Now, it is true that if you go to a personal grace period, you are taking that time certain; namely, the time of the filing of the preliminary, and you have introduced a new concept that looks slightly backward, you might say, toward the present system, and it sets up another time certain from which things must move.

To that extent, you will introduce a few more administrative problems than if you did not have the grace period, but as you weigh the problems of the scientific and technical community who do desire to publish promptly, and to discuss technical matters promptly, and we in fact want to encourage them to do this, it seems to me that you have to have some accommodation for the situation, if you have a preliminary application which has the potential complexities which I think are in the bill.

Mr. KASTENMEIER. Now, the other change you suggest proposes that provision be made for the Commissioner of Patents to impose secrecy in connection with preliminary as well as final applications.

Other than this suggestion, do you find the bill, in terms of security or confidentiality, to be equivalent to the present system?

Mr. MALLOY. I believe it is equivalent to the present situation except for this one point.

As a matter of fact, really, we are suggesting no essential change whatsoever in the security aspects of the patent situation other than this one point that we mention. We think that, security matters being as important as they are, we should not be precluded from putting a preliminary application under a secrecy order, and we would do it in much the same way as we operate today.

True, it will present some problems in terms of reviewing a preliminary application, because of the potential volume, but these, it seems to me, could be overcome.

And many times people voluntarily come to the Department, either to interest the Department in their invention or otherwise to get the advice of our own technical people, and it is brought to our attention that something that the inventor did not think involved security did in fact involve it.

Having that information, we would want to be able to move to put the preliminary application under a secrecy order. We would think that it would not be in the national interest to be precluded.

And really what we are suggesting, Mr. Chairman, is that we have the authorization to move in those situations where we know that security is involved.

I don't really regard this as any major change, at all, in the basic matter of imposing secrecy on the patent system.

Mr. KASTENMEIER. Mr. Malloy, I wonder if you would be willing to have your Department submit statutory language which embodies the thrust of your recommendations here.

Mr. MALLOY. Mr. Chairman, we would be delighted to work with the staff of the committee, and I suppose the staff of the Department of Commerce, who originally submitted the bill, and to perfect language to carry out our recommendations.

Mr. KASTENMEIER. Fine.

One final question: Do you find anything in the bill which disturbs the existing state of affairs with reference to what is termed "Government patent policy"?

Mr. MALLOY. Mr. Chairman, I really do not. These, in my judgment, are two separate matters entirely. I am very familiar with the Government patent policy matter, and would state that the provisions of this bill or any similar bill or modification of the bill undoubtedly would provide a framework for the subsequent development of any Government patent policy.

The patent policy issue takes over from an existing patent system, and these are not in any way in conflict.

Mr. KASTENMEIER. Thank you, Mr. Malloy.

Mr. Poff.

Mr. POFF. Mr. Malloy, let me first echo and underscore the tribute the chairman has paid to you for your remarkable brevity. It is highly unusual.

And it is most definitely appreciated by long-suffering Members of Congress, I assure you.

I was one of the first, if not the first to raise the problem to which you addressed yourself, as that problem seems to me to result from section 120 (a) (2).

There seemed to be some feeling that my concern was unjustified, and that the requirements for the preliminary application would be minimal, notwithstanding what appears to me to be the plain purport of that language.

Apparently, from your formal testimony, you share my concern. Is that a fair statement?

Mr. MALLOY. Mr. Poff, we do think this is a pretty stiff test, and it may be a perfectly appropriate test, and certainly has a lot of merit, but it has to be weighed in the light of other considerations, one of which we have brought to your attention.

But it certainly, in my judgment, is a feature of the bill that merits considerable attention by this committee. Certainly it has received a lot of attention from our people.

Mr. POFF. If you care to speculate and I am sure the question I am about to ask would give you the license-why was the reach of chapter 17 circumscribed by confining the secrecy application to complete applications?

Mr. MALLOY. I would have to speculate a little, Mr. Poff, on that, but I would speculate that the problem of the mechanics of how to do it might have been quite important in people's minds, because undoubtedly, if this bill is passed, there will be quite a few preliminary applications.

There may be 50 per cent more than final applications, maybe a hundred percent more. I don't think anybody really knows.

But you would have to worry about how to do this kind of a review. Certainly we are concerned about how to do it. Even though we are in large measure the guardians of the security of the country, we realize that we just cannot take untold numbers of people to review things that we think may have a minor result. We are talking really only about 3 percent.

In today's situation, where we review the final applications, it is only in about 3 percent of the situations that we find inventions coming in from the private sector that impinge on security.

Most of the security involved in patents stems from our own classified contracts, and we have contract provisions that require the con

tractors to come to us and tell us about any patent application they are filing for work that stems from a classified contract.

So we are policing it from that end. Since only 3 percent is involved, I would guess that the problem stemmed more from: How do you do it? In my judgment, this does need remedy, because, although I am concerned about how to do it, and the number of people that might profitably be put on this effort, the security aspects seem to me to be overpowering.

I might say also, Mr. Poff, speaking for the security people in the Department of Defense, that they must certainly have legislative authority to move into the situations which we know, at least.

I think this kind of an amendment can be made to the bill without raising new substantive problems in the private sector or raising fundamental issues of any kind.

It is a precautionary refinement that we are suggesting in the bill. Mr. POFF. In other words, if this section of the bill would, in fact, work any administrative relief purpose, the value of such a relief would be far outweighed by the importance of continuing secrecy applications in all cases, which might potentially bear upon the security of the country?

Mr. MALLOY. That is correct, sir.

Mr. POFF Do you or Mr. Nissel care to say how you feel specifically about the deferred examinations concept?

Mr. MALLOY. I would be glad to make a comment on that, Mr. Poff. This feature of the bill does not directly impact on the Department of Defense. Whether there is a deferred system or a nondeferred system does not really cause this Department any great difficulty. Mr. POFF. Insofar as it bears upon the validity and the quality of an invention, the Defense Department has some concern with it? Mr. MALLOY. It certainly has an indirect impact.

I would answer, Mr. Poff, in this way: that it certainly has always appeared to me that the deferred examination system offers a new potential.

The difficulties with it are well known. The advantages of it probably are well known. But I happen to be, personally, in favor of the concept which is in the bill; namely, to not just enact a deferred system immediately, but to set up a legislative authorization to put it under a real live test, and in my judgment we really will not know all the answers until we put it under a real live test.

I know that this happens to be controversial in many quarters, and I suppose we could get varying opinions from informed individuals in any Department, particularly in the Department of Defense, but it is my judgment that the way it is set up in the bill is certainly the way that I would recommend to you.

Mr. POFF. I thank you, sir.

Now, you have testified that the Defense Department supports the bill. That says one thing. It is another thing to say whether or not you support the recommendations of the Commission.

Specifically, did the Commission make any recommendation which the bill omitted which you think the bill should have included?

Mr. MALLOY. I think, Mr. Poff, that the bill is remarkably close to the recommendations of the Commission. Certainly in all substantive ways, it tracks the recommendations of the Commission, and I really don't

think that it has departed from the recommendations of the Commission in any substantive way.

Mr. PoFF. There are those who would disagree with that statement, and I believe if you carefully juxtapose each recommendation with the bill, you might change your answer, too.

Mr. MALLOY. Well, I did review, Mr. Poff, an analysis of the Commission's recommendations and the bill, I must say, roughly, a month ago. I wish I had read it yesterday. I would have refreshed my memory. But at that time I recall having the judgment that it did not track exactly, but was substantially similar.

I think there is one area which I mentioned in my statement in connection with the preliminary application. I think that the Commission had in mind a somewhat less stringent test for the preliminary application than is in the bill.

Other than that, I don't recall.

Can you recall any major item in the Commission report?

Mr. HELVESTINE. There was the rule of reason mentioned.

Mr. POFF. Recommendation XXII of the Commission was not included in the bill. Do you have any comments on that?

Mr. MALLOY. Mr. Poff, I would rather not comment on that, I think for the simple reason that I don't feel too comfortable or competent in this particular area.

Mr. POFF. Perhaps one of your associates would comment.

Mr. MALLOY. This involves antitrust matters. In our preparation for this hearing and in our analysis of the bill, we deferred to the Department of Justice and others on this point.

I will be glad to have my associates respond, if they care to.

I know that the Commission phrased its recommendation here very carefully, and I agree with the Commission's recommendation, in the sense that there is no basic inconsistency between a viable patent system and a viable antitrust system.

Other than that, I don't really, Mr. Poff, feel too competent to comment further.

Mr. POFF. Yet this is a difference in substance between the Commission's report and the bill.

Mr. MALLOY. I would accept your analysis of that.

I don't know whether I agree or not. I just would defer to others. Mr. POFF. Of a somewhat different nature, the 25th recommendation of the Commission I believe was probably omitted. Do you care to comment on that omission?

Mr. MALLOY. Here again I would prefer not to comment, in that this is not particularly germane to the Department of Defense, and I really have not studied the matter enough.

Mr. POFF. Does Mr. Nissel care to comment?

Mr. NISSEL. No, thank you.

Mr. KASTEN MEIER. The gentleman from Michigan, Mr. Hutchin

son.

Mr. HUTCHINSON. Thank you, Mr. Chairman.

Mr. Malloy, I have only one line of questioning and maybe only a single question.

When, under the present system and under the proposed system as well, are all of these applications for patents sent over to the Department of Defense for examination, for Defense security purposes?

Do you impose a secrecy order on them, and then what happens as a result of that?

Mr. MALLOY. Mr. Hutchinson, maybe I can explain the procedural steps we go through, and I believe that would answer your question.

First of all, we provide the Commissioner of Patents with a list of areas that are potential security problem areas.

The patent examiners, when they get an application, look at the application and arrive at a judgment as to whether the application seems to be in this particular area that we have identified as a potential security problem.

If it is, they notify the Department of Defense and AEC and NASA and others who are involved in this, and we then send patent attorneys and engineers to actually look at the patent application. These people are sworn to secrecy.

We also have in the Department an organization called the Armed Services Patent Advisory Board, which is made up of patent attorneys from each of the military departments that meet from time to time to exercise their judgment in this area.

So there is an orderly procedure, where there is a preliminary screening in the Patent Office to sort out the areas that are potentially sensitive, and then a specific screening of each application by our people at the Patent Office.

Mr. HUTCHINSON. And then if you determine that it falls within the area of secrecy, and you advise the Commissioner of Patents accordingly, does he just not issue the patent?

Mr. MALLOY. The way that works from that point, Mr. Hutchinson, is that the Patent Office will leave the application in the system, and it will go through the system and will be examined in turn, and a judgment will be arrived at in the Patent Office as to whether a patent should issue or not.

The applicant gets a notice of allowability, I believe they call it. The patent does not issue. The patent is suppressed. The applicant is told of the imposition of the security order, and what his obligations under the law are, and the patent processes through to either denial or allowance, and he is given a notice of allowability.

Subsequently, there is a review, as time goes on, to see whether the secrecy order can be lifted.

Once the secrecy order is lifted, the Commissioner of Patents, in the case of one that has been allowed, then issues a formal patent in the normal way, and it then runs for its full term of 17 years from the lifting of the security.

Mr. HUTCHINSON. And in the meantime, what are the rights of the man who would ordinarily be the patent owner, but has not got a patent yet?

Mr. MALLOY. Under the law today he may be paid by the Govern ment in two situations. First, if this invention is one which the Government is using, he may come to the Government-and this is a frequent occurrence and the Government will pay him a reasonable royalty for the use of his invention, even though the patent has not issued, and even though it is still under secrecy order.

In other instances, he may petition to the Government for damages that he might be able to demonstrate due to the suppression of his patent.

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