Accordingly, it has not been without substantial misgivings that the National Agricultural Chemicals Association and the majority of the pesticide industry to date, has supported the enactment of this legislation.

This position has been premised upon an expectation that this broad grant of authority to the Federal Government will be exercised in a reasonable manner, and that through cooperation between the Federal and the State governments, overlapping and conflicting Federal-State controls will be avoided.

We recognize, Mr. Chairman, that H.R. 10729, as reported by the Senate Committee on Agriculture and Forestry, does not incorporate some of the provisions reflected in the 11 amendments which Senator Hart, and Senator Nelson proposed to that committee.

We assume that it will be primarily to those issues to which our testimony before this committee should be directed. Because of the fact that those issues primarily are legal or regulatory in nature, I have asked Mr. John D. Conner, counsel for the National Agricultural Chemicals Association to discuss those issues.

I have introduced those who are accompanying me for the purpose of answering as fully as possible, any questions which the committee may have. concerning the products and the practices of our industry.

Senator INOUYE. Thank you very much, Dr. Phillipson.

We will be very pleased to hear from Mr. Conner now.

Mr. CONNER. Mr. Chairman, I appear as counsel for the National Agricultural Chemicals Association. My discussion will be directed. to the primary issues raised by the 11 amendments that have been presented to the Senate Committee on Agriculture and Forestry by Senators Hart and Nelson.

The first issue, or group of issues, concerns the manner in which data presented in support of an application for registration of a pesticide will be handled. The relevant provisions of the bill relating to this are, first, under section 3(c)(1) (D) and (E), an applicant is required to submit a full description of the tests made and the results thereof, upon which claims are based, and the complete formula of the pesticide.

Second, under section 3(c) (4), the administrator is required to publish in the Federal Register a notice of the filing of each application, if the pesticide contains any new active ingredient or would entail a changed use pattern.

Third, under section 3 (c) (2), the administrator is required to make available to the public the data called for in the registration statement. within 30 days after registering a pesticide, except that under section 10, with certain exceptions, the Administrator is directed not to make public information which contains or relates to trade secrets, or commercial or financial information obtained from a person privileged or confidential.

Fourth section 3 (c) (1) provides:

** that data submitted in support of an application shall not, without permission of the applicant, be considered by the administrator in support of any other application for registration: Provided, that the administrator may refer to any applicant's test data in making a determination of the adequacy of the test data of the applicant under consideration.

That proviso clause was taken from one of the amendments presented by Senators Hart and Nelson on this issue by the Senate Committee on Agriculture and Forestry.

An evaluation of these provisions, and of the effect of the amendments relating to them offered by Senators Hart and Nelson, require an understanding of the nature of the data which must be developed and submitted by an applicant for registration of a new pesticide. This data includes information on the type of pesticide, the type of formulation, the type of containers in which it will be marketed, its proposed. labeling, data on its biological efficacy, data on its toxicity to humans, fish, and other wildlife, and data on its fate in the environment, including soil, water, fish, and other wildlife.

Experience of the last few years has shown that substantial research and expenditures are required after this initial registration to maintain a registration in effect.

A more detailed description of the type of information required for registration of a pesticide as described in a joint publication of the United States Departments of Agriculture and Health, Education, and Welfare, is set forth in appendix A to this statement.

In my prepared statement I have included two examples that were prepared by Dr. Richard H. Wellman, vice president and general manager of the Process Chemical Division, Union Carbide Corp., showing the heavy investment, both in money and time, that is required to bring a new pesticide on the market.

Because of the pressure of time, I will not cover the details of that, but will stress that, in the typical case, the development of all of this data requires several years during the development process. This will be before it ever comes on the market. It represents a substantial investment in money that might run up to $5 million to $10 million. Senator INOUYE. Without objection, your full statement will be made part of the record.

Mr. CONNER. Yes. So I am not reviewing those two examples.

These examples do reflect the fact that to develop a new pesticide and the data to support its registration requires a major investment both in money and in time. This investment cannot be justified if the data developed can be used by a competitor to develop and market a competitive product at a cheaper cost or in a shorter period of time. To the extent that the data developed would confer such an advantage on a competitor, we believe it to be evidence that the applicant originating the data has a proprietary interest which is entitled to protection.

We believe it to be equally evident that if the proprietor is not given reasonable protection, it will discourage investment in the development of such data.

As a practical matter, the proprietary value of such data will vary from case to case, depending upon the circumstances. However, there can be no question but that in the case of a typical new pesticide, some or much of the supporting data will have substantial proprietary data. H.R. 10729 as reported by the Senate Committee on Agriculture and Forestry provides two protective features:

(1) The provision of section 3(c) (1) (D) that new data submitted in support of an application shall not, without the permission of the applicant, be considered in support of any other application; and (2) The provisions of section 10 protecting trade secrets from disclosure.

The proposed Hart-Nelson amendment No. 3 would eliminate the provision of section 3(c) (1) (D) which would prohibit the use of one applicant's data to support the application of another. The Senate Committee on Agriculture and Forestry did not adopt this portion of the amendment, although it adopted the proviso clause of the amendment that the Administrator may refer to any applicant's data in making a determination of the adequacy of the test data under consideration.

We consider this provision as so amended to be fully justified. The reasonableness of the provision does not depend upon an appraisal of the particular data under consideration.

If it has no competitive advantage to the second applicant who wishes to piggyback, he is not injured by his inability to rely upon it. On the other hand, if it would have a competitive advantage to the second applicant, it, by the same token, has a proprietary value to the registrant who originated the data. He should not be deprived of this proprietary value in the absence of compelling policy considerations. We see no such considerations here.

The second applicant is free to develop such data by making the required investment, or by making contractual arrangements with the original applicant.

The protection under section 10 from disclosure of trade secrets does not obviate the necessity for the protection of the piggyback preclusion of section 3 (c) (1) (D), because even in the absence of disclosure the administrator, in the absence of the preclusion, could give the second applicant the benefit of another's data by merely taking official notice of the data in his files.

I have noticed in the statement that Senator Dominick has prepared for presentation to the committee the reference to this provision. In it he refers to a letter from the Attorney General which in substance opposes this provision and suggests its deletion.

I have reviewed this letter. The letter is signed by Mr. Kleindienst and. I believe, is based upon a misunderstanding or a lack of understanding of the bill as it is written.

In the letter signed by Mr. Kleindienst, he relies upon or refers to two decisions decided by the U.S. Supreme Court in 1964, the Sears, Roebuck Co. v. the Stiffel Co., and Compco v. Day-Brite, and he says in his letter if there should, however, be a genuine trade secret problem, the administrator is otherwise able, of course, to protect trade secrets under section 10 of the bill.

Section 3 (c) (1) (D) in H.R. 10729 would in effect give trade secret or packing-type protection to test data. We believe that that statement does not reflect the circumstances under which the bill will be operating. It is not necessary that the trade secret data be revealed to a second applicant in order for him to benefit by it. The administrator, in the absence of this provision, could merely take official notice of the fact that he has this other data in his file and transpose it then to the file of the second application. By doing so, he would grant registration to the second applicant, upon the basis of trade secrets compiled by the first applicant at a cost of possibly several million dollars in money and several years in time.

We believe the justification for protection from disclosure of trade secrets will not be questioned. However, in the administration of this section, we do foresee substantial areas of disagreement concerning the types of data which are required in support of an application for registration and are entitled to protection as a trade secret.

Trade secrets are protected from disclosure not only by section 10 of H.R. 10729, but also by the provisions of the United States Code, title 5, section 552, the Freedom of Information Act, and title 18, section 1905, which makes it a criminal offense for an employee of the U.S. Government to divulge a trade secret and other specified categories of information without specific statutory authority. Neither of these statutes nor H.R. 10729, however, define a trade secret or provide any meaningful guidelines.

A special committee of the National Agriculture Chemicals Association, consisting of individuals who have the responsibility for research development for their companies, has recently made a study of the types of information which must be submitted in support of a registration and attempted to appraise the categories of information which they would consider under usual industry practices to constitute a trade secret and the types which would not.

The committee, through this study, sought to determine general guidelines based on customary industry practice, but recognized that what constitutes a trade secret in a particular case will rest on the facts of that case.

As a guide in its appraisals, the committee used the definition of a trade secret as set forth in the Restatement of Torts 1939, and in the proposed Uniform Trade Secret Protection Act which currently is being prepared by a committee of the American Bar Association.

These two definitions are set forth as appendixes B and C. The committee and I, as counsel, working jointly from these definitions, developed the following primary criteria as a basis for the appraisal of what constitutes a trade secret:

(1) Did the acquisition of data represent a substantial investment in: (a) time? (b) money?

(2) To what extent have members of the industry sought to impose. conditions of secrecy or nondisclosure on such information?

(3) To what extent could the information be obtained by competitors? What would be the time and cost requirements?

(4) Would the knowledge of the information be of advantage to a competitor? If so, how would competitors be able to use the information to advantage?

The committee then appraised against these criteria the different types of data which must be submitted to support an application.

Some of the types of data, when considered on the basis of customary industry practices, were considered to be valid trade secrets. Other types were considered not to constitute trade secrets because of failure to meet one or more criteria when judged on customary industry practices.

In some classifications, it considered that the detailed data normally would constitute a trade secret because of its value to a competitor and the customary practice of the industry in making a special effort to keep such data confidential. At the same time it concluded that a summary of such detailed data would not normally constitute a trade.

secret.

Under such an interpretation summaries of data could be made available for public inspection while the detailed data could be protected from disclosure.

This would accord with the procedure which the Food and Drug Administration has proposed for similarly required data. Under theproposed procedure for compliance with the Freedom of Information Act as published in the Federal Register of May 5, 1972, at page 9130, the Food and Drug Administration proposed to treat safety and effectiveness data as trade secrets and to comply at the same time with the requirements of the Freedom of Information Act by releasing summaries of the data. This interpretation is based on the definition of a trade secret in the Restatement of Torts referred to above.

We believe that a similar practice can be followed under H.R. 10729, as it was reported by the Senate Committee on Agriculture and Forestry, and in doing so protect valid trade secrets, and at the same time meet the need of the public to be informed on the nature of the research work which has been conducted, and a summary of the results. Mr. Chairman, in view of the pressure of time and in view of the fact that you have permitted by statement to go into the record as presented, I think that I will just not summarize or read the remainder of it, and leave whatever time remains for questioning by the committee. Senator INOUYE. I thank you very much, sir.

In your prepared statement, Mr. Conner, you have cited two very informative case histories that seek to demonstrate why data submitted in support of the registration should not be used in support of another registration.

Mr. Conner, am I correct in assuming that existing law contains no prohibition against using another registrant's data in support of a registration application, and that this has been done in the past?

Mr. CONNER. Mr. Chairman, that is correct. The present law enacted in 1947 has no provision in it relative to this issue one way or another.

I participated in the drafting of this act in 1949. I also participated in drafting the model State bill which later became the pattern for this Federal act. There was no thought at the time of the enactment of this act in 1947 that the data submitted by one applicant would ever be released for public inspection.

This did not appear to be an issue at that time.

It is since the enactment of the Freedom of Information Act a few years ago requiring the release of data in the files of the Government agencies, except that which constitutes trade secrets, or other specific exemptions, that this issue has become more important.

It is true, however, that even in the absence of the release of the data for publication that as a matter of administrative procedure, the administrators of the act have used data prepared by one applicant in support of another application.

It is the feeling of our industry that this is unfortunate, and thatit has had the effect of keeping off of the market a number of pesticides that otherwise would have been placed on the market, because of the fact that they were older pesticides that did not have packing protection, and that under the current standards would have required) considerable testing as to their safety.