Department of Commerce, drew upon Patent Office resources, and necessarily diverted such resources from the statutory duties with which the Patent Office is charged and in respect of which it is held accountable. As an independent agency, the Patent Office would not be subject to such demands on its resources. As an independent agency, its performance of any such functions or services would either be appropriately funded by the Congress, or conducted on the basis of appropriate reimbursement. In either case, such activities on the part of the Patent Office-which might well be in the national interst, and entirely appropriate and desirable-would not represent an unauthorized and inappropriate drain on the resources of the Patent Office, prejudicial to the performance of its statutory duties. Finally, may I suggest that it might be desirable to attempt to develop the relevant facts with respect to what I believe is known as the "Secretary's Reserve Fund". Although my personal knowledge in this regard is quite limited, I believe I am in position to indicate the relevancy of such inquiry to the interests you have expressed. With kind regards. Sincerely, ROBERT GOTTSCHALK. [The following was ordered printed at this point in the record :] THE SECRETARY OF COMMERCE, Hon. JOHN L. MCCLELLAN, Chairman, Committee on Patents, Trademarks, and Copyrights, U.S. Senate, Washington, D.C. DEAR MR. CHAIRMAN: This is in reply to your letter of September 19, 1973, regarding certain allegations made by Mr. Robert Gottschalk, former Commissioner of Patents, during the hearing before your Senate Subcommittee on Patents, Trademarks, and Copyrights on September 14, 1973. The first of these allegations concerned diversion to other purposes within the Department of “substantial sums of money" from funds appropriated to the Patent Office. A thorough review of our records for the period Mr. Gottschalk was associated with the Patent Office, May 1970 to June 1973, has not revealed any instance in which substantial sums of appropriated Patent Office funds were transferred to other Department of Commerce agencies, for other than Patent Office functions. Accordingly, the only conceivable explanation for Mr. Gottschalk's charge is that he imperfectly understood the process of budg etary administration within the Department during his tenure at the Patent Office and misconstrued both the purpose and the use of contingency funds in the "Secretary's Reserve." Since FY 1972, each bureau within the Department has been required to earmark at the outset 1% of its appropriation for high priority projects which were not foreseen at the time the budget was developed and presented to Congress. Towards the end of the fiscal year, funding not assigned to any priority project is released for the bureau's general use. As you can see in the enclosure all projects funded out of amounts reserved from the Patent Office budget in FY 1972 and FY 1973 were either directly beneficial to the Patent Office or had implications with respect to the patent system. A second allegation made by Mr. Gottschalk is that, under the new Science and Technology budget for the Department instituted in FY 1974, consolidation of the Patent Office appropriation with those of National Bureau of Standards, the National Technical Information Service, and the Office of Telecommunications will be used as a means of diverting Patent Office funds to other Science and Technology accounts. I can assure you that to date no funds have been diverted from the Patent Office as a result of this consolidation, nor would I permit any unauthorized transfer to occur. I might add that Mr. Gottschalk can certainly have no basis of experience or observation on which to justify the apprehension he expresses in this connection, since the consolidated Science and Technology appropriation did not become effective until July 1. 1973, after his departure. Mr. Gottschalk again raised the matter of his resignation as Commissioner. I fully endorse the response General Counsel Bakke gave to Senator Hart's question on this subject in the course of the hearing on September 12, prior to Mr. Gottschalk's appearance. However, in light of the fact that Mr. Gottschalk subsequently sought an audience before the Subcommittee in which he once again aired his alleged grievance. I believe some brief further comment may serve to place the matter in proper context. As you know, Presidential appointees in the Executive branch serve at the pleasure of the President and, by extension, the pleasure of the appointee's immediate superior. Accordingly, it is tacitly understood when one accepts a Presidential appointment that his resignation may be requested at any time. It is also tacitly understood, given the dignity of such positions, that when one's resignation is requested, the request is to be honored without quibble. In this instance, Mr. Gottschalk's resignation was requested and he complied. I should also like to comment on Mr. Gottschalk's allegation concerning "improper influence" over Patent Office matters during his tenure as Commissioner. That charge is unfounded. In this connection, a clear distinction must be made between day-to-day operations, which are properly the province of the Commissioner, and, on the other hand, policy matters for which I, as Secretary of Commerce, have ultimate authority and responsibility under 35 U.S.C. 3, 6 and Reorganization Plan No. 5 of 1950. I consider departmental participation in or review of broad policy decisions, including those having actual or potential wide impact on the application or interpretation of the patent laws, an appropriate and necessary exercise of my responsibilities with respect to activities of the Patent Office. Indeed, it is my view that the Department would be derelict in its obligations were there not to be such policy involvement by senior officials. If I can be of any further service to you or your Committee on this matter, please do not hesitate to call upon me. Sincerely, Enclosure. (S) JOHN K. TABOR, Acting Secretary of Commerce. DEPARTMENT OF COMMERCE SECRETARY'S RESERVE-DETAIL OF PATENT OFFICE ACCOUNT Amount reserved July 1, 1972. FISCAL YEAR 1973 Competitive assessment study of tire and aerospace industries__ The study determined international technological activity in these industries and can be related to Patent Data in order to more adequately assess its meaning for American industry. Amount returned for use by Patent Office May 2, 1973 Amount reserved July 1, 1971. FISCAL YEAR 1972 Study of multi-national corporations-- Price, Waterhouse study to design production control system This two phase study was of direct benefit to the Patent Office, and Upgraded training of personnel in processing and finance divisions Departmental executive ADP program and management Upgraded key ADP personnel of the Patent Office. Development of criteria and methodology to screen Government held patents for commercial potential.. Part of funding used to support initial Battelle Institute studies of Government Owned Patents in response to March 17, 1972, Science and Technology Message of the President. The studies resulted in the Government Owned Patent Promotion program of the Science and Technology area. Technology assessment and forecasting using patent data, systems design, programming, processing and analysis... In response to a request from Secretary Peterson, an office was set up in the Patent Office to assess trends in technological activity as shown by Patent data. The results of these studies are to be published in semi-annual reports. Total, All Projects--- Amount Returned to the Patent Office June 30, 1972__ $663, 000 -20, 000 643, 000 593, 000 - 60,000 - 265, 000 - 8,000 --11, 000 -75,000 -99, 000 -$518, 000 75,000 Mr. BRENNAN. Prof. John Stedman. Senator HART. Professor, would you identify yourself for the record please? STATEMENT OF PROFESSOR JOHN C. STEDMAN Mr. STEDMAN. My name is John Stedman and I am professor of law at the University of Wisconsin where I have been teaching for many years. One of the areas in which I have spent considerable time and given considerable attention has been the area of patent law and intellectual property. In this connection I have been con cerned about both the good points and the shortcomings of the patent system and equally concerned with the possible ways in which the system can be improved. For those reasons, I welcome the opportunity to appear here today. Senator HART. I should confess on the record that we miss your continued presence upon the staff of the subcommittee so we use any occasion that we can lay hands on to get you back. Mr. STEDMAN. I must say that the periods that I spent with the committee were some of the more enjoyable ones of my entire experience. I equally enjoy appearing as a witness. Mr. BRENNAN. You have a prepared statement. Would you like to have that printed in the record at this point? Senator HART. It will be printed in full at the appropriate place. Mr. STEDMAN. I have submitted a prepared statement which I believe you have copies of. In the interest of time and of expedition I will simply attempt here this morning to summarize it rather briefly and supplement it with some brief comments if this meets with the approval of the committee? Senator HART. It does. Mr. STEDMAN. In approaching the bill, S. 1321, I have done so on the assumption that two important principles are involved here. Principles that I believe the subcommittee will agree to from the very fact that they have introduced S. 1321. These are, one, that the patent system is a system that is worth retaining and, two, that it is a system that is in quite serious need of some fixing up. I don't believe I need to belabor the first point. We have had a patent system in this country for almost 200 years-from the beginning of the Nation almost-and, as far as I know, with the exception of a few occasional dissidents, no one seriously suggests throwing it out. The matter of fixing it up is somewhat more complex. It is necessary, first, that we ask just what is wrong with the system. Then, for the purposes of these hearings, the question becomes, will the proposals that are the subject of the present hearings serve to put the system in shape? The problems of the patent system are several. Some basic changes have occurred in our whole technological structure. The subcommittee itself stated these well back in 1956 when it made the following comment in its annual report: The industrial and technological economy of today bears little resemblance to that of yesterday. The relatively simple, easily understood and inexpensive inventions have given way to highly complex inventions that require extensive scientific training to understand and substantial experimentation and capital to develop and perfect. The garret, garage, or basement inventor to a marked extent has given way to the laboratory technician who is both scientifically trained and versed in the latest techniques of experimentation and invention. The independent "lone wolf" inventor has given way to the coordinated group activity of the research laboratory. It becomes necessary, of course, for the system to respond to some of these rather fundamental changes, but even taking the system as it has traditionally existed, there are certain shortcomings that are crying for correction. As I see it, these are five in number. One is the question of uncertainty as to what you have when you get a patent. After all the pro ceedings in the Patent Office, one still remains completely uncertain as to whether his patent is valid or not. The second is the delay that has characterized patent procedures, both in obtaining the patents and in litigating and settling controversies concerning them. Third, has been the cost of the patent system, both in terms of obtaining patents and in terms of the cost of litigation-especially the latter. Fourth, has been the inflexibility that has characterized the patent system: we are dealing with a system in which contributions may vary but in which only one single reward is given once it has been determined that a person has indeed made a substantial contribution. The fifth shortcoming is the nonharmonization of our patent system with other patent systems of the world. This is a matter of special concern at a time when more and more international technological exchange is occurring and when serious efforts are being made to achieve a considerable amount of international cooperation. What I want to examine here are the specific proposals that are before this subcommittee and to examine them in terms of their merits and shortcomings in dealing with these fundamental problems that confront the patent system. Five matters are the subject of discussion here: One, onposition proceedings and related matters; two, the establishment of a public counsel in the Patent Office (one and two deal with the problem of uncertainty as to validity that I have mentioned); three, a deferred examination procedure: four, maintenance fees (three and four involve the problems of cost and delay); and finally the matter of setting the Patent Office up as a separate agency, a proposal which is designed to make the system operate more independently and effectively than it has in the past. You will note that two elements that I have suggested as problems, have been left out. One is the matter of harmonization. S. 1321 does not address itself to that particular problem, and probably this is just as well. In retrospect, it may be that some of the difficulties the Presidential Commission Report ran into arose because the Commission was trying to key the American system to the international system and this opened the way for the contention that what we were doing was selling our own good system down the river. So there is probably much to be said for saying, Let's get our own system in shape first and then see how we can work our system into the international picture. The other matter that is not really dealt with by S. 1321 is this question of inflexibility that I referred to. This omission is a more serious matter and one I will discuss briefly in connection with both the opposition and public counsel proceedings. Opposition proceedings. Let me turn now to the individual proposals that are before the committeee, starting with the opposition proceedings. There is no point in my attempting to summarize the provisions of the bill. We are all aware of what it provides. So I will limit my comments to my reactions and any suggestions I may have. Let me start by saying that I feel that the opposition proceeding is long overdue. Other countries have had it for years. Granting that |