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AN EQUITABLE POLICY FOR SMALL BUSINESS PATENTS ON
INVENTIONS MADE WITH FEDERAL ASSISTANCE

One of our nation's greatest problems is the decline in the rate of productivity growth, and a major factor in this decline has been the discouragement of innovation at the small business level. Less than 5 percent of all federal research and development dollars go to small business, yet both a Department of Commerce study in 1966 and an Office of Management and Budget study in 1977 show that small business accounted for more than half of all scientific and technological developments since the beginning of this century. A National Science Foundation study for the period between 1953 and 1973 found that small firms produced 4 times as many innovations for every research and development dollar as medium sized firms and 24 times as many as the largest firms. Prior to passage of the University and Small Business Patent Procedures Reform Act, in the 96th Congress, many small innovative companies avoided the federal research grant process simply because of the uncertainty over whether or not they would be allowed to retain patent rights on inventions made under research sponsored by federal funds. Now P.L. 96-517 allows small businesses to obtain limited patent rights on discoveries they have made with federal money.

Experience had shown that unless the private sector (including universities, individual inventors, and non-profit organizations) is given sufficient incentive to bring new innovation to the marketplace, the development of new technologies will decline. Given the

rapid drop in U.S. productivity increases over the past few years, it is apparent that new technology development in the U.S. must be encouraged.

The federal government itself is a prime disincentive for innovation development-inventions made under various agency grants have been allowed to waste away in government storerooms benefitting no one. The Departments of Energy and Health, Education, and Welfare, for example, often take months and in some cases years to reveiw petitions for patent rights on inventions developed with federal grants. And, when the government decides to retain patent rights on these inventions, there is little chance that they will ever be developed. Of the 30,000 patents that the government presently holds, less than 4 percent are ever successfully licensed. This is very little return on the billions of dollars that are spent every year on research and development.

Small businesses are now allowed to obtain limited patent protection on discoveries they have made under government-supported research if they provide the additional resources needed to successfully commercialize the product. This change should provide the American marketplace with additional innovative product developments and remove the disincentives to many small companies from participation in the federal R&D process. The benefit is not only for small business, but the American economy, as well, since small firms have been the greatest source of new jobs in the past decade.

RESOLVED

The Small Business Legislative Council supported
changes in government patent policy to allow small
businesses patent protection on inventions made
under government-sponsored research, with allow-
ance to permit the government to recoup its initial
funding under certain circumstances. Small business
innovations developed under federal contract are
now patentable by the contractor, allowing that
business a reasonable time to develop the new idea
commercially.

In addition, the government should provide exclusive
license to inventions and innovations, with prefer-
ence to small business. This will provide an increased
Incentive to the traditionally innovative small busi-
ness sector to seek R&D contracts and to
commercialize new and beneficial products for the
marketplace.

UNDERFUNDING OF THE U.S. PATENT
AND TRADEMARK OFFICE

The United States traditionally has been a leading innovative nation, the creator of new industries in electronics, lasers, antibiotics, synthetic fibers, and instant photography, to name but a few. Most of these industries sprang from inventions by small business entrepreneurs.

Although our present patent system has contributed significantly to an environment conducive to innovation, there has been a marked decrease in the rate of innovation and in the amount of R&D investment devoted to new product lines and basic research.

While there is general consensus that the patent system has served the country well, and that no major overhaul is recommended, there are problems of a procedural nature within our patent process which have a detrimental effect on innovation—particularly in the small business community.

Under the present system, before a patent can be granted to any individual, tests of utility and novelty must be met. Before granting a patent, an Examiner in the U.S. Patent and Trademark Office (PTO) undertakes a manual search through the prior publications available in order to determine whether the same or similar invention has been disclosed.

These prior publications consist of over 4 million

U.S. patents, a like number of foreign patents, and countless literature references. Prior art is classified into 80,000 classes and subclasses with cross references. The information listed in this manner is thus a useful tool, but only if it is complete and readily accessible.

If, after tests of utility and novelty are met through scanning of prior art, a patent is issued, all others are excluded from making, selling and using the invention disclosed in the patent. However, if the prior art references are not complete or sufficient to disclose an already-existing patent, the patent issued by the Examiner is thus subject to challenge in the courts. Challenges of this kind include further searches of prior art and most of the time better art will be found. In the district court level, 50% of the patents will be declared invalid; at the appeals court level that figure climbs to 72%; and finally, at the Supreme Court level, the invalidity percentage approaches 100%. For small businesses dependent on a particular patent, a declaration of invalidity can mean bankruptcy.

Part of the cause of this problem lies within the PTO itself, and SBLC believes that if the PTO is to remain an effective patent-granting and innovation-promoting agency, then the reliability of its patent-granting process must be improved.

RESOLVED

Since 1976, the total actual appropriation for the
PTO has actually declined, after adjusting for infla-
tion. The Small Business Legislative Council urges
the Executive branch to request, and Congress to ap-
propriate, sufficient funds to insure an adequate
number of examiners and systems support so as to
make the PTO more effective and achieve shorter
pendency of applications and greater reliability in the
validity of U.S. patents issuing from the U.S. Patent
and Trademark Office. These actions will increase
the integrity of prior patent search files and increase
the number of publications available to patent ex-
aminers, and enable the PTO to employ modern me-
thods for storing and retrieving the information in
these expanded files. The net result will be an
improved innovation and productivity outlook for
the U.S.

TECHNOLOGY TRANSFER

The small business community is currently plagued by severe limitations in its ability to adequately acquire and utilize existing and developing forms of technology. Small business' access to appropriate technology has been relatively catch-as-catch-can and often accidental. Small firms are often not equipped with the manpower, financial resources or even the most fundamental types of knowledge necessary to take advantage of recent or existing technological advances. In all cases, this problem is exacerbated by the chronic lack of informational and referral services to which small business people can turn to find an answer to a specific technology problem.

Because the small business community has such a defined need for assistance that will enable it to take advantage of the vast amounts of federally-funded R&D work now being done, an effective Technology Transfer program would provide for the identification of technical information, alert a small business owner to new processes, products, systems and techniques, and supply direct, personal and practical technical assistance that is largely unavailable and unobtainable today.

American's stance in the world marketplace has grown continuously weaker. Our increasing balance

of-trade deficits with our major trading partnersi.e., the Common Market countries and Japan-our declining productivity growth rate, and our waning technological innovation and development have all contributed to this weakened economic condtion. A major reason is this country's disinterest in a truly innovative and productive small business community. A technology delivery system to serve small business needs could play a significant role in reversing the U.S. economic slide.

Most industrialized nations have government-subsidized technology dissemination and research programs for their small businesses so that these firms can take the lead in technology development and application. For these countries, a major benefit of such assistance programs is heightened ability of small businesses to compete in foreign markets, and the result is a more effective method of maintaining a healthy balance of trade. The same result can be achieved for the United States should such a program be developed.

Legislation to expand the Small Business Development Center program was enacted in the 96th Congress.

RESOLVED

The Small Business Legislative Council urges continuation of effective technology transfer programs to assist small businesses in solving problems concerning development, application, and availability of emerging knowledge.

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GOVERNMENT CONTRACTING OUT

(has been a long standing policy of our government, both legislative and administrative, to rely on competitive private bids for the goods and services which it requires.

There has been an increasing tendency in government to compete with private business in providing additional “in-house” participation at the expense of commercial opportunities, even at higher costs to the taxpayer. This is counter to the goals of P.L. 95-507, October 24, 1978, an Act to Amend the Small Business Act, and the Small Business Investment Act of 1958, which relates to government procurement from small businesses.

The Small Business Administration in March 1980 reported its findings in an intensive study entitled "GOVERNMENT COMPETITION A Threat to Small Business." This report calls for preference for private enterprise to be supported by specific legislation and federal policies as necessary to achieve these aims within the framework of maximum cost-effectiveness. These findings are supported by extensive

testimony recorded by the SBA in hearings throughout the country.

There are forces in government which oppose this policy and seek rather to expand the role of government in providing the services and products at the expense of small private business. The procedural approach is by way of legislation to permit federal agencies to increase personnel ceilings whenever they feel that they can do a job better than private companies. This in effect voids existing personnel ceiling restraints on government growth contained in the Civil Service Reform Act of 1978. Cost-effectiveness in essence becomes a secondary consideration since current regulations requiring cost reviews under Executive Order A-76 are voided.

Enactment of such legislation would endanger the small business share of federal procurement which now amounts to about $6 billion annually from civilian agencies alone. A substantial portion of this is now provided by minority businesses, which will be endangered.

RESOLVED

The Small Business Legislative Council supports
greater opportunities for private enterprise, par-
ticularly small business, to provide a higher share of
goods and services used by the government. The
objective of contracting on the most cost-effective
basis must be observed. This is consistent with our
previously stated goals of 50 percent of prime con-
tracts and 75 percent of subcontracts for award to
small business. The Small Business Legislative Coun-
cil opposes any legislation or administrative effort
which would reverse this position.

REVISION OF NATIONAL LABOR RELATIONS ACT

The month-long filibuster which sent the Labor
Reform bill back to the Human Resources Commit-
tee in July, 1978, eventually resulted in its failure to
be reconsidered during the 95th Congress. The
measure was introduced to help bolster slipping
union memberships which has resulted in less money
for the poweful Washington-based unions.

The filibuster withstood a record six cloture votes.
Though the 41 Senators who opposed the measure
were in the minority in the Senate, they had substan-
tial support from people across the country. One
public opinion poll after another clearly showed that
the citizens of the nation were not supportive of a
program that would give additional power to the
unions.

No action was taken in the 96th Congress.

RESOLVED

The Small Business Legislative Council supports revi-
sion of the National Labor Relations Act if such
amendments are balanced, constructive, and equit-
able to all interests—the public, the employer, and
employee. The Small Business Legislative Council
opposes any amendments to the National Labor
Relations Act which would be detrimental to the
public, the employer and the rights of the individual
employee.

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