licenses are restricted as to certain patents, a group of patents for the same invention, but gotten in different countries. Generally we have issued these without any intent to injure the public or to do anything other than form some sort of operating basis between two parties that was mutually beneficial and I think, in looking back, that they have turned out to be beneficial to the public.

According to our counsel, all of these agreements have been lawful at the time that we entered into them. Now, we have acquired an area of doubt as to what is legal and as to whether or not some other agreements that we might have made without this doubt as to whether we are safe in entering into them or not. If the Scott amendments can resolve this area there, it will help us and I think generally help the public of the United States as a whole.

If there is one way to measure the effectiveness of our patent system as far as the public is concerned, it lies in the amount of private capital that it draws into research. In my experience, which has covered perhaps 75 foreign patents and perhaps 40 to 50 U.S. patents in my own name, in addition to having worked with several hundred patents very directly for the company, I think the sole margin of our American superiority in development probably stems more from this climate than any other one thing. To that extent, it has been more beneficial to the public than the patent climate in any other country.

Thank you, sir.

Senator MCCLELLAN. Thank you very much, Mr. Jones.
We will stand in recess for about 5 minutes.

(Recess.)

Senator MCCLELLAN. The committee will come to order.
Mr. Beart, you may proceed.

Do

you have a written statement?

STATEMENT OF ROBERT W. BEART, SENIOR VICE PRESIDENT, ILLINOIS TOOL WORKS, INC.; ON BEHALF OF THE ILLINOIS MANUFACTURERS ASSOCIATION

Mr. BEART. I do not have a prepared statement. We will submit that to you.

Gentlemen, my name is Robert W. Beart. I am senior vice president of Illinois Tool Works, Inc., an Illinois based company, that has experienced much of its growth through research and development and the subsequent use of patents covering products from those developments. Most of our patents are the result of the ideas of our own employees. We have been licensed in recent years to use the patents of between 30 or 40 inventors in the United States outside of our company. We have also licensed over the past 20 years more than 100 companies in the United States to produce various of our products. We have extended licenses to various companies throughout the world as well. I am speaking today in behalf of and as chairman of the Patents and Trademarks Committee of the Illinois Manufacturers Association, an organization of 5,200 companies of all sizes, types, and geographical locations in the State of Illinois who are responsible for more than 90 percent of the industrial production of our State.

Eighty-five percent of our member firms employ less than 100 people. The Patents and Trademarks Committee of the Illinois Manufacturers Association has spent much time in studying means of improving the patent system of the United States and the legislation that has been proposed in recent sessions of Congress. Our studied opinion is that S. 643 has synthesized most of the constructive suggestions that have developed in recent years. Amendments 23 and 24, more familiarly known as the Scott amendments, not only would strengthen the overall patent system by clarifying broadly the guidelines of licensing, but also would be in the best interest of the public and provide additional competitive consumer products to make a better life for the people of the United States which the system in the ultimate is designed to serve and benefit.

In the studied opinion of our Association, any legislation designed on a reasonable basis to maximize certainty to creators of new products, as well as the methods and apparatus for producing them, will be a stimulus to them to license their creations, which in turn will be in the public's best interest. Presently, there is necessity for clarifying several points contained in the Scott amendments to eliminate the uncertainties which we feel do inhibit licensing by many businessmen. It is further the position of IMA that the present suggested amendments do not change any of the existing case law. The more precise or codified law being contemplated by your committee could well lead to causing more R. & D. effort on the part of industry, with a view of licensing contemplated because of business' clearer understanding of the guidelines within which to operate and on which they may be assured they will be judged.

Perhaps the importance for clarification of the present law or what might be termed codification of the law in its present state to avoid the dilemma that a number of members of our organization have faced in recent years will best be illustrated by an example, which I feel brings out the importance of Congress setting forth clearly the public policy in the licensing area.

I should now like to give an actual example of a situation of one of our member companies which will perhaps help to clarify the dilemma which we feel is presently with us.

Company A spent many hundreds of thousands of dollars developing a new and patentable form of face-type worm gearing. Its advantages were many-more economical to produce than existing forms of competitive gearing; capable of manufacture on existing equipment; capable of manufacture for ratios from 8 to 1 to 300 to 1; operated with greater efficiency, operated more quietly than all competitive forms of devices, and could be made of sintered metalsbrass, iron, steel, and even plastic. It depended upon the load to be transmitted as to the material to be used.

Company A was willing to license the product to industry. From its market studies, it determined that were it to supplant all competitive devices where it could be utilized, the patented product could enjoy a market of more than $300 million in sales. Licensing efforts revealed that no one company served more than a few percentage points of the market from a sales standpoint. Each desired to incorporate the gear product in their ultimate products of manu

facture. It was also revealed after contacting them that companies in the following areas might consider taking licenses and adapting the product if field of use type of licenses were granted which gave benefits to each for an exclusive period. The various areas that became evident and showed interest were in the field of hedge trimmers, floor polishers, and floor sanders, gear drives for recording the body function of astronauts while in the air, gear drives for hoists for helicopters, electric door openers, both for garages and subway trains, electric starters for gasoline engines, the speed reduction unit for high-speed power motors, drives for radar pedestals on ships, units used in the atomic submarine program, power units for operating gates for dams, drive units on office elevators, since it had an ability to avoid elevators plummeting to the bottom when failure. occurred, drive units for icemaking machines. These are but a few of the uses that were revealed. Most, if not all, of the persons contacted in the licensing effort were told that a minimum royalty and diligence were demanded by the patentee. They wanted a field of use license. No interest was revealed by them in using the gearing to develop unrelated business programs far beyond the scope of their present business. They also desired an exclusive period to adapt the program, tool up to make the gearing, and benefit from their sales program before competitors. In most of the cases, an outlay of up to $250,000 was to be expended to tool up to make the gearing.

The dilemma which the creator of the gearing faced was the following: One, what is the present law status regarding field of use licensing and what will it be 5 years from now?

Two, can a patent owner assume the posture of granting temporary or limited exclusive licenses to afford the benefits of the creation to a company in a particular area of business.

Three, can a patentec in such a situation give the licensee all of the technology, including computer programs for designing of the gearing and expect a grant back of improvements on a nonexclusive license basis for a royalty consideration to the licensee which would ultimately benefit the patentee and perhaps his other licensees.

Fourth, could various royalty rates be charged different licensees on a different basis under the same patent?

We submit, gentlemen, to induce this creator company to license in such a situation necessitates a clear understanding of ramifications of any action he might take. The present intent of the amendments to Senate bill, No. 643 to which I am addressing my remarks, is to clarify "field of use" licensing, to clarify what constitutes reasonableness in the area of grantbacks, and to carry out the spirit of President Johnson's Patent Commission report as it relates generally to licensing. In summary, the IMA definitely opposes the case by case development of the law as proposed by some in the area of licensing and is concerned that the creative activity in industry that results from R. & D. will not be made available by license to others in industry unless the existing state of the law relating to same is clarified.

Further, it believes that clarification of laws will lead to businessmen being able to make business judgments that will lead to their licensing of new products with the inevitable benefits to the public of more competitive products being available to them with more

jobs created to produce them. Perhaps also, a lessening of fear of litigation, based on a reasonable knowledge of factual results which can be expected if some certainty is built into the law of licensing will benefit the smaller manufacturer, where presently his inclination might well be to avoid any problems by doing the job totally by himself.

We cannot conclude our observations concerning S. 643 without referring to the matter of compulsory licensing as contained in section 308 of the Clean Air Amendments of 1970 and as treated in part III, section 6, of S. 643. The compulsory patent licensing section of the 1970 legislation was added without notice and did not have the benefit of formal hearing in the Public Works Committee.

S. 643 does provide for the Administrator of the Environmental Protection Agency (EPA) to recommend corrective legislation to Congress if he determines that the intent and purposes of the clean air amendments are being retarded by any provisions of the patent laws. This provision sets up proper legal means by which EPA and the public welfare can be protected while, at the same time, the patentholder also receives due consideration. It is our view that S. 643 will correct the legislative error which exists as the result of the incorporation of the compulsory licensing provision in the aforementioned 1970 law. Expertise in such matters, historically rests in the Judiciary Committee.

The Illinois Manufacturers Association truly appreciate having had the opportunity to address the committee and will present a formal paper on its position by the date which has been set forth by the chairman.

Thank you.

Senator MCCLELLAN. Thank you very much, Mr. Beart. I believe you have a plant somewhere in Arkansas, do you not?

Mr. BEART. We sure do. We have one in Pine Bluff, Ark.

Senator MCCLELLAN. A great town, a great State; I hope you are having great success.

Mr. BEART. We presently are, sir.

Senator MCCLELLAN. If you need a U.S. Senator any time down that way, I represent you.

Mr. BEART. Thank you.

Mr. BRENNAN. Mr. Browning?

STATEMENT OF JACKSON B. BROWNING, VICE PRESIDENT (TECHNOLOGY), CARBON PRODUCTS DIVISION, UNION CARBIDE CORP.; ON BEHALF OF THE CHAMBER OF COMMERCE OF THE UNITED STATES

Mr. BROWNING. Thank you.

Mr. Chairman, my name is Jackson B. Browning. I am vice president for technology of the Carbon Products Division of Union Carbide Corp.

Senator MCCLELLAN. You have a prepared statement, I believe?

Mr. BROWNING. That is correct. I am representing the U.S. Chamber of Commerce and the statement has been presented to your committee.

Senator MCCLELLAN. Very well. I notice it is a bit lengthy. Would you like to insert it in the record in full at this point and then highlight it for us?

Mr. BROWNING. I had intended to ask to do that and not to refer further to the report unless you had questions that you would like to ask of me. I have three specific case histories that I would like to discuss with the committee this morning which do not appear in the prepared statement.

Senator MCCLELLAN. Very well. Let your statement be printed in full in the record. You may proceed now to elaborate on it or to give us any additional comments which you choose.

Mr. BROWNING. I thank you, sir.

The three situations I would like to discuss with you today are, I think, illustrative of some of the problems that occur when patent owners attempt to gain the fruits of their creativity and endeavor. The first has to do with a situation in which Union Carbide was the licensee and took a patent license from an individual inventor some several years ago. I do not know what the situation would be today with the current uncertainty in the law if the same opportunity presented itself. The second one has to do with a small manufacturer who is not in any way associated with Union Carbide, but whom I serve on its board of directors. The third is an instance involving Union Carbide and I think it illustrates, in contrast to the first situation, that 12 years after the first one took place, we have a confused state that has inhibited a development that I think has great potential for consumers at this time.

In the first instance, the individual inventor was a German. He had developed a mixing device which was capable of mixing rather quickly and rather completely fluids of all kinds gases with gases, gases with liquids, liquids with liquids. He was interested in developing this technology for application in the burner field and particularly with reference to waste disposal and incineration. He had the technical competence and the resources needed to do this when we first saw him and it was a field that was somewhat foreign to our usual activity.

There was reason to believe that the technology could be adapted for use in the chemical industry. We had in mind in particular the mixing of chemical reactants so that reactions would take place quickly with minimal side reactions so that we would maximize the yield of the desired products. We thought the device might be used in drying applications for plastics and the like, where prolonged exposure to high temperatures would degrade the primary material. There were other potential applications which we had in mind which are not relevant for the moment.

We accepted a field of use license from the inventor and excluded that area where he himself felt competent and adequate for its promotion. After extensive development work which involved an expenditure of many hundreds of thousands of dollars, we were able to establish that the process did in fact work. As often happens in these cases, we found alternate solutions to our problems and have not to this day commercialized this invention.

In the meantime, in the field of endeavor which he reserved for himself, the inventor has proceeded to establish a business, has