strictions affecting the movement of goods and services, while at the same time remaining free to maintain restrictions upon the international movement of capital."

78

There are exceptions to be found to this general approach, of course, but they are recognized as exceptions rather than as guiding principles as far as the United States Government is concerned. One such exception is crystallized in article XVIII of the General Agreement on Tariffs and Trade, wherein the United States subscribes to the principle that underdeveloped areas may at times have a temporary right to impose a new import restriction in order to give some nascent domestic industry the possibility to expand and to survive its infancy. But it is clear at the same time that the United States does not go so far in its support of the export of capital and technology as to foster the imposition of import restrictions by other nations for that purpose.

On the other hand, there is no doubt at all as regards the United States view toward licensing agreements which offer no clear fillip to the development and application of new technology and which at the same time stifle international trade and international investment. We have already indicated why many international patent interchange agreements may fairly be described in these terms. In such instances the United States position against the arrangements could be expected to be unequivocal.79

These considerations suggest that the United States position toward the encouragement of patent license interchanges would be qualified and selective. United States Government policy would frown on licenses which served principally as a device for the division of markets and only incidentally as a vehicle for the flow of new capital and technology; it would vigorously resist license agreements which stifled trade and investment. It could be expected, too, to take a dim view of continuing arrangements involving the automatic licensing of future patents, the automatic grant-back of improvement patents, the tie-in of raw material sales, or other elements of the agreement calculated to channel or to limit international trade. When any such arrangements were incident to a program regarded as desirable on balance, the exclusive and restrictive provisions of the licensing agreement would be accepted on sufferance, if at all, while the objective of an open competitive system in international trade and an uninhibited flow of capital remained unaltered.

IV. RECOMMENDATIONS

A. THE NEED FOR MORE ANALYSIS

It is in the nature of studies of this kind that they should suggest the need for more study; for any reevaluation of a field as complex as international patent relations inevitably exposes areas in which surmise substitutes for fact and conjecture takes the place of judgment. This study is no exception to the typical pattern. Indeed, our review

Articles of Agreement of the International Monetary Fund, art. VI, sec. 3, and art. VIII, sec. 2.

This is quite apart from the inconsistency of such agreements with our antitrust laws. Note the reaction of the State Department to various specific provisions in patent-licensing agreements proposed for guaranty under the Mutual Security Act, reported in the testimony of Hall in hearings, supra, note 22, pt. 4, at pp. 1825-1839.

suggests that any evaluation of the operations of the international patent system would be on a much firmer footing if certain basic facts could be assembled.

1. We need to know much more about the extent of patent ownership by foreigners; the types of products and processes involved; the use to which such patents have been put, that is, whether to protect the foreigner's exports to the host country, to provide revenue to the patentee through one-way licensing, or to serve as part of a crosslicensing arrangement. This type of census needs to be done not only for United States patents but for the patents of typical industrialized countries and underdeveloped countries as well. In all probability the only agency in a position to coordinate the task on a sufficiently broad geographical basis is an international organization; this organization might be the Berne Bureau, whose function is the administration of the international convention, or it might be the United Nations Secretariat. It is recommended that the United States Government propose such a study either to the Economic and Social Council of the United Nations or to the signatories of the international convention for coordination by the relevant secretariat through national governments.

2. A series of studies should be undertaken to determine the role of the patent in the international transmission of technology and capital and its effects on foreign trade. Most of what is known on this subject to date is based upon the analyses and judgments made in connection with United States antitrust suits. Hence, the existing data paint a picture of market power and restrictiveness which may not be typical of foreign patents as a whole.

Since we are concerned with evaluating the international patent system more broadly, our first problem is to find data more certainly representative of the system. In this case, however, any census approach would be bound to fail. Instead, studies in this area would probably have to be conducted on the case-study method. It may be possible to sample appropriately from among the various categories of patents issued to foreigners in different countries, ensuring that the various types of technology, types of national economies, and types of patent arrangements were adequately represented. The questions for which an answer would be sought with respect to each patent are the obvious questions central to an evaluation of the international patent system. Probing beyond the questions answered by the census, the case studies would analyze the terms on which licenses were being granted; whether the disclosures in the patent grant were enough to permit their practical application; whether supplementary disclosures and skills were needed, and how they were provided; and whether and how capital was mobilized in the host country to put the patent to use.

From here, one might go on to assess the trade, investment, and research implications of the patent's use. It would be necessary to consider how the patent fitted into the market strategy and affected the market position of the patentee and licensee; to analyze the pricing, production, investment, and research policies of the patent user; and to consider the implications of these policies for the national economies concerned. The demands of this kind of study might exceed the capaity of the national states to provide the requisite information. Never

theless, the study is so vital to an evaluation of the international patent system that the United States Government should support its initia

At the same time, an appropriate United States Government body should launch on that portion of the study which lies within the United States purview: an analysis along the lines suggested above of the use and effects of patents issued by this country to foreigners and of patents issued by foreign countries to United States nationals.

3. In addition, there is a supplementary study which the United States is in a peculiarly appropriate position to undertake. We have referred earlier to the succession of litigated and consent decrees in antitrust cases which have had the effect of converting exclusive patent licensing agreements into non-exclusive arrangements. A systematic analysis of the effects of these changes would be most revealing. The analysis would cover the impact of the licensing changes on the flow of technology, the movement of capital and the movement of goods, along the lines suggested above.

4. Finally, there is need for a careful review of the purposes and functions of an international patent convention in the mid-20th century. We have already stressed the fact that the terms of the present convention and its modus operandi are largely a product of over 70 years ago. Constructive and appropriate though they may have been in the period of their origination, they need to be reappraised in the light of the changing objectives of governments and the changing role of international institutions. Part III of this report, which reviews the changing international economic aims of the United States and other nations, may perhaps be looked upon as a small contribution toward such a reappraisal. But it is no more than the beginning of the analysis from which an altered conception of the role of the international patent convention could possibly emerge.

B. SOME TENTATIVE POSITIONS

Meanwhile, the United States is faced with the immediate problem of reviewing its position for the 1957 Lisbon meeting to revise the international convention. It has an immediate obligation, therefore, to appraise the present workings of the system on the information which is already at hand and tentatively to consider what its position might be with respect to the various contentious aspects of the system. The paragraphs that follow suggest a series of such positions based upon what we now know of the system.

1. Before considering particular aspects of the international patent system, there is a general point to be made which conditions our approach to these specific problems. It must be appreciated that intergovernmental agreements establishing and safeguarding nationals' patent rights in foreign countries are sharply different in character and effect from the typical run of bilateral or multilateral agreements among sovereigns. When a sovereign state sets up a system of patent rights in its territory, it arms the patentholder with the right to prevent others in its jurisdiction from making, using, or selling the product, or from using the process which is the subject of the present and future patent. When the sovereign enters into an international agreement guaranteeing these same rights to foreigners, the effect of the guaranty is to ensure that foreigners will have certain

powers to prevent the sovereign's own nationals from engaging in economic activities of specified sorts in the sovereign's own territory. The more extensive these guaranties may be, the more power they confer upon individual foreign citizens to exercise a restraining function upon the sovereign's nationals.

In this respect, intergovernmental agreements on patents, as well as those on trademarks and copyrights, go well beyond the scope of economic agreements into which sovereigns ordinarily enter. For intergovernmental economic agreements typically are negative in character, consisting of undertakings in which the sovereigns mutually agree to limit the exercise of their right to interfere with one another's nationals in their respective territories. For instance, the typical treaty of friendship, commerce, and navigation, except insofar as it may contain patent, trademark, and copyright provisions, merely guarantees foreigners some basic nonexclusionary rights such as the right to normal legal protection, the right to establish a business, the right of communication, and so on. The typical bilateral trade agreement and the multilateral General Agreement on Tariffs and Trade simply consist of commitments by the parties not to raise their tariffs beyond stated levels, not to require licenses for imports or exports, and so on. The typical bilateral air agreement can be stated in the same terms: it is an undertaking by a nation, within certain stated limits, not to interfere with the takeoff, landing, and overflights of another nation's civil aircraft. But the rights bestowed by these agreements do not often grant the recipient the power to exclude others from receiving the same privilege.

The extraordinary character of the right sought through an international patent convention should condition both what we demand in such a convention and the insistence with which we demand it. Where we are convinced that a mutual interest exists in having another nation grant exclusionary rights to foreigners through patent grants, we should have no hesitation in trying to persuade it to our point of view. But we must always recognize the quite extraordinary nature of our demands, especially as seen through the eyes of nations which view the domination of foreigners in their internal economic affairs as a real possibility.

This point has special force, of course, in dealing with the new xenophobically tinged nations which have come into existence since World War II. A bridge needs to be fashioned between the mature, well-developed private enterprise economies of the West and the uncommitted and ambivalent economies of these underdeveloped nations-ambivalent in the sense that they are both anxious for foreign capital and suspicious of its entry. These nations can hardly be expected to see the extensive grant of patent monopoly rights to foreigners as being unqualifiedly consistent with their own national aspirations. A bridge between our conceptions and theirs in this regard will need a kind of understanding which we have so far rarely displayed in international patent negotiations.

2. One way of beginning to fashion such a bridge would be by helping to reduce the technical burden to those countries involved in the establishment of an effective patent system. This could be achieved, in part, by the creation of international facilities to assist national patent administrations in various ways. Such facilities could include

an international recordation office, an international legal and technical reference library, and an international search office, available to such national administrations as might desire its services. Facilities of this sort could prove helpful to the national patent administrations of industrialized countries as well, and might, in the end, add to their efficiency and reduce the duplication of national cost and effort in the administration of patent laws. The United States would do well to urge that a committee be established at Lisbon to develop this concept in specific terms for its eventual adoption as an adjunct to the Berne Bureau.

3. The United States has, of course, traditionally resisted the encroachment on the patent grant both of compulsory working provisions and of compulsory licensing provisions. The foregoing analysis would indicate, however, that the latter needs to be distinguished sharply from the former; that compulsory licensing, when it gives licensees the power either to produce domestically or to import a product as they choose, must be judged on different grounds from provisions which force domestic production by the patentee. Viewed on this basis, and as the discussion in this study indicates, the traditional position of this country against compulsory licensing by other countries is a difficult one to justify. Instead there is every reason for the United States to support a revision of article 5 of the international convention to permit the issuance of compulsory licenses without waiting the requisite 3 years now provided in the convention and without insisting that this device should be available only where there has been some prior "abuse." 80

There are a number of reasons why this action seems called for. In the first place, if our analysis is correct, there are some situations in which the disadvantage of the exclusive use of the patent grant may be clear from its birth. In the second place, now that the United States itself directs the issuance of compulsory licenses from time to time as a cure for the illegal use of patents, it runs the risk that on occasion the convention provision might be interpreted as a restriction on its own efforts to correct a patent abuse; for instance, an antitrust decree compelling a foreign defendant to open existing and future patents to nonexclusive licenses.

It is not suggested here that exclusive licenses are universally less desirable from the national viewpoint than nonexclusive licenses. The point being made is a much more modest one, namely, that there are clearly some circumstances in which such a conclusion is warranted. This being so, there would seem to be no justification in holding governments to a blanket 3-year moratorium on the issuance of such licenses.

4. Nevertheless, the United States has been right to maintain that compulsory working provisions are undesirable and it should resume its efforts to outlaw them under the convention. Compulsory licenses. at least leave the licensee with the choice of pursuing the most efficient

Contrast the relevant resolution adopted by the Congress of AIPPI (Association Internationale pour la Protection de la Propriété Industrielle) at its 1956 convention. This, in effect, would continue the existing 3-year restraint on governments and would place some new, though on the whole minor, restraints on their right to issue compulsory licenses. The same Congress adopted various other resolutions designed to guarantee that the patent grant would become more automatic, unqualified, and irrevocable than at present.