Chemistry at the 175th Meeting of the American Chemical Society, Anaheim, California, March 13-14, 1978.

ACS SYMPOSIUM SERIES 81

AMERICAN

CHEMICAL

SOCIETY

WASHINGTON, D. C. 1978

In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

Library of Congress CIP Data Patent policy: concepts.

government,

academic,

and

industry

( A C S symposium series; 81 I S S N 0097-6156) Includes bibliographies and index. 1. Patents—United States—Congresses. I. Marcy, Willard. II. A m e r i c a n Chemical Society. D i v i s i o n of Industrial and Engineering Chemistry. III. Series: American Chemical Society. A C S symposium series; 81. T223.Z1P24 338.973 78-9955 I S B N 0-8412-0454-3 ASCMC8 81 1-173 1978

Copyright © 1 9 7 8 American Chemical Society All Rights Reserved. T h e appearance of the code at the bottom of the first page of each article i n this volume indicates the copyright owner's consent that reprographic copies of the article may be made for personal or internal use or for the personal or internal use of specific clients. T h i s consent is given on the condition, however, that the copier pay the stated per copy fee through the Copyright Clearance Center, Inc. for copying beyond that permitted by Sections 107 or 108 of the U . S . Copyright Law. T h i s consent does not extend to copying or transmission by any means—graphic or electronic—for any other purpose, such as for general distribution, for advertising or promotional purposes, for creating new collective works, for resale, or for information storage and retrieval systems. T h e citation of trade names and/or names of manufacturers i n this publication is not to be construed as an endorsement or as approval by A C S of the commercial products or services referenced herein; nor should the mere reference herein to any drawing, specification, chemical process, or other data be regarded as a license or as a conveyance of any right or permission, to the holder, reader, or any other person or corporation, to manufacture, reproduce, use, or sell any patented invention or copyrighted work that may in any way be related thereto. PRINTED IN

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In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

ACS Symposium Series Robert F. Gould, Editor

Advisory Board Kenneth B. Bischoff

Nina I. McClelland

Donald G . Crosby

John B. Pfeiffer

Jeremiah P. Freeman

Joseph V . Rodricks

E. Desmond Goddard

F. Sherwood Rowland

Jack Halpern

Alan C. Sartorelli

Robert A . Hofstader

Raymond B. Seymour

James P. Lodge

Roy L. Whistler

John L. Margrave

Aaron Wold

In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

FOREWORD The ACS SYMPOSIUM SERIES was founded in 1974 to provide

a medium for publishin format of the Series parallels that of the continuing ADVANCES IN CHEMISTRY SERIES except that in order to save time the papers are not typeset but are reproduced as they are submitted by the authors in camera-ready form. Papers are reviewed under the supervision of the Editors with the assistance of the Series Advisory Board and are selected to maintain the integrity of the symposia; however, verbatim reproductions of previously published papers are not accepted. Both reviews and reports of research are acceptable since symposia may embrace both types of presentation.

In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

PREFACE '"phe U.S. Constitution provided for the prompt establishment by Congress of a method for the protection of intellectual property. Through appropriate legislation, an early session of Congress satisfied this constitutional mandate, in part, by setting up a patent system to encourage the disclosure of inventions. Since its inception, the patent system has been a major support for the development of our economic system to its present strength. Patents are property. They are tangible forms of intellectual ideas and concepts that can b all, used. Yet patents can be extremely valuable or completely worthless. They can be ahead of their time or obsolete before issuance. They can enhance competition or protect monopoly. They can produce financial return or plunge one into bankruptcy. They can improve the quality of life or produce harmful public effects. Whether patents are beneficial or harmful depends on how they are used. The founding fathers of this country assumed patents would be used to benefit the populace. But human beings being human, sometimes patents have been used in a harmful fashion, thus giving rise to all sorts of counterproductive and usually inhibitory regulations and legislation. To control the use of patents, a variety of patent policies has been devised in the 200-year life of this country. These policies have been developed to meet special situations; to achieve specific ends; to reflect different uses, goals, and objectives; to control financial excesses; to enhance rewar.ds to patent owners and inventors; and to promote rapid and efficient technology transfer for public benefit. In a broad sense, the subject—patent policy—is complicated, complex, and difficult to comprehend. This symposium was conceived to focus on various facets of different kinds of patent policies by providing historical insight into and tracing the evolution of a fairly broad spectrum of existing policies. Just how the present policies are working in meeting their goals—what is good and what is bad about them—is discussed by some authors. Other authors predict the future and discuss beneficial and constructive approaches which might be expected to enhance the usefulness of the patent system. To obtain some semblance of logic and order for the symposium and to provide a measure of coherence in discussing patent policies, the subject is divided into three sections—those policies prevalent in government, those in the academic milieu, and those in industry. Each of these vii In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

spheres of activity has major differences in goals and objectives, in perceptions of the patent system, and in the means available for the use of patents. "Patent Policies in

Government

For over 30 years Federal Government agencies have been operating under vastly different policies depending on the mission of the granting or contracting agency, on whether the agency policy is statutory or administrative, and on the administrative procedures developed for the efficient operation of the agency. Attempts have been made practically continuously over the past quarter century to devise a uniform Government patent policy. In the past 10 years these attempts have been vigorous and concentrated and have culminated in the introduction into the House of Representative out of chaos. But this bill has encountered some strong opposition from congressional and other sources and was still pending at the time this symposium was held. The first paper on government patent policy traces the historical development of the various presently used policies and gives insight into the philosophy guiding the use of patents by both mission-oriented and non-mission-oriented granting and contracting agencies. The rationale behind the Institutional Patent Agreements used by the Department of Health, Education, and Welfare and the National Science Foundation is discussed in the second paper. The remaining two papers provide in-depth analyses of the provisions in the previously mentioned ThortonTeague bill which sets forth a proposed uniform government patent policy. Patent

Policies ht

Universities

Universities view patents quite differently from either industry or government. Faculty inventors are generally working on the scientific forefront and are interested in finding new ideas and concepts which then are published. Patents are of secondary importance, if considered at all. In addition, universities have no facilities, nor do they intend to develop them for manufacturing and marketing products. Since practically all university-held patents are licensed to third parties, patent policies in universities are quite different in many respects from either of the other two sectors. The first two papers on university patent policies discuss their effectiveness in the development and administration of inventions arising at the University of Wisconsin and the University of California. Both institutions have been highly successful in bringing academic research results viii In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

to the marketplace. The third paper suggests that the use of effective patent policies can assist predominantly black institutions of higher education by providing financial support for research to complement theoretical studies, thus enhancing the education experience for students. Based on the experiences of a nonprofit invention assistance organization, the fourth paper lists the basic provisions that a university patent policy should contain. Patent

Policies in

Industry

Patents are very valuable in industry, particularly the chemical industry, since they furnish the basis for new, profitable ventures and for the enhancement and protection of existing products, processes, and markets. It is interesting to note, however, that the use of patents and consequently the governing paten try and from company to company. The papers from industry present four appreciably different approaches to the use of patents and suggest a method for improving the drafting of patent applications and their subsequent prosecution. Two papers discuss the historical evolution and the present-day approach to the use of patents in specific companies: Gould, Inc. in the battery industry and Ford Motor Co. in the automobile industry. A broad overview of the patent policies used generally by a whole industry is the subject of two papers. The industries discussed are petroleum and pharmaceutical. The fifth paper makes a persuasive case for the use of patent liaison personnel to bridge the oft-occurring communication gap between the technical professional and the patent attorney. Questions

and

Answers

Each session of the symposium was terminated by a question and answer period. These discussions were tape-recorded, edited, and are included at the ends of each section. Acknowledgment

I must take this opportunity to express my appreciation to the Industrial and Engineering Chemistry Division of the American Chemical Society for inviting me to act as chairman of this symposium. My special thanks go to Stephen Weiner and Robert Stowe for their assistance during the organization of the program and its presentation. The members of the American Chemical Society Committee on Patent Matters and Related Legislation have provided invaluable advice and moral support during the preparation for the symposium. All of the ix In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

Committee members, without exception, have served willingly and promptly as impartial reviewers of the papers. Both Kathryn Pannell and Nancy Van Dyke of my staff at Research Corporation have provided uncomplaining support in the typing and editing of the manuscripts and their organization into book form. Finally I wish to express my appreciation to James S. Coles, Presi­ dent of Research Corporation, who, for the better part of a year has encouraged me to carry through this assignment and has not protested over the time I have devoted to the task. Research Corporation

WILLARD M A R C Y

New York, New York May 15, 1978

χ In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

1 Federal PatentPolicy—ItsDevelopment and Present Status JAMES E. DENNY Assistant General Counsel for Patents, Department of Energy, Washington, D C 20545

Government Patent Policy concerns the allocation of rights to inventions which hav reduced-to-practice unde velopment contracts or grants. The basic issue i s whether the Government should acquire title (or exclusive rights) to the inventions resulting from Government-sponsored R & D work, commonly referred to as the "title policy," or allow the contractor to retain such rights with the Government acquiring merely a royalty­ -free license for Governmental purposes, commonly referred to as the "license policy." This has remained one of the oldest, most studied, debated, and unresolved policy issues i n the Federal Government, having been under consideration by Congress, the Executive Branch, and the public for over 30 years. More specif i c a l l y , over the last fifteen years there have been: -- more than 30 Congressional reports and studies; -- at least three study groups appointed by the Executive Branch of the Government; -- a Congressional commission which considered this subject as one of their topics relating to procurement; and -- 14 Congressional hearings, the latest being hearings held by Congressman Ray Thornton of the House Committee on Science and Technology in September 1976 and by Senator Gaylord Nelson of the Senate Select Committee on Small Business i n December of 1977. Prior to World War II, there was little interest in Government patent policy issue since most Government-sponsored research and development (R & D) was performed by Government employees i n Government laboratories. Where R & D was contracted for, no established uniform patent policy was used by the Government agencies. During and after the war, with the continuing increase i n Government-supported R & D being contracted to industry and universities, the agencies began to develop individual patent p o l i cies. Some agencies, notably those within the Department of Defense, developed a policy of acquiring a royalty-free license to resulting inventions for Governmental purposes, leaving the con3

This chapter not subject to U.S. copyright. Published 1978 American Chemical Society In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

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t r a c t o r w i t h t i t l e — o r what might otherwise be d e s c r i b e d as exc l u s i v e commercial r i g h t s . Other agencies, p r i m a r i l y those more o r i e n t e d toward conducting research o f i n t e r e s t t o the p u b l i c s e c t o r o f our economy, such as the Departments o f A g r i c u l t u r e and I n t e r i o r , acquired t i t l e t o r e s u l t i n g i n v e n t i o n s . Some agenc i e s simply ignored the e x i s t e n c e o f the i s s u e , which had the e f f e c t o f p e r m i t t i n g the c o n t r a c t o r t o r e t a i n a l l r i g h t s t o invent i o n s w i t h the Government o b t a i n i n g a l i c e n s e o r no r i g h t s a t a l l . The

Issue Debated

Most arguments, p o s i t i o n s and proposed s o l u t i o n s surrounding t h i s i s s u e i n i t i a l l y took the form o f e i t h e r one extreme o r the o t h e r — t h a t the Government should always acquire t i t l e t o r e s u l t ing i n v e n t i o n s , o r should always acquire only a l i c e n s e f o r Government use. The t i t l became entrenched e a r l y to b o l s t e r i t s p o s i t i o n . On the s i d e supporting the l i c e n s e p o l i c y , there was the N a t i o n a l Patent Planning Commission r e p o r t (1_). The Commission, created by P r e s i d e n t F r a n k l i n D. Roosevelt a t the end o f 1941, was t o i n v e s t i g a t e patent abuses s p o t l i g h t e d by the Temporary N a t i o n a l Economic Committee (2). The Commission recommended t h a t the Government should not normally a s s e r t f u l l owners h i p o f p a t e n t s , except i n the p u b l i c h e a l t h o r s a f e t y f i e l d . The Commission urged t h a t patents should be a v i l a b l e on an e x c l u s i v e b a s i s , as " I t o f t e n h a p p e n s , . . . p a r t i c u l a r l y i n new f i e l d s , t h a t what i s a v a i l a b l e f o r e x p l o i t a t i o n by everyone i s undertaken by no one " ( 3 ) . The t i t l e p o l i c y advocates found support i n the U. S. A t t o r ney General's Report on Government Patent P r a c t i c e s and P o l i c i e s (4). The r e p o r t urged the establishment o f a Government Patents A d m i n i s t r a t o r t o administer a uniform patent p o l i c y . The b a s i c p o l i c y recommended was t h a t a l l Government c o n t r a c t s f o r r e s e a r c h and development should c o n t a i n a requirement t h a t the Government be e n t i t l e d t o a l l r i g h t s t o i n v e n t i o n s produced i n the p e r f o r mance o f the c o n t r a c t . However, t h i s r e p o r t d i d recognize a need f o r exceptions i n c e r t a i n s i t u a t i o n s . S p e c i f i c a l l y , i f the c o n t r a c t o r p r i o r t o the c o n t r a c t had already made a s u b s t a n t i a l independent c o n t r i b u t i o n and other q u a l i f i e d o r g a n i z a t i o n s were u n a v a i l a b l e , o r i n the case o f cooperative research p r o j e c t s , exceptions could be made. In such cases the c o n t r a c t o r should grant the United States a nonexclusive r o y a l t y - f r e e l i c e n s e t o make, have made, use and dispose o f any i n v e n t i o n . In a d d i t i o n , the c o n t r a c t o r was t o agree t o make adequate commercial use o f these i n v e n t i o n s w i t h i n a designated p e r i o d , o r , i f such use was not being made, t o l i cense a l l a p p l i c a n t s a t a reasonable r o y a l t y . The r e p o r t a l s o recommended r o y a l t y - f r e e l i c e n s i n g o r d e d i c a t i o n o f a l l Government-owned p a t e n t s . With these r e p o r t s and p o s i t i o n s , the debates began. The

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t i t l e advocates supported t h e i r p o s i t i o n w i t h the argument t h a t r e s u l t i n g i n v e n t i o n s were no d i f f e r e n t from the end product which was produced under the research c o n t r a c t , i . e . , the Government p a i d f o r the i n v e n t i o n j u s t as i t p a i d f o r the end r e s u l t . The Government should own i t , f o r t o do otherwise would be t o give away Government propoerty. The l i c e n s e advocates contended t h a t the Government d i d not c o n t r a c t f o r the making o f i n v e n t i o n s but r a t h e r f o r R & D work performed i n a p a r t i c u l a r t e c h n o l o g i c a l area, o r f o r s p e c i f i c hardware. The c o n t r a c t o r was p a i d f o r the work whether o r not an i n v e n t i o n was made. I f i n v e n t i o n s d i d r e s u l t , they were i n c i d e n t a l to the performance o f the c o n t r a c t . F u r t h e r , i t was argued t h a t the Government does not t o t a l l y pay f o r the R & D i n v o l v e d , s i n c e the c o n t r a c t o r was s e l e c t e d t o perform the research program because o f h i s s u b s t a n t i a l amount o f background knowledge, know-how and e x p e r t i s e , as w e l l a the form o f f a c i l i t i e s an I t was a l s o a s s e r t e d t h a t the l i c e n s e p o l i c y was the most e f f e c t i v e p o l i c y s i n c e i t provided the maximum use o f the patent incentive and induced p r o s p e c t i v e c o n t r a c t o r s t o b r i n g t h e i r background knowledge and commercial experience t o bear on Government t a s k s , thereby tending t o reduce the c o s t o f Government r e search. With a t i t l e p o l i c y , i t was argued, the most competent c o n t r a c t o r s would refuse t o perform R & D work f o r the Government, or even worse, i f they d i d perform such work, a t i t l e p o l i c y would tend t o induce c o n t r a c t o r s t o i s o l a t e t h e i r commercial know-how and competence from t h e i r Governmental t a s k s . On the other hand, t i t l e advocates argued t h a t p e r m i t t i n g the c o n t r a c t o r t o r e t a i n e x c l u s i v e r i g h t s t o i n v e n t i o n s was tantamount t o r e q u i r i n g the p u b l i c t o pay twice i n order t o u t i l i z e the i n v e n t i o n ; f i r s t , through the Government's support f o r R & D and, second, as a r o y a l t y charge i n the commercial marketplace. Acc o r d i n g l y , t h i s argument concluded t h a t these i n v e n t i o n s should be made f r e e l y a v a i l a b l e t o the p u b l i c , s i n c e broad-scale a v a i l a b i l i t y o f such i n v e n t i o n s would provide the p u b l i c w i t h a wider base o f products and processes. The counterargument o f the l i c e n s e advocates i s t h a t when an i n v e n t i o n i s f r e e l y a v a i l a b l e t o a l l , there i s no i n c e n t i v e f o r anyone t o use i t s i n c e one o f the primary inducements o f the p a t ent system i s t o encourage the investment o f r i s k c a p i t a l i n the development and marketing o f an i n v e n t i o n . I t was contended t h a t no one would be w i l l i n g t o r i s k such an investment without a t l e a s t a temporary degree o f e x c l u s i v i t y as a f f o r d e d by patent protection. The t i t l e advocates a l s o s t a t e d t h a t p e r m i t t i n g c o n t r a c t o r s to r e t a i n e x c l u s i v e commercial r i g h t s tends t o i n c r e a s e the conc e n t r a t i o n o f economic power because the l a r g e c o r p o r a t i o n s r e c e i v e by f a r the g r e a t e s t p o r t i o n o f the Government's funds f o r R&D. T h i s was, i n t u r n , countered by l i c e n s e advocates w i t h the a s s e r t i o n t h a t patent r i g h t s are much more c r i t i c a l t o small

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businesses than t o l a r g e ones, and t h a t a t i t l e p o l i c y would f u r t h e r reduce the a b i l i t y o f small c o r p o r a t i o n s t o compete. Accordi n g l y , i t was argued t h a t a t i t l e p o l i c y , not a l i c e n s e p o l i c y , would tend t o r e s t r i c t competition. And so the arguments went, each with i t s own j u s t i f i c a t i o n s , p h i l o s o p h i e s , and i n d i v i d u a l case examples. U n f o r t u n a t e l y , both o f these extreme p o s i t i o n s are o v e r s i m p l i f i e d , only p a r t i a l l y c o r r e c t , and n e i t h e r recognizes the many v a r i a b l e s i n v o l v e d i n the Government's R & D c o n t r a c t i n g processes. P o l i c i e s Developed by Congress As the i s s u e s surrounding the proper a l l o c a t i o n o f r i g h t s t o i n v e n t i o n s r e s u l t i n g from Government-sponsored r e s e a r c h and development began t o draw more p u b l i c a t t e n t i o n , the Congress began to enact l e g i s l a t i v e guidanc provided by Congress wa been developed by the agencies themselves. For example, i n some i n s t a n c e s the Congress provided guidance to the e n t i r e r e s e a r c h and development program o f a Government agency. In other s i t u a t i o n s , guidance was provided o n l y t o a p a r t i c u l a r r e s e a r c h and development program o f an agency, or t o a program which crossed agency l i n e s . G e n e r a l l y , the guidance r e q u i r e d , or was i n t e r p r e t e d t o r e q u i r e , the Government t o take t i t l e t o a l l i n v e n t i o n s , or t o i n v e n t i o n s i n a p a r t i c u l a r t e c h n i c a l f i e l d , but l e s s s t r i c t standards were a l s o provided. Examples o f Congressional guidance t o the e n t i r e program o f an agency can be found i n the Atomic Energy A c t , i n the N a t i o n a l Aeronautics and Space A c t , and i n the N a t i o n a l Science Foundation Act. Congress d i r e c t e d the Atomic Energy Commission to acquire a l l r i g h t s to i n v e n t i o n s i n the atomic energy f i e l d except when a determination was made t o waive such r i g h t s . 42 U. S. C. 2182 states : "Any i n v e n t i o n or d i s c o v e r y u s e f u l i n the p r o d u c t i o n or u t i l i z a t i o n o f s p e c i a l n u c l e a r m a t e r i a l or atomic e n e r g y . . . s h a l l be vested i n , and be the p r o p e r t y o f , the Commission, except t h a t the Commission may waive i t s claim...as the Commission may deem a p p r o p r i a t e . . . " The Congress t o l d NASA, however, t o acquire r i g h t s t o a l l i n v e n t i o n s , r e g a r d l e s s o f the f i e l d o f technology i n v o l v e d , unless such r i g h t s were waived. The Space Act s t a t e s (42 U. S. C. 2457 ( a ) , ( f ) ) t h a t i n v e n t i o n s become the : " e x c l u s i v e p r o p e r t y o f the United S t a t e s . . . u n l e s s the Admini s t r a t o r waives a l l or any p a r t o f the rights...(when he) determines t h a t the i n t e r e s t o f the United S t a t e s w i l l be served thereby." However, the Congressional advice t o the N a t i o n a l Science Foundat i o n was much d i f f e r e n t , i n t h a t Congress requested NSF (42 U. S. C. 1871(a)) t o a l l o c a t e r i g h t s to i n v e n t i o n s : . . . i n a manner c a l c u l a t e d t o p r o t e c t the p u b l i c i n t e r e s t M

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and the e q u i t i e s o f the i n d i v i d u a l o r o r g a n i z a t i o n w i t h which the c o n t r a c t o r other arrangement i s executed..." I n c o n s i s t e n c i e s i n l e g i s l a t i v e g u i d e l i n e s a l s o e x i s t e d where the g u i d e l i n e s were d i r e c t e d toward a p a r t i c u l a r research program. One o f the e a r l i e s t examples o f Congressional guidance o f t h i s type was given t o the Department o f A g r i c u l t u r e i n t h e i r r e s e a r c h and development e f f o r t s under the Research and Marketing A c t (7 U. S. C. 4 2 7 ( i ) ) . T h i s a c t s t a t e d t h a t t h e i r r e s e a r c h r e s u l t s should be: " . . . a v a i l a b l e t o the p u b l i c through d e d i c a t i o n , assignment t o the Government, o r such other means as the S e c r e t a r y s h a l l determine." However, i n the e a r l y I960's, Congress switched t o language which simply s t a t e d t h a t research r e s u l t s should be made " . . . a v a i l a b l e to the general p u b l i c . " T h i languag i n s e r t e d i th Coal Research A c t (30 U.S.C 167(b)) and i n the S a l i n The Departments o f A g r i c u l t u r e and I n t e r i o r , t o which these acts a p p l i e d , i n t e r p r e t e d t h i s language as r e q u i r i n g the a c q u i s i t i o n o f t i t l e t o r e s u l t i n g i n v e n t i o n s i n the Government, and merely p r o v i d i n g l i c e n s e r i g h t s t o the i n v e n t i n g c o n t r a c t o r o r t o any others who requested them. T h i s i n t e r p r e t a t i o n a l s o encouraged these agencies t o u t i l i z e a t i t l e p o l i c y i n areas o f r e s e a r c h that were not covered by these a c t s . In the mid 60's, a f t e r the issuance o f P r e s i d e n t Kennedy's Memorandum and Statement o f Government Patent P o l i c y , The Congress i o n a l guidance f l u c t u a t e d c o n s i d e r a b l y . In the Water Resources Act, 42 U.S.C. 1961 c-3, research r e s u l t s were t o be "...made f r e e l y and f u l l y a v a i l a b l e t o the general p u b l i c , " as opposed t o merely " a v a i l a b l e t o the p u b l i c " — t h e language t h a t was u t i l i z e d p r i o r t o t h i s time. In the Appalachian Regional Development A c t , 40 U.S.C. 302(e), the word " f u l l y " was e l i m i n a t e d , and the research r e s u l t s were t o be "...made f r e e l y a v a i l a b l e t o the general public'.' In the N a t i o n a l T r a f f i c and Motor V e h i c l e S a f e t y A c t , 15 U.S.C. 1395(c), Congress r e v e r t e d back t o the " f r e e l y and f u l l y a v a i l a b l e " language but threw i n the s t i p u l a t i o n t h a t these g u i d e l i n e s were to apply only where the Government's c o n t r i b u t i o n was more than minimal. And f i n a l l y , during t h i s e r a , Congress r e v e r t e d back t o e q u i t a b l e g u i d e l i n e s o f the type o r i g i n a l l y u t i l i z e d i n the Nationa l Science Foundation A c t and f i r s t gave l e g i s l a t i v e r e c o g n i t i o n t o the P r e s i d e n t i a l Statement o f Government Patent P o l i c y . In the S o l i d Waste D i s p o s a l A c t , 42 U.S.C. 3253(c), research r e s u l t s : " . . . w i l l be made r e a d i l y a v a i l a b l e on f a i r and e q u i t a b l e terms t o i n d u s t r i e s u t i l i z i n g . . . a n d f u r n i s h i n g . . . s o l i d waste d i s p o s a l (processes and equipment)...(and f u r t h e r t h a t the Secretary o f I n t e r i o r and any other government agencies o p e r a t i n g under the act)...would make use o f , and adhere t o , the Statement o f Government Patent P o l i c y which was promulgated by the P r e s i d e n t i n h i s memorandum o f October 10, 1963."

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The F e d e r a l F i r e Prevention and C o n t r o l A c t , 15 U. S. C. 2213(d), r e q u i r e s adherence t o the r e v i s e d 1971 P r e s i d e n t i a l Patent P o l i c y Statement r a t h e r than the o r i g i n a l 1963 Statement, The Congress came f u l l c i r c l e i n 1969 by going back t o the language "...be a v a i l a b l e to the general p u b l i c " i n the F e d e r a l Coal Mine Health and S a f e t y A c t , 30 U. S. C. 951(c), except t h a t a degree o f f l e x i b i l i t y was added by the language "...with such exceptions and l i m i t a t i o n s , i f any, as the S e c r e t a r y (of HEW),., may f i n d to be necessary i n the p u b l i c i n t e r e s t . . . . " S i m i l a r language was used again i n the Surface Mining C o n t r o l and R e c l a mation Act of 1971, 30 U. S. C. 1201. P r e s i d e n t i a l Patent P o l i c y Statements On October 10, 1963, P r e s i d e n t Kennedy i s s u e d the f i r s t Government-wide patent p o l i c t i v e Departments and Agencie Statement of Government Patent P o l i c y . The purpose o f the Memorandum was to o b t a i n a g r e a t e r c o n s i s t e n c y i n agency patent p o l i c y for those Government agencies whose p o l i c i e s were not c o n t r o l l e d by s t a t u t e and to minimize o r e l i m i n a t e the need f o r continued piecemeal l e g i s l a t i o n by Congress. T h i s f i r s t attempt to r e s o l v e t h i s long-debated p o l i c y i s s u e on a Government-wide b a s i s had two main o b j e c t i v e s : (1) a c o n s i s t e n t , Government-wide patent p o l i c y , s u b j e c t to s t a t u t o r y r e q u i r e ments, which would take i n t o account the missions o f r e s p e c t i v e agencies; and (2) common g u i d e l i n e s and p r i n c i p l e s f o r the a l l o c a t i o n o f i n v e n t i o n r i g h t s i n a manner t h a t would best serve the p u b l i c i n t e r e s t and, more s p e c i f i c a l l y , i n a manner t h a t would: (a) achieve e x p e d i t i o u s development and commercial u t i l i z a t i o n o f i n v e n t i o n s developed under Government sponsorship; (b) o b t a i n the cooperation o f i n d u s t r y i n a s s i s t i n g the Government i n i t s r e s e a r c h and development e f f o r t s ; and (c) not c o n t r i b u t e to the c o n c e n t r a t i o n o f economic power or s u b s t a n t i a l l y i n t e r f e r e w i t h f r e e competition i n commerc i a l markets. The s a t i s f a c t i o n o f p u b l i c i n t e r e s t , however, i s a d i f f i c u l t goal to achieve, p r i m a r i l y because .the p u b l i c c o n s i s t s o f d i f f e r ent groups whose i n t e r e s t s are, i n some i n s t a n c e s , c o n f l i c t i n g . F u r t h e r , the o b j e c t i v e s o f a c h i e v i n g expeditious commercial u t i l i z a t i o n , o b t a i n i n g the cooperation o f p r i v a t e i n d u s t r y , and maint a i n i n g competition may be i n c o n f l i c t i n any given s i t u a t i o n because the g r e a t e s t cooperation of i n d u s t r y would probably be a achieved by p e r m i t t i n g c o n t r a c t o r s t o r e t a i n t i t l e to r e s u l t i n g i n v e n t i o n s , but t h i s course o f a c t i o n may not best support competition. In a d d i t i o n , such a c t i o n may or may not best achieve widespread commercial u t i l i z a t i o n o f these i n v e n t i o n s . A c c o r d i n g l y , the a c q u i s i t i o n o f p r i n c i p a l or e x c l u s i v e patent r i g h t s by the Government, or a t i t l e p o l i c y , and the d e d i c a t i o n or l i c e n s i n g of these i n v e n t i o n s by the Government to the p u b l i c

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might b e s t serve the p u b l i c i n t e r e s t i n s o f a r as such a p o l i c y w i l l promote widespread use o f the i n v e n t i o n s . On the other hand, a t i t l e p o l i c y may not support the p u b l i c i n t e r e s t i n s o f a r as i t might discourage the use o f i n v e n t i o n s which need f u r t h e r development, o r would tend t o discourage p a r t i c i p a t i o n o f those prospect i v e c o n t r a c t o r s which have the g r e a t e s t p r i v a t e l y developed background and know-how i n the area o f i n t e r e s t t o the Government. The P r e s i d e n t ' s Statement attempted t o r e s o l v e these conf l i c t s by r e c o g n i z i n g t h a t the arguments both f o r and a g a i n s t the t i t l e and l i c e n s e p o l i c i e s were c o r r e c t i n c e r t a i n s i t u a t i o n s , and incorrect i n others. I t was based on the premise t h a t no s i n g l e p o l i c y could accommodate the d i f f e r i n g missions o f the F e d e r a l agencies, the d i v e r s i t y o f Government c o n t r a c t o r s ranging from e d u c a t i o n a l i n s t i t u t i o n s t o manufacturing o r g a n i z a t i o n s , o r t o the r e s u l t i n g i n v e n t i o n s t h a t w i l l range from n u c l e a r r e a c t o r s t o fertilizers. A c c o r d i n g l y , the Statemen t i f y i n g c o n t r a c t i n g s i t u a t i o n s where the p u b l i c i n t e r e s t would best be served by the Government a c q u i r i n g o r r e s e r v i n g the r i g h t to a c q u i r e p r i n c i p a l o r e x c l u s i v e r i g h t s t o r e s u l t i n g i n v e n t i o n s ; and i d e n t i f y i n g other s i t u a t i o n s where such r i g h t s would best be l e f t w i t h the c o n t r a c t o r . In a d d i t i o n , r e c o g n i z i n g t h a t the p o l i c y was based on a number o f assumptions and l i m i t e d f a c t u a l i n formation, the Statement u n d e r l i n e d the need f o r f l e x i b i l i t y and safeguards by s p e c i f y i n g exceptions t o the general r u l e and by r e s e r v i n g c e r t a i n r i g h t s i n the Government. The 1963 Statement i n S e c t i o n 1(a) f i r s t i d e n t i f i e d four s i t u a t i o n s where the p u b l i c i n t e r e s t would normally best be served through the Government's a c q u i s i t i o n o f p r i n c i p a l o r e x c l u s i v e r i g h t s a t the time o f c o n t r a c t i n g . The f i r s t i s where: "...a p r i n c i p a l purpose o f the c o n t r a c t i s t o c r e a t e , develop, or improve products, processes, o r methods which are intended f o r commercial use (or which are otherwise intended t o be made a v a i l a b l e f o r use) by the general p u b l i c a t home o r abroad, o r which w i l l be r e q u i r e d f o r such use by governmental r e g u l a t i o n s . . . " (Section 1(a)(1)) Thus, t h i s Statement recognized t h a t many times agencies conduct R & D i n response t o the needs o f a p a r t i c u l a r segment o f the p u b l i c and c o n t r a c t f o r development o f products o r processes t o s a t i s f y these needs. In these cases, the presumption was made t h a t i t would be i n the best i n t e r e s t o f the p u b l i c t o reserve t o the Government the p r i n c i p a l r i g h t s t o any i n v e n t i o n s which might cover o r c o n t r o l the u t i l i z a t i o n o f products o r processes r e s u l t ing from the c o n t r a c t . The second s i t u a t i o n i s where: "...a p r i n c i p a l purpose o f the c o n t r a c t i s f o r e x p l o r a t i o n i n t o the f i e l d s which d i r e c t l y concern the p u b l i c h e a l t h o r p u b l i c w e l f a r e . . . . " (Section 1(a) (2) T h i s i s a g e n e r a l i z e d form o f the f i r s t s i t u a t i o n , the p r i n c i p a l d i f f e r e n c e being t h a t i t i s not who u t i l i z e s the end product o f

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the r e s e a r c h t h a t i s important, but r a t h e r whether the f i e l d being explored under the c o n t r a c t i s concerned w i t h the p u b l i c h e a l t h o r welfare. Here again, the presumption was t h a t i n r e s e a r c h conducted i n an area o f primary p u b l i c concern and where a market presumably e x i s t s f o r the research r e s u l t s , the Government should c o n t r o l , a t l e a s t i n i t i a l l y , the r i g h t s t o r e s u l t i n g i n v e n t i o n s . The t h i r d s i t u a t i o n f o r p r i n c i p a l r i g h t s i n the Government i s where : "•..the c o n t r a c t i s i n a f i e l d o f science o r technology i n which there has been l i t t l e s i g n i f i c a n t experience o u t s i d e o f work funded by the Government, o r where the Government has been the p r i n c i p a l developer o f the f i e l d , and the a c q u i s i t i o n o f e x c l u s i v e r i g h t s a t the time o f c o n t r a c t i n g might confer on the c o n t r a c t o r a p r e f e r r e d o r dominant p o s i t i o n . . . " (Section 1(a)(3)) T h i s p r o v i s i o n was t o cove ment would c o n t r i b u t e t o l i s t i c s i t u a t i o n under Government funding i f i t s c o n t r a c t o r r e t a i n e d p r i n c i p a l o r e x c l u s i v e r i g h t s . A good example o f t h i s s i t u a t i o n was atomic energy. T h i s f i e l d was v i r t u a l l y unexplored before the Government undertook t o fund the major p o r t i o n o f the R & D i n t h i s f i e l d o f technology. A l s o , t h i s R & D e f f o r t was concentrated i n a r e l a t i v e l y few c o n t r a c t o r s f o r reasons o f secur i t y and because o f the l a r g e - s c a l e development c o s t s i n v o l v e d . To have allowed t h i s small group o f c o n t r a c t o r s , o r any one o f them i n d i v i d u a l l y , t o o b t a i n a dominant commercial p o s i t i o n i n t h i s new f i e l d , based on t h e i r Government c o n t r a c t s , would have been g r o s s l y i n e q u i t a b l e . Atomic energy was about the o n l y example which f i t t e d t h i s situation. I t i s questionable, however, whether t h i s presumption would apply t o a l l phases o f atomic energy today because o f the s u b s t a n t i a l amount o f p r i v a t e funds p r e s e n t l y being i n v e s t e d i n t h i s f i e l d f o r R & D by p r i v a t e p a r t i e s . The f o u r t h and l a s t s i t u a t i o n i s d e f i n e d where: "... the s e r v i c e s o f the c o n t r a c t o r a r e : (i) f o r the o p e r a t i o n o f a government-owned r e s e a r c h o r production f a c i l i t y ; o r ( i i ) c o o r d i n a t i n g and d i r e c t i n g the work o f o t h e r s . . . " T h i s c o n t r a c t i n g s i t u a t i o n was based p r i m a r i l y on e q u i t a b l e considerations. I t was p r i m a r i l y intended t o cover the Governmentowned, contractor-operated (GOCO) f a c i l i t i e s and the s i t u a t i o n where the c o n t r a c t o r i s p r i m a r i l y i n v o l v e d i n c o o r d i n a t i n g and managing the research and development work o f other c o n t r a c t o r s . In e i t h e r o f these s i t u a t i o n s , the c o n t r a c t o r c o n t r i b u t e s l i t t l e towards the conception o r development o f the p a r t i c u l a r i n v e n t i o n s involved. A f t e r d e f i n i n g the four s i t u a t i o n s f o r the a c q u i s i t i o n o f e x c l u s i v e or p r i n c i p a l r i g h t s by the Government, the 1963 S t a t e ment d e c l a r e s t h a t : "In e x c e p t i o n a l circumstances, the c o n t r a c t o r may a c q u i r e

In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

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g r e a t e r r i g h t s than a nonexclusive l i c e n s e a t the time o f c o n t r a c t i n g , where the head o f the department o r agency c e r t i f i e s t h a t such a c t i o n w i l l best serve the p u b l i c i n t e r e s t . " (Section 1(a)) Under t h i s p r o v i s i o n the agency i s authorized, a t the time o f c o n t r a c t i n g , t o permit the c o n t r a c t o r t o r e t a i n e x c l u s i v e r i g h t s to e i t h e r a l l inventions or s p e c i f i c a l l y i d e n t i f i e d inventions. No guidance was provided as t o when an agency should make t h i s f i n d i n g , except when i t would best serve the p u b l i c i n t e r e s t . T h i s c r i t e r i o n was g e n e r a l l y considered a p p l i c a b l e when an o r g a n i z a t i o n , deemed e s s e n t i a l t o the e f f o r t , refused t o accept a cont r a c t u n l e s s i t was permitted t o r e t a i n e x c l u s i v e patent r i g h t s i n r e s u l t i n g i n v e n t i o n s . T h i s i s most l i k e l y t o occur when the p r o s p e c t i v e c o n t r a c t o r has a very strong, p r i v a t e l y developed, commercial p o s i t i o n , and the advantages t o be gained under the c o n t r a c t are not worth th mercial position. Also c o n t r a c t o r has a l r e a d y expended a s u b s t a n t i a l amount o f p r i v a t e funds toward the development o f an i n v e n t i o n t o be developed under the c o n t r a c t , but has not y e t a c t u a l l y reduced the concept to p r a c t i c e . The 1963 Statement a l s o provides t h a t : "Greater r i g h t s may a l s o be acquired by the c o n t r a c t o r a f t e r the i n v e n t i o n has been i d e n t i f i e d , where the i n v e n t i o n . . . i s not a primary o b j e c t o f the c o n t r a c t , provided the a c q u i s i t i o n o f such g r e a t e r r i g h t s i s c o n s i s t e n t with the i n t e n t o f t h i s S e c t i o n 1(a) and i s a necessary i n c e n t i v e t o c a l l f o r t h p r i v a t e r i s k c a p i t a l and expense t o b r i n g the i n v e n t i o n t o the p o i n t o f p r a c t i c a l a p p l i c a t i o n . " (Section 1(a)) T h i s exception was designed t o permit the Government t o consider the a l l o c a t i o n o f r i g h t s t o i n d i v i d u a l i n v e n t i o n s a f t e r such i n v e n t i o n s had been i d e n t i f i e d . T h i s p r o v i s i o n covered i n v e n t i o n s which were not s p e c i f i c a l l y r e l a t e d t o the o b j e c t i v e s o f the cont r a c t and t h e r e f o r e the presumption o f S e c t i o n 1 ( a ) , o f p r i n c i p a l r i g h t s t o the Government, needed t o be reviewed. T h i s review should c o n s i d e r the nature o f the i n v e n t i o n i n r e l a t i o n s h i p t o the c o n t r a c t and the n e c e s s i t y t o r e l y on p r i v a t e r i s k c a p i t a l to develop the i n v e n t i o n so i t would be a v a i l a b l e t o the p u b l i c i n the form o f new products o r processes. A f t e r i d e n t i f y i n g , i n S e c t i o n 1(a), c o n t r a c t i n g s i t u a t i o n s i n which the Government should have the f i r s t o p t i o n t o a c q u i r e t i t l e because o f p u b l i c i n t e r e s t o r e q u i t a b l e c o n s i d e r a t i o n s , the 1963 Statement d e f i n e s those s i t u a t i o n s where the p u b l i c i n t e r e s t would favor the presumption t h a t the c o n t r a c t o r should have the o p t i o n t o r e t a i n the e x c l u s i v e o r p r i n c i p a l r i g h t s i n the i n v e n t i o n s r e s u l t i n g from the c o n t r a c t . The 1963 Statement d e f i n e s , i n S e c t i o n 1(b), s i t u a t i o n s other than those d e f i n e d i n S e c t i o n 1(a) as embracing the case: "...where the purpose o f the c o n t r a c t i s t o b u i l d upon e x i s t i n g knowledge o r technology t o develop i n f o r m a t i o n , products

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processes or methods f o r use by the Government, and the work c a l l e d f o r by the c o n t r a c t i s i n a f i e l d o f t e c h n i c a l compet a n c e . . . d i r e c t l y r e l a t e d to an area i n which the c o n t r a c t o r has an e s t a b l i s h e d nongovernmental commercial p o s i t i o n . . . " In such cases, the Statement concludes t h a t the c o n t r a c t o r should normally be allowed to acquire e x c l u s i v e commercial r i g h t s . In these s i t u a t i o n s , the r e s e a r c h i s not intended f o r p u b l i c use, does not d i r e c t l y concern the f i e l d s o f h e a l t h or w e l f a r e , and i s not i n a f i e l d which was p r i n c i p a l l y developed by the Government. F u r t h e r , i t i s not as l i k e l y t h a t these i n v e n t i o n s w i l l be d e v e l oped to the p o i n t o f commercial a p p l i c a t i o n by the Government, s i n c e the agency i n v o l v e d would not have such a m i s s i o n , and there i s l i t t l e l i k e l i h o o d t h a t a present p u b l i c demand w i l l e x i s t f o r these i n v e n t i o n s i n view o f the purpose of the c o n t r a c t . This p r o v i s i o n g i v e s f u l l r e c o g n i t i o n t o the c o n t r a c t o r ' s e q u i t a b l e and commercial background p o s i t i o n by c o n t r a c t o r s and the a p p l i c a t i o ledge t o the c o n t r a c t t a s k s . As i n the case w i t h S e c t i o n 1 ( a ) , t h i s s e c t i o n a l s o has exceptions t o the presumptions on which i t i s based. There w i l l be i n s t a n c e s where even though an i n v e n t i o n i s d i r e c t l y r e l a t e d t o the c o n t r a c t o r ' s commercial product l i n e , the i n v e n t i o n w i l l not be e x p l o i t e d . To i n s u r e t h a t such a c t i o n does not adversely a f f e c t the p u b l i c i n t e r e s t , the p o l i c y i n S e c t i o n 1(f) s t i p u l a t e s t h a t the government should reserve the r i g h t to r e q u i r e the cont r a c t o r to grant l i c e n s e s t o others on a nonexclusive r o y a l t y free basis. "...unless the contractor...has taken e f f e c t i v e steps w i t h i n three years a f t e r a patent i s s u e s on the i n v e n t i o n t o b r i n g the i n v e n t i o n t o the p o i n t o f p r a c t i c a l a p p l i c a t i o n or has made the i n v e n t i o n a v a i l a b l e f o r l i c e n s i n g r o y a l t y - f r e e or on terms t h a t are reasonable i n the circumstances..." T h i s s e c t i o n was to i n s u r e t h a t these i n v e n t i o n s would not be suppressed. I f the c o n t r a c t o r e i t h e r does not commercialize the i n v e n t i o n , or does not o f f e r others the opportunity to do so, the Government could r e q u i r e the issuance o f l i c e n s e s to o t h e r s . The 1963 Statement a l s o s p e c i f i e s i n S e c t i o n Kg) t h a t where a c o n t r a c t o r r e t a i n s p r i n c i p a l or e x c l u s i v e r i g h t s the Government should reserve the r i g h t to r e q u i r e the c o n t r a c t o r to grant l i censes to others e i t h e r r o y a l t y - f r e e or on reasonable terms: " . . . t o the extent t h a t the i n v e n t i o n i s r e q u i r e d f o r p u b l i c use by governmental r e g u l a t i o n s or as may be necessary to f u l f i l l h e a l t h needs, or f o r other p u b l i c purposes s t i p u l a t e d i n the c o n t r a c t . " These l a s t two p r o v i s i o n s (Sections 1(f) and Kg)) have been r e f e r r e d t o as the "march-in" r i g h t s . The 1963 Statement f i n a l l y provides i n S e c t i o n 1(c) t h a t when a c o n t r a c t i n g s i t u a t i o n does not f a l l w i t h i n the presumptions s e t f o r t h i n e i t h e r S e c t i o n s 1 (a) or 1 (b), the a l l o c a t i o n o f r i g h t s t o i n v e n t i o n s should be decided on a case-by-case b a s i s as they are

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brought t o the a t t e n t i o n o f the government agency. I n t h i s manner, a l l a v a i l a b l e f a c t u a l i n f o r m a t i o n can be u t i l i z e d i n d e t e r mining whether ownership by the Government o r the c o n t r a c t o r would best serve the p u b l i c i n t e r e s t . S e v e r a l years a f t e r the 1963 Statement was i s s u e d , the Committee on Government Patent P o l i c y o f the F e d e r a l C o u n c i l f o r Science and Technology (FCST) supported the most e x t e n s i v e study ever made on the government patent p o l i c y , i s s u e . The r e s u l t s o f t h i s study, conducted under c o n t r a c t by Harbridge House, Inc. i s reported i n a two-volume work p u b l i s h e d i n 1968 ( 6 ) . As a r e s u l t o f the Harbridge House study and seven years o f monitoring the agencies o p e r a t i n g under the P r e s i d e n t i a l P o l i c y c r i t e r i a , the Committee on Government Patent P o l i c y came t o the following conclusions: "The Committee on Government Patent P o l i c y has concluded t h a t rights to invention be a l l o c a t e d i n accordanc p o l i c y which f o l l o w s the b a s i c p r i n c i p l e s and c r i t e r i a o f the October 1963 P r e s i d e n t i a l P o l i c y Statement, as t h i s P o l i c y Statement i s b e l i e v e d t o provide the b e s t o v e r a l l balance o f the i n t e r e s t s o f the p u b l i c . The P r e s i d e n t i a l P o l i c y was developed as a r e s u l t o f c a r e f u l interagency study, and was based on the a c t u a l o p e r a t i n g experiences o f the f e d e r a l departments and agencies over many y e a r s . In a d d i t i o n , the F e d e r a l C o u n c i l has found, based on s e v e r a l years o f operat-r i n g experience, t h a t the P r e s i d e n t i a l P o l i c y has been e f f e c t i v e i n b r i n g i n g about a g r e a t e r degree o f c o n s i s t e n c y i n the patent p o l i c i e s and p r a c t i c e s o f the f e d e r a l departments and agencies, and has p r o v i d e d a g r e a t e r degree o f p r o t e c t i o n o f the p u b l i c i n t e r e s t . T h i s c o n c l u s i o n i s a l s o g e n e r a l l y supported by the f i n d i n g o f the Harbridge House study, which may be summarized as f o l lows : (1) The Harbridge House study r e s u l t s c o n c l u s i v e l y demo n s t r a t e t h a t a s i n g l e presumption o f ownership o f a patent i s n o t i n the p u b l i c i n t e r e s t , a p p l i e d e i t h e r governmentwide, t o a s i n g l e agency, o r t o a p a r t i c u l a r government p r o gram. (2) The Harbridge House study r e s u l t s i d e n t i f y f a c t o r s which when p r o p e r l y considered, can a f f e c t commercial u t i l i z a t i o n o f government-sponsored i n v e n t i o n s , p a r t i c i p a t i o n o f i n d u s t r y i n government R&D programs, and competition i n comm e r c i a l markets. The most c r i t i c a l f a c t o r s a r e : — the m i s s i o n o f the r e s e a r c h sponsoring agency; — the purpose and nature o f the c o n t r a c t ; the commercial a p p l i c a b i l i t y o f and market p o t e n t i a l f o r the i n v e n t i o n ; — the extent t o which the i n v e n t i o n was developed by the r e s e a r c h sponsoring agency; — the promotional a c t i v i t i e s o f the sponsoring agency;

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the p r i o r commercial experience o f the c o n t r a c t o r i n the f i e l d of the i n v e n t i o n ; — the s i z e of the c o n t r a c t o r ' s p r i v a t e l y financed R&D i n the f i e l d o f r e s e a r c h ; — the c o n t r a c t o r ' s a t t i t u d e towards and c a p a b i l i t y to commercially promote the i n v e n t i o n ; and — the s i z e , nature and r e s e a r c h o r i e n t a t i o n o f the i n d u s t r y t h a t w i l l be u s i n g the i n v e n t i o n commercially. (3) The Harbridge House Study r e s u l t s and the o p e r a t i n g experience o f the government agencies i n d i c a t e t h a t the p r i n c i p l e s u n d e r l y i n g the P r e s i d e n t i a l P o l i c y , and, w i t h minor exceptions, the c r i t e r i a e s t a b l i s h e d by the P o l i c y f o r a l l o c a t i n g patent r i g h t s take i n t o c o n s i d e r a t i o n the above l i s t e d f a c t o r s i n a manner which: — p r o p e r l y balances the P o l i c y o b j e c t i v e s o f encouraging u t i l i z a t i o d u s t r y , an public interest; — p r o v i d e s the o p e r a t i o n a l f l e x i b i l i t y needed by the agencies t o accomplish the o b j e c t i v e s of t h e i r miss i o n s under d i f f e r i n g c o n t r a c t u a l s i t u a t i o n s ; and — w i t h i n the d i f f e r i n g m i s s i o n c o n s t r a i n t s o f the f e d e r a l agencies, promotes c o n s i s t e n t a p p l i c a t i o n of patent p o l i c i e s and p r a c t i c e s i n s i m i l a r c o n t r a c t i n g situations." In view of these c o n c l u s i o n s , the Committee recommended the cont i n u a t i o n of a f l e x i b l e , government-wide patent p o l i c y f o l l o w i n g the b a s i c p r i n c i p l e s and c r i t e r i a o f the 1963 P r e s i d e n t i a l Patent P o l i c y Statement. More s p e c i f i c a l l y , the Committee suggested t h a t such a p o l i c y should be continued e i t h e r by making minor m o d i f i c a t i o n s t o the P r e s i d e n t i a l Patent P o l i c y or by proposing l e g i s l a t i o n based on s i m i l a r p r i n c i p l e s and c r i t e r i a which would be app l i c a b l e to a l l agencies. As a r e s u l t of these suggestions, P r e s i d e n t Nixon r e i s s u e d the P r e s i d e n t i a l Patent P o l i c y Statement on August 23, 1971 Ç7). The new Statement made o n l y minor changes i n the one i s s u e d i n 1963. The

ERDA Patent P o l i c y

The patent p o l i c y provided to the Energy Research and Development A d m i n i s t r a t i o n (ERDA, now merged i n t o the Department of Energy) i n S e c t i o n 9 o f the F e d e r a l Nonnuclear Energy Research and Development Act o f 1974, 42 U.S.C. 5 9 0 8 , i s the most comprehens i v e , most thoroughly debated patent p o l i c y ever passed by Congress (8). I t r e p r e s e n t s a compromose p o s i t i o n between the " t i t l e " and " l i c e n s e " advocates, and was so d e l i c a t e l y balanced t h a t i n l e t t e r s to Senator Jackson supporting the p o l i c y , Mr. Roy L. Ash, D i r e c t o r , OMB, stated: "Thus, the r e s u l t a n t language s t r i k e s an extremely d e l i c a t e balance between d i v e r g e n t p r e f e r e n c e s . Even minor changes

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i n the t e x t of t h i s document are l i k e l y to upset the balance t o the extent t h a t one or the other o f the p a r t i e s might be o b l i g e d to withdraw i t s support. In the s p i r i t of r e c i p r o c i t y , t h e r e f o r e , the A d m i n i s t r a t i o n must ask t h a t i t s endorsement o f t h i s p r o p o s a l be regarded as withdrawn i n the event t h a t any changes are made i n the t e x t of the agreedupon language, notwithstanding the f a c t t h a t such changes might be i n the d i r e c t i o n o f the A d m i n i s t r a t i o n ' s p r e f e r ence . " and Senators Hart and Long s t a t e d : "We should note t h a t the compromise contains many h i g h l y i n t e r r e l a t e d p r o v i s i o n s and i s q u i t e d e l i c a t e l y balanced. While a number o f concepts and p r o v i s i o n s are not q u i t e what we would advance i n a b i l l o f our own, on balance we do bel i e v e a f a i r compromise on an extremely complex and c o n t r o v e r s i a l i s s u e has bee Subsection 9(a) o i s made or conceived i n the course o f or under any c o n t r a c t o f the A d m i n i s t r a t i o n other than n u c l e a r energy research and development pursuant to the Atomic Energy A c t , and the Administrator of ERDA makes e i t h e r o f two determinations regarding the persons who made the i n v e n t i o n , then t i t l e to such i n v e n t i o n s s h a l l be vested i n the u n i t e d States unless the A d m i n i s t r a t o r waives a l l or any p a r t of such r i g h t s i n conformity with the p r o v i s i o n s o f S e c t i o n 9. S e c t i o n 9(c) s t a t e s t h a t the A d m i n i s t r a t o r may waive a l l o r any p a r t o f the r i g h t s to any i n v e n t i o n o r c l a s s o f i n v e n t i o n s made or to be made under any c o n t r a c t w i t h the A d m i n i s t r a t i o n i f he determines t h a t the i n t e r e s t s o f the United States and the gene r a l p u b l i c w i l l best be served by such waiver. In making waiver determinations, the A d m i n i s t r a t o r was d i r e c t e d to have the f o l lowing o b j e c t i v e s : — making the b e n e f i t s o f the energy r e s e a r c h , development, and demonstration program widely a v a i l a b l e to the p u b l i c i n the s h o r t e s t p r a c t i c a b l e time — promoting the commercial u t i l i z a t i o n o f such inventions encouraging p a r t i c i p a t i o n by p r i v a t e persons i n the A d m i n i s t r a t i o n ' s energy r e s e a r c h , development, and demonstration program f o s t e r i n g competition and p r e v e n t i n g undue market c o n c e n t r a t i o n or the c r e a t i o n or maintenance o f other s i t u a t i o n s i n c o n s i s t e n t with the a n t i t r u s t laws. The Conference Report makes two important p o i n t s on t h i s p r o v i s i o n c l e a r . F i r s t , i t recognizes t h a t i n any s i n g l e waiver s i t u a t i o n , a l l four o f these o b j e c t i v e s may not be o b t a i n a b l e ; i . e . , i n some s i t u a t i o n s p a r t i c i p a t i o n may be more important than f o s t e r i n g competition, while i n others the reverse might be t r u e . The Conference Committee s t a t e s t h a t i t expected t h a t over the long run a l l four o f these o b j e c t i v e s would be o b t a i n a b l e .

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Secondly, the Report makes c l e a r t h a t waiver d e c i s i o n s o f the A d m i n i s t r a t o r are not s u b j e c t t o a p u b l i c h e a r i n g requirement. Subsection 9(d) s e t s f o r t h eleven s p e c i f i c f a c t o r s which the A d m i n i s t r a t o r i s t o consider i n making waiver determinations a t the time o f c o n t r a c t i n g . These f a c t o r s are based on the e x p e r i ence o f AEC, NASA and other F e d e r a l agencies under the P r e s i d e n t i a l Patent P o l i c y Statement. They concern c o n s i d e r a t i o n s o f : — the w i l l i n g n e s s o f a c o n t r a c t o r t o p a r t i c i p a t e — the n e c e s s i t y o f a p a r t i c u l a r c o n t r a c t o r ' s p a r t i c i p a t i o n i n a t t a i n i n g the purposes o f the program — the c o n t r a c t o r ' s background and commercial p o s i t i o n — the c o n t r i b u t i o n t h a t the c o n t r a c t o r has made o r w i l l make t o commercialization o f c o n t r a c t r e s u l t s — the purpose o f the c o n t r a c t and the intended use o f the c o n t r a c t r e s u l t s — the e f f e c w e l f a r e , an — the extent t o which U n i v e r s i t i e s have a technology transfer capability. Subsection 9(e) s e t s f o r t h c o n s i d e r a t i o n s s i m i l a r t o the cons i d e r a t i o n s f o r advance waivers t h a t must be taken i n t o account i n waiving r i g h t s t o i d e n t i f i e d i n v e n t i o n s made under ERDA cont r a c t s . A c c o r d i n g l y , ERDA had the a u t h o r i t y t o make both advance waivers a t the time o f c o n t r a c t i n g and case-by-case waivers a f t e r an i n v e n t i o n i s i d e n t i f i e d . The A d m i n i s t r a t o r was provided w i t h o b j e c t i v e s t o be achieved i n making waiver determinations, and c o n s i d e r a t i o n s t o be reviewed i n making such determinations, but Congress l e f t w i t h the Administrator the u l t i m a t e d e c i s i o n as how the c o n s i d e r a t i o n s were t o be a p p l i e d i n order t o achieve the objectives. In t h i s manner, ERDA was given the f l e x i b i l i t y t o u t i l i z e i t s waiver a u t h o r i t y i n each c o n t r a c t i n g s i t u a t i o n i n a manner which would best support the Government's i n t e r e s t s , the i n t e r e s t s o f the general p u b l i c , and best achieve ERDA s o v e r a l l mission r e s p o n s i b i l i t i e s . Subsection 9(h) s e t s f o r t h the terms and c o n d i t i o n s a p p l i c able t o waivers granted by ERDA. T h i s s u b s e c t i o n , i n paragraphs 1-4, r e q u i r e s ERDA t o r e t a i n an i r r e v o c a b l e , nonexclusive, p a i d up l i c e n s e i n any i n v e n t i o n waived. The l i c e n s e normally extends to s t a t e and domestic municipal governments, and t o f o r e i g n governments pursuant t o t r e a t y i f the A d m i n i s t r a t o r determines such f o r e i g n l i c e n s e i s i n the n a t i o n a l i n t e r e s t . Under these p r o v i s i o n s ERDA reserves the r i g h t t o seek patent p r o t e c t i o n i n any f o r e i g n country i n which the waiver r e c i p i e n t does not e l e c t t o f i l e patent a p p l i c a t i o n s . The waiver r e c i p i e n t o r e x c l u s i v e l i censee i s r e q u i r e d t o make p e r i o d i c r e p o r t s on the commercial use being made o r intended t o be made o f the i n v e n t i o n . Paragraphs 5-7 o f subsection 9(h) s e t f o r t h "march-in" r i g h t s reserved t o the Government under waivers. Paragraph 5 r e q u i r e s the waiver r e c i p i e n t t o l i c e n s e others a t reasonable r o y a l t i e s i f the i n v e n t i o n i s r e q u i r e d f o r use by Government r e g u l a t i o n or i s 1

In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

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necessary t o f u l f i l l h e a l t h , s a f e t y , o r energy needs. T h i s i s s u b s t a n t i a l l y the same r i g h t t h a t i s r e q u i r e d under the P r e s i d e n t i a l Patent P o l i c y Statement and preserves the r i g h t o f the Government t o r e q u i r e l i c e n s i n g i n the event o f some unexpected nat i o n a l need. Paragraph 6 p r o v i d e s the r i g h t o f the A d m i n i s t r a t o r t o t e r minate a waiver, i n whole o r i n p a r t , i f the waiver r e c i p i e n t i s not t a k i n g , o r w i t h i n a reasonable time w i l l not take, e f f e c t i v e steps necessary t o commercialize the i n v e n t i o n . T h i s r i g h t i s p r o v i d e d t o prevent suppression o f the i n v e n t i o n and t o i n s u r e commercial a v a i l a b i l i t y . Paragraph 7 o f s u b s e c t i o n 9(h) i s perhaps the most important of the r i g h t s r e q u i r e d by Congress t o be r e s e r v e d by ERDA upon the grant o f a waiver. T h i s p r o v i s i o n permits the A d m i n i s t r a t o r t o r e q u i r e l i c e n s i n g , o r t o terminate a waiver, i n whole o r i n p a r t , i f i t i s shown a t a p u b l i a f t e r the grant o f a waive exclusive license that: — the waiver o r l i c e n s e has tended t o v i o l a t e the a n t i t r u s t laws, o r — the c o n t r a c t o r has not and i s not expected t o take e f f e c t i v e steps t o commercialize the i n v e n t i o n . Inasmuch as the a n t i t r u s t and a n t i c o m p e t i t i v e e f f e c t s o r a waiver or l i m i t e d e x c l u s i v e l i c e n s e are d i f f i c u l t o r impossible t o a s c e r t a i n a t the time t h a t the waiver o r l i c e n s e i s granted, Congress d i d not r e q u i r e the A d m i n i s t r a t o r t o make p o s i t i v e f i n d i n g s on these i s s u e s a t the time such a waiver o r e x c l u s i v e l i c e n s e was granted. However, paragraph 10 o f s u b s e c t i o n 9(d) r e q u i r e d t h a t the l i k e l y e f f e c t o f a waiver on competition and market concent r a t i o n must be considered a t the time the waiver i s requested. In order t o i n s u r e t h a t p o s s i b l e a n t i - c o m p e t i t i v e e f f e c t s o f waivers and l i c e n s e s a r e reviewed a t the a p p r o p r i a t e time, p a r a graph 7 o f s u b s e c t i o n 9(h) p r o v i d e s f o r a h e a r i n g t o determine whether a n t i - c o m p e t i t i v e e f f e c t s have, i n f a c t , r e s u l t e d from the waiver o r l i c e n s e and whether the i n v e n t i o n i s being commerciali z e d . The h e a r i n g i s i n i t i a t e d by the A d m i n i s t r a t o r on h i s own motion, o r upon request o f any p r i v a t e persons, i f a p p r o p r i a t e . T h i s p r o v i s i o n p r o v i d e s an a d d i t i o n a l mechanism t o r a i s e important questions concerning e a r l i e r determinations o f the A d m i n i s t r a t o r , and i n t h i s manner the p u b l i c i n t e r e s t may be p r o t e c t e d . Summary The debate and search f o r s o l u t i o n s t o the patent p o l i c y i s sue are as a c t i v e as ever. Congress has been w r i t i n g ERDA type patent p o l i c y , o r making r e f e r e n c e t o the ERDA patent p o l i c y , i n t o s e v e r a l b i l l s , three o f which have passed (9). A t the c l o s e o f the Ford a d m i n i s t r a t i o n , the FCST Committee on Government Patent P o l i c y proposed a b i l l t o p r o v i d e a government-wide p o l i c y , a b o l i s h i n g a l l other l e g i s l a t i v e patent p o l i c i e s , which was based on

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the experiences o f v a r i o u s agencies and the recommendations o f the Commission on Government Procurement i n i t s f i n a l r e p o r t o f December, 1972. T h i s proposed b i l l served as a b a s i s f o r Congressman Thornton's H.R. (5249 on which hearings are planned l a t e r i n 1978. The Thornton b i l l drew c o n s i d e r a b l e a t t e n t i o n , and f i r e , d u r i n g the Nelson hearings i n December, 1977. And f i n a l l y , the whole i s s u e i s under study by OMB and the White House; w i t h the R&D sponsoring agencies r e c e n t l y being asked t h e i r o p i n i o n s r e g a r d i n g s e v e r a l p o s s i b l e approaches t o t h i s p o l i c y i s s u e by OMB. Perhaps these present e f f o r t s w i l l f i n a l l y r e s o l v e t h i s long debated i s s u e , but I somehow b e l i e v e t h a t i t w i l l s t i l l be with us a f t e r we have solved our energy problem.

Abstract Federal patent polic inventions made under researc ported by the Federal Government. Developing such a policy involves complex l e g a l , economic, and technical issues that can and do have strong influence on an agency's research and development programs and on the u t i l i z a t i o n of technologies resulting from those programs. What the proper policy should be has been debated emotionally for over 20 years, and is of concern to Congress, the Executive Branch and the private sector of the economy. Congress has enacted legislative guidance in a piecemeal and inconsistent fashion; applying some policies to particular agencies, some policies to fields of technology and other policies to individual R&D programs. The Presidential Patent Policy Statements of 1963 and 1971 attempted to bring some uniformity and consistency to this issue, but have been unsuccessful in accomplishing this end. The most flexible and comprehensive patent policy enacted by Cogress to date has been that used by the Department of Energy. Literature Cited 1.

2.

3. 4.

Report of the National Patent Planning Commission, H.R. Doc. 239, 78th Cong., 1st Sess. (1943); Second Report of the National Patent Planning Commission, H.R. Doc. 22, 79th Cong., 1st Sess. (1945); Third Report of the National Patent Planning Commission, H.R. Doc. 283, 79th Cong., 1st Sess. (1945). Investigation of Concentration of Economic Power; Final Report and Recommendation of the Temporary Economic Committee (Pursuant to Public Resolution No. 113, 75th Congress), No. 35, 77th Cong., 1st Sess. (1941). Second Report of the National Patent Planning Commission, supra, note 35, at 5. U.S. Department of Justice, Investigation of Government Patent Practices and P o l i c i e s , Report and Recommendations of the Attorney General to the President, 3 V o l s . , Washington, D. C. (1947).

In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

1. 5. 6.

7. 8.

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Memorandum and Statement of Government Patent Policy, 28 Fed. Reg. 10943 (1963). Government Patent Policy Study, Final Report for the FCST Committee on Government Patent Policy, Contract No. 7-35807, May 1968, Government Printing Office, Washington, D.C. 36 Fed. Reg. 16887 (1971). The Conference Committee on S. 1283 in their report to both Houses pointed out that the basic structure of Section 9 was derived from the Space Act with some modifications derived from the Atomic Energy Act. Some of the detailed c r i t e r i a of Section 9 were stated as being adopted primarily from NASA and AEC regulations, as well as from the Presidential Patent Policy Statement ( H.R. Rep. No. 1563, 93d Cong., 2d. Sess. at 26). 42 U.S.C. 3253(c) Supp. V; 15 U.S.C. 2511; Section 3, P . L . 94-316.

Biographic Notes James E . Denny has served in various legal positions with five different Federal agencies over the past 20 years. At present he i s Assistant General Counsel for Patents for the Department of Energy, and Chairman of the Executive Subcommittee of the Federal Council for Science and Technology Committee on Government Patent Policy. Mr. Denny has received a baccalaureate in e l e c t r i c a l engineering from Johns Hopkins University and a Bachelor of Laws degree from George Washington University Law School. RECEIVED June 20, 1978.

In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

2 Government Patent Policy—Where Is It Headed on the Administrative Front? JESSE E. LASKEN Office of the General Counsel, National Science Foundation, Washington, D C 20550

In the previous pape i thi symposium Mr Jame E Denn has described the histor icy, highlighting the variou through the years. He has also detailed the major provisions of the patent policy governing the Energy Research and Development Administration (ERDA), now Department of Energy, research and development a c t i v i t i e s . Mr. Norman Latker w i l l speak in the f o l lowing paper about the rationale behind Representative Thornton's currently pending bill which would establish a comprehensive legi s l a t i v e policy with a presumption in favor of contractors and grantees retaining title to inventions. And Professor John C. Stedman w i l l t e l l you why he believes a policy with the opposite presumption should be established. Therefore, though I am sorely tempted to discuss why the Thornton approach i s j u s t i f i e d , I have decided to cover another subject rather than repeat what others may say. In particular, I w i l l try to bring you up to date on recent administrative developments i n the area of patent policy and make some conjectures as to the way things are l i k e l y to progress assuming H.R. 8596 (the Thornton B i l l ) or other comprehensive legislation f a l l s short of passage. Let me emphasize a point, however, that should not be forgotten when one discusses patent policy. Typically discussions center around who should get t i t l e — the Government or the contractor. However, a l l the Government people that I know who favor leaving t i t l e in the contractor or grantee do not take this position out of some love for contractors or grantees. They do so because they see this as the most practicable way to help ensure

Disclaimer:

The views expressed i n t h i s paper are those o f the author and do not n e c e s s a r i l y r e f l e c t the views o f the N a t i o n a l Science Foundation.

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t h a t r i g h t s i n i n v e n t i o n s made under Government sponsorship are d i s t r i b u t e d i n a way t h a t w i l l maximize economic growth and jobs, i n n o v a t i o n , competition, the U.S. p o s i t i o n i n world markets, and minimize a d m i n i s t r a t i v e and c o n t r a c t c o s t s . Patent p o l i c y , o f course, i s not the predominant f a c t o r t h a t a f f e c t s any o f these objectives. I t i s but one f a c t o r o f many. But these a r e the o b j e c t i v e s t h a t must be considered and i t i s unfortunate when the d i s c u s s i o n breaks down i n t o slogans such as "giveaway" o r "the p u b l i c should own what i t pays f o r " o r , sometimes on the other s i d e s u p e r f i c i a l arguments about "overregulation" or " c o n s t i t u t i o n a l rights of inventors". A l l of these beg the r e a l i s s u e s . My own o p i n i o n i s t h a t f o r a substant i a l number o f i n v e n t i o n s reported t o the Government, i n terms o f the o b j e c t i v e s I mentioned e a r l i e r , i t r e a l l y doesn't make much d i f f e r e n c e who gets the t i t l e . However, there i s a s i g n i f i c a n t p r o p o r t i o n o f cases i n that p o s i t i v e r e s u l t s w i l negative e f f e c t s w i l l occur i f t i t l e remains with the Government. But s i n c e n e i t h e r I nor anyone e l s e t h a t I have met who i s i n volved i n t h i s business r e a l l y has any means o f i d e n t i f y i n g except by h i n d s i g h t (and even then i t i s questionable) f o r which i n v e n t i o n s i t w i l l make a d i f f e r e n c e i f the Government takes t i t l e , I consider i t a mistake t o take t i t l e i n any but the r a r e and obvious case. Moreover, i t seems t o me t h a t most o f the hyp o t h e t i c a l harm t o competition t h a t i t i s a l l e g e d might occur i f c o n t r a c t o r s keep t i t l e can be adequately d e a l t w i t h through "march-in" p r o v i s i o n s and/or the a n t i t r u s t laws. I would note, a l s o , t h a t d e s p i t e the thousands o f cases i n which c o n t r a c t o r s have r e t a i n e d t i t l e t o i n v e n t i o n s made under Government grants and c o n t r a c t s , I have y e t t o see a title-in-the-Government advocate p o i n t t o an a c t u a l case where harm was done, l e t alone harm t h a t could be a t t r i b u t e d t o the c o n t r a c t o r being allowed t o r e tain t i t l e . As a f u r t h e r backdrop t o my d i s c u s s i o n o f a d m i n i s t r a t i v e developments, no one should be m i s l e d i n t o b e l i e v i n g t h a t administ r a t i v e changes t o Government patent p o l i c y can, i n the c u r r e n t c l i m a t e , e l i m i n a t e the need f o r a comprehensive s t a t u t o r y p o l i c y t h a t i s supportive o f the a d m i n i s t r a t i v e p o l i c i e s t h a t the agenc i e s might wish t o pursue i f given a f r e e hand. To put t h i s another way, i f you l i s t e n e d c a r e f u l l y t o what Mr. Denny s a i d , i t might have occurred t o you t h a t the primary f e a t u r e o f Government patent p o l i c y over the l a s t twenty years has been the cons i s t e n t enactment o f piecemeal l e g i s l a t i o n with a t i t l e - i n - t h e Government o r i e n t a t i o n . Slowly but s u r e l y , the number o f agenc i e s and types o f r e s e a r c h subject t o such l e g i s l a t i o n has grown. F o r the most p a r t the e f f o r t s o f the Committee on Government Patent P o l i c y which i n 1976 recommended a d r a f t b i l l subs t a n t i a l l y s i m i l a r t o HR. 8596 was a r e a c t i o n t o the ERDA patent legislation. Many persons are concerned over the p r o b a b i l i t y o f f u r t h e r piecemeal l e g i s l a t i o n unless a comprehensive Congression-

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a l l y mandated p o l i c y can be enacted. These f e a r s , i n my o p i n i o n , are w e l l based. I t might be noted, f o r i n s t a n c e , t h a t the ERDA language was o n l y a few months l a t e r i n c o r p o r a t e d by r e f e r e n c e i n l e g i s l a t i o n amending the S o l i d Waste D i s p o s a l A c t , i n t h a t case r e p l a c i n g s t a t u t o r y language t h a t d i r e c t e d the EPA t o f o l l o w the P r e s i d e n t ' s Memorandum and Statement o f Government Patent P o l i c y . I t h i n k we can a l l expect t h a t each time a new p i e c e o f R&D l e g i s l a t i o n comes up an attempt w i l l be made t o i n s e r t ERDA-type language i n the b i l l . For v a r i o u s reasons such piecemeal e f f o r t s are much more s u c c e s s f u l than would be any attempt by t i t l e - i n the-Government advocates t o secure the passage o f a comprehensive Government-wide p o l i c y . Such an e f f o r t would meet with the u n i t e d o p p o s i t i o n o f many agencies and i n t e r e s t groups, but the same i s not t r u e o f piecemeal e f f o r t s . However, i t i s now anyone's guess whether the A d m i n i s t r a t i o n w i l l o r w i l l not suppor personal opinion that, i years o r so the only agencies t h a t w i l l not be subject t o ERDA type l e g i s l a t i o n w i l l be the Defense Department and p o s s i b l y the N a t i o n a l Science Foundation (NSF), i f t h a t agency has not i n the meantime been merged i n t o some super Science Department. I f and when a super Science Department i s formed, you can be assured t h a t unless H.R. 8596 i s enacted i n the meantime such an agency w i l l be made s u b j e c t t o ERDA-type l e g i s l a t i o n . However, as we await the doomsday t h a t I foresee i n Government patent p o l i c y i f comprehensive l e g i s l a t i o n i s not passed, there are a few t h i n g s happening on the a d m i n i s t r a t i v e f r o n t t h a t can g i v e one h e a r t . T h i s i s e s p e c i a l l y true w i t h r e s p e c t t o r e cent developments i n the area o f Government patent p o l i c y v i s - a v i s u n i v e r s i t y r e s e a r c h , and these w i l l occupy most o f the remainder o f my d i s c u s s i o n . In 1975 the Interagency Committee on Government Patent P o l i c y approved a r e p o r t by i t s Ad Hoc Subcommittee on U n i v e r s i t y Patent P o l i c y which recommended t h a t the agencies adopt the Ins t i t u t i o n a l Patent Agreement (IPA) approach followed by NSF and The Department o f Health, Education, and Welfare (DHEW) w i t h r e spect t o u n i v e r s i t y and n o n p r o f i t o r g a n i z a t i o n r e s e a r c h . The essence o f t h i s approach i s t h a t those u n i v e r s i t i e s t h a t are determined t o have e f f e c t i v e i n v e n t i o n i d e n t i f i c a t i o n and l i c e n s i n g programs may be given a standing agreement t o e l e c t r i g h t s i n any i n v e n t i o n s which they make under the sponsorship o f the agency w i t h whom they have the agreement. As recommended i n the r e p o r t and as now followed i n p r a c t i c e by DHEW and NSF, c e r t a i n l i m i t a t i o n s are p l a c e d on the e x e r c i s e o f a u n i v e r s i t y ' s r i g h t s under an IPA. I n c i d e n t a l l y these same r e s t r i c t i o n s are normally i n s e r t e d i n NSF and DHEW case-by-case waivers. These i n c l u d e : 1. A bar on assignment o f i n v e n t i o n s t o other than patent management o r g a n i z a t i o n s , except with the approval o f the agency.

In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

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L i m i t a t i o n s on the p e r i o d o f any e x c l u s i v e l i c e n s e s under U.S. p a t e n t s , now normally the e a r l i e r o f three years from f i r s t commercial s a l e o r e i g h t years from the date o f l i c e n s e , whichever comes f i r s t . 3. A l i c e n s e t o the Government and the u s u a l s o - c a l l e d "march-in r i g h t s " . Related t o t h i s both NSF and DHEW a l s o r e q u i r e t h a t any l i c e n s i n g agreements i n c l u d e a requirement t h a t the l i c e n s e e undertake reasonable e f f o r t s t o commercialize the i n v e n t i o n . As a r e s u l t o f the r e p o r t r e f e r r e d t o e a r l i e r j u s t l a s t month amendments were proposed t o the F e d e r a l Procurement Regul a t i o n s (FPR) which would a u t h o r i z e agencies t o enter i n t o I n s t i t u t i o n a l Patent Agreements with n o n p r o f i t o r g a n i z a t i o n s . ( E d i t o r ' s Note: The e f f e c t i v e date o f these amendments was l a t e r postponed pending f u r t h e r study by Congress.) The amendments i n clude a model i n s t i t u t i o n a s i g n i f i c a n t change i n th DHEW IPAs i s the change from the three and e i g h t year p e r i o d f o r e x c l u s i v e l i c e n s e s t o a f i v e and e i g h t year p e r i o d . Moreover, the e i g h t year p e r i o d w i l l be a u t o m a t i c a l l y t o l l e d d u r i n g any r e q u i r e d premarket clearance proceedings. T h i s would apply t o drugs r e q u i r i n g FDA approval, and now, medical d e v i c e s . I t i s d i f f i c u l t t o p r e d i c t how many agencies w i l l adopt the IPA approach i f and when i t has been o f f i c i a l l y a u t h o r i z e d i n the F e d e r a l Procurement Regulations. I t s use i s o p t i o n a l and not mandatory. I would venture a guess t h a t probably o n l y the Department o f Commerce among the c i v i l i a n agencies w i l l i s s u e IPAs. E a r l i e r Department o f Defense (DOD) o f f i c i a l s i n d i c a t e d t h a t they would adopt the approach once i t was p u b l i s h e d i n the FPR. That remains t o be seen. I t might be noted t h a t u n t i l t h i s i s done, DOD's p o l i c i e s towards u n i v e r s i t i e s a c t u a l l y have taken a t u r n for the worse i n the l a s t few y e a r s . That i s , up u n t i l a few years ago DOD had a l i s t o f u n i v e r s i t i e s w i t h approved patent policies. U n i v e r s i t i e s on t h a t l i s t a u t o m a t i c a l l y were given a t i t l e - i n - t h e - c o n t r a c t o r type clause i f the c o n t r a c t f e l l under what i s s e c t i o n 1(b) o r (c) o f the P r e s i d e n t ' s Patent P o l i c y and a l l but a small percentage o f DOD c o n t r a c t s do. For reasons never very c l e a r , when the ASPR was amended a few years back t o conform t o the new FPR s e c t i o n on patents the l i s t was a b o l i s h e d . However, there i s another s e c t i o n o f the r e c e n t FPR amendment t h a t i s s i g n i f i c a n t . The r e g u l a t i o n contemplates the establishment o f an interagency mechanism t o i d e n t i f y u n i v e r s i t i e s with e f f e c t i v e technology t r a n s f e r programs. T h i s l i s t may be used by the agencies having IPA programs i n l i e u o f i n d i v i d u a l agency reviews. Secondly, i t might be used by agencies such as N a t i o n a l Aeronautics and Space Agency (NASA) o r DOE as a b a s i s f o r g r a n t i n g d e f e r r e d determination waivers on a more automatic b a s i s t o i n s t i t u t i o n s , on t h a t l i s t . For example, the Department o f Energy i n a Report t o the P r e s i d e n t and the Congress o f the United S t a t e s mandated under

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subsection 9(n) of the F e d e r a l Nonnuclear Energy Research and Development A c t of 1974 concluded t h a t i t d i d not have a u t h o r i t y t o enter i n t o I n s t i t u t i o n a l Patent Agreements under t h a t A c t . Instead, they seem to have i n t e r p r e t e d the Act i n a way t h a t only allows them to grant a waiver to a U n i v e r s i t y e i t h e r at the time of c o n t r a c t i n g or a f t e r an i n v e n t i o n i s i d e n t i f i e d when i n the words o f subsection (d) (11) of S e c t i o n 9 the " i n s t i t u t i o n has a technology t r a n s f e r c a p a b i l i t y and program, approved by the Adm i n i s t r a t o r as being c o n s i s t e n t with the a p p l i c a b l e p o l i c i e s o f this section". The a c t a l s o r e q u i r e s the A d m i n i s t r a t o r to consider i n conn e c t i o n w i t h any d e f e r r e d determination waiver "(1) the extent to which such waiver i s a reasonable and necessary i n c e n t i v e to c a l l f o r t h p r i v a t e r i s k c a p i t a l for the development and commercialization of the invent i o n , and (2) the extent t o f the c o n t r a c t o r or i n v e n t o r w i l l o b t a i n e x p e d i t i o u s commercialization of such i n v e n t i o n " . The r e p o r t by ERDA i n d i c a t e s t h a t the second c o n d i t i o n may be considered as having been met i f the (d) (11) c o n s i d e r a t i o n i s met. tod DOE has i n d i c a t e d t h a t the l i s t developed under the FPR amendment might be used by i t f o r the purpose o f s a t i s f y i n g the (d) (11) c o n s i d e r a t i o n . NASA's i n t e n t i o n s i n t h i s area are l e s s c l e a r . I t seems to me, a t l e a s t , t h a t NASA has s u f f i c i e n t a u t h o r i t y to i s s u e c l a s s waivers under the Space Act so t h a t i t could adopt the IPA approach. On the other hand, they may, perhaps, use any l i s t developed under the new FPR procedure as a b a s i s f o r some s o r t of expedited procedure f o r waiver of i d e n t i f i e d i n v e n t i o n s t o u n i v e r s i t i e s on the l i s t . A l l t h i s , however, i s pure s p e c u l a t i o n on my p a r t and I do not b e l i e v e NASA has a c t u a l l y committed i t s e l f t o anything i n t h i s area e i t h e r f o r m a l l y or i n f o r m a l l y . There i s , I t h i n k , one other item o f major i n t e r e s t concerning a d m i n i s t r a t i v e patent p o l i c i e s . The O f f i c e of Management and Budget (OMB) and v a r i o u s persons w i t h i n the executive o f f i c e of the P r e s i d e n t are now engaged i n d r a f t i n g a s o - c a l l e d " d e c i s i o n paper" on patent p o l i c y to be sent to the P r e s i d e n t . In a t a l k b e f o r e the Government Patent Lawyers A s s o c i a t i o n a r e p r e s e n t a t i v e from the O f f i c e of F e d e r a l Procurement P o l i c y (OFPP) i n d i c a t e d t h a t i t would consider o r g a n i z i n g an e f f o r t t o r e v i s e the c u r r e n t r e g u l a t i o n s depending on what d e c i s i o n the P r e s i d e n t makes. For example, i f the P r e s i d e n t i n d i c a t e s support f o r the Thornton B i l l then pending a c t u a l passage of the b i l l , OFPP might seek l i b e r a l i z a t i o n o f the c u r r e n t r e g u l a t i o n s . Conversely, i f the P r e s i d e n t opts f o r title-in-the-Government, t h i n g s might have to be r e w r i t t e n i n the opposite d i r e c t i o n . I p e r s o n a l l y hope t h a t any paper t h a t goes t o the P r e s i d e n t makes i t c l e a r t h a t such an approach i s t o t a l l y u n s u i t a b l e as a Government-wide p o l i c y . I f the P r e s i d e n t decides to l e t things l i e and s t i c k w i t h the s t a t u s quo,

In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

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presumably the FPRs w i l l stay as they are, although i t i s possible that the FPRs could be simplified and made more responsive to the needs of universities and small business without doing any violence to the current Presidential Statement of Government Patent Policy. In summary, we are at a c r i t i c a l point in the development of Government Patent Policy, The President w i l l presumably be making c r i t i c a l decisions i n the upcoming months that may have important consequences on the future direction of Government patent policy whether he moves the Government in either of the two basic directions or whether he chooses to stay with the "status quo" and avoid the immediate controversy. Abstract We are at a c r i t i c a ment Patent Policy. Ther comprehensive statutory government patent policy that is supportive of overall Government p o l i c i e s . This need cannot be f u l f i l l e d adequately by promulgating simple administrative regulations or piecemeal legislation. For the foreseeable future, in absence of comprehensive legislation, either the Institutional Patent Agreement approach with title-in-the-grantee orientation, or the approach taken i n recent legislation of providing title -in-the-government with waiver-to-the-contractor privileges w i l l p r e v a i l . The former arrangement is used at present by the Department of Health, Education and Welfare and the National Science Foundation. The latter policy is embodied i n legislation which governs the Department of Energy. Biographic Notes As Assistant to the General Counsel, National Science Foundation for the past six years, Jesse E . Lasken, has p a r t i c ipated i n many conferences on federal grants and patent p o l i c i e s , and has served i n various capacities on the Federal Council for Science and Technology Committee on Government Patent Policy. Mr. Lasken is a member of the D i s t r i c t of Columbia Bar and the Federal Bar Association. His baccalaureate in the arts was awarded by the University of Michigan and he has received degrees i n law from both the University of Michigan and George Washington University. RECEIVED June 20,

1978.

In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

3 Federal Patent Policy and H.R. 8596 NORMAN J. LATKER Patent Counsel, Health, Education and Welfare, 5333 Westbard Avenue, Bethesda, MD 20014

There i s ample reaso framework and administrativ Government-funded inventions may be inhibiting their commercial development. Given the fact that the Government is responsible for more than half of the total United States investment i n research and development, it i s essential that these dollars be made to produce more than defense and space benefits. On the international side, policies that discourage investment by U. S. industry in Government-sponsored inventions meant to resolve social problems leaves the door open for foreign industry, especially i f state-controlled or subsidized, to capitalize on these inventions to the detriment of American jobs and industry. Representative Thornton, joined by 13 Congressmen, including the Chairman of the Committee on Science and Technology, has i n troduced H. R. 8596, which would establish a comprehensive Government-wide policy regulating the allocation of rights to inventions made by Government grantees, contractors, and employees, having as one of i t s main objectives maximizing u t i l i z a t i o n of such inventions. The bill also provides legal authority, now lacking i n a number of Federal agencies, for the licensing of Government-owned patents. Summary of H. R. 8596 B r i e f l y , the major provisions of H. R. 8596 are: T i t l e I , which contains a statement of findings and purposes. T i t l e I I , which provides an institutional framework through OSTP and i t s subcommittees to assure uniform implementation of the Act's provisions.

Disclaimer:

Nothing herein should necessarily be presumed to represent the policies of the Department of Health, Education, and Welfare. 0-8412-0454-3/78/47-081-026$05.00/0 © 1978 American Chemical Society

In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

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T i t l e I I I , Chapter 1, which would allow grantees and contract o r s the r i g h t to r e t a i n t i t l e to i n v e n t i o n s s u b j e c t to v a r i ous l i m i t a t i o n s and c o n d i t i o n s , i n c l u d i n g a case-by-case r i g h t o f d e v i a t i o n i n i n d i v i d u a l agencies where, f o r example, the Government i s f u l l y funding the development o f a product or process t o the p o i n t o f commercial a p p l i c a t i o n . T i t l e I I I , Chapter 2, which i s an e f f o r t t o c o d i f y the c r i t e r i a o f E x e c u t i v e Order 10096 i n i t i a l l y i s s u e d by P r e s i d e n t Truman a l l o c a t i n g r i g h t s i n i n v e n t i o n s made by F e d e r a l employees i n performance of o f f i c i a l d u t i e s , and which a l s o i n c l u d e s a u t h o r i t y f o r such an i n c e n t i v e awards program cove r i n g i n v e n t i o n s made by such employees. T i t l e IV, which provides a l l F e d e r a l agencies a u t h o r i t y to l i c e n s e Federally-owned i n v e n t i o n s . I t a l s o p r o v i d e s the Department o f Commerce w i t h c e r t a i n a d d i t i o n a l a u t h o r i t i e s , so t h a t a c e n t r a l i z e undertaken, althoug i s l e f t to agency d i s c r e t i o n , and T i t l e V, which contains d e f i n i t i o n s , amendments and r e p e a l e r s of e x i s t i n g statutes. In my o p i n i o n , the b i l l , except f o r T i t l e I I I , Chapter 1, should not prove c o n t r o v e r s i a l , s i n c e most of i t s p r o v i s i o n s embody precendents and c o n c l u s i o n s t h a t have been to some degree u n i f o r m l y agreed upon. Controversy over T i t l e I I I , Chapter 1, seems i n e v i t a b l e , s i n c e i t would supplant approximately 22 d i f f e r e n t s t a t u t o r y and a d m i n i s t r a t i v e p o l i c i e s and procedures covering a l l o c a t i o n of c o n t r a c t o r and grantee i n v e n t i o n s . Genesis o f H.

R.

8596

H. R. 8596 i s the c u l m i n a t i o n of years of d i s c u s s i o n and agency o p e r a t i n g experiences s t a r t i n g from the i n c r e a s e d i n f l u x o f Government r e s e a r c h and development funds a f t e r World War I I to the p r e s e n t 22 b i l l i o n - d o l l a r annual investment. The b i l l i n p a r t i s an adaptation of a d r a f t b i l l t h a t was prepared i n 1976 by an Interagency Committee on Government Patent P o l i c y , which b i l l appears to have been p a r t i a l l y i n s p i r e d by the 1972 Report of the Commission on Government Procurement. The Commission, composed of p u b l i c and p r i v a t e s e c t o r members, recommended t h a t Government patent p o l i c y continue to be guided by the P r e s i d e n t i a l Memoranda of 1963 and 1971 on Government Patent P o l i c y . However, the Commission a l s o recommended l e g i s l a t i o n s i m i l a r to H. R. 8596 i n the event of u n s a t i s f a c t o r y experience under the P r e s i d e n t i a l Memoranda. Some problems under the P r e s i d e n t i a l Memoranda became appar e n t soon a f t e r issuance of the Commission r e p o r t . F i r s t a Just i c e Department memorandum maintaining t h a t d i s p o s i t i o n by the Executive Department o f f u t u r e i n v e n t i o n s a t the time o f cont r a c t i n g c o n s t i t u t e s d i s p o s i t i o n of p r o p e r t y r e q u i r i n g s t a t u t o r y

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a u t h o r i t y , and lawsuits f i l e d by P u b l i c C i t i z e n s , Inc., based on t h a t t h e s i s , d i r e c t l y challenged the c o n s t i t u t i o n a l i t y o f p a r t s of the P r e s i d e n t i a l Memoranda. In a d d i t i o n , the Congress has s i n c e i n s t i t u t e d a number o f new research and development p r o grams through s t a t u t e s having patent p o l i c y p r o v i s i o n s i n c o n s i s t e n t with the P r e s i d e n t i a l Memoranda. Notwithstanding the w i t h drawal o f the J u s t i c e memorandum and d i s m i s s a l o f the P u b l i c Citizens s u i t s on p r o c e d u r a l grounds, the p r o b a b i l i t y and a c t u a l i t y of a d d i t i o n a l s u i t s based on the same t h e s i s and a d d i t i o n a l piecemeal l e g i s l a t i o n prompted the Committee on Government Patent P o l i c y to develop the 1976 d r a f t b i l l . 1

Patent P o l i c y A l t e r n a t i v e s The most b a s i c aspect o f Government patent p o l i c y i n v o l v i n g grantees and c o n t r a c t o r i n c l u d e d i n any given gran three types o f clauses t h a t might be used i n any given s i t u a t i o n : (a) A p r o v i s i o n g i v i n g the Government t i t l e t o a l l c o n t r a c tor inventions. (b) A p r o v i s i o n p r o v i d i n g f o r c o n t r a c t o r r e t e n t i o n o f t i t l e , s u b j e c t to whatever l i c e n s e s and other r i g h t s i t i s agreed t h a t the Government w i l l o b t a i n , or (c) A p r o v i s i o n t h a t the Government w i l l have the r i g h t t o determine the d i s p o s i t i o n o f r i g h t s i n any i n v e n t i o n s a f t e r they are i d e n t i f i e d (the " d e f e r r e d determination" approach). Debate over Government patent p o l i c y has centered on which types o f clauses should be used i n Government c o n t r a c t s and grants and under what circumstances. For the most p a r t Government agencies now use o n l y the l a s t two types of c l a u s e s , s i n c e even most s o - c a l l e d " T i t l e i n the Government" clauses provide t o the c o n t r a c t o r the r i g h t to request g r e a t e r r i g h t s than a nonexclusive l i c e n s e a f t e r an i n v e n t i o n has been made (unless otherwise precluded by s t a t u t e ) . Notwithstanding the number of outstanding s t a t u t e s , most agencies, i n c l u d i n g major r e s e a r c h and development agencies such as the Department o f Defense and the Department o f Health, Educat i o n , and Welfare have no s t a t u t o r y p r o v i s i o n s r e g u l a t i n g t h e i r p o l i c i e s and have been guided by the P r e s i d e n t i a l Memoranda. In f a c t , many of the agencies w i t h s t a t u t e s have g e n e r a l l y been guided by these Memoranda to the extent t h a t they are compatible w i t h the s t a t u t e s . However, the P r e s i d e n t i a l Memoranda o n l y est a b l i s h general g u i d e l i n e s as t o when t i t l e i n the Government, title i n the Contractor, or d e f e r r e d determination clauses should be used. They have not prevented the development o f a maze o f i n d i v i d u a l agency r e g u l a t i o n s and procedures, and have provided no guarantee t h a t agencies would consider s i m i l a r c o n t r a c t s t o r e q u i r e s i m i l a r c l a u s e s . H. R. 8596 has as one o f i t s o b j e c t i v e s the e l i m i n a t i o n o f t h i s c u r r e n t web o f s t a t u t e s and r e g u l a t i o n s .

In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

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A v a i l a b l e Approaches f o r a L e g i s l a t i v e Government Patent P o l i c y More important, H. R. 8596 has as i t s b a s i c o b j e c t i v e the development o f a p o l i c y t h a t w i l l enhance economic growth by maximizing u t i l i z a t i o n o f Government-supported i n v e n t i o n s . The primary i s s u e remains whether the approach taken i n T i t l e I I I , Chapter 1, o f the b i l l w i l l best accomplish t h a t r e s u l t . I t i s a n t i c i p a t e d t h a t opponents o f the b i l l w i l l argue t h a t a l l o w i n g c o n t r a c t o r s t o r e t a i n t i t l e i s a "give-away," "anticomp e t i t i v e , " and provides c o n t r a c t o r s w i t h a " w i n d f a l l . " O b j e c t i v e review o f the s u b j e c t has been d i f f i c u l t t o achieve i n the p a s t , s i n c e opponents are wont t o dispose o f the i s s u e through the catchwords c i t e d above, and others such as "what the Government pays f o r i t should own." Experience shows t h a t there are few s i t u a t i o n s i n which the Government funds i n v e n t i o n s r e s u l t i n g from i t s programs t o th f o r i n s t a n c e s where th the i n v e n t i o n . Notwithstanding, i t i s not p o s s i b l e a t t h i s time to s t a t i s t i c a l l y conclude t h a t the c o n t r a c t o r ' s u l t i m a t e f i n a n c i a l c o n t r i b u t i o n t o b r i n g i n g an i n v e n t i o n r e s u l t i n g from Government funding t o the marketplace i s i n any given case s i g n i f i c a n t i n comparison t o t h a t o f the Government. T h i s leads t o what i s b e l i e v e d t o be the most p e r s u a s i v e argument o r approach a v a i l a b l e to opponents o f the H. R....that d i s p o s i t i o n be made a t the time of c o n t r a c t i n g on a case-by-case b a s i s and/or d e f e r r e d u n t i l i d e n t i f i c a t i o n o f an i n v e n t i o n . Under such an approach i t i s contemplated t h a t d i s p o s i t i o n , whether made a t the time o f c o n t r a c t i n g o r a f t e r i d e n t i f i c a t i o n o f the i n v e n t i o n , w i l l take i n t o c o n s i d e r a t i o n the e q u i t i e s o f the Government v i s - a - v i s the c o n t r a c t o r i n u l t i m a t e l y b r i n g i n g the i n v e n t i o n t o the marketplace. However, s i n c e the e q u i t i e s of the p a r t i e s a t the time o f c o n t r a c t i n g i n a yet-to-be-made i n v e n t i o n are v i r t u a l l y impossible t o assess o b j e c t i v e l y , opponents o f H. R. 8596 have i n d i c a t e d a c l e a r p r e d i l e c t i o n toward d e f e r r i n g determination o f ownership u n t i l an i n v e n t i o n has been made, so t h a t d i s p o s i t i o n can be made on a stronger b a s i s . Acc o r d i n g l y , i t i s b e l i e v e d t h a t i f u n i f o r m i t y i s t o be one o f t h e p r e r e q u i s i t e s o f a l e g i s l a t i v e Government patent p o l i c y , the choice appears t o be r e a l i s t i c a l l y l i m i t e d t o the H. R. 8596 and d e f e r r e d determination approaches. (As already noted, a " t i t l e i n the Government" approach which does not take i n t o c o n s i d e r a t i o n requests f o r g r e a t e r r i g h t s i n the c o n t r a c t o r a f t e r an i n v e n t i o n has been made and has been v i r t u a l l y abandoned by the major R & D agencies i s n o t considered a means o f maximizing u t i l i z a t i o n o f Government-funded i n v e n t i o n s , s i n c e i t r e j e c t s the need f o r the patent i n c e n t i v e by the c o n t r a c t o r i n a l l situations.) A c c o r d i n g l y , the remainder o f t h i s p r e s e n t a t i o n i s l i m i t e d t o comparing H. R. 8596 and d e f e r r e d determination approaches a g a i n s t the o b j e c t i v e s sought.by a l e g i s l a t i v e Government patent p o l i c y .

In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

PATENT POLICY

30 The O b j e c t i v e s o f Government Patent P o l i c y

There i s general agreement t h a t the primary o b j e c t i v e s o f Government patent p o l i c y should be to (1) promote f u r t h e r p r i vate development and u t i l i z a t i o n of Government-supported invent i o n s , (2) ensure t h a t the Government's i n t e r e s t i n p r a c t i c i n g i n v e n t i o n s r e s u l t i n g from i t s support i s p r o t e c t e d , (3) ensure t h a t patent r i g h t s i n Government-owned i n v e n t i o n s are not used f o r u n f a i r , a n t i c o m p e t i t i v e or suppressive purposes, (4) m i n i mize the c o s t o f a d m i n i s t e r i n g patent p o l i c i e s through uniform p r i n c i p l e s , and (5) a t t r a c t the best q u a l i f i e d c o n t r a c t o r s . Comparison o f the Deferred Determination and the " T i t l e - i n - t h e C o n t r a c t o r " Approach Against the O b j e c t i v e s o f Government Patent Policy O b j e c t i v e (2) i s s a t i s f i e the Government as a minimum w i l l r e t a i n a r o y a l t y - f r e e l i c e n s e , even i f the c o n t r a c t o r has t i t l e . Stated i n other words, i f the Government i s the primary purchaser, i t makes l i t t l e d i f f e r e n c e who has t i t l e . The f o u r t h o b j e c t i v e (minimizing a d m i n i s t r a t i v e costs) i s b e s t met by the H. R. 8596 approach, s i n c e agency experience i n d i c a t e s t h a t a g r e a t amount o f Government and c o n t r a c t o r time i s r e q u i r e d to process requests f o r r i g h t s made under d e f e r r e d determination clauses. Indeed, a great hardship would be i n v o l v e d i n s h i f t i n g t o a Government-wide d e f e r r e d determination approach, unless t h i s was accompanied by a s i g n i f i c a n t i n c r e a s e i n the pat e n t and r e l a t e d support s t a f f s o f a number o f agencies. For example, i t i s u n l i k e l y t h a t DOD c o u l d e x p e d i t i o u s l y process each c o n t r a c t o r request f o r patent r i g h t s under a d e f e r r e d d e t e r mination procedure w i t h present s t a f f i n g . The f i f t h o b j e c t i v e ( a t t r a c t i n g the best q u a l i f i e d c o n t r a c t o r s ) seems best s a t i s f i e d by H. R. 8596, s i n c e there i s evidence t h a t many firms w i t h e s t a b l i s h e d commercial p o s i t i o n s and which are not p r i m a r i l y engaged i n Government c o n t r a c t i n g would be r e l u c t a n t or r e f u s e to undertake or compete f o r Government r e search and development c o n t r a c t s (or subcontracts) i n the area o f t h e i r e s t a b l i s h e d p o s i t i o n s i f the Government i n s i s t e d upon the use o f a d e f e r r e d determination c l a u s e . I t i s not r e a l i s t i c to b e l i e v e t h a t such f i r m s w i l l j e o p a r d i z e a p r i v a t e l y e s t a b l i s h e d commercial p o s i t i o n on the chance o f ownership of a major improvement o f such p o s i t i o n made w i t h Government funding. Refusal to p a r t i c i p a t e i n t h i s s i t u a t i o n w i l l probably n e c e s s i t a t e t h a t the Government c o n t r a c t w i t h a l e s s q u a l i f i e d c o n t r a c t o r or not cont r a c t at a l l . To avoid t h i s problem the p o l i c y would have to leave open the n e g o t i a t i o n o f other terms i n cases which demand d e v i a t i o n from a d e f e r r e d determination c l a u s e . However, t h i s would necess a r i l y i n c r e a s e the a d m i n i s t r a t i v e c o s t s o f a d e f e r r e d determinat i o n approach, s i n c e n e g o t i a t i o n o f s p e c i a l patent clauses a t the

In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

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time of c o n t r a c t i n g i s a time-consuming process. More important i s the f a c t t h a t no d e f i n i t i v e c r i t e r i a has ever been developed which would e s t a b l i s h when such a d e v i a t i o n was j u s t i f i e d . T h i s centers the debate on which approach best meets the obj e c t i v e s of promoting u t i l i z a t i o n o f Government-funded i n v e n t i o n s while guarding a g a i n s t abuse ( o b j e c t i v e s 1 and 3). In g e n e r a l , opponents of H. R. 8596 argue t h a t l e a v i n g f i r s t o p t i o n to r i g h t s i n i n v e n t i o n s to c o n t r a c t o r s w i l l not r e a l l y ensure g r e a t e r u t i l i z a t i o n and w i l l l e a d to abuses, such as suppress i o n , higher p r i c e s , and market c o n c e n t r a t i o n . Proponents argue t h a t H. R. 8596 w i l l maximize u t i l i z a t i o n of Government-funded i n v e n t i o n s , t h a t the p o t e n t i a l abuses are more t h e o r e t i c a l than r e a l , and t h a t i n any case the b i l l ' s "march-in" p r o v i s i o n s are a v a i l a b l e to r e c t i f y any abuses t h a t might develop. They a l s o argue t h a t the i s s u e of higher p r i c e s , to the extent i t i s t r u e , assumes t h a t the i n v e n t i o d e f e r r e d approach many For those t h a t are not, the i s s u e of p r i c e i s moot, and the publ i c has been deprived of new o r improved products. Factors A f f e c t i n g U t i l i z a t i o n A d e c i s i o n by any f i r m t o i n v e s t i n the development and mark e t i n g o f a patentable i n v e n t i o n i s dependent on numerous f a c t o r s , only one of which may be patent ownership. Obviously, patent r i g h t s w i l l not be a f a c t o r i n such d e c i s i o n s unless a commercial market i s e n v i s i o n e d . But a l l other things being equal, the owne r s h i p o f patent r i g h t s i s a p o s i t i v e i n c e n t i v e f o r investment i n commercialization. Ownership may w e l l be the d e c i d i n g f a c t o r on commitment o f p r i v a t e c a p i t a l , s i n c e s t u d i e s have shown t h a t the cost of b r i n g i n g an i n v e n t i o n from i t s i n i t i a l conception or r e d u c t i o n to p r a c t i c e (which i s as f a r as most Government i n v e n t i o n s are funded by the Government) to the commercial market i s approxmately 10 times the c o s t expended i n f i r s t i n v e n t i n g i t under a Government grant o r c o n t r a c t . In many s i t u a t i o n s t h i s a d d i t i o n a l investment w i l l not be made i f i t i s p e r c e i v e d t h a t a competitor can avoid t h i s i n i t i a l investment and u n d e r s e l l the o r i g i n a l developer. F u r t h e r , as a general p r o p o s i t i o n , the i n v e n t i n g o r g a n i z a t i o n i s more l i k e l y to be i n t e r e s t e d than other o r g a n i z a t i o n s i n comm e r c i a l i z i n g an i n v e n t i o n due to inherent a b i l i t y t o assess the merits o f the i n v e n t i o n from i n c e p t i o n through e a r l y stages o f development. I t i s probably a l s o b e t t e r q u a l i f i e d , or a t l e a s t as q u a l i f i e d as any other f i r m , t o promote or undertake f u r t h e r t e c h n i c a l development, s i n c e i t may have know-how not n e c e s s a r i l y a v a i l a b l e to other companies. I t w i l l a l s o normally have an i n v e n t o r and t e c h n i c a l team w i l l i n g to advocate t h a t t h e i r i d e a be brought to fruition. F u r t h e r , i n the case of many commercial c o n t r a c t o r s a Government-funded i n v e n t i o n may only be an improvement on exten-

In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

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s i v e contractor-owned technology, and, t h e r e f o r e , w i l l not alone form a b a s i s f o r a major new commercial l i n e . Can the Deferred-Determination Approach Minimize Monopoly P r o f i t s Without I n h i b i t i n g U t i l i z a t i o n ? Because o f the above circumstances, proponents o f H. R. 8596 argue t h a t there a r e strong reasons t o permit the i n v e n t i n g cont r a c t o r a f i r s t opportunity t o r e t a i n t i t l e t o i t s i n v e n t i o n and commercialize i t . Indeed, i n the case o f n o n p r o f i t o r g a n i z a t i o n s or s m a l l e r nonmanufacturing f i r m s , i t i s b e l i e v e d unreasonable t o expect any e f f o r t on t h e i r p a r t i n t r a n s f e r r i n g the i n v e n t i o n t o concerns capable o f marketing without the i n c e n t i v e o f ownership. In f a c t , i t i s argued t h a t there i s l i t t l e p o i n t i n going through a d e f e r r e d determination process i f the Government's o b j e c t i v e i s to maximize u t i l i z a t i o n Deferred determinatio ernment can make a b e t t e judgmen t i f i e d , denying e x c l u s i v i t y and a l l the abuses i t may engender where they are not necessary. I m p l i c i t i n t h i s c l a i m i s the a s sumption t h a t Government personnel w i l l e i t h e r be i n a p o s i t i o n (i) t o determine i f the e x i s t e n c e o f e x c l u s i v e patent r i g h t s i s needed as an i n c e n t i v e t o f u r t h e r development, o r ( i i ) t o f i n d a b e t t e r q u a l i f i e d f i r m t o commercialize the i n v e n t i o n through a Government l i c e n s i n g e f f o r t a f t e r t a k i n g t i t l e t o the i n v e n t i o n . As t o whether e x c l u s i v i t y i s needed as an i n c e n t i v e f o r p r i v a t e investment i n an i d e n t i f i e d i n v e n t i o n , i t should be r e cognized t h a t i f the Government determines t h a t e x c l u s i v i t y i s not needed, but i s wrong, no f u r t h e r development may take p l a c e . On the other hand, i f the Government i s r i g h t , consumers may save the h y p o t h e t i c a l d i f f e r e n c e i n p r i c e t h a t would be charged by someone h o l d i n g e x c l u s i v e r i g h t s , as opposed t o the p r i c e charged by someone who developed the product without e x c l u s i v e rights. In any case, the p u b l i c w i l l presumably g e t an improved product o r process which they f i n d more b e n e f i c i a l than i t s p r e vious a l t e r n a t i v e . Moreover, f o r the Government t o be r i g h t more o f t e n than not when making a d e f e r r e d determination would r e q u i r e extensive t e c h n i c a l , marketing, and economic s t u d i e s o f the f i r m s , technology, i n d u s t r i e s , and market i n v o l v e d . The c o s t t o taxpayers o f such programs could be more than any savings they would produce f o r consumers. T h i s appears t o be the present s i t u a t i o n , s i n c e i n most d e f e r r e d determination cases e x l u s i v i t y has been deemed necessary, and the c o s t l y determination process has been engaged i n simply t o confirm t h i s f a c t . T h i s has been s u b s t a n t i a t e d by the N a t i o n a l Aeronautic and Space A d m i n i s t r a t i o n , HEW and NSF (the three agencies which h i s t o r i c a l l y have made the l a r g e s t number o f d e f e r r e d determinations) by the grant o f over 90 percent o f the requests f o r "greater r i g h t s " over a p e r i o d spanning 10 years.

In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

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S i m i l a r l y , the a b i l i t y o f Government personnel t o decide a f t e r an i n v e n t i o n i s i d e n t i f i e d t h a t u t i l i z a t i o n w i l l b e s t be promoted by the Government's t a k i n g t i t l e and o f f e r i n g the i n v e n t i o n f o r l i c e n s i n g , assumes t h a t commerical developers, other than the i n v e n t i n g c o n t r a c t o r , can be found (presumably but not n e c e s s a r i l y on a nonexclusive b a s i s ) . There i s r e a l l y no e f f e c t i v e means f o r Government personnel to ensure t h a t other f i r m s , whether l i c e n s e d e x c l u s i v e l y or n o n e x c l u s i v e l y , would do a b e t t e r job o f developing the i n v e n t i o n than a w i l l i n g c o n t r a c t o r or a l i c e n s e e o f the c o n t r a c t o r . One can be sure t h a t i n most cases the i n v e n t i n g o r g a n i z a t i o n w i l l have l i t t l e i n t e r e s t or i n c e n t i v e to t r a n s f e r i t s know-how t o another f i r m , p o s s i b l y a competitor. Moreover, the very process o f attempting to f i n d a l t e r n a t i v e dev e l o p e r s w i l l simply serve to delay p r i v a t e investment and c o o l the i n t e r e s t o f the i n v e n t i n g c o n t r a c t o r . I t w i l l a l s o f o r c e the Government i n t o the expens to assure t h a t a patent t i m a t e l y deemed necessary. I t i s important a l s o to emphasize t h a t a d e f e r r e d determinat i o n t h a t i s t r u l y geared to r e s o l v e the questions t h a t t r o u b l e opponents o f the H. R. 8596 approach would be so c o s t l y , complex, and time-consuming as to discourage many c o n t r a c t o r s from r e q u e s t i n g r i g h t s i n the f i r s t i n s t a n c e , e s p e c i a l l y small b u s i nesses and u n i v e r s i t i e s . They may even n e g l e c t to r e p o r t the i n v e n t i o n under such circumstances. In a l l l i k e l i h o o d , without a request f o r r i g h t s to t r i g g e r the d e f e r r e d determination p r o cess, most agencies w i l l have l i t t l e i n c e n t i v e to do anything w i t h the d i s c l o s u r e and, i n most cases, the i n v e n t i o n w i l l be p r a c t i c e d by no one, as seems to be the case with a very subs t a n t i a l p o r t i o n o f the 28,000 patented i n v e n t i o n s now i n the Government's patent p o r t f o l i o . Indeed, under a d e f e r r e d d e t e r mination approach the agencies could be devoting so many resources to those cases where r i g h t s were reqested t h a t they would have i n s u f f i c i e n t personnel or i n t e r e s t to study i n v e n t i o n s and encourage development and marketing where r i g h t s were not requested. Thus, i t appears t h a t H. R. 8596 i s more l i k e l y than a l t e r n a t e approaches to maximize the commercialization o f Government-funded inventions. Other Concerns o f Deferred Determination Advocates In a d d i t i o n to the concern over higher p r o f i t s , advocates o f the d e f e r r e d determination approach have g e n e r a l l y v o i c e d two other concerns. F i r s t , they express the f e a r t h a t some c o n t r a c t o r s w i l l take advantage o f patent r i g h t s to suppress the u t i l i z a t i o n o f an i n v e n t i o n . Such f e a r s have been expressed throughout the years, but no case of such suppression has ever been documented, d e s p i t e the thousands o f i n s t a n c e s i n which Government c o n t r a c t o r s have r e t a i n e d t i t l e to i n v e n t i o n s . F u r t h e r , H. R. 8596 i n c l u d e s s o - c a l l e d "march-in" p r o v i s i o n s t h a t would remedy

In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

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any such abuse. F i n a l l y , proponents o f d e f e r r e d determinations argue t i t l e i n - the - c o n t r a c t o r may l e a d t o dominance o f an i n d u s t r y by a contractor. Studies i n d i c a t e t h a t most c o n t r a c t o r s normally l i c e n s e t h e i r patent t e c h n o l o g i e s and t h a t , i n any event, a l t e r n a t i v e t e c h n o l o g i e s are g e n e r a l l y a v a i l a b l e . No example o f such dominance has ever been g i v e n . I t i s a l s o q u e s t i o n a b l e whether the Government c o u l d i d e n t i f y the p o s s i b i l i t y o f such dominance d u r i n g the d e f e r r e d determination p r o c e s s . A strong argument can be made t h a t a l l o w i n g c o n t r a c t o r s t o r e t a i n patent r i g h t s w i l l tend to promote competition i n an i n d u s t r y , whereas a d e f e r r e d determination approach where the Government normally r e t a i n e d t i t l e and e i t h e r d e d i c a t e d the i n v e n t i o n to the p u b l i c or l i c e n s e d the i n v e n t i o n on a nonexclusive b a s i s approach would do otherwise. The p r o p o s i t i o n t h a t t i t l e - i n - t h e c o n t r a c t o r can l e a d to assumption o f a competitiv s t a r t with equal c a p a c i t i e s . In f a c t , many i n d u s t r i e s are c u r r e n t l y o l i g a r c h i c a l i n s t r u c t u r e and do not f i t the model o f pure competition. When t h i s i s the case, the r e t e n t i o n o f r i g h t s i n the Government and a p o l i c y o f nonexclusive d e d i c a t i o n or l i c e n s i n g tends t o serve the i n t e r e s t s o f the dominant f i r m s f o r whom patent r i g h t s are not normally a major f a c t o r i n m a i n t a i n i n g dominance. Rather, c o n t r o l o f r e s o u r c e s , extensive marketing and d i s t r i b u t i o n systems, and s u p e r i o r f i n a n c i a l resources are more important f a c t o r s i n m a i n t a i n i n g dominance and p r e v e n t i n g e n t r y o f new f i r m s . I t i s important t o note t h a t such f i r m s may w e l l be foreign-based and dominant through s u b s i d i z a t i o n by t h e i r governments, making the inadequacies o f a p o l i c y o f the Government's normally a c q u i r i n g t i t l e even more pronounced. C e r t a i n l y the Government should not be conducting r e s e a r c h and development and p e r m i t t i n g the r e s u l t s t o enure t o the b e n e f i t o f f o r e i g n c o u n t r i e s to the detriment o f our own economy. On the other hand, s m a l l e r f i r m s i n an i n d u s t r y must of nece s s i t y r e l y on a p r o p r i e t a r y p o s i t i o n i n new i n n o v a t i o n s and p r o ducts i n order to p r o t e c t t h e i r investment i n both domestic and f o r e i g n markets. Thus, patent r i g h t s tend to be a much more s i g n i f i c a n t f a c t o r a f f e c t i n g t h e i r investment d e c i s i o n s . They may need the e x c l u s i v i t y of patent r i g h t s t o o f f s e t the p r o b a b i l i t y t h a t a s u c c e s s f u l i n n o v a t i o n w i l l l e a d t o copying by a dominant f i r m which would soon undercut t h e i r market through marketing, f i n a n c i a l , and other commercial techniques. A c c o r d i n g l y , the d e f e r r e d determination approach i n which t i t l e normally i s r e t a i n e d by the Government may, i n f a c t , be a n t i c o m p e t i t i v e , s i n c e i t encourages the s t a t u s quo by d i s c o u r a g i n g i n n o v a t i o n . Congressman Thornton has provided an unprecedented forum f o r r e s o l u t i o n o f one o f the country's l e a s t understood but important problems. While g i v i n g the patent bar the o p p o r t u n i t y to educate the p u b l i c on the e s s e n t i a l p a r t the patent system p l a y s i n the economic l i f e o f a country pledged t o i n d i v i d u a l freedom and the

In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

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right of individuals to contribute to i t s society, we have an opportunity we cannot afford to lose to parochial interests. Abstract Representative Thornton introduced H.R. 8596 in 1977 which would establish a uniform Government policy regarding the a l l o c ation of rights to inventions made by Government grantees, contractors, and employees. In addition, the bill provides general legal authority for the licensing of Government-owned patents. The ultimate objective of this bill is to promote and maximize the commercialization and u t i l i z a t i o n of inventions and technology which result from Government-supported research. There i s considerable interest i n this bill, both within the Government and in the private sector. A review of the present situation reveals some available in formulatin would eliminate the current maze of statutory and administrative p o l i c i e s , forms, and clauses. Biographic Notes Norman J. Latker, Patent Counsel for the Department of Health, Education, and Welfare, is responsible for administration of the Department patent program, which handles patents, inventions and other forms of intellectual property resulting from the Department's $2 b i l l i o n annual research and development program. He has previously served on the staff of the Judge Advocate of the A i r Force Systems Command and as chief patent advisor at the Detroit Arsenal of the Army Ordinance Tank Automotive Command. Mr. Latker currently is Chairman of the Subcommittee on University Patent Policy of the Subcommittee on Intellectual Property of the Federal Council for Science, Engineering and Technology. Both his baccalaureate i n science and doctorate in law were awarded by the University of I l l i n o i s . RECEIVED June 20, 1978.

In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

4 Patent Policy in Government Research and Development Contracting JOHN C. STEDMAN 3533 Blackhawk Drive, Madison,WI53705

The argument abou on for years and w i l l probabl us something l i v e l y to talk about--and durable, because solutions always seem to be around the corner. The subject has so many ramifications, implications and complications that one can scarcely even list them, to say nothing of discussing them in a brief paper. For the purposes of the present discussion and in the i n terests of brevity, I make, for the sake of argument, certain assumptions: (1) that research and development contracted for by the Government is crucial to our welfare (if i t i s not, we should be taking a hard look at the b i l l i o n s the Government spends i n this area) ; (2) that the possibility of owning patents that stem from such R & D does--sometimes, if not always--provide an added incentive to invent and to innovate; (3) that the proposition, "the Government paid for it, the Government should get the patents," while logical enough and undoubtedly valid in many instances, is unduly simplistic, standing alone, i n terms of what i s in the best public interest; (4) that denial of patent rights to the contractor may, in an undetermined number of close cases, cause a contractor to refuse the contract or demand a higher price; (5) that denial of exclusive rights to a potential innovator, whether the R & D contractor or someone else, may (again, in close cases) result in non-innovation; (6) that the public interest may (I emphasize the word "may") warrant leaving patents with the R & D contractor if (I emphasize the word "if") failure to do so has undesirable results, in the form of reducing the incentive to invent or innovate, that exceed the benef i t s of retaining title in the Government. The f i r s t and most crucial problem, I think we can agree, i s to determine the respective "costs" and "benefits" of leaving patent rights with the contractor, reserving only a license i n the Government (referred to as "license policy"), as compared to retaining title in the Government (referred to as "title policy"). The main costs of leaving patents with the contractor 0-8412-0454-3/78/47-081-036$05.00/0 © 1978 American Chemical Society In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

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are those t h a t we u s u a l l y a s s o c i a t e with the possession o f such monopoly power as patents may p r o v i d e : d e n i a l to others of the r i g h t to use the i n v e n t i o n , p o s s i b l e higher p r i c e s to u l t i m a t e consumers, and advantages v i s a v i s competitors r e s u l t i n g i n competitive imbalance. S e c o n d a r i l y (and considerably more spe­ c u l a t i v e ) , such a c t i o n can r e s u l t i n a l e s s e n i n g of f u t u r e R & D by b l o c k i n g others from engaging i n such a c t i v i t y or reducing the pressure on the c o n t r a c t o r h i m s e l f to do so. The b e n e f i t s t h a t flow from the l i c e n s e p o l i c y are t h a t i t may give the con­ t r a c t o r g r e a t e r i n c e n t i v e to do the best p o s s i b l e job of i n v e n t ­ ing, i n c e n t i v e to innovate and market, i n c e n t i v e to supplement h i s Government R & D with R & D o f h i s own, a g r e a t e r w i l l i n g n e s s to take the c o n t r a c t or take i t at a lower p r i c e and, f i n a l l y , a minimizing of the " t r a n s a c t i o n c o s t s " imposed upon both p a r t i e s , but e s p e c i a l l y upon the Government. I use the term " t r a n s a c t i o n c o s t s " i n a very broad protracted negotiation the r e s p e c t i v e r i g h t s are, as w e l l as the a d d i t i o n a l burdens of s u p e r v i s i o n , i n s p e c t i o n , and review t h a t may f a l l upon the Gov­ ernment i n the absence of the s e l f - o p e r a t i n g i n c e n t i v e s f o r the c o n t r a c t o r to cooperate and do h i s b e s t — i n c e n t i v e s t h a t presum­ ably attend adoption of the " l i c e n s e " p o l i c y . The " c o s t s " and " b e n e f i t s " of Government r e t e n t i o n of patent r i g h t s are, of course, s u b s t a n t i a l l y a m i r r o r image of those I have j u s t enumerated. The Government, as r e p r e s e n t a t i v e of the p u b l i c , b e n e f i t s from the competition t h a t r e s u l t s i f a l l are f r e e t o use the i n v e n t i o n — a s s u m i n g they do use i t — a n d from such a d d i t i o n a l independent r e s e a r c h as both the c o n t r a c t o r and others may engage i n . The costs may take the form o f poorer performance per R & D d o l l a r spent by the Government, as a r e s u l t of those best q u a l i f i e d r e f u s i n g t o take the c o n t r a c t (at l e a s t at the agreed-upon p r i c e ) , l e s s enthusiasm f o r doing a good job, s h o r t ­ changing the Government through non-disclosure of r e s u l t s , un­ w i l l i n g n e s s to r i s k commercialization o f the i n v e n t i o n , and so on. They a l s o may i n v o l v e higher " t r a n s a c t i o n c o s t s " of the s o r t p r e v i o u s l y mentioned. I t i s easy enough to t i c k o f f the v a r i o u s ways i n which t h i s or t h a t approach may have p l u s or minus e f f e c t s . But a mere recounting o f the p o s s i b i l i t i e s makes two things p a i n f u l l y apparent. One, the extent o f the c o s t or b e n e f i t becomes an extremely " i f f y " m a t t e r — m o s t of a l l at the stage when one has no c l e a r p i c t u r e of what may r e s u l t . Two, as a c o r o l l a r y , i t may be t h a t the best course to f o l l o w l i e s somewhere between the two extremes o f " t i t l e " p o l i c y and " l i c e n s e " p o l i c y . A c l o s e r look at the r e a l i t i e s w i l l u n d e r l i n e the great v a r i a t i o n s t h a t may e x i s t as between one invention-innovation s i t u a t i o n and another: (1) A given new product or process may be easy and inexpensive both t o invent and to innovate. In t h i s s i t u a t i o n , l i t t l e help from the Government, whether i n the form of patent p r o t e c t i o n or otherwise, i s presumably needed s i n c e p r i v a t e e n t e r p r i s e should be q u i t e able t o handle the s i t u a t i o n ;

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(2) As t o another product or p r o c e s s , i n v e n t i o n may be easy and inexpensive, but i n n o v a t i o n may be d i f f i c u l t and expensive. Here, as i n the f i r s t s i t u a t i o n , the patent system i s l i k e l y t o have l i t t l e relevance (except as p a t e n t a b l e i n v e n t i o n s may a r i s e l a t e r ) s i n c e by d e f i n i t i o n the patent law a p p l i e s o n l y t o i n v e n t i o n s t h a t are d i f f i c u l t t o make, not t o d i f f i c u l t i n n o v a t i o n s . Consequently, such support as Government may p r o v i d e , i f i t i s to p r o v i d e any a t a l l , must take the form o f some s o r t o f subsidy, in-house development, a s s i s t a n c e and a d v i c e , o r other non-patent a i d ; (3) S t i l l another product o r process may be d i f f i c u l t and expensive t o i n v e n t , but i t s i n t r o d u c t i o n i n t o the market may be easy and inexpensive. The i n v e n t i o n o f an 80-mile-per-gallon c a r b u r e t o r comes t o mind. Here, some i n c e n t i v e or a i d , whether through patent r i g h t s o r Government funds may be needed t o b r i n g the i n v e n t i o n i n t o b e i n g , but not t o induce i n n o v a t i o n once the i n v e n t i o n has been made be d i f f i c u l t and expensiv stages. Here, some k i n d o f i n c e n t i v e support, Governmental o r otherwise, may be needed a t both stages. Government support need not n e c e s s a r i l y take the form o f patent r i g h t s . A t the i n v e n t i o n stage i t can, and u s u a l l y does, c o n s i s t o f monetary support. A t the i n n o v a t i o n stage, i t can c o n s i s t o f other d i r e c t forms o f aid: monetary, expert advice and a s s i s t a n c e , development f a c i l i t i e s , and so on. More i n d i r e c t l y , know-how, h e a d s t a r t advantages, s t a f f maintenance and improvement, o r the prospect o f o b t a i n i n g supplemental patents on l a t e r i n v e n t i o n s stemming from the i n n o v a t i v e e f f o r t — a l l having t h e i r r o o t s i n the R & D cont r a c t — m a y be s u f f i c i e n t t o induce the c o n t r a c t o r t o take the "innovation" r i s k s . Granted t h a t these a l t e r n a t i v e s e x i s t , the award o f patent p r o t e c t i o n c o v e r i n g the o r i g i n a l i n v e n t i o n does remain as one way t o p r o v i d e i n c e n t i v e t o undertake an i n n o v a t i o n t h a t might otherwise not occur. The f o r e g o i n g u n d e r l i n e s the g r e a t v a r i e t y o f p o s s i b l e situations. In s h o r t , the " i n c e n t i v e " r o l e t h a t patents may p l a y i n the i n n o v a t i o n process, as d i s t i n g u i s h e d from the i n v e n t i o n process, may range from very great t o nothing a t a l l . Nor i s the " i n c e n t i v e stimulus" r o l e the o n l y imponderable. A g i v e n patent may have an e n t i r e l y d i f f e r e n t s i g n i f i c a n c e i n the hands o f c o n t r a c t o r X than i n the hands o f c o n t r a c t o r Y. I f X i s a s m a l l entrepreneur w i t h l i t t l e e l s e t o p r o t e c t him from powerf u l competitors, the patent may have s a l u t a r y e f f e c t s i n terms of both improving (rather than d i s t o r t i n g ) the balance o f compet i t i o n and p r o v i d i n g i n c e n t i v e s t o others t o i n v e n t around. I f Y i s a l a r g e , dominant concern, award o f patent r i g h t s may r e s u l t i n f u r t h e r d i s t o r t i o n o f an already unbalanced competitive s i t u a t i o n and can even p r o v i d e a d i s i n c e n t i v e t o f u r t h e r i n v e n t i o n — both on the p a r t o f Y because he i s a l r e a d y w e l l - i n s u l a t e d a g a i n s t competition and on the p a r t o f others who f i n d Y's advantages too great t o overcome. Beyond the competitive imponderables, there i s , o f course,

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the f a c t t h a t patents themselves vary tremendously i n terms o f t h e i r impact upon the competitive s t r u c t u r e . Some are pop-guns, c o m p e t i t i v e l y speaking; some are b l o c k - b u s t e r s . Given the r e a l i t i e s o f these v a r i a t i o n s , the d i f f i c u l t i e s i n many cases (indeed, the i m p o s s i b i l i t y i n some instances) o f e v a l u a t i n g a c c u r a t e l y the c o s t s and b e n e f i t s o f e i t h e r g r a n t i n g or not g r a n t i n g e x c l u s i v e patent r i g h t s to the c o n t r a c t o r , become apparent. They become a l l the more apparent, o f course, when such e v a l u a t i o n s must be made, as they o f t e n must, a t a time when the s u b j e c t i n v e n t i o n s have not even been made and when one can o n l y speculate upon what the business s t r u c t u r e , the p o s i t i o n o f v a r i o u s e n t i t i e s i n t h a t s t r u c t u r e , and the competitive p r a c t i c e s w i l l be i n the years t o come—the years i n which the impact o f the patents w i l l be f e l t . Recognition o f these u n c e r t a i n t i e s , b r i n g s us t o the next major q u e s t i o n . With a to the next, and with a t e n t o f a given c o s t or b e n e f i t , how are we t o a s c e r t a i n whether the c o s t s and b e n e f i t s o f given a l t e r n a t i v e s have been a c c u r a t e l y determined? I f we do e r r , how s h a l l we c o r r e c t those e r r o r s ? What I am asking i s t h i s : How can t h i s h i g h l y u n c e r t a i n , h i g h l y v a r i a b l e , h i g h l y v o l a t i l e program best be administered i n the public interest? There may be no good answer to these q u e s t i o n s . In c l o s e c a s e s — a n d i t i s c l o s e cases t h a t must concern u s — i t may be t h a t nobody i s i n a p o s i t i o n t o make a r e a l l y accurate prognosis i n terms o f what i s b e s t . T h i s r e a l i t y does, however, suggest the approach t h a t i t would seem wise t o take. In view of the p o s s i b i l i t y t h a t a given d e c i s i o n may prove unwise because o f expectations t h a t do not m a t e r i a l i z e , u n a n t i c i p a t e d changes o f circumstance, o r f o r other reason, any program t h a t i s adopted f o r d e a l i n g w i t h t h i s s i t u a t i o n should be f l e x i b l e and a d j u s t a b l e . But f l e x i b i l i t y and a d j u s t a b i l i t y , alone, are not enough. Incent i v e must a l s o e x i s t to make those adjustments when o c c a s i o n demands. Where a given d e c i s i o n i s disadvantageous to the cont r a c t o r , one may reasonably expect him, i n h i s own s e l f - i n t e r e s t , to t r y to get i t changed. I t i s l e s s c e r t a i n t h a t a Government agency w i l l take the necessary steps t o c o r r e c t a d e c i s i o n t h a t proves adverse t o the p u b l i c i n t e r e s t . With some exceptions, Government agencies tend toward i n e r t i a with r e s p e c t t o p r e viously-made d e c i s i o n s , unless someone i s b r e a t h i n g down t h e i r n e c k s — e s p e c i a l l y where the a c t i o n c a l l e d f o r i s secondary t o t h e i r primary r e s p o n s i b i l i t i e s , as i s the case with an R & D agency's a d m i n i s t r a t i o n o f patent r i g h t s . The tendency not t o c o r r e c t the s i t u a t i o n i s the g r e a t e r , o f course, i f the need f o r r e v i s i o n i s not c l e a r l y p e r c e i v e d or i f c o r r e c t i v e a c t i o n w i l l r e q u i r e a f f i r m a t i v e steps by the agency. An u n d e s i r a b l e arrangement i s more l i k e l y t o continue, f o r i n s t a n c e , i f i t i s the subj e c t o f a 10-year c o n t r a c t with a r i g h t t o terminate a f t e r 5 years.

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Recognition o f the s i g n i f i c a n c e o f the human element i n t h e a d m i n i s t r a t i o n o f t h i s p a t e n t - a l l o c a t i o n program, b r i n g s us t o a t h i r d basic question. I s the agency t h a t sponsors the R & D and n e g o t i a t e s the c o n t r a c t the b e s t one t o d e a l w i t h these broader problems i n v o l v i n g the a l l o c a t i o n o f patent r i g h t s ? There a r e grounds f o r suggesting t h a t i t i s not. Granted t h a t i t i s w e l l q u a l i f i e d t o evaluate the t e c h n o l o g i c a l performance o f the cont r a c t o r and the t e c h n o l o g i c a l r e l a t i o n s h i p o f what he does t o what others have done o r are doing, i t does not n e c e s s a r i l y f o l low t h a t i t i s best q u a l i f i e d t o evaluate the marketing, e n t r e p r e n e u r i a l and competitive r e s u l t s t h a t may flow from a given course o f a c t i o n — a n d these, a f t e r a l l , are the c r u c i a l f a c t o r s t h a t must c o n t r o l d e c i s i o n s regarding p a t e n t s . Competency i n these matters i s e s p e c i a l l y open t o question i n the case o f a " m i s s i o n - o r i e n t e d " a g e n c y — a n d i t i s they who are r e s p o n s i b l e f o r most o f the Government-supporte "public-service-oriented l a c k o f balance because o f t h e i r understandable emphasis upon t h e i r immediate f i e l d s o f i n t e r e s t . Furthermore, as a r e s u l t o f constant exposure t o the views o f those with whom i t d e a l s , any agency runs the r i s k o f developing an unconscious b i a s i n the d i r e c t i o n o f the c o n t r a c t o r ' s p o i n t o f view, i n the same way t h a t r e g u l a t o r y agencies do with r e s p e c t t o those whom they r e g u l a t e . F i n a l l y , a given c o n t r a c t o r ' s w i l l i n g n e s s t o c o n t r a c t , to c o n t r a c t a t a given p r i c e , o r t o perform s a t i s f a c t o r i l y , may w e l l be i n f l u e n c e d by whether o r not he w i l l be awarded patent r i g h t s . T h i s being so, the c o n t r a c t i n g agency f i n d s i t s e l f i n an uncomfortable " c o n f l i c t o f i n t e r e s t " p o s i t i o n , where i t w i l l be tempted t o trade o f f the patent r i g h t s — t h e c o s t o f which f a l l s upon o u t s i d e r s — i n order t o get a b e t t e r d e a l , g r e a t e r e f f o r t and more cooperation from the c o n t r a c t o r — b e n e f i t s t h a t accrue d i r e c t l y t o the agency. A f o u r t h p o i n t t o c o n s i d e r , and a very troublesome one i t i s , i s the matter o f t r a n s a c t i o n c o s t s . Entanglements, p r o t r a c t i o n s , s u p e r v i s i o n , u n c e r t a i n t i e s , and delays can attend the e n t i r e p r o c e s s we are t a l k i n g about, from the e a r l i e s t n e g o t i a t i o n s t o the f i n a l completion o f the c o n t r a c t , and even beyond. These are c o s t l y t o e v e r y o n e — t h e c o n t r a c t o r , the Government, and the p u b l i c a l i k e . These costs may take many forms: wrangl i n g over the d o l l a r c o s t s o f the c o n t r a c t ; argument whether a given i n v e n t i o n was made under o r o u t s i d e o f the c o n t r a c t ; whether the c o n t r a c t o r has p u t f o r t h h i s best e f f o r t i n p e r forming; whether he has d i s c l o s e d everything he should; whether patent p r o t e c t i o n i s necessary t o induce i n n o v a t i o n ; whether e q u i t y and competitive c o n s i d e r a t i o n s warrant g i v i n g him exc l u s i v e r i g h t s and, i f so, t o what extent; u n c e r t a i n t y and i n d e c i s i o n as t o what he may keep f o r h i m s e l f and what he must t u r n over t o the Government; and so on. These are troublesome and d i f f i c u l t matters and the urge t o minimize o r avoid them i s understandable. T h i s urge, as much as anything, may l i e back o f

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the approach i n H, R. 8596, introduced by Representative Thornton i n 1977, t o the a l l o c a t i o n of patent r i g h t s . One can applaud e f f o r t s to e l i m i n a t e or minimize these c o s t s — w o u l d t h a t Government g e n e r a l l y might concern i t s e l f more w i t h such t h i n g s . The q u e s t i o n i s whether we end up paying too high a p r i c e , or a higher p r i c e than necessary, f o r such r e s u l t s . I have t a l k e d g e n e r a l i t i e s and p r i n c i p l e s long enough. Let me t u r n to the s p e c i f i c s . A r e s p o n s i b l e program i n t h i s area c a l l s f o r the f o l l o w i n g : (1) C a r e f u l e v a l u a t i o n to determine whether an award of patents i s needed to induce " i n v e n t i o n . " (2) A s i m i l a r e v a l u a t i o n with respect to encouraging "innovation . " (3) E v a l u a t i o n of the e f f e c t s o f given courses o f conduct upon the competitive s i t u a t i o n . (4) A c a r e f u l b a l a n c i n and-benefit a n a l y s i s given course o f conduct i s (a) worth what i t c o s t s or (b) could be modified to reduce the c o s t and i n c r e a s e the b e n e f i t s . Needless to say, e v a l u a t i o n s l i k e these, to be s u c c e s s f u l , r e q u i r e competency, broad understanding, good judgment, l a c k o f b i a s , and a reasonable measure of courage, aggressiveness, imagin a t i o n and f o r e s i g h t . T h i s i s a t a l l order. A d d i t i o n a l l y , such a program r e q u i r e s : (5) A s u f f i c i e n t l y f l e x i b l e procedure so t h a t e r r o r s can be c o r r e c t e d or programs modified i n response to changed circumstances. (6) A determined e f f o r t to minimize t r a n s a c t i o n c o s t s by e l i m i n a t i n g u n c e r t a i n t i e s , d e l a y s , time-consuming and burdensome procedures, unnecessary s u p e r v i s i o n and r e view, red-tape, and the l i k e . Some of these c r i t e r i a work against each other. "Flexibili t y * and " c e r t a i n t y " may be mutually i n c o n s i s t e n t . C a r e f u l review and p r o t e c t i o n o f the r i g h t to be heard may r e s u l t i n more, r a t h e r than l e s s , delay and burdensome procedure. D e n i a l of patent r i g h t s may n e c e s s i t a t e c l o s e r s u p e r v i s i o n to assure t h a t the c o n t r a c t o r does h i s b e s t . And so on. Here, again, t r a d e - o f f s may become necessary. The important t h i n g i s t o avoid t r a d i n g one's b i r t h r i g h t f o r a mess o f pottage. I am a f r a i d I cannot put o f f any longer t a l k i n g about the Thornton b i l l . How do H. R. 6249 and i t s successor H. R. 8596 stack up i n terms o f these c r i t e r i a ? I w i l l assume a working knowledge of t h i s b i l l ' s p r o v i s i o n s and w i l l concentrate on the " t i t l e versus l i c e n s e " i s s u e i n c o n t r a c t o r cases (sections 311 to 316). The Thornton b i l l does, indeed, have some a t t r a c t i v e f e a tures: (1) I t p r o v i d e s an express a u t h o r i z a t i o n from Congress to a s s i g n patent r i g h t s to p r i v a t e e n t i t i e s i n appropriate c a s e s — 1

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an a u t h o r i z a t i o n t h a t has h e r e t o f o r e been l a c k i n g , a l a c k which has given r i s e to a l e g a l controversy t h a t i s s t i l l not d e f i n i t i v e l y s e t t l e d ( c f . Kaplan v. Corcoran, 545 F.2d 1073, 192 USPQ 129, 7th C i r c u i t , 1976). (2) I t p r o v i d e s , i n form a t l e a s t , f o r a f l e x i b i l i t y t h a t enables the agency to t a i l o r i t s a c t i o n , both a t the o u t s e t and at l a t e r stages, to f i t the s i g n i f i c a n t p u b l i c i n t e r e s t c o n s i d e r a t i o n s we have been t a l k i n g about: i n c e n t i v e to i n v e n t , i n c e n t i v e t o innovate, and due concern f o r competitive e f f e c t s . (3) I t g r e a t l y reduces immediate t r a n s a c t i o n costs (a) by a c q u i e s c i n g i n the c o n t r a c t o r ' s c l a i m to t i t l e , thereby a v o i d i n g controversy, delay and u n c e r t a i n t y , (b) by s u b j e c t i n g the agency's a c t s (at l e a s t , those f a v o r a b l e to the c o n t r a c t o r ) to almost no p r o c e d u r a l or review requirements, and (c) by l e s s e n i n g the need f o r c l o s e s u p e r v i s i o n and i n s p e c t i o n o f the c o n t r a c t o r ' s performance ( i n c l u d i n g r e l y i n g upon h i s s e l f - i n t e r e s t — seem, s i n c e he i s able t o r e t a i n almost a l l the b e n e f i t s r e s u l t ing from h i s performance. (4) A l l i n a l l , the b i l l provides i n c e n t i v e f o r the c o n t r a c tor to perform to h i s best a b i l i t y and the f u r t h e r i n c e n t i v e to develop and market the i n v e n t i o n s t h a t he comes up w i t h — i n s h o r t , to pursue w i t h v i g o r and haste the journey from the drawing board to the drawing room. I t a l l adds up t o "more bangs per buck," short-term a t l e a s t . Whether the long-range e f f e c t i s s a l u t a r y , i s another q u e s t i o n . L e t me look, now, at the shortcomings. (1) In l e a v i n g patent r i g h t s w i t h the c o n t r a c t o r simply f o r the asking, the Thornton b i l l dispenses at the o u t s e t w i t h the need f o r any s e r i o u s c o n s i d e r a t i o n o f the costs and b e n e f i t s . There are p e r s u a s i v e reasons why the Government should not s u r render l i g h t l y or c a s u a l l y the patent r i g h t s r e s u l t i n g from i t s R&D c o n t r a c t s . Patents do c o n s t i t u t e a monopoly o f s o r t s , a l b e i t a l i m i t e d one. In an economic s o c i e t y dedicated t o f r e e e n t e r p r i s e and to r e l i a n c e mainly upon competition, i n l i e u o f r e s o r t i n g to other forms o f c o n t r o l , any monopoly f a c t o r can have a d i s r u p t i n g e f f e c t . To permit c o n t r a c t o r r e t e n t i o n o f the patents without any i n q u i r y i n t o the e f f e c t o f t h i s upon compet i t i o n , or any e x p l o r a t i o n of whether such a c t i o n is_ necessary t o induce the c o n t r a c t o r to take the c o n t r a c t to do a proper job o f i n v e n t i n g and d i s c l o s i n g (both o f which he i s o b l i g a t e d t o do, anyway) or to commercialize the i n v e n t i o n (which he i s not o b l i gated to do) simply does not seem to square w i t h the demands o f p u b l i c i n t e r e s t and r e s p o n s i b l e a d m i n i s t r a t i o n . (2) Nor are the p r o v i s i o n s i n the b i l l t h a t are designed to keep the c o n t r a c t o r ' s e x c l u s i v i t y w i t h i n bounds l i k e l y t o do so. The p r o v i s i o n s f o r compulsory l i c e n s i n g where a n t i t r u s t , h e a l t h and w e l f a r e , or r e g u l a t o r y requirements would otherwise be threatened, and the p r o v i s i o n s f o r more general compulsory l i c e n s i n g a f t e r s e v e r a l years have elapsed seem s e r i o u s l y

In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

4.

STEDMAN

Policy in Government R à- D Contracting

43

deficient. For one t h i n g , any i n t e r f e r e n c e w i t h the c o n t r a c t o r ' s e x c l u s i v i t y i s subject to p r o c e d u r a l l i m i t a t i o n s t h a t could subs t a n t i a l l y delay o r prevent a c t i o n ( i n c o n t r a s t to the i n i t i a l award to the c o n t r a c t o r which i s l a r g e l y pro forma.) As f o r the more general l i c e n s i n g , i t cannot be imposed a t a l l u n t i l 7 or 10 y e a r s , or longer, have passed. Beyond these, the d e c i s i o n whether or not to r e q u i r e l i c e n s i n g r e s t s w i t h the R & D agency t h a t made the c o n t r a c t — a n a u t h o r i t y t h a t may remain l a r g e l y unused t o the extent t h a t an agency i s sympathetic, as many are, to the p r i n c i p l e of l e a v i n g a l l commercial r i g h t s w i t h the contractor. In such agencies, the supposedly f l e x i b l e a d m i n i s t r a t i o n contemplated by the b i l l thus becomes h i g h l y i n f l e x i b l e i n favor o f the c o n t r a c t o r , and i s rendered a l l the more so by p r o v i s i o n s i n s e c t i o n 315 (a) and (d) which permit d e v i a t i o n from the requirements s e t f o r t h i n the chapter. In s h o r t , many p r o v i s i o n s i n the b i l l pus predisposed i n t h a t d i r e c t i o n t r a c t o r and not t h e r e a f t e r to tamper w i t h them. (3) S t i l l another f a c t o r pushes i n t h i s same d i r e c t i o n : Once the c o n t r a c t o r r e c e i v e s t i t l e , as he does a u t o m a t i c a l l y , i t takes a f f i r m a t i v e a c t i o n on the agency's p a r t t o open the patent up f o r use by o t h e r s . As I have mentioned p r e v i o u s l y , i f i t i s up t o the Government to take the i n i t i a t i v e to c o r r e c t a s i t u a t i o n i t c r e a t e d , the s i t u a t i o n may simply remain uncorrected. (4) F i n a l l y , one may s e r i o u s l y q u e s t i o n whether the s t r u c ture contemplated by the b i l l holds out much hope f o r the genui n e l y competent and unbiased a d m i n i s t r a t i o n t h a t i s e s s e n t i a l i f the p u b l i c i n t e r e s t i s to be adequately served. Many a g e n c i e s — e s p e c i a l l y the m i s s i o n - o r i e n t e d ones—may have l i t t l e understanding and f e e l f o r the broader aspects o f i n n o v a t i o n , competitive s t r u c t u r e , monopoly t h r e a t , and so on, however expert they may be i n the t e c h n o l o g i c a l aspects of t h e i r s u b j e c t s . Furthermore, those who made the o r i g i n a l d e c i s i o n s may be q u i t e u n e n t h u s i a s t i c about d e c i d i n g l a t e r t h a t they misjudged the s i t u a t i o n . And f i n a l l y , given a p o s s i b l e long-standing r e l a t i o n s h i p with the c o n t r a c t o r and p o s s i b l e f u t u r e r e l a t i o n s h i p w i t h h i m — a s i t u a t i o n t h a t may be aggravated i n some cases by the " r e v o l v i n g door" phenomenon—one cannot ignore the p o s s i b i l i t y o f unconscious b i a s , however dedicated and c o n s c i e n t i o u s the a d m i n i s t r a t o r may be. These c o n s i d e r a t i o n s , taken w i t h the well-known l a c k o f sympathy i n many Government agencies f o r anything t h a t smacks o f the " t i t l e " p o l i c y , leave one d o u b t f u l as t o how meaningful the safeguards i n the Thornton b i l l might prove to be. I can summarize my r a t h e r p e s s i m i s t i c views o f the b i l l as follows: I t s enactment would probably (1) put i n c r e a s e d pressure on a l l R & D agencies to leave patent r i g h t s w i t h the c o n t r a c t o r s and discourage them from t h e r e a f t e r i n t e r f e r i n g w i t h those e x c l u s i v e r i g h t s except i n the most egregious and outrageous cases; (2) harden the s o - c a l l e d " l i c e n s e " agencies' o p p o s i t i o n t o Governmental r e t e n t i o n o f p a t e n t s — a l l the more so s i n c e they would

In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

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now have C o n g r e s s i o n a l b l e s s i n g f o r t h e i r views; (3) p u t road b l o c k s and p r o c e d u r a l burdens i n the way o f those agencies t h a t favor the " t i t l e " p o l i c y and even those t h a t f o l l o w a more modif i e d " t i t l e w i t h waiver" p o l i c y . These p r e s s u r e s c o u l d , i t i s t r u e , l e a d t o a h i g h degree o f u n i f o r m i t y , but a u n i f o r m i t y based upon a b d i c a t i o n — a consummation not d e v o u t l y t o be wished. With c l o s e t o two-thirds o f the R & D done today supported by Government funds, and the overwhelming share o f R & D cont r a c t s , i n d o l l a r terms, going t o l a r g e and a l r e a d y powerful concerns, I suggest t h a t t h i s i s not the k i n d o f law t h a t should be enacted, i n the absence o f much c l e a r e r evidence than we now have t h a t i t i s r e a l l y necessary i n the p u b l i c i n t e r e s t . What, then, do we need? I d i s l i k e ending on a negative note, so l e t me suggest the f o l l o w i n g : (1) We should not throw out the Thornton b i l l e n t i r e l y . I t does have i t s good p o i n t s (2) We should r e t a i and the f l e x i b i l i t y t h a t enables one t o d e a l , not o n l y w i t h b l a c k and white cases, but a l s o with the gray, in-between cases. (3) We should s h i f t the burden o f proof t o the c o n t r a c t o r t o show cause why he should be awarded e x c l u s i v e r i g h t s . (4) To the extent t h a t e x c l u s i v e r i g h t s a r e found t o be warranted, we should f o l l o w the p r a c t i c e o f g r a n t i n g e x c l u s i v e l i c e n s e s ( t a i l o r i n g the l i c e n s e t o the needs o f the s i t u a t i o n ) , and a v o i d o u t r i g h t assignment. I t may not be easy t o e v i c t a tenant, b u t i t i s a l o t e a s i e r than i t i s t o f o r e c l o s e a mortgage. Furthermore, r e c o g n i t i o n t h a t , as owner, the Government w i l l p e r f o r c e become a p a r t y t o any infringement s u i t may g i v e some pause to those a d m i n i s t r a t o r s i n c l i n e d t o be over-generous i n t h e i r dealings with contractors. (5) An independent Government Board o f Review should be p r o v i d e d — p r e f e r a b l y i n an a l r e a d y - e x i s t i n g a g e n c y — t o review a l l e x c l u s i v e g r a n t s . Such a body should be competent, expert, and above a l l , unbiased. P o s s i b l y , the set-up might i n c l u d e an "ombudsman," so t o speak, t o present the case, whatever i t may be, a g a i n s t the grant o f e x c l u s i v e r i g h t s , (The c o n t r a c t o r , presumably, would be q u i t e competent t o present h i s own case i n favor o f such r i g h t s . ) (6) I hope you w i l l not charge me w i t h u n b e l i e v a b l e n a i v e t e and i n c o n s i s t e n c y i f I make one f i n a l suggestion: every step p o s s i b l e , c o n s i s t e n t w i t h r e s p o n s i b l e a d m i n i s t r a t i o n and concern f o r due p r o c e s s , should be taken t o e l i m i n a t e , i n s o f a r as i t can be done, the r e d tape, p r o c e d u r a l entanglements and d e l a y s t h a t too o f t e n c h a r a c t e r i z e too many o f our Governmental a c t i v i t i e s . P u b l i c and p r i v a t e i n t e r e s t s can be safeguarded, I f i r m l y b e l i e v e , without bogging down i n p r a c t i c e s t h a t make a mockery o f the whole p r o c e d u r e — p r o v i d e d there i s a genuine w i l l t o achieve that objective.

In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

4.

STEDMAN

Policy in Government R&D

Contracting

45

Abstract Sharp differences exist i n the motivation underlying Government-supported invention and innovation (I&I) as compared to private enterprise I&I. Private enterprise generally seeks high return to compensate for higher r i s k . Government operates on a non-profit basis. The patent system, although workable i n the private sector, has little relevance to Government-supported R&D unless needed to induce both R&D contractors to perform better and innovators to put inventions to use. Thus, Government must consider who i s best qualified to undertake i t s R&D; who should exploit i t ; how to motivate both inventors and innovators; and how to keep costs to a minimum. How to obtain a proper balance of these sometimes-conflicting objectives are discussed. Biographic Notes John C. Stedman i s an Emeritus Professor of Law at the University of Wisconsin where he has taught for the past 43 years. His specialties are intellectual and industrial property, trade regulations and antitrust law. Professor Stedman i s admitted to practice in Wisconsin, Minnesota and before the United States Supreme Court. His long career has included assignments for both the Executive and Legislative Branches of the U.S. Government. He has served on many committees and advisory boards of various law associations and has published widely in both professional and lay journals. Professor Stedman's degrees are from the University of Wisconsin and Columbia University. RECEIVED June 20,

1978.

In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

Panel Discussion

COMMENT: A my advice to management has been something like this: If sales are less than $5 million annually there is l i t t l e likelihood of competition by others and you do not need patent protection; i f sales are between $10 million and $15 million, you may need patent protection; but i f sales are over $20 million to $25 m i l l i o n , you w i l l have competition and you might as well forego obtaining patent protection. To me, that is the real world. It i s not a situation where patents give one a monopoly that is impregnable, a situation where an exclusive license is the only basis, or major basis on which a new product decision is made. This situation i s in contrast to what appears to be the strong feeling i n Washington, D.C. based on unreal economic theory. MR. LASKENt I don't disagree. Many of us in government recognize that i n some cases patents do not make a difference and in others they do. My own opinion is that judging whether t i t l e to an invention should be retained by the government or waived to a contractor or grantee w i l l be d i f f i c u l t , i f not impossible. Any impartial board set up to make such judgments may well spend 20 years, as i n antitrust cases, just trying to determine what the relevant market i s , l e t alone who should have the rights. In my opinion existing studies show that, on the average, patenting is going to help more than hurt, and, therefore, patenting should be undertaken. On another point, Professor Stedman says in his paper that there i s no way to correct errors of judgment i f the procedure outlined i n the Thornton b i l l (H.R.8596) becomes law. In fact, however, the march-in rights are intended as the means to correct errors. It is not envisioned that the government agency would be the one to i n i t i a t e the process, but that a competitor w i l l complain that he cannot get a license, or that the patent assignee is otherwise interfering with the competitor's business. The fact that an actual march-in has not yet occurred may indicate that no great evils exist. Of course, i f the government 46 In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

47

Panel Discussion keeps t i t l e , then there i s n ' t any way t o c o r r e c t the e r r o r s , because nobody knows whether an i n v e n t i o n remained undeveloped because people gave up on i t .

PROF. STEDMAN; I agree w i t h both gentlemen. This i s one o f the d i f f i c u l t i e s - the s i t u a t i o n may be e n t i r e l y d i f f e r e n t i n one case from another. Of course i t i s d i f f i c u l t t o make a d e c i s i o n . What I suggest i s t h a t another agency not i d e n t i f i e d with the c o n t r a c t i n g agency may be i n a b e t t e r p o s i t i o n t o make an unbiased d e c i s i o n . On the matter o f march-in r i g h t s I f u l l y agree t h a t the Thornton b i l l p r o v i d e s the b a s i s f o r a p p r o p r i a t e a c t i o n when an agency i s eager t o e x e r c i s e such a c t i o n . The d i f f i c u l t y I f i n d with the Thornton b i l l i s the p o s s i b l e l a c k o f i n t e r e s t by an agency such as the Department o f Defense, f o r example, i n what may happen i n the c i v i l i a agency may be f i g h t i n g o does not r e q u i r e an agency t o move i f i t doesn't f e e l l i k e moving; i t s t i l l remains the r e s p o n s i b i l i t y o f the c o n t r a c t i n g agency t o take the i n i t i a t i v e . The agency may respond t o complaints from the p u b l i c , however. MR. LASKEN; I can't d i s a g r e e with having a board f o r determining when march-ins are necessary* The b i l l i n d r a f t form developed by the Commission on Government Procurement recommended such a board, and the b i l l proposed by the Committee on Government Patent P o l i c y e n v i s i o n e d some s o r t o f c e n t r a l d e c i s i o n making group on march-in r i g h t s . P r o f e s s o r Stedman seems t o imply t h i s board would a l s o d e c i d e who gets r i g h t s a t the time of c o n t r a c t i n g , which i s i m p o s s i b l e . PROF. STEDMAN; There may have been an exaggeration o f the d i f f i c u l t y i n v o l v e d i n the a c t i o n s o f a board. Most o f the cases considered by the board would need no a c t i o n s i n c e both the government and the c o n t r a c t o r probably w i l l agree that no i n v e n t i o n s o f p a r t i c u l a r i n t e r e s t have a r i s e n o r are expected to a r i s e . There would be o n l y a r e l a t i v e l y small number o f marginal cases where the i s s u e would be a c l o s e one, but i t i s those c l o s e cases t h a t I am concerned about. MR. DENNY; I'd l i k e t o p o i n t t o s e v e r a l s t a t i s t i c s and data, i n s t e a d o f concerns, which I t h i n k back up e v e r y t h i n g you say. I f you p i c k round numbers, out o f a thousand i n v e n t i o n s , a hundred are worth p a t e n t i n g o r are patented, and out o f those, ten are worth u s i n g , and out o f those two w i l l get used. Of the approximately 8,000 i n v e n t i o n d i s c l o s u r e s per year evaluated by the government, I would p r e f e r t o concentrate on the 80 t h a t are worthwhile. The Harbridge House study, the l a r g e s t , most complex study t h a t has ever been done on government patent p o l i c y , r e p o r t s no government funded patent o f a l l those assigned

American Chemical Society Library 1155 16th St. N. w. In Patent Policy; W.; Washington, D. Marcy, C. 20036 ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

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to c o n t r a c t o r s had more than two people i n t e r e s t e d i n undertaking f u r t h e r development d u r i n g a two-year p e r i o d . The J u s t i c e Department, wishing t o probe f u r t h e r , searched f o r a "horror case". The worst one t h a t c o u l d be found i n v o l v e d a s m a l l company i n a small i n d u s t r y . The i n v e n t i o n was s y n t h e t i c process f o r developing quartz c r y s t a l which could be made to u n d e r s e l l natural c r y s t a l . The company a l l e g e d t h a t i t was going t o l i cense others but the p r o s p e c t i v e l i c e n s e e s complained t h a t the R o y a l t i e s r e q u i r e d were too l a r g e and made them non-competitive. The r e s u l t was t h a t the competitors a l l used i t anyway. The patent owner sued f o r infringement, but a few years l a t e r i t was found t h a t a l l o f the competitors were l i c e n s e d . We should depend on t h a t i n t e r e s t e d second company t o i d e n t i f y and to f l a g something t h a t i t i s i n t e r e s t e d i n ; then the government's defens i v e machinery can and should take e f f e c t . The l a s t s t a t i s t i c i n a l l government c o n t r a c t use them y e t . COMMENT; I would l i k e t o comment on the a l l e g e d concern t h a t the p o s s e s s i o n o f an e x c l u s i v e patent p o s i t i o n by the cont r a c t o r would serve as a d i s i n c e n t i v e to r e s e a r c h e i t h e r by other p a r t i e s or by the patent owner h i m s e l f . I t would be a great h e l p i f we r e a l i z e t h a t the b e n e f i t o f a patent system does not a r i s e because patented technology becomes a v a i l a b l e t o the p u b l i c o n l y 17 years a f t e r the patent i s granted. In the g r e a t m a j o r i t y of cases the patented technology i s o b s o l e t e by then. The b e n e f i t o f a patent system a r i s e s because somebody has a temporary e x c l u s i v i t y . F i e r c e competition f i n d s i t necessary to devise and i n v e n t ways around t h a t e x c l u s i v i t y t o stay comp e t i t i v e . As t o whether or not t h i s w i l l discourage f u r t h e r r e search on the patent owner's p a r t , I t h i n k anyone who has been i n v o l v e d i n r e s e a r c h knows t h a t the b e s t way t o get bypassed i n the marketplace i s to make an i n n o v a t i o n and then not improve i t . Soon you w i l l f i n d y o u r s e l f s i t t i n g behind and l o o k i n g forward a t the ones who have invented around your technology. PROF. STEDMAN; I t h i n k t h i s whole matter o f i n c e n t i v e and d i s i n c e n t i v e and monopoly i n response to monopoly i s a p r e t t y s u b t l e q u e s t i o n . L e t me use the analogy o f a t r a c k meet. I f I am running i n a t r a c k meet and there i s someone b r e a t h i n g down my neck, then I w i l l run f a s t e r . I f I am running i n a t r a c k meet and a second person .is a hundred f e e t behind me as we go down down the f i n a l s t r e t c h , I am l i k e l y t o run slower. Having an advantage sometimes has a very u s e f u l e f f e c t , but, a t o t h e r times, i t may be e n e r v a t i n g . I agree t h a t i n v e n t i n g around a patented i n v e n t i o n represents a p o s i t i v e i n c e n t i v e encouraging c o m p e t i t i o n . But, i t i s a l s o true t h a t , i f a company i s already very powerful, competition can be discouraged i f t h i s power i s i n c r e a s e d , f o r example, by strengthening an a l r e a d y s t r o n g patent p o s i t i o n .

In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

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QUESTION: Clause 9 (h) o f the Energy Research and Development A d m i n i s t r a t i o n l e g i s l a t i o n seems t o imply the a p p l i c a t i o n o f a n t i t r u s t laws t o patent matters. T h i s p r o v i s i o n seems r a t h e r vague and i n d e f i n i t e . Are there any cases or comments on record which d e f i n e t h i s more e x a c t l y ? MR, DENNY; I t i s a l i t t l e vague.. I t i s p a r t i a l l y d e f i n e d i n a conference r e p o r t where s p e c i f i c r e f e r e n c e i s made t o phrases from both :the Sherman and the C l a y t o n Acts and the case law behind these a c t s . The phrases themselves are o n l y as p r e c i s e as they u s u a l l y are i n such l e g i s l a t i o n ; they are intended to be a body of law. Fuzziness i n i n t e r p r e t a t i o n a r i s e s where there i s an i n t e n t t o v i o l a t e the a n t i t r u s t laws r a t h e r than an obvious f u l l fledged v i o l a t i o n . While no case has a r i s e n y e t , we would attempt to remedy a v i o l a t i o n by r e q u i r i n g the l i c e n s i n g o f companies. In most i n d u s t r i e s t h i there r e a l l y f o r the t h e o r e t i c a b e l i e v e may r e s u l t . I don't ever expect the p r o v i s i o n w i l l be used. QUESTION: Have you had enough case h i s t o r i e s so f a r t o be able t o judge whether the Department o f Energy (DOE) waiver procedure i s o p e r a t i n g s a t i s f a c t o r i l y ? Do you f e e l m o d i f i c a t i o n s may be needed as a r e s u l t o f your experience? MR. DENNY; The DOE p o l i c y i s probably the b e s t p i e c e o f l e g i s l a t i o n t h a t Congress has ever passed. M o d i f i c a t i o n s are not expected i n the immediate f u t u r e . The main problem i n administ e r i n g the patent clauses i s the number o f people r e q u i r e d t o make i t work. We are working overtime, and, even then, i t sometimes takes two years t o make d e c i s i o n s . In some cases we have been t o l d t h a t having to wait such a long p e r i o d has caused some c o n t r a c t o r s t o i n v e s t t h e i r funds i n other ventures. I f you apply the procedure d e f i n e d i n the l e g i s l a t i o n t o the 30,000 p l u s c o n t r a c t s and grants granted every year by the F e d e r a l Government and the 8,000 i n v e n t i o n s d i s c l o s u r e s t h a t come i n , i t w i l l p r e sent insurmountable a d m i n i s t r a t i v e problems t o the government. QUESTION AND COMMENT; I f t h i s i s the b e s t p i e c e o f l e g i s l a t i o n , might i t not be m o d i f i e d , as P r o f e s s o r Stedman has suggested, t o make no assignments but r a t h e r g i v e l i c e n s e s ? I f you do not "give away" the government r i g h t s , c e r t a i n senators w i l l be happier; more importantly you would have t o s p e c i f y c o n d i t i o n s for march-in r i g h t s . We have been t o l d t h a t no one i n 13 years has asked f o r march-in r i g h t s , so t h a t remedy does not seem t o be a v e r y e f f e c t i v e method t o assure competitive c o m m e r c i a l i z a t i o n . However, i f you r e t a i n t i t l e , you can grant a l i c e n s e f o r a l i m i t e d p e r i o d . I f the l i c e n s e e does not perform, he w i l l l o s e

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h i s r i g h t s . T h i s seems t o me t o make more sense than g i v i n g an assignment w i t h the p r o v i s o t h a t the government can march-in and take i t away l a t e r on. I t ' s a question o f who's c o n t r o l l i n g the ship. MR. DENNY : I t h i n k we have t o keep the r e d tape down. Why should I bother t o take back a r i g h t from you that you're not using and t h a t no one e l s e wants t o use e i t h e r ? I would p r e f e r t o wait u n t i l a second p o t e n t i a l l i c e n s e e i s found. MR. LASKEN; Another d i f f i c u l t y might a r i s e i f a second company wanted t o o b t a i n a s u b l i c e n s e from the f i r s t company, but d i d n ' t l i k e the f i r s t company's terms, and would t r y t o negotiate a b e t t e r d e a l . I f t h i s happened o f t e n , the administrat i v e machinery would q u i c k l y bog down due t o m u l t i p l e negotiations. Another t h i n g t o not are not the only peopl consider only the money t h a t s being used f o researc and development programs, not f o r production, about 30% goes t o u n i v e r s i t i e s . Another 5% t o 6% o r so goes t o small business. I don't know what amount may be sub-contracted by the l a r g e r firms to small businesses, b u t I doubt i t ' s very much i n the R&D f i e l d . Of the remaining 65% I expect a good p o r t i o n goes t o firms t h a t aren't c l a s s i f i e d as small business under the SBA A c t , b a t are c e r t a i n l y not l a r g e i n the sense o f having a s i g n i f i c a n t share of some commercial market. So I doubt s e r i o u s l y whether anywhere near h a l f o f the R&D money i s going t o l a r g e dominant f i r m s . Of t h a t a l o t i s going t o the aerospace i n d u s t r y where c r o s s l i c e n s i n g i s p r e v a l e n t , and i t doesn't matter who owns the patents anyway, s i n c e the l a r g e aerospace companies w i l l dominate, no matter what happens. PROF. STEDMAN; had no patents.

So i t wouldn't make any d i f f e r e n c e i f you

MR. LASKEN; Yes, i t would, because the subcontractors would o b j e c t and the Department o f Defense o r NASA would have t o negotiate every time one o f the l a r g e companies wanted t o subc o n t r a c t t o small companies. Without the title-in-government c l a u s e , the subcontractors would o b j e c t whether i t mattered o r not. In my experience, the only things c o n t r a c t o r s ever seem t o argue about s t r o n g l y , besides how much money they w i l l get, are t e c h n i c a l data and patents. I j u s t want t o emphasize t h a t government c o n t r a c t i n g i s not completely dominated by l a r g e f i r m s , and most o f those firms w i l l be dominant no matter what. MR. DENNY; The statement was made i n the recent Nelson subcommittee hearings t h a t march-in r i g h t s haven't been used, and, t h e r e f o r e , are not e f f e c t i v e . I maintain t h a t ' s j u s t not so. The march-in r i g h t s are there t o take care o f t h e o r e t i c a l abuses

In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

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t h a t are non-existent. And you can't cure a non-existent abuse. The march-in r i g h t s are there because Congress t h i n k s i n d u s t r y suppressess i n v e n t i o n , and t h a t i n d u s t r y does not l i c e n s e under reasonable terms. They a l s o b e l i e v e t h a t patents are monopolies. Very few, i f any patents r i s e t o t h a t " d i g n i t y " . The abuses j u s t haven't been t h e r e . There were three hours o f hearing on patent p o l i c y on Energy Research and Development A d m i n i s t r a t i o n (ERDA) patent l e g i s l a t i o n . A s i x t h o f t h a t time was devoted t o a committee d i s c u s s i o n o f a carburetor which o i l companies supposedly bought up because i t was s a i d t o allow one t o get 80 miles t o a g a l l o n o f gas. The Congressional committee members b e l i e v e d i t . These march-in r i g h t s are the f i n a l l e g i s l a t i o n t o t r y t o c o r r e c t imagined abuses o f t h a t k i n d . I t seems u n l i k e l y t h a t these r i g h t s w i l l ever be used. The Harbridge House i n i t s study some years ago, looked f o r abuses and couldn' companies f r e e l y l i c e n s some r a r e exceptions where a l t e r n a t i v e products were a v a i l a b l e . What conerns me i s t h a t Congress passes t h i s type o f l e g i s l a t i o n and does not appear t o recognize the need f o r a l a r g e s t a f f t o c a r r y i t out. Right now I have f i f t y attorneys a t headquarters and i n the f i e l d but cannot handle the present workload expedit i o u s l y . The Thornton b i l l should c o r r e c t t h i s d i f f i c u l t y . PROF. STEDMAN: How patents should be handled with u n i v e r s i t i e s are grantees o r c o n t r a c t o r s i s very d i f f e r e n t from the handling o f patents when p r i v a t e c o r p o r a t i o n s which are i n compet i t i o n are i n v o l v e d . I f the U n i v e r s i t y o f Wisconsin i s assigned some patents, t h i s would not upset i t s competion with S t a n f o r d , f o r example. Another t h i n g concerns me, however, and t h a t i s t h a t a g r e a t many p r i v a t e l y owned, p r i v a t e l y developed patents have been improperly used. We know t h a t from the l a r g e number o f a n t i t r u s t cases, most o f them extremely s e r i o u s , based upon improper use of p a t e n t s . In c o n t r a s t t o t h a t , the assignees who get government patents appear t o be knights i n s h i n i n g armor. With $26 b i l l i o n spent annually on research and development by the government there are o n l y perhaps 15 o r 20 patents t h a t have been o f any s i g n i f i c a n c e . B a s i c a l l y , s i n c e patents give the owner an advantage over h i s competitors, I f i n d i t hard t o understand why there seems t o be no one who c a r e s . To me i t suggests t h a t there i s some question about the program l e a d i n g t o the patents, o r perhaps t h a t patents do not make any d i f f e r e n c e . MR. BREMER; A d i s t i n c t i o n should be drawn between b a s i c , a p p l i e d and developmental r e s e a r c h , s i n c e I t h i n k a l a c k o f d i s t i n c t i o n i s a t the base o f some o f these problems. Admittedly, an easy d e f i n i t i o n i s not p o s s i b l e . But there are d i s t i n c t i o n s . "Blue sky" b a s i c r e s e a r c h i s p r a c t i c e d today only a t u n i v e r s i t i e s .

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S i n c e i n v e n t i o n s r e s u l t i n g from b a s i c r e s e a r c h are embryonic i n nature, they r e q u i r e tremendous amounts o f money f o r development and they should be t r e a t e d d i f f e r e n t l y from i n v e n t i o n s a r i s i n g from the other two types o f r e s e a r c h . I t i s a l s o s i g n i f i c a n t t o note t h a t over h a l f o f the $26 b i l l i o n R&D budget i s spent by defense agencies. The u n i v e r s i t y s e c t o r share i s about $3 b i l l i o n per year. H a l f o f t h a t i s administered by HEW and NSF. These f a c t s should be understood by Congress i n c o n s i d e r i n g l e g i s l a t i o n r e l a t i n g t o patent r i g h t s ownership, but o f t e n are not. RECEIVED June 20,

1978.

In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

5 University Technology Transfer—Publish and Perish HOWARD W. BREMER Wisconsin Alumni Research Foundation, 614 N. Walnut St., Madison, WI 53705

Science and law ar both ancient d influential force i the shaping of any society violable, the laws of humanity ca be broken Applied sensibly and in concordance with each other, these laws can solve many of humanity's problems; applied thoughtlessly and selfishly, they can be destructive of each other and perhaps of humanity. The patent system constitutes a sensible melding of science and law, a melding which serves to protect that most fragile of assets--intellectual property as embodied in patents. As Chief Judge Markey of the Court of Customs and Patent Appeals said, "No institution has done so much for so many, with so little public and j u d i c i a l understanding, as has the American patent system." With that preface, this paper w i l l describe some of the things that have been accomplished under that system by the Wisconsin Alumni Research Foundation (WARF) and how the system is operating today with the Federal government the major source of financial support for university research and development. An Historical Perspective In the early 1920's, Dr. Harry Steenbock, a professor in the Biochemistry Department at the University of Wisconsin, found that exposure of certain foods, o i l s , or pharmaceuticals to ultraviolet radiation imparted antirachitic properties to the substances. He applied for a patent on this discovery and offered to assign the resulting patent to the University. Dr. Steenbock's objectives were: "To develop a plan for making use of patentable ideas of various members of the faculty that would protect the individual taking out the patent, insure i t s proper use, and at the same time bring financial help to the i n s t i t u tion and in this way further the University's research support." In rejecting this offer, the Board of Regents of the University stated that i t could not "be expected to a l l o t money for a patent application when i t i s not certain that i t w i l l 0-8412-0454-3/78/47-081-055$05.00/0 © 1978 American Chemical Society In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

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r e c e i v e something f o r such an expenditure." The S t a t e Attorney General f e l t t h a t , s i n c e the U n i v e r s i t y had no power t o defend patents, U n i v e r s i t y ownership o f patents would be o f q u e s t i o n able value. A p l a n was proposed t o organize a n o n - p r o f i t c o r p o r a t i o n , the necessary c a p i t a l o f which was t o be f u r n i s h e d by alumni and f r i e n d s o f the U n i v e r s i t y , and whose management was t o be i n the hands o f t r u s t e e s . Subsequently, a corporate c h a r t e r s e t t i n g up WARF was f i l e d on November 14, 1925, w i t h c a p i t a l f u r n i s h e d by nine alumni, each o f whom c o n t r i b u t e d $100.00. The new o r g a n i z a t i o n was expected t o provide the mechanism f o r accomplishing Dr. Steenbock's o b j e c t i v e s . WARF was the f i r s t foundation formed i n connection w i t h an educational i n s t i t u t i o n which was independent o f f a c u l t y and Regent c o n t r o l and without any endowment, other than the Steenbock patent. WAR e x c l u s i v e l y f o r the b e n e f i t h e r e f o r e , considers t h a t i t s patent management program i s an o b l i g a t i o n t o the U n i v e r s i t y o f Wisconsin f a c u l t y , s t a f f and students. T h i s o b l i g a t i o n i s expressed i n the WARF c h a r t e r which s t a t e s t h a t WARF i s t o promote, encourage and a i d s c i e n t i f i c i n v e s t i g a t i o n s and research a t the U n i v e r s i t y ; and t o provide means whereby any s c i e n t i f i c d i s c o v e r i e s and i n v e n t i o n s t h a t may r e s u l t may be developed f o r p u b l i c use i n a manner such t h a t funds could be obtained f o r use i n s t i m u l a t i n g f u r t h e r research a t the U n i v e r s i t y . Assignment o f i n v e n t i o n s made i n the course o f r e s e a r c h o r development u t i l i z i n g U n i v e r s i t y f a c i l i t i e s t o the U n i v e r s i t y or t o WARF has never been r e q u i r e d , even when WARF grants have supported research l e a d i n g t o such i n v e n t i o n s . Thus, i n v e n t i o n s which have been brought t o WARF were brought by the i n v e n t o r s on a v o l u n t a r y b a s i s . E a r l y i n i t s h i s t o r y , WARF adopted a p o l i c y , s t i l l e x i s t i n g today, o f r e t u r n i n g t o inventors 15% o f the net proceeds r e c e i v e d . The remaining 85% o f the net proceeds becomes a p a r t of WARF's annual research grant t o the U n i v e r s i t y . Recognizing the compelling need f o r academic researchers to p u b l i s h t h e i r r e s u l t s promptly, WARF does not ask f o r delay i n p u b l i c a t i o n , even o f those i n v e n t i o n s recognized as having p o t e n t i a l p a t e n t a b i l i t y and l i c e n s a b i l i t y . T h i s p o l i c y may r e s u l t i n the " l o s s " o f some i n v e n t i o n s , t h a t i s , i t w i l l be impossible t o f i l e an appropriate patent a p p l i c a t i o n before a p u b l i c a t i o n bar date occurs. Even though such p u b l i c a t i o n w i l l d i s c l o s e the i n v e n t i o n t o others i n an acceptable and convent i o n a l manner, because o f the absence o f patent p r o t e c t i o n , t h e i n v e n t i o n may never be developed f o r the b e n e f i t o f the p u b l i c . T h i s i s the f i r s t example o f the " p u b l i s h and p e r i s h " syndrome a s s o c i a t e d w i t h the t r a n s f e r o f u n i v e r s i t y - g e n e r a t e d technology. Although organized as a separate corporate e n t i t y and although a c t i v e s o l i c i t a t i o n o f i n v e n t i o n s from the U n i v e r s i t y

In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

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i s not p r a c t i c e d , WARF s presence on the campus i s r e a l , and i t s r e l a t i o n s h i p w i t h the U n i v e r s i t y and i t s f a c u l t y i s not o n l y f i n a n c i a l - and s e r v i c e - o r i e n t e d but i s a l s o very p e r s o n a l . What has been accomplished under WARF s "hands-off" p o l i c y coupled w i t h i t s patent management p o l i c y ? The Steenbock patent was, f o r t u n a t e l y , a "winner", u l t i m a t e l y r e t u r n i n g about e i g h t m i l l i o n d o l l a r s i n new r o y a l t i e s . T h i s income provided the seed money from which s u b s t a n t i a l a d d i t i o n a l a s s e t s were generated. R o y a l t i e s from a number o f a d d i t i o n a l patents continue t o make a s i g n i f i c a n t c o n t r i b u t i o n to WARF s t o t a l income. Since a l a r g e percentage o f t h i s income has been used t o support f u r t h e r r e s e a r c h a t the U n i v e r s i t y , the program o f t r a n s f e r r i n g technology u t i l i z i n g the patent system can be considered s u c c e s s f u l . I n the f i r s t f i f t y years o f WARF's e x i s t e n c e , grants t o t a l i n g over $79,000,000 have been made. I n th b u t i o n has been i n exces During t h i s f i f t y year p e r i o d , out o f a t o t a l o f 62 i n v e n t i o n s l i c e n s e d t o about 650 l i c e n s e e s , about 400 b e i n g under the Steenbock p a t e n t s , 43 i n v e n t i o n s have produced some r o y a l t y income. Of these 43 income-producing i n v e n t i o n s , 14 have produced between $10,000 and $100,000 each, 9 have produced between $100,000 and $1,000,000 each, and 4 have produced i n excess o f $1,000,000 each. The 43 income-producing i n v e n t i o n s r e s u l t e d from the e v a l u a t i o n o f 1,702 i n v e n t i o n d i s c l o s u r e s . A t o t a l o f 415 United S t a t e s patent a p p l i c a t i o n s were f i l e d and 270 United States patents were i s s u e d , r e p r e s e n t i n g about 195 l i c e n s a b l e areas o f technology. One out o f about every 40 i n v e n t i o n disclosures considered f o r p a t e n t i n g and a d m i n i s t r a t i o n thus u l t i m a t e l y produced income. I t i s i n t e r e s t i n g t o consider the e f f e c t t h a t the l i c e n s i n g o f those 43 income-producing i n v e n t i o n s has had on the country's economy. By e s t i m a t i n g the s a l e s which the v a r i o u s l i c e n s e e s would have had t o have made t o generate the r o y a l t y income r e c e i v e d , i t i s estimated t h a t four o f the i n v e n t i o n s , c o l l e c t i v e l y , account f o r about $1,500 m i l l i o n i n s a l e s ; nine invent i o n s , c o l l e c t i v e l y , account f o r about $80 m i l l i o n i n s a l e s ; nineteen, c o l l e c t i v e l y , account f o r about $20 m i l l i o n i n s a l e s ; and e i g h t , c o l l e c t i v e l y , account f o r about $1.5 m i l l i o n i n s a l e s . These s a l e s i n c l u d e s u b s t a n t i a l r o y a l t i e s from f o r e i g n sources thus f a v o r a b l y a f f e c t i n g f o r e i g n trade b a l a n c e s . I n f a c t , a number o f WARF i n v e n t i o n s have produced income from f o r e i g n sources f a r exceeding that obtained i n the United S t a t e s . Even more importantly, although more d i f f i c u l t t o assess, t o what extent has the p u b l i c b e n e f i t t e d from t h i s t r a n s f e r o f technology from the U n i v e r s i t y o f Wisconsin? Numbered among those i n v e n t i o n s which reached the marketplace are: W a r f a r i n r o d e n t i c i d e s , which, widely used, have saved 1

1

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m i l l i o n s of d o l l a r s by c o n t r o l l i n g rodent populations; Warfarin a n t i c o a g u l a n t drugs, which are c r e d i t e d w i t h extending and saving countless human l i v e s ; A dextrose-urea p r e p a r a t i o n , which i s used to reduce i n t r a c r a n i a l pressure i n cases o f trauma and surgery; New spark sources f o r s p e c t r o s c o p i c measurements, which permit more complete and accurate diagnoses of metal samples; An ion-vacuum pump f o r o b t a i n i n g extremely h i g h vacuum; and, o f course, The Steenbock process f o r f o r t i f y i n g foods with Vitamin D, r e s u l t i n r i c k e t s as a Vitamin D d e r i v a t i v e s , which give promise f o r p r o p h y l a c t i c and c u r a t i v e treatments f o r diseases i n v o l v i n g calcium-phosphorus imbalance i n mammals. A Current Assessment During the e a r l y h i s t o r y o f our country, very l i t t l e t e c h n i c a l development work was done with United S t a t e s government support and, t h e r e f o r e , the question o f the government owning a patent never arose. G r a d u a l l y , F e d e r a l agencies began to support development work l e a d i n g to i n v e n t i o n s i n F e d e r a l l a b o r a t o r i e s using f u l l - t i m e government employees. As a r e s u l t the r e c u r r i n g problem arose o f what to do with i n v e n t i o n s r e s u l t i n g from such w o r k — i n v e n t i o n s which, i f made by p r i v a t e p a r t i e s , would have become the subject o f patent a p p l i c a t i o n s . T h i s s i t u a t i o n changed r a p i d l y during and a f t e r World War I I when the t e c h n o l o g i c a l requirements imposed by more and more s o p h i s t i c a t e d m i l i t a r y requirements, as w e l l as by the i n c r e a s i n g complexity o f support s e r v i c e s , showed t h a t s u f f i c i e n t resources d i d not e x i s t w i t h i n the government to handle a l l the s c i e n t i f i c p r o j e c t s necessary to win the war e f f o r t . The n e c e s s i t y t o use the best t e c h n i c a l resources a v a i l a b l e , r e g a r d l e s s o f l o c a t i o n , spawned a p r o l i f e r a t i o n o f governmentsponsored and -funded r e s e a r c h and development c o n t r a c t s . The proper d i s p o s i t i o n o f r i g h t s t o patents r e s u l t i n g from t h i s work was as important then as now, but was never s e r i o u s l y considered as a major problem because o f the exigencies o f wartime needs. A f t e r World War I I the n e c e s s i t y f o r m a i n t a i n i n g continued t e c h n o l o g i c a l s u p e r i o r i t y , a t l e a s t f o r n a t i o n a l defense, r e q u i r e d continued p u b l i c support f o r s c i e n t i f i c r e s e a r c h . T h i s support was not l i m i t e d t o the m i l i t a r y , as hundreds o f m i l l i o n s o f d o l l a r s were appropriated by the government i n the area o f

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medical r e s e a r c h beginning i n the 1950 s. Since the government could not do a l l the necessary work i n i t s own f a c i l i t i e s , q u a l i f i e d p r i v a t e companies, u n i v e r s i t i e s and n o n - p r o f i t o r g a n i z a t i o n s were sought out to perform many o f the programs under c o n t r a c t u a l arrangements. The same o l d problem o f ownership o f patent r i g h t s e x i s t e d i n every one o f the c o n t r a c t s . Since no s i n g l e o r o v e r r i d i n g government-wide patent p o l i c y e x i s t e d , each governmental agency has developed i t s own p o l i c y . At one extreme, some agencies advocated a " t i t l e " p o l i c y ; a t the opposite extreme other agencies advocated a " l i c e n s e " p o l i c y . The p o l i c i e s o f s t i l l other agencies range between these two extremes. Governmental agencies o p e r a t i n g under the " t i t l e " p o l i c y acquire t i t l e t o a l l contract-generated i n v e n t i o n s and patents i s s u i n g on them, i n c l u d i n g i n v e n t i o n s which were o n l y i n c i d e n t a l to the major purpose o the p u b l i c through p u b l i c a t i o n non-exclusive, r o y a l t y - f r e e l i c e n s e under any patents obtained. The argument i s t h a t a l l these i n v e n t i o n s , i n c l u d i n g the i n c i d e n t a l i n v e n t i o n s , should be acquired because they had been "paid f o r " by the government and should, t h e r e f o r e , be owned by the government. Agencies which adopt the " l i c e n s e p o l i c y " permit the c o n t r a c t o r s t o take and keep t i t l e t o i n v e n t i o n s and patents a r i s i n g under the c o n t r a c t , while a r o y a l t y - f r e e l i c e n s e i s reserved t o the government to p r a c t i c e the i n v e n t i o n f o r a l l governmental purposes. The theory which these agencies apply i s t h a t i n v e n t i o n s and patents are o n l y i n c i d e n t a l t o the s p e c i f i c r e s e a r c h o r products c o n t r a c t e d f o r and t h a t e q u i t y r e q u i r e s nothing more than a r o y a l t y - f r e e r i g h t t o be vested i n the government t o use the i n v e n t i o n s f o r i t s own purposes. Other t h e o r i e s and contentions made by the advocates o f the two p o l i c i e s , each i n support o f t h e i r own p o s i t i o n , tended t o p o l a r i z e the two groups so t h a t u l t i m a t e compromise seems d i f f i c u l t , i f not i m p o s s i b l e . T h i s was the s i t u a t i o n which p r e v a i l e d i n t o the 1960 s. Even where the government agencies had the r i g h t t o waive t i t l e to a c o n t r a c t o r o r grantee, i t was almost never done. The r e s u l t was t h a t fewer and fewer i n v e n t i o n s generated from u n i v e r s i t y r e s e a r c h were r e p o r t e d , s i n c e the v a r i o u s governmental agencies a s s e r t e d the r i g h t o f patent ownership, even where the f e d e r a l funds i n v o l v e d i n making an i n v e n t i o n were a f r a c t i o n of the t o t a l funds expended. As a consequence, i n v e n t o r s a t u n i v e r s i t i e s were no longer f r e e t o dispose o f t h e i r i n v e n t i o n s as they saw f i t , because the o b l i g a t i o n s which the u n i v e r s i t i e s and the i n v e s t i g a t o r s had t o assume under government-financed grants o r c o n t r a c t s took precedence. At t h i s p o i n t , l e t us consider the s i t u a t i o n t h a t p e r t a i n s when the government does take ownership o f a patent. The i d e a of the government owning a patent i s , i n a sense, an anomaly. f

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The patent system was c r e a t e d as an i n c e n t i v e t o i n v e n t , develop and e x p l o i t new technology - paraphrasing the C o n s t i t u t i o n to promote science and u s e f u l a r t s f o r the p u b l i c b e n e f i t . When the government owns a patent with the contention t h a t the i n v e n t i o n covered by a patent should be f r e e l y a v a i l a b l e t o a l l , much the same as i f a d i s c l o s u r e o f the i n v e n t i o n had been p u b l i s h e d , the patent system cannot operate i n the manner i n which i t was intended. The i n c e n t i v e inherent i n the r i g h t t o exclude others c o n f e r r e d on a p r i v a t e owner o f a patent as an inducement t o develop the i n v e n t i o n i s simply not a v a i l a b l e . F i n a l l y , i n 1963, a P r e s i d e n t i a l memorandum was i s s u e d s e t t i n g f o r t h g u i d e l i n e s f o r a more uniform government patent p o l i c y . A f t e r s t a t i n g t h a t i n v e n t i o n s r e s u l t i n g from government c o n t r a c t s and grants were a v a l u a b l e n a t i o n a l resource, the g u i d e l i n e s a f f i r m e d that government patent p o l i c y should stimul a t e the use o f such resource at the same time s e r v i n the e q u i t i e s o f the c o n t r a c t o r o r grantee. These g u i d e l i n e s were used by a number o f government agencies t o r e v i s e t h e i r p o l i c i e s . Notably the Department o f Health, Education, and Welfare (DHEW), and the N a t i o n a l Science Foundation (NSF) developed general agreements, I n s t i t u t i o n a l Patent Agreements (IPA) , which allowed u n i v e r s i t i e s t o r e t a i n patent r i g h t s subject t o certain r e s t r i c t i o n s . S i n c e these two agencies f u r n i s h a large share o f the f e d e r a l support d o l l a r s t o the U n i v e r s i t y o f Wisconsin, the U n i v e r s i t y entered i n t o IPAs with DHEW i n 1968 and NSF i n 1973. Under these agreements, the U n i v e r s i t y , o r WARF as the designee of the U n i v e r s i t y , may take t i t l e t o any i n v e n t i o n made u s i n g DHEW o r NSF funds. The use o f the IPAs i s h i g h l y s i g n i f i c a n t , f o r o f the $3 b i l l i o n spent a t the u n i v e r s i t i e s on r e s e a r c h and development each year by the government, about one-half i s administered by these agencies. Strong evidence i s mounting t h a t use o f IPAs enhances the t r a n s f e r o f technology f o r the public benefit. In a d d i t i o n , there i s a l s o i n c r e a s i n g evidence t h a t where an IPA i s i n e f f e c t the a t t i t u d e o f commercial o r g a n i z a t i o n s towards i n v e n t i o n s generated with government funds w i t h i n the scope o f t h a t agreement i s changing. For example, there are now more i n s t a n c e s where commercial o r g a n i z a t i o n s have made some c o n t r i b u t i o n t o government-funded research p r o j e c t s a t u n i v e r s i t i e s where o n l y the p r o s p e c t i v e r i g h t s t o i n v e n t i o n s , yet unmade, i s i n v o l v e d . The c e r t a i n t y o f the i n s t i t u t i o n having the f i r s t o p t i o n t o any i n v e n t i o n made under an IPA i s the prime m o t i v a t i o n f o r such c o n t r i b u t i o n . Knowing t h a t patent r i g h t s t o inventions are t o remain with the u n i v e r s i t y under the terms o f an IPA a l s o permits e a r l y f i l i n g o f a p p r o p r i a t e patent a p p l i c a t i o n s , thus p r o v i d i n g a s t r o n g hedge a g a i n s t the p u b l i s h and problem. In the nine years s i n c e the IPA with DHEW became e f f e c t i v e ,

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WARF has f i l e d 65 United States patent a p p l i c a t i o n s under the p r o v i s i o n s o f the agreement, 40 o f which have matured i n t o patents. C u r r e n t l y , 22 l i c e n s e s under these a p p l i c a t i o n s and patents have been e x e c u t e d — s t r o n g evidence t h a t the arrangement i s working. Although the current DHEW and NSF p o l i c i e s have been e f f e c t i v e , there are reported t o be 22 d i f f e r e n t patent p o l i c i e s being u t i l i z e d by the other government agencies. These p o l i c i e s , some s t a t u t o r y and some a d m i n i s t r a t i v e , some w r i t t e n and some a t t i t u d i n a l , have created a d i f f i c u l t environment f o r a c h i e v i n g the t r a n s f e r o f technology from u n i v e r s i t i e s t o the p u b l i c sector. Some attempts are being made t o untangle t h i s web o f p o l i c i e s and reach greater u n i f o r m i t y . One a c t i o n which may be b e n e f i c i a l i s the recent announcement t h a t the F e d e r a l Procurement Regulations are propose use o f IPAs by a l l governmen v e r s i t i e s and n o n - p r o f i t o r g a n i z a t i o n s . However, the most s i g n i f i c a n t c u r r e n t attempt t o c o n s o l i d a t e the fragmented and i n e f f i c i e n t system o f handling the r e s u l t s o f f e d e r a l l y sponsored research i s the Thornton B i l l , H.R. 8596, which was introduced i n t o the House o f Representatives e a r l y i n 1977 " t o e s t a b l i s h a uniform f e d e r a l system f o r management, p r o t e c t i o n , and u t i l i z a t i o n o f the r e s u l t s o f f e d e r a l l y sponsored s c i e n t i f i c and t e c h n o l o g i c a l research and development..." The p r o v i s i o n s of t h i s b i l l move s t r o n g l y i n the d i r e c t i o n o f e s t a b l i s h i n g a uniform patent p o l i c y f o r a l l agencies and are responsive t o many o f the problems involved i n and a n c i l l a r y t o the s u c c e s s f u l t r a n s f e r o f technology f o r the p u b l i c b e n e f i t . In today's environment, the p u b l i s h and p e r i s h problem f o r the u n i v e r s i t y community i s magnified by many laws and r e g u l a t i o n s , some e x i s t i n g and some p r o s p e c t i v e , which have been promulgated without a c l e a r understanding, o r perhaps even a c o n s i d e r a t i o n , o f how they might reduce the a b i l i t y t o t r a n s f e r technology. J u d i c i a l i n t e r p r e t a t i o n , o r perhaps m i s i n t e r p r e t a t i o n , o f some o f those laws r e s u l t i n g from p u b l i c i n t e r e s t g r o u p - i n i t i a t e d l i t i g a t i o n may a l s o add d i f f i c u l t i e s t o the t r a n s f e r o f technology. Among the most i n s i d i o u s o f such laws i s the Freedom o f Information A c t (FOIA) and i t s a s s o c i a t e d a c t s , the F e d e r a l Advisory Committee A c t and the Government i n the Sunshine A c t . As a b a s i c premise, we b e l i e v e t h a t the existence o f a l i c e n s a b l e patent r i g h t i s a primary f a c t o r i n the s u c c e s s f u l t r a n s f e r o f u n i v e r s i t y i n v e n t i o n t o i n d u s t r y and the market. A f a i l u r e t o e s t a b l i s h such r i g h t , o r t o p r o t e c t the a b i l i t y t o e s t a b l i s h such r i g h t , may f a t a l l y a f f e c t such a t r a n s f e r . T h i s r i g h t can be precluded by premature p u b l i c a t i o n - another example o f p u b l i s h and p e r i s h . Since the FOIA g e n e r a l l y r e q u i r e s the d i s c l o s u r e o f government records upon request, research p r o t o c o l s , hypotheses and designs submitted t o a government

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agency as p a r t of an i n i t i a l grant a p p l i c a t i o n must be presumed to be p u b l i c l y a v a i l a b l e . The only exception which could conceivably prevent d i s c l o s u r e of the content of grant a p p l i c a t i o n s was intended to deny access to "trade s e c r e t s and comm e r c i a l or f i n a n c i a l information obtained from a person and p r i v i l e g e d or c o n f i d e n t i a l " . However, recent l i t i g a t i o n has r a i s e d s e r i o u s doubts as to the p r e d i c t a b i l i t y o f p r o t e c t i o n of p r o p r i e t a r y information under t h a t exemption. In a landmark case denying the use of t h i s exemption f o r s c i e n t i s t s , the court stated: " I t i s c l e a r enough t h a t a noncommercial s c i e n t i s t ' s research design i s not l i t e r a l l y a trade s e c r e t or item o f commercial i n f o r m a t i o n , f o r i t d e f i e s common sense to pretend t h a t the s c i e n t i s t i s engaged i n trade or commerce. T h i s i s not to sa preference f o r o research design, only t h a t i t i s not a trade or commercial interest..." As a consequence, i n g e n e r a l , i t may be presumed t h a t research p r o t o c o l s contained i n grant a p p l i c a t i o n s w i l l be made a v a i l a b l e to those r e q u e s t i n g them under the FOIA, unless i t can be shown t h a t they c o n t a i n t r a d i t i o n a l forms of trade s e c r e t or other v a l u a b l e commercial i n f o r m a t i o n such as patentable i d e a s . Here again i t i s p u b l i s h and p e r i s h f o r the u n i v e r s i t y i n v e s t i g a t o r . But i t i s not only the i n v e s t i g a t o r i n such s i t u a t i o n s who i s the l o s e r . I f the a b i l i t y to o b t a i n v a l i d patent p r o t e c t i o n i s l o s t as a r e s u l t of requests f o r informat i o n under the FOIA, i t i s h i g h l y probable t h a t the p u b l i c w i l l never b e n e f i t from the r e s e a r c h , even i f u l t i m a t e l y funded by the government, s i n c e the i n c e n t i v e needed to o b t a i n p r i v a t e r i s k c a p i t a l , an e x c l u s i v e l i c e n s i n g arrangement, presumably, simply w i l l not be a v a i l a b l e . Consider a l s o t h a t t h i s i n f o r m a t i o n i s r e a d i l y a v a i l a b l e to f o r e i g n companies and c o u n t r i e s , l i t e r a l l y without r e s t r i c t i o n , and f r e e of any r o y a l t y or other f e e . The p o t e n t i a l l y adverse impact of such a s i t u a t i o n on our country's p o s i t i o n i n the world economy i s r e a d i l y apparent when one r e a l i z e s t h a t the $4 b i l l i o n returned every year to the United States as r o y a l t i e s and fees f o r technology t r a n s f e r i s more than nine times the amount p a i d out t o f o r e i g n patent holders i n r o y a l t i e s and fees by U.S. f i r m s , and that i t i s estimated t h a t the t o t a l value of production a s s o c i a t e d with those r e c e i p t s i s c l o s e to $85 b i l l i o n . As Rimmer de V r i e s , V i c e P r e s i d e n t and C h i e f I n t e r n a t i o n a l Economist f o r Morgan Guaranty T r u s t Co., s a i d i n a recent BUSINESS WEEK a r t i c l e : "We

need a n a t i o n a l export p o l i c y to r e f u r b i s h and

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strengthen our i n d u s t r y . Through f i s c a l p o l i c y , we should s t i m u l a t e research and development... We have t o develop new technology and go out and s e l l the s t u f f . " In the c u r r e n t climate o f non-uniform f e d e r a l patent p o l i c y , and a n c i l l a r y impinging l e g i s l a t i o n , along with some j u d i c i a l m i s i n t e r p r e t a t i o n s , the charge from Mr. de V r i e s becomes a c h a l l e n g i n g one to meet, indeed. A P r o s p e c t i v e Concern Since the e a r l y 1960s, a few p o w e r f u l l y - s i t u a t e d and h i g h l y v o c a l title-in-the-Government proponents have shown almost a r e l i g i o u s f e r v o r i n t h e i r advocacy. T h i s group has r e c e n t l y again been a c t i v e , o b v i o u s l y prodded by the apparent f a v o r a b l e r e a c t i o n o f v a r i o u s governmen B i l l , and are urging a q u i r i n g a l l agencies i n the Executive Branch t o adopt the p o l i c y they advocate. They do not present any hard data from which a well-reasoned document i n support o f t h a t p o s i t i o n could be d e r i v e d . Rather, they take refuge i n catch-words such as "give-away", " w i n d f a l l " , " a n t i - c o m p e t i t i v e " and l a s t , b u t c e r t a i n l y not l e a s t , a phrase that i s most s i m p l i s t i c , but appealing t o the uninformed: "What the Government pays f o r i t should own." I t i s indeed a noble motive t o give t o the people the b e n e f i t s of p u b l i c l y supported research and we can agree t h a t tax d o l l a r s should not be used as a means o f e n r i c h i n g p r i v a t e p a r t i e s . We must, however, be v i g i l a n t , f o r the views on the i s s u e s i n v o l v e d lend themselves t o emotional molding. Making outspoken claims t o the guardianship o f the p u b l i c i n t e r e s t o r p u b l i c welfare i s a r i c h f i e l d f o r enhancing p o l i t i c a l power. A deadening r e s u l t o f p o l i t i c a l emphasis on such guardianship i s the p r o l i f e r a t i o n and growth o f the b u r e a u c r a t i c maze where a c c o u n t a b i l i t y becomes a f e a r . Under such c o n d i t i o n s , the atmosphere generated tends to be one o f s e l f - p r o t e c t i v e c a u t i o n r e s u l t i n g i n the operation o f the system becoming a d i s p r o p o r t i o n a t e p a r t o f the o b j e c t i v e . E f f o r t i s fundamental t o the t r a n s f e r o f technology t o the marketplace, and, wherever e f f o r t i s needed, i n c e n t i v e i s r e q u i r e d . Not only does the title-in-the-government p o l i c y r e j e c t the need f o r the i n c e n t i v e provided by patents, i t a l s o r e j e c t s c o n t i n u i n g p a r t i c i p a t i o n by the i n v e s t i g a t o r - i n v e n t o r — an important c o n s i d e r a t i o n with u n i v e r s i t y generated i n v e n t i o n s which tend t o be embryonic i n nature and which almost always r e q u i r e a d d i t i o n a l development. And remember t h a t a flow o f f r e e i n f o r m a t i o n i s a v a i l a b l e t o f o r e i g n companies and c o u n t r i e s , an i n v i t a t i o n t o them to i n c r e a s e our trade d e f i c i t even f u r t h e r . In today's t e c h n o l o g i c a l l y i n t e n s i v e atmosphere, some p r o t e c t i o n f o r the heavy investment r e q u i r e d i n development i s

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more than ever necessary. The lead time given by exclusive knowledge or patents is shorter than ever before. If that lead time i s reduced or disappears through further weakening of the patent system—and i f the government takes and holds t i t l e to thousands of inventions, that system is weakened—it may become economically sound to be second in the f i e l d . There i s already evidence of a "second-place" philosophy in some industries today. Further erosion of the exclusive rights to intellectual property afforded under the Constitution could lead to a second-place attitude, generally, in a l l U.S. industry. The next step i s the development of a willingness to be a second-place nation. It is indeed publish and perish. Abstract A successful technolog a workable university paten perspective and as to current a c t i v i t y . A concern for the future of this type of operation is explored in light of today's economic, legislative and p o l i t i c a l climates. Biographic Notes Howard W. Bremer obtained baccalaureates from the University of Wisconsin in both chemical engineering and law. He is admitted to practice law in Wisconsin and before the Patent and Trademark Office, Court of Customs and Patent Appeals and the United States Supreme Court. After a two-year stint in the U.S. Navy, Mr. Bremer served for 11 years as a patent attorney with the Procter and Gamble Company. Since 1960 he has been patent counsel for the Wisconsin Alumni Research Foundation. He i s a member of various professional law associations and is currently serving a term as President of the Society of University Patent Administrators. RECEIVED June 20, 1978.

In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

6 Patent Program of the University of California MARK OWENS, JR. University of California Systemwide Administration, 2200 University Ave., Berkeley, CA 94720

The University o comprising nine campuses and 125,000 students. The annual budget of the University i s a little over $2 b i l l i o n , with a substantial research budget supported by State and Federal grants, and, to a lesser extent, industry and non-profit foundations. While the University faculty has been research-oriented from the early days of the institution, it was not u n t i l the 1940's that a patent program was developed to administer inventions that might result from faculty research. In the early days, patents were a very minor consideration to the University, but a potentially lucrative invention had evolved at the Davis campus which was assigned to the University by the inventor, and this stimulated the formation of the program. Today the program is unique in that there is an entirely separate Board appointed by The Regents of the University of California to establish policy and procedure for the administration and processing of patents. This Board i s composed of one academic representative from each of the nine campuses of the University, one representative of the Academic Senate, and the chairman of the Patent Board, who represents the University administration. Day-to-day activities of the patent operation are carried out by the office of the Patent Administrator and a staff of three c l e r i c a l assistants. This office receives and reviews all disclosures of inventions which are developed within the University of California system by i t s staff and faculty. (Parenthetically, student inventions to the extent that the students are not also employees of the University are excluded from the patent program.) Use of the program by the faculty was optional u n t i l 1963. In that year, mandatory assignment of inventions to the Univers i t y was required, and, at the same time, the distribution of royalty income was increased from the previous downward sliding scale, from 25% to 15%, based on gross royalties, to a 50% distribution based on net royalties. As a result of this change 0-8412-0454-3/78/47-081-065$05.00/0 © 1978 American Chemical Society In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

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to an arrangement more f a v o r a b l e t o the i n v e n t o r , the d i s c l o s u r e r a t e i n c r e a s e d from about 20 per year t o the present 200 t o 300 per year. The i n v e n t i o n d i s c l o s u r e s are analyzed to determine what r e s t r i c t i o n s , i f any, have been imposed by sponsoring agencies. Experts i n the f i e l d of the i n v e n t i o n are chosen from among the f a c u l t y and s t a f f t o review the d i s c l o s u r e s , p r i m a r i l y f o r n o v e l t y , f e a s i b i l i t y and commercial p o t e n t i a l . I f the p r e l i m i nary review i s f a v o r a b l e , a patent search i s undertaken. Based on the t o t a l a n a l y s i s , the i n v e n t i o n i s e i t h e r r e p o r t e d to the sponsoring agency, r e l e a s e d to the i n v e n t o r , or patent prosecut i o n procedures are begun. Two c r i t e r i a must be met before patent p r o s e c u t i o n may be undertaken: There must be reasonable hope f o r developing a d e f e n s i b l e patent p o s i t i o n and reasonable hope f o r l i c e n s i n g the i n v e n t i o n i n the foreseeabl T h e r e a f t e r the o f f i c out l i c e n s i n g p r o s p e c t s , negotiates l i c e n s e s and assumes a l l subsequent r e s p o n s i b i l i t y f o r t h e i r enforcement. D i s t r i b u t i o n o f r o y a l t i e s t o inventors i s a f u r t h e r r e s p o n s i b i l i t y o f t h i s office. Another important f u n c t i o n o f the Patent A d m i n i s t r a t o r i s t o a s s i s t members o f the U n i v e r s i t y s t a f f and f a c u l t y i n the n e g o t i a t i o n o f patent p r o v i s i o n s i n research c o n t r a c t s and grants to ensure t h a t sponsors do not impose unreasonable c o n s t r a i n t s on the U n i v e r s i t y with regard to i n v e n t i o n s . Aside from the State of C a l i f o r n i a , there are three b a s i c sources o f r e s e a r c h sponsorships w i t h i n the U n i v e r s i t y . Of these the F e d e r a l Government i s the most s i g n i f i c a n t . The f a c t t h a t there i s no one c l e a r coherent F e d e r a l patent p o l i c y has been a s e r i o u s problem. There are more than twenty F e d e r a l agencies which sponsor r e s e a r c h and almost an equal number o f p o l i c i e s with v a r y i n g degrees o f r e s t r i c t i o n s and o b l i g a t i o n s . Although the U n i v e r s i t y has been s u c c e s s f u l i n r e n e g o t i a t i n g some very onerous patent r e s t r i c t i o n s such as the background patent p r o v i s i o n f i r s t introduced by United S t a t e s Department o f the I n t e r i o r , f o r the most p a r t , r e s t r i c t i v e patent p r o v i s i o n s imposed by the F e d e r a l Government are not n e g o t i a b l e to any great degree. The two other sources o f r e s e a r c h funding are p r i v a t e i n d u s t r y and n o n - p r o f i t foundations. In t h i s area, the U n i v e r s i t y has e s t a b l i s h e d a "Schedule o f Support and Patent P r i v i l e g e s " . Under t h i s p o l i c y no r o y a l t y - f r e e r i g h t s may be granted to p r i v a t e i n d u s t r y . The U n i v e r s i t y a t the very most can agree to grant an e x c l u s i v e l i c e n s e to the sponsors, s u b j e c t t o the payment of reasonable r o y a l t i e s , i f the sponsor has supp o r t e d a l l d i r e c t and i n d i r e c t c o s t s o f the r e s e a r c h p r o j e c t , i n c l u d i n g a pro r a t a share o f a l l s a l a r i e s . I f the sponsor has o f f e r e d l e s s than t h i s , the l i c e n s i n g terms are l i m i t e d and may be no more than a grant of a non-exclusive, but r o y a l t y - b e a r i n g

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license. As f a r as n o n - p r o f i t foundations are concerned, the u n i v e r s i t y attempts to r e t a i n any patent r i g h t s under the r a t i o n a l e t h a t the U n i v e r s i t y i s b e t t e r able to ensure widespread p u b l i c use of whatever i n v e n t i o n s may r e s u l t from the r e s e a r c h . The seeking o f l i c e n s e e s and the s u c c e s s f u l n e g o t i a t i o n of l i c e n s e s are, of course, the heart o f any patent program. There are many sources o f l i c e n s e e s . One i s e x i s t i n g l i c e n s e e s . Perhaps an e x i s t i n g l i c e n s e e i s doing a good job handling current U n i v e r s i t y i n v e n t i o n s , and we may f e e l t h a t the new i n v e n t i o n would be a v a l u a b l e adjunct to the l i c e n s e e ' s product l i n e . In t h a t s i t u a t i o n we might o f f e r the new i n v e n t i o n to an e x i s t i n g l i c e n s e e . The more common p r a c t i c e , however, i s to make i n d u s t r y wide s o l i c i t a t i o n s to see i f i n t e r e s t e x i s t s f o r the new invent i o n . The names of p r o s p e c t i v e l i c e n s e e s f o r such general m a i l i n g can be found i n the Thoma and v a r i o u s other trad w e l l known as a source of new technology; r e p r e s e n t a t i v e s of p r i v a t e i n d u s t r y who are seeking new ideas and i n v e n t i o n s c a l l upon us p e r i o d i c a l l y . The i n v e n t o r , h i m s e l f , i s f r e q u e n t l y a good source to tap f o r p r o s p e c t i v e l i c e n s e e s , s i n c e he i s f r e q u e n t l y very knowledgeable about e x i s t i n g manufacturers and products i n h i s p a r t i c u l a r f i e l d . The terms and c o n d i t i o n s of l i c e n s e s are q u i t e s i m i l a r to those used by other e d u c a t i o n a l i n s t i t u t i o n s or i n d u s t r i e s which are i n v o l v e d i n l i c e n s i n g programs. While we p r e f e r to l i c e n s e on a nonexclusive b a s i s , i n many s i t u a t i o n s t h i s i s not p o s s i b l e because i n v e n t i o n s emerging from U n i v e r s i t y research r e q u i r e a good d e a l of time and money to develop f o r the commercial market. For t h i s reason, many o f the l i c e n s e s must be e x c l u s i v e f o r at l e a s t a p e r i o d of years as an i n c e n t i v e f o r a company to i n v e s t i t s time and r i s k c a p i t a l . Licenses i n c l u d e p r o v i s i o n s f o r payment of a l i c e n s e i s s u e fee which i s i n the nature of earnest money, and a c o n d i t i o n f o r g e t t i n g the l i c e n s e . The l i c e n s e , t y p i c a l l y , has due d i l i g e n c e clauses which r e q u i r e that the l i c e n s e e e n e r g e t i c a l l y develop the i n v e n t i o n f o r the market and t h e r e a f t e r meet market demands. I f the due d i l i g e n c e requirements are not met, the U n i v e r s i t y has the r i g h t to terminate the l i c e n s e . Royalty terms are c o n s i s t e n t with those of i n d u s t r y f o r l i k e i n v e n t i o n s . A minimum annual r o y a l t y payment guarantee i s i n s i s t e d upon, e s p e c i a l l y as a p a r t of an e x c l u s i v e arrangement. The l i c e n s e e w i l l have the b e n e f i t o f having the inventor p a r t i c i p a t e i n developing the commercial model of the i n v e n t i o n i n v a r y i n g degrees. Know-how, per se, i s not l i c e n s e d , but i f the l i c e n s e e wishes to have the s e r v i c e s of an inventor beyond a c a s u a l exchange of i n f o r m a t i o n , i t must make separate arrangements w i t h the i n v e n t o r . The inventors are u s u a l l y eager to see t h e i r i n v e n t i o n s made a v a i l a b l e and u t i l i z e d by the p u b l i c , and, t h e r e f o r e , i t i s not at a l l uncommon f o r l i c e n s e e s to work out

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such arrangements with inventors. At present the patent program i s generating about $1 m i l l i o n per year from i t s patent licensing a c t i v i t y . A number of inventions, each returning rather modest amounts, contribute to the t o t a l . This i s f e l t to be a healthier situation than to have one or two very large income-producing inventions which could become involved quite easily i n costly l i t i g a t i o n . Some concern has been expressed over the years by faculty members about the worth of the program and the manner i n which i t has been conducted. These concerns have now essentially d i s appeared. Recently the State Auditor made a complete review of the program and reported favorably on i t s effectiveness. As a consequence, the program i s expected to be continued with l i t t l e or no change i n the immediate future. In this paper I have given only very general information about the patent progra hope this bird's-eye vie program w i l l be helpful to those who wish to become licensees and to those who may be contemplating setting up similar programs at other institutions. Abstract The University of California has had a patent program for over t h i r t y years. Revised i n 1963, the current program provides for mandatory assignment of inventions developed by members of the faculty and staff u t i l i z i n g University f a c i l i t i e s . A full-time patent staff administers the program. Inventions covering a wide variety of fields are reported and processed. The processing involves complying with research sponsor commitments, evaluating, patenting and licensing of patent rights. Royalty income i s shared between the inventors and the University; the University's share i s used for research and educational purposes. Biographic Notes Since 1955, Mark Owens, J r . has progressed from Assistant Counsel to the Regents of the University of California to his present position as Deputy Associate Director for Administration at the Lawrence Berkeley Laboratories. During this long period of time, he was involved in many legal and administrative duties, including complete responsibility for all patent and copyright matters for the University system. Mr. Owens has a baccalaureate in p o l i t i c a l science from the University of California at Los Angeles and a doctor of jurisprudence degree from Hastings College of the Law, University of California. He is admitted to the practice of law i n California and before the United States Supreme Court, and currently i s dean and professor of law at San Francisco Law School. RECEIVED June 20, 1978.

In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

7 Patents: Potential Economic Benefits for Minority-Run Universities J. RICHARD E V E R E T T Patent Department, Eastman Kodak Co., 343 State St., Rochester, NY 14650

It i s well known tha extremely small endowments just to meet their operating costs. Capital expenditures are usually financed out of special capital fund drives that sometimes fail to reach the desired goals. This financial anemia has a detrimental effect on the quality of these institutions, including teachers, students, and research workers. The faculties of these institutions have been particularly hard h i t also by the effective efforts of their predominantly white counterparts to integrate their faculties and student bodies. In the United States there are about 120 predominantly black colleges and universities. While they are not all of the same quality, some being excellent and some not being accredited at all, over the years these institutions have served thousands of minority students. They are, indeed, a national resource, since they provide a pool of expertise that enables students who have been educationally deprived prior to entering college to achieve a quality education. Generally, most white institutions are i n a position, financ i a l l y , to offer larger salaries, better working conditions, and many other advantages which enable them to lure both top teaching talent and top students away from black institutions. In the s c i e n t i f i c f i e l d , loss of top teaching talent tends to further lower the quality of the research a c t i v i t i e s at any academic ins t i t u t i o n , as well as the quality of i t s science students. This, in turn, affects the a b i l i t y of the institution to attract money for research. To try to overcome this self-feeding downward s p i r a l , I recommend that predominantly black universities direct a part of their attention and resources to the potential economic benefits which may reside i n their research a c t i v i t i e s . In the following discussion these benefits, and how they may be realized,

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are d e t a i l e d . Technology T r a n s f e r Most sponsors of r e s e a r c h i n t h i s country, whether p u b l i c or p r i v a t e , are i n t e r e s t e d i n i n c r e a s i n g the number and r a t e of t e c h nology t r a n s f e r s . They seek research r e s u l t s t h a t l e a d to the s o l u t i o n o f human and/or s o c i e t a l problems. Most research d o l l a r s used by academic i n s t i t u t i o n s come from the U.S. F e d e r a l Government. Both Congress and the Executive Branch are p u t t i n g a higher premium on b e t t e r u t i l i z a t i o n o f government-sponsored r e search r e s u l t s , e s p e c i a l l y those r e s u l t s t h a t are p a t e n t a b l e . The N a t i o n a l Science Foundation, f o r example, under administ r a t i v e r e g u l a t i o n s , has moved to r e q u i r e r e c i p i e n t s o f r e s e a r c h grants and c o n t r a c t s to develop and i n s t i t u t e patent p o l i c i e s and d i s c l o s u r e procedures i l a r s . Although a law s u i r e g u l a t i o n s proposed by the General S e r v i c e s A d m i n i s t r a t i o n , the a t t i t u d e o f the government embodied i n these proposed r e g u l a t i o n s d e f i n i t e l y represents a trend which emphasizes the need f o r patent p o l i c i e s , patent awareness, and r e s e a r c h management t h a t w i l l be e f f e c t i v e i n a c h i e v i n g greater technology t r a n s f e r s . Patents are the best method i n t h i s country and, f o r t h a t matt e r , i n most of the world, f o r a c h i e v i n g more e f f e c t i v e technology t r a n s f e r from research r e s u l t s . Patents are, i n essence, economic t o o l s , T h e i r most a t t r a c t i v e f e a t u r e i s that of e x c l u s i v i t y . T h i s e x c l u s i v i t y flows from the patent owner's r i g h t , f o r a p e r i o d o f 17 years, to exclude others from making, u s i n g and s e l l i n g h i s patented i n v e n t i o n . T h i s r i g h t t o exclude others i s a property r i g h t . The patent owner can grant l i c e n s e s t o others to make, use and s e l l h i s i n v e n t i o n , or he can s e l l h i s patent. In r e t u r n f o r t h i s r i g h t to exclude others f o r 17 years the inventor must d i s c l o s e h i s i n v e n t i o n to the p u b l i c . Maximizing Technology T r a n s f e r To maximize the r e a l i z a t i o n of b e n e f i t s from u n i v e r s i t y r e search e f f o r t s , the research program i t s e l f must be planned. Such planning should i n c l u d e c l e a r l y s t a t e d r e s e a r c h o b j e c t i v e s , a comprehensive, as w e l l as a p o s i t i v e , i n s t i t u t i o n a l patent p o l i c y and an appropriate a d m i n i s t r a t i v e s t r u c t u r e f o r the d i s c l o s u r e and e v a l u a t i o n o f i n v e n t i o n s . The patent p o l i c y should s t a t e the views o f the u n i v e r s i t y regarding the handling of i n v e n t i o n s . I t should d e t a i l income sharing arrangements between the u n i v e r s i t y , the i n v e n t o r and r e s e a r c h sponsors. Administrative

Structures

The a d m i n i s t r a t i v e s t r u c t u r e may i n v o l v e any one, a combinat i o n , or a l l of these components: in-house management o f f i c e ,

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u n i v e r s i t y - a f f i l i a t e d foundation, o r a p r o f e s s i o n a l o u t s i d e p a t ent-management o r g a n i z a t i o n . Under the in-house approach, the u n i v e r s i t y i s r e p o n s i b l e f o r e v a l u a t i n g i n v e n t i o n s before the d e c i s i o n to patent i s made, f o r the f i l i n g and p r o s e c u t i o n o f patent a p p l i c a t i o n s , and f o r l i c e n s ing, u s i n g u n i v e r s i t y patent a d m i n i s t r a t i o n s e r v i c e s . The major disadvantage o f t h i s approach i s the requirement f o r an e a r l y outl a y of money f o r patent a p p l i c a t i o n s and f o r the c o n t i n u i n g overhead c o s t s o f patent a d m i n i s t r a t i o n s e r v i c e s . The advantage o f t h i s system i s the much l a r g e r r e t u r n , o r income on r o y a l t i e s , as a r e s u l t o f in-house development and marketing. The second mechanism i s the use o f an i n s t i t u t i o n - a f f i l i a t e d foundation. Examples are the Wisconsin Alumni Research Foundat i o n and Rutgers Research and Endowment Foundation. The advantages o f the i n s t i t u t i o n - a f f i l i a t e d foundation are an i n c r e a s e d a b i l i t y t o r a i s e funds methods t o develop and promot the opportunity t o e s t a b l i s h working r e l a t i o n s h i p s between the u n i v e r s i t y and i n d u s t r y . The major disadvantage i n c l u d e s the need f o r e a r l y o u t l a y o f money f o r s t a r t - u p c o s t s . The t h i r d mechanism i s the use o f s o - c a l l e d patent-management o r g a n i z a t i o n s . Examples are Research C o r p o r a t i o n , B a t t e l l e Development C o r p o r a t i o n , and Arthur D. L i t t l e Inc. T h i s a l t e r n a t i v e provides a s i g n i f i c a n t amount o f l e g a l , marketing and patent exp e r t i s e to be used a t no up-front cost t o the i n s t i t u t i o n . The disadvantage o f t h i s system i s t h a t a l a r g e o r s u b s t a n t i a l p o r t i o n o f any r o y a l t i e s earned are shared with the patent-management o r g a n i z a t i o n as compensation f o r s e r v i c e s rendered. Research Management Since the m i s s i o n of most sponsored r e s e a r c h i s u t i l i t a r i a n , the p a r t i c u l a r r e s e a r c h , be i t fundamental o r a p p l i e d , i s connected i n one way o r another w i t h improving technology and maxi m i z i n g the output o f s o l u t i o n s f o r i n d i v i d u a l human and s o c i e t a l problems. I t i s obvious t h a t there w i l l be a g r e a t e r need f o r management i n c a r r y i n g out f u t u r e research a c t i v i t i e s . Effective management r e q u i r e s c l e a r l y s t a t e d r e s e a r c h o b j e c t i v e s . Among the o b j e c t i v e s which u n i v e r s i t i e s might p r o p e r l y e n t e r t a i n are: 1. Making r e s e a r c h a c t i v i t i e s complement the teaching r e s p o n s i b i l i t i e s o f the u n i v e r s i t y . 2. U t i l i z i n g research a c t i v i t i e s to maximize the competence o f the f a c u l t y , and u l t i m a t e l y the r e p u t a t i o n o f the u n i v e r s i t y , i n p a r t i c u l a r research f i e l d s . 3. U t i l i z i n g r e s e a r c h a c t i v i t i e s and the funds obtained therefrom to help maintain the o v e r a l l r e s e a r c h overhead o f the u n i v e r s i t y . 4. U t i l i z i n g r e s e a r c h a c t i v i t i e s t o improve, a t t r a c t , and maintain the q u a l i t y o f both teachers and students. 5. U t i l i z i n g r e s e a r c h a c t i v i t i e s t o p r o v i d e a b e t t e r l i n k

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between the u n i v e r s i t y ' s d i s c i p l i n e o r i e n t a t i o n and the i n t e r d i s c i p l i n a r y o r i e n t a t i o n o f the non-academic world. 6. U t i l i z i n g r e s e a r c h a c t i v i t i e s and patents o r r e s e a r c h r e s u l t s to ensure t h e i r more e t h i c a l use i n s o l v i n g the problems o f s o c i e t y . 7. F a c i l i t a t i n g the t r a n s f e r o f technology t o provide maximum b e n e f i t to the p u b l i c . 8. Encouraging r e s e a r c h and s c h o l a r s h i p t o develop a g r e a t e r s p i r i t o f i n q u i r y , thereby generating new knowledge. 9. P r o v i d i n g b e t t e r machinery f o r determining the s i g n i f i cance of d i s c o v e r i e s so t h a t commercially m e r i t o r i o u s i n v e n t i o n s may be brought promptly i n t o p u b l i c use. 10. A s s i s t i n g i n an e q u i t a b l e d i s p o s i t i o n o f property i n t e r e s t s i n i n v e n t i o n s among the i n v e n t o r , the i n s t i t u t i o n , and a sponsor, when a p p l i c a b l e . 11. A s s i s t i n g i n th grants and c o n t r a c t s 12. F a c i l i t a t i n g the development o f i n s t i t u t i o n a l patent agreements with the F e d e r a l Government. Once the o b j e c t i v e s of a u n i v e r s i t y ' s r e s e a r c h a c t i v i t i e s are c l e a r l y s t a t e d , the a d m i n i s t r a t i v e o f f i c e s can begin to coo r d i n a t e the r e s e a r c h and r e s e a r c h r e l a t e d a c t i v i t i e s i n an e f f e c t i v e and p r o d u c t i v e manner. Research resources can be b e t t e r managed f o r the b e n e f i t o f the e n t i r e u n i v e r s i t y research community, r e s e a r c h grants and c o n t r a c t s can be pursued i n a more comprehensive way, and r e p o r t i n g d e a d l i n e s of sponsors can be met on a more c o n s i s t e n t b a s i s . B e n e f i t s Derived by Some I n s t i t u t i o n s Many academic i n s t i t u t i o n s are beginning to r e a l i z e t h a t the e x i s t e n c e o f a p o s i t i v e patent p o l i c y together with a high degree of patent awareness are e f f e c t i v e t o o l s i n a c h i e v i n g g r e a t e r r e search management. Indeed, the r e l a t i o n s h i p o f patent p o l i c i e s and patent awareness to r e s e a r c h management i s symbiotic. Exi s t e n c e of the former i n c r e a s e s the l a t t e r . Increases i n the l a t t e r r e s u l t i n more e f f e c t i v e use of research resources as w e l l as g r e a t e r technology t r a n s f e r s . A l l o f t h i s r e i n f o r c e s the patent p o l i c i e s and i n c r e a s e s the l e v e l of patent awareness. Some of the b e n e f i t s d e r i v e d from the United S t a t e s Patent System, based on previous case h i s t o r y o f patentable r e s e a r c h r e s u l t s a t the u n i v e r s i t y l e v e l , i n c l u d e funds t o augment c o l l e g e and u n i v e r s i t y endowments, t o provide f o r a d d i t i o n a l r e s e a r c h development, and to improve the f i n a n c i a l status o f the i n v e n t o r . Other important b e n e f i t s d e r i v e d from patent a c t i v i t y i n c l u d e enhancing: the u n i v e r s i t y ' s g e n e r a l r e p u t a t i o n i n s c i e n c e ; . the i n v e n t o r ' s r e p u t a t i o n , not o n l y through p u b l i c a t i o n o f patentable m a t e r i a l , but a l s o i n terms o f t h i s i n v e n tive ability;

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the r e s e a r c h status o f the u n i v e r s i t y , thereby enabling i t t o a t t r a c t b e t t e r students, teachers, and g r e a t e r r e search support; the u n i v e r s i t y ' s r e p u t a t i o n i n the community a t l a r g e . Wisconsin Alumni Research Foundation i n i t s r e s e a r c h and patent a c t i v i t i e s has generated over $26,000,000 i n r o y a l t y i n come f o r the U n i v e r s i t y o f Wisconsin i n the p a s t 40 years. Rutgers Research and Endowment Foundation has r e c e i v e d $7,000,000 i n r o y a l t i e s on a n t i b i o t i c patents. Reportedly the U n i v e r s i t y o f F l o r i d a has r e c e i v e d s u b s t a n t i a l r o y a l t i e s from a patent covering "Gatorade". The U n i v e r s i t y o f Rochester has r e c e i v e d over $250,000 i n r o y a l t i e s from patents on orthopedic shoes. The Board of Patents o f the U n i v e r s i t y o f C a l i f o r n i a has r e c e i v e d over $1,000,000 i n r o y a l t i e s i n the l a s t 10 years. These are j u s t a few o f the b e n e f i t s t h a t have been d e r i v e d from patented products by white i n s t i t u t i o n s . t u t i o n s such as MIT, Stanford o f I l l i n o i s , Miami, and C o r n e l l are a l s o b e n e f i t i n g from r o y a l t y income, Research A c t i v i t y a t Predominantly

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The nature and extent o f r e s e a r c h a c t i v i t i e s a t some b l a c k i n s t i t u t i o n s have the p o t e n t i a l o f generating economic b e n e f i t s . An unpublished r e p o r t , e n t i t l e d "The Patent P o t e n t i a l a t Predomi n a n t l y Black C o l l e g e s and U n i v e r s i t i e s " , d i s c u s s e s a 1972 study of the r e s e a r c h a c t i v i t i e s a t Tennessee S t a t e , Howard, A t l a n t a , F i s k , and Southern U n i v e r s i t i e s , Tuskegee I n s t i t u t e and Meharry Medical C o l l e g e . T h i s r e p o r t d i s c l o s e d t h a t : 1. A t o t a l o f a t l e a s t $11,000,000 was then being spent by these i n s t i t u t i o n s i n research o r r e s e a r c h r e l a t e d a c tivities . 2. Four o f the schools s t u d i e d expect a s u b s t a n t i a l i n crease o f a t l e a s t 100% i n research expenditures over the next f i v e years. This estimate seems accurate i n view o f the numerous problems f a c i n g t h i s country, such as the energy c r i s i s , i n which the U.S. Government w i l l i n v e s t funds f o r research. 3. Most o f the research i s b a s i c . However, i n a t l e a s t three o f the schools, researchers i n d i c a t e d t h a t they f r e q u e n t l y design and/or modify techniques, procedures and devices i n order t o achieve t h e i r r e s e a r c h g o a l s . 4. Research w i l l become more a p p l i e d than b a s i c . In p a r t , t h i s change i n the nature o f research w i l l a r i s e as a consequence o f new p o l i c i e s adopted by government fundi n g agencies. During the study, i t was noted s e v e r a l times t h a t government agencies were tending t o use the c o n t r a c t route t o achieve t h e i r goals r a t h e r than the grant r o u t e . T h i s p o l i c y d i c t a t e s a change i n the nature o f r e s e a r c h .

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5,

The a t t i t u d e s o f most f a c u l t y members and a d m i n i s t r a t o r s toward the patent system were p o s i t i v e . Indeed, the need f o r g r e a t e r i n v e n t i o n and patent awareness i n b l a c k academic i n s t i t u t i o n s was e n t h u s i a s t i c a l l y supported. There i s no question t h a t b l a c k s can i n v e n t . The l i s t o f patented i n v e n t i o n s i s l o n g . In chemistry one outstanding b l a c k s c i e n t i s t , the l a t e Dr. Percy J u l i a n , generated over 150 patents and b u i l t h i s own company, which he s o l d f o r more than $3,000,000. George Washington Carver, a superb r e s e a r c h chemist who worked a t Tuskegee I n s t i t u t e , d i s c o v e r e d many uses f o r the peanut, and, i n so doing, generated many p o t e n t i a l l y v a l u a b l e i n v e n t i o n s . For h i s e f f o r t s , n e i t h e r Tuskegee I n s t i t u t e nor Carver reaped any f i n a n c i a l b e n e f i t s s i n c e these v a l u a b l e i n v e n t i o n s were not p a t ented. Reportedly, the State of Alabama has r e c e i v e d over $60,000,000 from h i s i n v e n t i o n s . Today, years l a t e r , Tuskegee Institute i s strugglin beset b l a c k c o l l e g e s an Had Carver patented h i s i n v e n t i o n s , Tuskegee I n s t i t u t e would today be f i n a n c i a l l y comfortable. We s t r o n g l y recommend t h a t b l a c k i n s t i t u t i o n s use the resource o f r e s e a r c h i n the same ast u t e ways t h a t they have used other i n s t i t u t i o n a l resources t o maintain the v i a b i l i t y o f b l a c k education. As I have shown, some white schools have b e n e f i t e d form these resources i n the p a s t and others are c u r r e n t l y o r g a n i z i n g themselves toward t h i s end. Black schools should do the same, i f f o r no other reason than t o maint a i n t h e i r q u a l i f i c a t i o n s f o r r e c e i v i n g f e d e r a l funds a v a i l a b l e f o r academic r e s e a r c h . Patent Awareness at Black I n s t i t u t i o n s To i n c r e a s e patent awareness, a program was conducted i n 1974 and 1975 over a p e r i o d o f twelve months a t A t l a n t a , Howard and Southern u n i v e r s i t i e s , Tuskegee I n s t i t u t e and Meharry Medical C o l l e g e , P r e s e n t a t i o n s were made d u r i n g the course o f one or more s i t e v i s i t s t o each school t o approximately 370 people i n c l u d i n g academic deans, a d m i n i s t r a t o r s , researchers and students. The p r e s e n t a t i o n s were w e l l r e c e i v e d . Feedback has i n d i c a t e d t h a t while the program s t i m u l a t e d a great d e a l of i n t e r e s t and awareness a t the time, these have d e c l i n e d s u b s t a n t i a l l y s i n c e then. Many a d m i n i s t r a t o r s expressed an i n t e r e s t i n using patent awareness as a v e h i c l e f o r improving r e s e a r c h management. They a l l f e l t somewhat r e s t r a i n e d s i n c e t h e i r i n s t i t u t i o n s d i d not have c l e a r p o l i c i e s r e g a r d i n g i n v e n t i o n s or other i n t e l l e c t u a l propert y . We t r i e d t o persuade key o f f i c i a l s of each i n s t i t u t i o n o f the n e c e s s i t y o f e s t a b l i s h i n g such p o l i c i e s . In c e r t a i n i n s t a n c e s , where we were requested, d r a f t patent p o l i c i e s were presented t o i n t e r e s t e d i n s t i t u t i o n s as " t a l k i n g papers". To date however, no patent p o l i c i e s have been adopted where none e x i s t e d before the patent awareness program. P o l i c i e s which should have been c l a r i f i e d have not been improved. My campus contacts have r e p o r t e d

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that a few individuals involved in research have become very much aware of patents are making inquiries concerning the p o s s i b i l i t y of patenting certain of their research results. Apparently, some of these researchers feel that i t i s advantageous that their university does not have a patent policy. They believe that i n the absence of a policy a l l financial proceeds would be theirs exclusively. Clearly, for a patent awareness program to have a continued effect at any university, (1) the program must be presented regul a r l y , (2) the university must have a clear patent policy, and (3) the relevant people on campus must be informed regularly of the existence of the policy. Abstract Many minority-ru anemia. This conditio tract top students, teachers and research and development support. Studies show that the current and expected research activity at some minority-run universities would benefit from the adoption and implementation of a patent policy and better research management. The benefits would include increased financial strength and improvement in the a b i l i t y to attract higher quality students, better teachers and additional research funding. Literature Cited 1.

2.

3.

4.

5.

6. 7.

Presentation of Norman J. Latker before National Congress on "The A v a i l a b i l i t y of New Technology to Industry from American Universities and Technological Institutes" Sponsored by Dr. Dvorkovitz & Associates i n Cooperation with the I l l i n o i s Institute of Technology Research Institute Chicago, I l l i n o i s , A p r i l 2-5, 1973. Presentation of Norman J. Latker at Conference on Technology Transfer - University Opportunities and Responsibilities. Case Western Reserve University - October 15, 1974. Case Western Reserve University Memorandum of August 12, 1974 - "A Reminder About A Special Conference" - "Technology Transfer - University Opportunities and Responsibilities". News and Comment - January 31, 1974 (No. 163) A-5. NSF Proposes Regulations for Disposition of Rights. NSF Inventions Made with Foundation Awards. Patent, Trademark and Copyright Journal, September 13, 1973, (No. 144) D-1. General Services Administration Revision of Proposed Regulations on Rights in Inventions. Patent, Trademark and Copyright Journal, June 20, 1974 (No. 183) A-1. Justice Department Airs Shift on "Cramton Memo" as Public Citizen II i s Argued. Patent, Trademark and Copyright Journal, August 26, 1971 (No. 42) D-1. Texts of (1) Memorandum from President Nixon

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8.

9. 10.

11. 12. 13. 14.

15.

16. 17. 18. 19. 20. 21. 22.

23.

24. 25.

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to the Heads of Executive Departments and Agencies on the New Policy of Disposition of Patent Rights Resulting from Government-Sponsored Grants and Contracts; (2) White House Statement of Government Patent Policy; and (3) Statement and Explanation of the Changes in Government Patent Policy, by the President's Office of Science and Technology. Patent, Trademark and Copyright Journal, December 6, 1973 (No. 156) D-1. U.S. Government Memorandum on Constitution­ a l i t y of Proposed Regulations Granting Contractors Greater or Principal Rights i n Patents Arising out of Government Research and Development Contracts. Letter dated October 29, 1973 from R. H. McCarthy on Cornell Patent and License A c t i v i t y . Letter dated A p r i l 17, 1974 from Josephine Opalka of the Regents of the University of California with Information on University Polic A r t i c l e i n Busines a New Route 128. Research Corporation Annual Reports (1968 through 1972). Science Invention and Society, Research Corporation, New York, N.Y. (1972). The Role of the Wisconsin Alumni Research Foundation in the Support of Research at the University of Wisconsin by Ε. B. Fred. Patents at Colleges and Universities, Guidelines for the Development of Policies and Programs by the Committee on Governmental Relations NACUBO (1974). Encyclopedia of Patent Practice and Invention Management, Robert P. Calvert. Scientific Innovation and Industrial Prosperity by J. A. Allen. Technology, Management & Society, Essays by Peter F . Drucker. Fundamentals of Research Management, by William G. McLoughlin - American Management Association, Inc. The Interaction of Science and Technology, edited by W. Dale Compton. Factors in the Transfer of Technology, edited by William H. Gruber and Donald G. Marquis. U.S. Department of Commerce. Patents: Spur to American Progress. Washington: U.S. Government Printing Office (1970). U.S. Department of Commerce. Patents and Inventions: An Information Aid for Inventors. Washington: U.S. Government Printing Office (1970). U.S. Department of Commerce: General Information Concerning Patents. Washington: U.S. Government Printing Office (1973). U.S. Department of Commerce. The Story of the United States Patent Office. Washington: U.S. Government Printing Office pages 625-627.

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26.

27. 28.

29.

30.

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"Georgia Tech Black Inventors' Technology Display" provided by Mr. Rufus Stokes, Chairman of the Board and President of the A i r Purification Company of America, Inc., Chicago, I l l i n o i s . Palmer, Archie M. Survey of University Patent P o l i c i e s . Washington: National Research Council (1948). Palmer, Archie M. University Research and Patent P o l i c i e s , Practices and Procedures, Publication No. 999. Washington: National Academy of Sciences - National Research Council. Wilson, O. J. Patent and Copyright Policies i n Forty-five Colleges and Universities. Office of Institutional Research, Western Kentucky University (June 1967). Patent, Trademark and Copyright Journal No. 2, A-3 and A-4, A p r i l 1, 1971.

Biographic Notes J. Richard Everett i s presently employed as an attorney at Eastman Kodak Company specializing in patent matters. His responsibilities include all phases of patent a c t i v i t y , including prosecution, enforcement and licensing in all the major countries of the world. He is a member of the Board of Directors of Bankers Trust of Western New York. As a panel member of the New York State Public Employees Relation Board, he acts as a mediator and fact finder in reaching agreements between municipal governments and their employees. Mr. Everett is particularly interested in raising the level of patent awareness and research management at predominantly black universities. His academic awards include baccalaureates from Morehouse University in science and from St. John's University i n law. RECEIVED June 20, 1978.

In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

8 Patent Policies at Educational and Nonprofit Scientific Institutions WILLARD MARCY Research Corporation, 405 Lexington Ave., New York, NY 10017

Seventy-two years . a professor of physica at Berkeley, invented the equipment and process which made economically practical the electrostatic precipitation of fine particulate material. Dr. C o t t r e l l f e l t that commercial development of his invention was beyond the scope of both himself and the University as both were primarily engaged i n teaching and carrying on s c i e n t i f i c research. Nevertheless, he f e l t that the University and the next generation of scientists should benefit in some way from any commercial usefulness of his innovation. He explored the p o s s i b i l i t y of administering the patents on his invention through both the University of California and the American Chemical Society, but these institutions f e l t this idea was impractical. He next discussed with the Smithsonian Institution whether that organization would undertake the transfer of his newly discovered technology to public use using any income for further research at the Smithsonian. Again he was turned down on the basis that a publicly supported institution was neither equipped for nor qualified to undertake such a venture. The Secretary of the Smithsonian, however, was intrigued with C o t t r e l l ' s concept, and, with the authorization of the Smithsonian Board of Regents, cooperated in bringing together a number of well-known and influential industrial and financial leaders. They agreed to help C o t t r e l l form a new organization with a charter specifically designed to accomplish his objectives. Thus was Research Corporation born, i n 1912, with the objectives of acquiring and marketing patents from scientists, and using the net profits from this endeavor for the further support of basic scientific research (1) . Twelve years later, in 1924, Dr. Harry Steenbock at the University of Wisconsin developed an irradiation process for producing Vitamin D i n foods and pharmaceuticals which, in turn, were used to prevent or cure certain nutritional diseases. The University had no administrative mechanism for handling the transfer of this obviously useful and important technology for 0-8412-0454-3/78/47-081-078$05.00/0 © 1978 American Chemical Society In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

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use by the general p u b l i c . A group o f concerned alumni and f r i e n d s with i n d u s t r i a l and f i n a n c i a l backgrounds formed the Wisconsin Alumni Research Foundation (WARF) i n 1925 f o r the express purpose o f making a v a i l a b l e t o the p u b l i c some o f the r e s u l t s o f the U n i v e r s i t y ' s research and t o a s s i s t the U n i v e r s i t y i n i t s grants program f o r the support o f b a s i c research and s p e c i a l r e s e a r c h f a c i l i t i e s (2). WARF, an autonomous i n s t i t u t i o n , separate and d i s t i n c t from the U n i v e r s i t y i t serves, has been h i g h l y s u c c e s s f u l over the years, and i t s a d m i n i s t r a t i v e s t r u c t u r e has served as a model f o r many other u n i v e r s i t y connected research foundations (_3) . In the middle 1930's the a d m i n i s t r a t i o n a t the Massachusetts I n s t i t u t e o f Technology became concerned t h a t much o f the r e search done a t t h a t i n s t i t u t i o n , although appearing t o have high p o t e n t i a l f o r p u b l i c use was not being developed commerc i a l l y . A f t e r considerabl with Research C o r p o r a t i o n o p e r a t i n g procedure, i n v o l v i n g an agreement between the two o r g a n i z a t i o n s . M. I . T. i n v e n t i o n s would be assigned t o Research Corporation, and i t s s t a f f would evaluate them, p a t e n t i n g and l i c e n s i n g those having promise. The M. I . T. patent p o l i c y was a forerunner o f many others formulated over the next four decades, a number being developed as adjuncts t o patent administ r a t i o n agreements with Research C o r p o r a t i o n . S c i e n t i f i c r e s e a r c h a t u n i v e r s i t i e s i n the l a t e r 1930's and e a r l y 1940 s was s e v e r e l y i n t e r r u p t e d by World War I I when most academic research was o r i e n t e d toward developing war-related m a t e r i e l and equipment. During t h i s p e r i o d l i t t l e i n t e r e s t i n s c i e n t i f i c research e x i s t e d i n u n i v e r s i t i e s , much l e s s i n i t s commercial development. However, by 1946, general i n t e r e s t r e v i v e d ; the O f f i c e o f Naval Research was organized, and, along with the N a t i o n a l I n s t i t u t e s o f Health, began t o provide subs t a n t i a l f i n a n c i a l support f o r academic s c i e n t i f i c r e s e a r c h . The formation o f the N a t i o n a l Science Foundation i n 1950 added f u r t h e r impetus t o these t h r u s t s . F e d e r a l funding f o r b a s i c s c i e n t i f i c r e s e a r c h a t e d u c a t i o n a l i n s t i t u t i o n s i n c r e a s e d annually i n the 1950's and I960*s, reaching a peak i n 1967, a f t e r which a d e c l i n e i n constant d o l l a r s occurred f o r s e v e r a l years. On the i n c r e a s e again, b a s i c research f o r f i s c a l year 1978 i s budgetted f o r $3.3 b i l l i o n , a l a r g e amount by any measure. The a d m i n i s t r a t i o n o f these l a r g e amounts o f funding has f o s t e r e d formation a t almost every American u n i v e r s i t y and c o l l e g e of c o n t r a c t s and grants o f f i c e s o r u n i v e r s i t y - c o n n e c t e d research foundations, p a r t i c u l a r l y during the p a s t 15 y e a r s , and has nurtured the development o f a wholly new c l a s s o f p r o f e s s i o n a l a d m i n i s t r a t o r s . Accounting f o r these f e d e r a l funds i n v o l v e s d e t a i l e d and complex c l e r i c a l procedures and f i n a n c i a l c o n t r o l s . S e t t i n g up and monitoring these c o n t r o l s has r e q u i r e d , i n t u r n , t h a t governing bodies o f academic i n s t i t u t i o n s s e t g u i d e l i n e s 1

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and develop p o l i c y statements, p a r t i c u l a r l y with r e s p e c t to i n v e n t i o n s and other products o f i n t e l l e c t u a l r e s e a r c h . Thus, patent and c o p y r i g h t p o l i c i e s have come to assume considerable importance i n the day-to-day a c t i v i t i e s o f most academic i n stitutions . These b r i e f anecdotal summaries a t ten to 15 year i n t e r v a l s , s t a r t i n g some seventy years ago, show c l e a r l y the i n c r e a s i n g i n t e r e s t of academic i n s t i t u t i o n s and the F e d e r a l Government i n developing methods f o r s u c c e s s f u l t r a n s f e r of s c i e n t i f i c research to p u b l i c use. Although these a d m i n i s t r a t i v e procedures are c o n t i n u i n g to evolve, a high l e v e l of understanding has already been acquired o f the complex processes and m u l t i p l e f a c t o r s i n v o l v e d i n the t r a n s f e r o f patentable i n v e n t i o n s to p u b l i c use. Universit Having e s t a b l i s h e d the c u r r e n t need f o r patent p o l i c y statements i n academia, I would l i k e now to t u r n t o a genera l i z e d , but d e t a i l e d d i s c u s s i o n of such p o l i c i e s as they c u r r e n t l y e x i s t , and g i v e a few examples showing how they work i n p r a c t i c e . A more d e t a i l e d d i s c u s s i o n o f academic patent p o l i c i e s , along with a specimen p o l i c y , i s given i n the Handbook o f C o l l e g e and U n i v e r s i t y A d m i n i s t r a t i o n , publ i s h e d by McGraw-Hill Co. (4). Purpose The purpose o f a u n i v e r s i t y patent p o l i c y i s t o d e f i n e c l e a r l y and understandably a b a s i c philosophy f o r guiding the f u r t h e r development of i n v e n t i v e concepts r e s u l t i n g from s c i e n t i f i c r e s e a r c h at an i n s t i t u t i o n , to set f o r t h the a r rangements by which the c o n t r i b u t o r s to the concepts w i l l share i n the f r u i t s o f t h e i r endeavors, and to i n d i c a t e how any income w i l l be used. Objectives U n i v e r s i t y patent p o l i c i e s , i n general, have these objectives: To encourage i n n o v a t i o n by p r o v i d i n g i n c e n t i v e s to u n i v e r s i t y researchers To t r a n s f e r u s e f u l ideas from paper and the workbench to public a v a i l a b i l i t y To meet the o b l i g a t i o n s imposed by the terms o f grants and c o n t r a c t s with sponsors To produce income t h a t might finance future u n i v e r s i t y r e s e a r c h and other a c t i v i t i e s .

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Authorization Approval from the h i g h e s t governing board a t the u n i v e r s i t y i s r e q u i r e d t o provide the necessary a u t h o r i t y t o back the patent p o l i c y o f the i n s t i t u t i o n . T h i s does not imply t h a t the governing board i t s e l f should develop the p o l i c y i n i t s s o l e d i s c r e t i o n . On the c o n t r a r y , a patent p o l i c y which has n o t had the b e n e f i t o f i n p u t from and s a n c t i o n by both f a c u l t y and administ r a t i v e o f f i c e r s w i l l not be l i k e l y t o be accepted g r a c e f u l l y and w i l l l e a d t o unnecessary d i s s e n s i o n . I n i t i a l f o r m u l a t i o n of the p o l i c y i s best accomplished by a j o i n t e f f o r t o f f a c u l t y and u n i v e r s i t y a d m i n i s t r a t o r s . The product o f t h i s j o i n t e f f o r t should then be reviewed by u n i v e r s i t y counsel and top administ r a t i v e o f f i c e r s before forwarding t o the governing board f o r f i n a l approval. The approved p o l i c y should be disseminated i n w r i t i n g broadly t o a l employees and students Administering O f f i c e The patent p o l i c y should a d m i n i s t r a t i v e o f f i c e and the by t h a t o f f i c e i n handling an through i t s e n t i r e l i f e as an process.

s t a t e c l e a r l y the r e s p o n s i b l e s e q u e n t i a l procedures t o be used i n v e n t i o n from i t s conception income-producing product o r

Patent Committee The patent p o l i c y should provide f o r a permanent patent committee made up o f f a c u l t y and a t l e a s t one a d m i n i s t r a t o r , who c o u l d serve as s e c r e t a r y t o the committee. A f i v e - o r seven-member committee i s p r e f e r a b l e t o e i t h e r a s m a l l e r o r l a r g e r one. The committee membership should be f o r a s p e c i f i e d time and appointments should be staggered t o provide c o n t i n u i t y . At l e a s t one s c i e n t i f i c o r t e c h n i c a l p r o f e s s i o n a l member should serve on the committee a t a l l times. Lawyers and business o r f i n a n c i a l l y - o r i e n t e d members may be h e l p f u l , but are not essent i a l - . The committee should h o l d r e g u l a r l y scheduled, w e l l p u b l i c i z e d meetings during the academic year. The patent committee should concern i t s e l f with matters o f e q u i t y r a t h e r than the s p e c i f i c s u b s t a n t i v e f e a t u r e s o f i n v e n t i o n s and patents and t h e i r commercial development. E v a l u a t i o n , p a t e n t i n g , l i c e n s i n g and s t a r t i n g new ventures are h i g h l y comp l e x endeavors r e q u i r i n g a broad mixture o f t e c h n i c a l and e n t r e p r e n e u r i a l s k i l l s , and are best l e f t t o experienced spec i a l i s t s e i t h e r from i n s i d e o r o u t s i d e the u n i v e r s i t y . The patent committee should concern i t s e l f with the p o s s i b l e e t h i c a l , moral and s o c i a l consequences which might a r i s e from the f u r t h e r development o f i n v e n t i v e concepts. The committee should a l s o f u n c t i o n as a r b i t e r o r mediator should d i s p u t e s a r i s e

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between i n v e n t o r s , between i n v e n t o r s and the u n i v e r s i t y , or with outside p a r t i e s . Coverage The patent p o l i c y should s t a t e c l e a r l y t o whom i t a p p l i e s . Normally, the p o l i c y should cover a l l employees of the u n i v e r s i t y , from the top a d m i n i s t r a t i v e o f f i c e r to the part-time l a b o r a t o r y t e c h n i c i a n . Students, e s p e c i a l l y graduate students, should be i n c l u d e d , but i n c l u s i o n o f undergraduate students and s e c r e t a r i a l employees might be o p t i o n a l . F e d e r a l agency grants and c o n t r a c t s r e q u i r e a w r i t t e n statement by a l l persons working on government-supported research t h a t they w i l l conform t o the p u b l i s h e d u n i v e r s i t y patent p o l i c y and to the terms o f the grant or c o n t r a c t Other sponsors o f research may have s i m i l a w r i t t e n statements shoul ment f o r new employees i n c l u d i n g f a c u l t y , and from c o n t i n u i n g employees, wherever p o s s i b l e . Patent Rights Ownership The patent p o l i c y should s t a t e how ownership o f a patent i s determined and under what c o n d i t i o n s d i f f e r e n t ownership o c c u r s . In g e n e r a l , determination o f ownership i s based on the source o f funding which supported the research (_5) . There are seven r e l a t i o n s h i p s which w i l l cover i n t o t o p r a c t i c a l l y a l l cases. These are: Funding i s p r o v i d e d e n t i r e l y by the u n i v e r s i t y from i t s operating budget. Funding i s provided e n t i r e l y by F e d e r a l grants or c o n t r a c t s . Funding i s p r o v i d e d e n t i r e l y by p r i v a t e commercial o r g a n i zations . Funding i s provided e n t i r e l y by p r i v a t e n o n p r o f i t o r g a n i zations . Funding i s p r o v i d e d through a combination o f one or more o f the above sources. The researcher works on h i s own time but uses u n i v e r s i t y f a c i l i t i e s and equipment. The researcher uses h i s own time and f a c i l i t i e s although employed by the u n i v e r s i t y . Ownership o f patents should r e s i d e i n a s i n g l e p a r t y as m u l t i p l e ownership leads to almost unresolvable complications during l i c e n s i n g n e g o t i a t i o n s . When o u t s i d e funding has been i n v o l v e d , ownership w i l l be determined with r e f e r e n c e t o both the p o l i c y o f the sponsor and of the i n s t i t u t i o n . In the case o f f e d e r a l agencies, the patent p o l i c y v a r i e s with the agency, but a l l agencies g e n e r a l l y p r o v i d e a p o s s i b i l i t y o f o b t a i n i n g waiver o f patent r i g h t s to the university.

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Reporting o f Inventions The patent p o l i c y should s e t f o r t h accepted procedures f o r t i m e l y r e p o r t i n g o f i n v e n t i o n s by the f a c u l t y researcher i n s u f f i c i e n t d e t a i l t o enable a reasonably complete e v a l u a t i o n . Rel i a n c e i s g e n e r a l l y on the researcher t o make the i n i t i a l r e p o r t . Such r e p o r t s are more e a s i l y handled i f a form t o be f i l l e d out i s provided. T h i s form should have blanks f o r e n t e r i n g names and dates o f p u b l i c a t i o n s and names and dates o f d i s c l o s u r e s t o o t h e r s , s i n c e t h i s i n f o r m a t i o n i s o f utmost importance from a patent standpoint. The p o l i c y should a l s o s e t f o r t h the a c t i o n sequence t o be followed by the o f f i c e t o which an i n v e n t i o n i s r e p o r t e d . This a c t i o n sequence should be followed promptly and e x p e d i t i o u s l y by o f f i c e personnel i n order t o o b t a i n t i m e l y f i l i n g o f patent a p p l i c a t i o n s and minimiz P a t e n t i n g and L i c e n s i n g Procedures A statement should be i n c l u d e d i n the p o l i c y concerning the steps t o be taken in-house i n p a t e n t i n g and l i c e n s i n g i n v e n t i o n s and whether o u t s i d e patent a d m i n i s t r a t i o n o r g a n i z a t i o n s o r cons u l t a n t s are a v a i l a b l e under blanket agreement. B r i e f r e f e r e n c e to the terms o f the agreements with such o r g a n i z a t i o n s o r i n d i v i d u a l s should be made. D i s t r i b u t i o n o f Income The d i s t r i b u t i o n o f income r e c e i v e d from patents i s g e n e r a l l y p e r c e i v e d t o be the item o f g r e a t e s t i n t e r e s t t o both the u n i v e r s i t y and the i n v e n t o r . I n developing an acceptable patent p o l i c y i t i s the d e l i n e a t i o n o f the income d i s t r i b u t i o n r u l e s t h a t , f r e q u e n t l y , i s the most time consuming. The p o l i c y on income d i s t r i b u t i o n must be c l e a r and unequivocal. G e n e r a l l y , any income i s customarily shared between the u n i v e r s i t y and the i n v e n t o r s . I f an o u t s i d e patent a d m i n i s t r a t i o n o r g a n i z a t i o n i s i n v o l v e d , i t a l s o shares. I f an i n d i v i d u a l o u t s i d e consultant i s used, a fee f o r s e r v i c e s i s u s u a l l y charged without s h a r i n g o f c o n t i n u i n g income. Income s h a r i n g seems t o be more commonly done on a "net" r a t h e r than a "gross" b a s i s . Net income i s u s u a l l y d e f i n e d as gross income l e s s expenses. However, expenses can be d e f i n e d i n s e v e r a l ways. A commonly accepted d e f i n i t i o n i s out-of-pocket expenses f o r p a t e n t i n g and l i c e n s i n g . Defined i n t h i s manner expenses would not i n c l u d e in-house o f f i c e expenses and p o s s i b l e l i t i g a t i o n c o s t s . I n any event, whatever way expenses are def i n e d , the d e f i n i t i o n o f net income should be c l e a r l y s t a t e d i n the patent p o l i c y . Income s h a r i n g on a gross income b a s i s avoids the problem o f d e f i n i n g net income and i d e n t i f y i n g s p e c i f i c c o s t items as

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expense. Use of the gross income b a s i s i s advocated by the Department of Health, Education, and Welfare (DHEW) and the N a t i o n a l Science Foundation (NSF) i n t h e i r I n s t i t u t i o n a l Patent Agreements, The three major patent a d m i n i s t r a t i o n o r g a n i z a t i o n s , Research Corporation, U n i v e r s i t y Patents, Inc., and B a t t e l l e Development Corporation, a l s o use gross income as a b a s i s f o r d i s t r i b u t i o n o f income. A v a r i e t y of d i s t r i b u t i o n schemes i s used. The s p e c i f i e d arrangement most s u i t a b l e f o r a given u n i v e r s i t y w i l l depend on a number of f a c t o r s and, p r a g m a t i c a l l y , w i l l probably be d i c t a t e d by a consensus of the u n i v e r s i t y governing board, t a k i n g i n t o c o n s i d e r a t i o n the expressed f e e l i n g s o f f a c u l t y , a d m i n i s t r a t i o n and sponsors. The most commonly used arrangements are as f o l l o w s : 50% to i n v e n t o r s , 50% to u n i v e r s i t y of net income 25% to i n v e n t o r s , 75 15% to i n v e n t o r s , 85 S l i d i n g s c a l e downward to inventors (40% to 15%), remainder to u n i v e r s i t y o f net income. 50% of f i r s t $3,000? 25% of next $10,000; 15% o f a l l over $13,000 of cumulated gross income to i n v e n t o r s , the r e mainder to the u n i v e r s i t y and any patent a d m i n i s t r a t i o n o r g a n i z a t i o n . T h i s i s the formula used i n DHEW and NSF I n s t i t u t i o n a l Patent Agreements. 57.5% to u n i v e r s i t y , 42.5% to patent management o r g a n i z a t i o n , of gross income. A l l expenses are u s u a l l y borne by patent management o r g a n i z a t i o n , except f o r s p e c i a l l i t i g a t i o n expenses. The u n i v e r s i t y may d i s t r i b u t e some of i t s share to the i n v e n t o r s . T h i s arrangement i s used by Research Corporation and with minor m o d i f i c a t i o n s by U n i v e r s i t y Patents, Inc., and B a t t e l l e Development Corporation . 15% to i n v e n t o r s , remainder d i v i d e d e q u a l l y a f t e r s p e c i a l expenses f o r l i t i g a t i o n c o s t s , i f any, between u n i v e r s i t y and patent a d m i n i s t r a t i o n o r g a n i z a t i o n s o f gross income. A l l expenses borne by patent a d m i n i s t r a t i o n o r g a n i z a t i o n . T h i s i s an arrangement used by Research C o r p o r a t i o n . In three recent independent surveys of income d i s t r i b u t i o n arrangements, the minimum amount based on gross income d i s t r i buted t o the inventors was 15%; the maximum, 29%. Two i n s t i t u t i o n s reported 15% o f gross income p l u s 40% or 50% o f remaining net income. These surveys a l s o showed the minimum amount based on net income d i s t r i b u t e d to the inventors was 10%, and the maximum was 50%. Three i n s t i t u t i o n s reported formulas i n v o l v i n g incremental s c a l i n g down: from 80% t o 25% i n one case, and 60% t o 30% i n a second, and 40% to 30% i n the t h i r d (6^, ]_, 8) . I f any p o r t i o n of the income a c c r u i n g to the u n i v e r s i t y i s to be used f o r research i n the department i n which an i n v e n t i o n

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o r i g i n a t e d , t h i s should be s t a t e d e x p l i c i t y . G e n e r a l l y speaking the p o l i c y should s t a t e the u n i v e r s i t y ' s intended usage o f any income from p a t e n t s , a t l e a s t i n p h i l o s o p h i c a l terms. A few u n i v e r s i t i e s c l a i m no onwership i n f a c u l t y i n v e n t i o n s and thus no f i n a n c i a l o r other reward, a l l o w i n g the f a c u l t y i n ventor t o handle h i s i n v e n t i o n s as he wishes. This practice i s now r a r e , as i t c o n f l i c t s with f e d e r a l agency p o l i c y which p r o h i b i t s ownership r e s i d i n g i n i n d i v i d u a l inventors supported by government funding. S e l e c t e d F a c t o r s I n f l u e n c i n g U n i v e r s i t y Patent P o l i c i e s Government Agency P o l i c i e s For many years F e d e r a l Government g r a n t i n g agencies have taken the p o s i t i o n t h a t patent r i g h t a r i s i n fro federall supported r e s e a r c h r e s i d a l l these agencies provid obtained by a grantee on a showing o f s u f f i c i e n t j u s t i f i c a t i o n . The m i s s i o n - o r i e n t e d agencies, f o r example, N a t i o n a l Aeronautics and Space A d m i n i s t r a t i o n , Atomic Energy Commission, and more r e c e n t l y , Department o f Energy, handle requests f o r waivers on a case-by-case b a s i s through o f f i c e s and committees s e t up t o d e a l s p e c i f i c a l l y with such matters. The Department o f Defense f r e q u e n t l y waives the patent r i g h t s on awarding a grant o r c o n t r a c t and on request by a r e s p o n s i b l e grantee o r c o n t r a c t o r . In c o n t r a s t , the non-mission-oriented agencies, DHEW and NSF, arrange f o r r e t e n t i o n o f patent r i g h t s by a grantee i n s t i t u t i o n through p r e v i o u s l y concluded I n s t i t u t i o n a l Patent Agreements. These two agencies provide f o r patent r i g h t s waivers on a case-by-case b a s i s as w e l l . Since a l a r g e m a j o r i t y o f F e d e r a l Government grants t o u n i v e r s i t i e s f o r s c i e n t i f i c research are from DHEW o r NSF, u n i v e r s i t y patent p o l i c i e s need p a r t i c u l a r l y to r e c o g n i z e the p o s s i b l e o v e r r i d i n g i n t e r e s t o f DHEW and NSF. I n s t i t u t i o n a l Patent Agreements U n t i l 1968, u n i v e r s i t i e s were r e q u i r e d t o make a formal w r i t t e n request f o r a determination o f patent r i g h t s ownership from DHEW f o r every i n v e n t i o n r e s u l t i n g from DHEW-supported r e s e a r c h . Beginning i n t h a t year, I n s t i t u t i o n a l Patent Agreements (IPA) were i n s t i t u t e d . These agreements, i n e f f e c t , waive t i t l e t o DHEW-supported i n v e n t i o n s provided the u n i v e r s i t y can and has shown a c a p a c i t y and a c a p a b i l i t y t o handle the t r a n s f e r of such i n v e n t i o n s i n the p u b l i c i n t e r e s t . Today IPAs are i n e f f e c t w i t h over 70 u n i v e r s i t i e s and s c i e n t i f i c research i n s t i tutions . More r e c e n t l y the NSF has been e n t e r i n g i n t o s i m i l a r agreements and now has over 20 i n e f f e c t . These agreements f o s t e r non-exclusive l i c e n s i n g arrangements and a l l o w them t o be r o y a l t y - b e a r i n g . E x c l u s i v e l i c e n s e s are a l s o allowed under c e r t a i n circumstances, but the e x c l u s i v i t y i s

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t i m e - l i m i t e d . Annual r e p o r t s o f a c t i v i t y are r e q u i r e d o f the u n i v e r s i t y and march-in r i g h t s are r e t a i n e d by the Government i n the event o f poor o r non-performance. Foreign p a t e n t i n g and l i c e n s i n g by the i n s t i t u t i o n are allowed. In s p i t e o f the r e s t r i c t i o n s contained i n these agreements, they have been h e l p f u l i n e x p e d i t i n g the t r a n s f e r o f u n i v e r s i t y i n v e n t i o n s r e s u l t i n g from Government supported r e s e a r c h , and u n i v e r s i t i e s should p l a n t o enter i n t o such agreements whenever feasible. Foreign Patenting As a matter o f p o l i c y u n i v e r s i t i e s would be w e l l advised t o consider s e r i o u s l y f o r e i g n p a t e n t i n g o f a l l s u i t a b l e i n v e n t i o n s r e s u l t i n g from u n i v e r s i t y research, s i n c e income from f o r e i g n c o u n t r i e s can o f t e n be s u b s t a n t i a l . The cost o f f o r e i g n p a t e n t i n g can be borne by the u n i v e r s i t y patent a d m i n i s t r a t i o n o r g a n i z a t i o n s Litigation A p a t e n t i n g and l i c e n s i n g program, sooner o r l a t e r , w i l l i n v o l v e a patent owner i n l i t i g a t i o n o f one s o r t o r another. While l i t i g a t i o n i s not common, i t can be expensive. The usual types o f l i t i g a t i o n are patent o f f i c e i n t e r f e r e n c e s and breach of c o n t r a c t and infringement s u i t s , i n i n c r e a s i n g order o f c o s t . As i n f o r e i g n p a t e n t i n g , l i c e n s e e s and patent administrat i o n o r g a n i z a t i o n s can be f r e q u e n t l y persuaded t o assume the burden o f l i t i g a t i o n c o s t s . Patent P o l i c i e s i n P r a c t i c e At t h i s p o i n t , perhaps a few a c t u a l examples w i l l i l l u s t r a t e some b a s i c problems which s u i t a b l y d r a f t e d patent p o l i c y g u i d e l i n e s can help t o r e s o l v e . At a l a r g e , broad-based s t a t e u n i v e r s i t y a p r o f e s s o r o f b i o p h y s i c s discovered by chance a major new t h e r a p e u t i c chemical. Apparently without reference t o the e x i s t i n g p u b l i s h e d patent p o l i c y o f the u n i v e r s i t y o r the proper a d m i n i s t r a t i v e o f f i c e , he arranged f o r funding f o r f u t u r e research with two i n d u s t r i a l companies, n e i t h e r o f which are i n the drug business, and w i t h one o f the N a t i o n a l I n s t i t u t e s o f Health which operates under the DHEW patent p o l i c y . The i n s t i t u t i o n has a DHEW I n s t i t u t i o n a l Patent Agreement. Both i n d u s t r i a l companies were given e x c l u s i v e r i g h t s t o any i n v e n t i o n s r e s u l t i n g from the research; such a prov i s i o n i s i n d i r e c t c o n f l i c t with the r i g h t s requirement i n the IPA. A f t e r some subsequent s c i e n t i f i c research confirmed the i n i t i a l promise o f the m a t e r i a l s , the u n i v e r s i t y a d m i n i s t r a t i o n became aware o f the s i t u a t i o n and c a l l e d a t t e n t i o n t o the d e f i c i e n c i e s and inherent c o n f l i c t s . Research Corporation was c a l l e d i n t o undertake the necessary p a t e n t i n g and l i c e n s i n g . I t was necessary t o b r i n g i n a t h i r d company knowledgeable

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i n the p r o d u c t i o n and marketing o f pharmaceuticals as the prime l i c e n s e e , and t o f i n d a mutually agreeable way t o s a t i s f y the o r i g i n a l sponsors, the DHEW, the i n v e n t o r s , the u n i v e r s i t y adm i n i s t r a t i o n and governing board w i t h i n the g u i d e l i n e s o f the u n i v e r s i t y patent p o l i c y . T h i s appears t o have been accomplished a f t e r some 9 y e a r s , and products are expected t o be on the market l a t e t h i s year o r e a r l y next. Expansion o f the usage o f these drugs i s c o n t i n u i n g under study w i t h another seven t o ten years being needed before r e g u l a t o r y clearances are l i k e l y t o be obtained . At another l a r g e , broad-based s t a t e u n i v e r s i t y , a p r o f e s s o r i n the medical school developed a t h e r a p e u t i c procedure which he b e l i e v e d would have wide u s e f u l n e s s . Without r e f e r e n c e t o the u n i v e r s i t y ' s p u b l i s h e d patent p o l i c y , he engaged a patent a t t o r ney t o f i l e a patent a p p l i c a t i o n and t o t r y t o develop i n d u s t r i a l i n t e r e s t i n both supportin commercial venture. Hi belonged t o him alone as has been the t r a d i t i o n a l b e l i e f i n academic c i r c l e s . The u n i v e r s i t y a d m i n s i t r a t i v e o f f i c e r s became aware o f the i n v e n t i o n , d i s c o v e r e d the route i t s f u r t h e r development was t a k i n g , and promptly p o i n t e d out t h a t the p r o f e s s o r had signed a patent agreement with the u n i v e r s i t y some years e a r l i e r as a c o n d i t i o n o f employment. By t h i s time N a t i o n a l I n s t i t u t e s of Health funding had a l s o been obtained, so the DHEW patent p o l i c i e s needed t o be taken i n t o account. Research C o r p o r a t i o n agreed t o undertake the p a t e n t i n g and l i c e n s i n g o f t h i s i n v e n t i o n , and t o work out the necessary a d m i n i s t r a t i v e d e t a i l s i n volved i n b r i n g i n g a l l p a r t i e s i n t o a mutually agreed upon course o f a c t i o n . Since the development o f t h i s i n v e n t i o n i s i n a very e a r l y stage, seven t o ten years w i l l be r e q u i r e d before necessary c l e a r a n c e s and marketable products w i l l be a v a i l a b l e . At a well-known p r i v a t e u n i v e r s i t y a p r o f e s s o r o f chemistry working, i n p a r t , with N a t i o n a l I n s t i t u t e s o f Health funding has become an i n t e r n a t i o n a l l y known expert i n a c e r t a i n area o f usef u l complex o r g a n i c chemical compounds. He has c o n s u l t a t i o n agreements with s e v e r a l companies. The u n i v e r s i t y does not have a patent p o l i c y . Since the p r o f e s s o r f e e l s t h a t a l l patent r i g h t s should be the s o l e p r o p e r t y o f the companies f o r which he c o n s u l t s , no patent r i g h t s are r e t a i n e d by the u n i v e r s i t y nor, to date, has the DHEW a s s e r t e d t h e i r r i g h t s t o any patents r e s u l t i n g from t h i s work. In t h i s s i t u a t i o n n e i t h e r the u n i v e r s i t y nor the f e d e r a l government can e x e r t any c o n t r o l over the methods by which t h i s r e s e a r c h i s t r a n s f e r r e d f o r the use o f the g e n e r a l p u b l i c ; c o n t r o l i s l e f t e n t i r e l y i n the hands o f the i n d u s t r i a l patent owners. Some products based on the p r o f e s s o r ' s d i s c o v e r i e s are on the market, but others have not y e t been developed, and no f i n a n c i a l b e n e f i t has flowed back t o the u n i v e r s i t y f o r f u r t h e r r e s e a r c h except as has been made a v a i l a b l e t o the consultant-professor for h i s further research. By c o n t r a s t , a t another well-known p r i v a t e u n i v e r s i t y having

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no s t a t e d patent p o l i c y , a p r o f e s s o r o f surgery and biochemistry a t i t s medical school developed a t h e r a p e u t i c formulation f o r t r e a t i n g a s p e c i f i c i n f e c t i o u s s t a t e . He requested advice from DHEW, the sponsors o f h i s r e s e a r c h , as t o how best t o proceed i n developing the i n v e n t i o n f o r widespread p u b l i c use. The DHEW a d m i n i s t r a t o r suggested t h a t Research Corporation work with the u n i v e r s i t y ' s a d m i n i s t r a t i v e personnel i n developing a mutually acceptable agreement and procedures f o r developing marketable products. Over a p e r i o d o f approximately e i g h t years t h i s was accomplished with the United States market now approximating s e v e r a l m i l l i o n d o l l a r s . As a r e s u l t a major p o r t i o n o f r o y a l t y income i s being forwarded t o the medical school f o r f u r t h e r r e s e a r c h , and the u n i v e r s i t y i s developing a patent p o l i c y f o r guidance o f both f a c u l t y members and a d m i n i s t r a t o r s . While these examples a l l have t o do with the drug i n d u s t r y , other s i m i l a r examples t r o n i c and mechanical f i e l d s h i s t o r i e s " i n d i c a t e the need f o r d e f i n i t i v e patent p o l i c y and i t s v i g o r o u s , i n t e l l i g e n t and d i l i g e n t a d m i n i s t r a t i o n by u n i versities . Summing up, I have given an h i s t o r i c a l p e r s p e c t i v e t o the n e c e s s i t y f o r u n i v e r s i t i e s t o formulate patent p o l i c i e s and have d e s c r i b e d t h e i r development t o the present s t a t e o f s o p h i s tication. I have d e s c r i b e d the major concepts which should be addressed i n u n i v e r s i t y patent p o l i c i e s , and have given some i l l u s t r a t i o n s o f t y p i c a l problems t h a t a r i s e i n handling invent i o n s a r i s i n g as a r e s u l t o f academic r e s e a r c h . The g i s t o f t h i s paper i s t h a t a very r e a l p u b l i c s e r v i c e need e x i s t s f o r academic i n s t i t u t i o n s t o a c c e l e r a t e and smooth the way f o r the t r a n s f e r o f the r e s u l t s o f academic r e s e a r c h f o r p u b l i c use. T h i s need can be f i l l e d through the development of c l e a r l y s t a t e d , w e l l p u b l i c i z e d patent p o l i c i e s , followed by t h e i r f i r m and d e d i c a t e d implementation and a d m i n i s t r a t i o n . F i l l i n g the need i n t h i s manner uses the patent system most p r o d u c t i v e l y i n encouraging and enabling i n d u s t r y t o i n v e s t i n new ideas f o r the p u b l i c b e n e f i t w h i l e , a t the same time, b e n e f i t t i n g academic i n s t i t u t i o n s and i n v e n t o r s — s c i e n t i s t s o r engineers — as w e l l . Abstract Patent p o l i c i e s at educational and non-profit s c i e n t i f i c institutions incorporate a number of common principles but vary widely i n administrative d e t a i l . Policy provisions and administrative procedures which may expedite or may hinder the transfer of academic research results for the public benefit are illustrated with actual case histories taken from Research Corporat i o n ' s long experience as invention administrator for such institutions.

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Literature Cited 1. 2. 3.

4.

5. 6.

7. 8.

White, Harry J., Centenary of Frederick Gardner C o t t r e l l , Journal of Electrostatics, (1977/1978) 4, 1-34. Anonymous, Wisconsin Alumnus, (February 1968), No. 5. Daniels, D . , Martin, R . C . , Eisenberg, L., Lewallen, J . M . , Wright, R . A . , "University-Connected Research Foundations," University of Oklahoma, Norman, Okla., 1977. Marcy, Willard, Davis, Albert S., Jr., Chapter 8, pp. 1-105, Academic Volume, Academic Inventions, Patents, and Licenses, "Handbook of College and University Administration," A.S. Knowles, editor-in-chief, McGraw Hill Book C o . , New York, New York, 1970. Marcy, Willard, The Academic Inventor, Chemical Engineering Progress, (1971) 67(11), 24-27. Woodrow, R.J., Surve Patent Administration Administrators, Private Communication, 1977. Mintzer, D . , Private Communication. Owens, Mark, Jr., Reports on the Current Status of Univers i t y Patent Management: The University of California Survey, "Technology Transfer: University Opportunities and Responsibilities," Case Western Reserve University, Cleveland, Ohio, 1974.

Biographic Notes After more than 25 years experience in production and process research and development in the sugar industry, Willard Marcy joined the Patent Program of Research Corporation. As an associate in this group, he was involved in evaluating, arranging for patent coverage and licensing of inventions arising from research at more than 270 academic and scientific institutions. His present position is Vice President. Dr. Marcy also served as a Research Assistant at Massachusetts Institute of Technology for several years. He has a baccalaureate in chemical engineering and a doctorate i n organic chemistry, both from M.I.T. RECEIVED June 20, 1978.

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Panel Discussion

COMMENT BY MR. LASKEN p r e s s i o n r e l a t i n g t o the r o y a l t y s h a r i n g formula i n the N a t i o n a l Science Foundation's (NSF) I n s t i t u t i o n a l Patent Agreement t h a t might be conveyed by Dr. Marcy s paper. U n l i k e the Department o f Health, Education, and Welfare, the NSF does not use a s p e c i f i c s h a r i n g formula but g e n e r a l l y accepts that normally used by the u n i v e r s i t y r e q u e s t i n g the agreement. I f the u n i v e r s i t y ' s r o y a l t y sharing arrangement i s not acceptable, i n a l l p r o b a b i l i t y an agreement would not be concluded. 1

QUESTION: Mr. Owens, o f the 200 t o 300 i n v e n t i o n d i s c l o s u r e s evaluated by you each year, how many patent a p p l i c a t i o n s are f i l e d , and how many a p p l i c a t i o n s mature i n t o patents? MR. OWENS: We f i l e about 25 patent a p p l i c a t i o n s a n n u a l l y . Most o f those w i l l i s s u e f i n a l l y as patents because o f our c a r e f u l s e l e c t i v i t y . Only 2 o r 3 o f these 25 w i l l be p r o d u c t i v e f i n a n c i a l l y , however. MR. BREMER: A t Wisconsin, we evaluate about 60 d i s c l o s u r e s a year, and we f i l e patent a p p l i c a t i o n s on roughly a t h i r d o f those. Most o f these a p p l i c a t i o n s mature i n t o p a t e n t s . PR, MARCY: Speaking f o r Research C o r p o r a t i o n , we evaluate annually about 450 t o 500 i n v e n t i o n d i s c l o s u r e s , o f which we accept about 25 t o 35 a year. Patent a p p l i c a t i o n s are f i l e d covering each accepted d i s c l o s u r e , w i t h about 95% t o 98% o f these a p p l i c a t i o n s i s s u i n g as p a t e n t s . Of the approximately 30 d i s c l o s u r e s accepted each year, about 10 t o 12 are l i c e n s e d event u a l l y . Perhaps three o f these w i l l r e s u l t i n a f i n a n c i a l r e t u r n . On the average, about every f i v e years an accepted i n v e n t i o n w i l l produce a l a r g e amount o f income. A t present, Research Corp o r a t i o n ' s income i s coming from about 50 l i c e n s e d i n v e n t i o n s i n c l u d i n g f o u r t h a t brought i n more than a $100,00 l a s t year. These were d i s c l o s u r e s t h a t we began l o o k i n g a t 10 t o 15 years

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ago. QUESTION; I t sounds as though about 10% o f d i s c l o s u r e s t h a t are turned i n r e s u l t i n accepted cases, and y e t each panel member commented t h a t about 95% to 98% o f the patent a p p l i c a t i o n s f i l e d on those cases r e s u l t i n p a t e n t s . Can the panel comment on whether they f e e l t h a t , perhaps, sometimes they are a l i t t l e on the conservative s i d e on f i l i n g ? MR. OWENS: Responding f o r the U n i v e r s i t y of C a l i f o r n i a , I think we probably are c o n s e r v a t i v e . Since we do not have an in-house patent counsel, we must pay patent attorneys i n p r i v a t e p r a c t i c e , and t h i s makes us q u i t e c o n s e r v a t i v e . We look f o r two things: the p r o b a b i l i t y of o b t a i n i n g strong patent claims t h a t can be s u c c e s s f u l l y l i c e n s e d , and an even stronger c o n s i d e r a t i o n , whether there i s a stron r e t u r n . To us a good paten produce r o y a l t y income. I f an i n v e n t i o n does not meet both those standards, i t i s returned t o the i n v e n t o r . We may l o s e money sometimes because o f t h a t , although I know o f no s p e c i f i c case. MR. BREMER: I should l i k e to observe f u r t h e r t h a t i n dustry i s i n t e r e s t e d i n a defensive p o s i t i o n , and we are not. That i s why we have to be more s e l e c t i v e at the o u t s e t . The i n ventions we look a t are r a t h e r b a s i c , and we know t h a t someone w i l l pay t o operate under whatever p r o t e c t i o n we can give them through e x c l u s i v e l i c e n s i n g . A defensive p o s t i o n i s not a l i c e n s a b l e p o s i t i o n to us. In i n d u s t r y people to have patent i n order to p r o t e c t the products t h a t are already on the market. Whether they can l i c e n s e patents i s o f much l e s s i n t e r e s t . DR. MARCY: I think there i s another f a c t o r . In our experience most of the i n v e n t i o n s from u n i v e r s i t i e s d e s c r i b e fundamental d i s c o v e r i e s and are not minor m o d i f i c a t i o n s or improvements. In f a c t , sometimes they are almost j u s t a statement of a s c i e n t i f i c p r i n c i p l e with one experiment t h a t shows t h a t the i d e a works. In t h i s s i t u a t i o n we must d r a f t a patent app l i c a t i o n t h a t i s almost a c o n s t r u c t i v e r e d u c t i o n o f p r a c t i c e , r a t h e r than a f u l l - b l o w n patent. We expect the inventor t o cont i n u e work i n h i s l a b o r a t o r y so t h a t a d d i t i o n a l supporting m a t e r i a l w i l l become a v a i l a b l e during examination i n the patent o f f i c e . Our e v a l u a t i o n s are based on a miniumum of i n f o r m a t i o n and a n a l y s i s , y e t f r e q u e n t l y we can o b t a i n b a s i c patent coverage. MR. EVERETT : Research i n l a r g e i n d u s t r i a l research l a b o r a t o r i e s seldom r e s u l t s i n anything that can be considered a g i a n t step forward or a pioneer i n v e n t i o n . These l a b o r a t o r i e s , are very good a t improving and understanding a b a s i c i n v e n t i o n coming from an inventor's workroom or from a u n i v e r s i t y , however.

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QUESTION ; In some instances u n i v e r s i t y p e r s o n n e l are r e q u i r e d to s i g n a patent agreement with the u n i v e r s i t y and these same people, as consultants to a company, are asked t o a s s i g n i n ventions to the company. I t seems to me t h a t t h i s g i v e s r i s e to a c o n f l i c t i n g s i t u a t i o n . How can t h i s be r e s o l v e d so t h a t both the u n i v e r s i t y and the company get t h e i r due? MR. BREMER: The inventor a t Wisconsin i s not o b l i g a t e d to the u n i v e r s i t y unless he i s supported with f e d e r a l funds. His r e s p o n s i b i l i t y to the company he c o n s u l t s f o r i s normally w r i t t e n i n t o the c o n s u l t i n g arrangement. I f f e d e r a l funds are i n v o l v e d , i n v e n t i o n s made under c o n s u l t i n g arrangements can be assigned as long as r e c o g n i t i o n i s made of a p r i o r arrangement w i t h the f e d e r a l government. DR. MARCY: In good f a i t h i n coming t arrange f o r the i n d u s t r i a l sponsor to have the r i g h t o f f i r s t r e f u s a l to any patents that come out of sponsored r e s e a r c h , and not a d i r e c t assignment; otherwise the u n d e r s i t y won't take the money. I f a p r o f e s s o r makes h i s own arrangements without i n f o r m i n g the u n i v e r s i t y , the u n i v e r s i t y may have d i f f i c u l t y i n r e s o l v i n g the p o s s i b l e c o n f l i c t s . Such c o n f l i c t s are u s u a l l y avoided through e x p l a i n i n g the u n i v e r s i t y ' s p o l i c i e s to the p r o s p e c t i v e sponsors beforehand. Then, i f the i n d u s t r i a l sponsor does not wish t o modd i f y i t s demands, frequently, the u n i v e r s i t y simply w i l l not accept the funding, even though the p r o f e s s o r i s eager t o do e x a c t l y what the company wants him to do. MR. OWENS : At the U n i v e r s i t y of C a l i f o r n i a , a l l o f our people do s i g n patent agreements with the u n i v e r s i t y . However, the agreement r e q u i r e s only t h a t they t e l l us about t h e i r i n v e n t i o n s ; the u n i v e r s i t y a s s e r t s i t s r i g h t s only where i t has an eq u i t y . Such e q u i t y r e s u l t s i f u n i v e r s i t y time or f a c i l i t i e s were used or i f the inventor was a c t u a l l y assigned to make i n v e n t i o n s , which, of course, i s extremely r a r e . The patent p o l i c y e x p r e s s l y provides t h a t , i f c o n s u l t i n g i s done and clearance has been obt a i n e d from the department, the u n i v e r s i t y has no i n t e r e s t i n any i n v e n t i o n s which might a r i s e . Such i n v e n t i o n s are handled d i r e c t l y between the company and the f a c u l t y member-consultant. Of course, a l o t of good f a i t h must be i n v o l v e d to minimize conflicts. However, we r e l y p r i m a r i l y on the i n t e g r i t y o f the person r a t h e r than use any formal p o l i c i n g methods. MR. BREMER: I t i s important f o r i n d u s t r y to understand how u n i v e r s i t i e s view patent r i g h t s ownership, and t h a t p r i o r and current f e d e r a l funding must be considered. The i n v e s t i g a t o r should be asked by the prospective i n d u s t r i a l sponsor i f he has an o b l i g a t i o n under f e d e r a l funding. At Wisconsin we a l s o g i v e

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a sponsoring i n d u s t r i a l group the r i g h t o f f i r s t r e f u s a l on i n ventions t h a t may be generated; a t l e a s t , we f e e l we have a moral o b l i g a t i o n t o o f f e r such i n v e n t i o n s t o the sponsor f i r s t before t a l k i n g t o anyone e l s e . But Wisconsin U n i v e r s i t y u s u a l l y wears two f a c e s : we w i l l not accept grants from p r i v a t e i n d u s t r y t h a t have patent r e s t r i c t i o n s , r e g a r d l e s s o f any e x i s t i n g c o n s u l t i n g arrangement; on the other hand, we w i l l accept grants with patent r e s t r i c t i o n s from the government o r some quasi-governmental agencies, l i k e the American Cancer S o c i e t y . QUESTION : Have you made any s t u d i e s o r do you have any f e e l i n g s as t o what the e f f e c t o f your program has been on f a c u l t y members i n terms o f t h e i r engaging i n remunerative r e search; have they operated any d i f f e r e n t l y than would have been the case i f your program had not e x i s t e d ? MR. BREMER: I any d i f f e r e n t l y . Sometimes we have problems w i t h f a c u l t y i n ventors wishing t o p u b l i s h as soon as p o s s i b l e , but they are not asked t o withhold p u b l i c a t i o n because t h a t ' s the way o f l i f e i n u n i v e r s i t i e s . We don't see any other changes. There have been o n l y two instances t o our knowledge where someone, having t h the complete freedom t o go elsewhere with an i n v e n t i o n , has gone d i r e c t l y t o i n d u s t r y . The r e s t have a l l v o l u n t a r i l y used the f a c i l i t i e s o f Wisconsin Alumni Research Foundation (WARF). Much of the r o y a l t y income from patents i s used t o support s p e c i a l p r o f e s s o r i a l c h a i r s and provide other inducements t o keep good f a c u l t y members on the campus. That k i n d o f r e c o g n i t i o n i s looked t o more by the f a c u l t y member than h i s a c t u a l d o l l a r value r e t u r n from an i n v e n t i o n . We keep reminding f a c u l t y i n v e n t o r s t h a t 15% o f something i s b e t t e r than 100% o f nothing, and t h a t WARF i s instrumental i n g e t t i n g t h a t something. QUESTION: A number o f years ago I saw a c o l l e c t i o n o f u n i v e r s i t y patent p o l i c i e s . I s there such a c u r r e n t t e x t a v a i l able today o r other s i m i l a r a i d s p u b l i s h e d by u n i v e r s i t y patent administrators? DR. MARCY: Here i s a p u b l i c a t i o n e n e t i t l e d "Technology T r a n s f e r , U n i v e r s i t y O p p o r t u n i t i e s and R e s p o n s i b i l i t i e s " . I t i s the proceedings o f a two-day symposium a t Case Western U n i v e r s i t y h e l d October 15 and 16, 1974. T h i s i s the most r e cent comprehensive reference on u n i v e r s i t y patent p o l i c i e s . The book you are probably r e f e r r i n g t o i s e n t i t l e d " U n i v e r s i t y Research and Patent P o l i c i e s , P r a c t i c e s and Procedures" by A r c h i e M. Palmer, p u b l i s h e d i n 1962 by the N a t i o n a l Academy o f S c i e n c e s N a t i o n a l Research C o u n c i l . The contents o f t h i s book are p r e t t y w e l l out-of-date by now. I n d i v i d u a l u n i v e r s i t i e s have made surveys of u n i v e r s i t y patent p r a c t i c e s but most o f these have not been p u b l i s h e d . One developed by Northwestern U n i v e r s i t y

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i s p a r t i c u l a r l y informative and might be obtainable through the V i c e P r e s i d e n t o f Research at that i n s t i t u t i o n . QUESTION: What i s the best way f o r a c o r p o r a t i o n i n t e r e s t e d i n e x p l o i t i n g a u n i v e r s i t y i n v e n t i o n to approach the u n i v e r s i t y , d i r e c t l y to the u n i v e r s i t y or through the inventor? MR. OWENS: At the U n i v e r s i t y o f C a l i f o r n i a you should c l e a r with the u n i v e r s i t y patent o f f i c e to make sure i f any u n i v e r s i t y e q u i t y i n the i n v e n t i o n e x i s t s . I f i t i s a u n i v e r sity-owned i n v e n t i o n , then, you should d e a l with the u n i v e r s i t y . I f i t i s n ' t , then we w i l l suggest you d e a l d i r e c t l y with the i n ventor. But I t h i n k i t i s c r i t i c a l with any u n i v e r s i t y to at l e a s t touch base with the proper a d m i n i s t r a t i v e o f f i c e i f you know a u n i v e r s i t y has such an o f f i c e . QUESTION: Do yo s i b l e i n t e r e s t e d p a r t i e s concerning those i n v e n t i o n s t h a t might be marginal candidates f o r f i l i n g patent a p p l i c a t i o n s ? MR. BREMER: We do a t Wisconsin, i n the pharmaceutical a r t s , i n p a r t i c u l a r . We f r e q u e n t l y b r i n g an i n v e n t i o n to the a t t e n t i o n o f a company, and are r e f e r r e d to another which might have an i n t e r e s t i n the i n v e n t i o n . T h i s s o r t of rapport develops over the years with people i n v a r i o u s i n d u s t r i e s , and t h i s i s very h e l p f u l i n t r a n s f e r r i n g u n i v e r s i t y technology. QUESTION: The E l e c t r i c Power Research I n s t i t u t e (EPRI) i n s i s t s t h a t they have t i t l e t o a l l i n v e n t i o n s . How do you d e a l with t h a t requirement? DR. MARCY: EPRI i s not the only o r g a n i z a t i o n t h a t has that p o l i c y . So does the Petroleum Research Fund, which i s adm i n i s t e r e d by the American Chemical S o c i e t y , as w e l l as a number of other o r g a n i z a t i o n s . At Research Corporation we t u r n down a u t o m a t i c a l l y a l l i n v e n t i o n s supported by funds from o r g a n i z a t i o n s having such p o l i c i e s . COMMENT: With whatever u n i v e r s i t y patent p o l i c y e x i s t s , f e d e r a l g r a n t i n g agencies i n c l u d i n g mine, the Department o f Defense, w i l l have the problem o f handling i n v e n t i o n s from government-supported research which are not handled by the u n i v e r s i t i e s . Since we f e e l some of these are commercially v a l u a b l e i n v e n t i o n s , we are t h i n k i n g s e r i o u s l y o f o b t a i n i n g patents and l i c e n s i n g them n o n - e x c l u s i v e l y and r o y a l t y - b e a r i n g , at l e a s t d o m e s t i c a l l y . I f non-exclusive l i c e n s e s are not p o s s i b l e we w i l l t r y the exc l u s i v e l i c e n s e approach. I f e x c l u s i v e l i c e n s e s are given, we w i l l then have to enforce the patents against i n f r i n g e r s which may be a problem f o r government agencies.

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MR. EVERETT; Regarding the issuance o f e x c l u s i v e r i g h t s by the government, i s n ' t i t p o s s i b l e you w i l l have o p p o s i t i o n i n Congress t o t h i s e s p e c i a l l y i n view o f Senator Long's recent l e t t e r t o P r e s i d e n t C a r t e r i n v e i g h i n g a g a i n s t the g r a n t i n g o f exclusive licenses? Regarding non-exclusive l i c e n s e s , i t does not seem r e a l i s t i c to me t o expect such l i c e n s e s t o be acceptable t o i n d u s t r i a l companies. Where such l i c e n s e s are concluded, I expect they w i l l be w i t h such l a r g e and dominant companies t h a t the l i c e n s e s , i n e f f e c t , w i l l be e q u i v a l e n t t o e x c l u s i v e l i c e n s e s . RESPONSE AND FURTHER COMMENT: Since both i n d u s t r y and Congress are complaining from opposite viewpoints about f e d e r a l agency l i c e n s i n g procedures, these p o l i c i e s must be r e l a t i v e l y good and proper. While the patent clauses i n the recent Energy Research and Developmen procedures I have suggeste regarding r o y a l t i e s . We have a l r e a d y concluded r o y a l t y - b e a r i n g l i c e n s e s with f o r e i g n companies on a non-exclusive b a s i s , but we do not as y e t , have e q u i v a l e n t domestic l i c e n s e s e have a l s o l i c e n s e d domestic manufacturers f o r s a l e s overseas. In t h i s case a f o r e i g n company asked what our posture would be i f they manufactured and s o l d i n f o r e i g n c o u n t r i e s ; our response was t h a t we would welcome having a t e s t case o f t h i s s o r t so t h a t we can b r i n g an infringement s u i t i n a f o r e i g n c o u r t . My f e e l i n g i s t h a t f e d e r a l agencies owning patents must take on a l l the o b l i g a t i o n s patent ownership r e q u i r e s . w

R E C E I V E D June 20,

1978.

In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

9 Factors That Influence Patent and Licensing Policies at Ford Motor Company JAMES T. WEST Engineering and Research Staff, Ford Motor Co., Room E-1133, Scientific Research Laboratory, Dearborn, MI 48121

Ford Motor Compan i probabl best know majo ducer of automotive product that Ford's primary emphasis as a company i s o the production and marketing of automobiles, trucks and tractors. But Ford and i t s subsidiaries also produce steel, glass, v i n y l , paint, radios, and sophisticated electronic componentry. This complex product line involves a broad spectrum of product, material and processing technologies. No single patent and licensing policy would be adequate to deal with all of these technologies. Interestingly, some people outside the industry have the opinion that the automotive industry is not particularly interested i n patents. It occurred to me that there might be an h i s t o r i c a l basis for this latter point of view, since the automotive industry today seems to place a great deal of emphasis on patents. I can assure you that we at Ford are not only very much interested i n patents, but also in the related subject of licensing. Therefore, it w i l l be pertinent to review some of the early history of the automotive industry i n the United States as i t relates to patent and licensing p o l i c i e s , especially since Ford is presently celebrating i t s Diamond Jubilee, having been organized in 1903. This history was strongly influenced by a single U.S. patent. This patent (No. 546,160) was issued to George Baldwin Selden i n 1895. The Selden patent included a number of claims. One of these claims related to the use "of a liquid hydrocarbon gas engine of the compression type" in "combination with a roadlocomotive". The drawings and specifications described a horseless carriage of the general type that a number of inventors were tinkering with about that time. In other words, Mr. Selden claimed to have invented the automobile, and the issuance of a patent shows that the U.S. patent office of that day agreed with him. At this point, I shall frankly admit that, although there 0-8412-0454-3/78/47-081-099$05.00/0 © 1978 American Chemical Society In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

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i s a popular legend that Henry Ford invented the automobile, t h i s was not the case. In f a c t , the automobile was not i n v e n t e d by any one man, but by many i n v e n t o r s , and i t was the i n v e n t i o n o f a p r a c t i c a l i n t e r n a l combustion engine t h a t e v e n t u a l l y made the automobile a commercial r e a l i t y . In 1873 George Br ay ton o f Boston invented one v e r s i o n o f a compression engine using g a s o l i n e , and i n 1876 N i k o l a u s Otto o f Germany invented another v e r s i o n . I t was the Otto c y c l e t h a t was t o become the b a s i s f o r the modern passenger c a r engine, but t h i s s u p e r i o r i t y only became c l e a r as i n v e n t o r s continued t o develop a l t e r n a t i v e concepts. The d i f f e r e n c e between the Brayton and Otto engines has an important b e a r i n g on the Selden s t o r y . Both were i n t e r n a l combustion engines o f the r e c i p r o c a t i n g p i s t o n type, but the Brayton engine was arranged so t h a t compression and expansion took p l a c e i n separate chambers while i n the O t t o engine, the f u e l / a i r mixtur i n the same chamber. As I mentioned e a r l i e r , Selden's patent was granted i n 1895. A c t u a l l y , the o r i g i n a l patent a p p l i c a t i o n had been f i l e d i n 1879, but i t s issuance was delayed f o r 16 y e a r s . Selden was a v e r y astute patent attorney — i n f a c t , he was George Eastman's patent attorney, and Eastman's s i g n a t u r e appears on the Selden p a t e n t as a witness. In 1899, Selden s o l d c o n t r o l o f h i s patent t o the Columbia Motor Car Company, under a c o n t r a c t by which he was t o r e c e i v e a percentage o f the p r o f i t s from the e x p l o i t a t i o n o f the p a t e n t . The next year t h i s company sued the Winton Motor C a r r i a g e Company f o r infringement. I t was not u n t i l t h i s time t h a t a worki n g model o f the Selden car was a c t u a l l y b u i l t , as evidence f o r t h i s patent infringement s u i t . In 1903, the v a l i d i t y o f the patent was sustained by the c o u r t . At t h i s p o i n t the ten companies which had been l i c e n s e d t o b u i l d c a r s under the Selden patent formed the A s s o c i a t i o n o f Licensed Automobile Manufacturers. The main purpose o f t h i s Ass o c i a t i o n was to c o l l e c t and pay to the Columbia Motor Car Company r o y a l t i e s of 1-1/4% o f the r e t a i l p r i c e o f a l l automobiles s o l d . A second purpose was t o assure t h a t no rugged i n d i v i d u a l i s t could escape h i s share o f the burden. A f t e r Ford Motor Company was formed i n 1903, Mr. Ford was contacted by the A s s o c i a t i o n and advised t h a t he would have t o j o i n and pay r o y a l t i e s on the Selden patent. But Mr. Ford was not about to concede that i t was Mr. Selden who had i n v e n t e d the automobile. He refused t o j o i n the A s s o c i a t i o n or t o pay r o y a l t i e s . A c c o r d i n g l y , a lawsuit was brought a g a i n s t Ford Motor Company and seven other defendants who a l s o r e f u s e d t o pay. Although there were e i g h t defendants, the f i g h t was mainly against Ford, and was not l i m i t e d to the courtroom. The A s s o c i a t i o n took out newspaper advertisements to warn customers not to buy Ford c a r s . Ford r e t a l i a t e d by o f f e r i n g t o indemnify both d e a l e r s and purchasers.

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Meanwhile, the i s s u e i n the courts dragged on. Neither p a r t y seemed w i l l i n g t o l e t the matter be brought to a c o n c l u s i o n . New testimony was i n t r o d u c e d , expert witnesses were c a l l e d i n from Europe, and the expensive l e g a l b a t t l e continued. F i n a l l y , on September 15, 1909 the c o u r t rendered a d e c i s i o n s u s t a i n i n g the v a l i d i t y o f the patent. A f t e r the s u i t was decided i n favor o f the p l a i n t i f f s , most of Ford's co-defendants entered the A s s o c i a t i o n . But Ford wouldn't concede and the v e r d i c t was appealed. On January 9, 1911 the a p p e l l a t e c o u r t reversed the d i s t r i c t court's decree. A c t u a l l y , the c o u r t upheld the v a l i d i t y o f the patent but r u l e d t h a t Ford was not i n f r i n g i n g . The b a s i s f o r t h i s d e c i s i o n was r a t h e r s u b t l e . The Selden patent d e s c r i b e d a "road-locomotive" d r i v e n by "an engine o f the compression type". However, the drawings supporting the c l a i m , and the a c t u a l model t h a v e r s i o n o f the Brayton by Ford and o t h e r s u t i l i z e d Otto c y c l e engines. The r u l i n g h e l d that "the two engines do not perform the same f u n c t i o n i n subs t a n t i a l l y the same way" and hence were not e q u i v a l e n t . The court was thereby able t o s t r a d d l e the i s s u e and h o l d t h a t the patent was v a l i d but not i n f r i n g e d . As f a r as the owners o f the Selden patent were concerned, the d e c i s i o n d i d not make much d i f f e r e n c e . By t h i s time, the patent has l e s s than a year to run, and the A s s o c i a t i o n had already r e c e i v e d about two m i l l i o n d o l l a r s i n r o y a l t i e s , of which Selden got one-tenth. As a r e s u l t o f the d e c i s i o n , the A s s o c i a t i o n o f L i c e n s e d Automobile Manufacturers was d i s s o l v e d and no more r o y a l t i e s were p a i d . But the impact o f the long court b a t t l e made a l a s t i n g imp r e s s i o n on the new automotive i n d u s t r y . The p o t e n t i a l value o f patents had been amply demonstrated. More importantly, the pot e n t i a l r i s k o f patent infringement was apparent. A common problem had been i d e n t i f i e d , and steps were taken t o r e s o l v e the problem. A t t h i s p o i n t i n the the h i s t o r y o f the automotive i n d u s t r y , there were more than 100 small companies producing cars i n the United S t a t e s . Each o f these competing companies employed engineers and i n ventors t o advance the s t a t e o f the a r t . The patent s i t u a t i o n soon became h o p e l e s s l y tangled. Nobody knew what s o r t o f automobile he might l e g a l l y make. To d e a l w i t h the problem, the N a t i o n a l Automobile Chamber o f Commerce was formed i n 1913. A l l o f the U.S. manufacturers except Ford Motor Company e v e n t u a l l y j o i n e d . T h e i r s o l u t i o n t o the problem o f patent infringement l a w s u i t s was t o form a patent p o o l . T h i s was a c r o s s - l i c e n s i n g agreement under which each p a r t y t o the agreement l i c e n s e d i t s patents to a l l o f the other p a r t i e s w i t h out payment o f r o y a l t i e s . The patent pool went i n t o e f f e c t i n 1915 f o r an i n i t i a l p e r i o d o f ten y e a r s . A l l o f the members o f

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the N a t i o n a l Automobile Chamber of Commerce except the Packard Motor Car Company became p a r t i e s to the c r o s s - l i c e n s i n g agreement. In the e a r l y years, membership i n the patent p o o l averaged about 130 companies. Upon t e r m i n a t i o n of the o r i g i n a l agreement i n 1925, i t was extended f o r a f u r t h e r p e r i o d of f i v e years. At the end of t h a t p e r i o d the agreement was again extended f o r a f u r t h e r f i v e - y e a r p e r i o d , but to i n c l u d e only those patents h e l d by the members as o f January 1, 1930. Through 1930, the agreement had r e s u l t e d i n the exchange of l i c e n s e s under about 1700 patents. As the i n d u s t r y went through i t s i n e v i t a b l e shakeout, membership i n the patent p o o l dropped to l e s s than 50 companies. In 1934, the N a t i o n a l Automobile Chamber of Commerce changed i t s name to the Automobile Manufacturers A s s o c i a t i o n . The agreement was again extended i n 1935, but to i n c l u d e only those patents h e l d by member the agreement occurred i had been made by d i v i s i o n s and s u b s i d i a r i e s not d i r e c t l y engaged i n the manufacture of automobiles. T h i s e x c l u s i o n e f f e c t i v e l y emasculated the agreement because of the l a r g e volume of patents o r i g i n a t i n g with d i v i s i o n s engaged i n the manufacture of p a r t s and a c c e s s o r i e s . The l a s t patent to be c r o s s - l i c e n s e d expired i n 1957. During a l l these years, Ford never j o i n e d the N a t i o n a l Automobile Chamber of Commerce and t h e r e f o r e d i d not p a r t i c i p a t e i n the c r o s s - l i c e n s i n g arrangement. Packard was a member o f the NACC, but not of the patent p o o l . Each had i t s own approach t o patents and l i c e n s i n g . According to a r e c o r d o f testimony given before a Congress i o n a l committee s h o r t l y before World War I I , i t was not the p o l i c y o f Ford t o sue i n f r i n g e r s . Anyone r e q u e s t i n g a l i c e n s e from Ford was granted a r o y a l t y - f r e e l i c e n s e without r e s t r i c t i o n s . Conversely, when Ford needed a l i c e n s e , i t d i d not expect to pay royalties. Packard, on the other hand, granted and took out r o y a l t y bearing l i c e n s e s . Apparently, Packard was the only automotive company t o operate i n t h i s f a s h i o n d u r i n g the years p r i o r to World War I I . From t h i s review of the recorded h i s t o r y of patent and l i censing p o l i c i e s of the automotive i n d u s t r y d u r i n g i t s e a r l y years, i t i s d i f f i c u l t to f i n d an h i s t o r i c a l b a s i s f o r the view t h a t the automotive i n d u s t r y was not p a r t i c u l a r l y i n t e r e s t e d i n p a t e n t s . With the exception o f Packard, the i n d u s t r y apparently d i d not t r y to make money out of patents through c o l l e c t i o n of r o y a l t i e s but, as we have seen, the subject o f patents d i d r e c e i v e a g r e a t d e a l of a t t e n t i o n . As you may have guessed by now, I had another reason f o r taki n g you through a l l - o f t h i s h i s t o r y . The purpose was to i l l u s t r a t e t h a t the automobile has been i n p r o d u c t i o n f o r a long time by many companies. Obviously, none o f these companies has been able to gain c o n t r o l of the market through the use of p a t e n t s .

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Research and development today i s o f t e n a process o f seeking p r a c t i c a l s o l u t i o n s t o extremely d i f f i c u l t t e c h n i c a l problems. These s o l u t i o n s o f t e n r e q u i r e long and expensive r e s e a r c h to develop new m a t e r i a l s and manufacturing processes. I t i s not unusual t o a r r i v e a t p r a c t i c a l s o l u t i o n s long a f t e r the b a s i c "conceptual" patent has run i t s course. To i l l u s t r a t e how patents and the r e l a t e d l i c e n s i n g a c t i v i t y can impact today's t e c h n i c a l i n n o v a t i o n process, I have chosen three examples o f recent o r on-going r e s e a r c h p r o j e c t s . Each of these examples r e l a t e s t o engines t h a t may — someday — r e p l a c e the p i s t o n engine. Each example i l l u s t r a t e s a d i f f e r e n t patent o r l i c e n s i n g s i t u a t i o n . The examples are the gas t u r b i n e engine, the S t i r l i n g engine, and the Wankel, o r r o t a r y engine. The gas t u r b i n e engine operates on a v e r s i o n o f the Brayton c y c l e which, as we have already noted, was invented by Brayton i n 1873. The gas t u r b i n e engin with continuous combustion power p i s t o n s o f Brayton's o r i g i n a l engine are r e p l a c e d by r o t a t i n g components. I n t e r e s t i n the gas t u r b i n e engine s t a r t e d to i n t e n s i f y p r i o r to World War I I ; the technology then developed r a p i d l y d u r i n g and a f t e r the War f o r m i l i t a r y a i r c r a f t a p p l i c a t i o n s . The s t a t e o f the a r t has s i n c e advanced t o a h i g h l y s o p h i s t i c a t e d l e v e l . Much of the progress i n the development o f t h i s engine has r e s u l t e d from the development o f new s u p e r a l l o y s and the r e l a t e d f a b r i c a t i o n techniques. Gas t u r b i n e engines now are a l s o widely used i n s e l e c t e d n o n - a i r c r a f t a p p l i c a t i o n s , p a r t i c u l a r l y where a t t r i b u t e s such as l i g h t weight o r quick s t a r t - u p are important. Research and development work on automotive gas t u r b i n e engines s t a r t e d a t Ford i n the e a r l y 1950s. T h i s e a r l y work was able t o u t i l i z e some o f the m a t e r i a l s technology and aerodynamic p r i n c i p l e s t h a t had become p u b l i c l y a v a i l a b l e from the development of the a i r c r a f t engine. In most other r e s p e c t s , however, the automotive a p p l i c a t i o n r e q u i r e d a f r e s h approach. During the 1950s and 1960s a number o f Ford-designed p r o t o type gas t u r b i n e engines o f d i f f e r e n t s i z e s and c o n f i g u r a t i o n s were b u i l t and t e s t e d i n v e h i c l e s as w e l l as i n non-automotive a p p l i c a t i o n s . Most of the l a r g e r automotive manufacturers around the world have a l s o b u i l t and t e s t e d prototype gas t u r b i n e engines at one time o r the other d u r i n g the p a s t 25 y e a r s . There i s f a i r l y g e n e r a l agreement t h a t the automotive gas t u r b i n e engine has the p o t e n t i a l f o r major improvements i n f u e l economy versus the p i s t o n engine. Demonstrating t h i s p o t e n t i a l i n hardware has, however, proven to be a d i f f i c u l t task. The a b i l i t y o f an automotive gas t u r b i n e engine to meet l e g i s l a t e d emission standards — p a r t i c u l a r l y the NO standard — must a l s o be demonstrated. Commercialization o f the engine i s dependent on the r e s o l u t i o n o f these open i s s u e s i n hardware t h a t can be mass produced a t reasonable c o s t . Based on t h i s very b r i e f review of the gas t u r b i n e engine's x

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h i s t o r y and s t a t u s , the patent and l i c e n s i n g s i t u a t i o n can be summarized as f o l l o w s : 1) There are no b a s i c c y c l e patents that would prevent any company from manufacturing gas t u r b i n e engines i f i t chose t o do so. 2) The thermodynamic p r i n c i p l e s are, f o r the most p a r t , w e l l understood. 3) Since many companies have supported gas t u r b i n e R&D programs over the y e a r s , i t i s u n l i k e l y t h a t any one company has a commanding patent p o s i t i o n . 4) The r i s k o f patent infringement can o n l y be evaluated a t the time a p r o d u c t i o n engine has been designed and i t s manufacturing processes have been i d e n t i f i e d . T h i s does not mean there are no present o p p o r t u n i t i e s f o r the l i c e n s i n g o f gas t u r b i n e engine technology. F o r example, l i cense grants might i n c l u d s p e c i f i c components o r Now l e t ' s t u r n from the gas t u r b i n e engine t o the S t i r l i n g engine, where a completely d i f f e r e n t patent and l i c e n s i n g s i t u a tion exists. The S t i r l i n g c y c l e i s even o l d e r than the Brayton and Otto c y c l e s , having been invented i n 1816. The S t i r l i n g engine enjoyed c o n s i d e r a b l e commercial success f u r i n g the 19th century unt i l i t was made o b s o l e t e by the i n t e r n a l combustion engine. In 1938, the f i r m o f N.V. P h i l i p s , l o c a t e d i n Eindhoven, the Netherlands, " r e d i s c o v e r e d " the S t i r l i n g engine. P h i l i p s i s a major manufacturer o f e l e c t r o n i c products, such as r a d i o s . In the p r e - t r a n s i s t o r age, there was a need f o r an e l e c t r i c a l power source f o r r a d i o s operated i n remote areas. A f t e r the i n v e n t i o n of the t r a n s i s t o r , the need f o r an e l e c t r i c a l power source f o r r a d i o s i n remote areas became l e s s important. By t h i s time, however, the S t i r l i n g engine was beginning t o look a t t r a c t i v e f o r other a p p l i c a t i o n s . Because P h i l i p s was the o n l y f i r m with a major S t i r l i n g engine development program f o r many years, they were able t o develop a p r o p r i e t a r y p o s i t i o n both i n patents and i n know-how. T h i s know-how i n c l u d e s a more complete understanding o f the c y c l e , as w e l l as computer programs t h a t permit the o p t i m i z a t i o n o f an engine f o r p a r t i c u l a r a p p l i c a t i o n s . In the S t i r l i n g engine, combustion i s continuous and the products o f combustion do not come i n t o contact w i t h the working fluid. Continuous e x t e r n a l combustion permits f l e x i b i l i t y with r e s p e c t t o the type o f f u e l used, as w e l l as i n the c o n t r o l o f exhaust emissions. Ford was a t t r a c t e d t o the S t i r l i n g engine because o f i t s pot e n t i a l f o r low emissions together with improved f u e l economy. Other a t t r a c t i o n s i n c l u d e m u l t i - f u e l c a p a b i l i t y and r e l a t i v e l y quiet operation. In J u l y o f 1972, Ford entered i n t o a j o i n t development p r o gram and l i c e n s e agreement w i t h P h i l i p s . P h i l i p s had p r e v i o u s l y

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granted l i c e n s e s t o United S t i r l i n g o f Sweden and t o two German d i e s e l engine manufacturers, M.A.N, and M.W.M. Subject t o the terms o f these p r i o r l i c e n s e s and c e r t a i n other r e s t r i c t i o n s , Ford obtained a p a r t i a l l y e x c l u s i v e l i c e n s e and s u b l i c e n s e r i g h t s f o r most automotive-type a p p l i c a t i o n s . Ford l a t e r entered i n t o a non-exclusive l i c e n s e agreement with United S t i r l i n g t h a t a l s o includes c e r t a i n sublicense r i g h t s . From t h i s b r i e f summary o f the S t i r l i n g engine's development h i s t o r y , i t can be seen that the S t i r l i n g ' s h i s t o r y d i f f e r s from t h a t o f the gas t u r b i n e ' s i n two main r e s p e c t s t h a t have a beari n g on the patent and l i c e n s i n g s i t u a t i o n : 1) Although S t i r l i n g engines were produced d u r i n g the 19th century, commercial production i n recent years has been l i m i t e d t o cryogenic devices (not e n g i n e s ) . Gas t u r b i n e engines, on the other hand, have been i n commercial prod u c t i o n f o r man engines and f o 2) While many automotive manufacturers around the world have b u i l t and tested prototype gas t u r b i n e engines a t one time o r the other during the p a s t 25 y e a r s , comparat i v e l y few o f these manufacturers have had s i m i l a r S t i r l i n g engine development programs. For these reasons, the S t i r l i n g patent and l i c e n s i n g s i t u a t i o n , although s i m i l a r t o that o f the t u r b i n e i n some r e s p e c t s , is different i n others: 1) There are no b a s i c c y c l e patents t h a t would prevent any company from manufacturing e i t h e r gas t u r b i n e o r S t i r l i n g engines i f i t chose t o do so. 2) While the thermodynamic p r i n c i p l e s o f the gas t u r b i n e engine a r e , f o r the most p a r t w e l l understood, t h i s i s not the case with respect t o c e r t a i n aspects o f the S t i r l i n g c y c l e . The S t i r l i n g c y c l e i s complex, and much o f the d e t a i l e d know-how i s p r o p r i e t a r y with i t s developers. 3) Since r e l a t i v e l y few companies have supported S t i r l i n g engine R&D programs over the y e a r s , p r e s e n t l y e x i s t i n g patents are owned o r c o n t r o l l e d by these few developers. 4) As would be the case with the gas t u r b i n e engine o r any other component, the r i s k o f patent infringement can only be evaluated a t the time a p r o d u c t i o n engine has been designed and i t s manufacturing processes have been identified. I t would appear, however, that the r i s k o f infringement today might be g r e a t e r i n the case o f S t i r l i n g than i t would be i n other s i t u a t i o n s . My f i n a l example i s the Wankel, o r " r o t a r y p i s t o n " engine. The patent and l i c e n s i n g s i t u a t i o n surrounding t h i s engine i s t o t a l l y d i f f e r e n t from the two previous examples. In t h i s case, i t i s the c o n f i g u r a t i o n o f the engine t h a t i s important. The Wankel i s an i n t e r n a l combustion engine t h a t uses the same b a s i c thermodynamic c y c l e s t h a t conventional r e c i p r o c a -

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t i n g p i s t o n engines have used f o r y e a r s . The d i f f e r e n c e i s i n the mechanical arrangement; the r e c i p r o c a t i n g motion o f the p i s tons i s r e p l a c e d by an e p i t r o c h o i d a l r o t a r y motion. T h i s c o n f i g u r a t i o n , and the adaptation o f the Otto c y c l e t o i t , were invented by F e l i x Wankel i n Germany i n the l a t e 1950s. I have not researched the h i s t o r y t o determine when the f i r s t f o r e i g n patents i s s u e d , or when and how c o n t r o l o f these patents was t r a n s f e r r e d to the eventual l i c e n s o r s . Two U.S. p a t e n t s , c l a i m i n g the e p i t r o c h o i d a l r o t a r y engine c o n f i g u r a t i o n and the a p p l i c a t i o n o f the f o u r - s t r o k e engine c y c l e p r i n c i p l e to t h i s c o n f i g u r a t i o n , i s s u e d June 13, 1961. While these patents w i l l e x p i r e t h i s year, subsequent patents o f p e r haps l e s s fundamental importance w i l l continue t o e x i s t f o r a t l e a s t the next s e v e r a l y e a r s . What i s known of the l i c e n s i n g h i s t o r y i s i n t e r e s t i n g . The German l i c e n s o r s , Audi NS an e x c l u s i v e l i c e n s e f o a f t e r , p o t e n t i a l l i c e n s e e s seeking world-wide r i g h t s found i t necessary to n e g o t i a t e with both the German and the North American l i c e n s o r s . While t h i s complicated arrangement may have i n h i b i t e d some engine manufacturers, others became l i c e n s e e s and s t a r t ed development programs. Ford obtained a l i c e n s e of l i m i t e d scope and i n i t i a t e d an i n t e n s i v e r o t a r y engine development program. T h i s program was termi n a t e d when Ford concluded t h a t a f u l l y - d e v e l o p e d r o t a r y engine would not be competitive i n terms of f u e l economy with other a l ternatives. Some companies are c o n t i n u i n g t o produce r o t a r y engines and others are c o n t i n u i n g r e s e a r c h and development programs. The i n ventions t h a t Ford made i n the course of i t s r e s e a r c h may prove to be o f i n t e r e s t t o these developers. The Wankel l i c e n s i n g s i t u a t i o n may w e l l be a "once i n a l i f e time" s t o r y . In the e a r l y 1970s, some i n d u s t r y observers were p r e d i c t i n g t h a t a l l passenger v e h i c l e s would be equipped with r o t a r y engines w i t h i n 10 or 15 y e a r s . The Arab o i l embargo broke t h a t bubble, along with many o t h e r s . As so o f t e n happens i n t h i s i n d u s t r y , some very promising technology was made o b s o l e t e while i t was s t i l l on the drawing boards. As I i n d i c a t e d i n my opening remarks, no s i n g l e patent and l i c e n s i n g p o l i c y would be adequate to d e a l with a l l o f the technologies with which Ford Motor Company i s i n v o l v e d . I hope t h a t the examples o f the gas t u r b i n e , S t i r l i n g , and Wankel engines adequately i l l u s t r a t e the need f o r f l e x i b i l i t y .

Abstract Ford Motor Company is probably best known as a major producer of automotive products on a world-wide basis. But Ford also has other business interests, including aerospace and communications products, and is a significant producer of basic materials such

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as steel, glass, paint, p l a s t i c s , and chemicals. This complex product line involves a broad spectrum of product, material, and processing technologies. It would be d i f f i c u l t to maintain a single patent and licensing policy that would be applicable in every situation. This paper discusses past and present licensing a c t i v i t i e s , with emphasis on automotive products, to i l l u s t r a t e how licensing fosters the technical innovation process. Biographic Notes James T. West has had a long career with the Ford Motor Company, serving in various engineering and planning assignments both in the United States and overseas. He presently i s Manager of the New Technology Contract and Licensing Department of Ford's Engineering and Research Staff Mr West graduated from Northwestern University wit RECEIVED August 8, 1978.

In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

10 Patent Policies in the Battery Industry DAVID L. DOUGLAS Gould Inc., 40 Gould Center, Rolling Meadows, IL 60008

The battery industr i somethin f anomaly B virtur of the fact that the products used as sources of e l e c t r i c a energy, of the e l e c t r i c a l and electronics industry. For example, the Standard Industrial Code classifies a l l batteries under No. 3690 E l e c t r i c a l and Electronics. A large segment of the industry serves the automotive market and is associated for business analysis purposes with that industry. Chemistry, chemical engineering, metalurgy and mechanical engineering are the key disciplines forming the basis of the technology, however. Patent practices are a l l i e d to those i n the chemical process and process equipment industries. A note on the size and scope of the industry is in order. Batteries are classified as primary or secondary according to their a b i l i t y to be e l e c t r i c a l l y recharged and discharged repeatedly. Primary c e l l s characteristically are capable of being d i s charged only once. Typical applications include flashlights, hearing aids, watches, portable radios and calculators. Such cells are sold mainly through a myriad of consumer outlets; some sales are to the original manufacturers of the equipment. Sales in the United States for the consumer market are estimated to have totaled approximately $460 million in 1976. When one considers that the average selling price per unit, e . g . , D-size flashlight cell, is less than one d o l l a r , it is apparent that we are dealing with a true mass production industry. Process and equipment optimization are paramount accordingly. Secondary batteries employ electrochemical couples which are nearly reversible resulting in the a b i l i t y to recharge the battery by reversing the flow of e l e c t r i c i t y . After being restored to a charged state a "cycle" is complete. In some applications many hundreds of cycles are achieved. The lead-acid system makes up over 90% of the dollar volume of secondary batteries produced in the United States. "In 1975 this amounted to approximately 1,05 b i l l i o n dollars. Two markets were dominant. Starting, lighting and ignition (SLI) batteries for the automotive market 0-8412-0454-3/78/47-081-108$05.00/0 © 1978 American Chemical Society In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

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accounted f o r 82% o f the l e a d - a c i d p r o d u c t i o n . Some 50 m i l l i o n u n i t s were made, o f which 40 m i l l i o n were replacement. The second major market segment i s the i n d u s t r i a l market, which i n 1975 was s p l i t among motive power, standby power and miscellaneous p o r t i o n s i n roughly the p r o p o r t i o n 4:2:1. The b r i e f a n a l y s i s given above a p p l i e s only t o production o f b a t t e r i e s i n the United S t a t e s . B a t t e r i e s o f most types are man­ u f a c t u r e d and used the world over. I t i s estimated t h a t the r e ­ mainder o f the f r e e world has a b a t t e r y production approximately 2,5 times t h a t o f the United S t a t e s . Patent p o l i c i e s and p r a c t i c e s are a f f e c t e d by the m a t u r i t y of the products and the technology i n c o r p o r a t e d t h e r e i n . We f i r s t d i s c u s s the p r i n c i p a l product l i n e s . J u s t as the o l d and r e l i a b l e l e a d - a c i d b a t t e r y makes up over 90% o f the secondary b a t t e r y market, the major f a c t o r i n U.S. and World primary b a t t e r y s a l e s i s the Leclanche o r carbon-zin of primary b a t t e r y s a l e tem. I n t e r e s t i n g l y both the l e a d - a c i d and the carbon-zinc b a t ­ t e r i e s were discovered i n the 1860s; the former was e x h i b i t e d by Gaston Plante i n 1860 and the l a t t e r was reported by Georges Leclanche i n 1868. The d u r a b i l i t y o f these two products i s r e ­ markable, p a r t i c u l a r l y i n the l i g h t o f the enormous t e c h n o l o g i c a l advances made i n chemistry and e l e c t r o n i c s . Despite d i l i g e n t e f f o r t s by a host o f i n v e n t o r s , s c i e n t i s t s and engineers over the i n t e r v e n i n g decades o n l y two secondary b a t ­ t e r y systems have succeeded i n f i n d i n g a n o t i c e a b l e p l a c e i n the market. These are the Edison c e l l ( n i c k e l - i r o n ) and the n i c k e l cadmium c e l l . Thomas Edison devoted many years t o p e r f e c t i n g h i s c e l l based on i r o n as the anode, n i c k e l oxide as the cathode and a potassium hydroxide e l e c t r o l y t e . One premature (1901) entry i n t o the market p l a c e r e s u l t e d i n f a i l u r e and r e t u r n t o the l a ­ b o r a t o r y . S e v e r a l years l a t e r , 1907, the c e l l was r e i n t r o d u c e d and a modest business developed. Manufacture o f conventional n i c k e l - i r o n c e l l s i n the United S t a t e s was d i s c o n t i n u e d i n 1974, although a small business s t i l l e x i s t s overseas. However, new designs are being developed today f o r p o s s i b l e i n d u s t r i a l and onroad e l e c t r i c v e h i c l e use. Since the work o f E d i s o n , the only secondary b a t t e r y t o be s u c c e s s f u l l y developed i s the nickel-cadmium. I n 1975 produc­ t i o n f o r a l l a p p l i c a t i o n s , consumer and i n d u s t r i a l , amounted t o about 80 m i l l i o n d o l l a r s i n the U.S. Among the v a r i o u s primary c e l l s a v a i l a b l e , the carbon-zinc c e l l i s found t o be most c o s t e f f e c t i v e f o r a l a r g e number o f consumer a p p l i c a t i o n s , although the premium c e l l s are t a k i n g an i n c r e a s i n g share o f the market. The most important o f the l a t t e r by common name and e l e c t r o c h e m i c a l couple are: a l k a l i n e - manganese (Ζη/ΚΟΗ/Μηθ2), mercury - z i n c (Zn/KOH/HgO), and silver - zinc (Zn/KOH/Ag 0). 2

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While these represent r e l a t i v e l y new products, the technology o f each can be t r a c e d back t o 1882, 1884 and 1883, from top t o b o t tom i n the t a b l e above. Thus without important exception the products which form the b a s i s o f the b a t t e r y i n d u s t r y a l l date back t o a p e r i o d o f i n tense — but e m p i r i c a l i n approach — r e s e a r c h i n e l e c t r o c h e m i s try. One might conclude from t h i s t h a t the l e v e l o f r e s e a r c h and development e f f o r t and consequent p a t e n t i n g a c t i v i t y would be low. T h i s i s not the case. However, b a t t e r y r e s e a r c h and development e x h i b i t s a dichotomy. New e l e c t r o c h e m i c a l couples are r e c e i v i n g some r e s e a r c h a t t e n t i o n and t h i s t o p i c w i l l be d i s c u s s e d s e p a r a t e l y . A f t e r many years o f benign n e g l e c t the mature products are the focus o f agg r e s s i v e development programs. Here the e f f o r t s are d i r e c t e d toward one o r both o f the f o l l o w i n g : (1) New formulation compositions i formance advantage f o r p a r t i c u l a r a p p l i c a t i o n s . (2) New manufacturing processes and process equipment o f f e r i n g lower manufacturing c o s t and, perhaps, b e t t e r performance, e.g., new c o n t a i n e r m a t e r i a l s and p r o cesses . Many patents have been i s s u e d i n the past decade i n the areas above. In most cases the major b a t t e r y manufacturers h o l d t i t l e . However, i n some cases m a t e r i a l and component or equipment supp l i e r s have been the i n v e n t o r s and developers and enjoy a p r o f i t a b l e business based on p r o p r i e t a r y p o s i t i o n . The microporous p l a s t i c separator f o r l e a d - a c i d b a t t e r i e s i s an example. The importance o f patents centered around product improvements d e r i v e s from the f a c t t h a t business i n the conventional o r mature technology b a t t e r y products i s f i e r c e l y competitive. Products, e.g., automotive (SLI) b a t t e r i e s , tend t o be u n d i f f e r e n t i a t e d . A consequence o f t h i s , and other a t t r i b u t e s o f the d i s t r i b u t i o n system, i s t h a t p r o f i t margins are not so high as i n businesses i n which a c o n t i n u a l flow o f new products i s the norm. A c c o r d i n g l y , patents which g i v e a competitive edge, even though i t appears s l i g h t t o an o u t s i d e observer, are p e r c e i v e d t o be important by the b a t t e r y i n d u s t r y . Such patents are f i l e d worldwide s i n c e overseas the p r o d u c t i o n o f b a t t e r i e s o f a l l types has a higher d o l l a r volume than i n the U.S. Research and Development on New B a t t e r y Systems Mature b a t t e r y technology, while i t has found a p l a c e i n the market, has many w e l l i d e n t i f i e d short-comings. Batteries with e i t h e r i n c r e a s e d energy content p e r u n i t weight o r volume o r longer calendar and/or c y c l e l i f e , but a t a c o s t equal t o o r lower than conventional b a t t e r i e s , would take over and expand the market. T h i s t r u i s m has spurred o n l y modest e f f o r t s a t e x p l o r a t o r y R&D d i r e c t e d toward new b a t t e r y systems by the b a t t e r y i n d u s t r y .

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Attempts by other than b a t t e r y firms t o enter the market by dev e l o p i n g b a t t e r i e s based on new e l e c t r o c h e m i s t r y have y i e l d e d s i m i l a r negative r e s u l t s . Since World War I I m i l i t a r y and space requirements have l e d the Department o f Defense (DOD) and NASA to support b a t t e r y R&D on s e v e r a l novel b a t t e r y systems f o r these s p e c i a l needs. The i n d u s t r i a l c o n t r a c t o r s have been firms r e p r e s e n t i n g many major i n d u s t r i e s i n c l u d i n g aerospace, petroleum and e l e c t r i c a l manuf a c t u r i n g . I n the case o f DOD, the p a t e n t p o l i c i e s a l l o w i n g the c o n t r a c t o r to r e t a i n commercial r i g h t s , have been accepted w i t h minimum d i s s e n t . DOD funding has been s p o r a d i c , peaking d u r i n g the Korean and V i e t Nam c o n f l i c t s . While some success was achieved i n developing b a t t e r y systems f o r the m i l i t a r y and space requirements, the systems so f a r have been found not c o s t e f f e c t i v e f o r c i v i l i a n a p p l i c a t i o n s . A g e n e r i c example o f a successf u l development i s foun f u z i n g . These reserve a p p l i c a t i o n needs, but have found no consumer or i n d u s t r i a l mark e t s . Patent p o l i c y i s not much of an i s s u e i n such circumstances. In the p a s t three o r f o u r years b a t t e r y R&D has assumed a new importance as a consequence of the energy s i t u a t i o n , p a r t i c u l a r l y the need t o reduce domestic consumption o f petroleum based f u e l s . B a t t e r i e s , along w i t h c e r t a i n other means o f energy storage, are viewed as o f f e r i n g two p o s s i b l e ways o f reducing the consumption o f petroleum f u e l s . The f i r s t i s by means o f s t o r i n g base load e l e c t r i c a l energy (generated off-peak by nuc l e a r f i s s i o n o r combustion o f coal) f o r use i n meeting peak demands. Current p r a c t i c e f o r many u t i l i t i e s i s t o meet the peak loads with e l e c t r i c i t y from o i l - f i r e d gas t u r b i n e s . The second method o f o i l c o n s e r v a t i o n i s through use o f b a t t e r y powered e l e c t r i c on-road automobiles (6). In e f f e c t such v e h i c l e s w i l l s u b s t i t u t e n u c l e a r o r c o a l based energy f o r petroleum. The importance a s c r i b e d to these p o t e n t i a l methods o f petroleum cons e r v a t i o n i s such t h a t the Department o f Energy (DOE) has a budget a u t h o r i z a t i o n f o r FY78 t o t a l i n g 16.7 m i l l i o n d o l l a r s f o r b a t t e r y R&D. P l a n s c a l l f o r c o n t i n u i n g such R&D funding at about t h i s l e v e l f o r s e v e r a l y e a r s . In a d d i t i o n to DOE the E l e c t r i c Power Research I n s t i t u t e (EPRI) i s funding b a t t e r y R&D a t a l e v e l of approximately 5 m i l l i o n d o l l a r s per year. The o b j e c t i v e i n EPRI s case i s bulk storage f o r peak-shaving on u t i l i t y networks. The performance requirements f o r these "new" a p p l i c a t i o n s are s u f f i c i e n t l y demanding t h a t the mature b a t t e r y technologies are considered u n l i k e l y t o meet them. A c c o r d i n g l y , the major R&D programs are focused on s o - c a l l e d "advanced" o r even " e x o t i c " e l e c t r o c h e m i c a l systems. An example which has r e c e i v e d c o n s i d e r a b l e a t t e n t i o n i n the l a y and t e c h n i c a l p r e s s i s the sodiums u l f u r b a t t e r y . T h i s system operates a t an e l e v a t e d temperature (300-350°C) and employs molten e l e c t r o d e s (sodium and sodium p o l y s u l f i d e s ) w i t h a s o l i d ceramic e l e c t r o l y t e (Beta alumina). 1

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The reader i s r e f e r r e d to the s u b s t a n t i a l l i t e r a t u r e which i s accumulating on t h i s subject f o r f u r t h e r d e t a i l s on t h i s and the other advanced b a t t e r y systems under development (7). DOE and EPRI have s u f f i c i e n t f a i t h i n the promise o f t h i s system t o i n v e s t h e a v i l y i n i t s development. Ford Motor Co, i s budgeted t o r e c e i v e about 4 m i l l i o n d o l l a r s f o r DOE i n FY78. The General E l e c t r i c Company w i l l be funded by EPRI i n 1978 i n the amount of 1.1 m i l lion dollars. P a r t i c i p a t i o n by such i n d u s t r i a l f i r m s as Ford Motor Co. and the General E l e c t r i c Co, c o n s i d e r a b l y expands our e a r l i e r preview o f the b a t t e r y i n d u s t r y . In e f f e c t we are concerned with the patent p o l i c i e s o f a l a r g e segment o f the t e c h n o l o g i c a l l y based Industry o f the United S t a t e s . As evidenced by the p u b l i c l y v i s i b l e a c t i o n s of these firms i n the patent arena, as these act i o n s r e l a t e to b a t t e r i e s , the p r o t e c t i o n o f f e r e d by the patent system and agency procuremen sought. Two o f the f i r s r e s u l t i n g from ERDA (DOE) c o n t r a c t supported work were obtained by b a t t e r y R&D c o n t r a c t o r s . Ford Motor Co. and Dow Chemical Co. e a r l y a p p l i e d f o r waivers as provided f o r i n P u b l i c Law 93-577, F e d e r a l Non-nuclear Energy Research and Development Act o f 1974. S e v e r a l other waiver a p p l i c a t i o n s have been submitted i n connect i o n w i t h c o n t r a c t awards p r e s e n t l y under c o n s i d e r a t i o n . Another rough i n d i c a t o r o f patent p o l i c y i s the number o f patents granted i n a given f i e l d . In the area o f advanced and conventional b a t t e r i e s there has been s u b s t a n t i a l a c t i v i t y i n r e cent years and t h i s l e v e l i s being maintained. In 1976 over 100 patents were i s s u e d i n c l a s s 429 on the s u b j e c t o f b a t t e r i e s . I t i s worth n o t i n g t h a t patents i n t h i s f i e l d are considered v a l u a b l e d e s p i t e the f a c t t h a t the t e c h n i c a l r i s k s are h i g h and the time t o commercialization i s viewed by some as i n o r d i n a t e l y long. The reason i s , of course, t h a t although the r i s k s are h i g h , the pot e n t i a l rewards are commensurate, connected as they are t o the automotive and e l e c t r i c u t i l i t y markets. Summary The a t t i t u d e s toward the patent system o f t h a t segment o f U.S. i n d u s t r y which concerns i t s e l f with manufacture and s a l e o f b a t t e r i e s based on mature technology or R&D on advanced b a t t e r i e s can be summarized as f o l l o w s : (1) Patents and other i n t e l l e c t u a l property are considered valuable a s s e t s , (a) B a s i c , e,g,, composition o f matter, patents on the mature technologies are o f questionable value i n l i g h t of almost a century o f p r i o r a r t . Trade s e c r e t s and know-how are u s e f u l , but not e s s e n t i a l , elements o f a s u c c e s s f u l business. (b) Process, equipment and component i n v e n t i o n s can have s u b s t a n t i a l v a l u e . Patents are obtained i n

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most situations. Trade secrets and know-how are equally useful. In the case of contract funded R&D the present DOE and EPRI regulations, although restrictive i n calling for t i t l e to patents developed on contract to be held by the agency, have sufficient f l e x i b i l i t y so as not to be considered disincentives to aggressive pursuit of contracts . (a) DOE policy has been to grant waiver to t i t l e where warranted. (b) EPRI has sufficient contractural f l e x i b i l i t y so that contractors appear able to negotiate acceptable compromise positions between the extremes of relinquishing a l l t i t l e to EPRI and retaining a totally exclusive position.

Abstract Patents h i s t o r i c a l l y have played an important role i n the development of the battery industry. Typically, efforts are made to obtain coverage of as many facets as possible of the use, manufacture and sale of batteries and related products. A very broad range of classes of invention are involved, ranging from composition of matter, through processes and devices to applications. Licensing and cross-licensing among U.S. and foreign manufacturers i s common both i n the U.S. and overseas. The major battery manufacturers carry out R&D for the various Federal Government agencies. This requires careful planning and management of research and development and a well thought-out patent strategy. The need to protect a patent position may influence the terms and conditions of the R&D contract. Examples illustrating the various facets of patent policies i n this industry are given. Literature Cited 1.

2.

3.

4. 5.

Kalhammer, F . R . , and Schneider, T . R . , "Energy Storage", Annual Review of Energy, V o l . 1, 311-343, Annual Reviews, Inc., Palo Alto, Ca. (1976). Douglas, D . L . , "Batteries for Energy Storage", presented at the Symposium on Energy Storage, Division of Fuel Chemistry, 168th National Meeting of the American Chemical Society, Atlantic City, N . J . , Sept. 8-13, 1974. "Electric and Hybrid Vehicle Research, Development and Demonstration Act of 1976", Public Law 94-413, 14th Congress, Sept. 17, 1976. J . R . Birk, "Storage Batteries: The Case and the Candidates", EPRI Journal, 6 October 1976. Proceedings of the Symposium on Load Leveling, edited by N. P. Yao and J . R . Selman, published by The Electrochemical Society, I n c . , Princeton, N . J . (1977).

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"The Patent Policies Affecting ERDA Programs," ERDA-76-16. January, 1976. U.S.G.P.O., Washington, D.C. Douglas, D . L . , "Commercialization of Advanced Batteries Will It Happen?", Proceedings of the Symposium on Load Leveling, edited by N.P. Yao and J . R . Selman, 179, The Electrochemical Society, Inc., Princeton, N . J . (1977).

Biographic Notes Joining Gould Inc. as Director of Research, David L . Douglas has served for the past 14 years in a number of responsible positions on the corporate staff. His current assignment i s Vice President-Contract Research in the research and development arm of the company. Dr. Douglas has been awarded both a bachelor's degree and a doctorate i n chemistry by California Institute of Technology author of over 40 publications president of the Minnesota Academy of Science and as a director of the North Star Division of Midwest Research Institute. RECEIVED June 20, 1978.

In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

11 Patents and Licensing in the Petroleum Industry THOMAS H. WHALEY Texaco Development Corporation, 135 E. 42nd St., New York, NY 10017

The petroleum industr business. It deals with a finite natural resource which most of us take for granted. We've always lived in the age of oil and it's d i f f i c u l t for us to imagine any other way of life. When you think of the oil business, what comes to mind? Probably oil wells, pipelines, tankers, oil refineries, petrochemicals plants, and service stations. The oil business is all this and much more. An integrated oil company, such as Texaco, is involved in all phases of the business, from the exploration for oil deposits to marketing the f i n a l products to the consumer. There are six principal fields of operation i n which the integrated oil company participates: Exploration, D r i l l i n g and Production, Transportation, Refining and Manufacturing, Petrochemicals, and Marketing. The petroleum industry is doing a marvelous job of coordinating these operations, employing a large scale, highly efficient logist i c a l network to deliver an abundant supply of products to consumers at relatively low prices. It i s estimated that we have now in the United States in proven o i l f i e l d s , reserves of o i l equal to or greater than the amounts that already have been produced. The problem i s that the o i l l e f t in many of the o i l fields i s not readily produced. It is entrapped in the geological formation, or "sand", by strong capillary forces which resist displacement by other f l u i d s . Enhanced o i l recovery methods are now at the forefront of research and development efforts of the major o i l companies and of many smaller organizations as well. Some of the older fields have been water-flooded to strip the sands of some of their residual o i l . Conventional water flooding, however, s t i l l leaves more than half of the original o i l i n place. Detergents and other chemical additives are being 0-8412-0454-3/78/47-081-115$05.00/0 © 1978 American Chemical Society In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

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t e s t e d i n many f i e l d s t o improve the e f f i c i e n c y o f the waterflood operations. Other methods o f improving o i l recovery are being d e v e l oped o r are a l r e a d y i n o p e r a t i o n . Some methods use l i q u i d s o l v e n t s f o r the o i l ; some employ carbon d i o x i d e , steam, o r hydrocarbon vapors; some use combinations of these m a t e r i a l s , i t should be p o s s i b l e bv the use of v a r i o u s enhanced o i l recovery methods t o recover n e a r l y a l l the o i l from a given r e s e r v o i r . The o i l i n d u s t r y i s a c t i v e l y pursuing a l t e r n a t i v e sources of f o s s i l f u e l s , such as, petroleum from Athabaska t a r sands i n Canada; hydrocarbon f u e l s from o i l shales i n Colorado, Utah and Wyoming; and f u e l gases and motor f u e l s from c o a l . I t i s o n l y a matter o f time u n t i l the p r i c e o f o i l w i l l make the p r o d u c t i o n o f each o f these a l t e r n a t i v e sources o f f u e l economical. As you no doubt alread t h i s country t o d i v e s c o a l . Such a move, i f s u c c e s s f u l , would l i k e l y prove very unfortunate, s i n c e the o i l companies have the technology f o r b e t t e r c o a l u t i l i z a t i o n . These companies developed t h i s technology independently and on t h e i r own i n i t i a t i v e s . It is s i g n i f i c a n t t h a t the f i r s t commercial s c a l e , h i g h pressure c o a l g a s i f i c a t i o n p r o j e c t , a 160 ton per day p l a n t i n Germany which has now been i n o p e r a t i o n f o r over a month, uses the Texaco C o a l G a s i f i c a t i o n Process. T h i s i s p a r t i c u l a r l y s i g n i f i c a n t i n view o f the h i s t o r y o f c o a l g a s i f i c a t i o n , f o r i t was the Germans who, i n the l a t e t h i r t i e s d u r i n g World War I I , f i r s t produced motor f u e l s on a l a r g e s c a l e from c o a l v i a c o a l gasification. The scope o f r e s e a r c h and development c a r r i e d out by the o i l companies covers a wide area o f s u b j e c t s and i n v o l v e s a broad spectrum o f s c i e n t i f i c d i s c i p l i n e s ranging from microb i o l o g y t o n u c l e a r p h y s i c s . Sometimes there are unexpected f a l l o u t b e n e f i t s t o other i n d u s t r i e s , such as a s t r a t i f i e d charge i n t e r n a l combustion engine, an improved i g n i t i o n system, a waste d i s p o s a l process f o r paper m i l l wastes, and a smoke f i l t e r f o r d i e s e l engines, a l l of which were by-products o f r e s e a r c h i n an o i l company l a b o r a t o r y . Other areas a t the f o r e f r o n t o f R&D today, a s i d e from petrochemicals, are new and b e t t e r r e f i n e r y c a t a l y s t s , and processes t o improve both y i e l d s and q u a l i t y o f petroleum products and t o e l i m i n a t e a i r p o l l u t i o n . Waste treatment p r o cesses and c o a l u t i l i z a t i o n methods are a l s o r e c e i v i n g a g r e a t d e a l of a t t e n t i o n from the o i l i n d u s t r y . The a i r and water are kept c l e a n e r , the q u a l i t y and value o f products improved, p e t r o leum s u p p l i e s augmented and extended, and the consumer d o l l a r s t r e t c h e d f u r t h e r , a l l - as a r e s u l t o f research and development. Patents h e l p a company to r e a l i z e a r e t u r n on i t s R&D expenditures. The general p o l i c y o f the petroleum i n d u s t r y i s to p r o t e c t i n v e n t i o n s and investments i n r e s e a r c h and development

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by systematic and aggressive patent programs. Patents p r o t e c t processes and products f o r a company's own use and, i n the case of products, o f t e n provide a competitive advantage i n the consumer market. You are made aware o f some of the patented products by a d v e r t i s i n g programs. You know, f o r example, that one brand o f motor o i l i s s a i d to g i v e the m o t o r i s t increased gasol i n e mileage because i t contains patented f r i c t i o n m o d i f i e r s . With another brand, engines are kept c l e a n e r and run longer because o f c e r t a i n patented a d d i t i v e s i n the l u b r i c a t i n g o i l s . Top brand g a s o l i n e s keep c a r b u r e t o r s and spark plugs c l e a n and prevent c a r b u r e t o r i c i n g and c o r r o s i o n by the use o f patented additives. The l i c e n s i n g of company owned patents and p r o p r i e t a r y know-how i s common everyday p r a c t i c e i n the petroleum i n d u s t r y . The g e n e r a l p o l i c y i s t o make technology a v a i l a b l e to q u a l i f i e d a p p l i c a n t s through l i c e n s i n from a few exceptions apparatus are a v a i l a b l e to others i n s i d e or o u t s i d e the i n d u s t r y . Some o l d e r and w e l l e s t a b l i s h e d processes are a v a i l a b l e f o r l i c e n s e a t standard r o y a l t y r a t e s . Process r o y a l t y r a t e s are commonly based on the q u a n t i t y processed, that i s , b a r r e l s o f feed stock s u p p l i e d to a c a t a l y t i c c r a c k i n g u n i t , o r the amount o f product, f o r example, pounds o f toluene produced. In the case o f chemicals o r c a t a l y s t s , the r o y a l t y may be based on pounds o f chemicals used or produced or on the net s a l e s p r i c e o f the product. Apparatus may be l i c e n s e d on a per u n i t b a s i s . Royalty r a t e s and other d e t a i l s o f l i c e n s e agreements a r e determined by n e g o t i a t i o n . The r o y a l t y r a t e o f t e n i s determined by the value o f the technology t o the l i c e n s e e . Since most companies are both l i c e n s o r s and l i c e n s e e s , the p r e v a i l i n g view i s t h a t the terms of a l i c e n s e agreement should be such t h a t i t i s a good business d e a l f o r both p a r t i e s . A survey by Business Week (1) i n d i c a t e s that the petroleum i n d u s t r y spent something over $750 m i l l i o n i n 1976 f o r r e s e a r c h and development. Funds f o r the r e s e a r c h e f f o r t o f the petroleum companies are, however, being r e s t r i c t e d due to the tremendous demand f o r new c a p i t a l investment i n every area of the b u s i n e s s . T h i s need f o r investment c a p i t a l r e s u l t s i n a cutback i n s e r v i c e s , such as r e s e a r c h and development, and consequently, i n o b t a i n i n g p a t e n t s . As a r e s u l t , the number of patents i s s u e d to the f i v e most a c t i v e o i l companies decreased a t the r a t e of about s i x percent per year from 1974 t o 1977. A survey by C i t i b a n k (2) showed t h a t f o r the p e r i o d 1970 t o 1975 the c a p i t a l o u t l a y s o f 37 United States-based o i l companies exceeded t h e i r a v a i l a b l e cash flow. In 1975, f o r example, the cash flow s h o r t f a l l amounted t o more than 10 b i l l i o n d o l l a r s . Changing economic c o n d i t i o n s and the increased dependence o f the United States on f o r e i g n o i l have created a demand f o r enormous amounts o f c a p i t a l and f o r new r e f i n e r y p r o c e s s i n g equipment and petrochemicals p l a n t s . Nearly 60 percent o f the

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c a p i t a l and e x p l o r a t o r y expenditures of Texaco {3) f o r the 12 months ended September 30, 1977, were f o r producing o p e r a t i o n s . About 35 percent went f o r manufacturing and petrochemicals p l a n t s , with the remaining 5 percent covering a l l other c a p i t a l expenditures. As a r e s u l t o f t h i s squeeze on c a p i t a l , there has been a s h i f t i n emphasis i n R&D programs i n the o i l i n d u s t r y over the past s e v e r a l years. Fundamental r e s e a r c h and even long-term a p p l i e d research are being phased out i n favor of product r e search and other near-term a p p l i e d r e s e a r c h , such as enhanced o i l recovery p r o j e c t s and environmental programs. T h i s s h i f t i n emphasis i n r e s e a r c h expenditures i s not l i m i t e d to the p e t r o leum i n d u s t r y , as i s brought out i n an a r t i c l e i n a recent Wall S t r e e t J o u r n a l (4). A consequence of the shortage of c a p i t a l has been i n c r e a s e d participation i n industria the past few years i t ha a l t e r n a t i v e energy f i e l d s , p a r t i c u l a r l y i n the area of c o a l utilization. In the n o t - t o o - d i s t a n t f u t u r e , i f not today, only the F e d e r a l Government may be able to f i n a n c e the l a r g e c o a l conversion p l a n t s needed to r e p l a c e o i l and n a t u r a l gas as industrial fuels. When a company accepts government f i n a n c i n g o f a development p r o j e c t , i t s patent and l i c e n s i n g program i n t h a t area w i l l have to be r e c o n c i l e d with government patent and data p o l i c i e s . In d e a l i n g with Government agencies, such as the Department of Energy (DOE) f o r f i n a n c i n g R&D, i t i s necessary to n e g o t i a t e the terms a f f e c t i n g the ownership o f patents and the c o n t r o l o f data and l i c e n s i n g r i g h t s . Dr. Betsy Ancker-Johnson, i n 1976, when she was A s s i s t a n t S e c r e t a r y f o r Science and Technology a t the Department of Commerce, i n commenting on the l a c k o f u n i f o r m i t y o f p o l i c y among the more than 20 government agencies funding R&D, estimated t h a t some 30,000 c o n t r a c t s per year must be n e g o t i a t e d with these agencies. Some o f these agencies a c q u i r e t i t l e to a l l i n v e n t i o n s , but may waive t i t l e to p r i v a t e s e c t o r c o n t r a c t o r s under c e r t a i n c o n d i t i o n s . Others acquire only a l i c e n s e to n a t i o n a l and s t a t e agencies, while s t i l l others permit a waiver of r i g h t s a f t e r an i n v e n t i o n i s made under the c o n t r a c t . As s t a t e d by Dr. AnckerJohnson, these n e g o t i a t i o n s have "placed an enormous and needless burden on both the agencies and t h e i r c o n t r a c t o r s " (5). Representative Ray Thornton (D-Ark.) on A p r i l 6, 1977, i n i n t r o d u c i n g a b i l l , H.R. 6249, to e s t a b l i s h a uniform patent p o l i c y (6) f o r i n v e n t i o n s r e s u l t i n g from f e d e r a l l y funded R&D, said: "Determining patent r i g h t s when an i n v e n t i o n i s the r e s u l t of f e d e r a l l y funded r e s e a r c h has become i n c r e a s i n g l y complex". Anyone who has been i n v o l v e d i n government c o n t r a c t s must c e r t a i n l y agree with t h a t . The Thornton B i l l was r e i n t r o d u c e d J u l y 28, 1977, as H.R. 8596 and i s now pending before Congress. D e t a i l s o f t h i s b i l l are the subject o f another paper (7) i n t h i s symposium.

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Under the Thornton B i l l the c o n t r a c t o r would r e t a i n t i t l e t o a l l patents r e s u l t i n g from f e d e r a l c o n t r a c t s and grants and may be r e q u i r e d t o l i c e n s e others under c e r t a i n s p e c i f i e d s i t u a t i o n s designed t o safeguard the p u b l i c i n t e r e s t . I b e l i e v e t h a t Dr. Ancker-Johnson i s c o r r e c t i n s t a t i n g (8) t h a t the c o n t r a c t o r g e n e r a l l y i s w i l l i n g t o l i c e n s e t h i r d p a r t i e s without a F e d e r a l requirement t o do so. Meanwhile we must l i v e with the patents and data clause requirements o f the v a r i o u s government agencies as they a r e today. When a company enters i n t o a c o n t r a c t w i t h DOE f o r the development o r l a r g e - s c a l e demonstration o f one o f i t s promising p r o p r i e t a r y processes, i t i s i n danger o f l o s i n g p r o p r i e t a r y r i g h t s i n both i t s i n v e n t i o n s and i t s data, o r know-how. Both patents and know-how are important l i c e n s i n g a s s e t s . Standard patent clauses i n DOE c o n t r a c t s p r o v i d e t h a t the t i t l e i n i n v e n t i o n s mad i s i n the Government (9) reduced to p r a c t i c e under the c o n t r a c t a l s o belongs t o the Government (10). T h i s means t h a t the Government may get t i t l e to i n v e n t i o n s made p r i o r t o the c o n t r a c t , but f i r s t a c t u a l l y b u i l t and used during the course o f work under the c o n t r a c t . Thus, the Government may a c t u a l l y o b t a i n t i t l e t o patents on i n v e n t i o n s made p r i o r t o the Government c o n t r a c t . The r e a l i n c e n t i v e i n e n t e r i n g i n t o an R&D c o n t r a c t i s t h a t the work under the c o n t r a c t w i l l l e a d t o commercial p l a n t s . For example, l e t ' s suppose you have developed a new process. I t looks good i n the l a b o r a t o r y , but before the process can be s o l d or used commercially, a demonstration p l a n t must be b u i l t . Your company i s unable t o r a i s e the money f o r the demonstration p l a n t , but the government agency i s both ready and w i l l i n g t o help w i t h f i n a n c i n g the p r o j e c t . Now, suppose t h a t d u r i n g the course o f the c o n t r a c t , the process i s f i r s t a c t u a l l y reduced t o p r a c t i c e . The government agency may get t i t l e t o a l l your i n v e n t i o n s , whether p r e v i o u s l y patented o r not, unless a waiver o f t i t l e was negotiated i n t o the c o n t r a c t . Now l e t us assume the process proves t o be a great success and i t looks as though 20 t o 30. f u l l s c a l e p l a n t s w i l l be b u i l t i n the United States and p o t e n t i a l l y t h a t many more abroad. Your company does not have the a v a i l a b l e c a p i t a l t o b u i l d the p l a n t s . I t developed the process, but the best i t can do i s t o p a r t i c i pate i n one o r two p l a n t s . O r d i n a r i l y , i t could expect a good flow o f l i c e n s i n g revenue from a l l the other p l a n t s . But the investment r e q u i r e d i s so l a r g e t h a t the only p l a n t s t h a t w i l l be b u i l t are l i k e l y t o be financed a t l e a s t i n p a r t by v a r i o u s government agencies. The Government has r i g h t s t o your patents and t o the data ( H J developed under the c o n t r a c t and, under the usual c o n t r a c t p r o v i s i o n s , i t may extend these r i g h t s t o o t h e r s . Even i f you have been able t o n e g o t i a t e a waiver o f t i t l e , the Government r e t a i n s an i r r e v o c a b l e , r o y a l t y - f r e e l i c e n s e t o use the process f o r Government purposes and can extend the r i g h t t o

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states and municipalities. So, you're l e f t i n a worse position than your competitors. You spent the seed money and they reap the harvest. There are some ways to get around this dilemma in negotiating contracts which are too involved to go into in this paper, except to say that you may negotiate, for example, to retain foreign licensing rights; you may r e s t r i c t release of data by limited rights provisions in the contract; and you may be able to assert a background patents position through requiring licensing under these patents at reasonable royalty rates (11). As you can see, the various factors mentioned are forcing reassessment of R&D and patent p o l i c i e s . F i r s t of a l l , i t i s important to try to identify promising inventions which were made prior to a government contract as inventions actually reduced to practice before work i s commenced under the contract. Patent applications coverin on f i l e before work begin Close cooperation between the patent attorney and the research director should pinpoint those inventions which should be actually reduced to practice prior to a contract, then determine what acts are necessary to develop an actual reduction to practice of the important inventions with minimum R&D time and expense. The need for additional capital for R&D efforts in the private sector is abundantly apparent. It is hoped that Congress w i l l adopt a policy toward inventions resulting from Governmentsponsored R&D which w i l l permit industry to accept Government funding without fear of loss of i t s related proprietary technology as contained in patents and licensing rights. Abstract Competition in the petroleum industry necessitates large expenditures for research and development. Patents are essential to protect these investments. Active research i s carried out in the areas of exploration for petroleum deposits, data processing procedures, petroleum production techniques, offshore oil producing equipment, enhanced oil recovery methods, refinery and petrochemical processes, catalysis, new products, and improved fuels and lubricants. Extensive licensing of patents and know-how relating to improved hydrocarbon processing methods has been customary in the oil business for many years. Licensing royalties and terms usually involve lengthy bargaining. Licensing revenues are often plowed back into research resulting in continuing opportunities for employment of professional chemists and engineers. However, with government-financed contracts, r e s t r i c tive and regressive regulations pertaining to inventions, coupled with other requirements, such as environmental impact statements and increased taxation and equipment costs, have resulted in a decrease in private venture capital needed for research.

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Literature Cited 1. 2. 3. 4. 5. 6. 7.

8. 9.

10.

11.

"Survey of Corporate Research and Development". Business Week, June 27, 1977, p. 75. Energy Newsletter, Citibank, V o l . XII, Number 3, 1976. Granville, M. F., Presentation before the O i l Analysts Group of New York, November 17, 1977. Lynch, Mitchell C., "Backing Off Basics", The Wall Street Journal, October 18, 1977. Gibney, LingYee, C&E News, October 11, 1976, p. 18. Congressional Record, H3149, A p r i l 6, 1977. Latker, N. J., "Federal Patent Policy and H.R. 8596", Symposium on Patent Policy, 175th National Meeting of the American Chemical Society, Anaheim, California, March 13, 1978. Gibney, LingYee, Supra "Patents, Data & Part 99, Related Parts, Effective July 13, 1977, Energy Research & Development Administration, Washington, D.C. 20545. Alleman, Robert Ν . , "Government Incentives/Disincentives", Les Nouvelles, Journal of the Licensing Executives Society, V o l . XII, Number 4, (December 1977), p. 259. Haughey, Charles, S., "Effect of Government Data Policies", Les Nouvelles, Journal of the Licensing Executives Society, V o l . XII, Number 4, (December 1977), p. 262.

Biographic Notes For over 30 years, Thomas H. Whaley has been involved f u l l ­ -time with patent work in the petroleum industry. For the last 10 years he has served as General Patent Attorney for Texaco Development Corporation. He is active in several professional societies and is the inventor or co-inventor on over 25 U.S. patents and their foreign counterparts. Mr. Whaley's academic training was obtained at the University of Colorado and the University of Michigan, where he was awarded degrees in chemical engineering, and at New York University where he was awarded his Bachelor of Law degree. RECEIVED June 20, 1978.

In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

12 Patent Policies in the Pharmaceutical Industry CURTIS W. CARLSON Bristol-Myers Co., 345 Park Ave., New York, NY 10022

While I do not represen formal sense, I should teristics. My approach w i l l be from the perspective of major research-based companies with strong manufacturing and marketing capabilities. There are many such companies represented here -in the ACS and in this annual meeting too, companies such as Lilly, Merck, SmithKline, Johnson & Johnson, Pfizer, Abbott, Upjohn, Bristol-Myers, Squibb Syntex, Schering, Warner-Lambert and many other U.S. companies. And the problems, policies and potential of these U.S. companies are shared by foreign-based companies such as Hoechst, Bayer, BASF, ICI, Beecham, BurroughsWellcome, Glaxo, Takeda, Fujisawa, Roche, Sandoz, Ciba-Geigy, Astra, Asta, etc. These are organizations commanding respect amongst chemists and physicians for their achievements in medicinal chemistry. Their achievements are many; from their laboratories have come compounds useful in the alleviation of pain, control of conception, the p a l l i a t i o n and, increasingly, some cures of cancer, the long-term control of hypertension and v a r i ous cardio-vascular disorders, prompt cures of bacterial infection, r e l i e f of inflammation, and other conditions relating to health. Most of these companies around the world compete with each other — in a commercial sense, for market share and p r o f i t s , and i n a social responsibility sense, to provide better medicine for r e l i e f of medical problems. This is a proud history, a history of invention, innovation, investment, development and achievement. Of the investment I'll speak more later. There i s , by the way of contrast, another side of the pharmaceutical industry; the companies constituting this aspect are not research-based, are not innovative in a scientific sense and contribute l i t t l e to the advancement of medical science. They perform distributive functions — buying or producing and selling mostly older, off-patent drugs with an emphasis on price. These companies, of course, employ very few researchers, have low costs (though they often charge for their products what the t r a f f i c w i l l 0-8412-0454-3/78/47-081-122$05.00/0 © 1978 American Chemical Society In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

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bear) and sometimes come i n t o c o n f l i c t with the f i r s t group o f companies over the infringement o f t h e i r patents. The e n t r e p r e n e u r i a l , research-based pharmaceutical i n d u s t r y has a few c l o s e r e l a t i v e s — other o r g a n i z a t i o n s t h a t make and b r i n g pharmaceutical i n v e n t i o n s i n t o p u b l i c use and b e n e f i t — and i n doing so r e l y upon the f i n a n c i a l investment i n c e n t i v e s o f the patent system. Representative o f such o r g a n i z a t i o n s are N a t i o n a l Research Development Corp. (NRDC), a Crown c o r p o r a t i o n of the United Kingdom, and s i m i l a r o r g a n i z a t i o n s i n s e v e r a l other c o u n t r i e s . I n a d d i t i o n , SRI I n t e r n a t i o n a l o f Menlo Park, C a l i f o r n i a (formerly Stanford Research I n s t i t u t e ) , and M i c r o b i a l Chemistry Research Foundation (MCRF), o f Tokyo, both n o n - p r o f i t r e s e a r c h i n s t i t u t i o n s fund c r e a t i v e pharmaceutical r e s e a r c h with monies generated from t h e i r s a l e o f research r e s u l t s through patent l i c e n s i n g . It i s of interest ent-dependent o r g a n i z a t i o n producing most o f the new drugs (new chemical e n t i t i e s ) coming i n t o modern h e a l t h care — see "The L i f e / D e a t h R a t i o " page 122, where i t i s s a i d t h a t : " I t i s a c e n t r a l f a c t t h a t we get our new medications from research-and-development-intensive pharmaceutical houses. These are p r i v a t e - e n t e r p r i s e , p r o f i t - m o t i v a t e d businesses. They have proved to be more c r e a t i v e , i n n o v a t i v e and economi c a l than other sources." And, u n f o r t u n a t e l y f o r the United S t a t e s , f o r a v a r i e t y o f r e a sons, more and more o f these new drugs are coming from f o r e i g n pharmaceutical companies. Now, back t o research and t o patent p o l i c y w i t h i n t h i s type of r e s e a r c h o r g a n i z a t i o n , i . e . , r e s e a r c h o r g a n i z a t i o n s c h a r a c t e r i z e d by t h e i r i n n o v a t i v e pharmaceutical product goals and t h e i r funding out of p r o f i t s from p r i o r successes. The f i r s t c r i t i c a l f a c t i s t h a t research i n t h i s i n d u s t r y i s very, very expensive. A t t h i s p o i n t , I could c i t e many c o s t f i g u r e s but I w i l l not, o r a t l e a s t , not many. Please bear i n mind t h a t r e s e a r c h and development (R&D) c o s t s must be judged i n comparison to market p o t e n t i a l , and w i t h a view t o the p r o b a b i l i t y of reaching t h a t market by showing s c i e n t i f i c m e r i t and o b t a i n i n g r e g u l a t o r y approvals (not n e c e s s a r i l y the same problem). In a recent a r t i c l e i n C l i n i c a l Pharmacology and T h e r a p e u t i c s , January 1976, P r o f e s s o r Gross o f the U n i v e r s i t y o f Heidelberg laments: "Never before have budgets f o r the r e s e a r c h and development f o r new drugs been as l a r g e as they are today. The r e s u l t s are not commensurate with the investments o f time, e f f o r t , and money. To an i n c r e a s i n g extent, r e s e a r c h o r g a n i z a t i o n s w i t h i n the drug i n d u s t r y have t o devote a great p a r t o f t h e i r work t o the observance o f r e g u l a t i o n s . . . " L a s t month (February 19, 1978) I read i n the New York Times t h a t the U.S. Department o f Commerce had noted a l o s s of momentum i n i n n o v a t i o n and was about t o study the q u e s t i o n ; among o t h e r s :

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"Is i n d u s t r i a l research and development becoming i n c r e a s i n g l y 'defensive* r a t h e r than i n n o v a t i v e to cope w i t h p r o l i f e r a t i n g Government r e g u l a t i o n s ? " I suppose t h a t represents progress to recognize the quest i o n , i f not the obvious answer. So c o s t s are high — and i n our economic system funds must be obtained from p r o f i t s from product s a l e s — t o amortize borrowed c o s t s o f r e s e a r c h , o r , more t y p i c a l l y , to pay c u r r e n t l y f o r new r e s e a r c h l o o k i n g forward to s t i l l newer product i n n o v a t i o n s . PATENT PROTECTION SOUGHT What do these c o s t s and t h e i r recovery have to do w i t h p a t ent p o l i c y ? Very much. Some statements* o f t h i s i n d u s t r y ' s r e search/patent p o l i c y have appeared i n p r i n t — and I o f f e r you some quotes: One economist s a i t i o n a l Pharmaceutical Industry to 1990 by B a r r i e G. James: "...patents are the e s s e n t i a l means by which a f i r m g a i n s funds f o r f u t u r e r e s e a r c h , r a t h e r than as a 'reward' f o r i t s p a s t e f f o r t s , s i n c e i t enables the c o n t i n u i t y so e s s e n t i a l to r e s e a r c h . " Depending on a company's f i n a n c i n g requirements, the p a t e n t p o s i t i o n may be necessary a l s o to recoup p a s t expenditures from present s a l e s . I b e l i e v e t h a t over 95% o f the new drugs i n t r o duced i n the United States i n the l a s t 10 years have been d e v e l oped and f i r s t marketed under patent p r o t e c t i o n . As a matter o f p o l i c y , more r e a l i s t i c a l l y , o f n e c e s s i t y , the pharmaceutical i n d u s t r y r e l i e s on patents t o p r o t e c t markets f o r i t s i n n o v a t i v e drug products, thus e n a b l i n g i t t o f i n a n c e ongoing r e s e a r c h . A r e s e a r c h management textbook, The Fundamentals o f Research Management by W i l l i a m G. McLoughlin, has been c i t e d w i t h g e n e r a l approval w i t h i n the i n d u s t r y , as f o l l o w s : " . . . A l l research and development should be conducted w i t h a f i r m o b j e c t i v e t o produce a p r o p r i e t a r y p o s i t i o n f o r the company " and l a t e r "Patents and trade s e c r e t s are the evidence o f a p r o p r i e t a r y p o s i t i o n , and the o b j e c t i v e o f r e s e a r c h should be p a t e n t s and trade s e c r e t s " . t

PAPER PATENTS P a r e n t h e t i c a l l y , and as one who has s t u d i e d many p a t e n t s , good, bad and mostly i n d i f f e r e n t , i t should be noted t h a t the o n l y patents and trade s e c r e t s c o n s t i t u t i n g a p r o p r i e t a r y p o s i t i o n t h a t w i l l support r e s e a r c h are those which d e a l w i t h p r o ducts o f r e a l value to u s e r s . A c t u a l value o f course o n l y becomes known long subsequent to f i l i n g . "Paper p a t e n t s " p r o v i d e

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very few b a s i c b e n e f i t s t o t h e i r owners, do not a i d investment and a r e not sought i n t e n t i o n a l l y by i n d u s t r y . To c i t e an example, the patents on 7-ACA and cephalosporin C brought i n m i l l i o n s o f pounds and d o l l a r s o f r o y a l t y income t o NRDC and supported much f u r t h e r r e s e a r c h , but a great host o f NRDC's r e l a t e d patents on cephalosporin products and processes which turned out t o not represent an advance, brought i n p r a c t i c a l l y no income. GEOGRAPHIC SCOPE OF FILING Turning now t o another aspect o f research f i n a n c e and patent p o l i c y , as R&D c o s t s per drug have mounted (due, i n major p a r t , to r e g u l a t o r y demands), i t has become imperative t h a t patents be obtained i n many c o u n t r i e s so t h a t the higher c o s t s o f development can be recouped fro l a r g e r market. Many chemist patent f i l i n g s when they are asked by patent attorneys t o s i g n a p p l i c a t i o n s , p e t i t i o n s and assignments f o r each o f perhaps 10-40 c o u n t r i e s . Members o f the i n d u s t r y have long s i n c e passed beyond p r o v i n c i a l i s m t o view as t h e i r n a t u r a l market not merely t h e i r home country, but a l l nations where t h e i r drugs are u s e f u l . And the u t i l i t y o f m e d i c i n a l products i s almost u n i v e r s a l s i n c e almost a l l o f humanity share the same medical problems — i n f e c t i o n , hypertension, cancer, trauma, and p a i n among o t h e r s . I t i s obvious, but could be overlooked, t h a t pharmaceutical products are n o t o r i o u s l y easy t o copy once t h e i r s p e c i f i c a t i o n s , u t i l i t y , dosage and other a t t r i b u t e s have been e s t a b l i s h e d . The b a s i c component o f most pharmaceutical products are chemical compounds which competent chemists can make. Thus, without patent p r o t e c t i o n (and sometimes u n f o r t u n a t e l y with patent p r o t e c t i o n i n h o s t i l e environments), c o s t l y r e s e a r c h can be copied with comp a r a t i v e l y l i t t l e investment, and the i n n o v a t o r s f i e l d invaded; whether such copies are t h e r a p e u t i c a l l y e q u i v a l e n t i s another s t o r y i n v o l v i n g the c u r r e n t b i o e q u i v a l e n t s controversy. The prot e c t i o n a f f o r d e d by patents i s important t o both l a r g e and small companies and t o i n d i v i d u a l i n v e n t o r s ; without patents they gene r a l l y cannot a f f o r d t o enter t h i s arena o f a c t i v i t y . Another f a c t o r bearing on drug i n d u s t r y research funding and patent p o l i c i e s i s the long g e s t a t i o n p e r i o d o f new m e d i c i n a l products. To b r i n g most products t o c l i n i c a l use r e q u i r e s from 5 t o 15 years o f developmental r e s e a r c h , the s h o r t e r p e r i o d i n the case o f some acute care drugs, e.g., a n t i - i n f e c t i v e s , the longer where drugs are i n v o l v e d i n c h r o n i c use such as hypertension, and p e r i p h e r a l v a s c u l a r d i s e a s e . Such long developmental p e r i o d s s u b s t a n t i a l l y reduce the p e r i o d o f u s e f u l patent p r o t e c t i o n . 1

NEW INTERNATIONAL PATENT TREATIES Up t o the present, i t has been p o s s i b l e t o p r o t e c t the r e -

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s u i t s o f r e s e a r c h and development o n l y under the terms o f v a r i o u s n a t i o n a l l e g a l systems, each o f which provides f o r the issuance of a patent r e s t r i c t e d t o a given geographical t e r r i t o r y . Each country developed i t s own patent system and an i n t e r n a t i o n a l p o l i c y i n patent law was encouraged o n l y by the I n t e r n a t i o n a l Convention signed i n P a r i s i n 1883. E s s e n t i a l l y , t h i s Convent i o n gave an a p p l i c a n t i n any o f the member c o u n t r i e s a " r i g h t of p r i o r i t y " as t o the date o f the f i r s t a p p l i c a t i o n f i l e d i n h i s country. T h i s year, 1978, brought an end t o t h i s p e r i o d and the beg i n n i n g o f a new e r a i n patent p o l i c y . E f f e c t i v e t h i s year, app l i c a n t s seeking i n t e r n a t i o n a l patent coverage have the o p t i o n o f s e l e c t i n g from v a r i o u s f i l i n g procedures. These i n c l u d e the following: In June 1970 an I n t e r n a t i o n a l Agreement was signed i n Washington e n t i t l e d Patent f i l i n g and n o v e l t y searc throughout the world. In October 1973 an agreement was signed i n Munich by c e r t a i n European c o u n t r i e s e n t i t l e d European Patent Convention p r o v i d i n g f o r a f u r t h e r s i m p l i f i c a t i o n by p r o v i d i n g a s i n g l e examination procedure f o r the member c o u n t r i e s . F i n a l l y , i n December 1975 the nine member s t a t e s o f the Common Market signed an i n t e r n a t i o n a l convention p r o v i d i n g f o r the c r e a t i o n o f a Community Patent, i . e . , a s i n g l e patent v a l i d f o r a l l the Common Market c o u n t r i e s . These new i n t e r n a t i o n a l arrangements are so new t h a t the pharmaceutical i n d u s t r y has no e s t a b l i s h e d p r a c t i c e o r p o l i c y r e s p e c t i n g them. A few years hence, t h i s w i l l be an i n t e r e s t i n g area t o d i s c u s s . PATENT AND KNOW-HOW LICENSING Not a l l companies and o r g a n i z a t i o n s are able t o market drugs i n a l l c o u n t r i e s . And some small companies choose t o seek an a l l y before j o i n i n g the rough and tumble o f the marketplace. Some very p r o d u c t i v e r e s e a r c h o r g a n i z a t i o n s l i k e MCRF and SRI do not market a t a l l . Such gaps i n worldwide marketing c a p a b i l i t y coupled with excess marketing c a p a c i t y i n other markets, leads to another important p r a c t i c e o r p o l i c y i n the i n d u s t r y — l i censing a c t i v i t y . Most o f the companies mentioned do substant i a l patent and know-how l i c e n s i n g . Most o f these companies, i n the markets they s e r v i c e , have both the c a p a c i t y and a great need to market new p r o d u c t s , more products than t h e i r own r e s e a r c h and development groups can produce as w e l l as products i n f i e l d s i n which they l a c k r e s e a r c h competence. Thus, we i n the pharmaceutical i n d u s t r y seek l i c e n s e s from other companies o r from the government o r academic l a b o r a t o r i e s which cannot market. When new products are sought, the Scope and s t r e n g t h o f patent p r o t e c t i o n i s o f c r i t i c a l , o f t e n d e c i s i v e im-

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portance. I f the R&D investment necessary t o prove s a f e t y and e f f i c a c y has y e t t o be made, then only patented products are acceptable. E i t h e r e x c l u s i v e o r non-exclusive l i c e n s e s are accepta b l e , the choice depending on the investment to be made, the t e r r i t o r i a l scope o f r i g h t s a v a i l a b l e , the market p o t e n t i a l o f the product, and a number o f other f a c t o r s . PUBLICATION POLICY I n t e n s i v e use o f the patent system enables the pharmaceutic a l i n d u s t r y t o encourage i t s s c i e n t i s t s t o p u b l i s h r e s e a r c h r e s u l t s q u i c k l y and completely i n the s c i e n t i f i c l i t e r a t u r e . And patents themselves are important p u b l i c a t i o n s . P u b l i c a t i o n by the great corps o f i n d u s t r i a l s c i e n t i s t s has high s o c i a l value i n t h a t f u r t h e r r e s e a r c h i s both guided and motivated by p u b l i s h e d research r e s u l t s . POLICIES REGARDING LEGISLATION I t i s a l s o a p o l i c y o f the pharmaceutical i n d u s t r y t o defend the patent system i n the l e g i s l a t i v e area, both as a gene r a l s o c i a l p o l i c y , and i n terms o f the s p e c i f i c r o l e o f the system i n the worldwide pharmaceutical i n d u s t r y . From time t o time, v a r i o u s s p e c i a l i n t e r e s t groups and l e g i s l a t o r s have a t tacked the patent system, p a r t i c u l a r l y as i t r e l a t e s t o "drug patents" and other patents i n areas o f h i g h p u b l i c i n t e r e s t such as energy, p o l l u t i o n c o n t r o l , s a f e t y d e v i c e s . I t i s my o p i n i o n , and an i n t e l l e c t u a l and e t h i c a l b a s i s o f my p r o f e s s i o n a l a c t i v i t y , and i t i s the i n d u s t r y p o s i t i o n , t h a t , i n both p h i l o s o p h i c a l and p r a c t i c a l terms, a strong patent system serves the p u b l i c good. The patent system provides economic i n c e n t i v e s t o engage i n r e search and t o encourage investment. I t i s desirable that i n d i v i d u a l s and companies have i n c e n t i v e s , be s t r o n g l y motivated, and w e l l - f i n a n c e d i n those f i e l d s o f r e s e a r c h t h a t lead t o improvement i n medicine, h e a l t h care, the p r o d u c t i o n o f energy and enhancement o f s a f e t y . More importantly, o f high value t o the n a t i o n and i t s i n d i v i d u a l c i t i z e n s , progress needs t o be made i n these areas more than i n some areas o f gadgetry p a t e n t i n g where negative i n t e r e s t i s not generated i n the general p u b l i c and l e g i s l a t o r s . As f a t h e r s and mothers, sons and daughters, we want b e t t e r drugs f o r our f a m i l i e s — t o r e l i e v e p a i n , h e a r t Problems, cancer, and other s e r i o u s diseases — and we i n d i v i d u a l s i n the pharmaceutical i n d u s t r y want to preserve the patent i n c e n t i v e because i t enables f u r t h e r r e s e a r c h and development to be done. The i n d u s t r y operates i n the l e g i s l a t i v e area through the usual type o f trade a s s o c i a t i o n , i n t h i s case, the Pharmaceutical Manufacturers A s s o c i a t i o n (the "PMA"), through i n t e r n a t i o n a l a s s o c i a t i o n s and through ad hoc committees. For i n s t a n c e , an i n t e r n a t i o n a l ad hoc committee r e c e n t l y prepared a b r i e f a g a i n s t a p r o p o s a l t h a t the P a r i s Convention (the b a s i c i n t e r n a t i o n a l

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t r e a t y t h a t provides the framework f o r much patent p r o t e c t i o n ) be amended a t the i n s i s t e n c e o f some l e s s e r developed c o u n t r i e s , t o p r o v i d e f o r e x c l u s i v e compulsory l i c e n s e s . T h i s i s f o l l y magnif i e d — the i n v e n t o r s ' p r o t e c t i o n would not only be n u l l i f i e d but given t o others and the innovator excluded. The r o y a l t y r a t e s i n compulsory l i c e n s e s have almost never r e f l e c t e d adequately the value o f the a f f e c t e d i n d u s t r i a l p r o p e r t y r i g h t s . Advocacy i n these areas i s g e n e r a l l y before n a t i o n a l l e g i s l a t i v e bodies, such as the U.S. Congress, European p a r l i a m e n t s , and the United Nations. The r e c e n t enactment o f c e r t a i n l e g i s l a t i o n and recent c o u r t a c t i o n have provided some heartening news - patent p r o t e c t i o n f o r drugs has gained some governmental support where i t had not exi s t e d b e f o r e . The European Common Market supports pharmaceutic a l patents as do most i n d u s t r i a l i z e d n a t i o n s . Under Common Market p r e s s u r e , i n I t a l y c r i m i n a t i o n a g a i n s t dru law and t h a t drugs should have equal p r o t e c t i o n under the o l d law. In 1968 Germany amended i t s patent law t o permit product p r o t e c t i o n f o r chemical i n v e n t i o n s i n c l u d i n g pharmaceutical i n v e n t i o n s . In 1976, Japan followed s u i t , p r o v i d i n g product patent p r o t e c t i o n . P r i o r t o amending t h e i r laws, both Germany and Japan had strong patent systems. Yet w i t h the r a p i d progress o f t h e i r domestic technology and the i n d u s t r i a l i z a t i o n o f t h e i r country, these c o u n t r i e s deemed i t a d v i s a b l e t o provide even stronger patent systems. Other i n d u s t r i a l i z e d c o u n t r i e s such as S w i t z e r land and Holland are moving i n the same d i r e c t i o n , and t h i s year the c o u n t r i e s w i l l permit product p r o t e c t i o n f o r pharmaceutical inventions. There i s a c o n t r a r y movement a l s o , s i n c e a number o f developi n g c o u n t r i e s have undertaken changes i n t h e i r l e g i s l a t i o n w i t h a c l e a r i n t e n t towards weakening o r a b o l i s h i n g patent p r o t e c t i o n i n t h e i r c o u n t r i e s . F o r example, Mexico, i n 1976, i n e f f e c t , a b o l i s h e d patent p r o t e c t i o n f o r pharmaceutical i n v e n t i o n s by p r o v i d i n g i n t h e i r law t h a t only c e r t i f i c a t e s o f i n v e n t i o n s h a l l be granted f o r i n v e n t i o n s d e a l i n g with pharmaceuticals. In other developing c o u n t r i e s , process patents o n l y may be obtained even though the i n v e n t i o n r e s i d e s i n a novel pharmaceutical compound. In the United Kingdom, a new patent law w i l l not c o n t a i n t h e i r a r c h e t y p i c a l pharmaceutical compulsory l i c e n s i n g p r o v i s i o n ; the B r i t i s h have r e a l i z e d t h a t such compulsory l i c e n s i n g c o n s t i t u t e s bad p u b l i c p o l i c y . Perhaps the Canadians w i l l one day come to the same c o n c l u s i o n .

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Meanwhile, the pharmaceutical industry, and most of us in i t , w i l l strongly support and try to maintain and to improve the operation of the patent system in the health care area. GOVERNMENT PATENT POLICY Some of the existing governmental p o l i c i e s , particularly those of the Department of Health, Education, and Welfare (HEW), are of importance to the pharmaceutical industry. The licensing policies of HEW which are of most importance to our industry, are quite reasonable and are reasonably administered. Our interests center in two areas — f i r s t , the development and distribution of drugs where the relevant patents and know-how are held by the government or a government grantee, and second, the conduct of pharmaceutical research under government contract. In the f i r s t area, a developer can obtai ment for a limited perio research and development costs are usually great, and exclusivity for as long a time as possible is generally necessary, i t is the policy of industry generally to support existing HEW policy and proposed improvements to i t . Thus, to summarize, the principal patent policies of the pharmaceutical industry, which, in part, are also research planning p o l i c i e s , are: F i r s t : to seek in research to discover and to develop compounds and processes that are patentable. Second: to seek patents on new products and processes in many or a l l countries which afford meaningful patent protection and which constitute a s i g n i f i cant market for such products. Third: to seek patent rights from others through licensing to f u l l y u t i l i z e capacity to manufacture and to market. Fourth: to publish research results, relying on patents to protect proprietary interests. F i f t h : to advocate strong patent protection in legislative and regulatory forums throughout the world. Sixth: to support the existing governmental patent licensing policy of HEW. Abstract The small proportion of research intensive U.S. pharmaceutical companies having substantial research programs are dependent for financing on the a v a i l a b i l i t y of patent protection. Industrial research produces most new drugs selected from hundreds of candidate compounds. Because of high initial R&D and product registration costs, which must be repeated in most major countries, industrial pharmaceutical research must result in products which are patentable in multiple markets i n order to be

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economically viable. Research activity is geographically dispersed on a worldwide basis; regulatory pressure in the U.S. tends to shift some research investment overseas. The a v a i l a b i l i t y of patent protection also facilitates public use of research results. Biographic Notes Curtis W. Carlson has spent over 20 years in the pharmaceutical industry as a patent attorney engaged in patent prosecution, l i t i g a t i o n and licensing. At present he i s Patent Counsel and serves as the chief licensing lawyer for the B r i s t o l Myers pharmaceutical companies. Mr. Carlson has been admitted to the bar in New York, I l l i n o i s and Wisconsin. He has both an arts baccalaureate and a law degree from the University of Wisconsin. RECEIVED June 20, 1978.

In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

13 The Role of Patent Liaison in the Protection of Intellectual Property DONALD R. SCHULTZ and J. WADE VAN VALKENBURG 3M Company, Central Research Laboratories, P. O. Box 33221, St. Paul, MN 55133

Is it possible for a s c i e n t i f i c a l l trained invento d legally trained patent attorne prosecute a viable paten application educational backgrounds of these two people, do they speak and understand the same language? Are there barriers to communication? Are there problems? The Supreme Court, as long ago as 1892, signaled the existence of a problem when they stated (1): "The specification and claims of a patent, particularly if the invention be at all complicated, constitute one of the most d i f f i c u l t legal instruments to draw with accuracy; and in view of the fact that valuable inventions are often placed in the hands of inexperienced persons to prepare such specifications and claims, it i s no matter of surprise that the latter frequently f a i l to describe with requisite certainty the exact invention of the patentee, and err either in claiming that which the patentee had not in fact invented, or in omitting some element which was a valuable or essential part of his actual invention." Was the problem alluded to by the Court p a r t i a l l y a problem of communication? Some time ago, at a seminar on patents conducted by patent attorneys and attended by scientists, a young scientist asked the question: "Why aren't patent claims written in understandable English?" A senior attorney succinctly replied, "They are!" Now i t begins to sound as ' i f there is a communication problem. But, i s the communication problem just between the patent attorney and the scientist? Consider the following statement by the late Judge Smith, Associate Justice of the Court of Customs and Patent Appeals (2): "Those who may be called upon to adjudicate the v a l i d i t y of the patent granted thereon for the most part are nontechnically trained." A burden i s created on both the attorney and the inventor to write a patent application in language which i s legally and technically sound, yet of ultimate c l a r i t y to the "non-technical" audience. To lighten this burden, we recommend the incorporation 0-8412-0454-3/78/47-081-131$05.00/0 © 1978 American Chemical Society In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

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o f the "Patent L i a i s o n F u n c t i o n " i n t o the system. In developing t h i s p r o p o s a l we w i l l d i c u s s four aspects: 1. The Communication Problem, 2. Why Pursue Patent P r o t e c t i o n ? 3. The Role of Patent L i a i s o n , 4. The Q u a l i f i c a t i o n s f o r Patent L i a i s o n Work. 1.

The Communication Problem

A s c i e n t i s t , through h i s education and t r a i n i n g , i s taught, yes, even brainwashed, i n t o t h i n k i n g and communicating i n the p a s s i v e v o i c e . T h i s i s a l e a r n e d form of modesty, and when he becomes recognized by h i s p e e r s , he gets a pat on the back. A d d i t i o n a l l y , he i s expected t o be l o g i c a l . A s c i e n t i s t , a f t e r running 23 experiments, i n d e s p e r a t i o n , f i n a l l y p i c k s up some "serendipate behold, gets a y i e l d o the energy shortage problem. His mind immediately goes to work w i t h computer-like speed, and he s t a t e s t h a t o b v i o u s l y , when one c o n s i d e r s the d o r b i t a l s , the "serendipate" would c a t a l y z e the r e a c t i o n . Such a statement would send i n t o o r b i t any s e l f r e s p e c t i n g patent agent or a t t o r n e y . For the l e g a l mind, the words " o b v i o u s l y , i n h e r e n t l y , t h e o r e t i c a l l y or quantum mechanical model" are enough t o send him home i n a p a r t i c u l a r l y f o u l mood. For the s c i e n t i s t , "whereas, h e r e i n b e f o r e , s a i d , comprising, c o n s i s t i n g e s s e n t i a l l y o f , " and s i m i l a r l e g a l j a r g o n , r a i s e the blood p r e s s u r e . And so, we recognize t h a t c e r t a i n words r a i s e red f l a g s . In comparing the backgrounds and experiences o f lawyers and s c i e n t i s t s , i t appears t h a t most s c i e n t i s t s , e s p e c i a l l y young ones, have l i t t l e or no t r a i n i n g i n patent l i t e r a t u r e , are not aware o f the requirements o f p a t e n t a b i l i t y , nor are they aware o f the r i g h t s c o n f e r r e d by p a t e n t s . On the other hand, although most patent a t t o r n e y s have t e c h n i c a l degrees, very few have p r a c t i c e d as s c i e n t i s t s or engineers p r i o r to becoming a t t o r n e y s . T h e i r primary language and understanding i s the law as opposed to s c i e n c e . Hence, we have the s c i e n t i s t and lawyer, each w i t h d i f f e r e n t backgrounds and languages, t r y i n g to communicate on a common ground. I t i s small wonder that c o n f r o n t a t i o n and confusion f r e q u e n t l y r e s u l t . Probably, the most d i f f i c u l t aspect of patent work f o r the attorney i s s e t t i n g the scope o f an i n v e n t i o n . No s e l f r e s p e c t i n g s c i e n t i s t ever wants to admit t h a t h i s i n v e n t i o n i s i n s i g n i f i c a n t , and so he s t r e t c h e s and s t r e t c h e s , and i n so doing encompasses a l l s o r t s o f p r i o r a r t . P r i o r a r t t o the s c i e n t i s t seems t o be nonexistent unless an experiment i s done p r e c i s e l y as he, h i m s e l f , d i d i t . However, t o the a t t o r n e y , t h a t p r i o r a r t i s most important because he knows what the patent examiner w i l l do with i t . And so, we have another example o f the l a c k o f mutual understanding between the s c i e n t i s t and

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attorney. Now, there are exceptions t o t h i s r u l e . For example, i n those i n d u s t r i e s where a l l patentable matter i s i n one or two areas o f technology, an attorney can s p e c i a l i z e i n these t e c h n o l ogies and l e a r n t o communicate w e l l . But, i n a company t h a t d e a l s w i t h many d i v e r s e t e c h n o l o g i e s , the communication problem between the attorney and s c i e n t i s t can be severe. For example, i n a company such as 3M, patent attorneys and agents i n a s i n g l e year have worked on a p p l i c a t i o n s i n v o l v i n g unique f l u o r o c h e m i c a l s , adhesives, tapes, magnetic m a t e r i a l s , e l e c t r o n beam l a s e r s , copy media, p y r o e l e c t r i c m a t e r i a l s , a b r a s i v e s , ceramic m a t e r i a l s , d e n t a l plaque, F r e s n e l l e n s , r a d i a t i o n s h i e l d s and s o l a r c o l l e c t o r s , to name a few. To expect an attorney t o master the m u l t i p l i c i t y o f s c i e n t i f i c d i s c i p l i n e s and technologies i n v o l v e d i n such d i v e r s e technologies i s a g i g a n t i c burden. 2.

Why

Pursue Patent P r o t e c t i o n

L e t us q u i c k l y review the purpose o f a patent. The d e c i s i o n to f i l e and prosecute a patent a p p l i c a t i o n i s a business d e c i s i o n , j u s t as the d e c i s i o n t o conduct r e s e a r c h and development i s a business d e c i s i o n . The s u c c e s s f u l p r o s e c u t i o n r e s u l t s i n a c o n t r a c t between an i n v e n t o r or h i s assignee and a government. T h i s c o n t r a c t i s known as l e t t e r s patent, and i n more p r e c i s e terms: "A patent i s a c o n t r a c t between
The Patent L i a i s o n Role The person performing

the r o l e o f patent l i a i s o n must be

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s i g n i f i c a n t a i d t o the i n v e n t o r , the a t t o r n e y and management i f the f u n c t i o n i s t o be v i a b l e . As an a i d t o the i n v e n t o r , patent l i a i s o n may p r o v i d e guidance i n d e f i n i n g the i n v e n t i o n and suggesting experiments t o e s t a b l i s h i t s scope. Patent l i a i s o n may a l s o be r e q u i r e d t o search out and i n t e r p r e t the p r i o r a r t . S c i e n t i s t s seem t o be able t o read t e c h n i c a l j o u r n a l s , but they are w o e f u l l y inadequate when i t comes t o reading and i n t e r p r e t i n g the patent l i t e r a t u r e . F r e q u e n t l y , i t may be necessary f o r patent l i a i s o n t o w r i t e a t e c h n i c a l working document i n language t h a t can be u t i l i z e d by the a t t o r n e y . F i n a l l y , he may be r e q u i r e d t o i n t e r p r e t requests f o r data from the patent a t t o r n e y , and he may have t o work w i t h the i n v e n t o r t o d e v i s e a means f o r p r o c u r i n g such data. As an a i d t o the a t t o r n e y , patent l i a i s o n must serve as an e x p e d i t o r i n schedule s e t t i n g and a s s e s s i n g p r i o r i t i e s , as an i n t e r p r e t e r and conveye ments, as a teacher o f develop language f o r the patent a p p l i c a t i o n and as an e x p e d i t o r to make sure t h a t a d r a f t o f an a p p l i c a t i o n r e c e i v e s prompt review by the s c i e n t i s t . As an a i d t o management, the patent l i a i s o n must take a l l the necessary steps t o a i d i n the procurement o f e n f o r c e a b l e patents which cover the business e n v i s i o n e d . The word " e n f o r c e able" i s key here; the patent l i a i s o n must be aware o f the p r i o r a r t , monitor records so t h a t evidence f o r conception, d i l i g e n c e and c o r r o b o r a t i o n are w e l l documented; he must c o n t r o l d i v u l g a t i o n so t h a t f o r e i g n r i g h t s are not compromised, and he must be sure t h a t patent claims are broad enough t o p r o t e c t the a n t i c i p a t e d b u s i n e s s . He must a l s o be a c o n t r o l l e r and be aware o f marketing. There i s not much p o i n t i n t a k i n g a case t o the Board o f Appeals or higher i f the i n v e n t i o n i s not going t o produce some revenue. F i r s t o f a l l , i t c o s t s money and, secondly, but more important, i t may t i e up an a t t o r n e y , a s c i e n t i s t , patent l i a i s o n and management when more important p o t e n t i a l business should be p r o t e c t e d . A c t u a l l y , g e t t i n g patent coverage i s l i k e p l a y i n g poker. I t ' s important t o know when t o f o l d your hand when the c o s t - b e n e f i t r a t i o i s i n danger o f g e t t i n g out o f c o n t r o l . Or, c o n v e r s e l y , i t i s important t o know when t o "go the l i m i t " when the stakes are high. 4.

The Q u a l i f i c a t i o n s f o r Patent L i a i s o n

The q u a l i f i c a t i o n s which are b a s i c requirements f o r the patent l i a i s o n f u n c t i o n can be summarized i n three c a t e g o r i e s : 1. Knowledge 2. Image 3. Communication s k i l l s The most d e s i r a b l e knowledge i n c l u d e s t e c h n i c a l t r a i n i n g and experience, an understanding o f the U.S. and f o r e i g n patent

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system, an a p p r e c i a t i o n f o r trade s e c r e t s , an awareness o f c o r porate and business goals and b a s i c knowledge i n management s k i l l s and i n t e r p e r s o n a l r e l a t i o n s h i p s . In s e l e c t i n g the person f o r the patent l i a i s o n f u n c t i o n the image o f the person i s most important i f the p o s i t i o n i s t o be v i a b l e . T e c h n i c a l competency, peer r e s p e c t and p l e a s a n t persona l i t y are primary requirements. A d d i t i o n a l l y , the person must possess t a c t f o r he must d e a l e f f e c t i v e l y w i t h the goals o f management, the i n v e n t o r and patent c o u n s e l . He must be w i l l i n g to serve without c r e d i t ; s e l f - g r a t i f i c a t i o n r e s u l t s from knowing t h a t h i s e f f o r t s c o n t r i b u t e d to the success o f o t h e r s . I t i s a matter o f f a c t t h a t , i f a p r o j e c t i s a huge success, business management w i l l r e c e i v e a preponderance o f c r e d i t which i s g e n e r a l l y r e f l e c t e d onto t e c h n i c a l management and the i n v e n t o r o r i n v e n t o r s . U n f o r t u n a t e l y , the a t t o r n e y i s f r e q u e n t l y f o r gotten when managemen does g a i n s t a t u r e amon the claims and p r o s e c u t i n g the a p p l i c a t i o n t o issuance o f the patent. I f the patent l i a i s o n i n d i v i d u a l i s one who r e q u i r e s a continued pat on the back and continued c r e d i t f o r a job w e l l done, he i s not s u i t e d f o r the job. He must be a c o n f i d e n t i n d i v i d u a l who i s s u f f i c i e n t l y s e l f - m o t i v a t e d t h a t continued c r e d i t i s not a n e c e s s i t y . Such i s the way o f l i f e o f a s t a f f f u n c t i o n . As i n d i c a t e d p r e v i o u s l y , s e l f - m o t i v a t i o n and g r a t i f i c a t i o n come from knowing t h a t h i s e f f o r t s c o n t r i b u t e d to the success of o t h e r s . F i n a l l y , we should l i k e to emphasize t h a t patent l i a i s o n must possess e x c e l l e n t communication s k i l l s . Both o r a l and w r i t t e n communications must be w e l l organized so t h a t the i n f o r mation w i l l be meaningful to the i n v e n t o r , the a t t o r n e y or manage*ment. I t i s important to r e a l i z e t h a t each r e c e i v e r o f i n f o r mation may r e q u i r e a d i f f e r e n t type of p r e s e n t a t i o n . Conversely, the patent l i a i s o n must be a good l i s t e n e r w i t h a b i l i t y t o f e r r e t out and analyze i n f o r m a t i o n . A l s o , s e l l i n g s k i l l s w i l l be r e q u i r e d to convince each o f the t r i o of the value o f the o t h e r s ' requirements. Why would anyone with a l l these g r e a t q u a l i t i e s want t o take on a job such as patent l i a i s o n ? Corporate r e s p o n s i b i l i t y e n t a i l s p r o v i d i n g t o the patent l i a i s o n a good s t a t u s as shown by w e l l - a p p o i n t e d o f f i c e and s e c r e t a r i a l h e l p , an e x c e l l e n t s a l a r y and evidence o f r e l i a n c e upon the f u n c t i o n and the function's a c t i v i t i e s . Since the requirements f o r patent l i a i s o n suggest extensive t e c h n i c a l experience, e.g., 10 to 15 years i n the c o r p o r a t i o n , the p o s i t i o n i s a second c a r e e r p o s s i b i l i t y . Hence, although the p o s i t i o n i s extremely c h a l l e n g i n g , i t i s a l s o very a t t r a c t i v e . Patent l i a i s o n serves as a r i g h t arm f o r management, the i n v e n t o r and the a t t o r n e y . The r e s u l t i s e x p e d i t i o u s f i l i n g and p r o s e c u t i o n o f patent a p p l i c a t i o n s . In a d d i t i o n , the patent l i a i s o n person may serve as a " b i r d dog" who can suggest to

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management further developments or newer areas of research. The attention and recognition of technology by patent liaison gives stature to the inventor, providing c r i t i c a l review of the tech­ nical aspects of patent applications as well as prior art, and thus aiding in preparing viable and defensible patents. To the corporation, the patent liaison efforts enhance the protection of future business and resulting p r o f i t s . Obviously, the communication problems alluded to herein are immense and the solution of incorporating into the system the patent liaison function sounds almost too ideal. Yet, by careful selection of the candidate for the role, viable operations do ensue as evidenced by successful operations in such corporations as 3M, Dow, P h i l l i p s Petroleum, Kodak and other companies. Abstract The protection of intellectua enforceable patents encourages industry to develop new technology, thereby stimulating sales, p r o f i t s , the economy and the creation of new jobs. In diversified technological industries, the pro­ tection of intellectual property i s exceedingly complex. The subject matter is frequently very complicated, and the v a l i d i t y of patents often must be adjudicated before non-technically trained judges. If the traditional direct interaction between attorney and inventor i s expanded to include a patent liaison l i n k , a more viable approach to protecting intellectual property is obtainable. This paper describes how technically competent, t a c t f u l , legally-aware patent liaison can assist the inventor, patent counsel and management in defining inventions, developing adequate support documents, devising supporting experiments and preparing and prosecuting patent applications. Literature Cited 1. 2. 3.

Topliff ν Topliff, 145 US 156 (1892) "Pitfalls i n the Patent Prosecution" 41 J . P . O . S . 5 (1959) Patent Law Fundamentals by Peter D. Rosenberg, Clark Boardman Co. N.Y. (1975) at page 10

Biographic Notes J. Wade Van Valkenburg obtained his doctorate i n surface and colloid chemistry at the University of Michigan. He worked as manager of patent administration at the Dow Chemical Company before joining the 3M Company where his present position is patent l i a i s o n . He i s studying currently for the law at William Mitchell College of Law.

In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

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Donald R. Schultz is presently senior patent liaison at the 3M Company Central Research Laboratories. He has a doctorate i n inorganic chemistry awarded by the University of Michigan and served for five years as patent liaison at 3M before assuming his present position. RECEIVED June 20, 1978.

In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

Panel Discussion

QUESTION: Assumin m i n i s t r a t i o n (FDA) approval t o market a new drug covered by patent claims, must another company wishing t o market t h i s same drug o b t a i n c l e a r a n c e again through submission o f a New Drug A p p l i c a t i o n (NDA), and i n c l u d e evidence o f e f f e c t i v e n e s s , s a f e t y and use o f good manufacturing p r a c t i c e s ? MR. CARLSON : That i s not q u i t e t r u e . In a d d i t i o n t o comp l y i n g w i t h the good manufacturing p r a c t i c e s r e g u l a t i o n s , the second company would need t o o b t a i n an approval t o market such approval being d i f f e r e n t f o r c e r t i f i a b l e drugs, b a s i c a l l y a n t i b i o t i c s , from new drugs. With a n t i b i o t i c s proof o f the i d e n t i t y of the second product w i t h the e x i s t i n g approved product i s s u f f i c i e n t . With new drugs i t i s necessary t o show s a f e t y and e f f i c a c y u s i n g the same procedures as the o r i g i n a l innovator d i d , unless i t ' s a drug t h a t ' s g e n e r a l l y recognized as safe and e f fective. In t h a t case there might be l e s s o f a burden. QUESTION ; Then a second company t h a t might decide t o i n f r i n g e a f i r s t company's patent may have t o go through e s s e n t i a l l y the same procedures with the FDA. I s n ' t t h a t an a d d i t i o n a l prot e c t i o n f o r the f i r s t company? MR. CARLSON: I t i s a form o f p r o t e c t i o n , although the second company need not always be as d e t a i l e d as the f i r s t i n the m a t e r i a l submitted t o FDA. QUESTION : I t i s my understanding t h a t , once a drug i s approved by FDA, another company marketing the same drug a f t e r the patent e x p i r e d would not have t o go through the complete t o x i c i t y and e f f i c a c y t r i a l s , but would merely have t o show b i o e q u i v a l e n c y . And there's some q u e s t i o n about whether b i o equivalency would n e c e s s a r i l y have t o be shown f o r a l l such drugs. Is t h i s true?

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MR. CARLSON: What needs doing t o get marketing approval i s very complicated. Whether patent p r o t e c t i o n e x i s t s o r does not e x i s t i s not m a t e r i a l , because the e x i s t e n c e o f a patent, e x p i r e d o r not, makes no d i f f e r e n c e i n o b t a i n i n g a u t h o r i t y t o market. Unless the drug has achieved some s t a t u s and i s g e n e r a l l y recognized as safe and e f f e c t i v e , the t e s t i n g work needs t o be repeated. While some o f the work may need t o be repeated, and t h a t a f f o r d s a form o f p r o t e c t i o n , the c o p i e r need o n l y copy the s u c c e s s f u l t e s t i n g , not any u n s u c c e s s f u l work, and t h i s reduces tremendously the amount o f investment needed t o get drugs t o the market. COMMENT; A d i s t i n c t i o n needs t o be made between pre-1962 approvals and post-1962 approvals. Before 1962 a l l drugs were reviewed by a s p e c i a l panel o f the N a t i o n a l Research C o u n c i l which decided whether the viewed by t h i s panel ar viewed o r approved a f t e r 1962. Anyone who wishes t o manufacture or s e l l an unpatented safe and e f f e c t i v e drug approved before 1962 need o n l y f i l e data which proves t h a t he has adequate manu f a c t u r i n g and q u a l i t y c o n t r o l s . T h i s f i l i n g i s an Abbreviated New Drug A p p l i c a t i o n . FDA w i l l approve marketing on t h a t b a s i s . To o b t a i n clearance t o market a drug approved a f t e r 1962 one must present s a f e t y and e f f i c a c y data. T h i s i n c l u d e s c l i n i c a l e f f i c a c y , t o x i c o l o g y and a l l the other r e q u i r e d evidence o f the same q u a l i t y as t h a t presented f o r i n i t i a l approval o f t h a t drug. A number o f "grandfather" drugs, which were being marketed much e a r l i e r , r e q u i r e l e s s i n f o r m a t i o n than the pre-1962 approved drugs. QUESTION; How do companies g e n e r a l l y decide whether t o f i l e patent a p p l i c a t i o n s ? I f i t i s a committee d e c i s i o n , what i s the composition o f the committee? MR. WHALEY; A t Texaco i t i s a combination o f t e c h n i c a l l i a i s o n men and patent a t t o r n e y s , but no r e p r e s e n t a t i v e o f the r e s e a r c h and development (RSD) department. However, R&D s comments and i t s p r e l i m i n a r y e v a l u a t i o n o f the i n v e n t i o n i s considered by the committee. 1

QUESTION : There has been some controversy as t o where the patent department should r e p o r t i n an i n d u s t r i a l company. Should i t r e p o r t t o a corporate counsel o r should i t r e p o r t t o the r e s e a r c h and devlopment d i r e c t o r ? How does the patent l i a i s o n person f i t i n t o t h i s o r g a n i z a t i o n a l s t r u c t u r e ? DR. VAN VALKENBURG; The o r g a n i z a t i o n a l s t r u c t u r e and r e p o r t i n g l i n e s w i l l vary from company t o company. A t Dow, as Manager o f Patent A d m i n i s t r a t i o n , I had dual l i n e r e p o r t i n g , s i n c e I r e p o r t e d t o both the V i c e P r e s i d e n t o f the d i v i s i o n , and t o

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Research, through the Research V i c e P r e s i d e n t . At the 3M Company, the T e c h n i c a l D i r e c t o r s have d i r e c t r e s p o n s i b i l i t y f o r p a t e n t s . So w i t h i n the o r g a n i z a t i o n the patent l i a i s o n people r e p o r t t o the T e c h n i c a l D i r e c t o r s . A t 3M the l e g a l arm has i t s own corporate v i c e p r e s i d e n t , and i s a separate e n t i t y , and the patent a t t o r n e y s do not r e p o r t to reseach and development. In d e c i d i n g about f i l i n g a patent a p p l i c a t i o n , the procedure i n v o l v e s the p r e p a r a t i o n o f a patent p r o p o s a l by patent l i a i s o n , a f t e r c o n f e r r i n g with l e g a l counsel as t o p a t e n t a b i l i t y , and then a business d e c i s i o n on f i l i n g a patent a p p l i c a t i o n i s made i n the l a b o r a t o r y . An a u t h o r i z a t i o n t o f i l e i s then given t o patent counsel. The l a b o r a t o r y i s charged f o r patent counsel's s e r v i c e s . MR. WEST; At Ford, engineering i s going on i n each o f the s e v e r a l o p e r a t i n g departments. Each o f these departments i s r e s p o n s i b l e f o r i t s own But i n v e n t i o n d i s c l o s u r e d i f f e r e n t Ford o r g a n i z a t i o n s around the world. centralized l e g a l department then w r i t e s up the U.S. patent a p p l i c a t i o n . DR. DOUGLAS ; At Gould the patent o r g a n i z a t i o n r e p o r t s t o the c h i e f l e g a l counsel but he has a very strong s t a f f r e l a t i o n ship to the d i r e c t o r or v i c e p r e s i d e n t of R&D. We do not have patent l i a i s o n people. The d e c i s i o n s on f i l i n g patent a p p l i c a t i o n s are made by a committee which i n v o l v e s the management o f any d i v i s i o n s t h a t happened t o have a business i n t e r e s t i n the i n v e n t i o n . With a t o t a l l y new t e c h n i c a l development Gould has a New Business d i v i s i o n , which would probably have r e p r e s e n t a t i o n on the committee. QUESTION ; Mr. Van Valkenburg, a t what p o i n t do the patent l i a i s o n people complete t h e i r work as communication l i n k s between the i n v e n t o r and the patent a t t o r n e y o r agent, a l l o w i n g these two people t o continue developing patent a p p l i c a t i o n s f a c e - t o - f a c e ? DR. VAN VALKENBURG; I t i s very c r i t i c a l t h a t the a t t o r neys and the i n v e n t o r s do get together. The l i a i s o n a c t i v i t y u s u a l l y phases out a f t e r the patent p r o p o s a l has been w r i t t e n . The patent attorney then g e n e r a l l y t a l k s t o the i n v e n t o r , g e t t i n g f i r s t - h a n d any a d d i t i o n a l i n f o r m a t i o n needed. The patent proposa l , as j u s t a working document, g i v e s b a s i c i n f o r m a t i o n which a i d s the a t t o r n e y a t the s t a r t . The attorney keeps the patent l i a i s o n people aware o f h i s progress so t h a t i n f o r m a t i o n can be obtained r e l a t i n g t o t e c h n i c a l or business p o i n t s which could help t o strengthen the patent claims i n l i g h t o f marketing requirements. 3M's patent attorneys are a l l corporate s t a f f members. QUESTION; Mr. Van Valkenburg, how do you r e c r u i t your patent l i a i s o n people? Do you l u r e them from research or other d i v i s i o n s w i t h i n the company, or do you h i r e them from o u t s i d e

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the company? DR. VAN VALKENBURG; The l a s t person we r e c r u i t e d f o r patent l i a i s o n was a p h y s i c i s t who had been i n our l a b o r a t o r y f o r 15 y e a r s . He had made a number o f i n v e n t i o n s t h a t had done w e l l , and was the unanimous choice o f the e x i s t i n g patent l i a i s o n s t a f f . He was asked i f he was ready f o r a second c a r e e r , and he accepted t h i s concept. I n a patent l i a i s o n o r g a n i z a t i o n , there i s a danger t h a t management, even though i t supports the f u n c t i o n , may wish to impose on the l i a i s o n group someone who has not worked out w e l l elsewhere i n the company. T h i s should be r e s i s t e d . The patent l i a i s o n person must be w e l l q u a l i f i e d and he has t o be so r e cognized as t h i s w i l l e s t a b l i s h s t a t u r e w i t h i n the o r g a n i z a t i o n so t h a t people w i l l a s p i r e t o the l i a i s o n p o s i t i o n . U s u a l l y people should have 10 t o 15 years o f experience w i t h i n the company company, thus b r i n g i n g pany as a whole. QUESTION : There has been some movement r e c e n t l y towards reforming the patent system. The p o i n t has been made today t h a t the a c t u a l v i a b l e l i f e o f a patent i s more n e a r l y f i v e t o seven years r a t h e r than the s t a t u t o r y 17 y e a r s . I s there any movement among patent attorneys t o r e v i s e the s t a t u t o r y l i f e o f a patent to make i t agree more with r e a l i t y ? MR. CARLSON: I know o f no such movement i n the pharmaceut i c a l i n d u s t r y . B i l l s have been introduced i n t o Congress which make the s t a t u t o r y l i f e o f a patent 17 years from the date o f f i r s t marketing r a t h e r than the date o f i s s u e o f the patent, b u t t h i s p r o v i s i o n does not have much support a t present from e i t h e r i n d u s t r y o r the patent b a r . RECEIVED

June

20, 1978.

In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

14 Impact of Patent Policies on Creativity in Industrial Research Laboratories ARVID V. ZUBER Standard Brands Inc., Betts Ave., Stamford, CT 96904

What I am going to and observations which the somewhat conflicting requirements of protecting intellectual property and fostering a creative environment. Protection requires restriction of the flow of information and the flow of personnel. Neither of these restrictions i s conducive to maximization of creative effort, which requires an open, largely unrestricted flow of information, both formal and informal. Let me i l l u s t r a t e . The Chemistry Department at Brookhaven National Laboratory was originally housed in buildings l e f t over from World War I . There were no offices for the majority of research personnel. There was a single, wide corridor adjacent to the laboratories with desks on one side and blackboards on the other. The result was a considerable amount of impromptu d i s cussions and conferences triggered by what appeared on a blackboard. Passers-by joined in or did not as their interests d i c tated. Wisely, when a new building was constructed, this arrangement was preserved. This made for an exceptionally open and unrestricted environment, thus stimulating others to provide new perceptions and different views, or to ask penetrating questions about many problems. Normal record keeping by the research personnel themselves was required but formal periodic reports were not, although informal reports at Departmental meetings were encouraged . Such an environment i s probably as open and unstructured as any research laboratory can hope to be. It is impossible to achieve such openness where retention of proprietary interest in the results is required. No matter what the nature of that proprietary interest i s , i t must be a documented interest. This requires formal recording of data, observations, solutions to problems and whatever else may be necessary to demonstrate that the knowledge for which a right i s asserted resides within the organization asserting that right. Thus, the staff must be d i s couraged from not recording ideas. Timely documentation i s important. Moreover, free exchange of ideas and data must be 0-8412-0454-3/78/47-081-145$05.00/0 © 1978 American Chemical Society In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

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l i m i t e d . At a minimum those made p r i v y to the data must understand and p r o t e c t i t s c o n f i d e n t i a l nature. At the extreme, both those h o l d i n g the data and any p o t e n t i a l r e c i p i e n t s of the data w i l l operate on a "need to know" b a s i s . That i s , i f there i s not a demonstrated need f o r the data i t i s n e i t h e r requested nor given. T h i s extreme s e r i o u s l y r e s t r i c t s the s t i m u l a t i o n o f thought t h a t new p e r s p e c t i v e s can b r i n g . Examination of the two extremes of p o l i c y , "Patent Everyt h i n g Patentable" and "Patent Nothing, Keep Everything S e c r e t " , shows t h a t both p o l i c i e s r e q u i r e record-keeping procedures t h a t meet c e r t a i n l e g a l requirements. Any prospective patent a p p l i c a t i o n always e n t a i l s the p o t e n t i a l n e c e s s i t y of e s t a b l i s h i n g the date o f and completeness of the i n v e n t i o n f o r patent p r i o r i t y purposes. T h i s n e c e s s i t a t e s complete and accurate d e s c r i p t i o n s o f the i n v e n t i o n and establishment o f i t s date of conception. Most attorneys discourag pany p r i o r to f i l i n g a i n v e n t i o n i s important, both l e g a l counsel and management may be r e l u c t a n t to l e t information out even a f t e r an a p p l i c a t i o n i s f i l e d i n order t o preserve any t e c h n o l o g i c a l lead the company may have. Such secrecy may be i n c o n f l i c t with the inventor's d e s i r e f o r r e c o g n i t i o n outside h i s own l a b o r a t o r y . I t can be a p a r t i c u l a r l y t r y i n g circumstance when the inventor must remain s i l e n t while academic i n v e s t i g a t o r s p u b l i s h work which he has a l r e a d y done. I f the p o l i c y i s "Patent Nothing, Keep Everything S e c r e t " the r e c o r d keeping becomes even more onerous. Not only must the prop r i e t a r y i n t e r e s t be documented, the f a c t that i t was regarded as and t r e a t e d as a trade s e c r e t must a l s o be documented. T h i s r e q u i r e s t h a t only those who need to know do know the trade sec r e t , and unquestionably a l s o r e q u i r e s that any d i s c l o s u r e s outs i d e o f the company be under a w r i t t e n c o n f i d e n t i a l i t y agreement. The requirements of such a p o l i c y are considerably more r e s t r i c t i v e than a p o l i c y r e q u i r i n g the p a t e n t i n g of i n v e n t i o n s . L e t us look f o r a moment at the e f f e c t s of patent p o l i c y on the i n v e n t o r , the r e p o s i t o r y of the c r e a t i v i t y t h a t we are d i s c u s s i n g . While I have never seen a "Patent Everything" p o l i c y w r i t t e n out, I have seen p o l i c i e s t h a t come c l o s e to i t . Such a p o l i c y has s e v e r a l i n t e r e s t i n g e f f e c t s , not the l e a s t of which i s much i n c r e a s e d competition f o r the resources necessary t o do r e search. T h i s makes research d i r e c t i o n d i f f i c u l t ; i f the organizat i o n i s o f any s i z e , there i s much "noise" i n the system. The l e s s c r e a t i v e workers are i n c r e a s i n g l y r e l u c t a n t to give up on anything t h a t shows any promise and they t r y hard to s e l l t h e i r i d e a s . There i s an increased tendency to a s s e r t i n d i v i d u a l r i g h t s to ideas which may p r o p e r l y be a s c r i b e d to a group e f f o r t . Unless management separates the b e t t e r workers from the l e s s promising, the more c r e a t i v e researchers become i n c r e a s i n g l y disenchanted w i t h the i n e v i t a b l e p o l i t i c a l maneuvering. Unless management i s p a r t i c u l a r l y astute what i s thought to encourage p r o d u c t i v i t y may

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have a d i s c o u r a g i n g e f f e c t on c r e a t i v i t y . Let us take a l i t t l e c l o s e r look a t a c r e a t i v e i n d i v i d u a l i n such a s i t u a t i o n . I was once working, as patent counsel, w i t h a small group o f research chemists assigned t o a common p r o j e c t . I t had, on t h i s occasion, bogged down. New ideas were needed. We were i n a group conference d i s c u s s i n g the problem. As a t t o r neys w i l l , I n o t i c e d t h a t one group member, who apparently was only c a s u a l l y engaged i n the d i s c u s s i o n t o the extent o f an occ a s i o n a l q u e s t i o n , was asking questions i n a d e f i n i t e p a t t e r n and with d e f i n i t e d i r e c t i o n . I t was c l e a r t h a t he knew the answer but was not going t o v o i c e i t . By the end o f the s e s s i o n h i s quest i o n s had l e d the group t o the c o r r e c t answer. When i t came time to f i l e the patent a p p l i c a t i o n there was c o n s i d e r a b l e sentiment w i t h i n the group t h a t t h i s i n d i v i d u a l had made no s i g n i f i c a n t cont r i b u t i o n and should not be i n c l u d e d as an i n v e n t o r . I t was years l a t e r on reading o f s t u d i e ative c h i l d that I r e a l i s e s t u d i e s reported t h a t the group had f i r s t t o r e j e c t the ideas o f a c r e a t i v e c h i l d before adopting them. The astute c r e a t i v e i n d i v i d u a l i s apt t o avoid t h i s f r u s t r a t i n g experience by l e a d i n g others t o the answer, a v o i d i n g d i f f i c u l t i e s which might a r i s e on a more d i r e c t approach. F a i l u r e t o i n c l u d e t h i s unagressive but h i g h l y c r e a t i v e i n d i v i d u a l as an i n v e n t o r c o u l d have had a d i s t i n c t l y negative e f f e c t . P o l i c y i s o n l y a guide, no matter how e n l i g h t e n e d . I t must be implemented and i t s implementation depends upon human b e i n g s , those human beings we c a l l "management". L e t us look again a t a "Patent E v e r y t h i n g " l a b o r a t o r y management and the s e t t i n g o f p r o f e s s i o n a l standards. An i n e v i t a b l e r e s u l t o f such a p o l i c y , whether the p o l i c y i s e x p l i c i t l y s t a t e d o r i m p l i e d by management a c t i o n s , i s t h a t sheer numbers become important. Quantity, n o t q u a l i t y , becomes the c r i t e r i o n . The r e s u l t i s a lowering o f the q u a l i t y o f data deemed to be adequate. Emphasis i s on g e t t i n g a job "completed" and t h i s soon degenerates t o demonstrating simply that something can be done. Every patent attorney has seen the type o f work t h a t r e s u l t s ; the d e s c r i p t i o n o f the i n v e n t i o n cont a i n s l i t t l e o r no reference t o a p p l i c a b l e l i t e r a t u r e , a s i n g l e experiment, o r a t best a few experiments and no data d e f i n i n g ranges o f key v a r i a b l e s o r c o n d i t i o n s . A patent, i f any i s i s sued a t a l l , based on such data i s apt t o be weak and e a s i l y avoided. I t may be that more i s given away than p r o t e c t e d . Conf l i c t s a r i s e between inventor and attorney when questions such as "Why can't our attorneys get patents on such data when our comp e t i t o r s can?" are asked. I t does not make f o r a p r o d u c t i v e environment unless numbers are the game and a l l p l a y i t . However, t h i s game wastes both monetary and human r e s o u r c e s . I f a patent p o l i c y i s going t o be p r o d u c t i v e , c r e a t i v i t y must come f i r s t , the q u a l i t y o f the work must be h i g h and good work and i t s source must be recognized. I f t h i s i s done, good patents w i l l r e s u l t . On occasion s k i l l e d d r a f t i n g and p r o s e c u t i o n can mend i n -

American Chemical Society Library 1155

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adequate data, but these s i t u a t i o n s are few. On the whole a patent can be no b e t t e r than the data on which i t i s based. Recognit i o n o f the source of good work i n c l u d e s a l l of the usual means, such as promotion i n rank and monetary rewards. Recognition must be given p r o p e r l y . The i n d i v i d u a l s w i t h i n an o r g a n i z a t i o n always know who the best are, probably b e t t e r than management. I f the most c r e a t i v e i n d i v i d u a l s are not recognized, management i s r e warding something other than c r e a t i v i t y . Whatever that f a c t o r may be, t h a t w i l l be what the m a j o r i t y w i l l s t r i v e f o r . I t w i l l become the unwritten but understood c r i t e r i o n f o r success i n t h a t organization. In speaking of r e c o g n i t i o n , d i r e c t monetary awards to invent o r s needs mentioning. Proponents of t h i s type of reward b e l i e v e t h a t c r e a t i v i t y would be f o s t e r e d . D i r e c t monetary rewards c e r t a i n l y could be p a r t of any patent p o l i c y , but, p e r s o n a l l y , I have great d i f f i c u l t y wit t h a t p r o j e c t s are assigne the r e s e a r c h . The t r u l y c r e a t i v e people are a precious few. Good management i s apt to reserve them f o r p r o j e c t s where immediate r e s u l t s are r e q u i r e d . I have known cases where s c i e n t i s t s of l i t t l e more than average a b i l i t y have made i n v e n t i o n s of considerable economic importance because management could a f f o r d to assign them to long-term p r o j e c t s . P r o v i d i n g high rewards f o r such e f f o r t s i s akin to a l o t t e r y . Such rewards are not apt to f o s t e r a c l i mate i n which i n d i v i d u a l s f e e l rewards stem from e x c e l l e n c e r a t h er than from the luck of the draw. Consequently, I have very deep and profound doubts t h a t d i r e c t monetary awards are apt to make a p o s i t i v e c o n t r i b u t i o n t o a c r e a t i v e environment. In summary, I doubt t h a t a patent p o l i c y o f i t s e l f can have a very profound e f f e c t on c r e a t i v i t y i n a research o r g a n i z a t i o n . Wisely and e q u i t a b l y implemented, a patent p o l i c y can provide a necessary d i s c i p l i n e i n record keeping and r e p o r t i n g , and a recogn i t i o n t h a t research i s an economically important endeavor. Withi n my experience the more c r e a t i v e i n d i v i d u a l s have the c u r i o s i t y r e q u i r e d f o r thorough e x p l o r a t i o n o f a problem. Indeed, i t appears t h a t major breakthroughs have come only a f t e r an i n d i v i d u a l has become t o t a l l y immersed i n a l l aspects o f a p r e v i o u s l y uns o l v a b l e problem. Regular record keeping i s not n e c e s s a r i l y an irritation. P r o p e r l y approached i t r e q u i r e s t h a t an i n v e s t i g a t o r take the time to r e f l e c t on h i s data and i t s meaning. Consequentl y , i t i s d o u b t f u l t h a t the mechanical requirements of a patent p o l i c y have any profound impact. As always, when d e a l i n g with questions o f c r e a t i v i t y , we come back t o the human element. I t i s not what a patent p o l i c y i s t h a t i s important, i t i s what t h a t p o l i c y i s p e r c e i v e d to be t h a t i s important. What management communicates then a l s o becomes import a n t . A p r o d u c t i v e patent p o l i c y must be based on a commitment to c r e a t i v i t y and must provide an environment t h a t f o s t e r s c r e a t i v e a c t i v i t y . There i s no d i f f i c u l t y i n w r i t i n g such a p o l i c y s t a t e ment; the d i f f i c u l t y i s i n implementing i t . There i s no reason

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why formal procedures, other than those necessary to safeguard secrecy, should be inconsistent with the practice of good scient i f i c research. The human element is what is important. Do management actions communicate a commitment to excellence, a w i l l ingness to permit attempts at new solutions, and an accurate appraisal of individual contributions coupled with commensurate awards? Does management communicate enthusiasm for good work and a sense that i t i s important? These are elements of patent policy which cannot be written, but which are the keys to the effective use of the people i n creative organizations. Abstract Patent policy i s part of a broader policy relating to the protection and use of intellectual property, including patentable and patented inventions may or may not be patentable requiring an appropriate environment. Such an environment must be relatively informal, unstructured and open. A patent policy is protective and tends to be formal, structured and, where there i s a necessity for secrecy, closed. Patent policy provisions should try to maximize creative efforts as well as maximize the protection of the products of those efforts. Patent policy provisions should also recognize the requirements of the individual, the law and the company. These requirements include recognition and career advancement for inventors; record keeping, determination of inventorship, and other legal matters; and protection of proprietary rights and the income from those rights for the company. The relationship of these factors i s explored through examples and examination of the effects of overly broad policies such as "Patent everything patentable" and "Patent nothing, keep everything secret". Biographic Notes Arvid V. Zuber has a baccalaureate in chemistry from Iowa State University, a doctorate in physical chemistry from Columbia University and an LL.B. from Fordham University School of Law. He has done research in radiochemistry at Brookhaven National Laboratory; been involved in patent prosecution and licensing, and corporate administration at the Union Carbide Company; and served as a corporate officer and director of Marion Laboratories, Inc. Currently he i s chief patent counsel at Standard Brands, Inc. He i s a member of many honorary and professional associations and a past president of the Drug Chemical and A l l i e d Trades Association. RECEIVED June 20, 1978.

In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

15 The Inventor's Interest JOHN P. SUTTON 2001 Ferry Building, San Francisco, CA 94111

Other speakers at thi symposiu hav said h about b a l ancing the rights of th against those of contractor grantee g governmen I am going to use a chemical analogy and speak of the balance as an equilibrium. Some say the equation i s Government (G) Contractor or Grantee (C), where the government pays substantial amounts for research and gets relatively little i n return. Others say it i s G C, where all of the patent rights are given up by the contractor/grantee for small amounts of research funding, when much more money is needed to exploit an invention commercially. I suggest that, in the case of government contractors, there i s a third element that has not been given adequate consideration, namely the inventor. I believe we should be striving not only for a true equilibrium between G and C, but also with the inventor (I): G C I. I contend that the present relationship between C and I i s like this: C I. The contractors pay salary and benefits, whether the researcher invents or not, and give only token payments to the inventors for the inventions. In return, the contractor gets the inventions that sometimes are of enormous value. The really valuable inventions are a windfall that no one has expected. Should the contractor C get the entire benefit of the windfall? Or should he give a proportionate share to the i n ventor I? C "—* I. Company managements contend that the reverse i s true. The contractor pays huge amounts to researchers whether they invent or not, and gets very few economically valuable inventions i n return. Those few pay for the cost of supporting the many that are not economically valuable. In the great majority of cases C I, the employee gets much more than he gives in terms of economic benefits to the employer. How can we restore the equilibrium to the relationship between C ^ * I? In 1790, when the f i r s t patent act was passed, there was no middle man between G and I . The inventor disclosed his invention i n return for the right to exclude others for limited times. Even 0-8412-0454-3/78/47-081-150$05.00/0 © 1978 American Chemical Society

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today, a s u b s t a n t i a l number of i n v e n t i o n s are made by p r i n c i p a l s , e i t h e r i n d i v i d u a l s or persons owning an equity p o s i t i o n i n a c o r porate owner. But i n modern i n d u s t r y , the great m a j o r i t y o f i n ventions r e q u i r e hugh investments f o r l a b o r a t o r y f a c i l i t i e s , equipment, support s e r v i c e s , and s i m i l a r needs, so the i n d i v i d u a l or p r i n c i p a l i n v e n t o r i s r a r e . Instead inventors are almost a l ways supported by the s u p p l i e r o f the huge c a p i t a l investment, u s u a l l y a c o r p o r a t i o n . C l e a r l y t h i s i s a very l a r g e arrow running t o the inventor from the c o n t r a c t o r . C * I . In r e t u r n , the c o n t r a c t o r gets some i n v e n t i o n s , but probably not enough to f u r n i s h an adequate r e t u r n on h i s investment. Some years ago, Dr. D ' O u v i l l e of Standard O i l (Indiana) made a study of inventors i n h i s company and found t h a t of the 1384 patents granted t o h i s company during a ten year p e r i o d , f i v e were worth more than a l l o f the r e s t put together. I contend t h a t as to those f i v e i n v e n t o r s who r e c e i v e d no s p e c i a to a l l who d i s c l o s e i n v e n t i o n not f a i r . That i s C I . I b e l i e v e t h a t the u n f a i r n e s s should be c o r r e c t e d , and t h a t i t can p a r t l y be c o r r e c t e d by government patent p o l i c y . As to the other 1379 i n v e n t o r s whose patents were not worth much, was the balance f a i r ? I do not know a l l o f the f a c t s , but I would assume so. C I . The c o n t r a c t o r gave s a l a r i e s f o r 10 years, l a b o r a t o r y f a c i l i t i e s , s e c u r i t y , pensions and other benefits. In r e t u r n the inventor gave h i s s o l u t i o n s to the research problem, whether or not patentable, and provided the b a s i s f o r 1379 p a t e n t s . Considering the o v e r a l l p i c t u r e of 1384 i n v e n t o r s , d i d c l—* I? I would argue t h a t i t d i d not, because the i n c e n t i v e provided by the patent system was absent. Dr. D'Ouville argued t h a t there was a f a i r balance or e q u i l i b r i u m because i t wouldn't be f a i r to pay s p e c i a l compensation to o n l y f i v e of 1384 invent o r s . He contended t h a t a l l should be t r e a t e d e q u a l l y . The i s s u e i s whether we continue to f a i l to recognize e x c e l l e n c e , and thus promote m e d i o c r i t y , or whether we r e s t o r e the i n c e n t i v e s to s t r i v e f o r e x c e l l e n c e designed i n t o our C o n s t i t u t i o n . The C o n s t i t u t i o n recognizes the need f o r equal treatment and our founding f a t h e r s were much impressed by the J e f f e r s o n i a n i d e a t h a t " a l l men are created equal". The love of e q u a l i t y was emphasized again almost a century a f t e r the D e c l a r a t i o n o f Independence was proclaimed, when, i n 1868, the 14th Amendment was r a t i f i e d . T h i s amendment r e q u i r e s t h a t no s t a t e s h a l l "...deny t o any person w i t h i n i t s j u r i s d i c t i o n the equal p r o t e c t i o n o f the laws,". These fundamental b e l i e f s have l e d to a spate o f laws designed to prevent d i s c r i m i n a t i o n - formerly on race or r e l i g i o n , but now on sex or age. I applaud these laws. They are the mark of a c i v i l i z e d s o c i e t y . There i s , u n f o r t u n a t e l y , an unhappy s i d e e f f e c t r e s u l t i n g from our romance with the notion of e q u a l i t y . T h i s s i d e e f f e c t i s contrary to the t h i n k i n g of the founding f a t h e r s and f l a t l y a g a i n s t the independence o f b e l i e f s so s t r o n g l y s t a t e d i n the D e c l a r a t i o n of Independence and f i r m l y entrenched i n

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the minds of the d r a f t e r s o f the C o n s t i t u t i o n . T h i s s i d e e f f e c t i s the tendency t o s t i f l e the urge to exc e l - the urge t o be b e t t e r than anyone e l s e . I f one looks at the world s u p e r f i c i a l l y , e q u a l i t y of opportunity means t h a t everyone has the same chance t o get a job; t h a t s e n i o r i t y , not performance, determines income; t h a t d e v i a t i o n s from the normal, conventional wisdom should not be encouraged because they d i s t u r b the e q u a l i t y o f the s t a t u s quo. The trade union movement i n t h i s country i n the l a s t 50 years has been r e s p o n s i b l e f o r t h i s s t a t e of a f f a i r s to a l a r g e extent. A person h o l d i n g a union job cannot be rewarded f o r e x c e l l e n t p e r formance because i t would upset the e s t a b l i s h e d regime by which a l l members of the union are compensated on the same equal b a s i s , usually seniority. The r e a l i t y i s t h a t our emphasis on e q u a l i t y has r e s u l t e d i n celebrating mediocrity. union member to e x c e l , t signed to him? F o r t u n a t e l y f o r our n a t i o n , Americans have a l o t of other q u a l i t i e s t h a t p r o p e l them forward beyond the present mediocrity. These q u a l i t i e s may be d e r i v e d from p r i d e of s e l f , p r i d e o f f a m i l y , p r i d e of country, or other s e l f - p r o p e l l i n g i n c e n t i v e s t h a t make some s t r i v e harder and achieve more than o t h e r s . Some people c a l l i t the P u r i t a n E t h i c , although I've observed i t s t r o n g l y i n some Chinese f r i e n d s , i n Jewish f r i e n d s , and i n many others who are not P u r i t a n descendants. The founding f a t h e r s i n c r e a t i n g our C o n s t i t u t i o n borrowed an i d e a t h a t had been used t o good e f f e c t i n Great B r i t a i n . In f a c t , i t was a Renaissance i d e a born i n I t a l y , but accepted throughout most of Europe. The idea was t o reward the c r e a t i o n of new i n v e n t i o n s by g r a n t i n g e x c l u s i v e r i g h t s t o the i n v e n t i o n s f o r l i m i t e d times. The theory was t o provide an economic i n c e n t i v e to i n v e n t o r s to come forward and d i s c l o s e an i n v e n t i o n . But what of e q u a l i t y before the law, you say? The framers of the C o n s t i t u t i o n would r e p l y t h a t e q u a l i t y meant equal opport u n i t y t o run the race on f a i r terms, but e x c e l l e n c e of p e r f o r mance evidenced by winning the race i s t o be encouraged. Individual e f f o r t i s the key to reward, not o r g a n i z a t i o n a l advantages l i k e tax i n c e n t i v e s or monopolies. The i n c e n t i v e f o r a reward as d r a f t e d i n the C o n s t i t u t i o n goes t o the i n v e n t o r , not h i s sponsor, employer, banker or spouse. I t i s the inventor who i s t o be encouraged, not the i n v e s t o r o f mere money. Money cannot buy i n v e n t i o n s , which do not e x i s t u n t i l created. I n d i v i d u a l people must create them. I b e l i e v e t h a t the patent clause i n an employment agreement i s a strong inducement to i n v e n t , not a d i s i n c e n t i v e . An i n c e n t i v e , by d e f i n i t i o n , i s an inducement to a c t i o n . I f the employee has nothing more than a s a l a r y , which he w i l l get whether he invents or j u s t performs the research assigned to him, then what i s the inducement to create something which i s not obvious t o one of o r d i n a r y s k i l l i n the a r t ? Inducement to e x c e l i s

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a cornerstone o f our American h e r i t a g e , be i t P u r i t a n e t h i c , Chinese e t h i c , Jewish e t h i c , or whatever, I f we want t o f i n d imaginative s o l u t i o n s t o the p r e s s i n g problems f a c i n g our n a t i o n , we must have i n c e n t i v e s . Some people w i l l create without economic i n c e n t i v e s , a pat on the back being s u f f i c i e n t f o r a long time. However, economic i n c e n t i v e - money - i s a powerful f o r c e t h a t can induce the e x t r a o r d i n a r y c r e a t i v i t y t h a t produces i n v e n t i o n s . The founding f a t h e r s recognized i t and wrote the i n c e n t i v e concept i n t o the C o n s t i t u t i o n . Present-day employers have n e u t r a l i z e d t h i s i n c e n t i v e by r e q u i r i n g a l l i n v e n t i o n s to be turned over to the employer even before they are conceived. I t i s time to r e s t o r e the i n c e n t i v e t o the inventor who i s the e s s e n t i a l l i n k i n the economic chain of g e t t i n g new products t o the market. There i s nothing s i n i s t e r i n g i v i n g money to c r e a t o r s . Our s o c i e t y does i t r o u t i n e l y A d v e r t i s i n g agencies pay " c r e a t i v e " people much more than chemists money motivates us to a vated, a t l e a s t i n p a r t , by more money, r a t h e r than by the nature o f the work, f o r example. The theory i s t h a t more money w i l l p r o duce higher performance - again a fundamental b e l i e f . Therefore, i t i s s u r p r i s i n g t o hear opponents o f f a i r compensation f o r i n ventors contend t h a t inventors are not motivated by money. Some inventors may invent i n s p i t e o f a l a c k of compensation beyond s a l a r y , but t h i s i s not proof t h a t inventors w i l l not invent more, or t h a t new inventors w i l l not be induced to i n v e n t . L o g i c and experience t e l l us t h a t we do t r y harder i f there i s promise o f a pot o f g o l d at the end of the rainbow. The c u r r e n t l y pending Thornton B i l l (H.R. 8596) i n c l u d e s p r o v i s i o n s f o r i n c e n t i v e awards to inventors employed by the government. These awards are i n r e l a t i o n to the value of the inventions. I think t h i s i s as i t should be, and I b e l i e v e t h a t a l l employed i n v e n t o r s , i n c l u d i n g those i n i n d u s t r y , should be given e x t r a compensation i f they come up with something o f e x t r a o r d i n a r y economic value. In most cases, t h i s does not happen. Any e x t r a compensation t o inventors i s u s u a l l y a f l a t amount, say $100, having nothing to do with the value of the i n v e n t i o n . However, I do not advocate any f i x e d percentage, because many f a c t o r s need to be considered i n determining what i s f a i r . I t i s i n the c o n t r a c t o r s ' s e l f - i n t e r e s t to compensate i n ventors. The i n c e n t i v e system works f o r management to get bonuses; i t w i l l work f o r employed inventors to get e x t r a awards f o r important i n v e n t i o n s . Too many researchers have a "why bother" a t t i t u d e when faced with a new departure from e s t a b l i s h e d l i n e s . They w i l l , of course, do t h e i r assigned research as w e l l as they can, but they sometimes l a c k the i n c e n t i v e to push hard i n new d i r e c t i o n s because they see no p o s s i b l e personal b e n e f i t coming from i t . Many employed inventors however, p e r c e i v e t h a t the i n centive provided by the patent system has been assumed by the employer r a t h e r than used to reward the i n v e n t o r . We are not g e t t i n g the r e t u r n on investment i n research and

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development we used to get, nor are we getting the return other nations get. We should, therefore, restore the balance between the government, industry and the inventor by looking at the economic value of inventions and making sure that the inventor gets extra compensation for inventions of extraordinary economic value. The government should license i t s inventions for economic return according to their values, and contractors should get the incentive award of exclusive property rights as a f a i r balance between themselves, government and the inventor. It is i n the contract o r ^ interest to align himself with the interests of the inventor in dealing with government, since i t not an odious "giveaway" i f the inventor gets a fair share of any economic return. I applaud the effort of the drafters of the Thornton B i l l to reward employed inventors of the government. It sets forth a f a i r assessment of the rights and duties of employer and employee. In fact, the Thornton B i l law. I would like to se inventors enforced as a matter of government policy for employees of contractors, as well as for government employees, just as equal employment and other policies are. The fact i s that most contractors alter the common law relationship with inventors by contract. The contract says that the employer w i l l own a l l future inventions and the employee i s given nothing i n return by contract. In fact, most contracts relating to patent rights are not even signed by the employer, so only the employee has any obligation. Government patent policy, such as is provided by the Thornton B i l l , can help lead to more equitable treatment of employed inventors. Abstract The forgotten element in the tension between owners and users of patent rights is the creator of those rights. In this country, inventors generally assign their rights to their employers pursuant to a pre-employment agreement; thereafter, the employers are the owners of the rights and can use them for private gain. In the public interest of carrying out the Constitutional intent to reward inventors for disclosing their inventions, redress of the unfairness of pre-employment assignment agreements i s needed. Surely the exclusivity furnished by patents i s a needed incentive for exploitation of inventions. But the appeal of the employer's case would be greatly enhanced if patents were seen by the legislature and the public as rewards to inventors rather than as tools of monopolists. The f i r s t step i n focusing the incentive on the inventor i s to compensate f a i r l y the creators of economically valuable inventions. Biographic Notes John P. Sutton i s i n private practice as a patent attorney in San Francisco. He i s admitted to the bar i n Virginia and

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California and practices before the United States Patent and Trademark Office, In addition to his law practice, he i s an author and lecturer on matters relating to the law. He has been active in various bar associations and has served a term as president of the California Patent Law Association. He was awarded a B.A. by the University of Virginia and an LL.B. by George Washington University. RECEIVED June 20, 1978.

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16 Experiences with Industrial Patent Policy A Constructive Approach to Long Term Corporate Growth ARTHUR NOBILE Organon, Inc., 375 Mt. Pleasant Ave., West Orange, NJ 07052

The subject of thi perceived by inventors and patent representatives. In recent times we have been experiencing the emergence of new economic restraints such as raw material shortages, i n f l a t i o n , and international trade imbalances. We find ourselves unable to deal with the problems of this "new economics" with any measure of success, and it becomes self-evident that the adverse effects of these negative factors w i l l be most damaging to the national and international v i a b i l i t y of our economy. It should, therefore, become increasingly imperative for us to encourage invention through use of an appropriate patent policy. The foundation of a patent policy i s invention. Therefore, invention well deserves special organizational consideration, such as use of workable procedures which encourage productivity in i n vention. It i s suggested that the corporate patent department be assigned sole responsibility for formulating and executing effective incentive programs, with f u l l authority to recognize inventions through appropriate and meaningful awards. One important f i r s t step i n establishing such a formula must be to separate i n vention into two separate categories, basic and developmental. These categories should be stated in the employee job descriptions. Scope and performance of the invention should be specified for each category. In addition to merit recognition, provision for adequate compensation should be specified in each job description to assure inventors and other employees that incentive contributions are essential for corporate growth. With reference to young scientists and engineers with novel ideas, the patent department could arrange for these embryo inventors to be assigned temporally to a "special services group", where they w i l l be encouraged to pursue their ideas. Since the inventor engaged in basic research has an i n d i v i dualistic attitude, he should be assigned to an informal work area. The developmental inventor, on the other hand, must plan and organize in an established area of research, and his approach 0-8412-0454-3/78/47-081-156$05.00/0 © 1978 American Chemical Society In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

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to problem s o l v i n g r e q u i r e s team e f f o r t . Thus the inventor i n b a s i c research should be assigned t o a " s p e c i a l s e r v i c e s group" under the d i r e c t r e s p o n s i b i l i t y o f a v i c e p r e s i d e n t i n a l a r g e company o r the p r e s i d e n t i n a small t o medium-size company. To provide an h i s t o r i c a l p e r s p e c t i v e , l e t us examine b r i e f l y some o f our past i n d u s t r i a l experiences as r e l a t e d t o p r o d u c t i v i t y i n i n v e n t i o n . In t h i s context we might ask how t o encourage prod u c t i v i t y i n i n v e n t i o n f o r the b e n e f i t o f the i n v e n t o r , the i n dustry and the economy. Some i n d i c a t i o n o f p a s t performance o f i n d u s t r i a l p r o d u c t i v i t y has been p u b l i s h e d i n an a r t i c l e , "Techn o l o g i c a l Innovation: I t s Environment and Management" (1_) . Seve r a l s t u d i e s by academic economists are reported i n " i n v e n t i o n sources i n the 20th century". P r o f e s s o r John Jewkes showed t h a t , out o f 61 important i n ventions o f the 20th century, over h a l f stemmed from independent i n v e n t o r s o r small firm P r o f e s s o r D a n i e l Hamber s t u d i e d major i n v e n t i o n s made during the decade 1946-55 and found that over two t h i r d s r e s u l t e d from the work o f independent invent o r s and small companies (3). He a l s o studied 13 major innovat i o n s i n the American s t e e l i n d u s t r y ; four came from i n v e n t i o n s made a t European companies, seven from independent inventors and none from i n v e n t i o n s made a t American s t e e l companies (4). P r o f e s s o r Merton Peck o f Harvard U n i v e r s i t y s t u d i e d 149 i n ventions i n aluminum welding, aluminum f a b r i c a t i n g techniques and aluminum f i n i s h i n g . Major producers accounted f o r only one o f seven important i n v e n t i o n s (_5) . P r o f e s s o r John Enos o f the Massachusetts I n s t i t u t e o f Technology s t u d i e d seven major i n v e n t i o n s i n r e f i n i n g and c r a c k i n g o f petroleum and a l l seven were made by independent i n v e n t o r s . The c o n t r i b u t i o n s o f l a r g e companies were l a r g e l y i n the area o f improvement i n v e n t i o n s (6). These s t u d i e s are c o n s i s t e n t i n i n d i c a t i n g t h a t independent i n v e n t o r s and small firms are r e s p o n s i b l e f o r a remarkable percentage o f the important i n v e n t i o n s and innovations o f the 20th century, a much l a r g e r percentage than the investment made by these sources would suggest. An u n d e r l y i n g thought i n these s t u d i e s prompts one t o ask: Why should not the l a r g e r o r g a n i z a t i o n encourage i n v e n t i o n through p r o v i d i n g the i d e n t i c a l e n v i r o n ments and freedoms which prove so p r o d u c t i v e t o i n d i v i d u a l s and small o r g a n i z a t i o n s ? S t i l l another aspect o f the demonstrated i n d i v i d u a l (and small firm) i n v e n t i v e p r o d u c t i v i t y warrants n o t i c e : Are not the l a r g e o r g a n i z a t i o n s " l o s i n g some good bets" by i g n o r i n g , o r del i b e r a t e l y s h u t t i n g themselves o f f from v a l u a b l e pools o f invent i v e t a l e n t ? The t y p i c a l "not invented here" corporate p h i l o s o phy i s c l e a r l y retrograde, and the t y p i c a l corporate "Submission of Invention" agreement i s so h e a v i l y encrusted i n one-sided cond i t i o n s t h a t most submissions a r e summarily s t i f l e d . A simple standard form with a minumum o f redundant " l e g a l e s e " which p r o -

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t e c t s both p a r t i e s i s long overdue. Such a m o d i f i c a t i o n t o c o r porate philosophy would b e n e f i t both the independent o u t s i d e i n ventor and any o r g a n i z a t i o n r e q u i r i n g an i n f l o w o f p o t e n t i a l l y p r o f i t a b l e new product l i n e s . What c o n c l u s i o n s can we draw about the present l e v e l o f i n v e n t i v e p r o d u c t i v i t y i n i n d u s t r y ? In an a r t i c l e i n the Wall S t r e e t J o u r n a l , October 17, 1977, a continued d i v e r s i o n o f funding away from b a s i c and a p p l i e d research toward product development was r e p o r t e d . In t h i s a r t i c l e , headlined "Many Concerns S t r e s s Product Development and Reduce Research", i t was noted t h a t , "The R i s s l i p p i n g away from R&D and many s c i e n t i s t s and f o r e i g n trade s p e c i a l i s t s f i g u r e t h a t s p e l l s t r o u b l e . They d i s c e r n an ominous change i n the nation's s c i e n t i f i c posture. Industry i s curbing slow p a y - o f f b a s i c r e s e a r c h aimed a t f i n d i n g new products and i n stead i s f a v o r i n g hard nosed, quick pay-off development o f e x i s t i n g technology. I f thi e v e n t u a l l y l o s e i t s standin country and b i g g e s t exporter o f high technology goods." Comments expressed i n t h i s a r t i c l e by l e a d i n g d i r e c t o r s o f r e s e a r c h and economists g i v e some i n d i c a t i o n o f the present gene r a l a t t i t u d e about r e s e a r c h and p o i n t up the need t o encourage p r o d u c t i v i t y i n i n v e n t i o n . For example, N.B. Hannay o f B e l l T e l e phone L a b o r a t o r i e s commented, " I don't hear many o f my i n d u s t r i a l contemporaries t a l k i n g about e x c i t i n g new major d i s c o v e r i e s they t h i n k w i l l shake the world"; and T.A. V a n d e r s l i c e o f General E l e c t r i c s t a t e d , "There are trends that> unless c o r r e c t e d , could l e a d to a maturing c r i s i s " . R.E. Heckert o f Du Pont commented, "Who i s going t o develop expensive c o a l p r o c e s s i n g when n a t u r a l gas i s s e l l i n g a t h a l f i t s r e a l market p r i c e ? " With gas p r i c e s h e l d down by F e d e r a l r e g u l a t i o n s , Mr. Heckert s t a t e d t h a t i n d u s t r y i s concerned about "whethe r i t could even get a buyer f o r any h i g h e r - p r i c e d s y n t h e t i c f u e l s . " Du Pont has deemphasized making s u b s t a n t i a l investment i n what i t considers "new adventures", and i s c h a n n e l l i n g a v a i l a b l e funds i n t o "improvements t o e x i s t i n g businesses". According t o Heckert, " t h i s new p o l i c y means much lower r i s k s and much higher rewards. In a way, the company has given up l o o k i n g f o r another nylon o r dacron. Du Pont i s n ' t searching f o r more extensions o f p l a s t i c s and s y n t h e t i c s because there aren't any simple combinations l e f t . There are only so many ways you can mix around b a s i c molecules." A Raytheon spokesman was b l u n t about i t with the comment: "Very d e f i n i t e l y we have gotten away from long-term general r e search; a l l the research we are doing now i s a p p l i e d research with w e l l - d e f i n e d g o a l s , b e t t e r focus on business o b j e c t i v e s , and a promise o f pay-back w i t h i n a reasonable p e r i o d o f time." Alan Greenspan, former chairman o f the P r e s i d e n t ' s C o u n c i l of Economic Advisors s t a t e d : "During p e r i o d s o f u n c e r t a i n t y , companies aren't i n any mood f o r h i g h r i s k s . U n c e r t a i n t y i s p l a g u i n g the investment community and i s more p e r v a s i v e than i t was a

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decade ago. Under these circumstances, i t i s no wonder t h i s count r y hasn't done much r e s e a r c h i n t o s y n t h e t i c f u e l s , the p a y - o f f i s too f a r down the road." George Gols o f Arthur D. L i t t l e , Inc., suggests there i s a deeper problem: "Industry i n the long run does not r e a l l y b e l i e v e t h a t f u e l i s going t o be much more expensive o r s c a r c e . " Conclusions drawn by l e a d i n g executives and economists are t h a t the new f a s t p a y - o f f approach t o R&D can be a t t r i b u t e d t o the high r a t e o f i n f l a t i o n , shortage o f c a p i t a l , sharp competition here and abroad f o r e x i s t i n g high technology and u n c e r t a i n t y about f e d e r a l r e g u l a t i o n s and p o l i c i e s . In the judgment o f t h i s author, i t appears t h a t the product i v i t y o f i n v e n t i o n sources has been overlooked s i n c e b a s i c and a p p l i e d r e s e a r c h today has been reduced t o "improvements f o r exi s t i n g businesses". A commonly accepte expressed by Edwin Land pected, and come t o a world t h a t i s n ' t prepared f o r i t " . T h i s d e f i n i t i o n i s i n sharp c o n t r a s t t o a developmental i n v e n t i o n wherein i n v e n t i o n r e s u l t s from a planned and organized e f f o r t . I t i s suggested t h a t i n d u s t r i a l patent p o l i c i e s recognize and establ i s h i n v e n t i o n c a t e g o r i e s u s i n g these d e f i n i t i o n s f o r the encouragement o f p r o d u c t i v i t y i n i n v e n t i o n . Some years ago, while working i n a l a b o r a t o r y , I became i n t e r e s t e d i n the incomplete enzymatic o x i d a t i o n o f s t e r o i d s . T h i s was an i n t r i g u i n g i d e a , s i n c e , up t o t h a t time, s t e r o i d o x i d a t i o n s had been, f o r the most p a r t , chemical o x i d a t i o n s . I began t o search f o r a s u i t a b l e enzyme system; the f i r s t compound I succeeded i n o x i d i z i n g by t h i s method was an androstene compound. The s t r u c t u r e o f the o x i d a t i o n product was confirmed by chromat o g r a p h i c , c o l o r i m e t r i c and s i m i l a r t e s t procedures. Sometime d u r i n g the m i d - f o r t i e s , p r i o r t o my i n i t i a l observ a t i o n s on incomplete o x i d a t i o n s , s e v e r a l workers a t Merck d e v e l oped a chemical method f o r manufacture o f c o r t i s o n e from desoxyc h o l i c a c i d . T h e i r work was supported by K e n d a l l , c o - d i s c o v e r e r of c o r t i s o n e , and h i s co-workers. I n the l a t e f o r t i e s , very much aware o f the cumbersome and c o s t l y chemical method developed a t Merck, Murray and Peterson o f Upjohn d i s c o v e r e d and developed an enzymatic method f o r 11-oxygenation o f s t e r o i d s . T h i s method s i g n i f i c a n t l y c o n t r i b u t e d t o a s u b s t a n t i a l r e d u c t i o n i n process c o s t over Merck's chemical method. In the e a r l y f i f t i e s , having succeeded i n the incomplete enzymatic o x i d a t i o n o f androstenes, chromatographic evidence was found i n the product mixture o f two novel o x i d a t i o n products o f c o r t i s o n e and h y d r o c o r t i s o n e . Bulk q u a n t i t i e s o f these novel compounds were prepared and t e s t e d s u c c e s s f u l l y f o r animal and human response as anti-inflammatory agents. These compounds were l a t e r i d e n t i f i e d as d e l t a - 1 , 4-pregnadienes and were f i n a l l y marketed i n 1955 as prednisolone and prednisone. In a d d i t i o n t o patent claims covering the products themselves, claims t o a method f o r enzyme

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manufacture and use also were issued (7) . After pregnadiene research became known, the pathway that corticoid research pursued changed considerably. Basically, i n dustrial research was diverted from natural corticoids to the unnatural pregnadiene structures. Thus, in 1957, Upjohn began marketing 6-methyl-pregnadienes (8); in 1958, E.R. Squibb & Sons and Lederle Laboratories both brought 9-fluoro-16-hydroxy-pregnadienes to the market (9) ; and Merck followed with the introduction of 9f luoro-16-methyl-pregnadienes (10) . Later Syntex and several European companies marketed modified pregnadienes. The discovery of cortisone and the invention of the pregnadienes were followed by the development of corticoid processes and pregnadiene modifications, respectively. Developmental i n vention was essential to optimize the c l i n i c a l efficacy, enhance the a v a i l a b i l i t y and reduce the cost of these new materials. On the other hand, basic steroi of basic steroid researc establish organizational responsibilities including workable procedures in order to maintain both basic and developmental research to support long-term corporate growth. As indicated by the history of invention sources, "the prepared mind" is most productive when functioning in an atmosphere of freedom from established thought and with freedom to communicate with others. Abstract To improve long-term corporate growth, a distinction should be made between the basic and the developmental inventor. The basic inventor must be provided with an informal research work area, whereas the developmental inventor should be provided with a "team" environment. Both types of inventors should receive compensation commensurate with their contributions. The establishment of these two inventor categories could give more balanced stimulation to different research attitudes, and, in return, an understanding of these two basic approaches would encourage both types of inventors to contribute towards long-term corporate growth. Examples are presented indicating that many inventions come from outside major companies, particularly from independent inventors and small firms, thus showing a need to improve the output of inventors i n industry. Literature Cited 1. 2. 3.

"Technological Innovation: Its Environment and Management", U.S. Department of Commerce, January 1967, p. 16-18. Jewkes, J., Sawers, D . , Stillerman, R., The Sources of Invention, St. Martin's Press, 1958, p. 72-88 and Part 11. Hamberg, D . , "Invention in the Industrial Research Laboratory", Journal of P o l i t i c a l Economy, A p r i l 1963, p. 96.

In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

16.

NOBILE

4. 5.

Hamberg, D . , op. cit., p. 98. Peck, M . J . , "Inventions in the Post-War American Aluminum Industry, The Rate and Direction of Inventive Activity: Economic and Social Factors", National Bureau of Economic Research, Princeton, New Jersey, 1962, p 279-292. Enos, J.L., "Invention and Innovation in the Petroleum and Refining Industry, the Rate and Direction of Inventive A c t i vity", op. cit., p.299-304. U.S. 2 837 464: "Process for Production of Dienes by Corynebacteria". 2 955 118: "9 alpha Halo-11, 17-Dioxygenated-1,4-Androstadienes-3-ones". 3 010 957: "Ethinyl Androstadienes". 3 060 092: "17 alpha Alky-1-Dehydro-Testosterone". 3 084 103: "11-Oxygenated 9 alpha Halogeno-1 4-preg

6.

7.

Long Term Corporate Growth

161

3 105 795:

" nadienes and Pharmaceutical Preparations". 3 134 718: "Pregnedienes & Compositions". 3 198 813: "1:4-Pregnadiene-11 alpha, 17 alpha, 21-Triol-3, 20-Dione & Esters". 8. Spero, et al., Journal of American Chemical Society, 78, 6213 (1956). 9. Berstein, et al., Journal of American Chemical Society, 78, 5693 (1956). 10. Arth, et al., Journal of American Chemical Society, 80, 3161 (1958). Biographic Notes Arthur Nobile has written a large number of publications and holds several patents, covering commercially successful steroid products. He is associated currently with Organon, Inc., where he serves as Director of Technical Services. Dr. Nobile obtained his degrees from the University of California, Washington State University and San Diego State University. RECEIVED June 20, 1978.

In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

General Discussion

COMMENT; In i n d u s t r y the r e a l inventor i s the promoter - the person who d r i v e s and sells. While t h i s person does not get h i s name on a patent, h i s c r e a t i v i t y i s r e a l l y greater than the person who dreams up a concept. I f we reward the i n v e n t o r , as under the German law, we should a l s o reward the promoter. RESPONSE BY MR. SUTTON: The man who s e l l s i s very, very important, b u t he does have t o have something t o s e l l . I n add i t i o n , ownership o f a p r o p r i e t a r y r i g h t i s a l s o necessary t o o b t a i n success. Therefore, i t seems necessary t o me t h a t the value o f i n v e n t i o n s which l e a d t o p r o p r i e t a r y r i g h t s , such as a patent, should be shared with the creators o f such i n v e n t i o n s . The s h a r i n g should not be on an a r b i t r a r i l y f i x e d percentage b a s i s , b u t should be determined only a f t e r e v a l u a t i n g a l l o f the f a c t o r s t h a t ought t o be considered. In my o p i n i o n , t h i s i s not now being done i n an adequate f a s h i o n . COMMENT: I f i n d i t hard t o understand what Mr. Sutton means by compensation. I n the past research managements have been preoccupied with dual - t r a c k award systems - a d m i n i s t r a t i v e and s c i e n t i f i c . I n my experience, very few i n v e n t o r s who have made major i n v e n t i v e c o n t r i b u t i o n s have not been rewarded i n terms o f upgraded s t a t u s , s a l a r y increases and r e c o g n i t i o n as s e n i o r s c i e n t i s t s . These are rewards based on the value o f the inventors contributions. 1

RESPONSE : I agree t h a t these means f o r rewarding c r e a t i v e people e x i s t , but, i n my experience, many inventors are not so rewarded. While i t i s i n h i s enlightened s e l f - i n t e r e s t f o r an employer t o reward such employees, and t h i s i s the way American b u s i n e s s i s u s u a l l y run, there are s t i l l many employers who not only do not recognize t h e i r c r e a t i v e employees, but a c t u a l l y g i v e them a hard time and a run-around. The r e a l i t y i s t h a t most i n v e n t o r s do not get any kind o f d i r e c t r e c o g n i t i o n f o r

162 In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

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163

i n v e n t i o n s . The majority get a token payment o r nothing a t a l l . I t i s the l a r g e , well-run corporations t h a t are the exceptions, t h a t do reward t h e i r inventors, mostly i n the i n d i r e c t ways you mention. COMMENT: You seem t o me t o have too narrow a view o f the c r e a t i v e process and who the c r e a t i v e people are. C r e a t i v i t y can be dampened, but a t r u l y c r e a t i v e person w i l l c r e a t e one way o r another. I f not permitted t o do so on the job, he w i l l f i n d an o u t l e t o u t s i d e . I t i s not so much a matter o f money as i t i s a matter o f being s t i f l e d by other people o r by management r e f u s i n g t o l e t a person be c r e a t i v e by demanding t h a t t h i n g s be done i n t r a d i t i o n a l ways. RESPONSE : I agree that s t i f l i n g o f c r e a t i v i t y occurs becasue o f management f a i l u r e warding those people wh value o f the r e s u l t s o f t h e i r c r e a t i v i t y . COMMENT: The value o f a patent i s r e l a t i v e l y small when compared t o the a d d i t i o n a l input t h a t must go i n t o the developmetn o f t h a t patent t o the marketable stage. This i s p a r t i c u l a r l y marked i n the pharmaceutical i n d u s t r y . I f i n d i t d i f f i c u l t to understand why the inventor o f one s u c c e s s f u l l y marketed p r o duct t h a t d i d n ' t q u i t e make i t t o the market should not be compensated. RESPONSE : D i f f i c u l t judgemental d e c i s i o n s are c e r t a i n l y necessary. In my opinion, i t i s not unreasonable f o r the i n ventor o f the marketable product t o be rewarded simply because he i s the c r e a t o r o f the product which happens t o make the company a profit. COMMENT : Representing the p o i n t o f view o f the i n d u s t r i a l research o r g a n i z a t i o n , I think one o f i t s problems i s t h a t n o t as many h i g h l y c r e a t i v e people e x i s t as has been suggested i n the papers given. C r e a t i v e people cannot be created by promising a p r i z e . But when they do e x i s t , they have t o be nurtured and there are v a r i o u s ways o f showing a p p r e c i a t i o n . C r e a t i v e people do not create because o f the p r i z e , but because they are d r i v e n t o win. By s i n g l i n g out people who happen t o have t h e i r names on patents which happen t o become b i g commercial successes, we would be d e s t r o y i n g w i t h i n the o r g a n i z a t i o n what has been done to compensate f o r the lack o f a l a r g e number o f h i g h l y c r e a t i v e people. We t r y t o compensate f o r t h i s l a c k by assembling teams o f researchers who work c o o p e r a t i v e l y together t o f i n d and develop i d e a s . I think we have t o work t h a t way and we don't want t o d i s t u r b i t , because I don't think we have any a l t e r n a t i v e . X do n o t think there i s any evidence t h a t e x t r a compensation w i l l i n c r e a s e c r e a t i v i t y , nor i s there any evidence t h a t our present

In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

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system has caused us t o l a g i n c r e a t i v i t y . COMMENT: Superimposing the reward concept on s u b j e c t i v e emotional, s o c i a l and p o l i t i c a l aspects o f ownership, which are themselves overpowering f a c t o r s , c o n s i d e r a b l y complicates the problem o f i n v e n t o r compensation. COMMENT AND QUESTION: The r o l e o f the marketing man i s sometimes c r u c i a l t o the commercial success o f a product. Shouldn't he be compensated as well? RESPONSE : Marketing men u s u a l l y make more money than research people; i t appears t h a t , i n the chain from c r e a t i o n t o marketplace, other people know how t o take care o f themselves b e t t e r than do chemists. COMMENT AND QUESTION t r i b u t e t o the commercial success o f a product. Sometimes comm e r c i a l success i s due overwhelmingly t o f a c t o r s other than the i n v e n t i o n i t s e l f , such as marketing, o r s a l e s s k i l l s , t o say nothing o f the c o n t r i b u t i o n o f the patent lawyer. I f we assume that the poeple who are i n these other areas w i l l seek the same r e a l t i v e degree o f compensation as i n v e n t o r s , i s i t e q u i t a b l e t o the other people on the team who c o n t r i b u t e a m a t e r i a l , i n separable p a r t o f the success o f the product, and would i t not act as some d i s i n c e n t i v e t o the other members o f the team who aren't compensated, i f we were to s i n g l e out the i n v e n t o r s f o r f u r t h e r compensation o r rewards? RESPONSE : A l l you are t e l l i n g me i s that i n determining the amount and d i s t r i b u t i o n o f compensation one has t o c o n s i d e r a l l these t h i n g s . I f the c r e a t o r ' s i n p u t i s n ' t worth anything and an i n v e n t i o n was s u c c e s s f u l l y marketed because o f the s k i l l of a draftsman o f patent claims then o b v i o u s l y the i n v e n t o r i s not deserving o f a great d e a l . I suggest that a l l o f the f a c t o r s have t o be considered i n determining what's f a i r and e q u i t a b l e i n the circumstances. QUESTION : Then, would you reward the other members who c o n t r i b u t e d a m a t e r i a l and i n s e p a r a b l e p a r t t o the commercial success under the same e q u i t a b l e p r i n c i p l e ? ANSWER: Yes, I t h i n k t h a t ' s wise* I concur e n t i r e l y t h a t there are many t h i n g s t h a t go i n t o personnel management. The care and feeding o f a l l employees i s a worthwhile endeavor. I s u r e l y am not t r y i n g t o say t h a t you d i s r e g a r d everybody e l s e i n the e n t i r e o r g a n i z a t i o n except the i n v e n t o r . There are bonuses f o r e x e c u t i v e s , and patent attorneys are p a i d adequately i n i n d u s t r i a l o r g a n i z a t i o n s , but there j u s t i s n ' t anybody l o o k i n g out f o r the i n v e n t o r ' s i n t e r e s t s . And he i s d i f f e r e n t . The i n v e n t o r

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i s d i f f e r e n t because he i s the s i n e qua non. There i s n ' t anyt h i n g without him. And i f you don't have something created i n the f i r s t p l a c e , a l l o f t h i s g i a n t s t r u c t u r e i s nothing but a house o f cards. COMMENT; The problem I f i n d with Mr. Sutton's argument i s t h a t t h i s concept o f e q u i t y i s d i f f i c u l t t o d e f i n e o r t o sustain. I make the e f f o r t t o teach my c h i l d r e n t h a t as moral i n d i v i d u a l s they ought t o provide e q u i t y t o others b u t as r e a l i s t i c i n d i v i d u a l s , they ought not t o expect i t f o r themselves, because the world simply i s not constructed t h a t way. I f one c a r r i e s Mr. Sutton's argument t o i t s l o g i c a l c o n c l u s i o n , e q u i t y must be d e f i n e d i n a s o c i a l sense as what i s good f o r the world. By t h i s d e f i n i t i o n , an i n v e n t o r who invents a h u l a hoop which s e l l s l i k e crazy, i n my o p i n i o n , has produced something with no s o c i a l v a l u e . On the othe esthetic dental f i l l i n g with enormous s o c i a l value but with l i t t l e chance t o make much money. Now I can say one r e q u i r e s e q u i t a b l e s h a r i n g o f rewards and the other does not, and award one o f the inventors a c c o r d i n g l y . U n f o r t u n a t e l y , other people may not agree with me. Therefore, I p r e f e r the f r e e market. RESPONSE : I t h i n k t h a t the f r e e market should be used to determine the value o f an i n n o v a t i o n . Whether the h u l a hoop turns out t o be economically v a l u a b l e even though i t has no s o c i a l l y redeeming q u a l i t i e s , o r whether a drug o r enormous value has no economic b e n e f i t , what happens i n the marketplace should be used t o determine f a i r l y and e q u i t a b l y the s h a r i n g o f any economic advantage. Moreover, I t h i n k t h a t i s what the founders o f t h i s country f e l t and what i s c a l l e d f o r i n the Constitution. I would suggest we should r e t u r n t o t h i s concept. COMMENT ; One hears f r e q u e n t l y today t h a t the United States may not be g e t t i n g as much f o r the d o l l a r s t h a t i t spends as i t should, and t h a t the United States i s being out-invented or out-created by some f o r e i g n c o u n t r i e s . Are there some add i t i o n a l i n c e n t i v e s t h a t c o u l d provide us with a b e t t e r p e r formance than we have a t the present time? Among other c o u n t r i e s , i n c l u d i n g i n d u s t r i a l i z e d c o u n t r i e s , there has been a r a t h e r uniform trend i n the d i r e c t i o n o f more r a t h e r than l e s s l e g i s l a t i o n designed t o compensate f o r i n v e n t i o n s . In a d d i t i o n , from d i s c u s s i o n s with many people I f e e l t h a t some o f the s t r o n g e s t supporters f o r rewarding inventors more have been r e search d i r e c t o r s , o f t e n those who have r e t i r e d and are f r e e r t o express t h e i r o p i n i o n s . These people have f e l t t h a t more e f f o r t should be used t o t r y t o get more out o f t h e i r employees. Commissions and bonuses are commonly used i n i n d u s t r y t o reward the person who has done an e x t r a job i n order t o persuade him and others t o do a b e t t e r job next year. Perhaps the c h i e f

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concern about e x t r a compensation rewards i s the obvious adm i n i s t r a t i v e d i f f i c u l t y o f handling such a system, but I'm not sure t h a t t h a t should stand i n the way i f rewards o f t h i s nature conceivably might accomplish something worthwhile. COMMENT; While there are d i f f e r e n c e s o f o p i n i o n as t o what c o n s t i t u t e s f a i r compensation t o i n v e n t o r s , I don't t h i n k there are any o u t r i g h t opponents o f the concept. In order t o administer any rewards i n a f a i r and e q u i t a b l e manner, we cannot reward j u s t the person who has h i s name on a patent without a l s o rewarding a l l other people i n v o l v e d i n h e l p i n g t o make a succ e s s f u l i n v e n t i o n a commercial r e a l i t y . We should not take the p o s i t i o n t h a t the inventor o f a s u c c e s s f u l product should be rewarded and the inventor o f an unsuccessful product should not. COMMENT; I thin e q u i t a b l e reward f o r th sounding commercial success. However, the inventor i s only one p i n i n t h i s whole b i t o f machinery t h a t leads t o s u c c e s s f u l commercialization. I t i s argued t h a t a l l people who make some input should be e q u i t a b l y rewarded, but the f a c t i s t h a t we are not yet smart enough t o i d e n t i t y and reward e q u i t a b l y every b i t o f input i n t o a commercial success. To reward only the inventor o r t o attempt t o do i t i n a manner t h a t i s i n e v i t a b l y i n e q u i t a b l e can do more than anything t h a t I c o u l d imagine t o stifle creativity. COMMENT: Echoing the comment t h a t there may be a l t e r n a t e s o l u t i o n s f o r compensating employed i n v e n t o r s , I might p o i n t out t h a t , i n my company, inventors whether they are bench chemists or i n management, have a management stock o p t i o n p l a n , and quart e r l y e x t r a compensation based on p r o f i t s , i n a d d i t i o n t o t h e i r s a l a r i e s . One o f our most p r o l i f i c i n v e n t o r s , who has about 20 patents, when asked s p e c i f i c a l l y i f he would l i k e t o be compensated on the b a s i s o f the amount o f earnings on h i s patents and give up h i s s p e c i f i c p r o f i t i n c e n t i v e o r p r o f i t payment, s a i d he would r a t h e r take the compensation as he has i t now. RESPONSE : Of course he would. Nobody wants t o give up anything. I suggest t h a t you posed a f a l s e premise t o him* The f a c t o f the matter i s t h a t there i s p l e n t y o f money t o go around t o provide f a i r compensation t o inventors and s t i l l do business. C e r t a i n l y i t i s an increased c o s t o f doing business, but i f such compensation induces f u r t h e r i n v e n t i o n s and i f i t b r i n g s new products t o market under the patent system, then p r o f i t s w i l l increase and the whole c y c l e should be s e l f - p e r p e t u a t i n g . To induce f u r t h e r i n v e n t i o n s i s a d e s i r a b l e goal f o r the f u t u r e t h a t ought t o be continued. With regard t o r e f e r r i n g t o the inventor as only one p i n i n the whole i n n o v a t i v e process, I would suggest t h a t he i s the l i n c h p i n .

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167

General Discussion COMMENT: The compensation p l a n Mr. Sutton has been outl i n i n g sounds very much l i k e t h a t s p e c i f i e d i n the German compensation law. As I understand i t , the German law i s not f e l t by people who have been o p e r a t i n g under i t t o be a good law. A l s o , under the German law, agreements are made w i t h the i n ventors a f t e r the i n v e n t i o n s have been made and patent app l i c a t i o n s have been f i l e d i n the patent o f f i c e . Under the terms of the agreements the i n v e n t o r s s e t t l e f o r a f i x e d amount of reward, but, while u s u a l l y more than $100, these are not b i g amounts. RESPONSE : The a d m i n i s t r a t i v e d i f f i c u l t y i s conceded; i t i s the o n l y r e a l o b j e c t i o n t o the whole program. The way to get around t h i s problem i s t c d e a l o n l y with the very few i n ventions which are commercially s u c c e s s f u l , i g n o r i n g the many i n v e n t i o n s which are not

RESPONSE FROM A GERMAN PATENT PRACTIONER: I t i s true t h a t the a d m i n i s t r a t i o n o f the law i s d i f f i c u l t , but a d m i n i s t r a t i v e problems can be s o l v e d . The formula i n the German law i s q u i t e complicated. The formula i s r a r e l y us^d by the companies i n the f i r s t i n s t a n c e because i t i s so complicated, but i t i s used i n those cases not e a s i l y r e s o l v e d which may be headed f o r a r b i t r a t i o n c o u r t . Then the formula i s used, because i t takes care o f the many aspects which have t o be considered. One cannot say t h a t the German law i s unworkable. For day-to-day app l i c a t i o n companies use a s i m p l i f i e d formula which can be handled more e a s i l y . But one should not f o r g e t t h a t there are two kinds o f i n v e n t o r s , those who r e a l l y c o n t r i b u t e d something v a l u a b l e , and those who t h i n k they d i d , but d i d not. In t h i s aspect, the law i s very v a l u a b l e because i t p r o v i d e s a formula to b r i n g r e a l i t y i n t o the p i c t u r e so t h a t rewards can be given o n l y t o those who deserve them. COMMENT : To compensate the l a r g e number o f people i n a research o r g a n i z a t i o n who might be i n v o l v e d i n making an i n v e n t i o n s u c c e s s f u l , a c e r t a i n amount o f money must be s e t a s i d e as a reserve f o r payment a t a l a t e r date when success has been e s t a b l i s h e d . The l a t e r date may be 15 o r 20 years from the date the i n v e n t i o n was made. By t h a t time some of the people i n v o l v e d may be long gone o r even dead. So who gets the r e wards? I j u s t don't see how t h i s c o u l s work - c e r t a i n l y not i n the type o f business my company i s i n . RECEIVED

June

20,

1978.

In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

INDEX A

Β

Act Amendments, Helium 7 Appalachian Regional Development 7 Atomic Energy 6 Coal Resarch 7 Federal Advisory Committee 61 Coal Mine Health and Safety 8 Fire Prevention and Control 8 Nonnuclear Energy Research and Development 14, 24, 112 Freedom of Information 61 National Aeronautics and Space .... 6 National Science Foundation 6, 7 National Traffic and Motor Vehicle Safety 7 Research and Marketing 7 Saline Water Conversion 7 Solid Waste Disposal 7, 22 Sunshine 61 Surface Mining Control and Reclamation 8 Water Resources 7 Administering office 81 Administration, Handbook of College and University 80 Administrative structures 70 American Chemical Society 78 American Manufacturers, Thomas Register of 67 Appalachian Regional Development Act 7 Arthur D. Little Inc 71 Association, Government Patent Lawyers 24 Association of Licensed Automobile Manufacturers 100 Athabaska tar sands in Canada 116 Atlanta University 73 Atomic Energy Act 6, 15 Atomic Energy Commission 6, 85 Authorization 81 Automobile Manufacturers, Association of Licensed 100

Battelle Development Corp Battery industry, patent policies in the

71, 84

Bell Telephone Laboratories Benefits derived by some institutions Benefits for minority-run universities, patents: potential economic Bill, Thornton 18-22, 41, 61-63, 118, Brookhaven National Laboratory

108 158 72 69 153 145

C

California, University of 78 Patent Program or 65 Canada, Athabaska tar sands in 116 Coal gasification process, Texaco 116 motor fuels from 116 Research Act 7 Colorado, oil shales in 116 Columbia Motor Car Co 100 Communication problem 132 Congress, policies developed by 6 Contracting, patent policy in government R&D 36 Contractor" approach, deferred deter­ mination and the "Title-in-theContractor-operated (GOCO) facilities, government-owned 10 Cornell 73 Corporate growth, experiences with industrial patent policy: a con­ structive approach to long term 156 Corporation, Battelle Development 84 Corporation, Research 71, 78, 84-88 Costs, transaction 37 Coverage 82 Crown corporation of the United Kingdom 123

169 In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

170 D Defense Department 22 Deferred determination and the "Title-in-the-Contractor" approach 30 Department of Agriculture 7 Commerce 23,118 Defense 3,23,85,111 Energy 23,85,118 Health, Education, and Welfare 22,60,84,129 Interior 7 Development and marketing of a patentable invention 31 on new battery systems, research ana 110 and present status, federal paten policy, its 3 Discussion, panel government patent policy 46 industry patent policy 138 university patent policy 90 Discussion, patent policy, general 162 Dow Chemical Co 112 Du Pont 158

PATENT

POLICY

Filing, geographic scope of Fisk University Florida, University of Ford Motor Co factors that influence patent and licensing policies at Foreign patenting Freedom of Information Act

125 73 73 112 99 86 61

G General Electric Co General Services Administration Geographic scope of filing Government agency policies -owned, contractor-operated (GOCO) facilities

112, 158 70 125

patent policy available approaches for a legislative objectives of panel discussion where is it headed on the administrative front? R&D contracting, patent policy in .

85 10 129 29 30 46 20 36

H Ε Economic Committee, Temporary National 4 Educational and nonprofit scientific institutions, patent policies at .... 78 Electric Power Research Institute 111 Energy Research and Development Administration (ERDA) 20 patent policy 14 European Common Market 128 European Patent Convention 126

F Federal Advisory Committee Act 61 Coal Mine Health and Safety Act .. 8 Council for Science and Technology 13 Fire Prevention and Control Act .... 8 Nonnuclear Energy Research and Development Act 14, 24,112 patent policy, its development and present status 3 patent policy and H.R. 8596 26 Procurement Regulations 23

Handbook of College and University Administration 80 Harbridge House 13 Harvard University 157 Health, Education, and Welfare, Department of 22, 32, 60, 84,129 Helium Act Amendments 7 HEW (see Health, Education, and Welfare, Department of ) Howard University 73 H.R. 8596 (see also, Thorton Bill) Federal Patent Policy and 26 genesis of 27 summary of 26 I Illinois, University of Income, distribution of Industrial patent policy: a construc­ tive approach to long term cor­ porate growth, experiences with .. Industrial research laboratories, impact of patent policies on creativity in

In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

73 83 156 145

171

INDEX

Industry patent policy, panel discussion 138 Innovation process 38 Institution(s) benefits derived by some 72 patent awareness at black 74 patent policies at educational and nonprofit scientific 78 Smithsonian 78 Institutional Patent Agreements 22,60,84-86 Intellectual property, the role of patent liaison in the protection of 131 International patent treaties, new 125 Invention(s) development and marketing of patentable 31 process 38 reporting of 83 Inventor's interest, the 15

Κ Kaplan vs. Corcoran Kodak

42 136

Minority-run universities, patents: potential economic benefits for .... Monopoly profits

69 32

Ν NASA (see National Aeronautics and Space Administration) National Aeronautics and Space Act 6 Aeronautics and Space Administration 6,23,32,85,111 Automobile Chamber of Commerce 101, 102 Economic Committee, Temporary .. 4 Institutes of Health 79, 86, 87 Patent Planning Commission 4 Research Development Corp 123 Science Foundation Act Traffic and Motor Vehicle Safety Act Naval Research, Office of North Carolina State

6, 7 7 79 73

Ο L Laboratories, impact of patent policies on creativity in industrial research 145 Lederle Laboratories 160 Legislation, policies regarding 127 License policy 3, 36, 59 Licensing patent and know-how 126 in the petroleum industry 115 policies at Ford Motor Co., factors that influence 99 procedures 83 Litigation 86

M Management, research 71 Marketing of a patentable invention, development and 31 Maryland, University of 157 Massacuhsetts Institute of Technology 73,79,157 Meharry Medical College 73 Miami, University of 73 Microbial Chemistry Research Foundation 123

Office of Federal Procurement Policy Management and Budget Naval Research Oil shales in Colorado Utah Wyoming Ownership, patent rights

24 24 79 116 116 116 82

Ρ Packard Motor Car Co 102 Paper patents 124 Paris Convention 127 Patent(s) agreements, institutional 22, 60, 85 awareness at black institutions 74 committee 81 Convention, European 126 Cooperation Treaty 126 everything patentable 146 and know-how licensing 126 liaison in the protection of intellectual property, role of 131 qualifications for 134 role 133

In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

PATENT

172

Patent(s) (Continued) Nothing, Keep Everything Secret .. paper in the petroleum industry Planning Commission, National .... policy(ies) alternatives in the battery industry constructive approach to long term corporate growth, ex­ periences with industrial on creativity in industrial re­ search laboratories, impact of its development and present status, federal at educational and nonprofit scientific institutions ERDA factors influencing universit at Ford Motor Co., factors that influence general discussion government available approaches for a legislative where is it headed on the ad­ ministrative front? in government R&D contracting and H.R. 8596, Federal objectives of government panel discussion government industry university in the pharmaceutical industry .. in practice statements, presidential university potential economic benefits for minority-run universities program of the University of California protection sought protection, why pursue rights ownership treaties, new international Patenting, foreign Patenting procedures Petroleum industry, patents and licensing in the Pharmaceutical industry, patent policies in the Pharmaceutical Manufacturers Association Phillips Petroleum Presidential patent policy statements Procurement Regulations, Federal ....

146 124 115 4 28 108 156 145 3 78 14 99 162 129 29 20 36 26 30 46 138 90 122 86 8 80 69 65 124 133 82 125 86 83 115 122 127 136 8 23

Profits, monopoly Publication policy Puritan Ethic

POLICY

32 127 152

R R&D contracting, patent policy in government 36 Research activity at predominantly black schools 73 Corp 71, 78, 84, 86, 88 and Development Act, Federal Nonnuclear Energy 112 and development on new battery systems 110 management 71 and Marketing Act 7 Rutgers Research and Endowment Foundation

71—73

S Saline Water Conversion Act 7 Schools, research activity at predominantly black 73 Scientific institutions, patent policies at educational and nonprofit 78 Smithsonian Institution 78 Society, American Chemical 78 Solid Waste Disposal Act 7, 22 Southern University 73 Squibb & Sons, E. R 160 SRI International 123 Standard Industrial Code 108 Standard Oil 151 Stanford 73 Sunshine Act 61 Surface Mining Control and Reclamation Act 8 Syntex 160

Τ Technology transfer 70 publish and perish, university 55 Tennessee State 73 Texaco Coal Gasification Process 116 Thomas Register of American Manufacturers 67 Thornton Bill . 1 8 , 20, 22, 26, 41, 61, 63, 118 3M f 136 "Title-in-the-Contractor" approach, deferred determination and 30

In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

173

INDEX

"Title" policy Transaction costs Transfer, technology Tuskegee Institute

3, 36, 59 37 70 73 U

United Kingdom, Crown corporation of the University Atlanta of California patent program of the Fisk of Florida Harvard Howard of Illinois of Maryland patent policies panel discussion selected factors influencing

123 73 78 65 73 73 157 73 73 15 8 90 85

University (Continued) Patents, Inc 84 patents : potential economic benefits for minority-run 69 of Rochester 73 Southern 73 technology transfer-publish and perish 55 of Wisconsin 55, 73, 78 Upjohn 160 Utah, oil shales in 116

W

Water Resources Act Winton Motor Carriage Co Wisconsin Alumni Research Wisconsin, University of Wyoming, oil shales in

In Patent Policy; Marcy, W.; ACS Symposium Series; American Chemical Society: Washington, DC, 1978.

7 100 55, 73, 78 116