REMARKS BY DR. BETSY ANCKER-JOHNSON BEFORE THE SEMINAR ON TECHNOLOGY EXCHANGE THE DEPARTMENT OF STATE WASHINGTON, D.C. FEBRUARY 28, 1974 'THE ROLE OF INDUSTRIAL PROPERTY RIGHTS PROTECTION IN U.S./U.S.S.R. TECHNOLOGY TRANSFER'

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79-00798A000500120006-4
• Release Decision: RIPPUB
• Original Classification: K
• Document Page Count: 48
• Document Creation Date: December 9, 2016
• Document Release Date: July 19, 2000
• Sequence Number: 6
• Publication Date: February 28, 1974
• Content Type: SPEECH

1
UNITED STATES DEPARTMENT O
COMMERCE
wl_
WASHINGTON, D.C. 20230
REMARKS BY DR. BETSY ANCKER-JOHNSON BEFORE THE
SEMINAR ON TECHNOLOGY EXCHANGE
THE DEPARTMENT OF STATE
WASHINGTON, D.C. FEBRUARY 28, 1974
OFFICE
OF THE
SECRETARY
"The Role of Industrial Property Rights Protection
in U.S./U.S.SOR. Technology Transfer"
Introduction
Research and development leading to high technology products
are very costly as we all know. These high costs must'be
successfully recovered and recommited if a company is to
continue building its high technology base. Research and de-
velopment costs are normally recouped not only by marketing
the resultant products but also by the licensing of new
technology. In some cases, selling the products is the most
efficient way to recover costs; this is especially true if
the market for that product can be expanded so that the cost
per unit is reduced (learning curve effect). On the other
hand, research
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and development costs are sometimes fully recovered and even
exceeded by licensing the new technology. This has been the
case with Xerox processing, for example. And of course,
many companies, such as pharmaceuticals, pursue both goals.
Typically, they recover about 10 per cent of their R&D costs
through licensing while simultaneously marketing products.
The governments of all industrialized nations recognize the
importance of giving protection to intellectual property
and industrial knowhow. Internationally, protection is
coordinated by an agreement on industrial property signed
in 1883, and last revised in Stockholm in 1967, called the
Paris Convention for the Protection of Industrial Property.
In 1965, the Soviet Union became a signatory to this Convention
what is now called
and also joined/the World Intellectual Property Organization.
Of course, the patent system of each member country differs
as to what is patentable and how a patent is granted.
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Today I shall discuss some aspects of industrial property
protection, particularly comparing the U.S.S.R. patent system
with ours. Such a discussion is needful because of
Soviet
the mismatch between the/monolithically planned economic
system and our free enterprise system.
Industrial property became a significant issue between the
1972/1973
U.S. and the U.S.S.R. when the/Agreement on Exchanges in Scientific,
Technical, Educational, Cultural and-other fields-was signed in
April, 1972. This Agreement includes a section on patent
management and licensing.
In 1973 I headed a U.S. delegation of industrial property
experts on a visit to the Soviet Union. Our main mission was
to determine the patent and licensing aspects of bilateral
trade with the U.S.S.R. We were interested in the nuances
of each step required to obtain a U.S.S.R. patent and the
avenues of bringing together prospective licensees
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with the patent holder. A Soviet group made a return visit to
the U.S. in October. During that reciprocal visit, we prepared
draft terms of reference-on intellectual property rights for the
U.S./U.S.S.R. Joint Commission on Science and Technology. The
Commission approved these in Moscow in December, 1973. I'll
return to this subject.
A summary report of the U.S. Patent and Licensing Delegation
findings entitled: "U.S./U.S.S.R. Technology Licensing Pros-
pects 1973" is available from the Department of Commerce's
National Technical Information Service (NTIS). This report
contains a brief account of our impressions and provides current
information regarding the marketing of technology. A more
comprehensive report is being published by the Licensing
Executives' Society. Members of this society, which specializes
in technology transfer and in industrial property rights,
were active members of all our patent management and licensing
exchanges.
The New Soviet Statute on Discoveries, Inventions, and
Innovation Proposals
The new statute which took effect January, 1974, elevates
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(C.I.D.)
the Committee for Inventions and Discoveries/to a State
Committee, making its Chairman a member of the Soviet Council
of Ministers. The official translation won't be available
for several months; however, Chairman Maksarev sent me an
unofficial version. The Committee now has greater influence
on Soviet economic planning and the power to authorize
the use of new inventions whenever it feels such action is
appropriate, rather than once yearly as was the case previously.
The Committee has also gained greater responsibility in the
filing of foreign applications.
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It is interesting to note that the Soviet law provides
recognition for the originators of scientific discoveries.
Perhaps you know that the Soviets have been urging the
establishment of an international depository certifying
scientific discoveries. In fact, last November, at a meeting
in Geneva, they urged that the World Intellectual Property
Organization become the functioning body. However, their
proposal met with a cold shoulder from the non-socialist
bloc, which prefers to base rewards on scientific reputation
rather than government sanction. The world scientific
community, of which some of us were members before we became
executives, has its own unwritten rules for judging the con-
tributions of individual scientists. Evidently, the Soviets
are intensely pursuing international recognition of their
scientific discoveries.
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Soviet System of Industrial Patent Protection
The new statute provides (as did the old) for a dual system
of granting both inventor's certificates and patent issued, by
after examination of the application.
Inventor's Certificates: The inventor's certificate
involves transfering all invention rights to the State. The
inventor receives in exchange a remuneration of up to 20,000
roubles (about $28,000) and certain fringe benefits, such as
augmented pensions and preferential treatment in employment,
housing, and the like. Applicants bear no expense in
applying for the certificate. Certificates are exploited
by the State and may be used by any Soviet enterprise.
Only 2 Soviet nationals received a patent, whereas about
39,000 nationals received Soviet inventor's certificates
in 1972. For comparison approximately 39,000 U.S. patents
were granted to U.S. companies out of a total of about
53,000 patents granted for domestic inventions in 1972.
C.I.D.
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Soviet Patents: The Soviets grant patents primarily for
the benefit of foreign entrepreneurs. They introduced the
patent system in 1959 to, as the Soviets put it: "Create
a legal basis for economic cooperation of the U.S.S.R. with
Western countries."
However, the benefits of the Soviet patent system are restricted
by the Soviet economic systen. Since the means of production
are exclusively under State control, it is impossible to use
a Soviet patent to set up a manufacturing plant and produce
the patented item. Instead, the patent owner must either
(more)
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sell his patent rights to the U.S.S.R. or sell a license for
its use.
Comparison of the U.S. and Soviet Patent Laws: Soviet
patent law is similar to that of many countries, especially
as it pertains to the subject matter forming a basis for
patents and the conditions for patentability.
Term: The term of a Soviet patent is fifteen years,
measured from the date of the filing of the application. In
the U.S., the patent term is seventeen years from the date
of the grant.
Subject Matter: The subject matter which may be
covered by,the two grants is generally co-extensive, except
Soviet law excludes as a basis for patents certain subject
matter such as chemicals, pharmaceuticals, and medical processes,
although they may qualify for inventor's certificates.
Prior to the new law this subject matter was not an acceptable
basis even for inventor's certificates. Hopefully, patents
for chemical processes will evolve later on.
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Conditions of Patentability: The Soviet conditions are
rather similar to ours. That is, an invention must be new,
useful and non-obvious over the prior art.
Novelty: Both use the system of "universal prior
art" as negating novelty.. In the U.S. there is a one-year grace
period from divulgation of the subject matter during which one
may file in the U.S. Patent Office without losing the right
to a patent. The Soviets have a six month grace period from
displaying the invention at an exhibition, and four months
from "open utilization of the invention."
Priority of Invention: The Soviets accord priority
to the first party to file with the C.I.D. unless foreign
priority rights have been established under the Paris Conven-
tion. I'll return to foreign priority rights shortly.
This sytem of "first to file," which is almost universally
followed today, is easier to administer than our system of
"first to invent." Our system requires a rather expensive and
complex "interference" proceeding before the Board of Patent
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Interferences in the U.S. Patent Office.
Government Fees for Securing and Maintaining A Patent:
There is an average cost of $235 to secure a patent in the
U.S., whereas this cost in the Soviet Union is about $76. On
the other hand, there are no maintainance fees in the U.S.,
whereas maintainance fees in the Soviet Union amount to
several thousand dollars if the patent is maintained for its
maximum term. Incidentally, all of the above figures omit
costs of the services of patent representation before the
respective offices, which in the case of Soviets means the
U.S.S.R. Chamber of Commerce and Industry.
Representation Before Offices: The Soviet Union.
requires foreign applicants to use the service of the U.S.S.R.
Chamber of Commerce and Industry both to file their applications
and represent them before the C.I.D. In the U.S., of course,
foreign applicants are free to select one of 9,000
registered patent attorneys or agents to represent them before
the U. S. Patent Office.
Compulsory License to State: Soviet law specifies
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that a patented invention of special importance to the State
.may be compulsorily licensed. This raises some fears in U.S.
industrial quarters. However, this provision, dating back
to 1959, has never been employed. Incidentally, this stipu-
lation is not unique. For example, the British have such
a provision relating to, as they put it, "Crown use." Our
law provides that reasonable and entire compensation must be
awarded for patented subject matter used by the U.S. govern-
ment and the awards to patentees under this provision have
been numerous.
Validity of a Patent: Both in the Soviet Union and
in the U.S., the validity of a patented invention may be
challenged during its term. In the Soviet Union the protest
is lodged with the C.I.D. while in the U.S. such a problem is
litigated in Federal Court.
Right of Priority under Paris Convention: As stated
earlier, the patent priority goes to the first to file in the
U.S.S.R. Under the Paris Convention an applicant may apply
for protection in all the other contracting states
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within one year from his first application. Later applications,
within one year, in the U.S.S.R. (or any member of the Paris
Convention) receives an effective filing date which is the
the original
same as the date of / filing. This filing date will not
be invalidated by any interim acts (e.g., publication or
exploitation of the invention).
Previously, inventor's certificates could not qualify, under
the U.S. view, for priority rights. However, inventor's
certificates may now qualify as a result of the 1967 version
of the Paris Convention.
The relevant section of the Convention directs that the date
of filing of an application for an inventor's certificate
filed in a country in which applicants have the right to
apply at their own option either for a patent or for an
inventor's certificate shall determine the right of
priority under the Paris Convention. This provision obviously
is directed to such countries as Bulgaria, Romania and the Soviet
Union which provide alternatively for patents or inventor's
certificates on some types of inventions.
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The treaty provision protects us in various ways. For example,
we do not give priority lights in pharmaceuticals based on
earlier filed certificates since we cannot obtain pharmaceu-
,tical patent rights in the U.S.S.R. It should be remembered
that under Soviet law any invention created in the course of
employment cannot be patented (i.e., the inventor obtains
a certificate).
In the U.S.S.R.
Activity by U.S. Citizens/Since Soviets Signed Paris
Convention:
Year
1965
1966
1967
1968
Patent Applications
87
165
347
423
Patent Grants
7
3
35
65
Year
1969
1970
1971
1972
Patent Applications
492
512
567
816
Patent Grants
82
199
196
257
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Retroactive Patent Recognition. Proposal
The U.S. Government has been requested by a U.S. company to con-
sider a proposal to negotiate a bilateral agreement with the
Soviet government for recognition of U.S. held high
technology patents filed in the U.S. prior to 1965 but
not filed in the USSR. While recognizing that U.S.
companies customarily negotiate individually for patents
and that any nationwide arrangement is extraordinary, an
advocate urges that special protection of U.S. interest
in high technology is needed.
Let me outline the basic problem. Until just a few years
ago, many U.S. companies - including those in certain
high technology areas - did not apply for patent protection
in the Soviet Union. This was principally because export
controls and/or the general climate of East-West relation's
made it impossible for them to export their technology to
the Eastern Bloc. Today such a company may find itself
at a disadvantage when it negotiates with the Soviet Union.
Such a company has lost much of its leverage for receiving
royalties on the use of its technology. In many cases,
it has no way to control the flow of its technology into
the Eastern Bloc from a third party.
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The solution proposed is that the U.S. and the U.S.S.R. give
retroactive recognition to each other's patents.
Existing manufacture would be recognized under this
arrangement.
As we study the possibility of retroactive patent
recognition, we would like to have your comments. My
personal opinion, at this point in time, is that the
retroactive approach may create more problems than it
can solve. However, the study I mentioned will determine
whether or not, on.balance, retroactive protection is
desirable.
A few of the pros and cons on the proposal are:
Pros:
1. It would mean the accrual of more licensing
fees and royalties.
2. It would reduce the possibility of pitting
competing U.S. firms against one another
to reduce the return on U.S. technology.
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3. It would contribute to detente.
Cons:
1. It would be necessary to offer similar treatment
to other nations under some "most favored
nation" agreements.
2. U.S. liabilities are uncertain. A
large volume of foreign patents and inventor's
certificates would be presented for retroactive
protection in this country.
3. The principle of intervening rights would afford
Soviet access to confidential technical information
to the possible detriment of U.S. firms. U.S.
open discovery proceedings are considerably more
liberal than the Soviet Union's.
And so we see the issue of retroactive patent recognition
is fraught with complications. As I said we welcome your
inputs on this proposal.
Let us now put this controversy aside and proceed to
examine the trade possibilities that open up when one
obtains a Soviet patent.
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U.S./TJ.S.'S.R. Foreign Trade
Soviet foreign trade is administered by the Ministry of
Foreign Trade as part of an overall trade plan. The
purchase of foreign goods and sale of Soviet products
abroad is the responsibility of some 60 Foreign Trade
Organizations (FTO's).
Each FTO has its own rules determining its legal status
and specifying the sphere of its activities. Each is
exclusively entitled to trade with other countries in
its particular area of activities, to sell for export,
to buy abroad, to fill its import requirements, and
to consumate technology transfer via licensing.
Licensintorg
Until 1962, trade operations in licenses were carried
out by the USSR foreign trade organizations. However, the
expanding trade in licenses demanded the creation of a
new FTO. This organization,
Licensintorg, exercises monopolistic rights in the field
of licensing, although other Soviet FTO's will buy
licenses if they are ancillary to another contract
(such as the acquisition of a plant).
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Licensintorg's functions are to buy, sell and exchange
patents and licenses, and to carry on license operations
throughout all industry. It operates as an independent
economic organization on a commission basis, and acts
as an agent in Soviet civil law for the Soviet organization.
Licensintorg personnel are stationed at many of the trade
delegations throughout the world and it also operates
through agents in various developed countries. Mr. Vadim
Volkov, for example, is the Licensintorg representative
stationed in Amtorg Trading Corporation in New York City.
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Negotiation Problems
The negotiation of a trade contract with the USSR is
typically fraught with impediments. In spite of the
monolithic representation of the Soviet industry by
S.C.S.T. in protocol negotiation, responsibility is,
in fact, fragmented among the various Soviet depart-
ments which may be affected by the transaction. The
powers of decision are likewise fragmented to provide
checks and balances.
Communication at every possible stage of the negotiations
from initial contact to the signing of a contract can be
difficult. The cumbersome bureaucracy often keeps apart
the technical experts on both sides and thus makes it
difficult to identify licensable Soviet technology and
prospective licensees of US technology.
The actual "face to face" negotiations between U.S.
licensing executives and representatives of Licensintorg
are often strained. The negotiators seem inflexible to
us.
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only
Since / S.C.S.T. is
privy to all bids, the Comynittee may be tempted to play
one company against another, not only with respect to
licensing fees, but also with respect to the amount of
technology any company is expected to disclose without the
Soviets incurring an obligation to close a deal.
However, after, having crossed all these hurdles, most U.S.
companies find sofar that the Soviets do adhere to and
provided
honor the terms of agreements,/that the agreements are
meticulously drafted to protect rights. Let all companies,
however, take careful note that the intellectual properties
agreement signed by the U.S./U.S.S.R. Joint Commission on
Science and Technology that I referred to earlier does not
provide protection; it only states some guiding principles.
Ability to Police Patent Infringement
Another matter of concern to those seeking a Soviet patent
is the policirgof patent infringement in the U.S.S.R. It
is impossible to evaluate either the existence of
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infringement or the,efficacy of available remedies because
of insufficient practical experience. However, our belief is that
the Soviet system would not normally tolerate patent
infringement. There are few Soviet patents to begin
with and the system is replete with checks and balances
to prevent infringement.'
Furthermore, we know of no serious instance of improper
proprietary
invasion of / rights in recent years. In fact,
the Soviets have significant cause to "lean over back-
wards" to avoid a charge of patent infringement. In the
first place, it is obviously more economical in the long
run to make satisfactory arrangements with the patentee
for know-how associated with the patent technology than
to develop it. Secondly, the flow of technology will
inevitably depend on development of common ground rules
and of relationships of trust, as in the case of trading
goods.
Even though it is difficult to obtain information about
possible infringements of patents in the Soviet Union,
the Soviets are well aware that it would take only one
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unfavorable infringement incident to dissipate the
climate of confidence they are obviously cultivating.
Soviet Publications
Soviet interest in patents is extensive. This is
manifested in many Soviet patent publications which
receive minimal distribution in the U.S. For example,
we obtained a 1967 handbook intended to guide applicants
in drawing up applications for patents. We are translating
this work and hope to make it available to you through the
Technical
National/Information Service (N.T.I.S.). Another Soviet
publication which came to my attention just recently is a
1973 English-Russian Patent Dictionary that contains about
7,500 terms. I was surprised to find the organization
chart of the U.S. Patent Office in its appendix! We are
considering preparing a reverse dictionary.
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Soviet Patent Prospects
The problems and obstacles to be surmounted to obtain a
a Soviet patent must not be dismissed lightly. However,
it appears that there are two principle advantages to
warrant obtaining this patent protection, which should be
considered by American businesses interested in penetrating
the Soviet market:
First, a patentee is established as the legally
recognized owner of the invention with the attend-
ant advantage over foreign competitors in sales and
licensing opportunities for the product.
Second, a patentee is in a stronger position to
enter into and enforce contractual commitment
concerning the use of his invention.
We have surveyed the theory of the Soviet patent system.
What we now lack, I fere gets i a lot of practical experience
in industrial property/exchange. Obtaining this experience
may considerably impact the welfare of the United States.
Implications for U.S. Welfare
Research and development must be pursued vigorously to maintain
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our technological lead. Accordingly, the U.S. government
must make sure that the total technology transferred to
the U.S.S.R. is not underpriced, jeopardizing our tech-
nological lead. (I am speaking here, of course, of tech-
nology that can be transferred under the Export Administration
Act, amended in 1972, which controls exports affecting
national security.)
U.S. Industry - Government Relationships
I wish therefore to ask you, as representative of high.tech-
nology U.S. industry, whether you would benefit from
coordination of technical activities to affecta fair re-
coupment of your R. & D. cost through licensing activities
in the U.S.S.R. Our competitors abroad for Soviet trade
often get more help from their governments than you do.
For your consideration, here are a few things we could do.
I am eager to hear your reactions.
First, would it be useful if we collected and reported nego-
tiating experiences of those U.S. companies who signed
licensing agreements in the U.S.S.R? (Counterpart information
is already available to the Soviets). Confidential information
would be deleted. The Dep of ready
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maintains a voluntarily provided, confidential file of
protocols signed by U.S. companies. It is incomplete of
course, and therefore may not be useful for statistical
analysis.
Second, would you benefit from statistics on how many
American held U.S.S.R. patents result in licenses?
Third, would it be helpful if we were to provide a
regular report on the subject matter of scientific and
technological agreements with the U.S.S.R.? Perhaps U.S.
business could benefit from the implications of this infor-
mation on U.S.S.R. priorities for future trade.
Fourth, would it be helpful if U.S. companies faced the
Soviet government on an industry-by-industry basis, with
industry and government representatives forming a consortium
for the protection of U.S. interests? Of course, such an
arrangement may have antitrust implications and would have
with
to be. explored / the Justice Department.
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-I believe that the Soviet government is anxious to purchase
U.S. technology and that we can win increased protection
for our industrial property rights under their law.
This sidelight will illustrate their intensity of purpose:
I have recently learned that a Soviet think tank is
studying a model of a multinational
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company composed of a U.S. firm with a Soviet industry
branch! It would seem they are seriously thinking about
new ways of doing business with us.
Conclusions
As cooperative agreements between U.S. companies and the
U.S.S.R. become more specific and as more experience is gained
in licensing and in adjudicating disputes that may arise.
we will gain a better feel for the way the Soviets treat
intellectual property of others. I expect the Soviet
government will abide by the cooperative agreements they
make given the current political climate. Howevdr, each
company must obviously weigh the risks of technology
loss which might result from a change in the political
climate between our two countries.
U.S. companies must understand, as I have stressed, that
industrial
property. Each specific agreement between a U.S. company
and the S.C.S.T. (or an industrial ministry) must clearly
spell out all of the required protection. Testing the
waters by first immersing a toe is the policy many of
you will favor. On the other hand, we don't want to
lose the 100 meter freestyle event to our competitors
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government agreements do not protect U.S.
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abroad because we are overly cautious in testing the
water temperature. Hence, these first agreements you
are signing ought to be significant enough to determine
if mutually beneficial trade with the U.S.S.R. is in the
offing.
The intellectual property risks increased trade with the
U.S.S.R. pose are difficult to assess. Monitoring of
licensing agreements in a society which restricts travel
of foreigners and in which access to government agencies
as well as to industrial facilities is tightly controlled
is clearly difficult. Monitoring the quantity:of production
under license is another problem. Probably most significant
is the fact that once our industrial property is transferred
to any enterprise in the U.S.S.R. it becomes accesible to
all Soviet industry, though in principle this may be
restricted by contractual agreement.
U.S. industry has had a most enviable record of achievement
in competition. Industry leaders are very capable of seeing
the overall technical picture in the areas of their competence
and assessing the impact of the agreements they sign on
the U.S. technical lead. The difficulty for each high level
decision-maker lies in the balancing of his stockholders'
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immediate interests and their long-range interests; in
balancing a possible short-term gain via an industrial
property transaction against the long-range interests
of U.S. industry as a whole. It is my conviction that
a decided technological lead is not only necessary for
the well-being of individual companies but also of our
country--and in my opinion even for the maintenance of
world peace.
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 UNITED STATES -DEPARTMENT OF
CE
CDMMER
CE
M-00798AQW504 P006-4
ON, D.C. .20230
OFFICE
OF THE
SECRETARY
FOR RELEASE THURSDAY TECHNOLOGICAL EXCHANGE WITH
FEBRUARY 28, 1974 USSR COULD BE ADVANTAGEOUS
The U. S. "can achieve a favorable balance of economic and
political advantages by engaging in a program of technology exchange
with the U.S.S.R. if we know what we are doing, are neither awed nor
seduced by the novelty of our task, and if we work carefully, thoroughly
and wisely" said Under Secretary of Commerce John K. Tabor today.
Tabor cited numerous areas in which the Soviets had technology
valuable to the U. S. He noted U. S. export controls which prohibit all
deliveries of strategic items, and warned against "technology seepage"
during negotiations for licensable transactions. In addition he cautioned
U. S. sellers against overlooking the premium they should be charging
for single sales having multiple use.
Noting that political objectives and private economic objectives
of U. S. -Soviet technology exchange "may sometimes conflict,'' he said
"this situation calls for a close degree of Government-industry inter-
relation in these circumstances. "
Tabor concluded by saying:
1. President Nixon has placed the U. S. and U.S.S.R. on a con-
structive path in taking us away from confrontation and to nego-
tiation and trade.
2. Negotiation and trade must be done from a position of
military and commercial strength.
3. In the purchases and sales of technology, minimal security
safeguards are provided by export licensing, but assurance that
technology is not lost through seepage nor sold short, or too
cheaply depends also upon the knowledge, skill and care with
which our sellers and buyers deal.
WASH I NGT
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4. The Department of Commerce stands ready to bring its
knowledge and skills about the state of Soviet art and their
method of dealing to bear on all negotiations by private
companies, upon request.
5. The Department of Commerce believes it entirely ap-
propriate to develop additional techniques to assure against
seepage and to arm U. S. firms with all best advice and
assistance without violating companies' proprietary interest.
We regard this kind of conference as one such method of
working towards that goal.
Tabor spoke at the Seminar on Technology Exchange with the
U.S.S.R. , at the U. S. Department of State. The full text of Under
Secretary Tabor's remarks is attached.
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 UNITED STATES
DEPARTMENT OF
COMMERCE
WASHINGTON, D.C. 20230
OFFICE
OF THE
SECRETARY
REMARKS BY
UNDER SECRETARY OF COMMERCE
JOHN K. TABOR
SEMINAR ON TECHNOLOGY EXCHANGE WITH THE USSR
U. S. DEPARTMENT OF STATE
FEBRUARY 28, 1974 -- 9:30 A. M.
I am pleased to share this platform with Under Secretary of
State Bill Casey and would like to speak to you about "Conditions for
a Successful Program of Technology Exchange with the USSR".
We are living in a time of great change. Many traditional
premises have been challenged and new conditions have brought forth
new policies. At times we feel uncomfortable, because we are
groping across unfamiliar terrain towards new goals.
This is not a new experience for Americans. Our willingness
to try new things, and new ways has been the source of our vitality
and strength. It has tested our ingenuity and skill and toughness,
and indeed developed those qualities. Once again we are so involved.
You at this conference are frontline troops, as it were, in this new
challenge.
Our discussion today is built on a new premise, namely that
the era of total confrontation with the Soviet Union, the day of the Iron
Curtain, the day of no interchange and no trade with the Soviet Union
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is no longer assuredly valid. Instead, under the leadership of
President Nixon, we and the Soviets have recognized that that policy
does not make sense in an era of mutual nuclear destruction, and we
are mutually, but cautiously, reaching toward each other to determine
whether we can evolve an era of negotiation from mutual strength.
Part of that era is the development of trade, on mutually beneficial
terms.
Let us from the outset be clear as to the potentials and the
limits, of trade in building a structure of peace.
On October 11, 1973, in launching the President's Export
Council, the President said:
"Now, first, I think it is well for us to under-
stand what the limitations of trade are in building of
our peaceful world. I notice in my talking points, it was
indicated that if we have trade that automatically will lead
to peace. Of course, that isn't true at all. As a matter
of fact, if we look at World War I and World War II we will
find that nations that traded with each other fought each
other. Japan and the United States in World War II are
good examples, and, of course, Britain and France
and Germany in World War I and World War II are
examples of that.
"So trade between nations, no matter how
great it is, does not necessarily lead to peace.
"But having stated the negative proposition,
let's also understand some of the positive points that
can be made about trade and how it can help in
building a structure of peace.
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"The first is that trade leads to communica-
tion between peoples, not just governments, but
peoples, and communications between peoples I very
sincerely believe -- having taken some role in opening
communications with other nations in the world over
the past four and one-half years, opening communications
with nations with which we had not had communications
before -- I believe that as we increase communication
between peoples at all levels, the opportunity of dis-
cussing differences rather than fighting about differences
is greatly increased.
And then, of course, there is another broader point
that should be made. As the nations of the world have a
greater stake in peace, they have a less incentive to wage
war. And as we have more expanded world trade, trade with
all nations, it means that nations which otherwise might be
tempted to wage war because of their concerns about inability
to move up their standard of living at home could develop a
stake in peace. I firmly believe that. "
Wednesday evening of this week at the White House, toasting the
Soviet Minister of Trade, Mr. Patolichev, the President summarized
this view by saying that trade could be "the cement holding together the
bricks" in the structure of peace. Note, it is not the bricks, -- but it
can be "the cement".
Last year, operating on this principle, the Soviets were the
source of our largest trade surplus -- $976 million. Total trade reached
$1. 4 billion. This was double our 1972 trade with the USSR.
Our January 1974 trade with the Soviets, announced yesterday,
totaled $81 million, and produced a surplus of $30 million.
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II.
The Soviets are particularly interested in acquiring our
technology, either in naked or embodied form. Hence it is a proper
subject for us to consider here today. We of Government and you of
industry come together to define the proper conditions for U.S.-Soviet
technology exchanges.
Overall, my message is simple: U.S.-Soviet technology exchanges
can and should be mutually profitable and beneficial, but from our point
of view they will be only if we use every bit of knowledge, skill, toughness,
and instinct which characterize the early Yankees who started this nation
on its way to prosperity.
Let me define for a minute what I mean when I speak of technology.
The term means to me basic research and development, blueprints re-
flecting the application of such research, equipment and systems which
embody some research and development, and management and production
techniques which convert that basic research and development into
profitable production.
The transfer of technology can occur through licensing, sales of
goods and services, or by merely exchanges of information in conferences,
conversations, and indeed in bargaining sessions connected with hoped-for
deals.
III.
Using the terms so defined, the first question we should answer is
whether U. S. -Soviet technology exchanges can be mutually beneficial. Can
we receive as much as we give? Obviously, here as in any business relationship,
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the agreement must be mutually beneficial or in short order it will
break down. I was interested to hear Minister Patolichev state
this as a basic premise on which he says Russia operates.
Clearly it must be the basis upon which private companies
and the U. S. Government operate.
I submit to you that agreements involving technology exchanges
between the USSR and either the U. S. Government or U. S. private
companies can be quite beneficial to the U. S.
First, the Soviets lead the U. S. in some important technological
areas. They have large programs with unique and valuable break-
throughs in metalworking, engineering plastics, hydro-electric
power and high voltage transmission techniques. They are moving
rapidly in fusion research. They are said to have made significant
advances in organic metallic chemistry. Experts advise me that
they lead the world in the development of magneto hydro-dynamic
power generators, which can generate electricity directly from coal
combustion, an item of more than passing interest to the U. S. in
this time of energy problems for us and much of the world.
Further proof of Soviet technological leadership in certain
areas are the new technology we have already obtained from them
such as a new low-cost method of extracting magnesium, new processes
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for cooling blast furnaces, remelting metals and smelting aluminum.
We have purchased from them equipment for casting aluminum ingots
and manufacturing thin-walled tubes of hard metal.
Some authorities hold that the Soviets are strong in research,
particularly in theortical fields such as physics, chemistry, and
mathematics. On the other hand, they experience major problems
on moving their laboratory research into commercial production.
Here is obviously a beckoning basis of mutually beneficial interchange,
for our greatest talent is practical application of new ideas in bold
and creative management and production techniques.
Second, a general characteristic of Soviet research and
development indicates potential benefits to the U. S. Here we
produce for a market. We must make a profit. Therefore our
industries concentrates on their resources or highly reliable, efficient
cost effective equipment. The Soviets have somewhat different
constraints. They cannot fail totally any more than we, but they
may be ready to pour greater amounts of their national resources
into solving particular problems, taking greater risks in developing
advanced prototypes. Where this is successful there is the possibility
that in such technologies we can save early phase R&D costs, taking
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advantage of their successful engineering design data and experience,
scaled up at considerable national expense, from bench size. Here
we are offered the opportunity to leap forward where the Soviets
have been successful and to avoid areas where they have failed.
Third, technology exchange with the Soviets, as with anyone
else, can lead to broader commercial involvement as related products
are sold or, exchanged and related technologies follow each other.
In a similar way, the acquisition of advanced technology by
either party creates a race with obsolescense generating continued
pressures to maintain or expand relations to take advantage of on-going
technological innovations. This maintains the momentum of develop-
ment as well as encouraging a stronger fabric of trade relations
between central economy countries and the balance of the international
economic system.
On the other side of the equation, it seems quite clear that the
Soviets are keenly interested in certain products and technologies we
have developed, particularly in the consumer or non-military sectors.
Some Americans express valid concerns that if we are foolish, we may
close the consumer gap in the USSR which has been created by Soviet
concentration on armament and defense spending, without advancing our
consumer sector commensurately. And this is a risk.
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There is no question that the Soviets intend to improve their
overall economic strength, just as we do.
Their labor productivity is estimated at 40% of our own. They
want U. S. and western technology and equipment to increase that
productivity. They hope to use imported technology to improve their
transportation system, their extractive industries and the quality
and range of consumer goods available to their people. Moreover,
the new industrial capability thus gained will generate products
which can be sold abroad, in competition with ourselves. All this
we must bear in mind as both the U. S. Government and our private
companies trade with the USSR.
IV.
Can we then achieve a favorable balance of economic and
political advantages by engaging in a program of technology exchange
with the USSR?
I believe the answer is yes, if we know what we are doing, are
neither awed nor seduced by the novelty of our task, and if we work
carefully, thoroughly and wisely.
Government has a duty to assure adequate protection of our
security. Therefore, our government, through a system of export
controls, prohibits all deliveries of strategic items, whether as raw
technology or embodied technology. Our Department of Commerce
Office of Export Administration approves or disapproves exports to
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the USSR. This is done in close cooperation with Defense, State and
other Departments. Likewise, an international coordinating committee,
including most of the NATO allies and Japan, operates a system of
export controls multilaterally. It obviously behooves any person trading
in technology, naked or embodied, to make early contact with the Office
of Export Administration to be sure that delivery can be made if an
agreement is reached with the Soviets. Commerce welcomes the
opportunity to give advisory opinions, and Commerce can be helpful by
informing you, the sellers, of what we know about the state of knowledge
of, and the true value to the Soviets of the technology you are seeking to
sell.
We also respectfully caution you that the Soviets will bargain
hard, will press you for specifics in the technology before any agreement
is reached, just as some of your trading partners in this country may do
seeking to learn as much as possible while giving as little as possible.
Our suggestion here to those of you in the private sector is keep your
guard up and in the best commercial sense be sure you get paid for what
you give, and give only what you are paid for, under licensed transactions.
Whether this suggestion, and the profit motive are sufficient
protections against possible technology wastage is a matter under most
serious consideration by the government at this time. We shall listen to
your comments most interestedly, here, on this point.
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This raises another matter. Are you getting paid enough for
what you give?
It is the other side of the balance -- not protection, but how
we are to reap our full share when technology exchange takes place --
that demands skilled management. There are special concerns given
the peculiarities of the U. S. -Soviet relationship. For example,
because we are dealing with a centralized, state owned and operated
economy, U. S. sale of a given technology takes place just once. The
process or product is then distributed appropriately throughout the
Soviet economy. For that matter, technology sold in eastern Europe,
unless specifically restricted by contract, may find its way rather
quickly to the Soviet Union as some western European firms have
discovered. Thus, the U. S. seller has not only the difficult problem
of evaluating his technology, but also the question of premium to be
charged for multiple use. If the technology in question is a U. S.
national monopoly, it carries an additional worth, even though more
than one U. S. firm may possess it.
Another aspect of the same problem, of being paid enough for
what is sold, arises because of the comment fror.i several American
firms that once a technology has been sold to tha Soviets, the seller
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has no control over its end use, no share in the results of the utiliza-
tion, and really, no way to monitor effectively the process of
utilization. Therefore, it behooves the seller to obtain the maximum
price for a one-time sale. He may wish to include in his contract
payment provision for any additional improvements in technology in
proportion to their share of original R and D costs.
Finally, there is the problem of having sufficient knowledge
and information about Soviet technology to know their degree of need.
Information about Soviet technology which might be of interest to you
as firms often seems to fall in the category of a State secret. You.
sometimes don't know what they have to sell, much less whether you
are interested in buying it.
Obviously, the USSR would not initially permit U. S. business-
men to go on a wide-open fishing expedition in the archieves of their
technology. So it is incumbent upon the U. S. businessman to make
prior determination concerning the technology gaps he wants filled,
and to ask the Soviets for this specific technology. If he fails, after
a number of requests, to obtain any indication of Soviet technology
in these areas, he is then in a position to say forthrightly, "What do
you have? " Perhaps he will get an answer.
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V.
Even with these suggestions, however, their remain problems
as well as opportunities in dealing in exchanges of technology between
the U. S. and the USSR.
In situations where the technology transfer takes place through
Government to Government agreements, all U. S. officials operate
under policy guidelines emphasizing the mutual and cooperative
nature of these agreements. Chairmen of some 41 specific inter-
change projects currently operating under the umbrella-type
agreements are responsible for building genuine reciprocity and
mutuality into each program. Each of these agreements will likewise
be subject to a policy review by the National Security Council,
Under Secretaries' Committee.
The licensing procedure enforced as to actual sales and
transfers of technology by the private sector certainly assures that
the embodied technology, the actual blueprints, the on-site deliveries
of know-how is reviewed. There is still in the American business
and industry community a very clear belief that appropriate Government
action to protect American technology should be taken. The special
concern relates to "technology seepage" after initial contacts are made,
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during negotiations and prior to the request for licenses. Forums
such as this alerting sellers to some of the pitfalls are helpful to
avoid such seepage. Discussions among yourselves based on the
experience of dealing with the centralized purchasing power of the
U.S.S.R., literally swapping experiences, will be helpful; and there
is much merit to finding new ways to coordinate the fragmented
activities of our sellers as they deal with the centralized Soviet buyer.
We want to do so in a way that does not impinge on or alter our economic
system or violate company proprietary interests. We need a pooling of
pertinent information on the experience gained through such exchanges,
and a mechanism of dissemination of appropriate general guidance and
advice to U. S. firms.
In addition, it is becoming clear that the political objectives and
the private economic objectives of U.S.-Soviet technology exchange may
sometimes conflict. Individual economic profit and national interest do
not always coincide. Again, this situation calls for a close degree of
Government-Industry inter-relation in these circumstances.
With these needs in mind, the State/Commerce Interagency
Working Group was formed to analyze the broad implication of U. S. -
Soviet technology flows for the U. S. national interest, and to respond
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to requests from U. S. firms with advice and assistance. Such a
plan is possible only if we achieve and maintain a constant Government-
Industry dialogue, of which today's meeting is a part.
The Interagency Group marks progress towards Government-
Industry cooperation, as does the Bureau of East-West Trade in the
Commerce Department. The Bureau has been providing U. S. firms
with advice and assistance on East-West trade for over a year, and it
also administers the Office of Export Administration. I speak for the
Bureau of East-West Trade and the Office of Science and Technology of
the Department of Commerce in general when I say that we strongly
support the concept and practice of Government-Industry inter-relation
in coordinating the flow of technology between the U. S. and the Soviet
Union. We stand ready to help you in any way we can.
Summarizing, I would say:
1. President Nixon has placed the U. S. and the
U. S. S. R. on a constructive path in taking us away from
confrontation and to negotiation and trade.
2. Negotiation and trade must be done from a
position of military and commercial strength.
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3. In the purchases and sales of technology,
minimal security safeguards are provided by export
licensing, but assurance that technology is not lost through
seepage nor sold short, or too cheaply depends also upon the
knowledge, skill and care with which our sellers and buyers
deal.
4. The Department of Commerce stands ready
to bring its knowledge and skills about the state of Soviet
art and their method of dealing to bear on all negotiations
by private companies, upon request.
5. The Department of Commerce believes it
entirely appropriate to develop additional techniques to
assure against possible seepage and to arm U. S. firms with
all best advice and assistance without violating companies'
proprietary interest. We regard this kind of conference as
one such method of working towards that goal.
Thank you.
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