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by the General Counsel of HEW, Mr. Peter Lebassi, that the delay in the re- lease of the more than 30 cases was only a matter of paperwork. But now another month has gone by and still nothing has been released by HEW. We are not witnessing in HEW "an unavoidable bureaucratic delay," but a calculated policy of "search and destroy" aimed at innovations from this country's scientific re- search programs.
THE DEMISE OF A LIFE SAVING INVENTION
Let me illustrate the attitude of some of the zealous bureaucrats in HEW who are now determining the policies for this country. Yesterday, I was informed by the legal counsel of the Weissman Institute of Israel, one of the world's most prominent medical research centers, that the petition for ownership rights submitted by its president, Professor Sella, who is a renowned scientist in cancer research, had been denied. Under a contract from NCI for an investigation of carcino-embryonic antigens (CEA) as a diagnostic marker for cancer, Dr. Sella invented a revolutionary new blood test for detecting cancer of the breast, digestive tract, and pancreas. From all indications it appears to be superior to all presently available procedures, and is especially important for postoperative follow-up diagnosis and prognosis of these dreaded cancers. Clinical trials of this marvelous new discovery that were to take place in collaboration with a private pharmaceutical firm have been canceled in light of the decision by HEW. I fear we will never know how many lives this invention would have saved.
What possibly could have prompted the HEW General Counsel to reach the decision to deny to Dr. Sella the rights to his own invention? I can only wonder who is served by HEW's policy? Certainly not the taxpayers who pay for this country's medical research. Certainly not Dr. Sella who has devoted so much of his life to conquering cancer. And certainly not the hundreds of thousands of us unfortunate enough to be stricken with cancer who need this technology to sustain life.
Rarely have I witnessed a more unfortunate example of overmanagement by the bureaucracy. In the anticipation of a presently nonexistent abuse, or perhaps out of a preoccupation with the rising cost of health care, HEW is willing to shut down the innovative process.
We must not allow this unfortunate state of affairs to be repeated. Legislation of a Government-wide patent policy is needed, and it is needed now.
I ask unanimous consent that the text of the bill be printed in the RECORD.
There being no objection, the bill was ordered to be printed in the RECORD, as follows:
S. 3496
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That this Act may be cited as the "Small Business Nonprofit Organization Patent Procedures Act."
AMENDMENT OF TITLE 35, UNITED STATES CODE, PATENTS
SEC. 2. Title 35 of the United States Code is amended by adding after Chapter 17, a new chapter as follows:
Chapter 18-PATENTABILITY OF INVENTIONS MADE WITH FEDERAL ASSISTANCE
Sec.
200. Policy and Objective.
201. Definitions.
202. Disposition of Rights.
203. March-in Rights.
204. Return of Government Investment.
205. Preference for United States Industry.
206. Confidentiality.
207. Background Rights.
208. Relationship to Anti-trust Laws.
209. Uniform Clauses.
210. Foreign Patent Protection and Federally Owned Patents.
211. Regulations Governing Federal Licensing and Small Business Preference.
212. Coordination of Federal Licensing Practices.
213. Restrictions on Exclusive and Partially Exclusive Licenses of Federally Owned Patents.
214. Precedence of Chapter.
215. Effective Date.
POLICY AND OBJECTIVE
SEC. 200. It is the policy and objective of the Congress to use the patent system to promote the utilization of inventions arising from Federally-supported research or development by nonprofit organizations and small business firms; to encourage maximum participation of small business firms in Federally-supported research and development efforts; to promote collaboration between commercial concerns and nonprofit organizations, including universities; to insure that inventions made by nonprofit organizations and small business firms are used in a manner to promote free competition and enterprise; to promote the commercialization and public availability of inventions made in the United States by United States industry and labor; to insure that the Government obtains sufficient rights in Federally-supported inventions to meet the needs of the Government and protect the public against nonuse cr unreasonable use of inventions; and to minimize the costs of administering policies in this area.
DEFINITIONS
SEC. 201. As used in this Chapter-
(a) The term "Federal agency" means any "executive agency", as defined in 5 USC 105, and the military department, as defined by 5 USC 102.
(b) The term "funding agreement" means any contract, grant, or cooperative agreement entered into between any Federal agency and any person for the performance of experimental, developmental, or research work funded in whole or in part by the Federal Government, such term includes any assignment, substitution of parties, or sub- contract of any type entered into for the performance of experimental, developmental, or research work under a funding agreement as herein defined.
(c) The term "subject inventor" means any person that is a party to funding agreement.
(d) The term "subject invention" means any invention of the subject inventor conceived or first actually reduced to practice in the performance of work under a contract.
(e) The term "practical application" means to manufacture in the case of a composition or product, to practice in the case of a process or method, or to operate in the case of a machine or system; and, in each case, under such conditions as to establish that the invention is being utilized and that its benefits are to the extent permitted by law or government regulations available to the public on reasonable terms from the subject inventor or licensee or assignee of the subject inventor.
(f) The term "made" when used in relation to any invention means the conception or first actual reduction to practice of such invention.
(g) The term "small business firm" means a small business concern as defined at section 2 of Public Law 85-536 (15 USC 632) and implementing regulations of the Administrator of the Small Business Administration.
(h) The term "nonprofit organization" means universities and other institutions of higher education and organizations of the type described in section 501(c) (3) of the Internal Revenue Code of 1954 (26 U.S.C. 501(c)) and exempt from taxation under section 501 (a) of the Internal Revenue Code (26 USC 501 (a)) .
DISPOSITION OF RIGHTS
Sec. 202. (a) Each nonprofit organization or small business firm may, within a reasonable time, elect to retain title to any subject invention; provided, however, that each Federal agency may promulgate regulations otherwise (i) when the subject invention is made under a contract for the operation of a Government-owned research or production facility, (ii) when such election to retain title might cause disclosure of classified information or otherwise impair national security; or (iii) in exceptional circumstances when it is determined by the agency that restriction or elimination of the right to retain title will better promote the policy and objective of this Chapter. The rights of the nonprofit organization or small business firm shall be subject to the provisions of paragraph (b) of this section and the other provisions of this Chapter.
(b) The subject inventor shall disclose to each Federal agency which is a party to a funding agreement under which the subject invention was made within a reasonable time after the making of a subject invention, and in any event at least 6 months before public disclosure thereof, the subject matter of the subject invention and whether the subject inventor intends to retain title to the subject invention or to relinquish title to the Government. The subject inventor shall file United States patent applications where appropriate within a reasonable time from making such disclosure and not later than six months after filing such United States applications shall inform the Federal agency as to the foreign countries in which the subject inventor intends to file patent applications.
(c) Each funding agreement with a small business firm or nonprofit organization shall contain appropriate provisions to effectuate the following:
(1) The right of the Federal Government upon request, to receive title to any subject invention not reported to the Federal agency within such times as are prescribed in Section 202(b) hereof and in the regulations promulgated hereunder.
(2) The right of the Federal Government, upon request, to receive title to any subject inventions in the United States or other countries in which the subject inventor has not filed patent applications on a subject invention within such times as are prescribed in Section 202(b) and in the regulations promulgated hereunder.
(3) The right of the Federal Government, upon request, to receive title to any subject invention in which the subject inventor does not elect to retain rights or fails to elect rights within such times as are prescribed in Section 202(b) and in the regulations promulgated hereunder.
(4) With respect to any invention in which the subject inventor elects rights, the Federal agency shall have a nonexclusive, nontransferable, irrevocable, paid-up license to practice or have practiced for or on behalf of the United States any subject invention throughout the world, and may, if provided in the funding agreement, have additional rights to sublicense any foreign government pursuant to foreign policy considerations or any existing or future treaty or agreement.
(5) The right of the Federal agency to require
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require periodic reporting on the utilization or efforts at obtaining utilization that are being made by the subject inventor or his licensees or assignees; provided that any such information may be treated by the Federal agency as commercial and financial information obtained from a person and privileged and confidential and not subject to disclosure under the Freedom of Information Act.
(6) An obligation on the part of the subject inventor, in the event a United States patent application is filed by or on its behalf or by any assignee of the subject inventor, to include within the specification of such application and any patent issuing thereon, a statement specifying that the invention was made with Government support and that the Government has certain rights in the invention.
(7) In the case of a nonprofit organization, (a) a prohibition upon the assignment of rights to a subject invention in the United States without the approval of the Federal agency, except where such assignment is made to an organization having prior approval of the Federal agency which has as one of its primary functions the management of inventions and which is not, itself, engaged in the manufacture or sale of products or processes that might utilize the invention or be in competition with embodiments of the invention and provided that such assignment is made subject to regulations promulgated hereunder governing rights in inventions and assignments of subject inventions; (b) a prohibition against the granting of exclusive licenses under United States Letters Patent in a subject invention by the Contractor or by a person deriving rights directly or indirectly from the Contractor for a period in excess of the earlier of five years from first commercial sale or use of the invention or eight years from the time before regulatory agencies necessary to date of the exclusive license excepting that obtain premarket clearance unless, on a case-by-case basis, the Federal agency approves a longer exclusive license. Exclusive field of use licenses may be granted and commercial sale or use in one field of use shall not be deemed to end the exclusive period as to unrelated fields of use; (c) a requirement that the balance of any royalties or income earned by the subject inventor with respect to subject inventions, after payment of expenses (including any payments to inventors) incidental to the administration of subject inventions, be utilized for the support of scientific research or education.
(8) If a subject inventor does not elect to retain title to a subject invention in cases subject to this Chapter, the Federal agency may consider and grant requests for retention of rights by the inventor subject to the provisions of this Act and regulations promulgated hereunder.
(9) In any case when a Federal employee is a co-inventor of any subject invention under this Chapter, the Federal agency employing such co-inventor is authorized to transfer or assign whatever rights it may require in the subject invention from its employee to a subject inventor electing to acquire rights hereunder subject to the conditions set forth in this Chapter.
MARCH-IN RIGHTS
SEC. 203. With respect to any subject invention in which a small business firm or nonprofit organization has acquired title under this Chapter, the Federal agency under whose funding agreement the subject invention was made shall have the right, in accordance with such procedures as are provided in regulations promulgated hereunder to require the subject inventor, an assignee or exclusive licensee of a subject invention to grant a nonexclusive, partially exclusive, or exclusive license in any field of use to a responsible applicant or applicants, upon terms that are reasonable under the circumstances, and if the contractor, assignee or exclusive licensee refuses such request, to grant such a license, itself, if the Federal agency determines either-
(a) That such action is necessary because the subject inventor or assignee has not taken, or is not expected to take within a reasonable time, effective steps to achieve practical application of the subject invention in such field of use; or
(b) That such action is necessary to alleviate health or safety needs which are not reasonably satisfied by the subject inventor. assignee, or their licensees; or
(c) That such action is necessary to meet requirements for public use satisfied by the contractor, assignee, or licensees.
RETURN OF GOVERNMENT INVESTMENT
SEC. 204. (a) If a nonprofit organization or small business firm receives $250,000 in after tax profits from the licensing of any subject invention, in a period of ten years following reporting of the invention the United States shall be entitled to a share, to be negotiated, of up to 50 percent of all net income during said period from licensing received by contractor above $250,000; provided, however, that in no event shall the United States be entitled to an amount greater than that portion of the Federal funding under the funding agreement under which the subject invention was made which was expended on activities related to the making of the invention.
(b) In addition, if a nonprofit organization or small business firm receives after tax profits in excess of $2,000,000 on sales of products embodying or manufactured by a process employing a subject invention, during a period of ten years commencing with commercial exploitation of the subject invention, the Government shall be entitled to a share, to be negotiated, of all additional income accruing from such sales up to the amount of the portion of the Government funding under the contract under which the invention was made which was expended on activities related to the making of the invention less any amounts received by the Government in accordance with paragraph (a) of this section 204.
(c) The Director of the Office of Federal Procurement Policy is authorized and directed to revise the figures of $250,000 and $2,000,000 in paragraphs (a) and (b) of this section at least every three years in light of changes to the consumer price index or other indices which he considers reasonable to use.
PREFERENCE FOR UNITED STATES INDUSTRY
SEC. 205. (a) Notwithstanding any other provision of this Chapter, no small business firm or nonprofit organization which receives title to any subject invention and no person which receives an assignment of the subject invention shall assign the right to practice such invention in the United States or grant an exclusive license to practice the invention in the United States to any foreign corporation or any other organization substantially owned or controlled by foreign interests. However, in individual cases, this restriction may be waived by the Federal agency under whose funding agreement the invention was made.
(b) Notwithstanding any other provision of this Chapter, no small business firm or nonprofit organization which receives title to a subject invention and no person which receives an assignment of the subject invention from them shall assign the right to practice the invention outside the United States or grant an exclusive license to practice the invention outside the United States to any foreign corporation or any other organization substantially owned or controlled by foreign interests unless it shall have first undertaken reasonable efforts, as defined by regulations promulgated pursuant to this Chapter, to in- terest domestic, United States organizations or corporations in such foreign rights.
CONFIDENTIALITY
SEC. 206. Any report of a subject invention under this Chapter may be treated by the Federal agency as a record exempt from disclosure pursuant to 5 USC 552 (b) (4) unless (1) a United States patent application describing the invention has been filed (provided that copies of the actual patent application may be treated by the Federal agency as records exempt from disclosure pursuant to 5 USC 552 (b) (4)), (ii) a description of the invention has been published elsewhere by the inventor, (iii) the subject inventor has not elected to retain title and/or a subject inventor or inventor has not requested the retention of title or other commercial rights, or (iv) the subject inventor has not elected to retain title and/or the Federal agency has denied the request of the subject inventor to retain title or other commercial rights.
BACKGROUND RIGHTS
SEC. 207. Nothing in this Chapter shall be deemed to preclude a Federal agency from obtaining rights in any background invention of a subject inventor or other contractor.
RELATIONSHIP TO ANTI-TRUST LAWS
SEC. 208. Nothing in this Chapter shall be deemed to convey to any person immunity from civil or criminal liability, or to create any defenses to actions, under any antitrust law.
UNIFORM CLAUSES
SEC. 209. The Office of Federal Procurement Policy, after receiving recommendations of the Office of Science and Technology Policy, may issue regulations which may be made applicable to Federal agencies establishing standard funding agreement provisions re- quired under this chapter.
FOREIGN PATENT PROTECTION AND FEDERALLY OWNED PATENTS
SEC. 210. Each Federal agency is authorized to--
(1) apply for, obtain, and maintain patents or other forms of protection in the United States and in foreign countries on inventions in which the Federal Government owns a right, title, or, interest;
(2) promote the licensing of inventions covered by federally owned patent applications, patents, or other forms of protection obtained with the objective of maximizing utilization by the public of the inventions covered thereby;
(3) grant nonexclusive, exclusive, or partially exclusive licenses under federally owned patent applications, patents, or other form: of protection obtained. royalty-free or for royalties or other consideration, and on such terms and conditions, including the grant to the licensee of the right of enforcement pursuant to the provisions of chapter 28 of title 35. United States Code, as determined in the public interests;
(4) make market surveys and other investigations for determining the potential of inventions for domestic and foreign licensing and other forms of utilization, acquire technical information, and engage in negotiations and other activities for promoting the licensing and for the purpose of enhancing their marketability and public utilization;
(5) withhold publication or release to the public information disclosing any invention in which the Federal Government owns 0 may own a right, title, or interest for a rea sonable time in order for a patent application to be filed;
(6) undertake all other suitable and necessary steps to protect and administer rights to inventions on behalf of the Federal Government either directly or through contract; 
(7) transfer custody and administration in whole or in part, to the Department of
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Commerce or to another Federal agency, of the right, title, or interest in any invention for the purpose of carrying out the provisions of paragraphs (1) through (4), without regard to the provisions of the Federal Property and Administrative Services Act of 1949 (40 U.S.C. 471); and
(8) designate the Department of Commerce as recipient of any or all funds received from fees, royalties, or other management of federally owned inventions authorized under this Act.
REGULATIONS GOVERNING FEDERAL LICENSING AND SMALL BUSINESS PREFERENCE
SEC. 211. The Administrator of General Services is authorized to promulgate regulations specifying the terms and conditions upon which any federally owned invention may be licensed on a nonexclusive, partially exclusive, or exclusive basis. First preference in licensing federally owned inventions shall go to small business firms.
COORDINATION OF FEDERAL LICENSING PRACTICES
SEC. 212. The Secretary of Commerce is authorized in cooperation with other Federal agencies to-
(1) coordinate a program for assisting all Federal agencies in carrying out the authority set forth in section 210;
(2) publish notification of all federally owned inventions that are available for licensing;
(3) evaluate inventions referred by Federal agencies, and patent applications filed thereon, in order to identify those inventions with the greatest commercial potential and to insure promotion and utilization by the public of inventions so identified;
(4) assist the Federal agencies in seeking and maintaining protection on inventions in the United States and in foreign countries, including the payment of fees and costs connected therewith;
(5) accept custody and administration, in whole or in part, of the right, title, and interest in any invention for the purposes set forth in paragraphs (1) through (4) of section 210, with the approval of the Federal agency concerned and without regard to the provisions of the Federal Property and Administrative Service Act of 1949 (40 U.S.C. 471);
(6) receive funds from fees, royalties, or other management of federally owned inventions authorized under this Chapter, but such funds shall be used only for the purposes of this Chapter; and
(7) undertake such other functions directly or through such contracts as are necessary and appropriate to accomplish the purposes of this title.
RESTRICTIONS ON EXCLUSIVE AND PARTIALLY EXCLUSIVE LICENSES OF FEDERALLY OWNED PATENTS
SEC. 213. (a) (1) Each Federal agency may grant exclusive or partially exclusive licenses in any invention covered by a federally owned domestic patent or patent application only if, after public notice and opportunity for filing written objections, it is determined that-
(A) the interests of the Federal Government and the public will best be served by the proposed license, in view of the applicant's intentions, plans, and ability to bring the invention to practical application or otherwise promote the invention's utilization by the public;
(B) the desired practical application has not been achieved, or is not likely expeditiously to be achieved, under any nonexclusive license which has been granted, or which may be granted, on the invention;
(C) exclusive or partially exclusive licensing is a reasonable and necessary incentive to call forth the investment of risk capital and expenditures to bring the invention to practical application or otherwise promote
CXXIV-1831-Part 22
the invention's utilization by the public; and
(D) the proposed terms and scope of exclusivity are not greater than reasonably necessary to provide the incentive for bringing the invention to practical application or otherwise promote the invention's utilization by the public.
(2) A Federal agency shall not grant such exclusive or partially exclusive license under paragraph (1) of this subsection if it determines that the grant of such license will tend substantially to lessen competition or result in undue concentration in any section of the country in any line of commerce to which the technology to be licensed relates, or to create or maintain other situations inconsistent with the antitrust laws.
(b) After consideration of whether the interests of the Federal Government or United States industry in foreign commerce will be enhanced, any Federal agency may grant exclusive or partially exclusive licenses in any invention covered by a foreign patent application or patent, after public notice and opportunity for filing written objections, except that a Federal agency shall not grant such exclusive or partially exclusive license if it determines that the grant of such license will tend substantially to lessen competition or result in undue concentration in any section of the country in any line of commerce to which the technology to be licensed relates, or to create or maintain other situations inconsistent with the antitrust laws.
(c) The Federal agency shall maintain a record of determinations to grant exclusive or partially exclusive licenses.
(d) Any grant of an exclusive or partially exclusive license shall contain such terms and conditions as the Federal agency determines appropriate for the protection of the interests of the Federal Government and the public, including provisions for the following:
(1) periodic written reports at reasonable intervals including, when specifically requested by the Federal agency, the extent of the commercial or other use by the public that is being made or is intended to be made of the invention;
(2) a nonexclusive, nontransferable, irrevocable, paid-up license to practice or have practiced for the Federal Government the licensed invention throughout the world by or on behalf of the Federal Government (including any Federal agency), and the additional right to sublicense any State or domestic local government or to sublicense any foreign government pursuant to foreign policy considerations, or any treaty or agreement if the Federal agency determines it would be in the national interest to retain such additional rights;
(3) the right of the Federal agency to terminate such license in whole or in part unless the licensee demonstrates to the satisfaction of the Federal agency that the licensee has taken effective steps, or within a reasonable time is expected to take such steps, to accomplish substantial commercial or other use of the invention by the public; and
(4) the right of the Federal agency, commencing three years after the grant of a license, to require the licensee to grant a nonexclusive or partially exclusive license to a responsible applicant, upon terms reasonable under the circumstances to terminate the license in whole or in part, after public notice and opportunity for a hearing, upon a petition by an interested person justifying such hearing, if the Federal agency determines, upon review of such material as it determines relevant and after the licensee or other interested person has had the opportunity to provide such relevant and material information as the Federal agency may require, that such license has tended substantially to lessen competition or to result in undue concentration in any section of the country in any line of commerce to which the technology relates, or to create or maintain other situations inconsistent with the antitrust laws.
PRECEDENCE OF ACT
SEC. 214. This Chapter shall take precedence over any other act which would require a disposition of rights in subject inventions in a manner that is inconsistent with this Chapter, including but not necessarily limited to the following:
(1) Section 10(a) of the Act of June 29, 1935, as added by Title 1 of the Act of August 14, 1946 (7 USC 4271(a): 60 Stat. 1085);
(2) Section 205(a) of the Act of August 14, 1946 (7 USC 1624(a); 60 Stat. 1090) ;
(3) Section 501(c) of the Federal Coal Mine Health and Safety Act of 1969 (30 USC 951 (c); 83 Stat. 742) ;
(4) Section 106(c) of the National Traffic and Motor Vehicle Safety Act of 1966 (15 USC 1935 (c); 80 Stat. 721);
(5) Section 12 of the National Science Foundation Act of 1950 (42 USC 1871(a); 82 Stat. 360);
(6) Section 152 of the Atomic Energy Act of 1954 (42 USC 2182, 68 Stat. 943);
(7) Section 305 of the National Aeronautics and Space Act of 1958 (42 USC 2457) ;
(8) Section 6 of the Coal Research Development Act of 1960 (30 USC 666; 74 Stat. 337) ;
(9) Section 4 of the Helium Act Amendments of 1960 (50 USC 167b; 74 Stat. 920) ;
(10) Section 32 of the Arms Control and Disarmament Act of 1961 (22 USC 2572; 75 Stat. 634);
(11) Subsection (e) of section 302 of the Appalachian Regional Development Act of 1965 (40 USC App. 302(e); 79 Stat. 5);
(12) Subsection (a) (2) of section 216 of title 38. United States Code;
(13) Section 9 of the Federal Nonnuclear Energy Research and Development Act of 1974 (42 USC 5901; 88 Stat. 1978) ;
(14) Section 3 of the Act of June 22, 1976 (42 USC 1959d, note: 90 Stat. 694) ;
(15) Subsection (d) of section 6 of The Saline Water Conversion Act of 1971 (42 USC 1959(d); 85 Stat. 161);
(16) Section 303 of the Water Resources Research Act of 1964 (42 USC 1961c-3; 78 Stat. 332) ;
(17) Section 5(d) of the Consumer Product Safety Act (15 USC 2054 (d); 88 Stat. 1211):
(18) Section 3 of the Act of April 5. 1944 (30 USC 323; 58 Stat. 191); and
(19) Section 8001 of the Solid Waste Disposal Act (42 USC 6981: 90 Stat. 2829).
The Act creating this Chapter shall be construed to take precedence over any future Act unless that Act specifically cites this Act and provides that it shall take precedence over this Act.
EFFECTIVE DATE
SEC. 215. This Chapter shall take effect 180 days after the date of enactment of this Chapter. except that the regulations referred to in Section 209, or other implementing regulations, may be issued prior to that time.
Mr. BAYH. Mr. President, I am pleased today to join in introducing the University and Small Business Patent Procedures Act. This bill is the result of a substantial amount of investigation and consultation involving both Senator DOLE and his staff and me and my staff. I am pleased to join in the leadership of this bipartisan effort with my distinguished colleague from Kansas, and
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I am pleased also that our colleagues, Senators MATHIAS, DECONCINI, PAUL HATFIELD, GARN, HATCH, MARK HATFIELD, METZENBAUM, and DOMENICI have joined us as cosponsors.
The bill addresses a serious and growing problem: Hundreds of valuable medical, energy, and other technological discoveries are sitting unused under Government control, because the Government, which sponsored the research that led to the discoveries, lacks the resources necessary for development and marketing purposes, yet is unwilling to relinquish patent rights that would encourage and stimulate private industry to develop discoveries into products available to the public.
The cost of product development exceeds the funds contributed by the Government toward the initial research by a factor of at least 10 to 1. This together with the known failure rate for new products, makes the private development process an extremely risky venture, which industry is unwilling to undertake unless sufficient incentives are provided.
The problem is substantial in HEW, the Department of Defense, the Department of Agriculture, and the National Science Foundation. But nowhere is the patent situation more disturbing than in the biomedical research programs. Many people have been condemned to needless suffering because of the refusal of agencies to allow universities and small business sufficient rights to bring new drugs and medical instrumentation to the marketplace.
For example, Department of Energy and Department of Health, Education, and Welfare procedures of reviewing all of the requests for patent rights from universities are resulting in delays of almost 2 years. In many cases these inventions could make significant contributions to the health and welfare of the American people, but are being frustrated by this present patent policy.
The bill that we are introducing today strikes a careful balance between the rights of the Federal Government to use for itself and the public good inventions arising out of research that the Federal Government helps to support, and the equally important rights of the inventor and the public to see that the inventions receive their full potential in the market- place and reach the people they may benefit. This bill will allow universities, nonprofit organizations, and small businesses to obtain limited patent protection on discoveries they have made under Government-supported research, if they spend the additional private resources necessary to bring their discoveries to the public. Our experience has shown that unless inventors, universities, small businesses, and the private sector generally are given sufficient incentives to work together and bring inventions to the public, new technology is likely to languish.
This bill addresses part of a larger problem that I find very disturbing, namely, that America seems to be falling behind in technological innovation and inventiveness.
In a two-part series which appeared in the Washington Post on September 3, and September 10, 1978, Mr. Bradley Graham pointed out a number of indicators that something is going wrong with American industry's long-recognized ability to lead the world in technological developments. Mr. Bradley mentions several troubling statistics:
The number of U.S. patents issued per year to U.S. inventors reached a peak in 1971 and has declined steadily since. But the number granted to foreign inventors has increased steadily since 1963. In 1977, foreigners claimed 35 percent of all patents issued in the U.S. across a broad range of fields.
The U.S. balance of trade has worsened, due not only to increased oil imports, but also to more imports of foreign manufactured goods.
Productivity, which is partly a function of technological innovation, has slumped severely. In the past decade, the rate of growth in U.S. productivity has averaged only half of what it was the previous 20 years. In contrast, productivity growth rates in Europe and Japan have been on the rise.
From 1953 to 1966, U.S. investment in research grew at an impressive rate of 10 percent annually in inflation-adjusted dollars. However, investment in research by all sectors in the U.S. over the past 10 years has shown essentially no growth in constant dollars. Further, a number of major U.S. corporations have announced recently they intend to spend even less on long-term basic re- search and more on development of short-term, quick-profit products.
There are, of course, a number of theories which have been offered to explain this situation. Some observers have cited the dropoff in Government-supported research. the nature of the modern corporation, changes in lifestyle. the entrance into the work force of inexperienced workers, and overregulation of businesses by the Government. Others have said that this technological lag is merely a misperception, and that new technological developments are being made, but that they are of necessity not as exciting as the unprecedented technological breakthroughs that followed World War II.
I do not wish to speculate on these theories beyond saying that many of our prominent scientists, educational leaders and businessmen believe that this problem is a very real one, one in fact so serious that it strikes at the traditional heart of the American economy--our ability to adapt to a changing world.
A September 4, 1978 column by Jack Anderson and a July 3. 1978 article in Business Week discuss the unique problems facing small businesses with respect to our declining national role in technological innovation. I ask unanimous consent that all four of these articles be printed at the conclusion of my remarks.
It is time that we start identifying the causes of this troubling trend. and seek solutions. One such area where I am confident progress can be made immediately is with inventions arising from federally supported university and small business research. That is why we are introducing the University and Small Business Patent Procedures Act. In many cases research efforts of small businesses and universities are being frustrated by the policy of the Government of retaining patent rights in most cases, on inventions arising out of research funded in whole or in part by the Federal Government. Small businesses and our universities have been among the most innovative sectors of our economy and have a proven capacity to develop the sort of bold, new inventions that our country needs to maintain its leadership in the world economic community.
The University and Small Business Patent Procedures Act is designed to meet this aspect of the larger problem of lagging technological innovation.
Mr. President, I would like to outline some of the important sections of the bill. I would particularly like to draw the attention of my colleagues to section 204 which provides that if the invention achieves a certain level of success payment must be made back to the Government until this payment equals that amount invested in the invention by the Government.
Section 202 provides that each nonprofit organization (defined in the bill to include universities) and small business shall have a reasonable amount of time to elect to retain title to subject inventions. The federal agency may retain title if the invention is made under a contract for operation of a government owned research or production facility, might cause the disclosure of classified information or imperil national security, or if granting patents would not be in the public interest in terms of the purpose to be served by this legislation.
Section 202(c) provides that each funding agreement shall contain provisions to: (1) insure the right of the federal government to receive title to any subject invention not reported to it within the prescribed times of the contract; (2) insure the government's right to receive title to inventions when the inventor does not intend to file for patent rights: and (3) provide that the agency shall have a nonexclusive, nontransferable, paid-up license to use the invention.
Section 202(c) (7) prohibits nonprofit institutions from assigning rights without the approval of the federal agency; prohibits granting such rights in excess of the earlier of 5 years from the date of first commercial use or 8 years from the date of invention, whichever comes first; and provides that all proceeds shall be used to support scientific research or education.
Section 203 gives the federal agency the right to require the subject inventor or his assignee to grant additional licenses if the agency feels that sufficient steps are not being taken to achieve commercialization. Additional licensing may also be required to alleviate health and safety needs, or under provisions for public use as specified by federal regulations.
Section 204 provides that if the patent holder receives $250.000 in after tax profits from licensing any subject invention during a ten-year period, or receives in excess of $2.000.000 on the sales of products embodying or manufactured by a process employing the subject invention within the ten-year period, that the government shall be entitled to collect up to 50% of all net income above those figures until such time as the amount of government research money has been repaid.
Section 205 specifies that no foreign owned or controlled firm shall be eligible to receive patent rights under this Act unless the fed- era! agency determines that this is the only available means of achieving commercialization: a similar provision covers licensing the invention outside the U.S.
Section 210 will allow federal agencies to grant exclusive, partially exclusive, or non- exclusive licenses on government owned patents to achieve commercialization; the Department
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Department of Commerce is authorized to receive patents held by other agencies and to make the necessary steps to determine the market potential of the patent and to receive any fees or royalties due to the government.
Section 211 authorizes the Administrator of GSA to issue regulations regarding such licenses and gives first preference in licensing federal patents to small businesses.
Section 213 specifies that federal licenses be issued only after public notification and opportunity for filing objections and that exclusive or partially exclusive licenses not be granted if the result would be a lessening of competition; the agency has the right to require more licensing if it feels that this is necessary after three years and to require periodic written reports on progress toward commercialization.
There being no objection, the material was ordered to be printed in the RECORD, as follows:
[From the Washington Post, Sept. 3, 1978] SOMETHING'S HAPPENED TO YANKEE INGENUITY
(By Bradley Graham)
It's been 89 years since Angus Campbell put the first automatic cotton picker to work, 70 years since Henry Ford gassed up his first Model T, 39 years since Du Pont introduced a super fiber called nylon and 30 years since Edwin H. Land marketed the first instant picture camera.
All of which helps recall a time America's inventive spirit seemed unbounded and unceasing. Ideas flowed to the marketplace as fast and furious as mountain rapids flow downhill.
But what was once thought to be an endless stream of U.S. inventions has of late been trickling out less startling and less competitive products. Meantime, adding pain to the drain, the inventive powers of foreign nations have been in ascendance. The question, once raised in a whisper, is now asked in loud and urgent tones. Has American enterprise lost its innovative touch? Consider the facts.
The number of U.S. patents issued per year to U.S. inventors reached a peak in 1971 and has declined steadily since. But the number granted to foreign inventors has increased steadily since 1963. In 1977, foreigners claimed 35 percent of all patents issued in the U.S. across a broad range of fields.
The U.S. balance of trade has worsened, due not only to increased oil imports, but also to more imports of foreign manufactured goods.
Productivity, which is partly a function of technological innovation, has slumped severely. In the past decade, the rate of growth in U.S. productivity has averaged only half of what it was the previous 20 years. In contrast, productivity growth rates in Europe and Japan has been on the rise.
From 1953 to 1966, U.S. investment in research grew at an impressive rate of 10 percent annually in inflation-adjusted dollars. However, investment in research by all sectors in the U.S. over the past 10 years has shown essentially no growth in constant dollars. Further, a number of major U.S. corporations have announced recently they intend to spend even less on long-term basic research and more on development of short-term, quick-profit products.
In a world where power and progress are often measured in terms of technological breakthroughs and scientific prowess, such trends are indeed disturbing.
For a nation that has always prided itself on its tinkerers-on those lone souls who brought forth from their garages and basement labs such revolutionary devices as power steering, the office copier and the zipper-they are downright depressing.
From boardroom to research lab, there is a deepening sense that something has happened to the once unchallengeable Yankee ingenuity. Just what, though, no one quite knows.
Some insist it is in rapid decline, choked by an unfavorable economic climate, government regulation and, perhaps, by the lethargy and shortsightedness of big business. Others say it has simply taken new forms, becoming more subtle and incremental in nature than grand and revolutionary. Either way, the country's genius for invention does not appear, at least, to be what it once was.
Alarm bells are going off all over. First, Michael Boretsky, a senior policy analyst in the Commerce Department: "All the indicators imply that the rate of U.S. innovation is measurably down. It's very disconcerting."
Next, Dr. Alden Bean, director of research for the National Science Foundation: "There's no solid evidence to suggest that the U.S. is going to hell in a handbasket in science and technology. But there is serious cause for concern about some trends we've seen."
After several years of arm-waving and shouting about waning U.S. innovation, the nation's research establishment finally caught the ear of the White House. Several months ago, the Carter administration launched a major policy review of things to be done to foster innovation in private industry. The study is being coordinated by the Commerce Department and involves more than 15 agencies. A final report, including recommendations for the president, is expected by April.
But many experts say another study is hardly necessary. The worrisome state of innovation in America has been assessed and reported on many times since the first major policy review conducted by Commerce in 1967. In the interim, the problems only have become more obvious.
For one, the economic climate for innovation is poor. The financial incentives that in the past encouraged the rich and the bold to risk their money on slim-chance projects no longer exist, thanks to increases in the capital gains tax and tighter rules on stock options. Inflation, too, has put the squeeze on capital investment by existing corporations.
Also, with the winding down of space and defense programs, government support of industrially performed research has diminished. Throughout the 1950s, the government annually supported more than one-third of industrial research activity. This level of support reached almost 40 percent in 1962, but has been falling consistently and is 25 percent today.
Increased government regulation, too, has increased operating costs and shrunk the share of profits formerly available for research. So has the higher cost of energy.
Together, these developments have forced a shift in industrial research activities from the offensive to the defensive. "Major effort is being diverted into defensive research," said Howard Nason, president of the Industrial Research Institute in St. Louis. "Much more emphasis is being placed on short-term cost reductions than on long-term product and process improvements."
But as important as such external economic factors may be in explaining the innovation slump, there are certain features about the internal structure of corporate America today which some say have had a debilitating effect on innovation.
Writing in the July-August issue of the Harvard Business Review, Alfred Rappaport, professor of business at Northwestern University, blames the research lag on the increasing emphasis American business places on short-term results. Rappaport asserts that management incentive programs are biased toward quick profits at the expense of perhaps smarter long-term investment.
"American business would do well to re-examine its own self-administered incentive systems," Rappaport concludes.
Industrial research today is dominated by a small number of very large corporations. The top 10 percent of those firms doing R&D in 1976 performed almost 70 percent of the total U.S. R&D effort. Ten firms accounted for more than 36 percent of all expenditures that year. This concentration may itself work against innovation.
"A large part of the blame for the lack of innovation lies with the oligopoly nature of American industry," said Mark Green, director of Ralph Nader's Congress Watch. "Big companies get habituated to their products and there is a reluctance to break through. If you already dominate an industry, where is the incentive to take a chance on a new and costly approach?"
But the history of innovation in America is ambiguous on this point. Studies done on whether big business or little business is more inventive have come to no conclusive end as a whole.
Certainly, many major innovations have come from outside an established industry. The ballpoint pen, for instance, was invented by a sculptor, the dial telephone by an undertaker. It took an electrical engineer employed by a shipbuilding firm in the 1930s to develop the automatic transmission, called by some the last major innovation of the auto industry. IBM's disk memory unit, the heart of today's computer, was not the logical outcome of a decision made by IBM management-rather, it was developed in one of its labs as a bootleg project, over the stern warning from management that the project had to be dropped because of budget difficulties.
At the same time, certain large firms in the fields of electronics, pharmaceuticals, telecommunications and computers have been highly innovative.
In their seminal study in 1958 on the sources of invention, Harvard professor John Jewkes and his colleagues said they could not conclude that inventions flow primarily from any one source. When the study was revised in 1969, the authors stated only the obvious; that inventions can come from firms of varying size.
Business leaders, of course, refute the charge that they are less innovative today than in the past. "There's no lack on the part of big business to be innovative," said General Motors Corp. Chairman Thomas Murphy in a phone interview. "It's a big country. so we have to be big. We couldn't do all of the things we do if we weren't as large as we are."
To the public, a car may still look like a car. But auto officials say the changes which have taken place inside during the past five years have been as revolutionary as anything which has come before.
"There's a perception problem," said Thomas J. Feaheny, the man in charge of car engineering for Ford Motor Co., where "better ideas" were once not only a management dictum but a successful ad slogan. "We've never been as innovative as we are now. But the things we're doing aren't as glamorous and aren't noticed much by the consumer."
Critics note. however, that what the auto industry heralds as advances in development (the catalytic converter, on-board use of minicomputers to govern fuel efficiency and control pollution, greater use of aluminum and other lightweight durable materials) are, in fact, only more logical applications of off-the-shelf technologies rather than breakthroughs in the state of the art.
Of even greater concern, though, than what has or hasn't happened is the prospect for the future. Many major corporations have tailored research budgets to yield more practicable and immediate results. In 1958, industry allocated as much as 38 percent of its R&D dollar to the "R" part. By last year, this had dropped to 25 percent.
Corporations say the reasons for this shift from research into development have nothing
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nothing to do with being too big or too comfortable. The reasons, basically, are greater pressures from government regulators to meet health, safety and environmental standards as soon as possible, and greater uncertainty about the likely profitability of longer-term, riskier ventures.
"It used to be much easier to bring new products to market," said Du Pont Chairman Irving Shapiro in an interview. "If you hit something, you'd have more time to develop it. Now it's more difficult.
"Also, the pot of gold at the end of the rainbow just isn't there. The economic environment has changed. Our thinking has had to change, too. It's become more short range."
Added Richard Hechert, Du Pont's senior vice president for R&D: "We're not exploring wholly new areas. We're concentrating instead on opportunities for research in established areas. . . . We are less able to take risks. We have to concentrate on surer projects."
The degree of such thinking does vary from company to company and industry to industry. Certain high-technology fields (instrumentation, computers and electronics) remain rooted in innovation and continue to churn out impressive new products. In other industries, though-particularly those most apt to be subject to regulation and high energy costs (steel, chemicals, paper, packaged goods and autos) -product innovation has levelled.
Part of the difficulty in deciding what to do about the innovation lag is figuring out how to define it. To begin with, innovation defies measurement.
"There are no indicators which you can look at to measure the advancement of knowledge," said NSF's Dr. Bean. "Some people count patents, but that's unreliable in part because some firms don't like to patent things and would rather rely on trade sec- rets rather than disclose important discoveries. Others count citations in the research literature, but that's unreliable. too."
But even without sure data, many have not hesitated to push the panic button. "You can't use statistics to say there's a problem," said Jordan J. Baruch, the assistant Secretary of Commerce who is directing the government's innovation policy review. "But you'd have to be blind not to see it."
Urgency about the problem is all the greater because America seems uniquely stricken, Western Europe and Japan grow more inventive, or so it appears, while U.S. firms age. Examples abound of foreign firms taking the lead in both new and traditional product areas. The Japanese, for instance, totally eclipsed the American communications industry in the development of video tape recorders. The Germans and Swiss now set the pace in textiles. Inventiveness in the steel industry has centered in Belgium and Austria. Some U.S. cities are even going abroad to scout for new ways to handle old problems. (The Council for International Urban Liaison here publishes a monthly newsletter called Urban Innovations Abroad that goes to 5,000 city officials in the U.S.)
Moreover, U.S. productivity rates have been in a rut for a decade-and that has serious consequences for everyone's real income and for the nation's overall standard of living. Of course, technological change by itself does not make or break productivity. There are other contributing factors, most important among them being capital investment and improved labor skills. But technology is an important ingredient in the mix.
With industry's current bent toward the here and now, there is concern that the U.S. may be cutting its innovative bridges. Some economists, notably Charles P. Kindleburger at MIT, have drawn disturbing parallels between the way U.S. firms are responding to America's battered competitive leads and the responses of British firms in the twilight of the English empire, British firms, just as American firms now, became defensive-that is, rather than redoubling efforts to generate innovations, they curtailed investment and demanded government protection against imports.
Does the current emphasis on small, incremental kinds of advances rather than on big breakthrough threaten the dominant position the U.S. still holds?
No one is sure. Despite all the studies of innovation and productivity, no one can say whether there is an optimum rate of invention a society should adhere to, or how much innovation is enough.
There does seem to be general agreement, though, on this. The rapid technological growth which the U.S. experienced during the first two decades after World War II was unusual and is not likely to be repeated.
"We made an enormous investment in the war, made some great technological advances during it, and came out of it with a great belief in the power of technological progress," said J. Herbert Hollomon, director for the Center of Policy Alternatives at MIT. "We also were handed an accidental lead, in having survived the war better than anyone else. But one of the things that is increasingly going to be the case is that new technological innovations are going to happen outside the U.S."
Holloman said that American business has in the past displayed an NIH (not-invented-here) complex, meaning that U.S. managers have been arrogant toward anything not thought up first in America and slow to embrace it. This is one of the things that he said will have to change if American firms hope to continue to compete in world markets. American businesses must learn to be quick to adapt, to exploit foreign inventions as well as their own, he warned.
"The problem is not with basic science," Holloman said. "The problem really is how effective we can be in adjusting and adapting."
Some have argued that U.S. multinationals may themselves have hastened this competitive bind on America by transferring their best technologies to foreign markets in recent years. Those who say this also urge legislation that would restrict further transfers of technology.
But most who have studied the innovation problem say the solution lies in fostering a innovation at home-through more liberal tax policy, a relaxed regulatory policy, less aggressive antitrust practices and, in general, a more cooperative spirit between business and government such as exists in Japan and the leading Western European countries.
And above all, they argue for greater certainty in government policy. "I think that more than an increase in government sup- port of R&D or a reduction in regulation, what private industry people are interested in is a reduction in uncertainty about government action," said Dr. Bean. "Look, there's enough economic uncertainty in the R&D process without the government."
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[From the Washington Post] U.S. PRODUCTIVITY: GOLDEN DAYS OVER (By Bradley Graham)
(NOTE .-- This is the second of two articles discussing whether, as is widely perceived today, the dynamic vitality of the American economy is faltering. Last week's piece examined the lag in U.S. innovation. This week's describes the forces behind the nation's productivity slump.)
Like a movie that changes from fast- to slow-motion and then gets stuck on a single frame, America's productivity rate is creeping closer and closer to a dead stop.
For two decades following World War II. the productivity in the U.S. sprinted up the growth charts untiringly. Spurred by a labor force anxious to get back to peaceful industrial employment and by a string of technological breakthrough that gave the U.S. a commanding lead in product markets around the world, the American economy seemed unfailing and unstoppable.
But the rise began to slacken about a decade ago. In the past 10 years, productivity gains averaged 1.6 percent a year, only half the rate of the golden-growth days. This year, productivity has taken an even sharper turn for the worse, showing almost no increase at all.
Barry Bosworth, director of the President's Council on Wage and Price Stability, told a congressional committee recently: "We're turning into the British situation of the early '70s when they had almost no productivity growth." Calling the slowdown "a real puzzle," Bosworth said the U.S. has practically stopped showing gains in output per hour worked.
Moreover, the slump has been widespread. About two-thirds of the 67 industries regularly surveyed by the government have registered productivity declines. What makes the slowdown even more critical is that while productivity has been falling in the United States, it has been rising in Europe and Japan. Since 1967, the productivity rate has surged ahead 105 percent in Japan, 54 percent in Italy and France, and 39 percent in Canada. Even Great Britain topped America, edging past the U.S., 25 percent to 24 percent.
The meaning of all this is simple enough- and deeply disturbing. Without a gain in productivity:
Inflation will be more difficult-probably impossible-to control.
America's ability to compete in world markets will continue to weaken.
Real wealth in America will shrink effectively strangling the campaign against poverty and eroding everyone's standard of living.
But what is behind the slump is much less simple and less certain. Some say it is the result of basic shifts in the economy- we have been transformed, so the story goes, from a nation of industrial workers to one of lawyers, insurance agents and real estate brokers. Others blame the lag in productivity on environmental and safety rules which have redirected business investment into less productive (though perhaps more socially desirable) ends. Still others cite a change in both worker and management attitudes --- people, they say, don't want to work as hard as they used to, and corporate managers have lost the sense of adventure and the willing- ness to take risks that was once their mark in trade.
In any case, the sense of desperation mounts as productivity indicators slide. The national doomsayers club has never had so many illustrious members.
"America's economic survival will depend on its ability to increase its rate of productivity advance to former levels," General Motors Corp. Chairman Thomas Murphy said in a recent interview, "That is no exaggeration."
"You've got to be worried," said Irving Shapiro, chairman of Du Pont. "You can't be comfortable about the future, you can't be sure your earnings will be real earnings without gains in productivity."
The term "productivity" has different meanings to different people. It is often associated with other words like "efficiency," "automation" and "hard work." In some minds, it conjures up images of a production line running faster and faster.
But basically the productivity rate is a measurement of outputs divided by inputs, computed quarterly by the Bureau of Labor Statistics. It is, simply, what you can get out (automobiles, ice cream cones and so on) for what you put in (labor, capital and other resources) .
Despite all the fuss over what's happened to U.S. productivity, no one on the national level appears to be doing much to meet the