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cally have been made by some law enforcement authorities to take on the specter of illegality when they involve the use of intellectual property. Pointing to the foolhardiness of such a situation, and the detriment it has caused in interfering with the progress of the arts and sciences which the Constitution calls for in providing for our patent system, I urged adoption of the Scott Amendments to rectify this condition.

It is interesting to note that since the time I gave that speech the U.S. Supreme Court, in a decision 3 involving a garnishment of a working mother's savings account, has spoken out strongly in favor of private property rights even in the face of an attack based upon human or civil rights. Said the Court, "the dichotomy between personal liberties and property rights is a false one, Property does not have rights. People have rights. The right to enjoy property without unlawful deprivation, no less than the right to speak or the right to travel, is in truth a 'personal right whether the 'property' in question be a welfare check, a home or a savings account. In fact, a fundamental interdependence exists between the personal right to liberty and the personal right in property. Neither could have meaning without the other. That rights in property are basic civil rights has long been recognized. *** Congress recog. nized these rights in 1871 ***. We do no more than reaffirm the judgment of Congress today." 4

Editorializing on this case, the Wall Street Journal 5 noted that the Court's rejection as false any distinction between property and human or civil rights "put private property, where it belongs—in the broad context of civil rights and individual liberties, not as a thing apart.” It is encouraging to note that the Court, even in the midst of current heated public arguments over civil rights and socio-economic reform, adheres to the principal that property rights are equal to such other liberal rights as freedom of speech, press and assembly. Perhaps, then, when the Court considers matters involving intellectual property rights it will give them the same recognition and the same treatment, by keeping in mind that intellectual property is but another form of private property.

I will have more to say on the subject of the Scott Amendments and private property rights later. In actuality, it is only one phase of a much broader subject, a problem of tremendous importance to our national welfare. I refer to the much too old conflict between those who administer our patent system and those who enforce our antitrust laws. In this conflict we have a strange dichotomy of two governmental groups, each bent upon fostering programs aimed at achieving identical goals of improvement to the nation's economic prosperity, and yet each claiming that the other is causing mayhem to our economy and thereby to our nation's economic welfare.

A pity it is that this conflict has led to tremendous wastes in precious manpower, time, financial and other national resources, first in the patenting process and then in the courts. These wastes are even further much aggravated by the fortunes spent uselessly in research and development programs, the construction of plants and the implementation of marketing projects, all of which may go down the drain as the aftermath of judicial decrees holding patents invalid or a business agreement involving patents illegal under some novel antitrust theories. These wastes are polluting our economic atmosphere, and the matter is as deserving of ecological consideration and treatment as much as or more than any other pollutant that has been deemed harmful to man.

Ecology, I need hardly remind you, is the "in" thing of the 1970's. A Con. gressional committee has labelled this period as “The Environmental Decade", and President Nixon has called attention to the preciousness but vulnerability of our natural resources which caused a need to develop new attitudes and new management techniques in order to preserve a good environment. The House committee pointed out that a major problem is that many federal agencies are involved in programs for managing the environment which work at cross-purposes, and called for better coordination of those agency activities.?

An example of a need for better coordination familiar to most of you may be found in the governmental edicts affecting the manufacture and sale of

• Lynch v. Household Finance Corp., 40 LW 4335 (March 21,1972).
Id at 4339.
* "Supreme Court and Private Property", WSJ April 3, 1972.

• House Report No. 91-1082 (91st Cong., 20 Sess.) 1970, by the Committee on Govern. ment Operations, p. 2.

Id at pp. 15-16.

" 9

household laundry products. One of the first orders of the day was a ban on phosphates in such products because they were found to pollute our streams and lakes, adversely affecting the life cycles of plants and fish in those waters. The cleansing agents substituted for phosphates not only made the housewife unhappy because of difficulty in removing the dirty ring from her husband's shirt collars, but much more important were found to cause serious medical problems in man. These problems became so serious that the federal health authorities stepped into the picture to countermand the phosphate ban.

There's an important lesson to be learned in this example, and it has direct applicability to problems involved with the lack of coordination in the enforcement of our patent and antitrust laws. As background information for the point I am making let me refer you to another ecological study, “Environmental Pollution—A Challenge to Science and Technology", a reports of the House Subcommittee on Science, Research and Development. This study also calls for coordination by the various federal agencies involved with pollution abatement -proposing the establishment of a “system management" to deal with the problem. It holds that a key to the whole affair is cost analysis, suggesting that: “Social sciences will be called upon to replace subjective evaluation with numbers of dollars. *** The costs of abatement must be equated with quality."

The report contains a graphic illustration which the Department of Defense presented at Hearings held by the Subcommittee in 1966 on "The Adequacy of Technology for Pollution Abatement”. Referring to that illustration, the Committees states: “... if costs are known, a portion of abatement can be written off against damages * * * Control beyond that point is a net debit to the Nation. * * * The point of view that insists on cmplete prevention of waste disposal to the environment is shown by this analysis to lead to very high costs which may exceed the gains to society ***." 10

In our economic environment there likewise are great wastes, as I pointed out previously. For our great nation, which now finds itself in a truly growing competitive struggle to maintain its economic leadership internationally, there is need as never before to abate those wastes. We can no longer afford the luxury of permitting different federal agencies free and independent rein in their actions which bear upon the progress of our national economy, particularly if those actions become involved in collision courses. Just as strong, determinative and well-coordinated action must be and is now being taken by various governmental agencies to improve our atmospheric and biological environment, it is likewise imperative that equally strong, determinative and wellcoordinated action be taken to improve our economic environment. The key word in both instances is "well-coordinated".

On March 16, 1972 President Nixon sent a message 11 to the Congress which his Science Adviser, Dr. Edward E. David, Jr., described in a press conference that day as “the first message by a President to the Congress on research and development or science and technology". Certain of the President's statements in that message are of crucial import and interest to everyone concerned with our nation's economic welfare and I shall quote them directly :

The importance of technological innovation has become dramatically erident in the past few years. For one thing, we have come to recognize that such innovation is essential to improving our economic productivity-to producing more and better goods and services at lower costs. And improved productivity, in turn, is essential if we are to achiere a full and durable prosperity-without inflation and without war. By fostering greater productivity, technological innovation can help us to expand our markets at home and abroad * *

"We know, for instance, that a strong and reliable patent system is important to technological progress and industrial strength. The process of applying technology to achieve our national goals calls for a tremendous investment of money, energy and talent by our private enterprise system.

* A Committee Print of the Committee on Science and Astronautics (89th Cong. 24 Sess., 1966).

Id at p. 34. 10 Thid. 11 From release by Office of the White House Secretary, March 16. 1972.

If we expect industry to support this investment, we must make the most effective use of the incentives which are provided by our patent system.

"The way we apply our antitrust laws can also do much to shape research and development. Uncertain reward and high risks can be significant barriers to progress when a firm is small in relation to the scale of effort required for successful projects. In such cases, formal or informal combinations of firms provide one means for hurdling these barriers * In general, combinations which lead to an approved allocation of the resources of the nation are normally permissible, but actions which lead to

excessive market power for any single group are not. *** President Nixon has aptly stated truisms that have been known for years to people involved in business built upon the fruits of research and development, people involved in inventions, in patents, in the licensing of patents and knowhow. He has stressed the need for more technological innovations, underscored the importance of the patent system in fulfilling that need, and reminded us that the antitrust laws are necessary to protect us against those who abuse the opportunities provided by the nation's investments in research and development and fostered by federal grants of patents on the fruits of those investments. Still needed, however, is the coordination necessary to prevent the administration of, and operation under, our patent laws from resulting in a collision course with the enforcement of our antitrust laws. Apparently recognizing this, the President went on to say:

I believe we need to be better informed about the full consequences of all such policies for scientific and technological progress. For this reason, I have included in my budget for the coming fiscal year a program whereby the National Science Foundation would support assessments and studies focused specifically on barriers to technological innovation and on the consequences of adopting alternative Federal policies which would reduce or eliminate these barriers. These studies would be undertaken in close consultation with the Executive Office of the President, the Department of Commerce and other concerned departments and agencies, so that the results can be most expeditiously considered as further Government deci

sions are made. Hopefully, such studies will result in unifying, coordinative actions within the Executive Branch so as to eliminate the competition and overt opposition between some of its component departments and agencies in areas where there should be a single national policy and a single approach to administering that policy. A classic example of a need for unitary action within the Executive Branch-a need which went begging, most unfortunately—took place last May when the Senate Patents Subcommittee heid hearings on the Scott Amendments. As Mr. James T. Lynn, Under Secretary of Commerce, testified:

The views I express here this afternoon are those of the Department of Commerce. The Department of Justice has certain reservations about the

positions we have taken and will express its own views on the subject. To which the Subcommittee Chairman, Senator McClellan repied :

I think we can state unequivocally, then, that the Government as such or the Administration as such does not have a policy with respect to this legislation; there is a divided opinion in the administration as to the

merits of those amendments? Responded Mr. Lynn:

That is right, Mr. Chairman. The administration has decided that the best contribution it can make to the resolution of these important legislative issues is to share with this committee its analysis of the problems and the points of views which express both the interests of patent holders and general objectives. The latter will be provided by the Justice Depart

ment witnesses. The Department of Justice did, in fact, present its own views, through the tes. timony of its Assistant Attorney General, Antitrust Division, Richard W. McLaren.

In failing to present a unitary position of the administration, the proverbial "buck” was passed to Congress. I submit this was a tactical error, a missed opportunity the Executive Branch had in its grasp to perform the complete job that President Nixon now proposes to do hereafter, namely to focus attention "on barriers to technological innovation and on the consequences of adopting alternative federal policies which would reduce or eliminate these barriers."

23-932--74----38

Without unitary leadership of the Executive Branch the Senate Patents Subcommittee, by a 3 to 2 vote, rejected the Scott Amendments last October. Senator Fong, who voted with the majority, has been understood to declare that if he could be satisfied that those Amendments would not in any way adversely affect the operation of the antitrust laws represented by the Sherman and Clayton Acts and their judicial interpretations, he might change his vote. Sat. isfying Senator Fong on this point should hardly be an insurmountable obsta. cle, for the proponents of the Scott Amendments (both those who favored them in their original form and those who favor the modified form advocated by the Department of Commerce) have repeatedly declared that they do not advocate any language or interpretation of legislative terminology which would dilute or negate the antitrust laws. It would have been logical for the Justice Department's antitrust specialists to get together with the Commerce Depart. ment's patent specialists and work out the legislative formula to achieve Sena. tor Fong's requirements. Since this has not been done, one group of lawyers experienced in patent and antitrust matters has attempted to resolve the impasse by preparing a suggested “Legislative History” 12 which, in their view,

12 This “Legislative History”, it may be observed somewhat curiously was prepared hy an assemblage which dubbed itself the “Tuesday III" group. This name resulted from the fact that by sheer chance the group actually met on a Tuesday. The "III" wax to differentiate it from the “Tuesday I and II" groups, consisting of other members, who Fore reputed as having authored the original Scott' Amendments. The "History" is as follows:

"By recommending sections 261 (b), 271 (f) and 271 (g), the Subcommittee does not intend to modify the effect of the antitrust laws as heretofore interpreted by the Courts except as follows:

"1. Section 271 (f) (2) (a) removes the authority for a patent license agreement to require a licensee to maintain a certain price in the sale of licensed products as exprexsed in C. S. v. General Electric Company, 272 U.S. 476 (1926).

"2. Section 271 (5) (1) (a) reiers to the right of a licensor and licensee to negotiate a royalty of any amount they agree upon in the tradition of our bargaining system as recognized in Brulotte v. Thys Co., 379 l'.S. 29 (1964). Any authoritative effect to the contrary in the 7th Circuit decision in American Photocopy V. Rorico, 359 F.2d 745 (1966) (referring to “exhorbitant and oppressive" royalties) would be removed.

**3. Sertion 271 (g) (1) (c) makes it clear tbat a package transfer or license arrange. ment which does not segregate the charge for each included patent will not (in the alisence of other circumstances, such as coercion) constitute misuse or an illegal extension of the patent monopoly. To the extent that this provision would sanction a package license which does not provide for a dimunition in the royalty upon the expiration of a patent included in the package, it would appear to be inconsistent with the position taken by the majority of the court in Rocform Corporation v. Acitelli Standard Concrete Wall, Inc., 367 F.2d 67 (1966). However, it would be consistent with the view expressed in more cases, such as in Well Surveys, Inc., v. Perfo-Log, 396 F.2d 15 (1968).

*4. Section 271 (g) (1) (d) provides that a mere difference in royalty rates between different licenses. without more, would not constitute misuse or illegal extension of patent rights. It therefore accords with the view expressed by the 7th Circuit in Bela Senting Co., Inc., v. Poloron Products, Inc., 16 CSPQ 548 (1971). Any authority to the contrary in LaPeyre v. F. T. C., 366 F.2d 117 (5th Cir. 1966) and Peelers v. Wendt, 260 F. Supp. 1933 (W.D. Wash. 1966) would be removed. Those cases apparently condemned a lease rate for patented shrimp peeling machines based on the savings from use of the machines over hand peeling, because the peeling Industry in the Northwest derived more savings, and therefore paid more than the Gulf Coast peelers. The difference in royalty rates, being based on the value of the invention to the different users, seems wholly within the patent grant and therefore not properly condemned under the antitrust laws. But 271 (5) (1) (d) would not legitimatize royalty rates when used primarily for the purposes of anticompetitive discriminating between licenses.

“Since the decision of the Supreme Court in Lear v. Adkins, 395 U.S. 653 (1969), numeorus lower court decisions have relied upon the public interest to set aside spitie ment agreements, consent judgments, and arbitration decisions where a party sule quently attacks the validity of a patent. Continuance of that trend will drastically reduce the number of settlements by agreement and/or arbitration and correspondingls luetraxe court time devoted to litigation. Since such settlements, like decisions on the merits after a full trial, are binding only upon the parties involved, this Subcommittee believes the added burden on the courts and the unnecessary expense to the parties should be avoided. The Supreme Court has recently had occasion to point out the relatively large amount of expensive trial time taken by patent litigation, as compared with other clr1 cases. Blonder Tongue Laboratories v. University of Minois Foundation, 28 L.E. 20 TAS (1971). Accordingly, section 271 (h) is intended to over-rule such decisions as Business Forms Finishing Service Inc., v. Carson, 4.2 F.2d 70 17th Cir. 1971). Section 271 chi has been retained in modified form to permit settlement of litigation where there has been a settlement with approval of a court or by a bona fide independent arbitrator without collusion.

"By including the word “solely" in sections 271 (f) (11 and 271 (g), the Subcommittee intends that each course of conduct referred to in those sections de considered separately, and the provisions of those sections need not appls when an agreement of arrangement combines one authorized course of conduct with another authorized course of conduct, or with other conditions, limitations or restrictions which result in misuse of illegal extension of patent rights. For instance, section 271 g) (1) (c) prorides that mera package licensing oť several patents is 1m2!1 loent would not legitimative corrcire package licensing, as condemned in American Security v. Shatterprool Glass Corp., 265 F.2d 769 (3rd Cir. 1959)."

would effectively prevent the Scott Amendments, if enacted into law, from ever being capable of acting as a defense to an action based upon our conventional autitrust laws. I submit that if this approach is adopted, when the new Patent Law Revision Bill and the revised Scott Amendments are introduced in the next session of Congress, is should satisfy not only Senator Fong but also the opponents to the Amendments in the Justice Department's Antitrust Division. Of course, a little help or support by the Executive Branch at that time would help, and I look for the White House to do so by asserting the leadership and coordinative effort that President Nixon espoused in his speech which I've quoted from previously.

One might ask why should the Scott Amendments be adopted? Why should the conflicting policies of the Commerce and Justice Departments be resolved in favor of a single policy aimed at maximizing the benefits inherent in both the patent and antitrust laws? There are undoubtedly several very good reasous, but my answer to both questions could be summed up in one word : UTILIZATION! Yes, utilization. Utilization of our limited national resources. Utilization of our limited national assets. Utilization of the products of man's genius, man's brainpower, man's ability to invent, to conceive of new and better ways of improving our way of life, of new and better things that aid in our nation's health and welfare, that aid in our nation's prosperity. All of these products are finite assets and their utilization must be promoted and guarded, for if they are lost or left unused they will be wasted. The licensing provisions of the Scott Amendments will foster utilization of patented inventions to a greater degree than ever before. The Commerce and Justice Departments should not stand leagues apart to debate the point with each concerned ouls with its own narrow perspectives. The administration charged with the responsibility of all phases of government operation should wring from both a single position which it deems will best utilize the patented inventions which are or could be involved.

President Nixon, in his speech from which I have quoted, further stated "an asset unused is an asset wasted". In doing so he called attention to "a change in the Gurernment patent policy which liberalized the private use of Government-owned patents" which he approved by Executive Order in August 1971.13 He stated further: "I directed that such patents may be made available to prirate firms through exclusive licenses where needed to encourage commercial application." This was a tremendously progressive step in the direction of increasing the utilization of patented inventions for which I am happy to Ralute him. This step was a giant stride toward overcoming the divisive forces arra ved within the various government departments and agencies which have been charged with administering rights to patented inventions arising out of research wliich is at least partially subsidized by federal funds.

I trust you will forgive me for making a personal claim to satisfaction at this point. Just as I did publicly in 1967 for the first time, when I addressed the Licensing Executives Society at its meeting in San Francisco, 14 so do I now recall the fact that almost 20 years ago I originated or advanced the concept which President Nixon has now embraced, and later gave to it the name “utilization theory." While others concerned with the disposition of rights to government-subsidized patented inventions advanced the "fairness and equity" concept. I argued that utilization was far more important. Others advocated the importance of deciding, as a matter of fairness and equity, whether the gorerninent or its contractors should keep title to inventions made in the performance of contracts for research and development, based on relative contributions made by each party. I advocated that even more important to the nation as a whole was the decision as to how the inventions could best be utilized to promote the progress of the arts and sciences, with the conclusion that this could best be done by leaving a defeasible title with the contractors. If they put the inventions into commercial use within a certain number of years, they would keep the title until the patents expired; if not, title would revert to the government which then could license others under the same conditions.

11 Jomorandum and Statement of Government Patent Policy issued by President Nixon on Jugust 23, 1971 (36 Fd. Reg. 166, August 26, 1971). This statement revised and up. dated the original policy statement issued by President Kennedy on October 10, 1963 (2 Fr. Reg. 200, October 12, 1963).

14 Forman, "Retrospections and Introspections Concerning Patents and Government Patent Policy", 19 J. Pat. Ofr. Soc'y 678 (September, 1967).

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