Existing law as on this issue is probably that price fixing is illegal per se.

I would say that the same reasoning that supports that conclusion supports the conclusion that a patentee should not be able where he licenses somebody to manufacture and sell, to limit the quantity of any goods that may be sold by the licensee.

If anything, a quantity restriction is more anticompetitive than a price restriction. If I just have a price restriction, I could at least compete with the patentee on quality, but if I am limited on the quantity I can sell, even though I put out a better product than he does, I cannot sell to those who prefer to have it.

I would say that a patentee should never be required to require as a condition of the license that the licensee hand back to the original patentee any improvement patents that he develops or an exclusive license under any of those improvement patents. The original patentee has a legitimate interest in having a benefit of any improvements that his licensee develops, that can be satisfied by nonexclusive license back. That takes care of the legitimate interest in the patentee. For the patentee to insist on the right to get the patents themselves or exclusive licenses, would enable him to perpetuate his monopoly position way past the time of his own patent; he would continue to be able to gather in all of the improvements that anybody ever developed.

By the same token, that discourages licensees from trying to improve a patent because if they improve it they have to give it back to the patentee.

It seems to me this is an issue on which we know enough to say you can't do this, you can have a nonexclusive license back on improvements, you cannot get the patent itself or the exclusive license.

Now for the fourth point, which in view of Lear-Adkins-which I think is sound-I don't think is enormously important, providing some of the other amendments are not passed-I don't see any point in letting patentees continue to put into their license agreements a provision that the licensee agrees not to contest the validity of the patent.

The Supreme Court has held for very good reasons that these cannot be enforced. Why allow patentees to clutter up their license agreement with a clause like this anymore? It seems to me that, too, should be held to be a misuse.

I come finally to a proposition which I would agree is more debatable but for which I think very strong reasons can be offered, and that is the proposal with regard to field of use restrictions and territorial restrictions.

Now, at this point, Mr. Chairman, I would appreciate it if I could submit and have inserted in the record two articles which, among other things, deal with these points. I think they are excellent articles, perhaps because one of them was written by me. The first is an article in the Yale Law Journal of December 1966 by Prof. William Baxter, and the second an article in the New York University Law Review I have the date here-May 1969, which I wrote.

Now in both of these articles Professor Baxter and I have advanced this thesis. We don't object to field of use restrictions or

territorial limitations as such. We do not object to a manufacturing patentee, a patentee who is manufacturing and selling in a particular territory or applying his patent to a particular use or uses, protecting those uses or that territory where he himself is selling.

We are prepared to say: You can continue to have a monopoly on that but if you license somebody else with a field of use restriction, that is, for some use that you aren't practicing, or license somebody else for a territory in which you are not selling, you must give comparable licenses to any qualified applicants unless you can show that the parceling out of exclusive monopolies to others is necessary or reasonably necessary to insure commercial exploitation of that use or that territory.

Now, I won't bore you with going into a full statement of the analysis that leads us to this conclusion but we both feel very strongly, and we think we have adequately established the fact, that this kind of proposal would give the patentees everything they are legitimately entitled to but would prevent patentees from parceling out monopolies all over the place, monopolies in which they have no direct interest, which facilitates the formation of cartels; and we believe that this proposal would be a reasonable accommodation.

Senator MCCLELLAN. Professor Turner, these two articles that you have submitted are quite lengthy.

Mr. TURNER. Yes, sir.

Senator McCLELLAN. Let me ask as a matter of information, I don't want to deny the availability of any material that is pertinent and would throw light on the issue, may I ask if excerpts can be taken from then and thus avoid printing all of this?

Mr. TURNER. Yes, sir. Could you give me a few days to do that? Senator MCCLELLAN. Yes. Then we will print it in the appendix of the record. I haven't had time to examine it. A lot could be eliminated.

Mr. TURNER. I would be happy

Senator MCCLELLAN. And pertinent excerpts be submitted from the article with the article properly identified.

Mr. TURNER. I would be happy to do that. I think we can cut it down.

Senator MCCLELLAN. That will aid us. If we get this record too bulky nobody would read it.

Mr. TURNER. If you give me a few days.

Senator MCCLELLAN. Yes; you may have time to do it. We thank you very much.

Mr. TURNER. I just want to repeat, because I think it is very important, the point Alan Ward made. All of the proposals to broaden the opportunity for patentees to insert restrictions in their licenses, to grant exclusives, to put in a price fixing clause and all of that, proceed on the assumption that either letting them do that or not letting them do that is in some way going to affect the incentive to invent, and I only wish to second what Alan Ward has said, namely it seems to me there is absolutely no evidence for any such proposition and that indeed if you sit down and think about it you can see that that proposition is almost certainly not so.

Mr. Chairman, assume that you are a prospective inventor, you are a corporation trying to determine whether to spend money on re

search. Very often you don't even know what you are going to come up with. You don't know whether what you come up with will be patentable or not. It is a very risky sort of guess kind of operation. You can't make a close calculation of costs and benefits. What I am saying is this. The main guts of the reward given by a patent is a monopoly, that is to say, the right, if you do get a patent, to exclude anybody else from making, using or selling the object of that patent. So if you get something valuable, you can keep it to yourself and make very substantial profits; you get with the patent law clearly the right, if you do not care to exploit it yourself, to sell it to somebody else, and if it is valuable you get a very large payment for that; or you can license others for royalty.

Now this is the main thing that the patent gives you. What Mr. Ward was saying and what I would second is that it is almost inconceivable that when anybody sits down to try to decide whether he is going to spend money for research or not, whether he is going to try to invent or not, that that decision would be affected by whether he would be able to license with a price fixing clause or license with this or license with that. That is so marginal, that is so marginal an aspect of the potential patent reward it is almost inconceivable that the handling of that would make any difference on the incentive to invent. That is simply a red herring in these cases. The issue is not whether a patentee should be allowed to put restrictions in his license in order to cause him to spend money on inventions; that isn't the issue at all. There are legitimate issues which you sort of have to try to make your way through on whether it is better in the public interest, given the fact that he can monopolize, to let him put in these restrictions or not, but it has virtually nothing to do with the incentive to invent.

I think I have talked about long enough, and I will ask my friend Mr. Blake if he would like to add something at this point.

Do you have any questions to me?

Mr. BRENNAN. No questions.

Senator MCCLELLAN. Thank you very much. Professor Blake.

STATEMENT OF PROF. HARLAN BLAKE, COLUMBIA LAW SCHOOL

Mr. BLAKE. I think I will be quite brief in view of the excellent exposition of the legal difficulties of this proposal that Alan Ward and Professor Turner have provided.

I would like to make a couple of points and expand upon some of the comments that have been made.

First of all, I very much would like to support Professor Turner's idea that perhaps the Scott amendments as they are called are matters that should be dealt with in a way different from the patent reform bill itself.

I would like to call the Senator's attention to the fact that I believe it to be the case that in 180 odd years that we have had a patent act in this country, that patent statute has always had an integrity and did not contain provisions that deal directly with the antitrust aspects of patent licensing.

The Scott amendments are quite novel in this sense that they add to the patent statute substantive provisions of a kind which have

heretofore thought to be primarily concerned with the antitrust laws. One might imagine that these proposals would come as amendments to the Sherman Act or the Clayton Act rather than in connection with a large work in an effort to improve the patent laws. So it does in a sense seem to me inappropriate, and one of the reasons I suspect the problem is so difficult is that this is not a matter that is entirely traditionally a part of the work of the Patent, Copyright, and Trademark Subcommittee.

I would like very much to support also Professor Turner's suggestion as to alternative legislation. If this committee does prefer to proceed with antitrust questions along the lines of the Scott amendments or the Commerce Department proposals, I clearly believe that his proposal is one that deserves serious attention and I believe the public interest would be better served by the kind of clarification and codification that his proposal entails rather than either of the other two proposals that you have before the subcommittee.

I would like to say a word or two about the statement which we have presented to you, about the signatories to the statement and what it represents.

We did make a study not only of the Scott amendment proposal itself but also the Commerce Department proposals which were available to us some months ago. Since those had not been introduced before the subcommittee until yesterday, our statement deals only with the Scott amendments.

It is our feeling that the Commerce Department alternative is hardly preferable; in some respects it is perhaps somewhat better, but in many respects we believe it to be even less attractive than the Scott amendments.

The signatories to this letter, as you may not have had a chance to see as yet, constitute 40 law professors from the major law schools throughout this country. I won't read the list of the names but I would like

Senator MCCLELLAN. They have been printed in the record. They are already in the record.

Mr. BLAKE. But I do think it is worthwhile calling to the subcommittee's attention that those who have joined us in this statement constitute, I believe it is fair to say, a substantial majority of the active scholars in the field of legal education who specialize in patent and antitrust matters.

Our interest in this is solely one of concern that the public interest would not be served by the adoption of the Scott amendments.

I think our objection to the amendments are broadly two in number. I am not going to rehearse the detail that has gone before. First of all, we find the amendments to be very difficult to interpret; they are drafted in such a way that it is difficult to understand how and why they came to have the form they have. It is really impossible to read them and know with any certainty how far their intrusion into antitrust policy extends.

The Patent Bar Association proponents of the amendment state that their intention is only to codify and clarify, but as we read the amendments we think that that statement is not necessarily accurate. The courts will have great difficulty with the language of these amendments. This is true of the Commerce Department version

equally. I think it is very difficult to predict what courts will over the years do in trying to apply and provide interpretations of these statutes. The amendments thus certainly will not elucidate or clarify the law and they are not codification of the law.

Our second broad objection is substantive. As Professor Turner has pointed out, there is no empirical evidence that has come to any of our attention to suggest that giving patent owners a broader range of alternatives with respect to restrictive licensing practices would have any important effect on productivity, technological development, invention, innovation, or any of the policies that the patent law as such is intended to support.

There is no empirical data that I know of, and I have looked hard for it, to suggest that this kind of legislation would have any beneficial effect of that kind in terms of the public interest.

The very few studies that I have seen, and there are a few, suggests that patenting or the possibility of patenting ranks very low in terms of corporate decisions with respect to research and development.

Now, that is not a subject that we have explored in detail in our statement but I think it is important that the burden of proof be on those who would argue that these kinds of exemptions to the antitrust laws should be granted on public policy grounds.

The second point, and that has also been made, is that we know perfectly well what the costs will be. The possible benefits, if any, are very speculative, but the costs are quite clear. If Congress were to grant this exemption to the antitrust laws, as Mr. Ward has told us, the result would clearly be greater facility in the establishment of price-fixing cartels and agreements and arrangements among competitors using weak patents as a facade for licensing arrangements whose primary thrust is anticompetitive. We have had experience with this in the early days of antitrust legislation.

We know what the costs of that will be to the efficient functioning of our economic system and in terms of higher prices to consumers. I think that is all I would like to say at this time.

Senator MCCLELLAN. Thank you very much.

Do you have any questions?

Mr. BRENNAN. No, Mr. Chairman.

Senator MCCLELLAN. Thank you, gentlemen.

Mr. Stanley M. Clark, Patent Counsel, Firestone Tire and Rubber Co., and Mr. Martin Adelman, Attorney, Birmingham, Mich.

How do you wish to proceed? Do you have statements?

Mr. BRENNAN. Yes, we have.

Senator MCCLELLAN. Each of you have statements.

STATEMENT OF STANLEY M. CLARK, PATENT COUNSEL, FIRESTONE TIRE & RUBBER CO.

Mr. CLARK. Yes.

Mr. ADELMAN. Yes, I do.

Senator MCCLELLAN. They may be printed in the record in full and we will be glad to have you highlight them.

Mr. CLARK. I will highlight. I will be just as brief as I can. I want to thank you for the opportunity of testifying here today. I also want to make mention that my company also has operations in your great State at Magnolia and Prescott for another.