[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]
INTELLECTUAL PROPERTY AND GOVERNMENT R&D FOR HOMELAND SECURITY
=======================================================================
HEARING
before the
SUBCOMMITTEE ON TECHNOLOGY AND PROCUREMENT POLICY
of the
COMMITTEE ON
GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
SECOND SESSION
__________
MAY 10, 2002
__________
Serial No. 107-181
__________
Printed for the use of the Committee on Government Reform
Available via the World Wide Web: http://www.gpo.gov/congress/house
http://www.house.gov/reform
______
85-839 U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 2003
____________________________________________________________________________
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COMMITTEE ON GOVERNMENT REFORM
DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut MAJOR R. OWENS, New York
ILEANA ROS-LEHTINEN, Florida EDOLPHUS TOWNS, New York
JOHN M. McHUGH, New York PAUL E. KANJORSKI, Pennsylvania
STEPHEN HORN, California PATSY T. MINK, Hawaii
JOHN L. MICA, Florida CAROLYN B. MALONEY, New York
THOMAS M. DAVIS, Virginia ELEANOR HOLMES NORTON, Washington,
MARK E. SOUDER, Indiana DC
STEVEN C. LaTOURETTE, Ohio ELIJAH E. CUMMINGS, Maryland
BOB BARR, Georgia DENNIS J. KUCINICH, Ohio
DAN MILLER, Florida ROD R. BLAGOJEVICH, Illinois
DOUG OSE, California DANNY K. DAVIS, Illinois
RON LEWIS, Kentucky JOHN F. TIERNEY, Massachusetts
JO ANN DAVIS, Virginia JIM TURNER, Texas
TODD RUSSELL PLATTS, Pennsylvania THOMAS H. ALLEN, Maine
DAVE WELDON, Florida JANICE D. SCHAKOWSKY, Illinois
CHRIS CANNON, Utah WM. LACY CLAY, Missouri
ADAM H. PUTNAM, Florida DIANE E. WATSON, California
C.L. ``BUTCH'' OTTER, Idaho STEPHEN F. LYNCH, Massachusetts
EDWARD L. SCHROCK, Virginia ------
JOHN J. DUNCAN, Jr., Tennessee BERNARD SANDERS, Vermont
------ ------ (Independent)
Kevin Binger, Staff Director
Daniel R. Moll, Deputy Staff Director
James C. Wilson, Chief Counsel
Robert A. Briggs, Chief Clerk
Phil Schiliro, Minority Staff Director
Subcommittee on Technology and Procurement Policy
THOMAS M. DAVIS, Virginia, Chairman
JO ANN DAVIS, Virginia JIM TURNER, Texas
STEPHEN HORN, California PAUL E. KANJORSKI, Pennsylvania
DOUG OSE, California PATSY T. MINK, Hawaii
EDWARD L. SCHROCK, Virginia
Ex Officio
DAN BURTON, Indiana HENRY A. WAXMAN, California
Melissa Wojciak, Staff Director
Victoria Proctor, Professional Staff Member
Teddy Kidd, Clerk
Mark Stephenson, Minority Professional Staff Member
C O N T E N T S
----------
Page
Hearing held on May 10, 2002..................................... 1
Statement of:
Brock, Jack, Director, Acquisition and Sourcing Management,
U.S. General Accounting Office; Anthony J. Tether,
Director, Defense Advanced Research Projects Agency; and
Ben Wu, Deputy Under Secretary for Technology, Technology
Administration, Department of Commerce..................... 9
Louie, Gilman, president and CEO, In-Q-Tel; Richard Carroll,
chairman, Small Business Technology Coalition, president,
DSR, Inc.; Stanley Fry, director, contracts & legal
affairs, Eastman Kodak Co.; and Stan Soloway, president,
Professional Services Council.............................. 57
Letters, statements, etc., submitted for the record by:
Brock, Jack, Director, Acquisition and Sourcing Management,
U.S. General Accounting Office, prepared statement of...... 12
Carroll, Richard, chairman, Small Business Technology
Coalition, president, DSR, Inc., prepared statement of..... 75
Davis, Hon. Thomas M., a Representative in Congress from the
State of Virginia, prepared statement of................... 4
Fry, Stanley, director, contracts & legal affairs, Eastman
Kodak Co., prepared statement of........................... 84
Louie, Gilman, president and CEO, In-Q-Tel, prepared
statement of............................................... 61
Soloway, Stan, president, Professional Services Council,
prepared statement of...................................... 93
Tether, Anthony J., Director, Defense Advanced Research
Projects Agency, prepared statement of..................... 42
Turner, Hon. Jim, a Representative in Congress from the State
of Texas, prepared statement of............................ 7
Wu, Ben, Deputy Under Secretary for Technology, Technology
Administration, Department of Commerce, prepared statement
of......................................................... 31
INTELLECTUAL PROPERTY AND GOVERNMENT R&D FOR HOMELAND SECURITY
----------
FRIDAY, MAY 10, 2002
House of Representatives,
Subcommittee on Technology and Procurement Policy,
Committee on Government Reform,
Washington, DC.
The subcommittee met, pursuant to notice, at 10 a.m., in
room 2154, Rayburn House Office Building, Hon. Thomas M. Davis
(chairman of the subcommittee) presiding.
Present: Representatives Tom Davis of Virginia, Jo Ann
Davis of Virginia, Horn, and Turner.
Staff present: George Rogers, Chip Nottingham, and Uyen
Dinh, counsels; Victoria Proctor, professional staff member;
John Brosnan, GAO counsel; Teddy Kidd, clerk; Mark Stephenson,
minority professional staff member; and Jean Gosa, minority
assistant clerk.
Mr. Tom Davis of Virginia. Good morning. I want to welcome
everybody to today's oversight hearing on intellectual property
and government procurement of research and development.
Acquisition legislation in the 1990's streamlined and improved
the procurement process. Unfortunately, 92 percent of the
Fortune 500 industrial do little or no R&D for the government,
and the Wall Street Journal reports that three-fourths of the
country's top 75 information technology companies refused to do
research for the government because of the intellectual
property and red tape concerns.
Moreover, none of the firms that plays a valuable role for
our Nation as traditional defense contractors are among the
companies that each year receive the most number of patents.
While agencies continue to find companies that will do R&D
without negotiating on IP, the question that needs to be
addressed is why the leading-edge innovative companies are
refusing to participate.
During the cold war and space race years, the government in
general and the Pentagon in particular drove R&D. While the
President has increased R&D spending in the fiscal year 2003
budget, recent trends indicate the private sector's investment
is much greater than the Federal Government's. According to the
National Science Foundation, the Government share of R&D
funding was 67 percent in the 1960's; 47 percent in the 1980's;
and 26 percent in 2000.
In an environment where private sector R&D spending
accounts for almost three-fourths of the total spent in the
United States, the Government's role has changed to become a
partner in innovation rather than the sole driving force.
Because intellectual property rights are the most valued assets
of companies, the government must ensure that its policies and
procedures reflect this partnership for innovation.
Agencies have recognized the need to address IP rights as a
precursor to ensuring access to the very best technologies. For
example, the Department of Defense published a guide for the
acquisition community entitled Intellectual Property,
Navigating Through Commercial Waters. This guide was a good
first step. However, evidence presented to the subcommittee's
July 2001 hearing showed that the treatment of intellectual
property rights in government R&D can be an impediment to
taking the best innovations possible.
After September 11th, there has been a dramatic realignment
in the mission of government. The first priority of the Nation
has become homeland security. To win this fight, the government
must be able to prevent, detect, and respond to terrorist
activity. We also must be ready to manage the consequences of
future attacks, treat casualties, and protect critical
infrastructure. R&D will play a critical role in our ability to
generate the new ideas and the innovations needed to win the
war on terror and to move the Nation forward.
Technology now accounts for 50 percent of the Nation's
long-term growth. And as the Federal Reserve chairman Alan
Greenspan has recognized, information technology and
intellectual property have played a substantial role in the
remarkable U.S. productivity gains. The Government is
challenged today to find ways to entice innovative companies
into collaborating with it on vital R&D and information
technology efforts.
In addition, it is important for the Government to
recognize that the treatment of intellectual property rights
will greatly impact the viability of competing alternatives for
any government contract as well as the implementation of
leading-edge innovation.
Intellectual property and research and development
procurement are both very complex subjects, and the
Government's new role as a partner in innovation, contracting
officers, program managers agency legal staff all need to
understand how flexibilities for the treatment of intellectual
property can be used to attract and retain the leading-edge
companies. Today's hearing will examine public and private
sector views on intellectual property and research and
development issues. It will also explore the experiences of
successful R&D organizations such as DARPA, In-Q-Tel and others
for lessons that can be learned and problems that need to be
addressed in the procurement of government R&D and IT.
The subcommittee will hear testimony today from Mr. Jack
Brock, the Managing Director for Acquisition and Sourcing
Management at the U.S. General Accounting Office. Mr. Ben Wu,
Deputy Undersecretary for Technology at the Department of
Commerce; and Dr. Anthony Tether, Director of the Defense
Advanced Research Projects Agency [DARPA].
On the second panel, we're going to hear from Gilman Louie,
president and CEO of In-Q-Tel. Mr. Richard Carroll, legislative
chairman of the Small Business Technology Coalition and
president of DSR, Inc. Mr. Stanley Fry, director of contracts
and legal affairs at the Eastman Kodak Co.; and Mr. Stan
Soloway, the president of the Professional Services Council.
[The prepared statement of Hon. Thomas M. Davis follows:]
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Mr. Tom Davis of Virginia. I now yield to Congressman
Turner for any opening statement he may wish to make.
Mr. Turner. Thank you, Mr. Chairman. Our purpose, of
course, today, is to examine the nexus between intellectual
property and procurement. The underlying issue is whether
current intellectual property laws and practices prevent the
Federal Government from gaining access to the very best and
most up-to-date technological advances. As the hearing's title
suggests, this issue is particularly important when considered
in the context of our current war on terrorism. If the
government's intellectual property laws are inhibiting agencies
from gaining access to advanced R&D needed for homeland
security, that is something we need to know about, and I look
forward to hearing from our witnesses.
The world of research and development obviously has changed
dramatically since the 1980's when most of the Federal laws
governing access to intellectual property were written. Today
the Federal share of R&D spending is much less than, and
private sector spending is much more than it was then. While
the trend has clearly been for greater private sector R&D
funding, it is important to remember that the Federal
Government still spends up to $70 billion on research and
development. Expanding the use of so-called other transactions
to civilian agencies is one approach that has been suggested to
increase flexibility in addressing intellectual property
concerns.
While I do have an open mind on the subject, I do not feel
the case has been made to date that civilian agencies need
other transaction authority. It would be interesting to hear
from our witnesses regarding this issue. Other transactions
authority was originally designed to attract nontraditional
defense contractors who did not want to enter into contracts in
part because of concerns about how intellectual property rights
were treated. Unfortunately, other transactions do not seem to
have achieved this goal.
As the Department of Defense Inspector General reports, 95
percent of the money for other transactions from 1994 to 2001
went to traditional defense contractors. I believe we must be
cautious about expanding the use of this authority since it
eliminates many of the safeguards of Federal procurement law.
Current law and regulation was designed to strike a
delicate balance between the needs and the rights of government
as representatives of the people and those of private industry.
We need to examine the sometime conflicting priorities in
prospective as we examine these issues. I look forward to
hearing from all of our witnesses, and I thank the chairman for
calling this hearing on this very important issue. Thank you,
Mr. Chairman.
Mr. Tom Davis of Virginia. Thank you very much.
[The prepared statement of Hon. Jim Turner follows:]
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Mr. Tom Davis of Virginia. Mr. Horn, you have no opening
statement? OK.
I would now call our first panel to testify. Mr. Brock, Mr.
Wu and Dr. Tether. As you know, it's the policy of this
committee that all witnesses be sworn before you testify. If
you would please rise with me and raise your right hand.
[Witnesses sworn.]
Mr. Tom Davis of Virginia. Thank you very much. Please be
seated. To afford sufficient time for questions, if you'd try
to limit your comments to 5 minutes. We've got a goal to move
this along today.
We've read the testimony, and we'll have questions ready
for that. So you can just highlight that. And all of the
written statements are going to be made part of the permanent
record. We'll start with Mr. Brock, and then Mr. Wu and then
Dr. Tether. Thank you, and thanks for being with us, Mr. Brock.
STATEMENTS OF JACK BROCK, DIRECTOR, ACQUISITION AND SOURCING
MANAGEMENT, U.S. GENERAL ACCOUNTING OFFICE; ANTHONY J. TETHER,
DIRECTOR, DEFENSE ADVANCED RESEARCH PROJECTS AGENCY; AND BEN
WU, DEPUTY UNDER SECRETARY FOR TECHNOLOGY, TECHNOLOGY
ADMINISTRATION, DEPARTMENT OF COMMERCE
Mr. Brock. Thank you very much, Mr. Davis. Good morning Mr.
Turner, Mr. Horn as well. As my statement today is largely
focused on rights to intellectual property and related data
acquired through contracts----
Mr. Tom Davis of Virginia. You need to turn your microphone
on.
Mr. Brock. OK. Is this better? I think it is on.
Mr. Brock. OK.
Mr. Tom Davis of Virginia. It should sound like this. Move
it closer to you.
Mr. Brock. No, it is not on.
Mr. Tom Davis of Virginia. This is the technology policy
committee. This is just unacceptable. Can you see--one of our
leading technical experts is going to be coming up here. Try it
now.
Mr. Brock. OK. Can you hear me, sir? Now, I notice I've
already used a minute and 10 seconds. I hope----
Mr. Tom Davis of Virginia. Unanimous consent you'll be able
to start again.
Mr. Brock. Thank you.
Mr. Tom Davis of Virginia. We'll take that out of Mr.
Turner's time. No problem.
Mr. Brock. Well, thank you again for inviting us to testify
here today. The flow of technology from the commercial sector
to government applications is frequently a source of real
tension. A concern on both the part of the commercial entities
as well as the government agencies. Your subcommittee did ask
us to look at this a while ago, and I'm pleased to report back
to the subcommittee with our results. And as you indicated, I
will briefly summarize my statement. And in doing so, I'd
really like to cover four basic points.
First, what is the nature of the concern, and is it a real
concern? Second, what are the challenges or underlying problems
which require action? Third, what, if any, are the implications
that might arise or continue if these concerns aren't
addressed? And fourth, what are some of the options you might
have for moving forward?
To address the first point. The current concern is real and
it is derived from an inherent tension between government needs
and commercial entities' fears. The tension arises from the
government's very real need for rights to intellectual property
and data that is necessary to provide critical services and to
meet program objectives. These rights were a lot easier to
secure when the government funded most of the R&D. They flowed
naturally from that funding. However, as you mentioned in your
opening statement, now that the government's R&D spending,
while still substantial, no longer is predominant, the rights
are no longer as free-flowing, and as such, the government has
an increasing need to negotiate for rights to commercially
generated technology. And this trend is only going to increase.
It's going to become more of an issue rather than less of an
issue.
At the same time, the intellectual property sought by the
government represents the very lifeblood of the commercial
companies, its crown jewel, so to speak. The companies don't
always trust the government's intentions, nor its ability to
protect the data associated with intellectual property.
The second point I wanted to make are what are the
underlying issues that really represent the barriers to most
effectively meeting the government's needs? Agencies--the
agencies we went to, and we covered almost all of the agencies
doing over 90 percent of the R&D in the government, had three
concerns. Its first and most prevalent was they felt that there
was a lack of awareness and/or willingness within their own
agency to take advantage of flexibilities that are already in
place. This was the biggest problem. Second, they felt that
there was perceived risk--I want to emphasize that word
``perceived risk'' on the part of commercial companies largely
associated with Bayh-Dole, which limit their willingness to
participate in government contracts or in development efforts.
And finally, there were concerns that both they and the
commercial sector had in dealing with multiple parties, such as
subcontractors or universities where they--the data rights or
the patent rights were not always clear-cut.
Commercial companies identified some concerns that were
really very similar. First of all, they also identified a lack
of understanding or an unwillingness to use flexibilities that
were available. They frequently stated, or used the term a
``comfort zone,'' that government contractors would get in, an
unwillingness to go beyond that comfort zone. Second, they had
a more defined, not a perceived concern over certain Bayh-Dole
provisions, such as march-in rights or the definition of what a
subject invention was.
Third, cumbersome agency processes and procedures were
perceived as barriers. And fourth, very strong concerns over
the span of rights the government wants over technical data and
equal concerns over the government's protection of proprietary
data.
The third point I wanted to make today are the implications
of these concerns, and before getting into these implications,
I do want to emphasize that no agency official raised or cited
a specific instance where they did not have access to
commercial technology they felt that they needed. But
nevertheless, there are some implications from this, the most
simple ones, that if you don't really have a well-defined way
of acquiring intellectual property rights, you may buy more
than you need. And that's that comfort zone question, well,
we're not sure we're going to need. Let's buy everything. If
you do that, you're going to pay too much.
On the other hand, if you don't buy enough, you may be
getting what seems to be a good price now, but you're going to
pay for it later when you have to go back and secure the data
rights you might need to maintain a particular system.
But the most important concern--and this was one that was
raised more by DOD than by any other agency--was their concern
that they weren't able to attract some of the leading
technology companies that they would like to have involved in
ongoing research and application development. And the problem
with this is to the extent that companies may not choose to
participate in Federal contracting, the government may not get
the best solution, or it may not get the best pricing and that
is the real implication from this.
This brings me to the final point, Mr. Chairman, and that
is the options for moving forward. The first step I think is
pretty obvious, that agencies clearly need to define their
intellectual property and data needs and use the available
flexibilities they already have to meet these needs. And I
don't think this is a very simple, or it would already be done
and you wouldn't have to have the hearing this morning. Tools
such as the Defense's intellectual property guide that you
referred to are excellent, both as a reference and a how-to
guide. The problem resides in getting the right people to
effectively use the tool, and that has been the issue to date.
More substantive action may be warranted, but not without more
in-depth examinations of the specific impediments that were
cited by both the industry and the agencies and the
effectiveness of flexibilities already available and the
potential impact of any suggested changes.
The current framework anchored by the Bayh-Dole Act has
generally been considered to be a success story and leading to
greater commercialization of federally sponsored research. And
more recent additions to that framework, such as DOD's other
transaction authority, can serve as potential models for
enhancing the government's contracting flexibility in
commercial firms that traditionally have not worked for the
government.
But in conclusion, the challenge here is to address not
whether the government should have rights but rather, what
rights it should hold, when these rights should be exercised
and what authority should be granted to waive these rights when
it's in the best interest of the government. That concludes my
summary.
Mr. Tom Davis of Virginia. Thank you very much.
[The prepared statement of Mr. Brock follows:]
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Mr. Tom Davis of Virginia. Mr. Wu, thanks for being with
us.
Mr. Wu. Good morning, Chairman, Ranking Member Turner and
members of the subcommittee. I'm pleased to be here with you
today to discuss the Department of Commerce initiatives on
government research and development and intellectual property
rights, especially relating to the transfer of government
technology to the private sector for commercialization, which
we commonly refer to as technology transfer. I commend you for
your leadership on this issue and for holding this hearing.
It's particularly relevant as our Nation has been marshalling
our R&D resources to winning the war on terrorism and
protecting our homeland security and defense.
The Department of Commerce, through our Technology
Administration, has specific roles and responsibilities in the
areas of technology transfer, particularly through our Office
of Technology Policy, OTP. As the agency that represents
industry, the Department serves as the administration's main
focal point for the discussion of technology transfer issues.
Our OTP coordinates and works closely with the Interagency
Working Group on Technology Transfer. It's a group of
technology transfer managers from all the Federal agencies.
With OTP leadership, this working group discusses a wide
range of agency activities and issues related to technology
transfer, recommends policies and coordinates the submission of
congressional reports. In our role as the coordinator and
leader of the Interagency Working Group, OTP has crafted
administration support for a number of technology transfer-
related provisions and legislation, including the most recently
passed Technology Transfer Commercialization Act of 2000.
As the administration considers ways to improve the
efficiency and speed of technology transfer, the Interagency
Working Group will continue to be a strong asset in organizing
consultations with private and public technology transfer
organizations, coordinators, identifying recommendation and
also prioritizing appropriate administrative and regulatory
action.
The Working Group is aware of the changing landscape of the
Federal research and development. As you said, Mr. Chairman,
there has been a great change in our Federal R&D. And our
Federal Government is no longer the primary driver for U.S.
science and technology investment. It has become the private
sector, and as a result, we must pay greater attention to how
technology gets developed and how the results of research and
technology make their way to the marketplace, including the
important impact of intellectual property rights in these
priorities, especially from a technology transfer vantage
point.
Technology transfer tools, such as cooperative research
development agreements [CRADA's], and patent licensing, are
relatively simple ways for U.S. businesses to develop federally
funded innovations into commercially useful products and
processes. And Congress has led the way in technology transfer.
As you know, Mr. Chairman, I had the pleasure of working with
Congresswoman Morella, who was the sponsor of two significant
technology transfer laws affecting CRADA's and technology
licensing, as well as your former committee, the House Science
Committee, which helped create in 1980 the most seminal
technology transfer laws, the Stevenson-Wydler Innovation Act
and the Bayh-Dole Act.
The manner in which the Federal Government works with the
private sector in developing and distributing technologies
changed fundamentally with the passage of Stevenson-Wydler and
Bayh-Dole. The agencies in the private sector began to find
ways to partner in the development of technologies that both
furthered agency missions and advanced competitiveness of
industry and the overall strength of our economy. And as a
result, Federal tech transfer has developed everyday products
such as GPS, the HIV home test kits, stronger materials for
more fuel-efficient cars; hybrid corn, that are more resistant
to drought and disease. And these are just few of the many
hundreds of examples of technologies that the Federal
Government originally held intellectual property title to and
either licensed out the technology or have collaborated with
industry to commercialize.
And through the years, Congress based on inputs elicited
from industry and working also with our Interagency Working
Group has attempted to improve and streamline the technology
transfer process, because it's clear for a strong and effective
research and development enterprise, we need to partner with
the three entities that perform research and development in
this Nation, and they are the Federal Government, universities
and industry.
And for effective commercialization of a new innovation or
technology, industry must be given adequate incentives to bring
a product to the marketplace. For commercialization to be
appropriately incentivized, industry needs to have sufficient
intellectual property rights and a procedure that is as
streamlined and impediment-free as possible. And that is
precisely what Congress tried to do in your most recent
consideration of technology transfer laws in consultation with
our Working Group.
For CRADAs, for example, originally the law was designed to
protect a great deal of flexibility for intellectual property
rights, but then they found out that in negotiations with
CRADA's, which are essentially contracts, that it became too
cumbersome. There wasn't a uniform standard for intellectual
property rights, and so a law was passed in 1995, the National
Technology Transfer Advancement Act, that provided for
exclusive license in the field of use for a CRADA, and that
helped provide some uniformity and certainty for intellectual
property rights. And this also helped decrease the time and
effort acquired in negotiation that hindered collaboration by
private sectors at Federal laboratories.
And the same was the case with the Bayh-Dole Act with
technology licensing. There was such a long laborious
negotiation and process time for a company to license at the
Federal laboratory, that the Technology Transfer
Commercialization Act of 2000 helped to streamline these
efforts. So it's clear that we need to remove the procedural
obstacles, and to the greatest extent possible, within the
public interest, the uncertainty involved in the licensing and
also the collaboration of working with Federal partners. And
given the importance and the benefits of technology transfer,
the Department of Commerce has assisted Congress to refine the
technology transfer process, facilitate greater university,
government and industry collaboration. And as a result, the
ability of the United States to compete has been strengthened
and a new paradigm for greater collaboration among the
scientific enterprises has been created.
We look forward to working with you, Mr. Chairman, and the
members of the committee, in our Interagency Working Group to
try to improve and enhance the technology transfer law so that
we can meet the national priorities at hand. Thank you very
much.
Mr. Tom Davis of Virginia. Thank you very much.
[The prepared statement of Mr. Wu follows:]
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Mr. Tom Davis of Virginia. Dr. Tether. Thanks for being
with us.
Mr. Tether. Thank you, Chairman Davis, Congressman Turner
and Horn. I'm pleased to be here. I'm Tony Tether, director of
DARPA, which is the Secretary of Defense's corporate research
center, is one way to look at us.
I'm not an expert on IP. However, I've had experience at
industry both at Ford where I was the chief technology officer
in using patents as a measure of success through the internal
IR&D program, and also at DARPA, where we constantly worry
about maintaining IP rights and bringing in firms that might
not want to do business with us.
In general, the existing policies for allocating IP created
under Bayh-Dole works reasonably well. Companies that are used
to working with the government are typically comfortable with
the policies. But that doesn't mean that everything is perfect.
The policies and their complexity worry people who are
unfamiliar with the government.
Bayh-Dole is uniform, which is good. You know how somebody
is going to apply it. But it is inflexible, which is bad. The
terms and conditions are largely defined by regulations. And
you can't negotiate different terms, even if you think they
would be sensible.
DARPA and the services have funding instruments called
Other Transactions that allow us to avoid these problems in
some cases. Basically, I agree with Congressman Turner that
Other Transactions, which were designed to bring in
nontraditionals, on the surface appears that all you're really
doing is going to people who most certainly know how to deal
with the FARS. Since I'm not sure 95 percent--I accept your
number of 95 percent, but I do know it's a large number. But
the real value of the Other Transactions is what it allows us
to do with the prime contractors who are used to dealing with
the government is to avoid the flow-down provision.
In other words, we allow them to go out to the small firms
in their area and not have to flow down Bayh-Dole so they could
possibly bring in people who have a product and have research
ongoing and have them enter into a research with the company
without the small supplier--small business worry that for 50K
they're going to lose all of their intellectual property rights
to the government.
If we didn't allow this flow-down, then the prime
contractor would have to flow down Bayh-Dole to those small
companies. It appears basically that is the strongest advantage
we have of having the OT efforts with respect to intellectual
properties, allowing the primes to not have to flow down the
Bayh-Dole provisions, when it makes sense to not do so, and
thereby bringing in small firms that otherwise would not want
to deal with them.
I know that from my own personal experience with Ford, that
there were many small companies that we really just wanted a
little bit of help, but they were concerned about doing
anything with this, if it meant that they had to enter into
provisions as to what--who would own what they--what they
learned on that little piece of effort, because all of their
other intellectual property was now put at risk because of the
difficulties separating what you knew before and after.
In short, we do believe that our flexibility in IP and
other issues through the OT system have really helped us deal
with people we otherwise couldn't deal with. So with the OT
provisions at DARPA, I do feel that we do have the flexibility
to reach out and bring in nontraditional firms directly as
primes, and even in those cases where we don't reach out and
have nontraditional--we have a prime contractor, a typical
defense firm, by allowing them to not have to flow down--that
the flexibility has really been great.
At our place speed is everything. We basically have an
organization that is based upon two premises, replenishment and
innovation. We do that by basically having people replenished
at the rate of 25 percent a year. Everyone turns over at DARPA
about 4 or 5 years. And also speed of execution. And by having
the capability to have Other Transactions, we are able to get
to contract with firms, both nontraditionals who we would never
get the contract with, and also prime contractors that normally
deal with the FAR much faster than we otherwise would have to.
We don't force them to have to go and form a separate company,
a joint venture, which takes time, which they all would have to
do, and so the other transactions allow a great deal of
flexibility in that regard.
And with that, I'll be happy to take any questions.
[The prepared statement of Mr. Tether follows:]
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Mr. Tom Davis of Virginia. Thank you very much. Let me
start the questioning with Mr. Horn, then Mr. Turner, then Mrs.
Davis.
Mr. Horn. Mr. Brock, in your review for the GAO in the
Bayh-Dole Act on exceptional circumstances, what, if anything,
did you see was not really an exceptional circumstance? Can you
give me a feel for whether that clause needs to be expanded
more or not?
Mr. Brock. The exceptional circumstances under Bayh-Dole in
our review, we found very few actually, and the ones that were
pointed out to us seemed to be appropriate. Just by way of a
little bit of background, under Bayh-Dole the company--the
commercial company keeps the patent rights, and the government
has the license rights to it for government use. The government
can waive that so that the commercial company does not get the
patent. Where that has been useful has been particularly at
NIH, is when a pharmaceutical company has a drug that they're
testing through NIH, and NIH, in turn, contracts with the
university or a private lab to test that drug. If they, in
turn, develop a new use for the drug, under Bayh-Dole, they
would have rights to the patent for that. Well, that's a
disincentive to the pharmaceutical company for wanting to do
the--to do any kind of testing at all with NIH.
So by having this declaration, NIH removes the patent
rights from the research lab or the testing lab, and those
rights would revert back to the pharmaceutical company. So in
the examples that we identified, that declaration worked very
well. We did not see--I'm not saying there are no bad examples,
but in our review, we did not come across any of those. It's
not widely used.
Mr. Horn. Mr. Tether, you've got quite a record in the
private sector. Looking at this type of exceptional bit, should
it be changed in any way, or is it OK now?
Mr. Tether. The exception to the----
Mr. Horn. Yeah.
Mr. Tether. Quite frankly, I didn't know there was an
exception.
Mr. Horn. Well, you could go back and change the language.
Mr. Tether. But I would--and maybe it's an education
problem of the contracting officials who negotiate with the
government. I would really like to almost query them as to how
many of them realize that there is an exception, and if they
wanted to ask for a waiver, who did they have to go to to get
that waiver? Now, if it was a local--in other words, if they
themselves could do the waiver, then it's a very useful
provision.
But if it turns out, as I believe is the case, that in
order to get the waiver, that they basically have to go two or
three levels up the chain--and I don't know this--then I think,
one, they probably don't know about the exception; and two,
they probably wouldn't try to execute it for the time delay and
the effort required in going and doing that.
Mr. Horn. One of the things that's occurred over the last
10 years and started in this room, as a matter of fact, there's
a delegation from the every 6 months or sometimes every 8
months dealing with the European parliament, and of course, one
of the main things I've said in every one of those missions
that, you know, you guys have a subsidy now of about $50
billion for Airbus, and we've got simply a military and
civilian that are quite separated in many ways, and of course
they just go, ha, ha, ha.
You're getting all of this military business than the
civilian aspects go. Well, it's just the other. In the case of
the C-17, which was the problem here, and they want today do it
in with this committee, we beat them on the floor in May 1994
by 300 votes and 100, and we haven't heard anything around here
anymore. But they have slowly--looking into a corporate
formation for Airbus, and we started with President Clinton
getting some transparency as to at least part of the books.
Well, it never really worked very well.
So also in the cockpit of the C-17, those came from the
civilian side. It wasn't subsidized by the Defense Department
or anybody else. They just said, this is the kind of thing we
ought to have in the cockpit. Let's take advantage of it. And
that was--everybody says Airbus just didn't know what they were
talking about, and I said, you know, if you let me know, I'll
get a U.S. attorney to indict a few if, you know, what you're
saying, it's just baloney.
So meanwhile, we're facing that $50 billion bit, and it's a
little tough to make when we get to do it and they really
don't. So I'm just curious on this type of thing. And Mr. Wu,
usually when there's a trade secret situation, the--in this
country on computers, let's say, they'd like to sell abroad,
and then you get into a fight with State and you get into a
fight with Commerce and Defense as to should that particular
object go to China, go to Russia, wherever. How do you deal
with that? I'm curious, on trade secrets? And the Pentagon
certainly is a major figure in that. And give us a little idea
of how that system works.
Mr. Wu. Well, let me just talk about what is being proposed
in terms of trade secrets. You know, allowing a contractor to
treat an invention made with government funds as a trade secret
we believe would be a major change in government policy. The
Department of Commerce would object to such a change, because
the only benefit the public would get is if the company
exploited the invention when providing a product or a service,
and since nothing would be published, the public's knowledge of
that information would also be decreased.
Further, the government's license and march-in rights would
be worthless, and on the other hand, if the funding agency
agreed not to exercise its secondary rights to patent an
invention which the company did not want to patent, then a
limited trade secret along with the invention disclosure was
not unreleasable in FOIA.
So we believe that the current policy is sufficient, and
that allowing for trade secret protection would be a major
shift in our current policy.
Mr. Horn. Who makes the final decision? Does it go to the
President?
Mr. Wu. There would be, I believe, an overarching decision
with OMB, or at least in consultation with OMB.
Mr. Horn. Mr. Brock, have you looked at that process in
terms of how we help American industry to get products abroad
without giving military secrets, maybe some trade secrets, but
have you taken a look at that?
Mr. Brock. Not directly as it relates to intellectual
property, Mr. Horn. We have done work on looking at the export
licensing process and those factors that are taken into
consideration when a decision is made to grant an export
license. Our views on it have been primarily are national
defense issues being considered and are we releasing either
technical data or product that should not be released. We've
also done some reviews looking at the rather burdensome process
that exists between Commerce and State and consultation
processes they have and the unequal nature of those processes,
but it's never really been focused on the intellectual
property.
I'd be glad to provide you with a copies of the reports
that we've done on the process aspects of that if you would
like them, sir.
Mr. Horn. I'd like to see them.
Thank you, Mr. Chairman.
Mr. Tom Davis of Virginia. Thank you, Mr. Horn.
Mr. Turner.
Mr. Turner. Thank you, Mr. Chairman. Mr. Brock, were you
able to determine if--and particularly since September 11th--if
there has been any agency of the Federal Government that has
had--has been unable to acquire any technology or research that
it needs because of the concerns about intellectual property
rights?
Mr. Brock. We, in the course of our review, Mr. Turner, we
went to many agencies that have an involvement in homeland
defense and in addition to DOD, we went to INS. We went to FBI,
DOT and other agencies as well to question them about concerns
that they might have over acquiring new technologies. The DOD
was components of the ones that expressed the most concern
which has been long-standing before September 11th about
concerns of getting access to companies that had technologies.
Those other agencies did not express specific concerns.
Unfortunately, though, most of them were either at that point
not in an acquisition phase or were just beginning to do
acquisitions and did not have a lot of exposure to it.
So I think our answer is inconclusive at this point. Some
of them recognize it as a potential problem, but they really
didn't--had not yet had a chance to explore the implications of
that problem.
Mr. Turner. So do I take it that the main conclusion that
you drew from your report is that a lot of agencies just don't
understand the flexibility that current law provides them?
Mr. Brock. Well, that was particularly true at DOD. That's
where most of the action takes place on this whole area. I
mean, they do most of the procurements. They do most of the
research. And they have a lot of flexibility, such as with the
other transactions authority. Other agencies that are involved
in research of a similar nature like NASA or FAA also have
their own variations of other transaction authority that gives
them some flexibilities, and both of those agencies express
less concern over getting access to technology than the DOD.
Mr. Turner. So do you have any suggestions for us about how
we could better educate our Federal agencies regarding what the
law does provide for them now? It seems that if we could figure
out how to do that, then we not only would have addressed some
of the concerns that we have been looking at, but the agencies
themselves would seem to me to be able to exercise the rights
under existing law and wouldn't have near the concerns that we
seem to be hearing from time to time.
Mr. Brock. I think it's a long grind. This is pretty
complex. A lot of people are involved in it, and it's more than
just the contracting officer. It goes all the way back to the
program offices. When we were talking particularly to the
commercial sector, they commented that even within DOD, the
very real variations among the services about how they
approached intellectual property rights, that some services
were noticeably easier to deal with than others. So part of
this is almost a culturalization issue within the agency about
what they want to do or not do. Most of it has to go, though,
with what I referred to as the comfort zone, where agencies are
fearful of making a mistake, and because of that fear, they
want all the data rights they can get, and in wanting all the
data rights they can get, then they began to encroach on the
lifeblood intellectual property of the commercial companies.
As I mentioned, the navigating intellectual properties
guide book that DOD did is a great step. It's my
understanding--and let me invite my colleagues back here who
have been doing some more recent research on this--is that
training in that, it's just now getting going, that the Defense
Acquisition University is developing a course. It's considering
offering a variation of what you would call an intellectual
property warrant that a more limited number of contract
officers who would be more expert in the area. I think those
are good steps, but they need to get moving on it.
Mr. Wu. Mr. Turner, if I could add also and followup on
Jack's points he raised that there are concerns about the
culture, and that is a concern that we've had also. The culture
tends to be very risk-adverse when it comes to technology
transfer, and oftentimes it require a cutting-edge mindset to
be able to jump into a project and take that risk, especially
if there are a great dividends ahead. But because especially
within NIH, when you're dealing with potential health, a
medical recovery, drugs, there is great potential, then it
might be criticized that if you give the intellectual property
rights to a pharmaceutical company, for example, that partners
with NIH, then they would get, in essence, the intellectual
property rights, a monopoly over that drug.
As a consequence, they would be criticized later on, since
part of that research that led to the giving of the
intellectual property rights came from federally funded
research, and there's always in the back of the minds of a
number of the technology transfer managers and the negotiators,
the coordinators, that they need to be very politically
sensitive. As a result, there is a very risk-adverse culture,
despite the great latitude that Congress has given in the most
recent technology transfer laws. And so getting that mindset
away from being risk-adverse and allowing them to be rewarded
for taking the right step, emboldening them is very important,
too.
Mr. Turner. Thank you. Thank you, Mr. Chairman.
Mr. Tom Davis of Virginia. Thank you. Good questions.
Mrs. Davis.
Mrs. Jo Ann Davis of Virginia. Thank you, Mr. Chairman. I
hear what you're saying about the culture problem and I guess
my biggest question is do you believe that within the Defense
Department and other agencies, that there's really an
understanding of the problem with intellectual property rights,
or is there is a problem with intellectual property rights, and
do they appreciate that problem? And is the executive branch
doing anything to correct the problems, if there are any?
Mr. Wu. Well, from the Interagency Working Group
perspective, there doesn't seem to be any direct problems with
the intellectual property framework for technology transfer.
Relating to Stevenson-Wydler or Bayh-Dole, both seem to be
working very well. As a matter of fact, the Association for
University of Technology Managers just came out with their
Licensing Survey for 2000, which underscored the great
successes that Bayh-Dole has had for universities in promoting
research and development, which is driven by Federal funds and
bringing them out to the commercial marketplace.
Additionally, we see countries around the world, most
recently Japan, France, and Taiwan, replicating our Bayh-Dole
framework for use in their country. There are a number of
success stories also that he recount the success of Bayh-Dole,
but as Tony said, you know while Bayh-Dole may not necessarily
be a perfect piece of legislation, a lot of it may be just with
its implementation. And we need to make sure that the
technology managers that are down on the ground working closest
with industry and partnering together need to be empowered and
emboldened with the right attitude, because it seems as if the
legislative tools seem to be there.
Within the Interagency Working Group, we'll continue to
dialog with all of the agencies, including DOD, to see what
changes we can do to improve Bayh-Dole and Stevenson-Wydler and
a number of other technology transfer efforts, but it seems
from the Working Group's perspective, that Bayh-Dole is working
very well and that the framework that it has established has
clearly reaped successes.
Mrs. Jo Ann Davis of Virginia. So you don't think we need
any reforms at this time to it?
Mr. Wu. There are none immediately that are recommended by
the Working Group.
Mrs. Jo Ann Davis of Virginia. Do you think the private
industry is--why are they not participating more then?
Mr. Wu. Well, that's the big balance. You know, we're
trying to create incentives for private industry, because the
reality is that in order for American taxpayers to benefit from
our federally funded research, we need to commercialize the
product to bring it out and improve the quality of life, as
well as to complete the cycle back to the American taxpayer.
And so incentivizing the private sector is absolutely the
key and also streamlining the procedures. However, at the same
time, you know, we feel that we're stewards of the public
trust, and this is public financed research which we need to be
mindful of, and we--if you give away intellectual property
rights to industry, you want to provide the right incentives,
but at the same time, we need to make sure that we have
adequate government march-in rights so that we can force
utilization of the technology and innovation, if it's not being
used properly or at all.
We need to make sure that the government maintains an
effective license to that technology or innovation, and so
there are certain things that we need to do as public policy
that's good public policy that may not be, at least for those
lawyers or other business people looking at the contract or the
technology licensing agreement, may not be in their minds to be
sufficient or helpful to them.
You know, Lee Buchanan who was a former director of DARPA
who appeared most recently at one of our innovation roundtable
series, he said, ``there are still vast numbers of very
intelligent, very well-informed board members who think that
engaging in research and development with the Federal
Government relinquishes all rights to intellectual property of
the government and gives them march-in rights at a moment's
notice. It's false, but that's the perception. And so that's
what we're fighting.''
You know, industry wants to take advantage of its business
model, and it's well within their right to do that. They're
responsive to their shareholders, but at the same time, we
believe the framework achieves a balance in trying to maintain
good public policy and also providing for enough incentives to
private industry.
Mrs. Jo Ann Davis of Virginia. So if I'm hearing you
correctly, it's educating the private industries and then
getting our agencies out of their cultural problem?
Mr. Wu. Yes.
Also, I might add that while we have march-in rights as
part of every agreement in which march-in rights allow for the
government to come in and essentially march in and take the
technology if it's not being used properly or at all, it never
has been utilized by the Federal Government. So that
requirement is good public policy, but it's really a red
herring for those businesses who say that they fear working
with government because of that provision.
Mrs. Jo Ann Davis of Virginia. Thank you, Mr. Chairman.
Mr. Tom Davis of Virginia. Again, let me go on to that.
March-in rights have never been exercised?
Mr. Wu. No, no.
Mr. Tom Davis of Virginia. Then why do you insist on it?
Because it seems to be the major deterrent if you're setting up
there as a general counsel. You've developed a new product, you
want to use it, and the government could come in and take it
over.
Mr. Wu. Because there are examples in which there will be,
or may be at times--we hope never--but there may be times in
which a company may choose, for whatever reason, not to take
advantage of a technology in which you've given license to, or
they may purposely----
Mr. Tom Davis of Virginia. No. I understand. But that's the
crux of the problem. I mean, it seems to me that the crux of
the problem is that theoretically you want to have that if
you're the government, and I understand that, but that's one of
the major deterrents of the private sector. That's why you have
92 percent of the Fortune 500 industrials doing little or no
R&D for the government, three-fourths of the country's top 75
IT companies refuse to do research for the government, and a
lot of it boils down to that particular issue.
And we're insisting on something we've never used. There's
got to be a way to cut this and allow these companies--I mean,
you're saying better educate the companies. I was general
counsel for an IT company. I wouldn't allow my company to sign
off on something like that. We have to find a way here to make
it work, because I know that Mr. Brock talked in his testimony
about, people said, well, we don't know that we've been able to
get the products we want, but you don't know what products are
out there when we have some of the top innovators in the world
not participating.
Who knows what we've missed because of that opportunity and
the prices we could get because of competition. I mean, that
seems to be the hub of the issue. And I understand your
position. I think, you know, from an intellectual point of view
and textbook point of view, maybe it's correct from a
government perspective, but the downside is that seems to be
the major--one of the major deterrents to getting a whole line
of products and innovations into the Federal sector that can
help us fight the war on terrorism. You understand what I'm
saying?
And let me ask--again, let me have you give the answer
first and then have Tony----
Mr. Wu. That perception can be reality when it comes to
negotiations for intellectual property rights of the
government, but what if a company chose to use the technology
licensing much the same way as the submarine patent in which
they will just hold on to title, and there's a great potential
there. And they refuse to commercialize because potentially it
may conflict with one of their own competing products. There
needs to be a balance. I'm not sure exactly how to achieve that
with the march-in rights issue, but certainly we'd be open to
discussing that with you.
Mr. Tom Davis of Virginia. OK. Thank you.
Dr. Tether.
Mr. Tether. Mr. Chairman, I absolutely agree with you. I
don't know how--we seem to want to regulate down to that point
001 percent probability case, and----
Mr. Tom Davis of Virginia. The four decimal point----
Mr. Tether. Yes. And what we have found, other reasons for
OT notwithstanding, but we have found that having the other
transaction's capability allows us to enter into a business
decision case with a company. If march-in rights are their
heartburn, we have the ability to basically negotiate them out,
because it may be a case where we don't care about it, as you
said. But without having that flexibility to be able to do
that, you're stuck with that, and that really is what I was
trying to say on Bayh-Dole. It's great, it's uniform, but it
has--leaves little flexibility to go in and piecemeal out and
create a business deal that is both beneficial to the
government and beneficial to the company.
And I also agree that you don't really know who you're
missing. What we have at DARPA is that people know that DARPA
have this capability. So consequently, we get people coming to
us that get us into these conversations over these rights. Now,
if you don't--aren't known for having the flexibility to do
anything about it, well, I doubt if you'd go even talk to them,
and so----
Mr. Tom Davis of Virginia. I hear you. I think your point
is well taken.
The other part of it, in Mr. Wu's defense, is the march-in
rights to make sure this is done appropriately with waivers or
giving that flexibility, you really have to train your people.
I mean, then it comes down--as you said, they--a lot of these
contracting officers are--they have that risk-averse mindset.
But with the appropriate education, it seems we could get the
best of both worlds here, maybe with the kind of things that
you do without major changes to the statute.
Mr. Brock, do you have any comment on that?
Mr. Brock. Yeah. The--Ben is right. The government has
never exercised march-in rights, although it has threatened to
exercise them before. I mean, it's had the effect of the
company moving forward. Some of the companies we talk to flat
out said that they realize that the government did not exercise
that right, but nevertheless, it represented a--it made them
make a business decision not to engage with the government
because of that threat, and so they chose not to do it.
They made a business case for that, and maybe other reasons
as we, they made a business reason not to participate. And a
lot of the contracts that we were looking at or talking about,
too, weren't as clearly defined. I mean, if the government is
paying you money to do research and you develop a patent, I
think it's clear that the--what Bayh-Dole is supposed to do.
Many of the things that we're talking about, there's not a
bright line that many of the companies are already bringing
their own background inventions to the table, and their concern
about the government's ability to draw the line to separate
what they're bringing to the table versus what's being
developed on the contract and how do you separate those things
out, and I think that's a big part of the concern that many of
the commercial companies we've talked to had in doling with the
government. It wasn't just the black and white case as, OK, you
pay for the research; we're concerned you're going to march in
and make this--and take away our rights. It's more of the
case----
Mr. Tom Davis of Virginia. Preexisting research.
Mr. Brock. Preexisting research that is commingled with new
research and how do you begin to separate that out, that was
more of the issue that we saw.
Mr. Tom Davis of Virginia. All right.
Mr. Tether. Same here.
Mr. Tom Davis of Virginia. It's a complicated issue, and
frankly, you know, whenever you allow that waiver--that kind of
flexibility, you're going to have contracting officers that may
make what people consider the wrong decision. It gets blown up
in the media, and then we come back and say, all right, we
overreact, but in the meantime we're losing--you know, because
of a few bucks that go out the window here, we're losing
billions of dollars over here and not getting other things
through the doors and these are judgment calls that get
difficult to make, but every time there is a mistake--I found
this in procurement. Every time there's a mistake, it gets
blown up. And the billions you could save for the times that it
works, you get no credit for.
So we go back to basically structuring government so that
we restrict the ability of contractors to do a lot of things.
Make it clear that nobody is going to steal any dollars, but
you can't do much of anything else. I understand the politics
of that, but from a management perspective and coming out of
the private sector, it just--it doesn't seem the appropriate
tradeoff in all cases. But I think you all highlighted it very
well and the sides to it from my perspective, and that you were
for that.
Mr. Horn.
Mr. Horn. Just one fast question to Mr. Wu. The Commerce
Department, like all other cabinet departments, have a real
problem, and that is a lot of very good people that have been
there for 10, 20, 30 years, and they're retiring, and what are
you doing now to get new blood in the Commerce Department?
Mr. Wu. Well, Mr. Horn, as you mentioned, it's not just
endemic of the Commerce Department. We see that in our Federal
laboratories throughout the country, where you have top
managers who are on the cusp of retirement and who will be
leaving. That's a major problem with each of the Office of
Research Technology, which is the major office within each of
the Federal laboratories that is supposed to administer the
technology transfer programs.
We've seen a number of the agencies and Federal
laboratories often, as a result, just make the responsibilities
of the ORTA office a supplement to someone else's job, and
therefore you don't get the right people. You don't get the
people who need to have the backbone to make some of these
tough choices, who need to be educated. And that's a concern
that we have. The Working Group is looking at the issue, and
we're working with the Federal laboratories, as well as all of
the agencies to try to fix that problem within our Federal
laboratories.
But right now, you know, there isn't a fixed problem in
that there's a general awareness that this is coming in a few
years and we need to look into it.
Mr. Horn. Good. I think everybody that--in your position
that goes around the country, you ought to stop by either a
public administration, a business administration and go into
the classroom and tap for those people to help get us where we
were in the 1930's and the 1940's with very bright people that
came here. And the Depression sort of drove them here. And so,
we've lived on that for a long time.
Mr. Wu. It's also not just our science and education work
force, increasing that, but also making sure that our Federal
laboratories have the adequate resources and infrastructure to
get the job done that will attract those people to the
positions as well.
Mr. Horn. Thank you, Mr. Chairman.
Mr. Tom Davis of Virginia. Mr. Horn, thank you very much.
Any other questions?
Let me thank the panel very much for your testimony.
We'll move to the next panel, unless anybody wants to add
anything.
Mr. Tether. Only one thing. I guess on the ability to waive
Bayh-Dole, which I will ask my staff why I didn't know that,
but I'm sure they'll tell me they told me that, and I just
didn't remember that----
Mr. Tom Davis of Virginia. You don't have to have that on
the record if you don't want.
Mr. Tether. But the real issue is the flexibility. I mean,
if the situation is no Bayh-Dole or full Bayh-Dole, that's the
wrong flexibility. You really want the flexibility to go there
piecemeal what is truly bothering the person you're dealing
with, because you may not care about that little particular
provision, but the rest of it you may still want.
Mr. Tom Davis of Virginia. I think in most cases you don't
care about that particular provision. If you do care about it,
it's that important to the government, then you stick to your
guns.
Mr. Tether. Thank you very much.
Mr. Tom Davis of Virginia. Thank you. You've crystallized
it.
Now, let's welcome our second panel to the witness table.
Mr. Louie, Mr. Carroll, Mr. Fry and Mr. Soloway, as we change
the name tags. Why don't you--Louie, Carroll, Fry, Soloway. If
you just stand and raise your right hand.
[Witnesses sworn.]
Mr. Tom Davis of Virginia. Again, to afford sufficient time
for questions, if you would limit your testimony to no more
than 5 minutes for any statement. Your total statements are in
the record. That will allow sufficient time for questions and
answers. As I said, all written statements will be in the
record.
Let me start with Mr. Louie. Thank you very much for being
here today.
STATEMENTS OF GILMAN LOUIE, PRESIDENT AND CEO, IN-Q-TEL;
RICHARD CARROLL, CHAIRMAN, SMALL BUSINESS TECHNOLOGY COALITION,
PRESIDENT, DSR, INC.; STANLEY FRY, DIRECTOR, CONTRACTS & LEGAL
AFFAIRS, EASTMAN KODAK CO.; AND STAN SOLOWAY, PRESIDENT,
PROFESSIONAL SERVICES COUNCIL
Mr. Louie. Thank you, Mr. Chairman.
Mr. Chairman, members of the committee, it's a privilege to
appear before you this morning to discuss the question of how
government may obtain access to the most innovative research
and development in our country.
Mr. Chairman, you have asked questions of whether or not
there are barriers, including the treatment of intellectual
property rights, to the government in obtaining the research
and development innovation it needs. I'm happy to address this
question because I believe that the independent company that I
lead, In-Q-Tel, the CIA's venture catalyst nonprofit
corporation, is a unique and innovative approach for acquiring
the best technology for one of our government's most important
functions, the collection, analysis, and dissemination of
intelligence.
Let me first say I'm not a lawyer, nor a government expert
on IP, nor an expert on the FAR. I am your typical entrepreneur
who founded a computer software company in the early 1980's on
my kitchen table, raised venture capital, built it, merged it
into a public company in the 1990's. I developed products
primarily for the consumer markets, but also for defense. I
finally sold it to one of the largest toy companies in America
before joining In-Q-Tel as its CEO and president.
I was asked by the Director of the CIA and by my members
who serve on my board of trustees, which includes captains of
industry, past innovators in government, to lead this new and
unique effort to run a nonprofit 501(c)(3) with the purpose of
attracting the resources and talents of the high-technology
industry to help solve some of the CIA's most vexing
information technology needs.
In-Q-Tel was founded in 1999 after the DCI realized that
the nature of the potential threats to the United States had
changed, and in many cases these new threats were technology-
equipped, working across national boundaries, and using a very
different framework for operations than those used during the
cold war.
At the same time the Intelligence Community was facing a
growing information technology challenge. The agency was facing
information overload, better known as the ``volume problem.''
The stovepiping of information was making it difficult to share
and leverage the data. The growing need for real-time
decisionmaking and security. The speed of innovation in IT was
overtaking the speed of the government's acquisition and
integration. Increasingly, the growing information and high-
technology industry base that are actually leading the IT
revolution were no longer engaged with government.
While the CIA has always had a proud tradition of
innovation with such successes as Corona, U-2 and the SR-71,
CIA realized that today is a very different time. As you had
stated, in 1995 the Federal Government was funding over two-
thirds of the Nation's R&D budget. By 2000, the role of
government and industry's R&D investments flipped, with the
industry now closing in on 70 percent of the Nation's R&D
budget.
In 1999, when the DCI formed In-Q-Tel, he stated, ``we are
working with industry to leverage their expertise and
revolutionize the way we acquire technology. Everyone knows
what an arms race is. We are in a continuous intelligence race.
Harnessing capabilities of the private sector to deal with
tough intelligence problems is part of a very proud tradition
going back to the early days of our Intelligence Community.''
The need is great, but the world has changed. Our mission
is discovering new information technologies that address the
CIA's most pressing problems. We do this by engaging with
industry, by aligning the strategic interests of corporations
and industry with the strategic needs of the Central
Intelligence Agency. We define the agency needs for industry,
using commercial analogs to the agency's challenges. For
example, instead of finding point solutions for the CIA
information security needs, we ask the industry for the best-
in-class and new security technologies that could help solve
financial institutions' needs. Instead of using contract
vehicles that look like traditional government procurement
contracts, the CIA worked hard with us, spent over a year with
us so we could engage with industry, using contractual as well
as equity vehicles that closely resemble commercially accepted
practices, while still operating within the scope of the FAR
and protecting the interest of government.
We've also spent a significant amount of time educating our
industrial partners on the needs of government in relation to
intellectual property while working with our industrial
partners to protect their most precious assets.
In-Q-Tel's business process has seven steps. We identify
the IT and work flow challenges within the Central Intelligence
Agency. We discover and analyze commercial technology market
trends. We aggressively reachout to industry and academia. We
negotiate and align the needs of industry with that of the
Central Intelligence Agency. We then nurture the technologies
and incubate the business models. Then we reach back into the
CIA, identify customers within the agency who have significant
mission needs, and we transfer those solutions into the agency
along with best practices from the commercial word.
We measure success by delivering technologies to the
agency. So you ask, has In-Q-Tel been successful? Since
becoming operational in late 1999, we have delivered 19
deliverables to the agency, including technologies which are
directly relevant to the war on terrorism. We've found 18
technologies, in addition to those 19 deliverables, and we
referred them to the CIA.
We have received close to 2,000 business plans. We have
contracted with companies that range from small startups with
just a few employees to multibillion-dollar corporations. We
work with startups, midsize to large size, privately held as
well as publicly held companies, professional services
companies, universities, national private labs. We have
received submissions from almost every U.S. State as well as
from 26 different countries. We network with over 200 venture
capital funds, universities and labs. Since September 11th
alone we've received over 1,000 business plans. Seventy-five
percent of these companies have never done work with the
government before.
Mr. Chairman, your second question of how has In-Q-Tel
obtained technologies including IP issues, let me say once
again I'm not a lawyer in IP or the FAR. The challenge for
government in the IP markets is that government is only one of
many competing sources of funding. Therefore, for government to
engage, it must be attractive to industry--because in our case
the technologies we seek are critical for national security. In
response, the agency enabled In-Q-Tel to speak the language of
industry and to be able to work with the best IT companies.
Under the forward-looking leadership of the CIA, the CIA
developed a set of tools and provisions within the four corners
of the FAR. The agency worked hard, studied the market
requirements and the needs of companies. The framework that the
agency provided us in our charter allows us to craft agreements
that allow companies to pursue commercial markets while
providing fair and appropriate deals for the government.
In-Q-Tel has also the advantage, given the nature of
venture capital, to be funding in mixed funding environments.
That means that we're usually a minority stake investment in
these companies, and we leverage other people's financial
resources. As such, the agency permits us to negotiate IT
provisions that protect both government as well as industrial
needs.
The last question you asked is the challenge of the war on
terrorism in light of the new homeland security mission. Let me
say this: If there is any challenge, it is how to best engage
and apply American resources and technologies on the war on
terrorism. There is no shortage of high-impact, high-value
technologies potentially available to our government today. The
government needs to articulate its needs and engage with new
vehicles that resemble those found in industry. Government must
align and articulate its strategic needs within the strategic
direction of industry and become partners, not adversaries,
within industry.
If you want industry to provide government with the best
technologies, and if government wants and needs early exposure
to these technologies, it must find a way to do so while
protecting the intellectual capital and property of industry.
Government must also think out of its own box, look creatively
toward industry for commercial solutions rather than
government-unique solutions. Companies are confused about how
best to contribute, how to be heard and how to get involved.
In fact, government needs to start moving much faster.
Post-September 11th, industry was ready to serve, but they are
getting very frustrated. If government is unable to engage
these companies, and if it's unable to develop a streamlined,
straightforward way for industry to help, industry will focus
resources it once offered to fight the war on terrorism back to
the consumer and commercial marketplaces.
So, Mr. Chairman, in conclusion, I can say that In-Q-Tel
has been very fortunate. By working with the CIA, we have been
able to devise acquisition strategies that have encouraged
companies that have never previously dealt with the U.S.
Government to step forward and make their technologies
available. I believe that other government agencies can use
approaches we have taken as well as those by other innovators
in government to adopt a similar strategy to acquire these
technologies that are needed for government purposes while
leaving the industrial base free to pursue the extremely
valuable commercial marketplaces.
Mr. Tom Davis of Virginia. Thank you very much.
[The prepared statement of Mr. Louie follows:]
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Mr. Tom Davis of Virginia. Mr. Carroll. Thanks for being
with us.
Mr. Carroll. Thank you, Mr. Chairman. I want to thank
Chairman Davis and Ranking Member Turner for holding this
hearing and giving me the opportunity to testify.
My name is Richard Carroll. I'm the president of a high-
technology company called Digital System Resources. I'm also
the legislative chairman of the Small Business Technology
Coalition representing hundreds of small high-tech firms across
the country dedicated to improving Federal policies and
research and development for the Federal Government.
I want to just take a moment and recognize that I thought
the previous panel when they addressed the culture issues hit
the nail right on the head. In fact, what good does it do to
have regulations that, in essence, build roads to go where you
want to go when the culture is to walk? And that's what we
have.
I want to talk about the culture, ``we paid for it, we own
it.'' The government's official policy regarding intellectual
property rights is to obtain the minimum rights required for an
acquisition, which is a sound and reasonable position. If that
former intellectual property rights policy were actual practice
for the government, I don't believe we'd be even holding this
hearing. But the pervasive view, in my experience, is one of we
paid for it, we own it. It's the simple premise that the
government owns the intellectual property rights to any
research and development funded with government dollars, and
this seems on the face of it to be a reasonable government
policy, which is why it is such a difficult mindset to change.
But if you're trying to create an environment that encourages
innovation, the application of we paid for it, we own it to the
intellectual property of innovators is a huge obstacle and not
consistent with the spirit of the Constitution to foster
innovation and invention.
My conversations with large and small companies make it
clear to me that the government control of intellectual
property can seriously smother incentives for innovators to
offer their products to the government. For small high-tech
companies in particular, the government culture of we paid for
it, we own it has a chilling effect on their interest in
innovating for the government. Understand that these companies
are the most likely to bring forth the innovations needed to
transform our defense systems and to meet the needs of the
homeland defense with rapid innovative and affordable
solutions. These new ideas represent the heart of the company's
assets, and their ability to offer strong competitive
alternatives to the status quo is clearly predicated on some
level of intellectual property protection. If they lose that
intellectual property, or the government provides it to their
competitors, the very survival of the company is threatened.
Protecting government rights. I believe that the
government's intellectual property regulations and procedures
must seek to strike a balance between the legitimate needs of
the government and the legitimate needs of private sector. It's
a fine tightrope that these regulations and clauses must walk
between the competing interests of the government that wants to
gain rights to intellectual property it is paid to develop and
commercial firms that want to retain and protect their creative
ideas from disclosure to competitors. I think that while in
general the regulations as written do strike a reasonable
balance between protecting the government's interest and
affording industry rights to data, the culture created by
implementation of these regulations seriously undermines
creative transformation through the development of competitive
alternatives and as a result does not support the best
interests of the government or the Nation.
Government contracting and program management personnel are
not trained well on intellectual property rights or the concept
that creative transformation, new ideas destroying old
paradigms, is important to them. But what they are trained very
well on is their abiding responsibility as agents for the
government to protect the rights of the government.
Unfortunately, this sometimes takes unnatural and
counterproductive directions. Despite the government's official
policy to obtain only the minimum rights for any acquisition,
some government personnel assume it's in the best interest of
the government to select every last right that can be obtained
in every circumstance from the contractors, and to do less is
to fail to protect the government interest.
It is not hard to see how government personnel will be
naturally inclined to slant the intellectual property rights
balance toward the government. After all, very few government
employees are penalized for being overprotective of government
interests, and rightly so. In addition, there's a belief among
some government personnel that they must be able to disclose
technologies to foster competition. This runs counter to the
business advantage concept that patents and copyrights are
intended to give. This problem is exacerbated for smaller
companies as they are less equipped to deal with pressure from
government to give up their intellectual property. Yet it is
these smaller firms that require the protection of well-crafted
and implemented intellectual property policies, for they are
the ones most likely to deliver the kinds of creative
transformation that will rapidly advance capabilities.
Our Nation's history is filled with examples of small
technology companies transforming the way Americans work and
play using the power of creative affordable innovation and
intellectual property protection. Why does this not seem to
happen in the government marketplace or in the Department of
Defense? Why don't we find small, innovative DOD contractors
transforming our defense through their innovative products
protected by intellectual property rights in the same way
small, innovative companies have transformed the private
sector, companies like Intel, AOL, Microsoft, Dell, many, many
others? They're just not in the public sector. Intellectual
property protection is the reason they're not.
Let me just mention one myth that exists in the government
sector regarding intellectual property protection. That myth is
if we don't acquire all the intellectual property associated
with our procurement, in time we may be overcharged or held
hostage to a sole source supplier. The reality is that the
government doesn't acquire adequate intellectual property in
most large procurements to level the playing field like that
sufficient for competition. And do we really want to level all
our alternatives anyway?
Government practice, current government practice, attempts
to acquire intellectual property and fails to do so in most
large procurements, but does acquire intellectual property when
contracting with small, innovative high-technology firms or
outside commercial firms. The result of this practice is to
significantly dampen the likelihood of innovation and creative
transformation.
We have invested in you, now run with it. New ideas are
indeed threatening. As we see in the commercial marketplace
every day, new ideas are remorseless. They disrupt and reorder
old ways of doing things without conscience. A new technology
idea or approach destroys the old technology, the old idea and
the old approach simply by being better. This kind of rapid
change is frightening to many people.
We talk about it, thinking out of the box and no business
as usual, but let's be honest; thinking in the box and business
as usual are a lot more comfortable and feel a lot safer. So
when we seek to create an environment where innovation can
thrive within the government, we must recognize that we are
trying to create an environment that challenges the status quo
and that appears risky to many people. I want to acknowledge
that we are trying to do something hard here, to change
entrenched thinking and processes to accept the kind of change
that protecting intellectual property will bring.
Finally, and perhaps most importantly, the government needs
to send a message that it will protect intellectual property
rights of innovators, and when innovators feel their ideas will
be protected, they will come out of the woodwork to provide
their ideas for government application. The government will get
the best ideas faster, better and cheaper with this approach.
Thank you for the opportunity to testify. I would be happy
to answer any questions.
Mr. Tom Davis of Virginia. Thank you very much.
[The prepared statement of Mr. Carroll follows:]
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Mr. Tom Davis of Virginia. Mr. Fry. Thanks for being with
us.
Mr. Fry. Can you hear me OK? My name is Stan Fry. I'm the
director of contracts and legal affairs for the commercial and
government systems division of Eastman Kodak Co. I want to kind
of make the point Kodak is a high-tech, we're a technology
rich, technology dependent company. We're not just about film
and prints anymore. We employ over 42,000 people in the United
States. We did over $13 billion in business last year, and of
that we spent about 5.9 percent, or $779 million, in R&D. We
were granted over 700 patents, making us No. 10 of U.S.
companies getting U.S. patents, and 20th overall of companies
getting U.S. patents.
Patents and our intellectual property are extremely
important to our competitive position, and to highlight that
I'd note that recently we organized a separate business unit
whose sole purpose is to keep track of our patent portfolio and
to make intelligent decisions on how to license, use, sell or
use that technology for our benefit and make revenue for the
company.
I'm also here as chairman of the Integrated Dual-use
Commercial Companies, or IDCC. It's an informal coalition of a
few large high-tech companies formed in 1991. Our mission is to
work to modify the laws, to improve the relationship and make
it easier for commercial companies to do business with the
Federal Government, and one of the ways to do that is to
collaborate more on a commercial practice methodology, and
that's really my message here today.
We believe that intellectual property is the most important
issue that our companies face in dealing with the government,
particularly with DOD, and we think if the government adopted
more of a commercial model, that it would be a lot easier to
attract technology-rich companies and their products to DOD and
to the government. Such a model would provide that ownership
and licensing of IP would be fully negotiable, but generally,
as in the commercial world, the contractor or seller would
continue to own the data, and in most cases the buyer would not
be granted extensive patent or data rights, although sometimes
restrictive licenses or rights are granted even in the
commercial world.
The commercial model uses nondisclosure agreements to
provide a basis for enforcing technology or forcing
confidentiality and trade secret protection. We believe that a
method of using nondisclosure agreements, limiting disclosure
to those few people who have a legitimate need to know, would
work as well with the government.
Another issue that arises is that many companies keep
inventions and discoveries as trade secrets, and as has been
mentioned before, you can't really do that under the current
Bayh-Dole Act model for dealing with government IP.
So what's the problem? As I've already alluded to, it's
primarily we believe statutes like Bayh-Dole, which set a model
for the minimum amount of rights, data rights, ``march-in''
rights that the government has to have--we originally
recommended that we do away with Bayh-Dole, but since that time
we've learned that there's a large constituency that depends on
Bayh-Dole. So we believe that a waiver, a generous or liberally
applied waiver, and policies that would encourage use of those
waivers would be the best way to encourage technology-rich
companies to work for the government.
In addition to the waiver issue on Bayh-Dole, I also wanted
to mention another two of our issues with--in this region, are
the definition of a subject invention. We believe that if a
company applies for or receives a patent independent of
government contract work, the government shouldn't have any
rights. But under the definition of subject invention, there's
a possibility.
The other thing is we believe there could be some changes
to the American competitive provisions that are in Bayh-Dole
and similar statutes that don't allow companies to use their
full global capabilities as they would in a normal commercial
issue.
I wanted to just mention that IPs have worked. They've
worked well in certain limited circumstances where we are--we
have some concern that benefits of using them have been
eroding, most recently with the addition of audit rights and
then requirements for use of nontraditional defense
contractors.
The bright spot, however, I'd like to highlight, I think
others have, is the manual, the guide book put out by DOD. It's
been of great use to us in dealing with government agencies,
and we'll be really happy when more of the government agencies
and procurement people are fully trained in it. Thank you.
[The prepared statement of Mr. Fry follows:]
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Mr. Davis of Virginia. Thank you very much. Mr. Soloway,
thanks for being with us.
Mr. Soloway. Thank you, Mr. Chairman and Mr. Turner. I am
pleased to be here today. As you know, the Professional
Services Council is the principal national trade association
representing the full scope of the government technology
services market. Our membership includes both large and small
companies and, in fact, includes as many companies with
revenues under $5 million as those with revenues in the
billions.
For professional technical services companies, intellectual
property is most frequently found in the skills and experience
of the firm's work force. Regrettably, Federal policies are
neither clear nor flexible enough to foster the type of
partnership for innovation and innovative solutions needed to
assist the government in meeting its needs. Moreover,
throughout the government there remains, as has been said by
many witnesses today, a genuine lack of understanding of how
such relationships can be fostered while continuing to protect
the government's equities.
We applaud you and the subcommittee for launching this
important policy review and for following up on the July
hearing you held on this topic. Much has changed in the world
since then, but the challenges remain much the same. For
starters, I think it's important that we not underestimate the
meaning of the massive shift of R&D development from public to
private sources, for it's only been over the last 25 years that
the private sector has outspent the government in R&D. Equally,
we should not underestimate the degree to which there is
commonality between government technology needs and
technologies being developed for principally commercial
purposes. Third, we should not underestimate the impact and
relationship of that shift of resources to the government's
human capital challenges alluded to by Mr. Horn.
The fact is that there is a technology gap, it is growing,
the government is not often enough a customer at the principal
R&D tables, and intellectual property issues continue to be the
dominant factor in whether and how to put innovative private
sector solutions to work for the government. Traditional
thinking and traditional approaches to intellectual property do
not allow for timely and successful solutions.
The debate becomes all the more important as the solutions
being sought by the government and offered by the private
sector are becoming more typically services solutions rather
than purely hardware solutions. IP laws and regulations have
simply not kept pace with innovations that have taken place in
the private sector and the growth of complex technology-based
services requirements in the Federal arena.
In my remarks today, I will focus on a couple of
overarching issues of concern. PSC's General Counsels Committee
is currently reviewing the proposed changes to the Bayh-Dole
Act as well as recently proposed changes to the rules governing
technology investment agreements. As those reviews are not yet
complete, I'm not able to share with you any firm conclusions
except to say we will provide the committee with our thoughts
in a timely manner.
People have mentioned culture, and that is the critical
issue. The principal problem here is the lack of understanding
of key underlying principles of intellectual property law and a
concurrent unwillingness to exercise existing flexibilities in
current regulations such as the difference between ownership of
the intellectual property and license rights to use the data
for government purposes.
As is the case in many other areas, there's a lack of
adequate training for the contracts community, and most prefer
to treat intellectual property matters, with all due respect,
Mr. Chairman, as legalese and refer the issue to their lawyers.
Also, too often an ownership mentality prevails. That mentality
perhaps more than anything else drives companies away from the
government marketplace because it presents levels of risk that
are simply unacceptable. It remains all too rare for the
government to clearly define its needs and build them into a
well-defined performance statement of work and licensing
agreement, even though doing so represents a common best
commercial practice and can fully protect the government's
equities. There is a critically important point here, and that
is understanding the difference between the government's needs
and overreaching, believing that your needs equal complete and
full control of all intellectual property and technical data.
Second, as technology partnerships are formed to bid on
Federal work, the prime contractor is sometimes caught in a
squeeze between government contracting officers who are
unwilling to accept commercial terms and conditions for
intellectual property and commercial subcontractors who insist,
rightfully so, on following commercial terms and conditions in
their IP agreements. As a result, the prime contractors often
face the choice of accepting greater liability than their
subcontractors will accept, walking away from the government
requirement or not accessing those commercial cutting-edge
solutions. Obviously such circumstances can cause the
government to lose much-needed access to cutting-edge
technologies and technology-based solutions.
Indeed, this issue and the ownership issue are inextricably
linked. Unfortunately, few Defense Department or other
contracting officers have agreed to accept nonstandard
intellectual property terms and conditions largely because they
have not been given adequate training to understand them and
because, frankly, the strongest opposition to them often comes
from the internal oversight community which remains rooted in
past practices. I believe that makes the role of the General
Accounting Office, which has been an active and constructive
participant in this issue for several years, critically
important, because they have developed a keen understanding of
the challenges that exist and ways to move forward.
Mr. Chairman, I also note with interest the legislation you
introduced on May 1st to establish a program at OFPP to speed
the government's evaluation and implementation of technologies
for homeland security and antiterrorism efforts. While PSC is
currently reviewing the bill in detail, we certainly applaud
your focus on critical issues including waivers from existing
laws and the Federal acquisition regulations for a limited
number of pilot projects and contracts. We will carefully study
the bill and offer our recommendations to this subcommittee
shortly.
I would add one cautionary note regarding DOD's statutes
and last year's emergency procurement act that granted special
authorities, including the use of other transaction authorities
to the civilian agencies. As important as such steps are, they
will yield little significant progress until the issues
associated with intellectual property and the broader issues
associated with government R&D business models are more fully
addressed.
On a positive note, Mr. Chairman, I'd like to compliment
the Department of Defense on its issuance of the ``Navigating
Through Commercial Waters'' guide book, its guidance on smart
and best practices associated with intellectual property. I am
pleased to say that DOD began work on that guide during my
tenure there and I personally know how difficult it was to
develop and publish. PSC has had the opportunity more recently
to review and comment on its many drafts, to broadly distribute
the guide to our membership, and to support the Department's
publicity surrounding it.
Regrettably, however, there are two significant limitations
to the guide. First and most significantly, it is a guide to
existing authorities and not a regulation or policy on which
the defense contracting community can rely. Second, we are just
beginning to see the initial training on the guide and it will
take precious time under current course and speed to reach a
meaningful number of the affected acquisition work force.
Unfortunately, given the pace of technology development,
current course and speed is simply not fast enough.
The sad fact is that while DOD's regulations were altered a
number of years ago, particularly with regard to rights in
technical data for the development of products and software, no
similar changes have been made to the statutes governing the
rights and the technical data applicable to the civilian
agencies; and the FAR continues to reflect 25-year-old policies
as the basis for negotiating intellectual property clauses in
the civilian agencies. As noted earlier, times and requirements
have changed significantly, but not solely as a result of
September 11th, and it is therefore time to undertake a
thorough review of those statutes and rules as well.
Thank you very much, Mr. Chairman. I would be happy to
answer any questions.
Mr. Davis of Virginia. Thank you very much.
[The prepared statement of Mr. Soloway follows:]
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Mr. Davis of Virginia. This is a question for everybody.
Several witnesses have raised the human capital management
issues today. What does the panel think about the idea of
designating certain personnel in the acquisition community to
do IP as a speciality, make sure these people get extra
training in this area. We'll start and go down the line.
Mr. Louie. I'm totally supportive of that. The In-Q-Tel
model works fundamentally because there are two sets of
individuals who actually participate in our negotiations. One
is In-Q-Tel's executives who are well trained in industry's
best practices in negotiating IP. They work closely with one or
two designated people at the agency whose job it is in
procurement to understand these particular issues. We work
together to craft these commercially familiar documents that
still operate within the FAR but address industry's needs.
Without having that capability, for example if I had a normal
contract officer who was not trained in this particular
approach, it becomes very difficult to work with these
companies, particularly some of these younger, smaller
companies whose lifeblood is dependent upon the IP that is
created.
Mr. Davis of Virginia. The risk aversion that they have, I
guess, would----
Mr. Louie. Absolutely. The fundamental problem,
particularly in information technologies, is that there are
competing sources of funding. In fact, most companies believe a
dollar from government is the most expensive dollar you can
ever take. My office--my California office--is on Sand Hill
Road. You can just go down the street or up the hall, ring
another doorbell, and get a dollar for a lower cost in terms of
IP rights than taking a dollar from us.
So it's really important to understand that government is
not alone in terms of funding these technologies. If we need
it, we have to get to it first.
Mr. Davis of Virginia. Thanks.
Mr. Carroll. I would also be very supportive of that. I
would just repeat everything he said, plus I would add to it
that the training is not necessarily just needed in
understanding the regulations or the flexibility, but it's in
understanding the benefits of allowing innovators to innovate
and allowing intellectual property to work its will in their
own community.
What I find missing completely is that concept, where, you
know, you create a competitor by allowing them to buildup
intellectual property over time that can compete with
incumbents that you've got that haven't been innovative in
years. And it will make everybody innovative. The whole world
becomes innovative when you have that kind of competition. So
that kind of training, I think, will be very productive.
Mr. Davis of Virginia. Anybody else?
Mr. Fry. I would support that concept 100 percent.
Essentially in practice, that's a commercial model. In my
company, I'm the only attorney in our legal department that
really understands government data rights, government
contracting. And ultimately if questions arise anywhere else in
the company, they come to me for that. I do run a contracting
group. My contracting people understand contracts, they
understand the data rights to some extent. But ultimately, if
there's anything other than standard, they come to me as well.
So I would welcome that, and I think the government should do
it as well.
Mr. Soloway. If I may make one brief addition. I associate
myself with all of the previous comments. I'll go back to the
development and publication of the IP guide at DOD. When we
started that process, Stan Fry's organization was involved, and
GAO was heavily involved. We had a lot of really smart people
in the room, trying to figure out how to go forward, and we had
some of the smartest legal minds around trying to figure out
how to go forward.
One comment made by an attorney for a large technology
company really stuck with me. He said that the regulations are
there, but nobody understands them, and he has 125 lawyers on
staff, none of whom have ever done a government contract, and
he's not going to invest the thousands of man hours necessary
to figure out what the rules really are. This is a matter of
training not only acquisition people, but also training
acquisition people in commercial best practices, and then
relating them back to the FAR, rather than training them on the
FAR and having them figure a way to wiggle out from under the
FAR.
I think it is equally important to include the oversight
community in this process. There have been far too many
examples of very innovative, well-constructed business deals
that fully protected the government's equities that have been
stopped because of an oversight community that continues to
hold a lot of the frontline folks back.
Mr. Davis of Virginia. OK. Mr. Louie, let me ask you, do
you have a sense of the deluge of ideas that are coming into
the Homeland Security Office right now? We've been working on
legislation to help government kind of screen this wealth of
ideas coming into the Homeland Security Office, give them
priority, and move them out where they can do some good as
quickly as possible.
How does In-Q-Tel deal with this issue, because you're
faced with the same kind of thing?
Mr. Louie. Literally, we get hundreds of submissions in any
particular month that come in ``over the transom,'' from
referrals from venture funds to Members of Congress, to just
entrepreneurs saying I have a great idea, as well as large
corporations.
Mr. Davis of Virginia. Do you ever get a good idea from a
Member of Congress?
Mr. Louie. Actually, I got two this last week so I can
actually say that for a fact.
Mr. Davis of Virginia. We want that on the record.
Mr. Louie. There's a whole process that we use that vets
the technology. We have technology experts on our staff, we tie
into the agency's technology experts and users to look at these
technologies to make sure they are best-of-class. We work with
large organizations, including professional service
organizations, to see what they have in a particular space. We
actually have what we call a Q-1 process that examines the
market opportunites before we go forward and make any
investment.
That's not where the challenge is. Commercial companies,
commercial venture capital funds, know how to do that. The real
challenge right now in homeland defense is that there is no
``there'' there. For many of these companies who say I have a
technology, I have a staff, I'm good to go and I am committed,
there is nobody on the other end to do the contract. There are
only a few other agencies right now, that are willing to pull
the trigger to act now on behalf of homeland security. It's a
real challenge. I get CEO phone calls from Fortune 100
companies saying, what do I do?
The problem for In-Q-Tel, quite frankly, is we are a little
organization in the midst of one of a bigger organization--the
Federal Government. So In-Q-Tel, with a $30 million budget and
20 deals a year, can't be the front office for all of homeland
security. We refer companies to other agencies. Those other
agencies are sympathetic but they say they don't have the
budget, they don't have the authority, they can't pull the
trigger.
Mr. Soloway. May I add one thing to Mr. Louie's comment? On
the homeland security issue, aside from all the issues he
raised which are critical, we need to step back and, as I
mentioned in my testimony, look at the broader business model
associated with research and development; because now we're not
just talking about commercial off-the-shelf technology, we're
talking about technology that is a commercial analog to unique
government needs. We're going to have developmental dollars
involved. So now you're in the government statutes and
regulations governing how we do R&D. IP is one critical issue
in there, but it's not the only issue.
I'll relate one interesting conversation that highlights
this. It is a conversation I had with the general counsel of a
leading biotechnology firm when we were speaking together at a
conference. I said to him, ``With this whole focus on homeland
security, my guess is that you all are thinking very seriously
about expanding into the government market because biotech
obviously is one of those areas that the government desperately
needs your assistance.'' I was thinking very parochially that
he should join the Professional Services Council. His response
to me was, ``No, we're actually not thinking about that,
because of IP issues and the limitations under R&D rules, such
as Other Transactions where I can only take it to a prototype
level, and then I stop and have to come back under the original
Federal Acquisition Regulation, and therefore can't take a
product all the way through to production.'' He said, ``It's
really an unattractive market.'' This was the leading
biotechnology company in the country. So there's an overarching
business model within which IP is just one of many really
critical issues.
Mr. Davis of Virginia. Thank you.
Mr. Fry, let me ask you a question. We've heard members at
these hearings before--just basically the argument is that when
the taxpayers pay for this research, they should get the
benefits from it, not allow--not have to pay for something
twice by allowing you to go out and market and having them pay
for it again.
How do you answer that, and how should the government allow
its R&D partners to use trade secrets protection?
Mr. Fry. Quite frankly, we hear the same argument from
other companies that come into us and want something built. And
the real answer is, you know, we have the technology; you come
to us because we can build what you need, want done, and we can
do what you want done. If you take the rights, you take the
data, if you dilute our patent position, we won't be there next
time.
So I kind of answer it in the same way. You need to leave
the technology with us, you have to help us protect it, and
we'll be there next time when you need the same technology. We
need protection to maintain our competitive position is really
the key aspect.
In the case--in the commercial world, the other thing that
when you get down to it, these buyers want protection from the
competitive standpoint. They don't want to give you a lot of
money for a nonrecurring--or for design, development, tests
that you would then use to build the same system for half the
cost for their competitor.
So we work out some limitation, or we work out some
restriction that protects their competitive position, say, for
a number of years, for example, or some other type of limited
license or something. But in the end, we don't compromise our
technology, we don't compromise our patent position.
Mr. Davis of Virginia. Mr. Carroll, let me ask you, in the
last panel we heard some questions raised about the idea of
extending trade secret protection to companies doing Government
R&D. Do you have any thoughts on that?
Mr. Carroll. Yes. I think that trade secrets, the
importance of trade secret protection is really underestimated
by the government. The trade secrets are, I think, a very, very
large part of most R&D companies' portfolio. And to not permit
those trade secrets to be a viable pathway by which they
protect their property is really, I think, probably one of the
largest obstacles in the way. Once disclosure of trade secrets
is made, it's over. And patent does that. And you just can't do
that in many cases.
Mr. Davis of Virginia. Mr. Turner.
Mr. Turner. Just one question, Mr. Chairman.
Mr. Louie, we've had 3 years, I guess, of experience now
with In-Q-Tel. Is there a model there that could be replicated
for other agencies? I mean, obviously you tried to be the
bridge for the CIA into the private sector as a nonprofit. Is
there something here that we ought to be expanding upon to try
to bring the private sector and the ideas that are there into
other agencies of government? Could you grow, or should other
entities grow to serve other agencies of government in this
way?
Mr. Louie. I think the good news is that because of our
existence, a lot of other agencies are beginning to look at
that model, either by asking us to scale or seeing if it can be
replicated.
Let me say this: The In-Q-Tel model is not a solution that
solves all of Government's problems, nor is it a replacement
for traditional acquisition. It's a place to solve a particular
market need of government to solve a certain set of problems--
problems that are being addressed by technologies that are
fundamentally commercial. In-Q-Tel gains access and early
exposure of these technologies back into government.
In this particular case, the reason why In-Q-Tel works--and
I tell this to all the different agencies who approach us and
are interested in the model--is that as important as the model
is, what is more important is leadership. The reason why In-Q-
Tel works is that the Director of Central Intelligence has made
this his model. It is one of the many vehicles that he is
personally interested in. If an agency adopts this model and
doesn't have the leadership working with that model, the model
will fail, like many other R&D style models in the past. Where
there is commitment, this model can have huge leverage because
it fundamentally talks the language of business.
Most of my staff come from the business world. Many of my
seinor staff were CEOs. So when they sit down and talk to a
high-technology company, they are sympathetic with the
companies, but at the same time know that their mission is to
get services and goods and technologies for the U.S.
Government. That is a great model for government to use. It is
another tool in its belt to answer the challenge that we're
facing, particularly in homeland security.
Mr. Turner. Thank you, Mr. Chairman.
Mr. Davis of Virginia. Thank you all very much. Anybody
want to add anything before we go? Let me thank all of you for
contributing to this hearing.
And I want to thank the witnesses, I want to thank
Representative Turner and the other member of the subcommittee
for participating. I also want to thank my staff for organizing
this. I think it's been very productive. I want to enter into
the record the briefing memo distributed to subcommittee
members.
We'll hold the record open till 2 weeks from today for
those who may want to forward submissions for possible
inclusion. I suggest with the delay of regular mail going into
and out of the Capitol campus, that you e-mail any additional
submissions to the attention of my counsel, George Rogers, here
at [email protected].
These proceedings are closed. Thank you.
[Whereupon, at 11:50 a.m., the subcommittee was adjourned.]
[Additional information submitted for the hearing record
follows:]
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