AGENDA AND PAPERS FOR THE JULY 12 MEETING

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP86M00886R002000020006-5
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 104
• Document Creation Date: December 21, 2016
• Document Release Date: November 7, 2008
• Sequence Number: 6
• Publication Date: July 10, 1984
• Content Type: MEMO

(_"7L-
I Executive Registry
84
CABINET AFFAIRS STAFFING MEMORANDUM
Date: 7/10/84 Number: 169029CA Due By:
Subject: Cabinet Council on Commerce and Trade - July 12, 1984
2:00 p.m. - Room 208 OEOB
Action FYI
ALL CABINET MEMBERS ^ ^
Vice President
State
Treasury
Defense
Attorney General
Interior
Agriculture
Commerce
Labor
HHS
HUD
Transportation
Energy
Education
Counsellor
UN
USTR
GSA
EPA
NASA
OPM
VA
SBA
^
200~ C1
^ ?-~
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hT C1
' C3
[I 200~
I-~ ^
^ Ro~
&0~ C1
CEA
CEQ
OSTP
Baker
Deaver
Darman (For WH Staffing)
Mc Farlane
Svahn
Executive Secretary for:
CCCT
CCEA
CCFA
CCH R
CCLP
CCMA
CCNRE
There will be a Cabinet Council on Commerce and Trade
planning meeting on Thursday, July 12, 1984, at 2:00 p.m.
in Room 208 OEOB.
""-'O^^ (Room 129, OEOB) L - 3
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pp
^
Craig L. Fuller ^ Don Clarey
Assistant to the President ^ om Gibson
for Cabinet Affairs (Larry Herbolsheimer
456-2823 (White House)
Associate Director
Office of Cabinet Affairs
 MEMORANDUM FOR THE CABINET COUNCIL ON COMMERCE AND TRADE
FROM: ROGER B. PORTER /8P
SUBJECT: Agenda and Papers for the July 12 Meeting
The agenda and papers for the July 12 meeting of the Cabi-
net Council on Commerce and Trade are attached. The meeting
is scheduled for 2:00 p.m. in Room 208 of the Old Executive
Office Building.
The Council will consider three agenda items. The first
is the recommendations of the President's Commission on Indus-
trial Competitiveness. The'Commission has completed work on
fourteen recommendations on a wide variety of issues. The
first eight of'these recommendations were briefly discussed
at the Cabihet Council's March 7 meeting. The other recom-
mendations were submitted to the Cabinet Council in June.
The Cabinet Council Working Group on Industrial Competi-
tiveness has met and reviewed each of these recommendations.
A brief memorandum from the Working Group and papers support-
ing each of these recommendations prepared by the Commission
are attached.
The second agenda-item is a report from the Working
Group on Intellectual Property on amendments to the Freedom
of Information Act dealing with exemption from the Act to
protect legitimate confidentiality interests of private
firms. A memorandum prepared by the Working Group on this
issue is-attached.
The third agenda item concerns ratification of the
Brussels Satellite Convention. A memorandum from the Work-
ing Group on Intellectual Property on this issue recommend-
ing that the Administration promptly transmit this Conven-
tion to the Senate for ratification is also attached
Attachments
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 There is a Cabinet Council meeting scheduled
for tomorrow at 2:00 p.m.
It does not appear from the agenda that the
issues are of direct interest. (Item 2, however,
does deal with FOIA as it might apply to
"intellectual properties"--specifically, with
Justice's attempt to amend FOIA so as to protect
private firms from efforts by competitors to use
the act for industrial espionage purposes.)
In short, I don't think there is a real need
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CABINET COUNCIL ON COMMERCE AND TRADE.
1. Recommendations of the President's Commission on
Industrial, Competitiveness (CM #462)
2. Report of the Working Group on Intellectual Property:
Amendments to the Freedom of Information Act
(CM. #387)
3. Report of the Working Group on Intellectual Property:
Ratification of the Brussels Satellite Convention
(CM #387)
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THE WHITE HOUSE
MEMORANDUM FOR THE CABINET COUNCIL ON COMMERCE AND TRADE
FROM: ROGER B. PORTER eX,4
SUBJECT: Recommendations of the President's Commission on
Industrial Competitiveness
The President's Commission on Industrial Competitiveness has
completed work leading to fourteen recommendations on a wide
variety of issues ranging from our patent and antitrust laws to
our trade laws and the Export Administration Act. The first
eight of these recommendations were briefly discussed at the
Cabinet Council's March 7 meeting. The other recommendations
were submitted to the Cabinet Council in June.
The Cabinet Council Working Group on Industrial
Competitiveness, including representatives from the Departments
of Commerce, the Treasury, Labor, Justice, and Education, the
Office of Management and Budget, the Office of the U.S. Trade
Representative, the Office of Policy Development, and the Council
on Economic Advisers, has met and reviewed each of these
recommendations.
Papers supporting each of these recommendations prepared by
the Commission are attached at Tab A. The fourteen
recommendations cover the following:
1. Modify the antitrust laws to permit procompetitive joint
research and development ventures.
This recommendation is consistent with the Administration's
proposed legislation that is pending floor action in the
Senate and is similar to a bill passed in the House of
Representatives.
2. Make permanent the incremental tax credit for research and
experimentation (R&E); broaden the definition of R&E to make
it consistent with generally accepted accounting principles;
and adopt other measures to encourage industry investment in
university research.
The Administration has supported a five-year extension of the
current R&E incremental tax credit and has developed other
changes in the credit to refine the definition of research
and experimentation.
3. Make counterfeiting trademarks a criminal offense and
implement an international anti-counterfeiting code.
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? The Working Group on Intellectual Property has reviewed this
recommendation and supports the Administration endorsing it.
The Working Group's analysis of this recommendation is
attached at Tab B.
4. Amend the Freedom of Information Act (FOIA) to protect the
rights of private firms to maintain the confidentiality of
commercially sensitive information.
The Working Group on Intellectual Property recommends that
the Administration continue to support passage of the
comprehensive FOIA reform package embodied in 5.774,
including the procedural amendments for submitters of
confidential information. Substantive amendments to a FOIA
exemption regarding trade secrets and confidential commercial
and financial information should be sought at a future date.
However, since prompt reform of FOIA is essential, the
Working Group recommends against seeking such amendments at
this time. A memorandum prepared by the working Group on
this issue is included in the materials for the July 12
meeting.
5. Restore patent life lost during the government regulatory
review process.
The Administration strongly supports enactment of the Patent
Term Restoration Act of 1983 (H.R.3502 and S.1306) which
would restore to patentees a part of the effective patent
term which has been eroded by Federal premarket regulatory
review. An analysis prepared by the Working Group on
Intellectual Property is attached at Tab B.
6. Streamline a variety of patent laws and procedures to
encourage more investment in research and innovation.
The Working Group on Intellectual Property recommends that
the Administration support these technical changes, which
include: providing process patent protection, streamlining
foreign licensing procedures, eliminating unpublished
information from the definition of "prior art," permitting
patent interference arbitration, restoring the balance
between the rights of the licensor and licensee, and relaxing
technical requirements in patent application for joint
inventions. The Administration has testified in support of
legislation that would make these changes. The Working
Group's analysis of these recommendations is attached at Tab
B.
7. Examine the feasibility of establishing a central government
data bank for providing market information to help small- and
medium-sized U.S. firms identify market opportunities abroad.
The Department of Commerce has agreed to study the
feasibility of establishing a data bank and will report its
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8. Make clear that the Congress, in reauthorizing the Export
Administration Act (EAA), should wet h carefully the need to
maintain industrial competitiveness, as well as national
security.
A Conference Committee is currently reconciling the House and
Senate versions of EAA reauthorization. The Administration
has strongly and consistently urged that the EAA legislation
enhance the international competitiveness of U.S. industry
while protecting our national security interests.
9. Replace the Domestic Sales Corporation tax incentive with the
Foreign Sales Corporation (FSC) incentive.
The Congress has basically adopted the Administration's FSC
proposal in the Deficit Reduction Act of 1984, which is
expected to be signed by the President.
10. Make several technical changes in the trade law dealing with
countervailing duty and antidumping investigations.
The Working Group on Industrial Competitiveness supports
trade law revisions that would enable parallel countervailing
duty (CVD) and antidumping (AD) investigations dealing with
the same product to be carried out concurrently; permitting
joint petitioners to have standing to file CVD and AD
requests for investigations so that a coalition of firms,
unions, and trade associations may file together; and seeking
more clearly to define "threat of injury."
11. Encourage cooperative efforts by labor and management that
increase trust, open communication, and worker participation.
The Working Group supports this recommendation.
12. Improve engineering education throw h creating or expanding
programs for providing stipends to graduate students, funding
research equipment and instrumentation, and developing
engineering research centers.
The Working Group supports the National Science Foundation's
(NSF) current efforts to provide a program of stipends for
graduate engineering students, the Presidential Young
Investigators Awards Program. It also supports the
Administration's proposed FY1985 budget increase in funding
for engineering research and the emphasis on equipment and
instrumentation as well as the NSF's new program to develop
on-campus, cross-disciplinary, engineering research centers.
13. Encourage Federal Government and private sector partnerships
to ph rovide integrated services to hi h schools for reducing
the igh dropout rate.
 The Working Group supports this recommendation. On June 15,
the Department of Education announced that it will establish
a Task Force to implement the partnerships. The Department
of Justice has agreed to provide $1 million of matching funds
for this program using money allocated under the Juvenile
Delinquency Prevention Act Allocation Fund.
14. Facilitate the use of effective software in elementary and
secondary education by supporting software research and
teacher training in computers.
The Working Group supports this recommendation. The
Department of Education currently has a number of programs
supporting computer literacy.
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t r 7j ' I Washington. D.C. 20230
MEMORANDUM FOR THE CABINET COUNCIL ON COMMERCE AND TRADE
Subject: The Working Group on Intellectual Property's
Comments on a Recommendation to Amend the
Frdedom of Information Act
The President's Commission on Industrial Competitiveness (PCIC)
transmitted four recommendations on intellectual property.to the
CCCT on March 7, 1984. The CCCT referred them to the Working
Group on Intellectual Property for comment. The Working Group's
comments on three of the recommendations were transmitted to the
Chairman of the CCCT on April 24, 1984. This memorandum contains
the Working Group's comments on the fourth recommendation
concerning amendment of the Freedom of Information' Act.
Background
The Freedom of Information Act (FOIA), enacted in 1966, was
designed to provide citizens with a tool to learn more about
Federal Government activities, To protect and promote legitimate
Government and individual interests, Congress exempted some '
categories of information from the obligations in the Act to make
information available to the public. The fourth recommendation
of the PCIC?concerns strengthening Exemption 4 of the Act--the-
exemption designed to protect legitimate confidentiality '
interests.of the-private sector by exempting trade'secrets and
confidential commercial or financial information from the II ~C
mandatory disclosure requirements of the Act.
Judicial decisions have eroded the substantive protections
Congress sought in enacting Exemption 4 by disallowing use of the
exemption more frequently than in the past, by imposing a diffi-
cult bueden on submitters seeking to demonstrate that disclosure
of information is likely to cause them "substantial competitive
harm," and by narrowly construing the scope of protection
provided by the trade secrets portion of the exemption.
Moreover, submitters do not have any specific procedural rights
to notice or an opportunity to oppose agency release of their
information at the administrative level, nor is there a specified
procedure available for submitters to challenge in court agency
decisions to release business information.
Many people believe that the FOIA is not providing the protection
it was designed to for legitimate confidentiality interests of
the private sector and Government. Extensive Congressional
hearings in the last few years have made it clear that some
submitters of confidential business information are fearful of
 losing valuable trade secrets as a result of FOIA releases to
competitors. Some in industry state that a large percentage of
the many FOIA requests are motivated by competitors using the Act
for industrial espionage purposes.
The President's Commission on Industrial Competitiveness (PCIC),,
at its February 3, 1984 meeting, recommended that Exemption..4.of
the Freedom of InformationAct be amended to protect better the
rights of private firms to maintain the confidentiality of
information of potential commercial application which those firms
are required to submit to the'Governinent. The PCIC believes that
lack of such protection has had an unintended, harmful effect oif
the development, commercialization, and competitiveness of
innovative technology, and that it has harmed domestic firms in
relation to their foreign competitors.
Administration Proposals for Increased Protection for
Confidential Information
In 1981, based on a thorough review 'of the operation of the FOIA,
the Department of Justice proposed, on behalf of the Admin-
istration, a comprehensive set of revisions to the FOIA. Much of
the legislative package addressed the concerns of the Department
of Justice and other agencies with law enforcement responsibil-
ities over the shortcomings of the FOIA with respect to
investigatory information. However, a prominent part of that
package contained provisions for substantive reform of Exemption
4, as well as for procedural protections for submitters of
confidential information.
The?proposed substantive amendments to Exemption 4 would have
significantly modified the standard of harm to be shown by
submitters of confidential business information, thus easing the
burden of submitters in justifying nondisclosure. The substan-
tive revisions would also have made Exemption 4 mandatory unless
nondisclosure would injure an overriding public interest.
In addition, the package contained procedural reforms for
submitters of business information which would require agencies
to provide notice and an opportunity to oppose disclosure of
confidential business information. Another provision would
provide submitters with the opportunity to obtain de novo judi-
cial review of agency decisions to release confidential
information.
Current Legislative Status of FOIA Reform
During the past few years, the Senate Judiciary Committee has
held extensive hearings on the FOIA with the goal of drafting a
bill to fix the perceived weaknesses of the Act while maintaining
its strengths. 5.774, a comprehensive FOIA reform bill, is the
result of that effort and contains many of the revisions proposed
by the Administration, including procedural protections for
submitters of confidential information. However, there proved to
 be insufficient support in the Senate for the substantive reforms
of Exemption 4 sought by the Administration and, consequently,
those changes were not included in 5.774. As acknowledged by
former Assistant Attorney General Jonathan C. Rose during
testimony given on April 18, 1983, although the Administration
still believes that Congress should consider the issue at some
future date, the conflicts over substantive changes to Exemption
4 and the need to'proceed cautiously on FOIA reform have led to
the decision 'not to include substantive reform in the compromise
legislation.
On February 27, 1984, the Senate. approved S.774 without dissent
and the House Committee on Government Operations is currently
holding hearings on the measure. The measure faces significant
opposition in the House due to the strongly held belief of some
Members that amendments to the FOIA might restrict the
availability of Government information to the public.
The Working Group believes that procedural amendments. to the
FOIA, as contained in 5.774, are essential to increase protection
for confidential business information. Though further, substan-
tive reform of Exemption 4 along the lines proposed in the
original package of reforms introduced by the Department of 'A
Justice would improve._protection of_confidential...business infor-
mation, such reform is unlikely at the moment. In addition,
attempting substantive reform at this time is likely to slow down
consideration of the total FOIA reform package.
Recommendation
The-Working Group on Intellectual Property recommends that the
Administration continue-to support passage of the eofiprehensive
FOIA reform package embodied in 5.774, including the procedural
amendments for submitte_s of confidential information.
Substantive amendments to Exemption 4 should be sought at a
future date, but because prompt reform of the FOIA is essential,
the Working Group recommends against seeking such amendments at
this time.
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?h irdE SECRETARY OF COMMERCE
\o _t I Washington. D.C. 20230
MEMORANDUM FOR THE CABINET COUNCIL ON COMMERCE AND TRADE
Subject: The CCCT Working Group on Intellectual Property
Recommendation on the Ratification of the
Brussels Satellite Convention
Background
Unauthorized and uncompensated interception and distribution of
television programs carried by communications satellites (i.e.,
"signal piracy" or "signal poaching") has been going on for well
over a decade. Signal piracy--affecting Q.S. motion picture,
program supply, and broadcasting industries-- has greatly
increased over the last two years and continues to grow.
The area covered by a satellite signal "footprint" is invariably
larger than the area intended or authorized to be serviced.
Signals from U.S. domestic satellites can often be received with
usable strength beyond our borders, including a good deal of the
Caribbean, Latin America, Mexico and Canada. During the past few
years the Department of State has been informed about the
unauthorized interception of satellite television programs in a
number of Caribbean countries. Though signal piracy is now an
essentially regional problem, as more powerful satellites come
into service, it undoubtedly will become global in scope.
Leaving aside the ethical considerations, international signal
poaching has direct economic effects on all of the various
contributors to films and TV programs--authors, performers,
producers, sports promoters, and so forth. When a foreign
broadcaster or cable facility commercially exploits a U.S.
satellite television signal without authorization, it does not
pay any,share of the overall costs of that signal. This in turn
affects'all segments of the television industry. Further,
international signal poaching reduces foreign market
opportunities for American program suppliers and broadcasters,
thereby adversely affecting our balance of trade.
In the late 1960's, the United States was a leading proponent of
an international agreement for protection of satellite TV signals
because the use of satellites for program transmission was
expected to increase considerably and existing treaties (the
International Telecommunications Convention and the Universal
Copyright Convention) did not provide effective and widely
acceptable international protection. Two UN organizations--the
World Intellectual Property Organization and Unesco--sponsored
development of an international agreement which in 1974
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 culminated in the "Convention Relating to the Distribution of
Programme-Carrying Signals Transmitted by Satellite," usually
referred to as the Brussels Satellite Convention.
Obligations Under the Convention
States party to the Convention pledge to take "adequate measures
to prevent the distribution on or from its territory of any
programme-carrying signal by a distributor for whom the signal
emitted to or passing through the satellite is not intended." As
the Convention contains no practical limits upon the means state i
may choose to suppress local signal piracy, this obligation may-
be carried out by civil, commercial, or regulatory means. The
Convention contains special provisions for developing countries
on educational or informational use of parts of programs carried
("fair use"). Another article permits a reservation for cable
television, depending upon the state of the national law. The
Convention excludes satellite signals intended for direct
reception by the general public.
The Brussels Satellite Convention entered into force on August
25, 1979. As of March 1, 1984, eight countries were parties to
the Convention: Austria, Federal Republic of Germany, Italy,
Kenya, Mexico, Morocco, Nicaragua, and Yugoslavia.
Private Sector Views
United States adherence to the Brussels Satellite Convention has
been under consideration periodically since the conclusion of the
Convention in 1974. Until recently, however, domestic private
sector support for U.S. ratification has been meager for several
reasons. First, national program producers and distributors
believed that the obligations of the member states under the
Convention were weak and could be circumvented through provisions
of the Convention relating to fair use, use by developing coun-
tries for educational purposes, and cable distribution.
Producers and distributors hoped for creation of a new Convention
with stronger provisions. Second, during the early years
following the negotiation of the Convention, there was little use
of satellites for the delivery of programming and limited
availability of satellite reception earth stations. Finally,
educational groups within the United States believed that the
limitations on protection were not broad enough.
During the last two years, the Copyright Committee of the
National Association of Broadcasters, various regional
broadcasting unions in their Fourth World Conference, a
subcommittee of the American Bar Association's Patent, Trademark
and Copyright Law Section, the Motion Picture Association of
America and other representatives of the program supply and
broadcast industries, and educational groups have expressed near
 unanimous support for the U.S. ratification of the Brussels
Satellite Convention for several reasons:
(1) increased use of satellites for the delivery of
programming;
(2) low cost of satellite reception earth stations;
(3) widespread unauthorized international interception of
U.S. program-carrying satellite signals; and
(4) realization that a new, stronger Convention would not*-"
be created in the foreseeable future.
The only recent concern regarding ratification of the Brussels
Convention has so far come from SPACE, the Society for Private
and Commercial Earth Stations. Its concern is that the Conven-
tion may cloud the legal situation governing home reception of
satellite signals. In the view of the State Department and other
agencies, the Convention should not affect this subject. The
Brussels Convention is directed against unauthorized interception
and distribution. Purely passive reception of a non-public
variety should not be affected by U.S. ratification.
Implementation of the Brussels Satellite Convention
As a general principle, the Department of State has not regarded
international agreements in the intellectual property field
(copyrights and industrial property) as being self-executing.
Consequently, even though the Senate may give its advice and
consent to ratification or accession, the Department does not
send forward an instrument of ratification or accession until
implementing legislation has been enacted, or it has been
determined that existing legislation is adequate to meet the
Government's obligation under a particular treaty.
With the exception of the Federal Communications Commission's
(FCC) specific concern that ratification of the satellite
convention not conflict with its policy of earth station
deregulation, no Federal agency has raised a question on the
merits of U.S. ratification of the Brussels Convention. The
Department of State, the National Telecommunications and Informa-
tion Administration (NTIA) in the Department of Commerce, and the
U.S. Copyright Office in the Library of Congress have supported
ratification.
The State Department, NTIA, the Department of Justice, and the
U.S. Copyright Office believe that existing law (the Federal
Communications Act of 1934 and the 1976 Copyright Act) provides a
sound legal basis for implementation of the Brussels Satellite
Convention, without the need for further amendments to U.S. laws
or regulations.
 U.S. Benefits Under the Convention
The Convention will be more effective against satellite signal
piracy if other countries follow our example and accept the
obligations under the Brussels Convention. The precedent of the
United States, as the leading producer of television programming
and broadcasting, in ratifying this Convention, coupled with our
encouragement of other countries to ratify, would likely result
in widespread adherence of other countries. Worldwide
implementation of the Brussels Convention by enactment of either
copyright or communications measures to protect satellite signal..
would certainly diminish the signal poaching problem abroad.
U.S. ratification of the Brussels Satellite Convention should not
prejudice any future action in the United States regarding signal
piracy.
Recommendation
The Administration should promptly transmit to the Senate for
advice and consent to ratification the "Convention Relating to
the Distribution of Programme-Carrying Signals Transmitted by
Satellite."
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 John A. Young
Chairman
MEMORANDUM FOR THE CABINET COUNCIL ON COMMERCE AND TRADE
FROM: JOHN YOUNG
SUBJECT: ANTITRUST BARRIERS TO JOINT R&D
Attached is Recommendation No. 1 approved by the President's
Commission on Industrial Competitiveness on February 3, 1984.
This recommendation supports legislation aimed at removing
antitrust barriers to joint R&D by U.S. industry. The
Commission approved this recommendation after extensive
discussion by the R&D and Manufacturing Committee, and by
the full Commission.
Also included is an issue paper that summarizes the background
and arguments that justify the recommendation.
 RECOMMENDATION 41 - REMOVE ANTITRUST BARRIERS TO JOINT R&D
Recommendation
The President's Commission on Industrial Competitiveness approved
the following recommendations at its February 3, 1984 meeting.
JOINT R&D MAY BE HELPFUL IN MAINTAINING THE COMPETITIVE POSITION
OF U.S. FIRMS IN WORLD MARKETS. THE ANTITRUST LAWS, BY WHICH THE
LEGALITY OF JOINT R&D ARRANGEMENTS ARE JUDGED, SHOULD BE MODIFIED
BY:
1. REQUIRING THAT THEIR LEGALITY BE JUDGED BY A "RULE OF
REASON" TEST WHICH ASSESSES WHETHER ANY POSSIBLE ANTI-
COMPETITIVE EFFECTS OUTWEIGH ANY POTENTIAL PRO-
COMPETITIVE EFFECTS, AND
2. LIMITING THE DAMAGES, WHICH A PRIVATE LITIGANT CAN
RECOVER IN AN ANTITRUST SUIT TO DAMAGES ACTUALLY
INCURRED.
THIS RECOMMENDATION WILL CHANGE POLICY FROM ONE OF DISCOURAGING
JOINT R&D TO ONE OF PERMITTING SUCH COOPERATION. THE
IMPLEMENTING LEGISLATION SHOULD MINIMIZE REGULATORY INVOLVEMENT.
Should current antitrust laws be amended to permit joint research by
U.S. companies and, if so, in what ways? Would the competitiveness of
U.S. firms in world markets be enhanced by allowing those firms to
conduct cooperative R&D on a scale comparable to foreign firms?
Because of fear of violating antitrust laws, U.S. firms are not
conducting cooperative R&D on a scale comparable with that of
companies of our major trading partners. Consequently, the U.S.
is handicapped in maintaining its technological advantage.
In 1890, when the Sherman Act became law, technological problems
were neither so large nor so complex as to require technical
collaboration among firms. Essentially, our current antitrust
law still adheres to this view. Our major trading partners,
however, have tailored their policies and antitrust laws to
recognize that the ability to solve modern technical problems,
and to compete successfully in international markets, would be
furthered through cooperative efforts. In contrast, the U.S.
 antitrust laws governing cooperative research have not been
amended since 1914.
There_ is mounting evidence that the ability of United States
firms to compete with their foreign counterparts is eroding.
This decline in competitiveness has no single cause but is rather
the result of a number of forces operating together. Prominent
among these forces is the policy of foreign governments to target
individual industries, where the U.S. has a technological lead.
Among the governments targeting specific industries are those of
France, Japan and, to a lesser degree, West Germany.
A factor in these trends is undoubtedly the governmental policies
of other nations, which encourage collaborative research and
development among large national companies. The policies of the
United States, by contrast, inhibit such efforts. Japan, for
example, has actively sought collaborative research efforts by
the various firms in certain industries, for the express purpose
of improving their international competitiveness. MITI has
brokered the establishment of these cooperative efforts, and in
some cases has subsidized them with direct funding. The United
States, on the other hand, takes no role in the formation of
cooperative ventures, and, for all practical purposes,
discourages them on antitrust grounds.
U.S. firms are vulnerable under both the Sherman Act and the
Clayton Act, should a cooperative venture be deemed
anticompetitive. Spokesmen for recent administrations have
stated that firms desiring to conduct joint research are
overreacting to antitrust concerns. Guidelines have been issued
by the'Department of Justice, the most recent entitled "Antitrust
Guide Concerning Research Joint Ventures" in 1980, in an attempt
to alleviate such concerns. These guidelines, however; depend on
market definition without stating clearly whether global or
national market tests will be applied. They also depend heavily
on the portion of the research spectrum in which the work lies,
i.e., basic or applied. However, the nature of research may
change abruptly and, as perceived by hindsight, a piece of
research which was basic in the researcher may later be judged
applied in a court of the mind of law, particularly if the work
was quickly appropriated for commercial application.
Although a business review process is available from the
Department of Justice, there is no assurance that a clean bill of
health from the DOJ will prevent the recovery of treble damages
in a suit by private litigants. Also, in such a suit, the court
may well apply a "per se" rule of illegality. Per se rules are
attractive to courts since they simplify trials. The court in
such a case would merely determine that the parties to the joint
activity are competitors and, between them, had significant
market share. It would then rule that these facts alone (per se)
required a finding of antitrust violation and would not permit
the defendant to make a showing that the activity was in fact
reasonable in the light of all the circumstances.
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Meanwhile, the practice in other countries is to encourage the
development of marketable-products through cooperative research
and development. The $400 million joint research effort in
microlectronics begun in the late 1970's by the Japanese
government, and the more recent program in electronic data
processing and telecommunications equipment initiated by the
French government, are examples of projects of this nature.
.Thus, the cooperative research and development activies least
likely to receive favorable antitrust sanction in the United
States are exactly those most likely to be exposed to increasing
international competition.
European countries are now moving to exempt joint research
efforts between high-technology firms in Europe from the stiff
antimonopoly rules contained in the Treaty of Rome (which sets
out the code of economic behavior for the European Economic
Community). Although some ad hoc exemptions have been previously
allowed, a blanket exemption would be granted for joint research
efforts by a draft regulation which is expected to be adopted by
the Council of Ministers within the next few months. It goes
further than U.S. proposals by proposing that the.exemptions be
extended to cover the joint production of new technological
products arising from the research.
Remedies for the problem in the U.S. have been suggested.
In 1982, H.R. 6262 was introduced in Congress. The bill would
have authorized the Attorney General to issue a certificate of
review of proposed joint research programs which would limit the
statutory remedies for antitrust violations arising from conduct
specified in the certificate. It would preclude criminal and
treble damage liability as well as private suits for injunctions,
thus permitting only suits for actual damages and Government
suits for injunctions.
The Department of Justice objected to the provisions of H.R.
6262, which assigned it a regulatory role in issuing
certificates, on the grounds that they imposed an undue
administrative burden. Industry also objected to the Department
of Justice having a regulatory role since this could lead to
arbitrary definitions/standards for permissible market share.
The Department of Justice suggested, as an alternative, nor.-
regulatory legislation which would not require a certificate, but
which would eliminate the treble damage provisions of the
antitrust laws for non-criminal actions involving joint research
ventures that were openly disclosed.
About a dozen bills on this topic have been introduced in the
current session of Congress. The Administration argues the non-
regulatory approach suggested. by Department of Justice is
desirable, since the elimination of certification would
substantially lessen the regulatory burden on industry and
Government. However, more specific actions are needed to allow
United States companies to conduct cooperative R&D on a scale
comparable to foreign companies. One way to accomplish this is
 to have amending legislation provide, with respect to joint
research activities only, for the elimination of treble damages.
Accordingly, only suits for actual damages would be permitted.
Working together, the Departments of Justice, Commerce and OMB,
developed legislation incorporating these principles. The
outcome was legislation submitted by the Administration in
September, 1983 as the National Productivity and Innovation Act
of 1983 (5.1841, H.R. 3878). The objective of this effort was to
modify the legal climate with minimum change to the fundamental
principles of the antitrust laws. Alternatives considered, but
not adopted, include: (a) immunity of all publicly disclosed
joint research efforts from antitrust suits, (b) mandatory
licensing of results, and (c) evaluation and advance
certification of disclosed joint R&D ventures by the Department
of Justice. The goal was to support procompetitive joint R&D,
while preventing anticompetitive joint R&D.
The Commission believes that an approach similar to that proposed
in the National Productivity and Innovation Act of 1983 is
preferred. First, it reduces the antitrust hurdle without
removing the applicability of the antitrust laws.
Suits could still be brought for antitrust violations either by
the Government or by injured firms. However, the court in such a
suit, under the recommended approach, must judge the legality of
the joint research activity by looking at all of the
circumstances. This is known as applying a rule of reason test
and would permit the accused firm to show, for example, the
reasonableness of such activity in the face of foreign
competition.
Also, the recommended approach would not create a bureaucratic'
process to predetermine the legality of joint research activity.
By reducing the regulatory role, the process will be accelerated,
costs will be reduced and politicization of the process will be
avoided. Finally, the patent laws will be left in place to
stimulate innovation by not imposing compulsory licensing
obligations on joint research participants.
The Commission is not prepared to encourage joint research. It
may well be that competitive research by individual firms is the
best for the U.S. at least in some industry segments. However,
it believes that experience with joint research activity will be
useful and thus supports this proposal for a modest relaxation of
the antitrust laws. This will permit applicatiopn of the
principle in areas where firms on their own initiative decide
that joint research will help them be more competitive.
 PRESIDENr3 COMMISSION ON Industrial Competitiveness
John A. Young
Chairman
MEMORANDUM FOR THE CABINET COUNCIL ON COMMERCE AND TRADE
FROM: JOHN YOUNG'
SUBJECT: TAX INCENTIVES FOR R&D
Attached is Recommendation No. 2 approved by the President's
Commission on Industrial Competitiveness on February 3, 1984.
The Commission approved this recommendation after extensive
discussion by'the R&D and Manufacturing Committee, and by the
full Commission.
The remaining set of recommendations approved by the Commission
will be forwarded this Friday along with issue papers that
summarize the background and arguments that justify each
recommendation.
 RECOMMENDATION #2 - INCREASE TAX INCENTIVES FOR RAD
Recommendation
On February 3, 1984, the President's Commission on
Industrial Competitiveness adopted the following recommendation.
TAX CREDITS ARE AN IMPORTANT INCENTIVE FOR R&D. THE COMMISSION
FAVORS PROMPT ENACTMENT OF LEGISLATION TO MAKE THE CURRENT
INCREMENTAL TAX CREDIT PERMANENT. IN SUCH LEGISLATION, THE
DEFINITION OF R&D ELIGIBLE FOR THE CREDIT SHOULD ENCOMPASS ALL
ACTIVITIES TRADITIONALLY ACCEPTED BY STANDARD ACCOUNTING
PRINCIPLES AS R&D. THE DESIRABILITY OF CONVERTING TO A CREDIT
BASED ON TOTAL R&D SHOULD BE INVESTIGATED. IMPEDIMENTS TO TAX
CREDIT ELIGIBILITY BY START-UP FIRMS AND JOINT VENTURES SHOULD BE
REMOVED.
THE TEMPORARY MORATORIUM AGAINST IMPLEMENTATION OF A REGULATION
REQUIRING ALLOCATION OF DOMESTIC R&D EXPENDITURES TO FOREIGN
SOURCE INCOME (IRS REGULATION SEC. 1.861-8) SHOULD ALSO BE MADE
PERMANENT.
THE PUBLIC BENEFITS WHICH COME FROM RESEARCH IN UNIVERSITIES
WOULD BE. INCREASED BY ADDITIONAL INDUSTRY INVOLVEMENT WITH SUCH'
RESEARCH. THE COMMISSION THEREFORE FAVORS LEGISLATION CREATING A
PREFERENTIAL TAX CREDIT TO ENCOURAGE INDUSTRY INVESTMENT IN
UNIVERSITY RESEARCH.
Investment in R&D is critically important in stimulating
technolocigal innovation in products and processes, which in turn
is a key factor in maintaining competitiveness. The lack of
sufficient quantity and quality of R&D has been an important
factor in the slowdown in U.S. productivity and competitiveness
in recent years.
Investing in R&D has significant risk and uncertainty. More
importantly, the individual firm's or investor's eventual return
on R&D investment usually does not capture all of the benefits
resulting from that investment, i.e., there are significant
spillover benefits to society. In the current situation, the
U.S. must find ways of increasing the incentive for private firms
to undertake R&D that leads to innovative products, processes and
services.
In 1981, Congress enacted a 25% tax credit for R&D
expenditures greater than a specific, rolling, base level. The
credit is scheduled to expire in 1985. While it is too early to
 quantify with certainty the effect of the credit on incremental
R&D spending, industry claims that it has had a direct impact on
R&D decisions. The credit may have been a critical factor in
preventing firms from cutting back on R&D spending during the
recession.
Recent research shows that the knowledge-intensive high
technology sector has not been helped by current business tax
policy so much as the.capital-intensive smokestack industries.
This is because accelerated depreciation allowances and
investment tax credits have been the primary tax policy methods
used for many years; the fast growing high-technology firms put
much of their investments in research rather than long-lived
capital assets. Also, new firms and joint ventures, many of
which are in the high technology sector, have not benefited from
the tax credit because they are negligible as the law is
presently written.
The analyses of specific recommended actions to increase
investment in R&D activities are as follows:
The long-term benefits stemming from increased R&D
expenditures will become a reality only if the credit now set to
expire in 1985 is made permanent. Short term "lumpy" incentives
lead to short term "lumpy" investments that do not reap the
intended benefits. The President's Commission on Industrial
Competitiveness concluded that the tax credit is still an
important need and should be made permanent if the original
objective is to be achieved. It is also important to do this
during the current Congressional session so that corporate
decisions are not distorted by the 1985 "sunset" provisions. The
Treasury Department favors a non-permanent extension like 3 or 5
years. R&D-of this type normally requires 5-8 years to reach the
market; uncertain coverage of tax credits weakens the incentives
drastically.
The definitions for eligible R&D-used by IRS for tax
purposes are different from definitions used for some other
purposes, often leading to considerable confusion and
uncertainty. At the same time, standard definitions [Financial
Accounting Standards Board definition (FASB-2)] are used by the
financial accounting community, reviewed by outside auditors, and
accepted for SEC financial reporting purposes. The Commission
concluded that, whatever the faults of these standards might be,
the tax credit should be based on these known and tested rules.
Even though there are many differences across industries of
the content of R&D conducted, these accounting rules and the
accompanying auditing procedures have evolved into established
practices. It is likely the arguments about coverage, abuses,
and the resulting adversarial relationships would be eased by
2
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 legislation based upon standard practices. Even if experiences
with the present credit indicates that certain costs be expressly
excluded to contain abuse, and certain other. costs be expressly
included to insure eligibility, it is better to start with
generally accepted accounting principles. As an example, the
recently developed Danforth/Shannon Bill takes the FASB-2
definition as a starting point. It then clarifys the inclusion
of certain types of expenditures such as for R&D manufacturing
processes and computer software.
Item 3 Study the Desirability of Applying Credit to Total RED.
The present tax credit is only applicable. on incremental
increases above a rolling base of past R&D expenditures for each
specific firm. It has been suggested that incentives would be
more effective if the full amount of a firm's R&D expenditures
were used as the basis for the credit. The Commission
recommends that desirability of this change be studied.
The competitiveness of U.S. industry would be furthered by
the leverage on R&D which would be encouraged by a credit on a
firm's total R&D spending. Based upon the strong correlation. of
R&D with gains in GNP shown by historical data, it is likely in
the long run that such a tax credit on total R&D would more than
pay for itself and yield positive returns to society, as well as
to private firms.
Because of the requirement to."be carrying on business"
already, new start-up firms and new joint venture] between
established firms are presently not eligible for they. R&D tax
credit. The Commission recommends that such restrictions on
eligibility be removed.
The objective of the credit is to stimulate expanded R&D so
that innovative products and services that enhance
competitiveness will be produced. New technologies have often
originated in such start-up situations and the nation is likely
to benefit from their inclusion. While the tax revenue impact is
not likely to be high, the benefit might be very high. The same
recommendation can be justified on the basis of equity.
Item 5 Make Permanent the Moratorium on Treasury Regulation
1.861-8
Section 861 of the Internal Revenue Code, as originally
enacted in 1921, was designed to prevent foreign corporations and
individuals from deducting unrelated foreign expenses in
calculating their taxes on U.S. income. Treasury Regulation
Sect. 1.861-8 (interpreting Section 861 of the Code) structurally
favors the reduction of R&D performed in this country and the
relocation of research and development to the foreign countries
where these expenditures are fully deductible. This displacement
of R&D overseas transfers the inherent benefits of R&D activities
 more readily to other economies and accentuates our shortage of
technically trained personnel by eliminating scientific career
opportunities.
The Regulation requires that U.S. corporations allocate a
portion of all R&D expenditures to non-U.S. income for the
purpose of calculating the limitation on foreign tax credits.
For example, should 10% of a multinational's worldwide "activity"
be deemed to have occurred overseas, 10% of all R&D expenses
incurred by domestic companies, would be artificially "allocated"
to those non-U.S. sources regardless of where the R&D was
actually performed. The foreign tax credit limitation would thus
be reduced by an amount equal to the allocated portion multiplied
by the U.S. corporate tax rate. Should the multinational perform
all R&D in the U.S., the effect could in certain instances be the
same as if the corporation were denied a business expense
deduction for the allocated portion of R&D expenses. Other
countries generally do not recognize this fictional allocation
for tax purposes, and consequently, the allocated R&D expenses
have not been recognized as a business expense for foreign tax
purposes.
The Congress took an important first step to rectify.'the
problems created by the R&D portion of Section 861 in the context
of the Economic Recovery Tax Act of 1981. Included was a two-
year moratorium on applicability of the R&D portions of Sect.
1.861-8 of the Income Tax Regulations through tax year 1983.
There is currently considerable bipartisan sentiment in both the
U.S. House. of Representatives and the Senate for a continuation
of the moratorium. While the Reagan Administration has not
embraced a permanent moratorium,:. the Department of Treasury has
expressed support for a two-year extension beyond tax year 1983.
The President's Commission believes this disincentive to R&D
should be removed permanently. Since industry decisions on
location of R&D are long-term decisions, a short extension would
not remove the uncertainty barriers.
Item 6 Special Support for University-based Research
University research plays an important role in the welfare
of the U.S. in general, and in the competitiveness of U.S.
industry in particular. Such research is important, not only for
its own sake, but also for the contribution it makes to the
education of scientists and engineers. Although the government
must continue to be the predominant funder of university
research, the Commission believes it highly desirable that
industry increase its role as funder of such work. Increased
industry funding will not only provide additional revenue, but
also help bring industry into a closer relationship with
university researchers. Industry will then be in a better
position to utilize research results for commercial applications.
For these reasons, the Commission concluded that broad
incentives for industry investment in university research should
be maintained and, if possible, increased. It believes even
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 greater tax credits for such investments than for industry-based
research are justified and should be implemented through
legislation. One mechanism (not the only way) for creating such
a preferential tax credit is contained in the Danforth/Shannon
Bill now being considered on Capitol Hill. That Bill provides
for a 25% tax credit on the payments for basic research a firm
makes in universities greater than its investment in a fixed base
period (1981'through 1983). In contrast, the tax credit on in-
house research covers R&D expenditures that exceed the rolling
average of the three previous years. Since it is likely R&D will
increase over time, future tax credits for in-house R&D will
likely be smaller.
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 John A. Young
Chairman
February 24, 1984
MEMORANDUM FOR THE CABINET COUNCIL ON COMMERCE AND TRADE
FROM: JOHN YOUNG
SUBJECT: PROTECTION OF INTELLECTUAL PROPERTY
Attached are Recommendations No. 3, 4, 5 and 6 approved by
the President's Commission on industrial Competitiveness
on February 3, 1984. This set of related recommendations
is aimed at strengthening protection of intellectual property
as one way of increasing U.S. competitiveness. The Com-
mission approved these recommendations after extensive
discussion by the R&D and Manufacturing Committee, and by
the full Commission.
Also included is an issue paper that summarizes the back-
ground and arguments that justify each recommendation.
 PRESIDENT'S COMMISSION ON INDUSTRIAL COMPETITIVENESS
ISSUE PAPER
RECOMMENDATIONS 3, 4, 5 & 6: STRENGTHEN PROTECTION OF
INTELLECTUAL PROPERTY
The President's Commission on Industrial Competitiveness at
its February 3, 1984 meeting adopted four recommendations aimed
at strengthening protection of intellectual property as one
important way of increasing U.S. competitiveness. The Commission
believes that changes must be implemented in U.S. public policy
and laws in order to remove disincentives to technological
advance and to create new incentives to spur innovation.. If the
U.S. doesn't maintain the means and will to rigorously protect
intellectual property rights, we will continue to fail to make
full use of our enormous investment in basic research. Our
national pool of research is at once our greatest resource and
the foundation of our comparative advantage in world trade.
Moreover, unless we overcome our ambivalence toward protecting
intellectual property at home, these rights will continue to be
eroded abroad.
o Deterring Product Counterfeiting (Recommendation 3)
o Amending the Freedom of Information Act (Recommendation
4)
o Restoring Lost Patent Term (Recommendation 5)
o Streamlining Patent Laws and Procedures (Recommendation
6)
The full text of each recommendation and the justifying
arguments are described in the following four sections.
There has been a dramatic increase in recent years in commercial
counterfeiting, i.e., the fraudulent practice of affixing someone
else's trademark to a product which is superficially
indistinguishable from its legitimate counterpart. The
Commission urges the Administration to attack this problem by:
1. Domestically, supporting legislation to make the
trafficking in counterfeit trademarks with intent to
deceive or defraud a criminal offense; and
2. Internationally, supporting efforts to implement an
anti-counterfeiting code.
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Commercial counterfeiting is the fraudulent practice of affixing
someone else's trademark to a product, which then appears
superficially indistinguishable from its legitimate; counterpart.
Ten years ago, counterfeiting was a phenomenon which impacted a
handful of luxury industries. Today, however, it has become a
major international problem affecting a wide range of industrial
and agricultural sectors with implications for sales, return on
investment and the concomitant decline in resources available for
research and new product development, employment, and consumer
protection.
Counterfeiters dupe consumers into purchasing their products
under the erroneous belief that thay are purchasing the genuine
article. Thus, the consumer is defrauded and the owner of the
trademark suffers, while the counterfeiter reaps great profit.
The exponential growth of counterfeiting can be explained by low
start up costs, residual benefits from the promotional costs
incurred by the legitimate manufacturer, and by high returns
generated by low production costs and non-payment of taxes,
licenses and other fees.
"Knockoff" copies trade on the image, quality and brand
recognition that have been developed at great expense by
successful manufacturing and marketing companies. At first,
counterfeiters concentrated on up-scale consumers with bogus
items of prestige manufacturers such as Cartier, Gucci, Louis
Vuitton, Apple Computer, Levi Strauss and Izod-Lacoste. However,
a report submitted recently by the European Economic Community
(EEC) to the GATT concluded that while trademark counterfeiting
has long been a concern in the luxury goods sector,
counterfeiters have made it apparent that no industrial or
agricultural section of trade is immune. Counterfeit trademarks,
in fact, are being found in dozens of countries on products as
diverse as aircraft and auto parts, chemicals, pharmaceuticals,
wines, electrical equipment, machine tools and parts, fungicides,
fertilizers, insecticides and infant formula. The U.S.
International Trade Commission just released (January 1984) the
results of a comprehensive investigation of the effects of
foreign product counterfeiting on U.S. industry. It identifies
the impacts on specific industries and describes how
counterfeiting has been increasing.
In recent years, commercial counterfeiting operating on an
international scale has reached epidemic proportions. The cost
to trademark-holding manufacturers worldwide is several billion
dollars a year. Counterfeiting has become so pervasive, however,
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that its harmful effects extend far beyond its direct economic
impact on legitimate manufacturers and into the areas of physical
endangerment and the impairment of our national defense.
Examples abound, including: heart pacemakers with counterfeit
components, counterfeit jeans dyed with carcinogenic substances,
counterfeit fire detection systems for aircraft engines,
,counterfeit medicines with no active ingredients, and counterfeit
.tiles that were discovered on the U.S. space shuttle.
Although information on counterfeiting is difficult to obtain, it
has become increasingly evident that it flourishes largely
because effective domestic and international controls do not
exist. Once counterfeit products hit the market the damage is
done and markets are lost. The problem of enforcement is further
complicated by the fact that manufacturers who find that their
goods are being counterfeited are often reluctant to publicize
their losses because any suspicion of counterfeiting deters
potential customers from making purchases, and this has a
corresponding impact on sales, profits and employment. (In the
United States, a loss of 14,000 jobs can be attributed to
counterfeiting in the auto industry alone.) Moreover,
counterfeit products can also result in product liability suits
against legitimate manufacturers if products carrying their
trademark harms a consumer.
In the United States, the basic federal trademark protection act
-- the Lanham Act -- imposes only limited civil sanctions for
those found guilty of even the most egregious trademark
infringements and imposes no criminal sanctions. There is, in
fact, no criminal law outlawing commercial counterfeiting per se.
While under certain circumstances other federal penal statutes
can be invoked to reach particular commercial counterfeiting
situations, in actual practice federal prosecutors have rarely
utilized these provisions to prosecute alleged offenders.
Given the scope of the problem and the ineffectiveness to date of
efforts to deal with it, new legislation providing both criminal
and financial penalties for commercial counterfeiting is critical
to the protection of American business and its consumers.
In 1982, legislation was introduced by Senator Charles Mathias
(R-MD) and Congressman Peter Rodino (D-NJ) to criminalize
trafficking in counterfeit products and services and impose
stringent civil sanctions on commercial counterfeiters. A
slightly revised version of the 1982 bill, the Trademark
Counterfeiting Act of 1983 (S.875 and H.R. 2447) was reintroduced
in early 1983 by the same sponsors.
Specifically, the bill mandates the greater of treble claimant's
damages or defendant's profits. Furthermore, 5.875 would empower
federal district courts to have all counterfeit marks and goods
delivered to the court at the onset of an action, and that upon
conviction the court may order the destruction of marks and the
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disposal of the goods.
The Senate Judiciary Subcommittee on Patents, Copyrights and
Trademark has approved 5.875. During the subcommittee's markup,
the bill was modified to make it more acceptable to its principal
opponent, the Associated General.Merchandise Chains, of which K-
Mart is the most influential member. This group's opposition is
?based on the view that the legislation places too great an onus
.on those stores that sell trademarked goods that are not
available to them through- distribution channels approved by the
manufacturers.
Accordingly, many of the following changes agreed to by the
subcommittee should diffuse opposition and expedite its passage
during the current session of Congress:
o The contraband which the bill covers is no longer
"counterfeit marks," but, instead, "counterfeit goods
or services." This term is defined as goods or
services bearing a "spurious mark, which is identical
to or substantially indistinguishable from a genuine
mark." This amendment incorporates a suggestion
offered by Commissioner of Patents and Trademarks
Gerald J. Mossinghoff.
o The element of specific intent has been dropped
completely and replaced by an affirmative defense of "a
good faith claim of right."
o The definition of "traffic" was expanded to include "to
conspire with" others in the prohibited activities.
o Safe harbor provisions have been added that protect a
defendant if he makes certain labeling disclosures and
-notifies the trademark registrant of his intent to use
the mark. This amendment incorporates a recommendation
of the Justice Department.
o The amended bill incorporates all trademark defenses
available under the Lanham Act.
o An amendment specifically authorizes the seizure of
goods, marks, means of marking marks, and articles
bearing marks, but not business records.
o Specific requirements for obtaining ex parte seizure
orders were added, including requiring the trademark
owner to provide security for damages, in the form of
lost profits and loss of good will, suffered as a
result of a wrongful seizure.
o Ex parte seizures would be carried out by U.S. marshals
or an agent designated by the court and the seizure
order must be served on the defendant and U.S. Attorney
before it is executed.
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 o Finally, a prevailing defendant could recover damages,
costs, and attorneys' fees from a bad faith plaintiff.
On. the international level, the United States has been
campaigning for a GATT anti-counterfeiting code, but its attempts
have been resisted by developing countries, which have shown a
marked preference to have the issue considered by the World
Intellectual Property Organization (WIPO).
The U.S. succeed in getting the November 1982 GATT Ministerial to
request that the GATT Council "examine the question of
counterfeit goods with a view to determining the appropriateness
of joint action in the GATT framework on the trade aspects of
commercial counterfeiting," but giving "full regard to the
competence of other international organizations" (i.e., WIPO).
The Ministers also instructed the GATT Director-General to hold
consultations with WIPO's Director-General "in order to clarify
the legal and institutional aspects involved." The proposal,
which became a joint U.S.-EEC initiative endorsed by Canada,
Japan and Switzerland, has as its purpose to discourage
commercial counterfeiting by depriving counterfeiters of economic
benefit.
If the proposed Code were adopted it would have a significant
impact on international commercial counterfeit traffic. But even
then it would not fully prevent trafficking in counterfeit goods
once they cleared customs, and would have no jurisdiction over
domestically produced counterfeit goods.
With little LDC sympathy for the impact of counterfeiting on
multinational corportations and the fact that the country most
responsible for trade in counterfeit goods, Taiwan, is not even a
member of GATT, it is little wonder that these nations have
little enthusiasm for a GATT code. Moreover, there are many
other issues, such as "voluntary" restraint agreements, to which
LDCs accord a higher priority for GATT action.
The President's Commission recommends the U.S. intensify its
international efforts to implement an anti-counterfeiting code.
The Commission fully supports the principles of the Freedom of
Information Act (FOIA). This Act should, however, be amended to
protect the rights of private firms to maintain, with respect to
their competitors, the confidentiality of information of
potential commercial application which they are required to
disclose to the government. In recent years, the release of
 Approved For Release 2008/11/07 CIA-RDP86M00886R002000020006-5
commercially sensitive information in response to FOIA requests
has disadvantaged domestic firms with respect to their foreign
competitors. As a first step in restoring a proper balance, the
providers of such information should be given notice that their
confidential information is being requested and given an
opportunity to show good cause why such information should not be
released. Requestors of such information should be required to
reveal the identity of their principals on behalf of whom a
request is being made.
The Freedom of Information Act (FOIA), which was passed in 1966,
no longer provides adequate protection of proprietary data and
other confidential business information. There has been a steady
erosion of the Act's principal intention -- to establish a
balance between the public's right to information and the equally
legitimate rights of owners of intellectual property -- and it is
now widely utilized for industrial espionage purposes. FOIA,
then, has had. an unintended, but nevertheless harmful effect on
the development, commercialization and competitiveness of
innovative technology. Consequently, new statutory procedures
and the strengthening of the (b)(4) exemption, which addresses
the protection of confidential business information, are needed.
Industry states that a large percentage of the many FOIA requests
to some Federal agencies are motivated by competitive reasons,
and are often originated by foreign competitors.
Where a legitimate private interest is asserted, federal agencies
must be as willing to preserve a company's secrets as they are to
safeguard their own information. Unfortunately, however,
relatively few companies have challenged requests under FOIA that
could be damaging. Moreover, it is often difficult to ascertain
when a competitor has acquired information, and firms are also
reluctant to make an issue of disclosed information because they
would then be alerting additional competitors to its existence.
It is unfortunate, therefore, that public employees are
increasingly asserting their right to make disclosures without
prior notification, and that the courts, by and large, are not
upholding companies' rights in many FOIA requests. Companies, in
fact, often do not know of requests for data, or, for that
matter, even that they have been injured. Many agencies do
voluntarily disclose requests to affected companies -- but not
the Food and Drug Administration, which receives more FOIA
requests than any other agency - but they are currently under no
obligation to do so.
Also, once information is disclosed to a single applicant, it
 must be provided to everyone; and, in the exercise of their
discretionary powers, government agencies are immune from
prosecution or paying compensation to a company if its position
is hurt by disclosures. Government employees car-Tying out those
disclosures are therefore also immune from prosecution and civil
lawsuits, while. an employee of al company could have quite a
different sort of accountability.
When Congress passed the FOIA, it recognized the need to
establish certain exemptions to public access to certain types of
information in government files. One such exception, known as
the (b)(4) exemption, specifically recognizes the need to protect
private and confidential business information. Presently, this
exemption applies to
"trade secrets and commercial or financial information
obtained from a person and. privileged or confidential."
The(b)(4) exemption was not intended to frustrate the Act's goal
of achieving a more open government. However, over the years,
the original intention of the (b)(4) exemption to protect
private, confidential business information has become the. victim
of judicial decisions.
These judicial decisions eroded the protection afforded to
confidential business information in three ways:
1. The courts have imposed an extremely difficult burden
of proof -on submitters of confidential business
information who seek to prevent release by government
agencies of business information in the agencies'
possession. Initally, courts applied the exemption to
information which "would not customarily be released"
or which "might be harmful to the submitter's
interests." These tests were consistent with the
intent of Congress. However, these criteria were
supplanted by a 1974 District of Columbia Court of
Appeals decision articulating a new standard. The new
interpretation of the word "confidential" in the (b)(4)
exemption compels an agency to disclose information
unless it can determine that release would likely cause
"substantial harm to the competitive position" of the
submitter or impair the government's ability to obtain
necessary information in. the future. Unlike the
standard applied previously, which was consistent with
Congressional intent, this new standard attempts to
measure degrees of harm and allows an agency to
disclose the information if the agency finds that the.
owner will suffer only insubstantial harm from.
disclosure.
At best, therefore, the current standards of proof of
"substantial harm" are amorphous, and it is very costly
to defend against' such disclosures. Proving
substantial harm is particularly difficult for the two
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 classes of regulated firms with the most to lose: the
innovative, new product firm and the small
entrepreneurial firm. First, the courts require that
the owner demonstrate that a market for -the secret
information really exists. Second,, the owner must
demonstrate the firm's competitive position within the
market. Finally,the company must prove that
competitors would be likely to use the information to
harm the owner's competitive position. The owner of
the proprietary information, then, is in the burdensome
position of having to prove that a market exists for
its new product. And, the newer the technology, the
less defined the market, and the less certain it is the
developer can establish "substantial harm."
2. Although the FOIA is silent on the point, the courts
have interpreted the (b)(4) exemption as discretionary
rather than mandatory. Thus, agencies can release
information under their control even if it falls within
the exemption, unless precluded by some other statute.
3. Also addressed in the (b)(4) exemption are "Trade
Secrets." Such information has long been protected
from public disclosure by an entirely independent
statute; the Trade Secrets Act (18USC 1905). However,
here too a recent court decision substantially
restricts the quantity of information which would be
eligible for protection under this rubric. In April
1983, the Court of Appeals for the District of
Columbia, in the context of a suit to compel disclosure
of information under the FOIA, stated that the only
information which would be eligible for Trade Secret
status under exemption (b)(4) was "a secret
commercially valuable plan, formula, process or device
that is used for the making, preparing, compounding or
processing of trade commodities and that can be said to
be the end project of either innovation or substantial
effort." In so defining Trade Secrets, the court
rejected a much broader Restatement of Torts definition
which had been adopted by numerous courts and
substantially impaired the properietary rights in
innovator firms.
Also, in addition to the limited protection afforded the
submitter under the (b)(4) exemption, submitters do not have any
specific procedural rights under the FOIA to oppose agency
release of their information. Nor are agencies required to
inform submitters that a request for information has been made.
On the other hand, requesters of confidential business
information have been given substantial procedural rights under
FOIA in the event they are denied requested information.
What is needed, therefore, is the restoration of the original
intent of the (b)(4) exemption as described in Senate Report No.
813 (89th Congress, 1965): to protect business information which
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 would: ".. customarily not be released to the public by the
person from whom it was obtained."
If the. (b)(4) exemption were mandatory, it would relieve the
uncertainty and anxiety which submitters have regarding the
release of their confidential information; Further, if the
definition of Trade Secret to be applied both for the purposes of
the FOIA and the Trade Secret Act was explicitly stated to be the
Restatement of Torts language, dual protection would be assured
and an absolute bar to release would be clearly established.
Submitters whose proprietary information falls within the (b)(4)
exemption should not have to risk the release of such data by an
agency except in the event of an overriding public interest.
Even then, a submitter should have the right to oppose any
decision to release its confidential information.
The FOIA, therefore, has produced unforseen negative
economic consequences and some economists have postulated that
the Act has had a deleterious effect on the life cycles of some
products. Disclosure, for example, of the class of knowledge
known as "circumstantially relevant business information" (CRBI)
could cut into the long-term profitability of a product. by
revealing what the manufacturer knows about the market for a
product in development and not yet commercialized, or about its
competitors. Because the time of disclosure can be helpful to
competing firms, the information may be highly relevant to their
decision making. The information may not be "relevant" enough to
meet the "substantial-harm" standard, but it can nonetheless aid
competitors in making marketing and production decisions -- and
shorten the innovator's cycle of return.
In the Senate Judiciary Committee's report on 5.774 (September
12, 1983), the following statement, as required by Senate rules,
was made:
In compliance with subsection 11(b) of rule XXVI of the
Standing Rules of the Senate, the Committee finds that
the business confidentially procedures of S. 1730 (the
bill number during the previous session) will
substantially improve the protection of trade secrets
and other valuable commercial information submitted to
the Government by regulated business. This should
enhance the economic position of businesses and
individuals who have in the past or might have possibly
in the future lost such trade secrets or proprietary
information to a competitor or some other requester
pursuant to an FOIA request. The Committee also finds
that S. 1730 will improve personal privacy protections
for every individual about whom the Government
maintains information. Finally, the Committee finds
that no additional paperwork will be required of
regulated businesses or individuals, but that the bill
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 improves protection for personal privacy and commercial
information.
Pursuant to Section 403 of the
Congressional
Budget Act
of 1974,
the Congressional Budget Office
-is the relevant section of the
(CBO)
CEO's
reviewed
findings:
S.
774.
Following
The costs of administering the Freedom of Information
Act are highly uncertain, and no comprehensive data are
available. Based on information provided by the
Justice Department, it appears that the direct cost of
administering the act is at least $60 million a year.
Assuming this level of costs, the bill is expected
to save the federal government at least $10 million a
year - through the establishment of a uniform fee
schedule, recovery of a portion of the cost of
processing an application, various applicant
exclusions, and an anticipated decline in the use of
FOIA resulting from higher fees. However, in view of
the uncertain costs of FOIA and the lact of information
on the fee guidelines OMB will eventually propose, the
savings resulting from this bill could be significantly
greater.
Congress is responding to the commercial espionage aspects of the
excessive use of the FOIA slowly and incompletely. The full
Senate is currently weighing 5.774. The media's opposition to
changes that will make it more difficult to obtain documents
relating to law enforcement, environmental questions or military
matters may make- it difficult for meaningful and necessary
changes in the FOIA to pass. The Administration has been
equivocal in its attitude toward 5.774, primarily because its
determination to protect secrets in the files of the CIA, the FBI
and Defense Department take precedence in protecting companies
from commercial disclosures.
The business community nonetheless seems to be satisfied with the
modest changes proposed by 5.774, and eventual Senate passage
seems likely. The picture in the House is less clear. This
Commission has gone on record in support of preventing misuse of
FOIA for competitive purposes, and recognizes 5.774 as a valuable
first step toward that goal.
 U.S. Patent law grants inventors a 17-year term of exclusive
rights on innovative processes and products. This limited term
is intended to provide a major incentive for research and
development, which is often costly and risky. However, for
certain products, such as some chemicals and pharmaceuticals, the
full 17-year patent term has been j unintentionally eroded by
Federal pre-market testing and review requirements. To remedy
-this situation, the Commission recommends passage of legislation
,that would restore patent life lost during the government
approval process.
United States patent law grants an inventor 17 years of exclusive
control over innovative new processes and products. The patent
system provides important incentives for innovation. Its
granting of a limited monopoly is widely recognized as fostering
the large investments of time, talent and money required for
research. However, the regulatory procedures and pre-market
testing and review requirements for certain items, like
pharmaceuticals and chemicals, have unintentionally eroded the
full 17-year patent term, because during the pre-approval period
no commercialization is possible. In such cases Federal
regulatory and review procedures act as disincentives to
innovative efforts, and can have a detrimental effect on the U.S.
competitive position in vital high technology industries.
Products requiring government approval, such as prescription
drugs, medical devices, insecticides and chemicals are rarely
accorded the full 17-year patent term. The government review
process has been lengthening in recent years -- particularly for
pharmaceuticals -- due in part to increasingly sophisticated
methods of determining safety and effectiveness. The entire R&D
process for a pharmaceutical -- prior to marketing -- may take
ten to thirteen years. In fact, the time actually available to
market a drug under patent protection has declined precipitously
-- from 12.0 years on average in 1969-1971 to 7.0 years in 1979-
1981.
To a great extent this explains why pharmaceutical research is so
expensive. The average cost of R&D per new drug marketed today
is approximately $70 million. Moreover, only about one in 5,000
new chemical entities that enter the testing process ever reach
the market as a new product. These costs must be recovered
during the life of a new drug's patent, since after the patent
expires the drug faces competition from imitator products
unencumbered by the need to recover development costs. It is a
rare new compound, in other words, that is ready for marketing at
the time the patent is issued because of lengthening FDA testing
and review requirements. It is only fair, the proponents of
patent restoration contend, that pharmaceutical manufacturers
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 should not be penalized for submitting to necessary and
painstaking FDA procedures.
One legislative proposal to achieve this objective it the Patent
RestorationjAct of 1983 (S. 1306, Mathias, R-MD; and H.R. 3502,
Synar, D-OK). This legislation would not change the current
patent application process nor any aspects of regulatory review.
-Moreover, the extension would be limited to products or methods
subject to review, and only to the specific use for which the
review is required. Other products or uses contained in the same
patent, but not subject to review, are not included in the
extension.
The principal opposition to the Patent Restoration Act of 1983
comes from two sources: the American Association of Retired
Persons and the National Association of Pharmaceutical
Manufacturers, the trade group for the generic drug industry.
They contend that longer patent terms would raise the cost of
drugs to consumers by delaying the day when competitors,
especially generic drug makers, could bring out cheaper copies.
The fact is, however, that patent restoration would not apply to
any already patented drug on the market. Moreover, patent term
restoration is likely to result in the development of new
products that would increase competition. Meanwhile, the
incentive to develop a range of useful new therapies would be
increased.
The President's Commission believes that restoration of lost
patent term would contribute to increased competitiveness by
increasing the incentives to develop new technology and carry it
through to commercial products or services.
The patent laws continue to be a major mechanism to encourage R&D
and the commercial development of new technology. Although major
changes in the U.S. patent laws are not required, the Commission
supports those essentially "fine-tuning" amendments to the patent
laws which have evolved over several years of study by a variety
of Congressional, industrial and bar association groups. They
are essentially non-controversial and include provisions to:
1. Extend the law to make it an infringement of a U.S.
process patent to have a product imported into the U.S.
which is manufactured abroad by the patented process.
2. Simplify the procedures for obtaining export licenses to
file and prosecute patent applications in foreign
countries.
3. Eliminate unpublished information from the definition of
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 "prior art".
4. Permit the arbitration of patent interferences.
5. Restore balance in patent law licensing by requiring a
person challenging the validity of a licensed patent
either to continue paying royalties during the period of
challenge, or, at the licensor's option, to terminate
the license.
6. Relax the technical requirements relating a person in a
single patent of claims to a joint invention where all
joint inventors may not have contributed to all claims.
In addition, the Commission recommends that action be taken to
reduce the erosion of intellectual property rights in foreign
countries. All countries should be encouraged to implement
systems of intellectual property protection which foster a
climate of innovation and investment. U.S. policy should firmly
oppose the misappropriation of intellectual property rights by
any country. Also, the U.S. should encourage all countries to
adhere to the Paris Convention for the Protection of Intellectual
Property but should oppose efforts to weaken the Convention,. for
example, by permitting member countries to require the grant of
compulsory exclusive licenses.
The national interest in the patent system is based on its
contribution to strengthening the technological base of the
natipn, in encourging research and invention and the commercial
development of new technolgoy, in stimulating investment by the
private sector in technolgical progress, in improving the
nation's international trade balance, in increasing employment,
and in providing a wider selection of products and services.
The pace of technological growth is slowing in the United States.
The President's Commission on Industrial Competitiveness believes
that the patent system has the potential to serve as a mcre
forceful element in encouraging technological commitment and
investment. We believe that it is feasible to increase the
effectiveness of the patent system for this purpose.
The urgency of our national situation, with respect to
technological leadership and innovation, has convinced us that
modification of the patent law, in ways that strengthen the
incentive role of patents, can have a significant beneficial
effect in encouraging investment in innovative efforts.
Item 1. Section 1 of 5.1535 and H.R. 0525 deal with the
infringement of process patents by offshore production. This is
 Approved For Release 2008/11/07 : CIA-RDP86M00886R002000020006-5
a situation that has long been in need of remedy. The 1966
Report of the President's Commission on the Patent System
commented:
"The, unauthorized importation into the United
States, for sale or use, of a product made abroad
by a process patented in the United States, does
not now constitute infringement... This
recommendation would make it possible to prevent
evasion of the process of patent owner's exclusive
rights in the United States by the practice of his
process abroad and the importation of the products
so produced into this country."
Thus, under current U.S. law, a process patent is not violated if
a product is manufactured outside of the United States using that
patented process, then imported for sale here. The proposed
legislation provides that such importation and sale of a product
manufactured abroad by the patented process constitutes
infringement of the process patent. All other major
manufacturing countries have statutes against process patent
infringement by offshore production, and it is inequitable for
foreign laws to protect foreign manufacturers against imports of
this type without the same benefit being available to U.S..
manufacturers. This proposed change would broaden the procedural,
and substantive remedies available to the patentee, would embody
basic principles of fairness, and would favor production within
the United States of products intended for the United States
market.
a
a Similarly, H.R. 4526 provides that importation into, or use or
sale in the United States of a product manufactured abroad by a
process patented in the United States, constitutes infringement
of the United States process patent. Damages may not be obtained
unless the infringer had notice of the process patent. These
provisions of 5.1535 and H.R. 4526 differ in some respects from
those of the Administration's 5.1841. 5.1535 and H.R. =525.
however, should be endorsed since they provide important
substantive changes in the present law.
As a corollary to the principle of equitable treatment stated
above, both 5.1535 and H.R. 4526 also contain provisions to
assure that a product patent cannot be circumvented by
manufacturing the material* components of the product in the
United States, then assembling them and selling the finished
product abroad. This is not covered by 5.1841.
These proposals would close loopholes in the present law which
work to the advantage of foreign manufacturers over U.S.
manufacturers/patentees and should be endorsed.
Item 2. Sections 2-4 of 5.1535 and H.R. 4524 are concerned with
export licenses for the filing of foreign patent applications and
subsequent amendments hereof. Under U.S. patent law, a U.S.
inventor wishing to file a foreign patent application is required
14
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 Approved For Release 2008/11/07 : CIA-RDP86M00886R002000020006-5
to obtain a license from the PTO or wait for 6 months after the
U.S. filing. The purpose of these requirements is to allow U.S.
agencies concerned with security matters to inspect the patent
application and determine whether it contains technical
information bearing on national security. Any deviation from
these requirements, including the furnishing of information
abroad as an amendment to a foreign patent application without
prior license, could result in invalidation of the corresponding
U.S. patent and, additionally, in criminal penalties. These
sanctions can apply even when the subject matter has nothing to
do with national security and even when the general subject
matter has been on file in the United States for over six months
or has been published in an issued U.S. patent.
In order to comply with existing law, enormous volumes of paper
flow through the PTO for the routine approval of such export
licenses. A slightly modified system can fully meet the
governmental purpose of the statute, while providing a
significant benefit to users of the patent system and cost
savings to the PTO. 5.1535 and H.R.4524 would eliminate these
burdens by allowing supplemental data or examples merely
illustrative of the general patent disclosure to be presented to
the foreign country. without a subsequent license if a license had
been obtained for its initial patent application and no secrecy
order has been issued by a government agency. Additional
provisions would make clear that failure to obtain a license for
a patent application that is not subject to a secrecy order would
not result in criminal penalties unless the failure was due to a
deliberate attempt to decieve. These changes will significantly
reduce an unnecessary burden on both the PTO and patent
applicants without detriment to legitimate national security
concerns and should be adopted.
Item 3. Sections 5-6 of 5.1535, as well as H.R. 4525, focus on
unpublished knowledge as prior art, eliminating as prior art
against the grant of a patent unpublished information developed
by the applicant solely or jointly with others, or which is known
to him only by virtue of his employment. Research in corporate
laboratories involves the continuing efforts of many individuals,
often as a team effort, and the present provision would reverse a
line of cases which have tended to discourage such cooperative
research. Enactment would make it easier to obtain patent
protection for the results of corporate or cooperative research
efforts, and would thereby promote innovation and should be
endorsed.
Item 4. Sections 7-9 of 5.1535 and H.E. 4528 provide for the
arbitration of interferences (proceedings conducted by the FTC to
determine which rival inventor made the invention first and is
thus entitled to the patent). They also eliminate the unduly
harsh penalties for inadvertent failure to file any agreement
relating to the settlement of an interference. The arbitration
provisions offer an opportunity to significantly reduce the
expense and burden of present interference practice for both
applicants and the PTO. Since penalties for deliberate failure
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 to file interference settlement agreements are maintained as
a
deterrent to antitrust violations, the provision seems well
balanced and should be endorsed.
Item
5.
Section 10 of 5.1535 and H.R. 4529 seeks tp unify
the
laws
with
respect to license estoppel when a licensee seeks
to
assert
the
invalidity of a licenses patent and to reverse
the
trend
of
case law that has generally been unfavorable
to
patentees.
Court decisions have established the right of
a
patent to challenge the validity of the licensed patent. Case
law, however, may have shifted the balance of rights in such
challenges too far in favor of the licensee, allowing undue
leverage against the licensor. The changes proposed in 5.1535
and H.R. 4529 would insure the right of the licensor to continue
to receive royalty payments during the time the patent is under
challenge, or, at the licensor's discretion, to terminate the
patent license.
Item 6. Section 6 of 5.1535 and H.R. 4527 change the present
requirement that each named inventor must have made an inventive
contribution to each and every claim of a patent. This again
will promote joint or cooperative research efforts, and will
bring us closer to the practices of most other nations.
There does not seem to be any significant objective opposition to
5.1535 or H.R. 4524-H.R. 4529. To date, the Administration has
not taken a position on 5.1535 or the Kastenmeir bills. The
Administration does have, as noted above (Background and
Analysis, 1), a slightly different view on protecting the rights
of process patent holders.
16
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 John A. Young
Chairman
FROM: JOHN A. YOUNG
SUBJECT: RECOMMENDATION ON RENEWAL OF THE EXPORT
ADMINISTRATION ACT
Attached is Recommendation No. 7 approved by the President's
Commission on industrial Competitiveness on February 3, 1984.
The Commission endorses the five principles in the January 26
letter prepared by The Business Group on the Export Admini-
stration Act, and recommends that these principles guide the
Administration's development of export control policies.
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PCIC RECOMMENDATION 07
On February 3 in Pittsburgh, the President's Commission on Industrial
Competitiveness approved the following recommendation:
THE PRESIDENT'S COMMISSION ON INDUSTRIAL COMPETITIVENESS ENDORSES THE
ATTACHED LETTER OF THE BUSINESS GROUP ON THE EXPORT ADMINISTRATION ACT
AND RECOMMENDS IT TO THE CCCT FOR CONSIDERATION IN FORMULATING
ADMINISTRATION. POLICY ON THIS ISSUE.
BECAUSE CONGRESS IS CURRENTLY DELIBERATING ON THE FINAL FORM OF THE
RENEWAL OF THE EXPORT ADMINISTRATION ACT, THE PCIC WANTS TO EXPRESS
ITS CONCERN ABOUT THE IMPACT THE ACT COULD HAVE ON U.S. INDUSTRIAL
COMPETITIVENESS. IT IS IMPORTANT THAT WE MAKE IT CLEAR THAT NATIONAL
SECURITY AND FOREIGN POLICY ARE DEPENDENT ON MAINTAINING OUR
INDUSTRIAL COMPETITIVENESS. EXPORT RESTRICTIONS ARE GENERALLY
ANTITHETICAL TO,. U.S. COMPETITIVENESS BECAUSE THEY POSTURE U.S.
INDUSTRIES AS UNRELIABLE SUPPLIERS.
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 Approved For Release 2008/11/07 : CIA-RDP86M00886R002000020006-5
THE BUSINESS GROUP
ON THE
EXPORT ADMINISTRATION ACT
January 26, 1984
ORIGINAL LETTERS:
Donald T. Regan, Secretary of the Treasury
George P. Schultz, Secretary of State
Malcolm Baldrige, Secretary of Commerce
David A. Stockman, Director of OMB
William
E.
Brock, USTR -
Caspar
W.
Weinberger, Secretary of Defense
Robert
C.
McFarlane, Assistant to the President,
National Security Council
As Congress reconvenes, the most important trade-related issue
awaiting legislative action will be the reauthorization of the Export
Administration Act (EAA). We understand that you are participating in
a Cabinet-level review of issues related to the administration of the
EAA system. We want to remind you of the importance which American
business attaches to this and other issues and to prompt passage of a
new export control law.' This new law should protect national security
and foreign policy interests as well as restore the worldwide
reputation of U.S. exporters as reliable suppliers.
A broad cross-section of the U.S. exporting community has agreed upon
five principles as basic to development of appropriate and workable
U.S. export control policies. We support adoption of control policies
which would:
1. Maintain the current balance between the Departments of
Commerce and Defense for implementing the EAA as crafted
originally in 1979.
o Prevent jurisdictional overlap which causes unnecessary
delays with regard to East-West trade.
o Prevent the duplication and diffusion of licensing
authority and responsibility.
o Prevent increased licensing uncertainty for U.S. exporters
and their potential Western customers.
o Preserve Commerce's expertise and primacy in evaluating
the business practices and reliability of intended
consignees, an area where the Department of Defense does
not possess a comparable proficiency.
o Focus attention on information gathering and analysis and
not on duplicative licensing reviews. .
 Approved For Release 2008/11/07 : CIA-RDP86M00886R002000020006-5
2. Preserve the sanctity of contracts under foreign policy
export controls (except in instances of war or national
emergency) and restrict these controls to goods and
technology produced in the U.S.
3. Provide a clear. statutory basis for multiple export licenses
in lieu of individual licenses for each separate export
transaction.
4. Lift the burden of unnecessary U.S. licensing for exports to
allied nations such as Great Britain, and other major U.S.
trading partners in CoCom.
5. Require that foreign availability of competing products be
determinative in the decision to impose or extend U.S.
controls.
Reauthorization of the Export Administration Act is a vital issue for
the American Business community. We hope that cooperation between all
parties concerned with this issue will produce - in timely fashion - a
new law that meets the needs of our nation. To that end,
representatives of the organizations listed below are prepared to meet
with you at any time to discuss our views on the EAA.
Sincerely,
American Association of Exporters and Importers
American Electronics Association
American League for Exports and Security Assistance Inc.
American Soybean Association
The Business Roundtable
Chamber of Commerce of the United States
The Computer and Business Equipment Manufacturers Association
Computer and Communications Industry Association
Electronics Industries Association
Emergency Committee for American Trade
National Association of Manufacturers
National Foreign Trade Council
National Grange
National Machine and Tool Builders Association
Petroleum Equipment Suppliers Association
Scientific Apparatus Makers Association
Semiconductor Industry Association
U.S. Council for International Business
 Approved For Release 2008/11/07 : CIA-RDP86M00886R002000020006-5
John A. Young
Chairman
MEMORANDUM FOR THE CABINET COUNCIL ON COMMERCE AND TRADE
FROM: JOHN YOUNG' Z'
SUBJECT: GOVERNMENT DATA BANK
Attached is Recommendation No. 8 approved by the President's
Commission on Industrial Competitiveness on February 3, 1984.
This recommendation suDeorts study of the feasibility.of
establishing a government data bank to help U.S. industry
id tify mar-ket opportunities overseas. The Commission
approved this recommendation after extensive discussion
by the International Trade Committee, and by the full
commission.
Also included is an issue paper that summarizes the background
and arguments that justify the recommendation.
 DATA NEEDS FOR TRADE ASSESSMENT:
IMPROVING THE U.S. GOVERNMENT
INFORMATION-DELIVERY CAPABILITY
THE PCIC RECOMMENDS THAT THE CCCT INITIATE AN EVALUATION OF THE
POSSIBILITY OF ESTABLISHING A CENTRAL GOVERNMENT DATA BANK (WITHIN THE
DEPARTMENT OF COMMERCE) WITH THE INTENT OF PROVIDING CURRENT, RELEVANT
MARKET INFORMATION DETAILING VARIOUS INDUSTRIAL SECTORS AND DIFFERENT
COUNTRIES. SPECIFICALLY, THE DEPARTMENT OF COMMERCE SHOULD BE ASKED
TO PREPARE A MULTI-PHASE IMPLEMENTATION PROPOSAL FOR SUCH A DATA BANK
IN CONJUNCTION WITH OTHER GOVERNMENT AGENCIES WHICH ARE EITHER
POTENTIAL USERS OR SUPPLIERS OF INFORMATION..
TO BE USEFUL, THIS DATA BANK SHOULD REPRESENT A CONSENSUS FROM
INDUSTRY TRADE ASSOCIATIONS AND OTHER INDUSTRY SOURCES WITH RESPECT TO
WHAT IS REALLY NEEDED AND WOULD PROVIDE ADDED VALUE. A PROPERLY
STRUCTURED AND WELL-MANAGED SYSTEM WHICH BECOMES A FOCAL POINT TO TIE
TOGETHER GOVERNMENT RESEARCH CAPABILITIES WITH PRIVATE SECTOR INPUT
COULD BE AN EXCELLENT COMPETITIVE TOOL, AS WELL AS ANOTHER STEP TO
IMPROVE GOVERNMENT AND INDUSTRY COOPERATION.
IT IS RECOMMENDED THAT THE FEASIBILITY ASSESSMENT AND IMPLEMENTATION
PROPOSAL BE COMPLETED AND TRANSMITTED TO THE PRESIDENT'S COMMISSION ON
INDUSTRIAL COMPETITIVENESS FOR CONSIDERATION BY SEPTEMBER 1984.
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 Issue Paper
PCIC International Trade Committ.Ae
DATA NEEDS FOR TRADE ASSESSMENT:
IMPROVING THE U.S. GOVERNMENT
INFORMATION-DELIVERY CAPABILITY
The General Accounting Office has identified the fact that "only
twelve percent of the nation's approximately 252,000 manufacturers are
exporters. Further, it was estimated that 11,000 small, export-
capable firms could be induced to try to export if properly approached
and assisted, and that the value of exports by such firms could amount
to more than $4 billion a year." The major impediment to exporting
identified in the study was a lack of information about export markets
or the export process.
The administration views the expansion of exports as a key component
in the nation's economic recovery program. A number of actions may
be ' necessary in order to enhance export promotion. efforts,
particularly those targeted toward small to medium-sized companies and
non-exporters. One such step is to identify a means to improve the
delivery- of relevant market information to all industry, both small
and large. The intent should be to facilitate industry assessment of
international trade opportunities and understanding of world marke'-..
PROPOSED COMMITTEE RECOMMENDATIONS:
The possibility of establishing a central government data bank (within
the Department of Commerce) with the intent of providing current,
relevant market information detailing various industrial sectors and
different countries should be evaluated. Specifically, the Department
of Commerce should be asked to prepare a multi-phase implementation
proposal for such a data bank in conjunction with other gcvernment
agencies which are either potential users or suppliers of information.
To be useful, this data bank should represent a consensus from
industry trade associations and other industry sources with respect to
what is really needed and would provide` added value. A properly
structured and well-canaged system which becomes a focal point to tie
together government research capabilities with private sector input
could be an excellent competitive tool, as well as another step to
improve goverment and industry cooperation.
It is recommended that the feasibility assessment and implementation
proposal be completed and transmitted to the Presidential Commission,
for consideration by September 1984.
The approach should be to maximize the utilization of existing
government resources. It is recognized that substantial relevant
competitive information is already available via government or pr` e
sources. A mere compendium of "government statistics" is not fe
 be a supportable or cost-effective utilization of government human or
financial resources. However, it would be the intent of this
recommendation to improve upon the organization and the distribution
of information. In light of the increasing utilization and
sophstication of electronic communication and data retrieval systems,
we should' be designing information tools now which provide the most
current "state of the art" delivery{ capabilities, and which look to
the future for technical refinements and increasing sophistication.
The objectives of improving upon the government information-gathering
and delivery capabilities would be:
--To stimulate exports and
new
international business
initiatives, particularly on the
part
of small and medium-sized
companies and
exporters.
other companies
which
are not currently major
--To facilitate and enhance industry decision-making relative to
international trade opportunities.
--To provide an early opportunity for preventive or corrective
action by industry in response to changes in the competitive
environment, including changes in the domestic market as a
result of foreign competition.
The following are preliminary recommendations with respect to the
development and structuring of the data base.
c HOW SHOULD THE INFORMATION BE STRUCTURED?
VEHICLE: A highly iyteractive computer data base is probably the
best medium to provide a living, viable source of: information.
The cost and feasibility of such a venture must be very carefully
analyzed. If the government cannot commit to a continuing,
timely, and relevant update of the computer file, the project
should, not be attempted -- better left to existing resources and
consultants. In addition to the content of the file, a variety
of technical issues must be explored.
LOCATION: The subject of trade reorganization to a
Department of International Trade and Industry is currently under
consideration. This would be an obvious and logical spot to
position the data base. The Department of Commerce which has
committed itself to a program of competitive analysis, could
provide management focus and direction to the development and
implementation of the.date base. In the absence of this trade
reorganization, the Department of Commerce is in the best
position to assume the task. However, splintered resources
existing in Commerce, U.S.T.R., International Trade Commission,
State, etc., must be coordinated for better utilization.
COST: Government should consider a charge for the use of the
data. This would defray administrative and personnel costs, as
well as assure that the information is a resource that is wanted
in the marketplace.
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o CONTENT OF THE DATE BASE
It is absolutely critical that information on file be credi..ie
and relevant to the industrial decision-making process. For this
reason, it is essential that the form, format, and substance of
the interactive data base be developed in conjunction with
industry.
A guiding principle should be to "keep it simple," in order to
minimize cost associated with direct access capability, and to
assure that the information tool is useable and accessible to the
target market. Maximum effort should be made to exploit the
useability of information that is already available, and to
design a system with a longer-term perspective. This should
include the objective of harmonization of data from multiple
sources. A. possible approach would be to provide a menu of
available files from which the user could access information
contained in a variety of data bases existing in several
government agencies, for example, the Departments of Commerce,
Treasury, State Labor, U.S.T.R., etc. In addition, the technical
analysis should consider a variety of different delivery
mechanisms, including an on-line terminal display, printed
summary, and/or the possibility of downloading data for company
modeling. Another possible approach might be to consider a
cross-referencing of other sources of information, possibly in
both the public and private sectors.
Broadly speaking, information on file would include a
organized by industry sectors and courftry markets. It shoul, je
developed following extensive private sector consultation and
might include such things as:
o Economic/Demographic
o Business Practices (do's, don't's,
must's, can't's)
o Tariffs, trade/barriers/incentives
BUSINESS CONTACTS: o Customers
o Consultants (legal, market,
financial)
o Commercial and government
contacts (U.S. and Foreign-based)
o Trade Associations
INDUSTRY/PRODUCT:
SECTOR BUSINESS
DATA:
o Market Size
o Current Opportunities
o Applicable Specifications and
Standards
o Competitors
o Channels of Distribtion
A "cross-reference" could also be included in the file f.
4
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 would direct the user to the location of other applicable
information such as bilateral tax treaties, existing export
controls, etc. In addition, the "cross-reference" would be
extremely useful if it identified additional public and private
references which could assist in implementation, once the
individual company conducts its analysis and assessment ofd the
market and trade opportunities. Such a "cookbook" could include
references to export trading companies, export management
companies, banks, countertrade opportunities, etc.
WHO SHOULD PARTICIPATE FROM INDUSTRY?
Since the focus of this recommendation is on individual company
decision-making as the key entity in the competitive process, it
is important that industry be a significant contributor to the
design and implementation of the data base. There are a number
of industry advisory mechanisms that currently exist and should
be utilized for private sector consultation. Of prime importance
is that a good cross section of industry be well-represented at
appropriate levels in order to provide the most valuable input.
It is believed that trade associations and multi-association ad
hoc groups are the best vehicle available. They provide an
excellent means to sample a wide cross section of industrial
opinion and should represent the primary source of participation
and consultation from-the private sector. Maximum outreach to
both small and large non-exporting companies is essential.
Other industry advisory mechanisms, such as the President's
Export Council, and Trade Advisory Committees (on Policy,
Negotiations, Sectors, Defense, etc,), should also be considered
for consultation.
PROJECT MANAGEMENT AND IMPLEMENTATION
Responsibility for evaluating the technical feasibility and long-
term cost versus benefit of this project should be assumed by
the Department of Commerce, which already has the responsibility
for compiling data on trade and manufacturing. The multi-stage
implementation proposal envisioned here should include an
analysis of existing resources, -recommendations for data
harmonization, assessment of the optimal delivery mechanisms
(e.g..,. local commerce offices, private sector vendors, direct
access via personal computers, etc.), recommendations for
communicating the new capability and for training industry on its
use, and a proposal for initial data base capability with an
outline of future refinements. The project proposal should
include a delineation of issues, budget requirements,
responsibilities, and a phased timetable for early implementation
with future milestones.
It is important that private sector involvement and consulation
be a continuing ingredient as the proposal is designed and
implemented. Involvement of the PCIC Strategy Committee would
also be appropriate to further investigate other strategic,
 logistic, %and technical issues relative to data base developmr
and implementation. This could provide a vehicle for continu
involvement of the PCIC, and a project focus oriented toward t.._
broadest possible strategy objectives for industrial
competitiveness.
While the primary objective of this recommendation is to enhance
industry decision-making relative to trade opportunities, it is
likely that there will be other potential benefits as well. For
example, better government data will also enhance the capability
of private sector data suppliers, such as consultants and
forecasters, to serve their markets better. This group should
also be asked to provide input to the project in order to
minimize concerns relative to government competition in the
information services market, and/or consider using these
suppliers to develop the applicable software- and market the
information.
BACKGROUND AND ANALYSIS
Currently, only one percent of U.S. industry is responsible for eighty
percent of our exports. Many small companies lack the information,
resources, and capabilities to vigorously explore existing
opportunities. Even a small increase in the number of U.S. companies
competing internationally would substantially impact export trade
volumes and penetration of international markets.
The General Acounting Office staff study concluded that the ma
impediments to be overcome in order to induce more small businessm
to become exporters include: (1) little or no knowledge ..of export
markets or the export, process; (2) a preoccupation with the large
domestic market; and (3) a fear that exporting is too risky, too
complex, and beyond their capabilities.
The administration has stated that "existing trade promotion efforts
must be conscientiously targeted to small business to help them gain
access to international markets." The chairman of the President's
Export Council has urged an aggressive export strategy that encourages
more firms to start exporting, thereby broadening the export base.
Competition on an international scale -occurs between different
companies, not between countries. A key ingredient in stimulating
consideration of trade opportunities by an individual firm would be
more readily accessible and understandable market information. While
many U.S. firms already have impressive intelligence about currently
served markets, they may lack information about new markets, which is
needed to develop and implement appropriate market penetration
strategies.
Current government research capabilities are spread between numerous
departments and are never really consolidated into pertinent, timely,
accessible data. (See table 1 for summary of selected existing
capabilities.) The amount of data available is not nearly
important as its quality, relevance, and effectiveness!
 Some major U.S. firms can afford to compile basic information about
foreign industry sectors in order to make decisions about exporting
opportunities. However, most companies rely very heavily on publicly
available information, much of which is complied by these various
government departments.
One major theme of testimony from 125 witnesses before the House
Subcommittee on Economic Stabilization (representing a wide spectrum
of opinions from business, labor, academia, the financial community,
and government) was that we are "losing the ability to organize
knowledge for action." The committee report identifies the fact that
"government data is not organized and systematically brought to the
attention of decision makers - public and private." ,
In a detailed study of "the market for government data bases sold
through commercial firms," Frost and Sullivan concludes that "U.S.
government data is underutilized outside the government itself." J.
Timothy Sprehe of the Office of Management and Budget echoes that
conclusion in his statement to the American Society for Information
Science that "the great volume of statistics produced by the federal
government are seriously underutilized."
Agencies of the federal government, and federally-supported
institutions, produce an estimated 20 percent of the data bases
created in this country. However, "vast reservoirs of information
within the federal government are not adequately disseminated to those
who-could make use of it." One reason for this is that few government
agencies -have an identifiable budget for data access activities or
personnel to support it. Additionally, there is a lack of knowledge
by many would-be vendors and users about its availability.
Accordingly, this proposal to the President's Cabinet Council would be
intended to represent only one possible action to increase- export
promotion efforts, particularly those targeted to small businesses and
non-exporters. Improvement in the organization and distribution of
the already extensive government-produced data would provide critical,
early information to individual companies and enhance their ability to
analyze and assess trade opportunities; and later to secure
information on how to proceed.
Such analysis at the micro-economic level is oriented toward the
decision-making process of the individual company. The proposal seeks
to facilitate free market forces by removing disadvantages facing U.S.
firms, rather than attempting to erect a barrier against foreign
companies, or establishing government industry targeting. It seeks to
stimulate a more global perspective on the part of U.S. manufacturers;
that is, to develop the skill to assess new international
opportunities, while also evaluating the impact of foreign competition
on domestic markets. The result should be a coherent strategy to
respond to both.
Additionally, on the macro-economic level, the government itself would
also be a major beneficiary. Improved interagency data access and
data harmonization would provide a powerful enhancement to the
government analytic capability for public policy-making.
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QUESTIONS FOR DELIBERATION
Prior to submission to the Cabinet Council, the International Trade
Committee and the PCIC thoroughly discussed the following issues
relative to this proposal:
Some have argued that improved industry trend information
would lead to increased pressures for protectionism. What is
the "fine line" between an information resource on sectoral
competitiveness and central industrial planning or targeting?
Is this an appropriate role for the government?
-- Will the availability of better information actually influence
industry export decisions? This has been an underlying
premise of the data base proposal.
-- Does industry really need an interactive computer capability?
Would it be sufficient to simply recommend an improvement in
the coordination and ccmmunication of our current delivery
systems and existing resources?
-- What should the relationship be between this effort and
already existing services in the private sector (economic
forecasters, consulting services, etc.)?
-- How massive is this project? Are there any parameters f"-,
payback which should be established in order to determ
whether the cost structure's an impossible deterrent?
-- Should personnel assignments to U.S. embassies abroad be
further reviewed to include more marketing specialists and
strengthened to provide a more effective "first line" for
generating information relevant to market opportunities for
U.S._products abroad?
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TABLE 1
SELECTED U.S. GOVERNMENT
INDUSTRY INFORMATION RESOURCES
o Dept. of Commerce
-- International Trade Administration
o U.S. International Trade Commission (USITC)
-- Bureau of Industries
o Central Intelligence Agency (CIA)
o Office of the U.S. Trade Representative
2. COUNTRY SPECIALISTS
o Dept. of State
-- Foreign Service Officers
o Dept. of Commerce
-- Foreign Commerce Officers
o Dept. of Agriculture
-- Attaches
o CIA
3. DATA SOURCES
o Dept. of Treasury
-- Customs Bureau
o Dept: of Commerce
-- Census Bureau
-- Bureau of Economic Analysis
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1. Efforts to promote l orts b Small Non-Exporting Manufacturers,
Genera Accounting Office, January Jae
, 1
I
2. For in An Industrial Com etitiveness'Stratef, 'Hearings by the
Subcommittee on Economic to i zation o the Committee on
Banking,' Finance, and Urban Affairs - House of Representatives -
November 1983.
3. "An Untapped Resource: Government Data Bases," Infosystems,
July 1982, Victor Block, Washington Editor.
 John A. Young
Chairman
From: John Young
Subject: Recommendations approved by the President's Commission
on Industrial Competitiveness meeting in Detroit, May
1st.
Attached are the six recommendations approved by the President's
Commission on Industrial Competitiveness on May 1, 1984. Two
recommendations concern international trade and the remaining
four concern human resources. The issues are: The Foreign Sales
Corporation Act; Trade Law Revision; Labor Management
Cooperation; Engineering Education; Partnerships in Education and
Education Technology.
The Commission has developed 14 recommendations to date for CCCT
consideration.
Attachments: Summary of Recommendations
Issue Papers (Recommendations 9 through 14)
 Summary of Recommendations
INTERNATIONAL TRADE
1. The Foreign Sales Corporation Act
The President's Commission on industrial Competitiveness
recommends enactment of the Foreign Sales Corporation Act as
-supported by the Administration and under review in Congress-(S.
1804 and HR. 3810).
2. Reform of Trade Law Administration
Dumping and Subsidies Remedies
Streamlining Procedures: Parallel antidumping (AD) and
countervailing duty (CVD) investigations dealing with the same
products be carried out concurrently. Joint petitioners be
permitted to have standing to file AD and CVD requests. for
investigations so that a coalition of firms, unions and trade
associations might be allowed to file together.
Clarification of Injury Definition: The statutes need to be
amended to define threat of injury and allow a clear cause of
action.
The competitiveness of U.S. industry depends largely upon its
ability to become increasingly productive. In today's
marketplace, charactized by vigorous international competition
and rapid technological innovation, that productivity is largely
function of labor-management cooperation. Adversarial
practices based on an outmoded view of production must give way
to the development of collaborative relationships characterized
by trust, open communications, and worker participation. While
recognizing that labor and management bring different viewpoints
to the business enterprise, there must also be the recognition
that the economic fate of both labor and management are
intertwined with that of the enterprise.
The Commission hereby endorses those cooperative efforts already
underway which seek to implement these principles. Additionally,
the Commission urges American labor and management to move boldly
to establish new cooperative relationships which will maximize
productivity through involvement of employees, and their elected
representatives, in decision-making in the workplace, as well as
encouraging participative management throughout the organization.
 The Commission recommends that the National Science Foundation,
and other Government R&D agencies such as DOD and NASA, provide a
program of stipends, of adequate size, for graduate students in
engineering. J
The Commission endorses the Presidential Young Investigators
Award program, and recommends that it emphasize areas of
engineering that face faculty shortages, and that it be directed
at outstanding engineers who have recently completed or are about
to complete their graduate studies and who therefore face the
choice between remaining in academia or entering industry.
The Commission endorses the Administration's proposed 22%
increase in the National Science Foundation's FY 85 engineering
research budget and recommends similar emphasis in the future.
The Commission believes that the emphasis that the Administration
is now placing on equipment and instrumentation is long overdue
and should be continued, if not accelerated, in future years to
compensate for more than a decade of neglect. The Commission
also recommends that much more emphasis be placed on the support
required for maintenance and effective use of modern
instrumentation.
The Commission endorses the National Science Foundation's new
program to develop on-campus, cross-disciplinary, engineering
research centers, and recommends that after FY 85, the program
grow and expand markedly.
5. Partnerships In Education
The Nation's 'high dropout rate threatens the economic health of
the country with the potential development of a permanent
underclass. To counter this threat to our ability to be
competitive, the Commission endorses the proposal that a national
"partnership" between the Federal Government and the private
-sector be established.
The purpose of this partnership would be to replicate the
approach of integrated service delivery in schools similar to
that utilized by Cities in Schools. This would be accomplished
through the funding of technical assistance and the training of
.local staff to implement and coordinate local programs.
Additionally, through this partnership, the "adoption" of
individual schools by corporations should be encouraged.
The Commission further recommends that the President establish a
task force comprised of representatives of relevant Federal
agencies interested corporations and private sector organizations
to implement this partnership.
 6. Education Technology
The use of computers in elementary and secondary education may
offer substantial promise for improving the quality and
productivity of education. For this potential to be realized,
however, quality educational software must be available. High
development costs, lengthy development time, and a fragmented
education market have been among the contributing factors
impeding development of good software. To facilitate the
development and use of effective software which employs the
computer's capabilities to interact with the learner, the
Commission recommends:
-- Sustained Federal support for a new program of basic and
prototype research funded through the National Science
Foundation and the U.S. Department of Education. By
providing support for the research underlying software
development and identifying those approaches which promise
the most effective results, the Federal Government will
help to remove a major barrier which currently exists to
the development of quality software by industry.
-- Teacher training in the use of computers and the
capabilities of quality software. The training is needed
for teachers in all fields to increase the sophistication
of school systems in demanding quality software from
producers. States should be encouraged to provide such
training, while the Federal Government should aid in these
efforts by increasing its dissemination of information on
the effectiveness of available software.
3
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 THE PRESIDENT'S COMMISSION ON INDUSTRIAL COMPETITIVENESS RECOMMENDS
ENACTMENTIOF LEGISLATION TO ESTABLISH FOREIGN SALES (CORPORATIONS (FSC) TO
REPLACE THE EXISTING DOMESTIC SALES CORPORATIONS (DISC) LEGISLATION TO
PRESERVE THIS INCENTIVE.
THE DOMESTIC INTT?NA.TIONAL SALES CORPORATION (DISC) TAX DEFERRAL CN EXPORT
EARNINGS WAS ESTABLISHED IN 1971 AS AN INCENTIVE FOR U.S. FIRMS TO EXPORT.
IN 1981, THE GENERAL AGREEMENT ON TARIFFS AND TRADE (GATT) COUNCIL ADOPTED
A GATT PANEL CONCLUSION THAT THE DISC IS INCONSISTENT WITH THE GATT. IN
1982, THE UNITED STATES ANNOUNCED TO THE GATT THAT LEGISLATION WOULD BE
PROPOSED IN THE U.S. CONGRESS TO REPLACE THE DISC WITH A GATT-COMPATIBLE
ALTERNATIVE. THE ADMINISTRATION SUPPORTS TIM EFFORTS OF CONGRESS, WHICH
HAS HAD THE ISSUE UNDER REVIEW IN THE BILLS S. 1804 AND H. R. 3810, TO
EFFECT THIS CHANGE.
IT IS IMPERATIVE THAT ACTION BE TAKEN TO SUPPORT PASSAGE OF LEGISLATION
ESTABLISHING THE TYPE OF CORPORATION THAT IS ENTITLED TO EXPORT INC 'TIVES
TO REPLACE THOSE NOW PROVIDED BY THE DISC. AT THE SANE TIME, THE FOREIGN
SALES CORPORATIU CHARACTERISTICS MUST BE SUGli THAT THEY ARE LIKELY TO BE
REGARDED AS CONSISTENT WITH GATT RULES. SUCH A FOREIGN SALES CORPORATION
MUST HAVE A DEMONSTRABLE FOREIGN PRESENCE AND MEET OTHER RELATED
REQUIREMENTS IN ORDER TO BE TAXED ACCORDING TO THE PRINCIPLE OF
TERRITORIALITY. THE FOREIGN SALES CORPORATION PROPOSED IN BILLS BEFORE
CONGRESS IS DESIGNED TO QUALIFY BEFORE THE GATT AS A REPLACEMENT FOR THE
DISC TAX INCENTIVES. FAILURE OF CONGRESS TO REACH AN ACCORD IN THE
CONFERENCE COMMITTEE JEOPARDIZES TIE REPLACEMENT OF THE DISC AND MAY
PROVOKE FURTHER DIFFICULTIES IN THE GATT.
 The DISC was enacted in 1971 to give U.S. exporters some of the tax
p advantages enjoyed by:
(1) foreign exporters whose governments return their value
- added tax payments on goods produced for export and may
have other export benefits available under their
territorial tax systems, and
(2) U.S. multinational companies whose foreign subsidiary
earnings are generally insulated from U.S. taxes until
repatriated.
The DISC has been a successful export incentive for firms of all sizes.
The number of active DISCS has grown from less than 3,000 in 1973 to 8,665
in 1981. The Treasury estimates that the DISC incentive created between $7
and $11 billion in extra exports in 1981. The direct revenue loss in tax
deferrals for that year was $1.65 billion. Every $1.00 in lost revenue
generated $4.20 to $7.00 in additional exports.
GATT CCOTROVERSY
The DISC tax deferral benefit has:been attacked in the General Agreement on
Tariffs and Trade (GATT) as an illegal export subsidy. The United States
announced to the GATT in October 1982 that legislation would be proposed in
the U.S. Congress to replace the DISC with a GATT-compatible alternative.
Therefore, the United States seeks a substitute that meets the following
criteria:
- carpliance with GATT rules,
- no greater revenue cost than the current DISC,
- benefits similar to the DISC for current users, and
- special provisions for the needs of smaller exporters.
The result is the proposed Foreign Sales Corporation Act which passed the
Senate on April 13, 1984 as part of the Deficit Reduction Tax Act of 1984.
Although the FSC is not contained in the House Tax Bill, there is a good
chance that it will be included when the House and Senate Bills are
reconciled in the upcoming House-Senate conference committee negotiations.
FOREIGN SALES CORPORATION PROPOSAL
The Administration's Foreign Sales Corporation proposal would allow the
establishment of Foreign Sales Corporations, which typically would be
foreign incorporated subsidiaries of U.S. parent corporations engaged in
exporting. To qualify as a FSC, a corporation would have to be organized
under the laws of a jurisdiction outside the U.S. customs area, including
U.S. possessions other than Puerto Rico, and meet certain foreign presence
requirements.
The tax rules of the proposal would apply to the export income of a FSC if
it were managed outside the United States and if some economic processes of
 the transaction took place outside the United States. In addition, the
proposal would apply to the export income of a small FSC attributable to up
to $5 million of export receipts whether or not its management or economic
processes were foreign. Furthermore, the proposal would treat accumulated
DISC income as having been previously taxed, so that tax on those amounts
would be forgiven.
C NPDRhCTY W GATT
The FSC proposal is.a territorial system of taxation -- exempting U.S.
taxation only for income arising from activities performed outside the U.S.
customs territory- and is, therefore, legal under the rules of the an.
Accordingly, the United States proposes that the membership of the GATT
accept the FSC proposal as a legitimate substitute for the DISC. Although
the European Community may want to retaliate for past DISC activities and
may raise technical objections, the United States has tried to shape the
FSC to be an effective response within the councils of the an.
Among labor union leaders, the AFL-CIO has made clear its opposition to the
FSC and would prefer a termination of the DISC itself. Their opposition is
based on concerns about the equity and effectiveness of this tax incentive,
especially when budget deficits are projected to be high in the years
ahead. An AFL-CIO statement of February 17, 1984 points out, for example,
that out of 8665 DISCs active in 1981, over a third of the benefits went to
26 DISCS-organizations that the AFL-CIO presumes would continue to export
in the absence of this incentive. According to AFL-CIO estimates,
"terminating DISCs would generate a cumulative addition of 510.9 billion in
federal revenues in fiscal years 1985 through 1989."
The business community, whose representatives were continuously consulted
during the process of Administration formulation of the legislation,
strongly endorses swift passage of Foreign Sales Corporation Act. They
argue that whatever the decrease in tax revenues cue to FSC, exports
increase by a multiple of that sum to reduce cur trade deficits and
generate additional jobs for Americans.
 I. RD Y"V DATION #10
I PARTS A, B and C
As part of its ongoing trade law reform effort, the PCIC recommends
that the following technical changes be proposed for enactment in U.S.
trade law dealing with countervailing duty (CVD) and antidumping duty (AD)
investigations. The first two call for procedural changes and the third is
definitional in that it seeks to make transparent the criteria currently
used by the International Trade Commission in determining the existence of
threat of injury.
These changes do not exhaust the potential improvements that might be
identified. Rather, they represent some of the more important of a long
list of needed changes in U.S. CVD and AD laws. The Department of
Commerce, in participation with an interagency task force, has undertaken
an examination of the CVD and AD laws and produced a far more extensive
list of remedial changes which underscore the need for improvements in the
laws.
A. PARALLEL ANTIDUMPING (AD) AND COUNTERVAILING DUTY (CVD)
INVESTIGATIONS DEALING WITH THE SAME PRODUCTS BE CARRIED
OUT CONCURRENTLY.
B. JOINT PETITIONERS BE PERMITTED TO HAVE STANDING TO FILE AD
AND CVD REQUESTS FOR INVESTIGATIONS SO THAT A COALITION OF
FIRMS, UNIONS AND TRADE ASSOCIATIONS MIGHT BE ALLOWED TO
FILE TOGETHER.
C. THE STATUTES NEED TO BE AMENDED TO DEFINE THREAT OF INJURY
AND ALLOW A CLEAR CAUSE OF ACTION.
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 II. OVERVIEW
The Commission in recommending public initiatives to improve U.S.
industrial competitiveness believes that the continued strength of the
American economy must be a paramount objective of public policy. Because
that strength enables the United States to exert diplomatic influence and
project military power in the national interest, promoting economic
strength as a national policy objective must be seen as equal (if not
indeed superior) to relevant military, diplomatic and social objectives.
The PCIC Committee on International Trade and Marketing, while
emphasizing overall policy objectives and broad areas for policy initiative
or change, has tried in the following recommendations to point the
Administration and the Congress toward some reasonable specific objectives
and strategies to guide legislative efforts and administrative practices.
The Committee continues to deliberate on additional recommendations that it
will propose subsequently.
Principles of Trade Law
These and future proposed recommendations are being developed. in
accord with the following principles of trade law policy:
(a) U.S. producers should have access to foreign markets for
their goods on a basis as favorable as that enjoyed by any other nation and
be allowed to compete fairly with goods produced in the importing country.
(b) Where provided under the terms of U.S. trade law and
international agreements, customs duties may be imposed to assure that
imported goods do not enjoy subsidies or are not sold at less than fair
value, thus giving them unfair competitive advantage.
(c) American firms and workers in industries where increased
imports are a substantial cause of serious injury may be given temporary
import relief and other assistance in order to improve their competitive
posture or adjust to the competitive realities.
(d) Customs duties may provide a modest revenue source, but they
should not be used to place imported goods at a marked competitive
disadvantage.
III. DUMPING and SUBSIDIES REMEDIES
Streamlining Procedures
The PCIC recannends that:
A. PARALLEL ANTIDUMPING (AD) AND COUNTERVAILING DUTY (CVD)
INVESTIGATIONS DEALING WITH THE SAME PRODUCTS BE CARRIED OUT
CONCURRENTLY.
Classical dumping or subsidized exports can be effectively met by
the imposition of antidumping or countervailing duties assuming the
administration of the laws provide timely and certain relief based upon a
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 common-sense causation test. Antidumping and countervailing duty
investigations are long and complex with different functional
responsibilities assigned to the Department of Commerce and the
International Trade Commission. The decision to impose remedial tariffs is
the result of their interrelated decisions. Timetables differ for the two
agencies and the two types of investigations.
A legislative change should be proposed to provide that where AD
and CVD investigations are initiated simultaneously, the International
Trade Commission would normally conduct one injury hearing covering both
proceedings. This practice would eliminate an unnecessary but costly
aspect of current procedures. In such cases, the scheduling would follow
the somewhat longer AD timetable to ensure that completeness of AD
investigations are not jeopardized. Where investigations can be shortened
in conformity with the law and without detriment to concerned parties, they
should be so expedited.
B. JOINT PETITIONERS BE PERMITTED TO HAVE STANDING TO FILE AD AND
CVD REQUESTS FOR INVESTIGATIONS SO THAT A COALITION OF FIRMS,
UNIONS AND TRADE ASSOCIATIONS MIGHT BE ALLOWED TO FILE TOGETHER.
This proposed legislative change would permit ad hoc industry-
.labor coalitions to have standing as interested parties to AD and CVD
investigations. No valid purpose is served by denying standing to such
coalitions. Such a change would overturn a 1981 court decision (Matsushita
Electrical Industrial Co. v. United States). The Administration would
support the proposed change.
Clarification of Injury Definition
The PCIC recommends that:
C. THE STATUTES NEED TO BE AMENDED TO DEFINE THREAT OF INJURY AND
ALLOW A CLEAR CAUSE OF ACTION.
The lack of a clear definition of the threat of material injury
may cause domestic producers to be uncertain and delay taking action until
the threat of injury becomes actual material injury.
The ITC has not been impeded from making affirmative
determinations on the basis of threat of material injury, but what would be
helpful to industry is an explicit codification or clarification of the
current standards for threat of injury used by the ITC. Such a
clarification would add to the effectiveness of this aspect of U.S. trade
law.
This change need not involve an extension in the scope of the threat
of material injury test beyond the current ITC practice. Neither would the
change envision the determination of affirmative injury where the alleged
threat is purely speculative, rather than real and imminent.
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 THE COMPETITIVU?SSS OF U.S. INDUSTRY DEPENDS LARGELY UPON FITS ABILITY TO
BECOME INCREASINGLY PRODUCTIVE. IN TODAY'S MARKETPLACE, CHARACTERIZED BY
VIGOROUS INTERNATIONAL COMPETITION AND RAPID TECHNOLOGICAL INNOVATION, THAT
PRODUCTIVITY IS TAW71MY A FUNCTION OF LABOR-MANAGEMENT COOPERATION.
ADVERSARIAL PRACTICES BASED ON AN OUTMODED VIEW OF PROD(KTION MUST GIVE WAY
TO THE DEVELOPMENT OF COLLABORATIVE RELATIONSHIPS CHARACTERIZED BY TRUST,
OPEN COMMUNICATION, AND WORKER PARTICIPATION. WHILE RECOGNIZING THAT LABOR
AND MANAGEMENT BRING DIFFERENT VIEWPOINTS TO THE BUSINESS ENTERPRISE, THERE
MUST ALSO BE THE RECOGNITION THAT THE ECONOMIC FATE OF BOTH LABOR AND
MANAGEMENT ARE INTERTWINED WITH THAT OF THE EN=RISE.
THE COMMISSION HEREBY ENDORSES THOSE COOPERATIVE EFFORTS ALREADY UNDERWAY
WHICH SEEK TO IMPLEMENT THESE PRINCIPLES. ADDITIONALLY, THE COMMISSION
URGES AMERICAN LABOR AND MANAGEMENT TO MOVE BOLDLY TO ESTABLISH NEW
COOPERATIVE RELATIONSHIPS WHICH WILL MAXIMIZE PRODUCTIVITY THROUGH
INVOLVEMENT OF EMPLOYEES, AND THEIR ELECTED REPRESfl TATIVES, IN DECISION-
MAKING IN THE WORKPLACE, AS WELL AS ENCOURAGING PARTICIPATIVE MANAGEMENT
THROUGHOUT THE ORGANIZATION.
 THE COMPETITIVENESS OF U.S.I INDUSTRY DEPENDS LARGELY UPON ITS ABILITY TO
BECOME INCREASINGLY PRODUCTIVE. IN TODAY'S MARKETPLACE, CHARACTERIZED BY
VIGOROUS INTERNATIONAL PETITION AND RAPID TECHNOLOGICAL INNOVATION, THAT
PRODUCTIVITY IS LARGELY A FUNCTION OF LABOR GTh TP COOPERATION.
ADVERSARIAL PRACTICES BASED ON AN OUTMODED VIEW OF PRODUCTION MUST GIVE WAY
TO THE DEVELOPMENT OF COLLABORATIVE RELATIONSHIPS CHARACTERIZED BY TRUST,
OPEN COMMUNICATION, AND V73RKER PARTICIPATION. WHILE RECOGNIZING THAT LABOR
AND MANAGTh1ENT BRING DIFFERENT VIEWPOINTS TO THE BUSINESS ENTERPRISE, THERE
MUST ALSO BE THE RECOGNITION THAT THE ECONOMIC FATE OF BOTH LABOR AND
MANAGEMENT ARE INTERTWINED WITH THAT OF THE ENTERPRISE.
THE COMMISSION HEREBY ENDORSES, AND RECOMMENDS THAT THE PRESIDENT
RECOGNIZE, THOSE COOPERATIVE EFFORTS ALREADY UNDERWAY WHICH SEEK TO
IMPLEMENT THESE PRINCIPLES. ADDITIONALLY, THE COMMISSION URGES
AMERICAN LABOR AND MANAGEMENT TO MOVE BOLDLY TO ESTABLISH NEW
COOPERATIVE RELATIONSHIPS WHICH WILL MAXIMIZE PRODUCTIVITY
THROUGH INVOLVEMENT OF EMPLOYEES, AND THEIR ELJDCTED REPRESENTATIVES, IN
DECISION-MAKING IN THE WORKPLACE, AS WELL AS ENCOURAGING PARTICIPATIVE
MANAGEMENT THROUGHOUT THE ORGANIZATION.
The challenges of international competition, slow growth in productivity,
and technological changes in the workplace are producing pressures on both
labor and management to alter traditional adversarial relationships in
favor of more cooperative approaches. The interrelationship between
product competitiveness and the optimal utilization of human resources is
becoming increasingly evident. Fundamental changes in attitudes and
relationships are required if labor and management are to achieve enhanced
productivity and competitiveness.
The search for improved labor-management relations -- moving beyond
traditional adversarial relations to long-term cooperation -- is a
difficult, yet imperative, task. Within the past decade, under the
pressures of declining productivity and the emergence of a world economy,
the need to change the traditional adversarial roles of labor and
management to more positive, problem-solving relationships has intensified.
Traditionally, labor-management relations have been dominated by two
alternative modes of interaction: 1) adversarial, characterized by clear
lines of separation between management, on the one hand, and workers and
unions on the other; and 2) confrontational, marked by open hostility,
communication breakdowns, strikes, and unilateral decisions by management.
The adversarial/confrontational relationships which have historically
characterized labor-management interaction are rooted in the nation's
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experience of the Industrial Revolution. Faced with a workforce having
minimal education and little prior industrial experience, a model of
production was devised which subdivided work into a series of discrete
tasks. Under this "scientific management" approach, management directed
and labor responded; limited commitment was required by the worker, whose
exercise of discretion was minimized in the production process. It was
assumed that productivity could best be maximized by workers de mi ni mic
participation. Additionally, management's highly hierarchical structure
provided no incentive for upward communication in the organization.
Today, there is increasing pressure to discard these outmoded assumptions
and to develop more cooperative relationships which reflect the realities
of the current industrial climate. Neither management nor labor can any
longer afford the consequences of the adversarial/c nfrattational modes of
doing business. While adversarial relations may suffice to sustain
collective bargaining, they are limited in levels of trust, cooperation,
and mutuality of goals. Effective collective bargaining will be enhanced
in an environment characterized by increased trust and cooperation.
Confrontational relations are counter-productive to the interests of all
parties. Failure of management and labor to accept this challenge will
likely result in a osztinuation of the comter-productive behaviors which
have plagued organizations in the past, ultimately precluding the sustained
attainment of high productivity and quality products. Additionally,
management will lose the benefit of the skills and creativity of workers
who know their jobs better than anyone in their. organization.
.
The growing movement to establish and sustain lasting forms of labcr-
management cooperation within major corporations in key industries is
clear. This. growing movement reflects the deepening concern Diver adverse
economic trends, the persistent rise in unit production costs, growing
foreign competition in U.S. markets, the need to adapt to rapidly changing
process innovations, the outsourcing of American production, and the
structural changes in the economic base of the industrial heartland. In
the face of these changes, the current ustrial relations system has not
fared well. Inflationary wage increases in industries facing stiff
international competition can no longer be passed on to consumers without
serious ramifications. To function in a free trade environment, management
has been forced to seek new approaches to managing.
Similarly, the changing nature of the work force, with better educated
workers who want a greater voice in managing their jobs and who have more
to contribute than ever before, has venerated significant impetus for
change among labor. The strong, visible link between survival of the
enterprise and the employment security of workers and manacers has
reinforced the need and the value of such cooperation.
Cooperation between labor and management takes many forms. Typically, it
has involved the formation of joint committees or councils, augmented in
some situations by shop floor problem-solving teams. The term "labor-
management committee" encompasses a great variety of arrangements,
reflecting different purposes and situations. Each type differs in its
agenda, methods of operatics, and relationship to the collective bargaining
process. Despite their diversity, these cooperative efforts have in common
the recognition of mutuality of interests, joint problem-solving, and the
goal of increased worker participation in most facets of the enterprise.
 The purpose of this increased participation is to improve the economic
results of the enterprise (productivity and profitability) so that
employment security is strengthened; the orcanization engages its total
human resources to remain competitive and strong. These mechanisms reflect
the recognition that labor and management have a common interest not only
in the survival and growth of their firm, but also in their industry as a
whole, in the community in which they are employed, and in the national
economy which affects their general welfare. It is this recognition which
can provide the much-needed impetus for improved cooperation in the
legislative process, as well, to assure that legislation affecting health
and safety in the workplace is effective, yet sensitive to the goal of
increased productivity.
Cooperative relations have been achieved in many industries, companies,
communities, and in literally thousands of plants across the country. Some
of the key industries in which cooperation is to be found include the auto
industry, airlines, steel, retail food, telephone, ship building,
construction, health care, apparel and textiles. Among the companies
leading the effort are American Airlines, Bethlehem Steel, Jones and
.Laughlin, National Steel, Ford, General Motors, Westinghouse, AT&T,
Firestone, Xerox, Kroger, Safeway, Honeywell, General Electric and the
Postal Service. The unions who have participated in and supported such
cooperation include the United Auto Workers, United Steel Workers,
Communication Workers of America, Teamsters, retail food t_riions, United
Rubber Workers, nEW, IUE, construction craft tnicns, the Machinists, and
AFSCME.
Through these efforts, organizations have reP 1 i 7ed increased productivity
and product quality; the development of new problem-solving capabilities;
greater commitment by workers to their firms; lower turnover and
absenteeism, and fewer work stoppages. Workers have realized incr eased job
satisfaction, personal development, and employment security by being able
to use their )cowledce and skills more effectively.in the workplace.
Despite this record, and the acceleration of this trend in the past decade,,
the cooperative model of labor-management relations remains the exception
rather than the rule. The historic suspicion between management and unions
has provided a difficult environment in which to cultivate a climate of
cooperation. For this climate 'to' change, the development of trust between
the parties is imperative. Several conditions are key to the building of
that trust: 1) both labor and management must make appropriate disclosures
in a timely fashion; 2) there must be openness in their relationship; 3)
the parties must refrain from taking advantage of each others' weaknesses;
and 4) both labor and management must exhibit a willingness to risk.
Management and unions, alike, must develop a new breed of leader who is
open to charge, willing to cooperate, and committed to cooperation as a
better and more effective way to work.
These changes do not come easily. Born of necessity and forged under
severe economic conditions, cooperative arrangements have opened a new
dimension in the capacity of unions, management, workers, and supervisors
to meet the challenge of competition and improve employment security.
Where such arrangements have flourished, they have done so in an
environment in which workers have a renewed sense of commitment to their
employers and employers, in turn, are committed to the employment security
 I
1. THE COMMISSION RECOMMENDS THAT THE NATIONAL SCIENCE FOUNDATION, AND
OTHER GOVERNMENT R&D AGENCIES SUCH AS DOD AND NASA, PROVIDE A PROGRAM OF
STIPENDS, OF ADEQUATE SIZE, FOR GRADUATE STUDENTS IN ENGINEERING.
2. THE COMMISSION ENDORSES THE PRESIDENTIAL YOUNG INVESTIGATORS AWARD
PROGRAM, AND RECOMMENDS THAT IT EMPHASIZE AREAS OF ENGINEERING THAT FACE
FACULTY SHORTAGES, AND THAT IT BE DIRECTED AT OUTSTANDING YOUNG ENGINEERS
WHO HAVE RECENTLY COMPLETED OR ARE ABOUT TO COMPLETE THEIR GRADUATE STUDIES
AND WHO THEREFORE FACE THE CHOICE BETWEEN REMAINING IN ACADEMIA AND
ENTERING INDUSTRY. THE COMMISSION ALSO URGES STATES TO PROVIDE ADEQLW.TE
SUPPORT FOR FACULTY SALARIES TO ASSURE THAT THESE ARE SUFFICIENTLY
COMPETITIVE TO ENABLE UNIVERSITIES TO RETAIN FACULTY IN DISCIPLINES PLAGUED
BY SHORTAGES.
3. THE COMMISSION ENDORSES THE ADMINISTRATION'S PROPOSED 22% INCREASE IN
THE NATIONAL SCIENCE FOUNDATION FY85 ENGINEERING RESEARCH BUDGET AND
RECOMMENDS SIMILAR EMPHASIS IN THE FUTURE.
4. THE COMMISSION BELIEVES THAT THE EMPHASIS THAT THE ADMINISTRATION IS
NOW PLACING ON EQUIPMENT AND INST.T'UMENTATION IS LONG OVERDUE AND SHOULD BE
CONTINUED, IF NOT ACCELERATED, IN FUTURE YEARS TO COMPENSATE FOR MORE THAN
A DECADE OF NEGLECT. THE COMMISSION ALSO RECOMMENDS THAT MUCH MORE
EMPHASIS BE PLACID ON THE SUPPORT REQUIRED FOR MAINTENANCE AND EFFECTIVE
USE OF MODERN INSTRUMENTATION.
5. THE COMMISSION ENDORSES THE NATIONAL SCIENCE FOUNDATION'S NEW PROGRAM
TO DEVELOP ON-CAMPUS, CROSS-DISCIPLINARY, ENGINEERING RESEARCH CENTERS, AND
RECCxP'!SIDS THAT AFTER FY85, THE PROGRAM GROW AND EXPAND MARKEDLY.
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1. THE COMMISSION RECOMMENDS THAT THE NATIONAL SCIENCE FOUNDATION, AND
OTHER GOVERNMENT RF.D AGENCIES SUCH AS DOD AND NASA, PROVIDE A PROGRAM OF
STIPENDS, OF ADEQUATE SIZE, FOR GRADUATE STUDENTS IN FNGnUERTNG.
The goal of the program should be to attract and retain the very best yang
men and women in graduate schools in engineering. The program might nsne
in the form of allowances for larger stipends for graduate students in
agency research grants, or in the form of fellowships. In either case, the
program should exhibit two characteristics: Its goal should be to attract
high quality, rather than more, students; and the stipends should be large .
enough to make the prospect of graduate school a not unattractive option.
2. THE COMMISSION ENDORSES THE PRESIDENTIAL YOUNG INVESTIGATORS AWARD
PROGRAM, AND RDCOMM= THAT IT EMPHASIZE AREAS OF ENGTImEpMJG THAT FAGS
FAC LEZ Y SEDRI%G S, AND fl T IT BE DIRECTED AT aJTSTAImnr,.: YOUNG EhiGn~RS
WHO H A V E RECglY COMM.= O R A R E ABCXJT T O O > W L F T E ZEIR GRAD-A= sith E5
AND WHO THEREFORE FACE THE CHOICE BETWEEN REMAINING IN ACADEMIA AND
ENfiER._tC.., IDIDUETRY. THE COMMISSION ALSO URC STP.TFS TO PROVIIE PDWU1It
SUPPORT FOR FACULTY SALARIES TO ASSURE THAT 'rEESE ARE SUFFICIENTLY
COtCflTIOE TO ENABLE UNIVERSITIES TO RFTP..II4 FP.CJLTY IN DISCIPLf_ r-T AC=
BY SSSOR2744S.
The goal of the Young Investigators Award Prcc am is to attract and retain
outs thin engineers in university faculty positions. The awards offer
five-year grants, of up to $100,000 per year, to 200 young scientists and
engineers per year, to induce them to stay in academia rather than leave
for better paying Jobs in industry. To be successful, the program should
focus on yang Fn D's who are nrcple`_ing or have recently corspleted their
graduate studies and who are facing the choice between remaining in
academia and entering industry. The program should not be directed at
faculty with already proven academic records, as a more traditional program
micit be, since they have already chosen to pursue academic careers.
3. TI-S COMMISSION aNDORSrS TH-E ADMI ISTRATION'S PROPOSED, 22% Z SE, IN
TEE 1 TIO.',UL.L SCIENCE FOUNDATION FY85 ENGINE=RING RES'ARC: BUDGET AND
Rw f-v SIMILAR EK-:r: ASIS IN TEE FUTURE.
The increased funding should support not only more Grants, but grants of
larger site that em-k., emphasize research of importance to industry; that provide
for modern instrumentation; and that support teams of researchers. The
specific fields of research so supported should be those that the
encineering community - led by engineers from industry - believes will do
the most to advance engineering in general, and the quality and
productivity of American produc`,ion, in particular.
S. THE COMMISSION BELIEVES TFsAI TiE L%7.%-kSIS T:>LkT TP.i,' AD`-in zsrRFTION IS
NOW PLACING ON DDUI_?fr '!T AND INSTRUN~IPP.TION IS LCFC OVERU.Z AND SFf JLD BE
CONTINUED, IF NOT ACC l A TED, IN FUTURE `EARS TO COMPENSATE FOR MORE THAN
A DECADE OF NEGLECT. THE COMMISSION ALSO RECOMMENDS TEAT MUC'r. MORE
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 EMPHASIS BE PLACED CIS THE SUPPORT RIIOUIRFD FOR KU1=w= AND MM==
USE OF MODERN INSrIFUM?iF,T'ION.
Across all R&D agencies, the ministration will invest more than $400
million in research instrumentation in FY85. .The problem has been
neglected for so long, however, that this amount falls far short of
accumulated university needs for instrumentation. Furthermore; keeping up
with new technology is a continuing process, not one that can be solved
once and for all. There is, therefore, a long term need for substantial
federal support of university equipment, and operation and maintenance.
All too often, large federal investments are made in major facilities, only
to have the facilities lie unused for substantial fractions of available
time for want of operation and mai nter,a?ne support;
At the same time, the university community must recognize that
instrumentation and facilities are integral to their overall research
programs and should not be understated in research funding requests. Past
practice of postponing acquisition of new equipment in favor of protecting
research positions has contributed, to this serious problem.
Federal funding for instrumentation comes in the form of set-aside
programs, as well as increased su_aocrt for instrumentation within research
grant programs. Other things being equal, the Commission believes that the
latter approach is preferable. SLzxrting instnanentation within research
grant programs links funding of instnunerration to research priorities and
allows researchers the discretion to decide how to allocate the f=--4s.
5. THE CO!,MISSION ENDORSES TSE 1 TIa.ThL S=c, !==ON'S: IL'W PROC:^M
To DEVELOP CN-CA.MPUS, CROSS-DISCIP1.UZ1a', E\C~._R:' c RESV0M CEL4IEFLS, AND
RE CH-1= TISIZZ AFTER Fy85, ME PRDC1tXM 0C+J AND E)CAND I,P.RKE i.Y.
The National Science Foundation developed the gi deer ng Research Carters
program with the aid of the National Academy of Engineering. NAE
recommended that the centers have two purposes: to contribute to the
education of engineers at all levels, with e. _6ha=is on engineering practice
and preparation for the team environment :Ln which engineers work in
industry; and, to conduct cross-disciplinary research on problems of
importance to industry.
NP?. emphasized that the program should be structured flexibly, and that
different oniversities micht well develop very different sorts of centers.
But while the activities at the centers are likely to take different forms,
each center should exhibit three common characteristics: first, each
center should emphasize participation by industry scientists and engineers.
Funding by industry would of course be welcome, but more important than
funding is the active participation of in&ast--y scientists and engineers.
Secahd, each center should focus t9cci prtlemts of "system synthesis" - for
example, problems underlying development of Computer Integrated
Manufacturing Systems, biotec nolay systems, and voice and data education,
as well as research. NAE recommended that each center strive to "involve
at least ten percent of its home institution's craduate (both masters and
doctoral) students" and that they should have "a substantial impact on
undergraduate engineering students and on continuing education." ME also
recommended that mechanisms be established to allow participation of
colleges and universities that produce large nti"tbers of engineers, but that
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 are not yet capable of organizing and managing such centers.
Ten million dollars has been included in the President's FY85 budget to'
start-up four to seven centers. But for the centers to achieve their
ambitious purposes (e.g., involving ten percent of graduate students, and
contributing to the understanding of problems of systems synthesis now
confronting industry), their annual budgets will have to range between $2.5
and $5 million. Furthermore, in order for the centers to have a
significant impact on U.S. engineering education and research, as many as
25 such centers may have to be established.
During the past several years, intense kern has been expressed over the
state of our engineering educatico system, and how it ultimately affects
the quality of the goods we produce, and the productivity of American
industry.
There is a direct relationship between engineering edlicatim and industrial
=nroetitiveness. To m:q:>ete we must produce goods that perform better, ' are
priced lower, and have a higher quality than others that are available in
the world market. To do this we need an ever expa^dig base of knowledge
The fundamental question is whether our engineering education system is
producing the people and research results that industry needs now and in
the future.
BF,CxC;e37ULQD ADD ANALYSIS
This question is best addressed by arisidering four separate issues:
1. Engineering Graduates
a) numbers at bachelor's, nester's, doctor's levels
b) mix among various disciplines
c) substance and c a ent of education
2. Engineering Faculty
a) shortage
b) understanding of engineering practice
3. Engineering Research
a) level of s=port
b) specific areas being suz-ted
4. Engineering Equipment
a) in undergraduate teaching l bc-atories
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in science and engineering as a result of research; and the engineering
talent that can develop superb designs as well a world class ranufactu-ing
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1. Flxpneering Graduates
To begin the discussion of the numbers of engineers graduating in the
United States, the following table is presented:
nuvilnent, Full Time Undergraduate
195,000
404,000
Enrollment, Full Time Graduate -
36,000
51, 000
Degrees Granted,
Bachelor's
44,000
67,000
Degrees Granted,
Master's
17,400
is, -coo
Degrees Granted,
Doctor's
3,800
2,900
These figures suggest that the undergraduate pipeline has filled rapidly in
response to the current demand. Bowever, shortages still exist in selected
,fields (e.g., electronics, computers). In those areas, the demand of the
marketplace is alleviating the problem somewhat-the number of bachelor's
degrees' granted in computer engineering was 7.5 times treater in 1982 than
in 1972, while there has been a substantial decrease in the number of
entering chemical engineering freshmen in rapid response to the declining
job market
The problem of. mix among disciplines will be alleviated further as
engineers in all disciplines will have a better lciowledoe and
u-ide stung
about computers and electronics, and the demand for specialists in these
fields will decrease. -
The sane is not true at the graduate level. The ratio of master's to
bachelor's decrees has decreased from 0.39 to 0.28; and at the doctor's
level the absolute number of degrees granted has declined by 25%-a nuri~r
that does not tell the whole story because the number of United States
citizens amonc graduate students has declined much more rapidly than the
total.
Based on these data (as well as more detailed data for the intervening
years and by engineering curriculum), one can reach the conclusions that:
a) The shortace of engineers with bachelor's decrees is
improving, but in specific areas, shortages ccn`,.inue;
b) The mix among the various curricula will take care of
itself, but somewhat slowly;
c) There does not appear to be any adjustment in numbers at
the graduate level (master's and doctor's), so that the
existing shortages at these levels nay well continue.
But what about the substance of what is being taught in our engineering
schools today? For a period of time starting at the end of World War II,
there was a tendency in our engineering schools to shift away from
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engineering practice and toward engineering science. This shift coincided
with the availability of large sums of Federal funds for basic engineering
research and a simultaneous reduction in university-industry relationships.
Thus, the best of our faculty, and therefore the best of our students,
became far more interested in the science underlying engineer ng.
working on practical applications of the scientific results. At the same
time more fundamental knowledge needed to be taught, and one by one the
practical hands-on engineering courses and enriences gave way to theory.
Moreover, the typical entering engineering student now comes with less
practical experience than those of earlier periods. For all of these
reasons, the distinction between scientist and engineer has become blurred.
Much has been written to suggest that the recent decline in American
quality and productivity is related, at least in part, to the decline in
engineering practice at an colleges and universities as, just described.
Many engineering schools have started to reverse this trend to bring
renewed balance. to the educational process Same have invested heavily in
the modern equivalent of the drafting table-the comarter and the outer
graphics screen; others have started efforts in ranufactur g engineering,
quality control, and the application of microelectronics. Several have
turned once again to industry, not only for the funding available from
industry, but especially to get the involvement and close relationship with
the end user of engineering graduates and engineering research-the
American manufacturing company.
All of these moves are in the right direction. However, there is a view
held among many that the numbers of engineers p.-oduoed who have *_bo-2: the
essential ftrxfamenta1 and di g of _rkWsiml and engineering principles,
and the practical bent required of the working engineer are still very
small. -
The need for engineers with a practical bent exists not only at the
bachelor's level, but at the graduate level as well. in fact, there is so
much material to be covered even by the jc?._ .an engineer that before too
long the master's degree could and perhaps should replace the bachelor's
degree. The demand for engineers with doctorates to co into industry is
also increasing as a result of the complexity of much computer-based
r-,achir e_-y and, of course, engineers with doctorates will ccar inue to be in
demand by industrial and government research la stories as well as the
L.iversities.
a) The shortage and mix of engineering graduates at the
bachelor's level are taking care of themselves.
b) The shortage at the master's and doctor's levels. is
continuing.
c) There is a need, at all levels, to provide renewed
emphasis to produce engineers who can contribute as
practical engineering professionals.
Engineering Faculty
 The shortage of engineering faculty continues. The best estimates indicate
that there are 1400 vacancies out of a total of 18000 engineering faculty
in the United States (1982 data). This number has been fairly constant
over the past several years, and stems from the larger engineering
enrollments, the declining number of Ph.D. graduates, and the need for
faculty to devote increasing amounts of time to research.
Another reason for the current faculty shortage is the fact that the
engineering laboratories at our universities are generally much less well
equipped than those in industry. As a result, many researchers believe
that they cannot make the most significant contributions while on
university faculties, and therefore choose a career in industry. This
clearly has an effect, both on the quantity and the quality of engineering
faculties. ..... .. .
Starting salaries for engineering faculty have become quite competitive
with industrial salaries in recent years. On a 12-month equivalent basis
these salaries now range between $40,000 and $45,000 for fresh Ph.D.'s,
slightly higher than the paid in industry. Thus the faculty shortage is
not directly related to starting salaries, but there may be an indirect
relationship, based once again on the stipends paid to graduate students,
on the overall economic payback of the Ph.D. (whether at the university,=
in. industry), and on the esteem (or lack of esteem) in which faculty
positions are held.
Faculty members at most institutions are 'encouraged to consult with
industry, and at some institutions to have industrial ties with t2ne work
that they do on campus. In addition, at most 2r.stitut`c-Ls, there are same
faculty members who have recent full-time experience in industry. Thus,
there exists a basic understanding among many faculty members of
engineering practice in industry today. Just how this is passed on to the
students depends a great deal on the kind of work in which faculty members
and their students are currently involved. If that work is engineering
science-oriented,. then that is what students will learn; if it is related
to engineering practice, then the students will also be immersed in the
practical aspect of engineering.
The involvement of engineering faculty in cutting edge research, as well as
their close interactions with industry, also has a profound benefit to
undergraduate education: Teachers who participate actively in what is
going on in the world will make their lectures much more interesting and
exciting, and will mctivate their students accordingly.
An important issue for faculty to address, on a continuing basis, is how
quickly to chance the curriculum in response to changing discipline
recuirements and technologies used in industry. The matter of balance
between an education that stresses the fundament s, and one that stresses
current applications is of key importance. The American education system,
with its emphasis on fundamentals, has in the main produced engineers who
are able to shift in a rapidly changing technological environment. Yet
much of the thrust of this paper leads in a direction toward a more
practical orientation. It is therefore essential to guard against the
pendulum swinging too far in that direction.
An involved faculty, with experience in industry and at the cutting edge of
 research, should help assure such a balance. Additional involvement by
industry, on advisory councils, and through the ranks of adjunct faculty
should also bring greater realism to university research and teaching.
a) There continues to be a shortage of engineering faculty.
b) Many engineering faculty members are quite capable of
involving students in the practical aspects of
3. Engineering Research
Traditionally in this country most of the basic and some of the applied'
engineering research has been conducted in pas universities, and has been
supported by the Federal government. Although there has been a recent
trend toward more support by American industry, it is not expected that
this suopart will reach more than about 20% of the total.
Much of the government support has been in the areas of engineering
sciences rather than engineering practice. Equally important, the level of
engineering support has not taken into acct nt the fact that most research
today is becoming "big research;" and that much of it can no longer be done
by individual investigators, but must be done by teams of investicators.
There is also a question concerning the specific directions of research
that should be pursued. In many fields cf science (e.c., chemist y,
physics, astronomy), there have been co'rehe_sive studies sp=uscred by the
National Science Foundation (and undertaken by the National Research
Council of the National Academies) to help establish the direction -for
future research and, hence, National Science Foundation funding. The same
has not been true in enc veering. Hopever, there is currently underway the
beginning of a Nationale Research Council (l ) s tury to establish the need
for engineering research; and to help set the e? recticrs for that research.
This study should have an initial output in time for the fiscal year 1986
budget decisions.
In the meantime, there has been one specific sexy (after a oo:crorehensive
review of a number of fields of engineering) on the use of computers in.
desicn and manufacturing. This study was undertaken by the Academies'
Committee on Science, Engineering, and Pt'^lic Poky (CJS?J?), and led to
a "research briefing" for the President's Science Advisor. One sicificant
conclusion of that study is that there is a pervasive lack of the
underlying basic knowledge in this field, and that a first priority should
be to build a classical research community through increased government
support of basic research at universities.
Although it is dangerous to generalize frcn one study, it seems fairly
obvious that university research has fallen be:-Lind the apolicatiions of some
of the newer technologies in industry; and that the development of
classical research communities in the fields .r derlying today's industrial
applications is essential if we are to co. irue to make progress.
It is important to note' a significant difference in current initiatives
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(undertaken by the NRC and C FRJP) and many previous activities. There is
a great deal of involvement by people from industry in the current
activities, whereas this was not true in the past. Thus, the directions
for the proposed engineering research directly reflect the needs of
industry, and not merely the desire of the academics.
a) There needs to be an increase in the level of aovernment
support for engineering research, with special
recognition of research teams involved in 'big research,"
in addition to the support of individual investigators.
The engineering community-from industry as well as from
academe needs to determine which areas of research will
be those that are the most important to pursue, and
advise the government accordingly.
4. Engineering Equipment
Not long ago there was a view that the equipment used in engineering
education should be no older than the students who were using it Not so,
anymore. The equipment used today has three things in common: it is
highly complex; it is difficult to maintain; and it becomes obsolete
quickly, often in three to five years.
Undergraduate education today requires easy access to computers-and
computer-aided-design laboratories, to laboratory practice in the
apolicatian of microprocessors, to all sorts of laratcry instrumentation
that is driven by computers, and to the analysis of laboratory results with
sophisticated computational capabilities. it is not unusual to have an
investment of several millions of dollars (in hardware and software) in an
undergraduate computer graphics laboratory, with annual operating expenses .
of the order of one million dollars.
At the graduate level, as pointed out earlier, much of the research is
becoming "big research." This means that research equipment is becoming
enormously expensive. A single piece of equipment may easily cost a
million dollars, while a research team working on a related set of problems
may retire a laboratory investment of several millions. At the same time
much c,-; the laboratc_y space at our universities is out-of-date, and cannot
provide the proper environment for today's sensitive instr"mentation (e.g.,
cleanrooms, vibration isolation. etc.).
The costs of operations are also increasing rapidly with the advent of big
complex pieces of equipment No longer can faculty members and their
graduate students keep all of the equipment in running order. Instead,
subs'.arrtial numbers of highly trained technicians are needed.
In sunrary:
a)
There is a need to upgrade, on a continuing basis, the
equipment and instrumentation used in undergraduate
teaching as well as that use in research.
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b) There is also a need to provide for the maintenance of
that equipment and insttmientation, and for the space in
which it is housed.
c) The costs for doing this are generally 'beyond the
"tuition budget," and beyond those provided for
individual investigators.
 THE NATION'S HIGH DROPOUT RATE THREATENS THE ECONOMIC HEALTH OF THE CUUNI'RY
WITH THE POTENTIAL DEVELOPMENT OF A PERMANENT UNDERCLASS. TO COUNTER THIS
THREAT TO OUR ABILITY TO BE COMPETITIVE, THE COMMISSION ENDORSES THE
PROPOSAL THAT A NATIONAL PARTNERSHIP BETWEEN THE FEDERAL GOVERNMENT
AND THE PRIVATE SECTOR BE ESTABLISHED.
THE PURPOSE OF THIS PARTNERSHIP WOULD BE TO REPLICATE THE APPROACH OF
INTEGRATED SERVICE DELIVERY IN SCHOOLS SIMILAR TO THAT UTILIZED BY CITIES
IN SCHOOLS. THIS WOULD BE ACCOMPLISHED THROUGH THE FUNDING OF
TECHNICAL ASSISTANCE AND THE TRAINING OF LOCAL STAFF TO IMPLEMENT AND
COORDINATE LOCAL PROGRAMS. ADDITIONALLY, THROUGH THIS PARTNERSHIP,
THE "ADOPTION" OF INDIVIDUAL SCHOOLS BY CORPORATIONS SHOULD BE
ENCOURAGED.
THE COMMISSION FJRI'HER RECOn4aNDS THAT THE PRESIDENT ESTABLISH A TASK FORCE
COMPRISED OF REPRESENTATIVES OF RELEVANT FEDERAL AGENCIES, INTERESTED
CORPORATIONS AND PRIVATE SECTOR ORGANIZATIONS TO IMPLEMENT THE PARTNERSHIP.
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THE NATION'S HIGH DROPOUT PATE U-UFATE1S THE MOODMIC HEALTH OF THX COUNTRY
WITH TIE POTRTIAL DVSOP.' ?I' OF A PERMANENT UNDERCLASS. TO COQgr t THIS
TFPEAT TO OUR ABILITY TO BE O7MPETITIVE, THE COMMISSION ENDORSES THE
PROPOSAL = A h?,T10NAL PA. P BETWEEN THE FEDERAL GOVERNMENT
AND TFS PRIVATE SECTOR BE ESTABLISHM
THE PURPOSE OF THIS PARTNERSHIP WOULD BE TO REPLICATE TEE APPROACH OF
INTEGRATED SERVICE DELIVER' IN SCHOOLS SIMILAR TO THAT UTILIZED BY CITIES
IN SamoLS. THIS WOULD BE A0.'t'X PLISY.ED THRCUG3 'TEE FUNDING OF T 1ICAL
ASSISTANCE AND TIE TRAINING OF LOCAL STAFF TO IMPLEMENT AND
COORDINATE LOCAL PrROGRAMS. ADDITIcL LSY, TEDCOGH THIS PARISSIERSLitP, THE
"ADOPTION" OF TDIVZDUAL SCHOOLS BY CORPORATIONS 5:-CUiD BE ENCOL .
THE CCftCSSICN FUFC:MR R032t DS = THE PRESIDENT -ES7AELISH A TASK FORCE
COMPRISED OF REPRESE9TATIV"S OF RELEVANT FED'?AL AQJCgS, ID't==
CORPORATIONS AND PRIVATE SEI.'LOR ORGANIZATIONS TO I.. lDLrNT THE PAR SFQP.
The nation is confronted with the development of a growing, permanent
underclass resulting, from the high dropout rate experienced by our
secondary schools. This development has direct- implications for industry's
ability to be competitive, as increasing numbers of new entrants into the
workforce lack the basic skills to be productive employees.
In 1983, 27 percent of students enrolled in school dropped out. At this
rate, our nation is producing in excess of a million dropouts annually.
The drropout rate among minorities is substantially higher - estimated by
the Census Bureau in 1981 to be as high as 40 percent among blacks and 43
percent among Hispanics. The significance of these figures becomes clear
when one notes that in 1980, 40 percent of all black Americans were
nineteen years of age or under, while the comparable figure for Hispanic
Americans was 43 percent (compared with 30 percent for all whites). If
minority students aritinue to leave school at current rates, the number of
school dropouts is expected to increase significantly through the 1980's.
This situation occurs at a time when the workforce is undergoing
substantial demographic change. By 1995, reduced birthrates following the
post-war "baby boom" are expected to result in an absolute decline in the
number of young workers (aged 16 to 24) by 3 million. However, an
exception to this trend is to be found among minorities, as past high
fertility rates and immigration result in a growing minority population.
While the total 16 to 24-year-old population will experience decline, the
percentage of minorities in the labor force is expected to increase from
12.7 percent to 14.3 percent Thus, it is this fastest growing segment of
 the yang worker population which is most likely to drop out of school and
enter the workforce without critical basic skills. Clearly, the
competitiveness of U.S. industry is threatened when many of its young
workers are so ill prepared to enter the workforce.
Data collected by the National Center for Education Statistics (NCES) on
students dropping out during the sophomore year or later make clear the
severe economic implications of dropping out. In that survey,
approximately 27 percent of male dropouts and 31 percent of female dropouts
were found to be looking for work; only 60 percent of the males and 33
percent of the females were engaged in paid, full or part-time employment.
The dropouts reported that when employed, the jobs they held were
frequently low-skilled and low wage. only about 14 percent of the males
and 3 percent of the females reported doing skilled trade work.
Additionally, within a short period after dropping cut, approximately 25
percent of the males and 17 percent of the females reported participating
in some type of training program outside of school.
The social costs of underlying statistics are substantial. As a group,
dropouts are much more likely to become involved with drucs, school
violence, crime, employment and welfare. Over 82 percent of the inmates
in the prisons of North Carolina and Texas are dropouts. A
disproportionate amount of juvenile crime is committed by dropouts; in
Oakland, California, .for example, an estimated 90 percent of all break-ins
and burglaries are committed by jobless teenagers.
Stiudies have indicated that low socioeanomic backcrou d and poor academic
performance are directly related to higher dreoout rates. _hese findings
were borne out by the NCES survey. Seventeen percent of the students
having low socioeconomic status were dropouts, compared with five percent
of students in the high socioeconomic category. Elie chief reasons cited by
students in the survey for leaving school included "for grades," "school
was no for me," and "couldn't get along with teachers." Pregnancy and/or
marriage plans were the too reasons given by females. (In this regard, it
should be noted that 600,000 teenagers give birth annually; 80 percent of
these drop out)
To address the problem of school dropouts and stem this loss of human
resources, new approaches are required National attention must be focused
on the severity of the problem, its causes and its consequences.
Partnerships between the schools, government and the private sector need to
be forged to systematically confront the problem. Additionally, our
traditional approach to delivering services - which provides for
fragmented service delivery through the funding of diverse, competing
social services agencies - should be altered to e:aasize coorddi.natien of
services and the leveraging of scarce resources.
Cities in Schools (CIS), a national organization operating at 32 school
sites in six cities, is one such program offering coordinated service
delivery by bringing public and private resources into the schools. Loral
service and volunteer agency workers providing counseling, educational
services, health, financial, legal, and employment assistance, team up with
teachers in schools to work with small groups of students having serious
attendance, academic, behavior or family problems. Cities in Schools
attempts to change the phttern of school failure by assuring that students
 come to school regularly, get the human services they and their families,
need, and improve academic performance. This process frees the teacher to
teach, as well as providing a safe and productive school environment for
both student and teacher.
As a consequence of Cities in Schools intervention, increases in attendance
rates have been experienced in atl least three of the cities in which Cities
in Schools is operating. In Atlanta, where over half the CIS students head
been dropouts prior to enrolling in the CIS program of alternative
schooling, attendance rates increased to 82 percent In Houston, students
referred to CIS as juvenile offenders or truancy cases improved their
attendance from a pre-CIS rate of 57 percent to 88 percent. In Washington,
D.C., attendance increased to 91 percent, a dramatic improvement over its
pre-CIS levels. Additionally, academic achievements were reported in a
number of cities, including New York City, where CIS students gained an
average of 1.5 years in reading achievement. These rains have been
achieved through a leveraging of funds - every private dollar raised by
Cities in Schools has leveraged an additional four dollars in staff and
resources assigned to the program from school systems, service agencies,
churches and businesses.
There is currently pending in the Administration a proposal which would
establish a partnership between the Federal Government and the private
sector to implement nationally this approach of integrated services in
schools. As envisioned, this partnership would be comprised of:
1)representatives of key Federal agencies whose mandates most directly
affect the youth at risk of dropping out; and 2) representatives-of
corporations, Cities in Schools, and other private sector organizations
having pa*;icular interest in youth and the youth market. It would be the
goal of this partnership to focus national attention on the dropout (and
the related school violence) problem and to provide technical assistance to
schools seeking to reach these high risk students. The public and private
sector participants in the partnership would supply matching amounts of
funding, totalling $2 million, to be used over an 18-month period. These
funds would be"used to provide: 1) support for facilitators to give
technical assistance to local communities and states to develop their awn
public/private partnerships; 2) support for the establishment of a Training
Institute which would train local staff in implementing and coordinating
local programs; and 3) support for evaluation and management information
systems to chart the progress of local programs as they are implemented.
Through these activities, local communities and states would be supported
in developing programs of coordinated services, provided in the school
setting to assist students and their families to address academic,
behavior, and other problems. The establishment of such a coordinating
mechanism, additionally, would provide a natural vehicle for aiding schools
and businesses to link through Adopt-A-School. Thus, the proposed
activities would utilize private sector support in focusing national
attention on the problem, as well as encouraging private sector involvement
with individual schools at the local level.
No funds under the proposal would be used to actually operate local
programs. Instead, all dollars would be spent for dissemination, technical
assistance,' training, and quality control. Because Federal funds would not
directly support program services, the danger of institutio;salizing Federal
funding would be obviated. The Training Institute, once established, would
 be self-supporting through the charging of fees to trainees. Additionally,
cities and states would be charged for the provision of ongoing technical
assistance after the initial 18-hnnth period expired.
Thus far, a commitment for partial funding support for the proposal has
been received from the Department of Justice, and negotiations are underway
with the Department of Labor for additional funds. Federal leadership is
needed to establish this partnership and to coalesce private sector sqjort
for addressing this drain on our huaran resources.
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 THE USE OF LITERS IN ELEMENTARY AND SECONI1 EDUCATION MAY OFFER
SUBSTANTIAL PROMISE FOR IMPROVING THE QUALITY AND PRODUCTIVITY OF
EDUCATION. FOR THIS POTENTIAL TO BE REALIZED, FLWEVER, QUALITY EDUCATIONAL
SOFTWARE MUST BE AVAILABLE. HIGH DEVELOPMENT COSTS, LMF GIHY DEVELOPMENT
TIME, AND A FRAGMENTED EDUCATION MARKET HAVE BEEN AMONG THE CONTRIBUTING
FACTORS IMPEDING DEVELOPMENT OF GOOD SOFTWARE. TO FACILITATE THE
DEVELOPMENT AND USE OF EFFECTIVE SOFTWARE WHICH EMPLOYS THE COMPUTER'S
CAPABILITIES TO INTERACT WITH THE LEARNER, THE COtMIISSICN REMVENDS:
1) SUSTAINED FEDERAL SUPPORT FOR A PROGRAM OF BASIC AND PRCTOIYPE RESEARCH
FUNDED THROUGH THE NATIONAL SCIENCE FOUNDATION AND THE U.S. DEPARTMENT
OF EDUCATION. BY PROVIDING SUPPORT FOR THE RESEARCH UNDERLYING
SOFTWARE DEVELOPMENT AND IDENTIFYING THOSE APPROACHES WHICH PROMISE THE
MOST EFFECTIVE RESULTS, THE FEDERAL GOVERNMENT WILL HELP TO REMOVE A
MAJOR BARRIER WHICH CURRENTLY EXISTS TO THE DEVELOPMENT OF QUALITY
SOFTWARE BY INDUSTRY.
2) TEACHER TRAINING IN THE USE OF COMPUTERS AND THE CAPABILITIES OF
QUALITY SOFIWARE. THIS TRAINING IS NEEDED FOR TEACHERS IN ALL FIELDS
10 INCREASE THE SOPHISTICATION OF SCHOOL SYSTEMS IN DEMANDING QUALITY
SOFTWARE FROM PRODUCERS. STATES SHOULD BE ENCOURAGED TO PROVIDE SUCH
TRAINING, WHILE THE FEDERAL GOVERNMENT SHOULD AID IN THESE EFFORTS BY
INCREASING ITS DISSEMINATION OF INFORMATION ON THE EFFECTIVENESS OF
AVAILABLE SOFTWARE -
1
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 THE USE OF COMPUTERS IN FT E 'TARP AND SE= MARY fl) 2'ION MAY On
SUBSTANTIAL PROMISE FUR IMPROVING ME QUALITY AND PFODUCTIVITY OF
EDUCATION. FOR .THIS Porn I'IAL 70 BE REALIZED, BOWEVER, QUALITY flC?SIONAL
SOFTWARE MUST BE AVALABLL MC-2i Dr-Vz-WPME,TT COSTS, LENG'I D_=VE ,OPM UAT
TIME, AND A FRAGMENTED EUL)CATIQV MUU= HAVE BEEN AMONG ME CoVnUBVrING
FACIURS IMPFI)IIG DEV I-= OF GOOD SDFIWARE. TO FACILITA4't TEE
DEVELOP? TT AND USE OF t.rn.CTIVE SDFTh' ARE WtIICH EMPLOYS THE CSO.MPI T VS
CAPABILITIES TO n?IVRACr WITH =0 Lz NER, f COMMISSION RE MITZ~IDS:
1) SUSTALQED FEDERAL SUPPORT FOR A PF AM OF R SIC AND PRO CnTE RRSFARCci
it THE= r 2aTTQZF,L SCZz c YtUINnUIQV A\D Trr, U.S. DEPAR111'LT7I'
OF EDUCATION. BY PROVIDING SUPPORT FOR TL`. R:S:ARCY UNDERLYING
SO_- IWARE DEVr,DPMNT ACID IDSTf"YING TTR 3SE APPROACH-ES t-flCC PROMISE =
MOST =-=IV:- RESZFL75, M-= F--AL GOV `! `T WILL F-f.. TO REMOVE A
MAJOR EAR= WHICH. Ct RR 'IIY E?_TSTS TO THE Df=-P.N 'T OF O 1LLTTY
SOFThyRE BY =STRY.
2) TEAL---r TR:-..D G IN TE= USE OF =22UTLRS AND Z C?;=-=TES OF
QiTO xr-r so-recta. TE?ms TFknzi r. IS N== FOR C-rs n ALL _ T
TO INCvS = SOPIDSTICATIQ\ OF SC???DL S`ITE'S J2.' D .1tll OU2..I.ITY
- . `?SO_FTDY.RE 'FROM-PRODUCE-RS. SEATS S:4r B~ _.C Ju 3F,r~ TO PROVIDE SUCH
TRAIA'ING, ht'.II.c'. Tis FED L GOVER* T SiiOtLD A IN 7
M z=- F"r~RTS BY
INCP-r;-SINS ITS DISS. ,TIW OF I!`0RI?iz2IW CO T -S .~_-Z r T OF
AWiILABT r SOFTv~:,.RE.
Education technolcgy provides a mechanism for improving both the quality
and productivity of the educational process in elementary and secondary
schccls. Des-mite the fact that schools are purchasing ca,puter hardware at
ever increasing rates (with approximately 325,000 computers in place in
1983), quality softw:.re for use in those computers is largely una%ailable.
How can the barriers to the development of quality educational software be
overcome so that the pctential benefits of computer use in schools can be
realized?
There is general acreemert today that rapidly changing technology and the
explosion of information which accompanies it will transform the society in
which we live, making it imperative that our schools produce students who
are adaptable to change and who possess the analytical skills needed to
solve problems which are as yet unimagined. At the same time, there is a
need to increase the productivity of the educational process itself - in
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1982, education-related costs rose 12 percent, while prices in the economy.
generally increased only four percent.
There is ample evidence that use of computers in schools can address these
needs. Study-results show that at all levels of education, computer-aided
instruction produces significant improvements in performance, more positive
attitudes toward subject matter, and a reduction in time-on-task by as much
as one-third. Computers in Education: Realizing the Potential, a report
summarizing the findings of a recent research conference, provides examples
of some of the educational opportunities presented by computers. Among
them are: 1) tutoring - computers can provide individualized instruction,
adapted to the student's own capabilities and current level of attainment;
2) exploratory learning environments - computers can be used to simulate,
through animated displays, phenomena which would be difficult to replicate
using real materials or in real time; 3) diagnosis - commuters can be used
to analyze the individual student's current understanding and
misconceptions, aiding teachers in giving appropriate instruction; and 4)
tools for students and teachers - the capacity of computers to perform
calculations, function as automated dictionaries, provide information
retrieval by accessing large data bases, and ru.-tirize daily record keeping
tasks, enables students and teachers to de-emphasize routine skills and
focus on the development of analytical thought processes. It is this last
area, particularly, which many experts in the field believe has the
capacity to. revolutionize the education process, redefining our basic
expectations concernin; what needs to be taught.
The availability of computers in the nation's elementary and secondary
schools has. increased. markedly.since 1980..-..Sn.-that year,- there were an
estimated 31,000 microcorouters in schools; by 1983, the figure had risen
to 325,000 (a ten-fold increase). No firm data exist concerning the level
of investment which this represents, but assuming that the cost per unit is
somewhat in excess of $1,000,. a total investment in excess of $400 million
is probably realistic. At the same time, estimated expenditures on
software by the schools are considerably lower - roughly in the $30 to $40
million range.
According to recent studies conducted under contract with the U.S.
Department of Education, there are a sizeable number of commercially-
produced educational software programs available - 1650 in math and
science education, 500 in reading and writing, and 500 in foreign language
instruction. However, the studies found that immor ant caps exist Most
software is designed for a single topic within a subject area, rather than
providing comprehensive coverage of a curricultr . Subject area coverage is
uneven. Gaps were noted in such fields as elementary science, secondary
mathematics, and critical foreign languages. Additionally, the
preponderance of software was routine drill and practice programs or
functioned as "electronic textbooks", with less than five percent of the
software found to make full use of the innovative leaning capabilities of
the computer. No,, surprisingly, surveys of schools C7.7ung mic_rrccor. paters
have discovered that drill and practice and programming ("computer
literacy") are the most frequent uses of tec'hnolccj in schools.
To move beyond these limited applications and realize the educational
opportunities presented by computers requires the development of software
which utilizes the potential of the computer's artificial intelligence in
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 interacting with the learner. Generally, such software is thought to be
characterized by: 1) an ability to motivate students to learn; 2) a
'branching" capacity, such that subject matter not grasped the first time
can be presented again in different ways trail understood by the student;
3) an ability to handle freely constructed responses, not just multiple
choice answers; , 4) an ability. to reinforce the student's learning progress,
giving cues and encouragement; and 5) an ability to respond appropriately
to incorrect answers and track student progress.
The reasons why more sophisticated, comprehensive software has not been
forthcoming in the education field are multiple. The education market is
diverse, fragmented, and relatively limited in size. There are 16,000
school districts in the country and approximately 110,000 public and
private elementary and secondary schools, each with different software
needs and purchasing constraints. Teachers, who typically provide the
impetus for computer purchases, are largely untrained in the new
technology, and as a consequence, are ill-equipped to act as informed
consumers demanding quality products. Additionally, the education market
with its 325,000-plus computers, is substantially smaller than the five
million-computer home consumer market-
The development costs of comprehensive software are high, with. some
estimates ranging as much as $700,000 per package. The development of a
package covering a single topic may re/ui_re as rruch as six to nine mort~s
time, with years of development required for cc =rehersive crricula - a
subject. At the same time, the funds available by schools for the purchase
of software are limited - typically, expenditures on equipment and
materials comprise roughly .7 percent of a school district's budget.
Additionally, the rapidly-changing nature of the technology creates a
situation in which software obsolesces quickly (with science software
estimated to have a half-life of roughly two to three years). With high
development costs, rapidly-chancing technology, and hinted school budgets,
developers have -moved into the market cautiously. An ad'ied factor
exacerbating the situation is software "piracy" (co: ving), vrnich reportedly
is common in schools and which has the effect of raising th? price of
individual packages as developers are able to sell fewer dies.
Officials in industry and government alike agree that to develc. i quality,
comprehensive software which fully utilizes computers' ii :eractive
ca abilities requires extensive additional research. Such reset cih should
focus on: 1) developing prototype instructional systems uti izing our
knowledge of the learning processes involved in skilled readinc. writing,
math, and science; and 2) furthering our basic knowledge of tI.ese areas
through basic cognitive research. This research should actively involve
teachers and students in refining and transforming theoretical concepts
into workable prototypes.
The Federal Government has been and should continue to be an important
catalyst, supporting research as a means of stimulating the use of these
technologies in the education field. By providing =tp-t for the costly
research underlying software development and identifying those approaches
which promise the most effective results, covernment can remove a major
barrier to the development of quality software by industry. Once
prototypes are developed, it will be considerably easier and cheaper for
industry to devise applications appropriate to the education market. While
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 the National Science Foundation and the Department of Education are
currently supporting some activities in this regard, particularly in the
areas of science and math, NSF funding has been inconsistent (a
rollercoaster , to quote one observer) over recent years and funding by
the Department of Education has been limited. The Department's major
initiative in the area is a five-year, $7.7 million contract with the
Marvard-based Educational Technology Center, whose research agenda focuses
on the role of compu te_-s in science, math and computer instruction. Such
federal research initiatives should be augmented by additional funding
delivered in keeping with a coherent, long-range program of prototype and
basic research as suggested above.
In addition to the need for research, it is clear that one factor
accounting for the inadequate quality of available software is the
education system's lack of sophistication needed to demand quality. The
demand for innovative software will be limited so long as teachers are
unfamiliar with its use and distrustful of its capabilities. The possible
solutions to this problem are numerous. Its recognition has led IBM, for
example, to require teacher training as a condition of schools'
participation in the company's $12 million computer donation program. In
schools receiving computer software and equipment, a critical nucleus of
teachers is trained in the use of the technology in advance of the actual
placement of computers in the schools. Additionally, a support network for
the teachers is established to facilitate the school's adoption of the
technology.
States should undertake systematic efforts to provide inservice trz_? * .in
the use of computers for teachers in all fields, through on-site training,
workshops, and conferences... Training should stress the integration of
computer-assisted instruction in the school curriculum, aiding teachers in
adapting the technology to `,heir own needs. In this regard, it should be
designed particularly to give teachers an understanding of the
characteristics of quality software, enabling them to discern among varying
capabilities offered by the alternative coursewares available. In addition
to emphasizing computer-related training, states should facilitate teacher
receptivity to this medium by employing computer technology in training
programs designed to upgrade teacher skills in other subject areas. The
Federal Government can aid states is them teacher training efforts through
increased dissemination of information at the effectiveness of available
software. One aspect of this dissemination activity might be the
establishment of software resource centers, similar to those operating in
California, to provide teachers an opportunity to view and demonstrate
available quality software before purchasing.
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 WORKING GROUP ON INTELLECTUAL PROPERTY
COMMENTS ON INTELLECTUAL PROPERTY RECOMMENDATIONS
OF THE
PRESIDENT'S COMMISSION ON INDUSTRIAL COMPETITIVENESS
The President's Commission on Industrial Competitiveness at its
February 3, 1984, meeting adopted four recommendations aimed at strengthen-
ing protection of intellectual property. The Cabinet Council on Commerce
and Trade (CCCT) considered these recommendations at its March 7, 1984,
meeting and referred them to the Working Group on Intellectual Property
(WGIP) for comment. The working Group greatly appreciates the efforts of
the Commission and its recognition of the critical importance of
intellectual property protection to the economic well-being of the United
States.
The Administration has been active in all four areas considered by the
Commission. At this time, the working Group is prepared to endorse three
of the four recommendations, as discussed below. Based on the
recommendation of the Commission, the Working Group is now preparing a
position paper on the fourth area for the CCCT's consideration.
The areas which the Administration has already considered are the
Commission's Recommendations 3, 5, and 6. These recommendations are
discussed below.
"There has been a dramatic increase in recent years
in commercial counterfeiting, i.e., the fraudulent
practice of affixing someone else's trademark to a
product which is superficially indistinguishable from its
legitimate counterpart. The Commission urges the Admin-
istration to attack this problem by:
- Domestically, supporting legislation to make
the trafficking in counterfeit trademarks with
intent to deceive or defraud a criminal
offense; and
- Internationally, supporting efforts to imple-
ment an anticounterfeiting code."
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The Working Group welcomes the Commission's recommendation for
concerted action in this area so crucial to U.S. businesses. The
Administration, through the CCCT, has strongly endorsed an aggressive,
two-pronged attack on counterfeiting. At its April 6, 1983, meeting, the
CCCT determined that:
- Internationally, the United States should continue its efforts in
the General Agreement on Tariffs and Trade (GATT) to develop an
anticounterfeiting code.
- Domestically, the Administration should strongly support legis-
lation strengthening criminal and civil sanctions for commercial
counterfeiting along the lines of the "Trademark Counterfeiting
Act of 1983."
In testimony on 5.875, the "Trademark Counterfeiting Act of 1983,"
introduced by Senator Mathias, Assistant Secretary Mossinghoff reiterated
the Administration's staunch support for prompt effective action to stem
the tide of counterfeiting. This measure is on the Senate Judiciary
Committee agenda for markup within the next few weeks. Its counterpart in
the House, H.R.2447, introduced by Chairman Rodino, has been the subject of
three hearings and is now being considered by the House Judiciary
Subcommittee on Courts, Civil Liberties, and the Administration of Justice.
Internationally, the Administration is working diligently through GATT
to develop an international anticounterfeiting code and is making a special
effort to persuade other countries to accept the code. GATT is studying
the problems of counterfeiting, and the Administration has submitted
information for this study. GATT plans to complete the study this summer.
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The Administration also has ongoing bilateral discussions on
counterfeiting with three countries (Taiwan, Korea, and Singapore) to
resolve particularly severe problems with those nations.
The Working Group believes that the support of the Commission for
prompt effective action in this area will help the Administration achieve
its objectives in ameliorating the problems of counterfeiting.
As a technical matter, the Administration prefers a definition of
counterfeiting which includes counterfeit "goods and services," because the
problem of counterfeiting may severely affect services as well as goods.
In reporting S.875, the Senate Subcommittee on Patents, Copyrights and
Trademarks adopted this definition.
The Working Group wholeheartedly agrees with the Commission that
increased sanctions are necessary to solve the counterfeiting problem
domestically, but would broaden those sanctions to include increased civil,
as well as criminal, sanctions.
"U.S. Patent law grants inventors a 17-year term of
exclusive rights on innovative processes and products.
This limited term is intended to provide a major incentive
for research and development, which is often costly and
risky. However, for certain products, such as some
chemicals and pharmaceuticals, the full 17-year patent
term has been unintentionally eroded by Federal pre-market
testing and review requirements. To remedy this situa-
tion, the Commission recommends passage of legislation
that would restore patent life lost during the government
approval process."
The Working Group is pleased by the Commission's recommendation in
this area where prompt remedial action is essential to restore incentives
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IN for innovation. The Commission recognizes the inequity to certain
industries--primarily drugs and agricultural chemicals--whose inventions
are denied a full patent term due to Federal premarketing approval
requirements. The Administration strongly supports enactment of the Patent
Term Restoration Act of 1983 (H.R.3502 and 5.1306) to restore to patentees
a part of the effective patent term which has been eroded by Federal
premarket regulatory review.
This issue has been a continuing concern to the Administration. The
Cabinet Council for Economic Affairs, for example, endorsed patent term
restoration on May 25, 1982, as part of a series of recommendations by the
National Productivity Advisory Committee. The Administration's continued
support was evidenced in hearings before the Senate Judiciary Subcommittee
on Patents, Copyrights and Trademarks (5.1306) on June 22, 1983, and before
the House Judiciary Subcommittee on Courts, Civil Liberties, and the
Administration of Justice on March 28, 1984 (H.R.3502).
In the House, a compromise measure is being worked on, one which
hopefully will allow this important legislation to be enacted soon.
In this recommendation, the Commission proposed six specific actions
to streamline patent laws and procedures in the United States and made
general comments on strengthening intellectual property rights in foreign
countries. Though the six actions are basically technical in nature, the
Commission rightly perceives them to be necessary for the patent system to
provide the greatest possible incentive for invention and protection of
intellectual property. The Working Group welcomes the action of the
Commission in highlighting these essential improvements.
The six specific actions called for by the Commission are legislative
proposals on which the Administration has recently testified. The
discussion of each item refers to this testimony of March 28, 1984, before
the House Judiciary Subcommittee on Courts, Civil Liberties, and the
 C;
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Administration of Justice, and on April 3, 1984, before the Senate
Judiciary Subcommittee on Patents, Copyrights and Trademarks.
"Extend the law to make it an infringement of a U.S.
process patent to have a product imported into the U.S.
which is manufactured abroad by the patented process."
The Administration's interest in process patent infringement is
ongoing. The Cabinet Council on Legal Policy considered this issue on
March 24, 1983. This consideration resulted in the President forwarding a
specific proposal to the Congress on process patent protection embodied in
5.1841 and H.R.3878.
Process patent protection is vital to the national economy in such
fields as industrial chemicals and pharmaceutical manufacturing,
microbiology, and solid state electronics. The Commission recommends a
statutory remedy (H.R.4526 and 5.1535) for importation of products made
abroad by a process patented in the United States.. The working Group
wholeheartedly agrees that such a remedy is critical and notes that the
remedy should be expanded--as it is in the Administration bill--to make it
an infringement to use or sell any product made by a patented process,
regardless of where the product is made. This will eliminate any potential
problems with U.S. GATT obligations on nondiscrimination between domestic
and foreign manufacturers.
The Administration bill also includes a provision on proving infringe-
ment that is very important to patent owners. In suing for infringement of
a process patent, the burden of establishing infringement now rests
entirely on the patent owner. This can be particularly difficult for the
patent owner because the laws of most countries do not provide the
discovery procedures available through United States courts. The
Administration's provision would benefit process patent owners by
establishing in some circumstances a presumption that a product that could
have been made by a patented process actually was made by that process.
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The Commission also described the problem of process patents being
circumvented by offshore assembly and exploration. The Working Group
agrees that a legislative remedy against such activities is necessary to
provide the patentee with effective protection. The Administration has
suggested possible approaches to this problem in its testimony.
Legislation relating to process patents is still pending.
"Simplify the procedures for obtaining export licenses to
file and prosecute patent applications in foreign
countries."
Since the Commission made this recommendation, the Patent and
Trademark Office has promulgated regulations (April 4, 1984) to streamline
foreign license procedures. The Working Group agrees with the Commission
that simplified, improved license procedures are needed to lower the risk
of patent invalidation and criminal violations for those seeking to file
patent applications abroad. The Administration believes that the new
regulations will provide a flexibility and degree of detail not available
from a statutory provision, while guarding national security and the rights
of applicants. Though the Administration noted in testimony that
additional statutory authority is not needed for promulgation of these
regulations, it does not object to such a statutory provision provided such
a provision leaves sufficient latitude to fix conditions assuring
protection of national security interests. Legislation on foreign filing
license issues is still pending (H.R.4524 and S.1535).
"Eliminate unpublished information from the definition of
'prior art'."
Use of corporate owned unpublished information to prevent the obtain-
ing of a patent by an employee discourages communication and the exchange
of information within the corporation. Denying a patent to an employee
possessing such background information is counterproductive. The Adminis-
tration supports remedial legislation to remove unpublished information
owned by a corporation as prior art against otherwise patentable inventions
 7
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of its employees. The Commission notes that such legislation would make it
easier to obtain patent protection for the results of corporate or
cooperative research efforts and would thus promote innovation. Drafting
an appropriate provision has, however, proven to be an elusive and complex
task. The Administration will be pleased to work with the Congress in
addressing these difficulties. Pending legislation on this issue includes
5.1535 and H.R.4525.
The Working Group strongly agrees with the Commission that arbitration
now available for resolving infringement and validity disputes should also
be available to resolve interferences. Interference settlements would be
simplified and speeded up. This would reduce the workload of the courts
and the Patent and Trademark Office.
The Administration, in its testimony on measures to accomplish this
(5.1535 and H.R.4528), noted that it has objections to certain provisions
of the legislation. One provision would extend the Commissioner's
authority to accept the filing of settlement agreements and add an
additional defense when agreements are not filed. The Department of
Justice opposes enactment of this provision. The limited potential
benefits of the provision are clearly outweighed by the resulting
diminishing of the deterrent effect that the statute presently has on entry
into anticompetitive interference settlement agreements. Another provision
would limit the presentation of evidence in interference proceedings to use
of affidavits. The Patent and Trademark Office opposes this provision
because it would take away flexibility of the office to obtain testimony by
the most appropriate means. In its testimony on these measures, the
Administration has suggested possible wording to meet these concerns. The
measures are pending in the House and Senate.
"Restore balance in patent law licensing by requiring a
person challenging the validity of a licensed patent
either to continue paying royalties during the period of
challenge, or, at the licensor's option, to terminate the
license."
 The Administration believes that a fairer balance is needed between
the rights of the licensor and the licensee without compromising the public
interest. The Working Group agrees with the Commission that a Federal
statute is needed to achieve this balance. Proposed legislation (H.R.4529
and S.1535) provides that either the licensee or the licensor could
terminate the license once patent invalidity was asserted in a judicial
action. Until the license was terminated, the licensee would be obliged to
pay royalties directly to the licensor. Otherwise, the licensee would risk
nothing but legal fees and spurious patent challenges would continue to be
brought.
The Administration believes enactment of legislation along these lines
would restore a balance between the rights of the licensor and the
licensee. Instead of providing an automatic right of licensor to terminate
the license if the patent is challenged by the licensee, such legislation
should merely recognize that the parties to an agreement may agree to such
a provision without offending Federal policy. This would assure the
greatest amount of flexibility to the private sector and ensure that there
is not undue Federal intrusion into private patent licensing. The Working
Group also notes that licensees have the option, in some instances, to test
the validity of the licensed patent without resorting to litigation.
Through a reexamination proceeding in the Patent and Trademark Office, the
validity of a patent can often be more easily determined and at much less
expense than litigation would require.
"Relax the technical requirements relating a person in a
single patent of claims to a joint invention where all
joint inventors may not have contributed to all claims."
Modern team and corporate research situations make it hard, if not
impossible, to specify the actual inventors of each claim in a patent
application. Present law requires that each named inventor have
contributed to each claim. This artificial requirement raises patenting
costs and the possibility of invalidity. The Working Group strongly agrees
with the Commission that remedial legislation is necessary. The
Administration suggested wording for such legislation in testimony in the
House and Senate. Pending bills are H.R.4529 and 5.1535.
 "The Commission recommends that action be taken to reduce
the erosion of intellectual property rights in foreign
countries. All countries should be encouraged to imple-
ment systems of intellectual property protection which
foster a climate of innovation and investment. U.S.
policy should firmly oppose the misappropriation of
intellectual property rights by any country. Also, the
U.S. should encourage all countries to adhere to the Paris
Convention for the Protection of Intellectual Property but
should oppose efforts to weaken the Convention, for
example, by permitting member countries to require the
grant of compulsory exclusive licenses."
The Working Group commends the Commission for its attention not lust
to domestic legislation but also to the international arena. Strong
international intellectual property protection is crucial to U.S. industry,
and the Working Group itself has discussed measures to encourage the
protection of intellectual property in developing nations.
The Administration has actively supported and participated in numerous
activities to strengthen intellectual property protection throughout the
world and will continue to do so. For example:
? At the recent Fourth Session of the Diplomatic Conference for the
Revision of the Paris Convention, the United States joined with
other developed nations in successfully opposing efforts to
weaken the Convention.
U.S. efforts to assist China in developing a. patent system came
to fruition with. the establishment of a patent system on March
12, 1984.
Through numerous bilateral discussions, the United States has
worked to resolve problems in intellectual property protection.
The United States has provided training for numerous patent and
trademark officials from countries all over the world.