Government
ERDA urged not to require patent licensing Panelists at colloquium held by the agency say licensing scheme would discourage companies from seeking solutions to energy problems The Energy Research & Development Administration convened a colloquium earlier this month seeking an answer to the question of whether it should require mandatory licensing of new energy technologies developed under ERDA contracts. Participating in the colloquium were two economists, two R&D directors, and two lawyers. And by a five-to-one count, they said that if ERDA wants to encourage private companies to come up with new ways of providing readily available, low-priced solutions to the nation's energy problems, just about the worst thing ERDA could do would be to institute mandatory patent licensing. The government already owns more than 27,500 patents, Maruc B. Finnegan, a patent lawyer, told the colloquium. And since it is willing to license anybody under its patents, a process analogous to mandatory licensing, a patent held by the government is not really a patent at all, but more precisely a form of technically accurate publication. The available evidence on the fate of government-owned patents, he says, points to minimal licensing, a disincentive for investment of risk capital in new technologies, a general absence of effective transfer of government-owned technology to the private sector, and a failure to inspire competition in research. In fact, Finnegan says, unless the government has brought an invention to the point of commercialization, industry has evinced almost no interest in developing government inventions. ERDA's consideration of mandatory licensing, according to Dr. Nat C. Robertson, vice president of R&D for Air Products & Chemicals, is a good example of the government's lack of understanding of what is required to motivate industrial organizations to participate in the relatively long-range, high-risk programs necessary for achieving the goal of energy independence. Providing only payment for research performed, even with the inclusion of fees, does not provide enough incentive to ensure industry participation. What is needed, Robertson says, is the protection provided by the patent system, not taking it away. Allowing companies to retain patents, he adds, would provide
Clewell: deny adequate return
balance to distinctly negative factors of energy R&D, such as very long-term payout periods, great market uncertainties, and the poorly perceived nature of probable competition. As Dr. Dayton W. Clewell, vice president for R&D at Mobil Oil, points out, companies get involved in R&D for the same reason they do any other investment—a satisfactory return on the funds invested. Thus, he says, his opposition to mandatory licensing primarily is based on the fact that it would deny the patent owner an adequate return on his R&D investment. Even a 5% licensing fee, which he sees as the most probable rate under a mandatory system, would not in most cases be high enough to assure that the profits derived from a commercially successful invention would cover the costs of R&D failures as well as successes. Mandatory licensing is objectionable on the grounds of fairness alone, Clewell contends. He says that such a policy would allow a competitor, who took no risks, to choose only the successful products and processes of those who did take the risks of R&D. Further, mandatory licensing of energy technology would be unnecessary, he says, because major oil companies, which are the most likely candidates for participation in ERDA's large-scale R&D and commercialization programs, already follow very liberal licensing policy with regard to their patents. The economics are usually such that the developer, under present patent laws, can obtain a greater total return from the technology by licensing others than by restricting its use to its own operations. Clewell's statement is borne out by a
study of 23 major U.S. oil companies performed by Dr. Jesse W. Markham, Charles Wilson Edward Professor of Business Administration at Harvard University. Markham told the colloquium that 20 of the 23 companies in his study reported that they engaged in R&D activities. And all said that they licensed their technology on a nondiscriminatory basis. This is shown, he says, by 16 of the 20 reporting income in the form of revenue from licensing. For the 11 companies that reported exact figures, the magnitude of their licensing revenues was unexpectedly large, Markham says, amounting to about 35% of their total outlays on R&D. The size of these revenues, he adds, at least suggests that they provide a significant incentive to engage in R&D. The second lawyer on the panel, Dr. James B. Gambrell, not only opposes any provision for mandatory licensing but says all of ERDA's patent regulations should be revised. In their present form, he says, they will "create a morass of regulations, unnecessary uncertainty, and a general malaise in the private sector." Gambrell believes that if ERDA succeeds in its "mission" it will be in spite of its patent policy, not because of it. Of the six panelists, only Dr. Frederick M. Scherer, an economics professor at Northwestern University, said that he was "persuaded that technical progress would not grind to a halt, if a uniform policy of compulsory licensing at reasonable royalties for all energy-related patents was implemented." Still, he says, such a policy probably would mean that smaller companies, which do need long-term patent protection, would not be able to participate in ERDA's programs. If such a policy is instituted, he recommends that ERDA draw a presumption in favor of mandatory licensing only five years after the date of the patent application, letting a company retain its rights until then. A provision for mandatory patent licensing was included in the Senate version of legislation creating ERDA. But the provision was deleted by a House-Senate conference committee. Instead, ERDA was directed to study the question and report back to Congress on whether mandatory licensing was desirable and needed. ERDA will present its decision to Congress later this year and will draw on the papers presented at the colloquium plus a contract study designed to gather empirical data on the nature and outcome of patent litigation between private parties and the effect of existing mandatory licensing requirements for the Department of Defense in making its decision. D Jan. 24, 1977 C&EN
15
