Message to the Congress Transmitting Proposed Legislation To Improve Industrial Productivity and Competitiveness

September 12, 1983

To the Congress of the United States:

I am transmitting to the Congress today a legislative proposal entitled, the ``National Productivity and Innovation Act of 1983.'' The bill would modify the Federal antitrust and intellectual property laws in ways that will enhance this country's productivity and the competitiveness of U.S. industries in international markets.

As you know, one of the most important goals of my Administration has been to revitalize the competitiveness and productivity of American industry. Tax cuts proposed by my Administration and enacted during the 97th Congress have greatly stimulated economic activity. In addition, our efforts to rationalize Federal rules and regulations have significantly enhanced the efficiency of our economy. For the first time in over a decade, there exists the foundation for a period of strong and sustained economic growth.

The ability of the United States to improve productivity and industrial competitiveness will also depend largely on our ability to create and develop new technologies. Advances in technology provide our economy with the means to produce new or improved goods and services and to produce at lower cost those goods and services already on the market. It is difficult to overstate the importance of technological development to a strong and healthy United States economy. It has been estimated that advances in scientific and technological knowledge have been responsible for almost half of the increase in this country's labor productivity over the last 50 years. New technology also creates new jobs and gives us an advantage in world markets. For example, the U.S. computer industry, which was in its infancy just a short time ago, directly provides jobs for about 830,000 Americans and is a leader in world markets.

The private and public sectors must spend a great deal of time, money, and effort to discover and develop new technologies. My Administration has moved to bolster research and development (R&D) in the public sector by proposing in our 1984 budget to increase Federal funding of R&D by 17 percent, to $47 billion. However, it is vital that our laws affecting the creation and development of new technologies properly encourage private sector R&D as well.

The Economic Recovery Tax Act of 1981 provides a 25 percent tax credit to encourage firms to invest in additional R&D. Our economic program has helped reduce inflation and interest rates and thus has lowered substantially the cost of conducting research.

The antitrust and intellectual property laws also have a very significant effect on private investment in R&D. The antitrust laws are designed to protect consumers from anti-competitive conduct. While the economy generally benefits most from vigorous competition among independent businesses, the antitrust laws recognize that in some areas, like the creation and development of technology, cooperation among producers, even competitors, can actually serve to maximize the well-being of consumers.

The intellectual property laws, for example, those dealing with patents and copyrights, also serve to promote the interests of consumers. The promise of the financial reward provided by exclusive rights to intellectual property induces individuals to compete to create and develop new and useful technologies.

After reviewing the effect of the antitrust and intellectual property laws on the creation and development of new technologies and after consultations with key members of Congress, I have concluded that the antitrust laws can be clarified in some respects and modified in other respects to stimulate significantly private sector R&D. This can be done while maintaining strong safeguards to protect the economy against collusive actions that would improperly restrict competition. The National Productivity and Innovation Act of 1983, which embodies those changes, is a package of four substantive proposals that deals with all phases of the innovation process.

Title II of the bill would ensure that the antitrust laws do not unnecessarily inhibit United States firms from pooling their resources to engage jointly in procompetitive R&D projects. Joint ventures often may be necessary to reduce the risk and cost associated with R&D. So long as the venture does not threaten to facilitate price fixing or to reduce innovation, such ventures do not violate the antitrust laws. Nevertheless, the risk remains that some courts may not fully appreciate the beneficial aspects of joint R&D. This risk is unnecessarily magnified by the fact that a successful antitrust claimant is automatically entitled to three times the damages actually suffered.

Title II would alleviate the adverse deterrent effect that this risk may have on procompetitive joint R&D ventures. This title provides that the courts may not find that a joint R&D venture violates the antitrust laws without first considering its procompetitive benefits. In addition, Title II provides that a joint R&D venture that has been fully disclosed to the Department of Justice and the Federal Trade Commission may be sued only for the actual damage caused by its conduct plus prejudgment interest. This combination of changes will encourage the formation of procompetitive joint R&D ventures. And unlike some other proposals currently before Congress, it will do so with the minimal amount of bureaucratic interference in the functioning of those ventures.

If we are to assure that our laws stimulate investment in new technologies, however, it is not enough merely to correct the adverse deterrent effect the antitrust laws may have on procompetitive joint R&D. Rather, we must also assure that the antitrust and intellectual property laws allow -- indeed encourage -- those who create new technologies to bring their technology to market in the most efficient manner. Only in this way can those who invest their time, money, and effort in R&D be assured of earning the maximum legitimate reward.

Titles III and IV recognize that very frequently the most efficient way to develop new technology is to license that technology to others. Licensing can enable intellectual property owners to employ the superior ability of other enterprises to market technology more quickly and at lower cost. This can be particularly important for small businesses that do not have the ability to develop all possible applications of new technologies by themselves. However, the courts have not always been sympathetic to these procompetitive benefits of licensing.

Title III would prohibit courts from finding that an intellectual property licensing arrangement violates the antitrust laws without first considering its procompetitive benefits. In addition, the title would eliminate the potential of treble damage liability under the antitrust laws for intellectual property licensing. Although those who suffer antitrust injury as a result of licensing would still be able to sue for their actual damages plus prejudgment interest, Title III would minimize the deterrence that the antitrust laws currently may have on potentially beneficial licensing of technology.

Title IV would also encourage the procompetitive licensing of intellectual property. Pursuant to this title, the courts may refuse to enforce a valid patent or copyright on the ground of misuse only after considering meaningful economic analysis.

Finally, Title V will close a loophole in the patent laws that has discouraged investment in efficiency-enhancing technologies. Creation of and improvements in the process of making products can be just as important as creating and improving the product itself. Currently, if someone uses a United States process patent outside this country without the owner's consent and then imports the resulting product into the United States, the importer is not guilty of infringement. Title V of the bill would close this loophole so that owners of process patents can earn their rightful reward by preventing the unauthorized use of their technology.

We must not delay making the necessary changes in the law to encourage the creation and development of new technology, to increase this country's productivity, and to enable our industries to compete more effectively in international markets. We must act now. I therefore urge prompt consideration and passage of this legislative proposal.

Ronald Reagan

The White House,

September 12, 1983.