[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]



 
                      PATENT QUALITY IMPROVEMENT: 
                         POST-GRANT OPPOSITION

=======================================================================

                                HEARING

                               BEFORE THE

                 SUBCOMMITTEE ON COURTS, THE INTERNET,
                       AND INTELLECTUAL PROPERTY

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 24, 2004

                               __________

                             Serial No. 91

                               __________

         Printed for the use of the Committee on the Judiciary


    Available via the World Wide Web: http://www.house.gov/judiciary





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                     COMMITTEE ON THE JUDICIARY

            F. JAMES SENSENBRENNER, Jr., Wisconsin, Chairman
HENRY J. HYDE, Illinois              JOHN CONYERS, Jr., Michigan
HOWARD COBLE, North Carolina         HOWARD L. BERMAN, California
LAMAR SMITH, Texas                   RICK BOUCHER, Virginia
ELTON GALLEGLY, California           JERROLD NADLER, New York
BOB GOODLATTE, Virginia              ROBERT C. SCOTT, Virginia
STEVE CHABOT, Ohio                   MELVIN L. WATT, North Carolina
WILLIAM L. JENKINS, Tennessee        ZOE LOFGREN, California
CHRIS CANNON, Utah                   SHEILA JACKSON LEE, Texas
SPENCER BACHUS, Alabama              MAXINE WATERS, California
JOHN N. HOSTETTLER, Indiana          MARTIN T. MEEHAN, Massachusetts
MARK GREEN, Wisconsin                WILLIAM D. DELAHUNT, Massachusetts
RIC KELLER, Florida                  ROBERT WEXLER, Florida
MELISSA A. HART, Pennsylvania        TAMMY BALDWIN, Wisconsin
JEFF FLAKE, Arizona                  ANTHONY D. WEINER, New York
MIKE PENCE, Indiana                  ADAM B. SCHIFF, California
J. RANDY FORBES, Virginia            LINDA T. SANCHEZ, California
STEVE KING, Iowa
JOHN R. CARTER, Texas
TOM FEENEY, Florida
MARSHA BLACKBURN, Tennessee

             Philip G. Kiko, Chief of Staff-General Counsel
               Perry H. Apelbaum, Minority Chief Counsel
                                 ------                                

    Subcommittee on Courts, the Internet, and Intellectual Property

                      LAMAR SMITH, Texas, Chairman

HENRY J. HYDE, Illinois              HOWARD L. BERMAN, California
ELTON GALLEGLY, California           JOHN CONYERS, Jr., Michigan
BOB GOODLATTE, Virginia              RICK BOUCHER, Virginia
WILLIAM L. JENKINS, Tennessee        ZOE LOFGREN, California
SPENCER BACHUS, Alabama              MAXINE WATERS, California
MARK GREEN, Wisconsin                MARTIN T. MEEHAN, Massachusetts
RIC KELLER, Florida                  WILLIAM D. DELAHUNT, Massachusetts
MELISSA A. HART, Pennsylvania        ROBERT WEXLER, Florida
MIKE PENCE, Indiana                  TAMMY BALDWIN, Wisconsin
J. RANDY FORBES, Virginia            ANTHONY D. WEINER, New York
JOHN R. CARTER, Texas

                     Blaine Merritt, Chief Counsel

                         David Whitney, Counsel

                          Joe Keeley, Counsel

                     Alec French, Minority Counsel



                            C O N T E N T S

                              ----------                              

                             JUNE 24, 2004

                           OPENING STATEMENT

                                                                   Page
The Honorable Lamar Smith, a Representative in Congress From the 
  State of Texas, and Chairman, Subcommittee on Courts, the 
  Internet, and Intellectual Property............................     1
The Honorable Rick Boucher, a Representative in Congress From the 
  State of Virginia..............................................     2

                               WITNESSES

Mr. James A. Toupin, General Counsel, U.S. Patent and Trademark 
  Office (PTO), Washington, DC
  Oral Testimony.................................................     5
  Prepared Statement.............................................     7
Jeffrey P. Kushan, Esquire, Sidley Austin Brown & Wood, on behalf 
  of Genentech, Inc.
  Oral Testimony.................................................    13
  Prepared Statement.............................................    15
Mr. Michael K. Kirk, Executive Director, American Intellectual 
  Property Law Association (AIPLA)
  Oral Testimony.................................................    27
  Prepared Statement.............................................    28
Mr. Karl Sun, Senior Patent Counsel, Google, Inc.
  Oral Testimony.................................................    37
  Prepared Statement.............................................    39

                                APPENDIX
               Material Submitted for the Hearing Record

Prepared Statement of the Honorable John Conyers, Jr., a 
  Representative in Congress From the State of Michigan, and 
  Ranking Member, Committee on the Judiciary.....................    49
Letter to Rep. Lamar Smith and Rep. Howard L. Berman from Stephan 
  H. Lawton, Vice President and General Counsel, Biotechnology 
  Industry Organization..........................................    50
Letter to Rep. Lamar Smith and Rep. Howard L. Berman from Warner 
  R. Broaddus, Vice President, General Counsel & Secretary, and 
  Charles S. Berkman, Associate General Counsel and Chief Patent 
  Counsel, Ligand Pharmaceuticals................................    57


                      PATENT QUALITY IMPROVEMENT: 
                         POST-GRANT OPPOSITION

                              ----------                              


                        THURSDAY, JUNE 24, 2004

                  House of Representatives,
              Subcommittee on Courts, the Internet,
                         and Intellectual Property,
                                Committee on the Judiciary,
                                                    Washington, DC.
    The Subcommittee met, pursuant to other business, at 4:23 
p.m., in Room 2141, Rayburn House Office Building, Hon. Lamar 
Smith (Chair of the Subcommittee) presiding.
    Mr. Smith. We will now proceed to an oversight hearing on 
patent quality improvement: post-grant opposition, and our 
witnesses are welcome to come forward and take their seats. I 
am going to recognize myself for an opening statement and then 
will recognize Mr. Boucher for his.
    A year ago to this day, our Subcommittee conducted a 
hearing on patent quality improvement by examining six reform 
proposals. Today's hearing on post-grant opposition is the next 
stop on the Subcommittee's patent reform tour. Passage of the 
patent fee bill, H.R. 1561, consumed much of this 
Subcommittee's time earlier this term. The Patent and Trademark 
Office desperately needs the additional revenue.
    While H.R. 1561 doubtlessly will improve PTO's 
administrative ability to tackle the problems of application 
pendency and backlogs, these goals should not supersede the 
need to improve public confidence in the validity of issued 
patents. All roads should lead to enhanced patent quality. 
Patents of dubious probity only invite legal challenges that 
divert money and other resources from more productive purposes, 
purposes such as raising venture capital, commercializing 
inventions and creating jobs.
    Today's hearing addresses an important subject that could 
strengthen how parties challenge the scope and validity of weak 
patents. The primary administrative procedure for addressing 
such disputes in the United States is reexamination, which may 
be initiated by any party during the life of the patent. 
Conceived in 1980, reexamination permits the patent owner or 
any other party to request that the PTO reconsider the grounds 
on which the patent was originally issued. Initiation of a 
reexamination requires that some previously undisclosed new and 
relevant piece of prior art be presented to the agency.
    The standard, a substantial new question of patentability, 
prevents the reopening of issues deemed settled in the original 
examination. A relevant disclosure must also be printed in 
either a prior patent or prior publication. No other source can 
serve as grounds for the reexamination. A major criticism of 
this system is that its ex parte nature limits the 
participation of third parties. In response, our Subcommittee 
developed an inter partes component of reexamination in 1999 
and amended the provision further in the 107th Congress to 
encourage its use.
    Unfortunately, the proceeding remains something of a white 
elephant to most challengers, in part because they are estopped 
under its terms from asserting claims in later court 
proceedings that could have been raised during reexamination.
    A more elaborate and adversarial procedure for challenging 
the validity of patents in the immediate aftermath of their 
issuance is the European opposition proceeding. This system 
permits challengers to contest a wider range of issues related 
to patentability in a more robust, almost trial-like, manner. 
Unlike reexamination, however, European post-grant claims must 
be made within 9 months of a patent's issuance.
    While our witnesses and many inventors may embrace post-
grant in the abstract, the patent community at large has not 
coalesced around the particulars of one proposal. The purpose 
of this hearing, therefore, is to explore whether the adoption 
of a post-grant system in the United States would improve 
patent quality. If so, what will be the prominent features of 
the new construct?
    Whatever our initial differences today, I hope that next 
year, we will draft legislation that enhances, perhaps by 
replacing, the current reexamination process. Our goal is to 
empower inventors to challenge the scope and validity of 
patents when truly appropriate in an administrative setting.
    That concludes my opening statement, and the gentleman from 
Virginia, Mr. Boucher, is recognized for his.
    Mr. Boucher. Mr. Chairman, thank you very much for 
convening today's hearing on ways to improve the process by 
which patents are awarded. I would like to say a word of 
welcome to our witnesses today who represent a very diverse 
group of interests, and we are very glad to have you here.
    Under current law, it is very difficult to challenge a 
patent once it has been awarded, even if there is evidence of 
the existence of prior art or other matters that would render 
the patent invalid. The current inter partes reexamination 
process is limited to prior art. Other matters may not be 
raised in such a proceeding. If someone initiates an inter 
partes reexam, he is confronted with the application of the 
estoppel principle in any later court proceeding with respect 
to the matters he raised in the inter partes reexamination 
proceeding, and any matters he could have raised are also 
subject to estoppel in a later court process.
    No cross-examination of witnesses is permitted in the inter 
partes reexamination; no oral testimony is permitted during the 
inter partes reexamination, and so, it really is a process on 
paper where material is submitted, limited just to the question 
of whether or not there is prior art. No argument is permitted 
essentially on either side.
    And so, not surprisingly, given the limited nature of this 
process, it is no wonder that the application of estoppel at 
the end of it renders the process all but useless, and in fact, 
it has not been used a great number of times.
    If the party wanting to contest a patent decides to go to 
court, he is also confronted with a very high hurdle, and that 
very high hurdle is a clear and convincing evidence standard. 
That is a barrier that is difficult to surmount, and so, under 
current law, when you look at all the various processes open, 
you have to conclude that it is extraordinarily difficult to 
challenge a patent.
    I personally believe that patent quality would be enhanced 
if we had a more meaningful process through which these claims 
can be raised. The current system clearly can be improved, and 
I would suggest, as others have, that the creation of a 
postaward opposition offers a meaningful opportunity to 
challenge patents before going to court. That approach has 
merit, and I am pleased to see a consensus developing, as I 
think will be represented by our witnesses here today, that a 
meaningful postaward opposition proceeding would be a positive 
step for us to implement.
    There are some other issues that our witnesses may care to 
address, and let me simply list these: first of all, should we 
consider a provision that would require the publication of all 
patent applications after 18 months? Under current law, the 
only patent applications that must be published after 18 months 
are those that are destined for international filing as well as 
for domestic filing. And those that are for domestic filing 
only escape the current 18-month publication. So one question 
is should we expand to all patent applications, including those 
that are domestic only, the 18-month filing requirement?
    There are political problems associated with that that I 
readily acknowledge, but I would be interested in learning from 
our witnesses whether they think in theory it is a good idea. 
In the case of submarine patents, should the law be changed to 
remove the automatic injunction that now applies against the 
defendant whenever the court finds that an infringement has 
occurred when one of these submarine patents arises, and 
instead, perhaps, a provision would be better if it required 
the court to weigh the harms to both sides in such an instance 
before deciding whether or not to issue an injunction.
    A third possible question is at what point should a person 
be able to file a declaratory judgment action for a judgment on 
the validity of a patent held by someone else? Is it upon the 
receipt of a licensing letter from the patent holder? Is it 
upon the threat of suit against the person who may be involved, 
perhaps, in a manufacturing application by the patent holder? 
Or should it be upon the occurrence of some other event that we 
determine that a case in controversy exists and therefore make 
eligible a declaratory judgment action?
    These are just some of the questions that I think revolve 
around the very important subject of steps we could take here 
in order to improve patent quality, and I again want to commend 
the Chairman for his strong interest in this subject, for 
convening today's hearing and also thank the witnesses for 
their participation.
    Mr. Smith. Thank you, Mr. Boucher. Without objection, other 
Members' opening statements will be made a part of the record.
    And let me proceed to introduce our witnesses. Our first 
witness is Jim Toupin, who became general counsel for the U.S. 
Patent and Trademark Office in January 2001. In that capacity, 
Mr. Toupin provides legal advice and court representation for 
the PTO and conducts oversight of the PTO Office of the 
Solicitor, Board of Patent Appeals and Interferences and 
Trademark Trial and Appeal Board.
    Mr. Toupin was educated at the Boalt Hall School of Law at 
Berkeley, where he served as editor of the California Law 
Review and at Stanford, where he received a bachelor's degree 
in history Phi Beta Kappa. He has published widely on various 
intellectual property, health and trade issues.
    Our next witness is Jeffrey Kushan, a partner and patent 
attorney at Sidley, Austin, Brown & Wood's Washington, D.C. 
office. He is testifying on behalf of the biotechnology company 
Genentech. Last year, American Lawyer Magazine named Mr. Kushan 
as one of the top 45 lawyers in the United States under the age 
of 45. Mr. Kushan, I remember asking you about that before. 
When are you going to age out? [Laughter.]
    Five more years? And do they have a top 50 under 50? 
[Laughter.]
    Just a 45 under 45; okay.
    In any case, he is very distinguished. He serves as 
Chairman of the American Bar Association's Patent Law Committee 
and as an adjunct faculty member of the George Washington 
University. Mr. Kushan is a graduate of the George Washington 
University Law School. He earned a master's in chemistry from 
the University of North Carolina at Chapel Hill and a 
bachelor's in chemistry from the College of William and Mary.
    Our next witness is Mike Kirk, the executive director of 
the American Intellectual Property Law Association. Before 
joining AIPLA, Mr. Kirk worked at the Patent and Trademark 
Office for nearly 30 years. Mr. Kirk earned his bachelor of 
science in electrical engineering at the Citadel in 1959; his 
juris doctor in 1965 from Georgetown Law Center; and his master 
of public administration in 1969 from Indiana University.
    Our final witness is Mr. Karl Sun, who became Google's 
first patent counsel in 2002. Prior to joining Google, Mr. Sun 
practiced law in California and counseled emerging corporations 
on development finance and intellectual property matters. He 
has also clerked for the Federal Circuit. Mr. Sun studied 
electrical engineering, computer science and technology and 
policy at MIT, where he earned a bachelor of science and two 
master of science degrees. He completed his legal studies at 
Harvard and served as editor of the law review.
    Welcome to you all, probably the most educated witnesses we 
have had in a long time before the Subcommittee, and we 
appreciate your taking the time and giving us your expert 
advice. We have statements from all of our witnesses, and 
without objection, they, too, will be made a part of the 
record.
    We would ask you to keep your testimony, if you could, to 5 
minutes, and with that, we will proceed, and Mr. Toupin, would 
you start?

TESTIMONY OF JAMES A. TOUPIN, GENERAL COUNSEL, U.S. PATENT AND 
             TRADEMARK OFFICE (PTO), WASHINGTON, DC

    Mr. Toupin. Good afternoon, Chairman Smith, Congressman 
Boucher, Members of the Subcommittee. I am pleased to have this 
opportunity to present the U.S. Patent and Trademark Office's 
views regarding post-grant review of patents. Before I turn to 
this important subject, I want to take a moment to thank you 
for your continued leadership on innovation and USPTO issues.
    As you know, the Office's 21st Century Strategic Plan was 
developed in response to a Congressional requirement. This 
blueprint for modernizing the office contains 37 initiatives 
that focus on quality, productivity and e-Government. Creating 
a new procedure to permit the agency to review economically 
significant patents after they are granted based on full 
participation of interested parties is an important part of the 
strategic plan's emphasis on patent quality.
    Over the past 25 years, Congress has incrementally added to 
the USPTO's jurisdiction under which third parties could seek 
office review of issued patents. In 1980, Congress introduced 
ex parte reexamination, under which a third party could 
petition for reexamination of a patent. In 1984, section 135 of 
the Patent Act was amended to allow issues of patentability as 
well as priority to be included in interference proceedings, 
and in 1999, Congress, as part of the American Inventors 
Protection Act, created inter partes reexamination, whereby a 
third party could participate in a reexamination proceeding. 
That, as the Chairman mentioned, was amended in 2002.
    The USPTO's ability to review issued patents has grown. But 
none of these procedures have fully utilized the Office's 
ability to review issued patents. For example, interference 
proceedings only lead to challenges of patents when a pending 
application raises a priority issue as to a recently-issued 
patent. Further, except in interferences, a third party cannot 
conduct discovery and develop evidence necessary to challenge 
patentability, nor can a third party challenge patent owner 
evidence by cross-examination.
    More typically, a third party may only challenge the 
patentability of patent claims in the Office based on certain 
prior art references, namely patents or printed publications, 
by reexamination. However, potential challengers have regarded 
ex parte reexamination as an insufficient mechanism because 
after the proceeding has begun, the third party's participation 
is limited at most to one reply.
    The inter partes reexamination procedure was intended to 
address this defect; however, limitations on that process, as 
noted, have led it to be rarely used. Only 46 inter partes 
reexaminations have been instituted during the nearly 5 years 
for which the procedure has been available.
    This history helped the USPTO develop its strategic plan 
and consider whether it could improve its capability to conduct 
post-grant review. The USPTO proposes a review model different 
from reexamination, namely, a genuinely contested case presided 
over by a panel of administrative patent judges which, upon the 
challenger's presenting sufficient grounds to believe that 
patent claims are unpatentable, would include closely-directed 
discovery and cross-examination.
    The proceeding would be designed to be concluded within a 
year and would provide for challenges based on all grounds of 
unpatentability but not inequitable conduct. They would be 
available to challengers for a year after a patent issues and 
thereafter to those threatened with patent infringement 
litigation.
    The USPTO's proposal is thus designed to put review of the 
propriety of patent claims that the public regards as important 
in the hands of senior, legally-qualified officials with 
experience in dispute resolution. It is designed to be more 
efficient than litigation while preserving enough of the full 
participation according to parties in litigation that 
challengers will be able to risk being able to be bound by the 
result. By providing for the possibility of amendment of 
challenge claims, the proposed system would preserve the 
merited benefits of patent claims better than the win-all-or-
lose-all validity contests in District Court.
    The subsequent response from those studying the patent 
system and from user groups suggests that post-grant review is 
an idea whose time has come. As you may know, two recent 
reports on the U.S. patent system issued since the 21st Century 
Strategic Plan espoused post-grant review proposals strikingly 
similar to the USPTO's. Interested groups such as AIPLA and the 
Intellectual Property Owners have also passed resolutions 
supporting the concept.
    It is time to develop a new American procedure that will 
increase public confidence in one of America's truly great 
legacies, the patent system, by establishing a comprehensive 
post-grant review of patent validity. We contemplate that it 
will be a cost-effective alternative to litigation while 
strongly protecting the public and respecting the inventors who 
are at the heart of the system.
    We look forward to working with the Subcommittee and 
interested parties to develop a sound proposal that will draw 
on the capabilities of the USPTO to better serve the vitality 
of the patent system.
    Thank you.
    [The prepared statement of Mr. Toupin follows:]
                 Prepared Statement of James A. Toupin












    Mr. Smith. Thank you, Mr. Toupin.
    Mr. Kushan?

TESTIMONY OF JEFFREY P. KUSHAN, ESQUIRE, SIDLEY AUSTIN BROWN & 
               WOOD, ON BEHALF OF GENENTECH, INC.

    Mr. Kushan. Thank you, Mr. Chairman. I want to congratulate 
you, Mr. Boucher and the other Members of the Subcommittee for 
taking up this important issue and, as you noted, I am here on 
behalf of Genentech today. Genentech very much appreciates the 
opportunity to provide its views on this important topic for 
legislation.
    Genentech is one of the world's leading biotech companies. 
It was formed just over 25 years ago, which, if you do your 
math, makes it the first biotech company. It is based in South 
San Francisco, California. Genentech is an active user of the 
patent system and owns thousands of patents. Genentech depends 
on the security of those patents to protect its cutting edge 
products, and securing effective patent rights is instrumental 
to Genentech's ability to bring new products to the market for 
the benefit of patients.
    Genentech commends the Subcommittee for taking up this 
issue for deliberation and for legislative action. We strongly 
support the Committee's efforts to design and implement an 
effective administrative post-grant review procedure and to do 
so rapidly.
    As other witnesses have and will observe, there is a broad 
support within and outside of the patent community for creating 
an effective administrative procedure for reviewing the 
validity of an issued patent. We believe this reflects an 
appreciation that the existing procedures are not effective, 
not balanced and not fair. It also demonstrates a clear need 
for an option other than patent litigation in a Federal court 
to resolve questions that may exist regarding the validity of a 
patent.
    The challenge for Congress, however, is to devise a system 
that not only provides a rigorous inquiry into the validity of 
the patent but is also structured to prevent harassment of the 
owners of valid patents. A system that allows frivolous 
challenges to be made or which can be used to tie up a patent 
in a long and endless administrative proceeding would fail to 
meet the needs of those users of the patents community and the 
needs of the public.
    Similarly, a process which is as complex, burdensome and 
expensive as patent litigation would yield few benefits. The 
broad support you see for creating a new post-grant review 
procedure is based on an appreciation that the PTO does have a 
special expertise in certain matters relating to the validity 
of a patent. Specifically, PTO can use professionals with a 
scientific or technical expertise in the field of the 
invention. The PTO is also intimately familiar with the 
application of certain of the patentability requirements: 
novelty, nonobviousness, written description, enablement and 
utility.
    Genentech is confident that Congress can devise an 
appropriately-structured administrative procedure rather than 
attempt to go into every parameter you might see in that system 
which might take 5 minutes or, at this point, two and a half 
minutes, we would like to emphasize a few critical parts of the 
system, whatever its shape, from Genentech's perspective.
    First, it is very important that the procedure permit 
review of compliance with the written description and 
enablement requirements of 35 USC 112 and the utility 
requirement of 35 USC 101. These requirements ensure that a 
patent applicant is entitled to the breadth of the patent 
rights that have been awarded and that the patent owner has 
possession of the invention when the patent application was 
filed.
    The utility requirement ensures that the patent owner has 
identified credible, specific and substantial utility for the 
claimed invention. These factors presently dominate the 
examination of biotechnology patent applications and are often 
important factors in evaluating the validity of many 
biotechnology patents. A post-grant review system that does not 
permit review of these issues would fall far short of its 
potential.
    Second, any party wishing to commence a proceeding should 
be required to establish that one or more claims in the patent 
are prima facie invalid. If the PTO finds, through its 
independent assessment, that that proof is not sufficient, then 
it should not start a proceeding. This threshold determination, 
in our view, is extremely important to protect the interests of 
patent owners and should not be omitted from any system.
    Third, we believe Congress should not attempt to create any 
special statutory estoppel provisions in any new system. These 
estoppel provisions that we have seen in the inter partes 
regime have really deterred use of that regime. I would note 
that we do not see that there is any need for any special 
statutory estoppel provision in litigation. The issues that you 
fought about in front of the Patent Office will be vibrantly 
pointed out by your opponent, and there is a natural estoppel 
that attaches that a court is going to give deference to, so we 
see no need for any special construct that would expand that 
estoppel provision.
    Fourth, and this is a point which I do not believe has 
picked up a lot of attention in the past, we do not believe 
that the proceedings that you conduct after the patent is 
issued should give rise to a basis for holding the patent 
unenforceable under the inequitable conduct doctrine. Under 
existing law, a patent can be held unenforceable by showing 
that a patent applicant during the ex parte examination of the 
application engaged in inequitable conduct before the Patent 
Office.
    A special duty of disclosure is imposed on the patent 
applicant to make sure that the public interests are protected. 
That is because the public cannot participate in that ex parte 
examination. Unfortunately, the issue of inequitable conduct is 
a virtual plague in patent litigation today in creating new 
grounds for letting that arise in litigation; it would be very 
unhelpful.
    And finally, we believe that it would be very useful to 
have a fixed period during which oppositions can be commenced. 
We are open to considering options where it would be possible 
to commence an opposition after that time period has ended.
    In conclusion, we just thank you for the opportunity to 
give you our views.
    [The prepared statement of Mr. Kushan follows:]
                Prepared Statement of Jeffrey P. Kushan
    Mr. Chairman and distinguished Members of the Subcommittee,
    My name is Jeff Kushan. I am a partner in the Washington office of 
the law firm of Sidley Austin Brown and Wood, LLP. I am also a 
registered patent attorney, and specialize in the areas of 
biotechnology, pharmaceuticals and software-related inventions.
    Today, I have the privilege of offering testimony on behalf of 
Genentech, Inc. Genentech is a world-leading biotechnology company, 
based in South San Francisco, California. Genentech is committed to 
developing new biotechnology products to meet unmet medical needs. 
Genentech actively procures patent protection for its technology, and 
depends on an effective and fair patent system. Genentech very much 
appreciates the opportunity to provide testimony to the Subcommittee on 
the issue of today's hearing. We commend you, Chairman Smith, along 
with your colleagues on the Subcommittee, particularly the Ranking 
Member, Mr. Berman, for taking up this important and timely issue.
    Genentech strongly supports the creation of an effective, fair and 
expeditious post-grant administrative patent review procedure. Options 
that exist today--so-called ex parte and inter partes reexamination--do 
not present a viable alternative to litigation in the Federal courts, 
primarily because these procedures do not provide third parties with a 
fair and balanced degree of participation relative to patent owners. 
The absence of a fair and efficient administrative procedure to review 
patent validity makes it possible for owners of invalid patents to use 
the often enormous expense of patent litigation to shield invalid 
patents from challenge. An improperly granted patent that cannot be 
reviewed in a cost-effective manner creates unjustified burdens and 
risks for American companies, including those in the biotechnology 
industry.
    Genentech believes that the availability of an appropriately 
structured post-grant review system will enhance public confidence in 
the patent system, and provide the public with a much needed 
administrative alternative for resolving questions of patent validity. 
We recognize that there is broad support within and outside the patent 
community for creating a viable post-grant patent validity review 
procedure. The challenge, however, will be for Congress to define 
certain critically important elements of such a procedure--in this 
case, the devil truly is in the details. Our testimony below identifies 
what we believe to be the most significant requirements of a viable 
post-grant review procedure. We thank the Subcommittee for giving us 
the opportunity to share our views on this important issue, and stand 
ready to work with the Congress to make a viable post-grant patent 
review procedure a reality.
                              introduction
    The United States patent system is structured to deliver reliable 
results in a cost-effective and timely manner. Examination is conducted 
on an ``ex parte'' basis--meaning that the PTO and the patent applicant 
are the only participants in the examination process. The advent of 
publication of patent applications prior to grant from the 1999 
American Inventors Protection Act (AIPA) has shed some light onto 
ongoing examinations, but, fundamentally, the patent examination 
process remains closed to substantive participation by parties other 
than the patent applicant.
    Practical considerations mandate that this model continue. The PTO, 
given its resource constraints, simply cannot administer a system that 
permits third parties to intervene in the examination of pending 
applications. Experiences in other countries that do permit 
intervention in the examination of applications are uniformly negative. 
These experiences show that in many instances, third parties intervene 
to simply delay the issuance of a patent, which disrupts business 
expectations of patent applicants and consumes limited patent office 
resources. Allowing public intervention in the examination of pending 
U.S. applications would create immense practical problems, given the 
volume of applications now pending before the PTO, and the limited 
amount of examination resources that are available.
    The logical alternative is a post-grant review procedure 
administered by the PTO. Congress, perhaps recognizing this, has always 
focused on procedures that envision an opportunity for the public to 
have the PTO review the validity of an issued patent. The first such 
system adopted by Congress was the ``ex parte'' reexamination system, 
enacted in 1982. In the ex parte reexamination system, any person, 
including the patent owner, may commence a reexamination of any issued 
patent on the basis of a patent or a printed publication that raises a 
substantial new question of patentability. See, 35 U.S.C. Sec. 302. The 
ex parte reexamination procedure, like original examination, is a 
closed procedure--only the patent owner and the PTO participate 
substantively in the proceeding. As a result, most third parties avoid 
use of this procedure for commercially significant patents, since it 
does not afford those third parties a meaningful opportunity to 
participate in the proceeding.
               the 1999 inter partes reexamination effort
    In 1999, Congress created an enhanced version of reexamination, 
termed ``inter partes'' reexamination. The inter partes reexamination 
procedure does provide more of an opportunity for third parties to 
participate in the proceeding. However, due to the limitations built 
into the system, this ``enhanced'' version of reexamination has fallen 
short of expectations. The limited number of inter partes reexamination 
requests that have been commenced--despite the fact that hundreds of 
thousands of otherwise eligible patents have issued since enactment of 
the legislation--suggests that the design of this procedure will 
continue to limit its use by the members of the public.
    The most significant deficiencies of the inter partes reexamination 
system can be summarized as follows.

          It is not possible to use the procedure to review 
        patentability issues that are most commonly encountered in 
        biotechnology patents and applications; namely, compliance with 
        35 U.S.C. Sec. Sec. 101, and 112, first paragraph. It has been 
        our experience that issues of compliance with the written 
        description and enablement provisions of 35 U.S.C. Sec. 112, 
        first paragraph, and the utility requirement of Sec. 101, 
        frequently are significant inquiries affecting the validity of 
        many biotechnology patents and patent applications. Not 
        permitting these grounds to be raised in a post-grant review 
        procedure renders the system far inferior as an alternative to 
        litigation in a Federal court.

          The law imposes two distinct ``statutory estoppels'' 
        that in combination make the procedure unattractive as an 
        alternative to litigation in a Federal court. The first, found 
        in 35 U.S.C. Sec. 315(c), prohibits a requestor from raising in 
        a Federal court any issues of validity that ``could have been 
        raised'' at the time of the request for reexamination in view 
        of art known to the requestor. This broad estoppel attaches by 
        the mere filing of a request for inter partes reexamination. 
        The second ``estoppel'' is found in an uncodified section of 
        the AIPA (Sec. 4607 of the Intellectual Property and 
        Communications Omnibus Reform Act of 1999, as enacted by 
        Sec. 1000(a)(9) of Public Law 106-113), and is designed to 
        prohibit a third party who participates in a reexamination 
        proceeding from later contesting the legitimacy of any 
        ``facts'' determined in the proceeding. These statutory 
        estoppel provisions impose an unacceptable price on use of the 
        inter partes reexamination procedure in almost all situations.

          The inter partes reexamination system does not permit 
        third parties to use certain evidentiary procedures that would 
        ensure that the procedure is sufficiently rigorous. For 
        example, it is not possible to cross-examine expert witnesses 
        used in the proceeding or direct questions to the opposing 
        party.

          Finally, the system cannot be used to review issues 
        of validity involving patents issued on applications filed 
        before November 29, 1999. We note that this limitation, in 
        particular, has rendered the system of marginal value to many 
        companies in the biotechnology industry, in part because there 
        still remains a significant number of biotechnology patent 
        applications pending before the PTO that were filed before this 
        date.
These limitations in the inter partes reexamination system--ostensibly 
established in 1999 to provide a more robust alternative to ex parte 
reexamination--have made the procedure of marginal value to the public. 
It is not an effective alternative to expensive, unpredictable and 
protracted litigation in the Federal courts. As such, the inter partes 
reexamination procedure has not met expectations.
                          recent developments
    In the past year, the Federal Trade Commission (FTC) and the 
National Academies of Science (NAS), have both issued reports calling 
for the creation of a more robust and effective administrative post-
grant patent review system. The motivation for these organizations is 
the same as that which led Congress to establish the ex parte and inter 
partes reexamination procedures. Specifically, each organization 
recognizes that the PTO has a special expertise in evaluating certain 
patentability issues, such as anticipation, nonobviousness, enablement, 
written description and utility. They also recognize that certain 
issues often addressed in litigation before a Federal court (e.g., 
infringement, inequitable conduct) are a major source of the high cost 
of patent litigation, yet are not pertinent to validity of the patent. 
Both organizations accurately recognize that an administrative patent 
validity review proceeding can be conducted more rapidly than 
litigation in a Federal court, and that the public would significantly 
benefit from the availability of a procedure that does not present the 
burden, duration and associated expenses of patent litigation. These 
organizations also appreciate that that any new system should not 
permit third parties to harass patent owners, or initiate groundless 
attacks on patents.
                       recommendations for reform
    Genentech believes it is possible to create a viable, cost-
effective, and fairly balanced post-grant administrative patent review 
procedure. A variety of models have been proposed for such a system in 
the past few years, including those from the Patent and Trademark 
Office in its 21st Century Strategic Plan, the NAS, the FTC and the 
American Intellectual Property Law Association (AIPLA). Many of these 
proposals have significant merit, and could serve as a suitable 
foundation for legislation. Moreover, these organizations have 
identified a number of important assumptions and conditions for a 
successful post-grant review procedure. We encourage the Congress to 
study these proposals carefully.
    The excellent work done by these organizations also permits us to 
focus on a number of key issues that Genentech believes are of 
particular importance, regardless of the ultimate framework chosen for 
the system. We note that each of these organizations, for example, 
recognize that the PTO has resource constraints. They also recognize 
that the PTO has a special expertise in certain, but not all 
patentability issues. For example, the PTO rarely encounters issues 
associated with compliance with the ``best mode'' requirement of 35 
U.S.C. Sec. 112, first paragraph. Similarly, the PTO does not often 
evaluate compliance with the duty of disclosure requirement of 37 CFR 
Sec. 1.56. Such topics in which the PTO has no special expertise or 
which cannot be fairly evaluated using objective inquiries should not 
be placed in the hands of the PTO to evaluate in a post-grant review 
procedure.
    We also recognize that certain decisions will have to be taken as 
to how the new regime relates to the existing ex parte and inter partes 
reexamination procedures. For example, we believe there is value in 
retaining an efficient and simple documentary procedure for reviewing 
validity issues raised by a patent or a printed publication. It may be 
possible to design a flexible post-grant review procedure to permit 
parties to conduct the procedure in a way that preserves this ``least 
complicated'' approach. We also believe it is appropriate for the PTO 
to continue to have the authority to conduct Director-ordered reviews, 
but to expand this authority to evaluate compliance with issues under 
35 U.S.C Sec. 101 or Sec. 112, first paragraph (other than best mode).
    The Congress should also carefully evaluate how multiple 
proceedings initiated under the new system will be coordinated, both 
with respect to other opposition requests, and with interference 
proceedings. We note that it may be desirable to provide statutory 
guidance to the PTO and to parties as to how such proceedings may be 
merged, suspended or otherwise coordinated so as to reduce the 
potential burdens on patent owners involved in multiple proceedings, 
and to ensure that efficient disposition of validity issues associated 
with a patent.
    With these initial observations in mind, we believe there are a 
number of important parameters that must be included in any post-grant 
review procedure. These can be summarized as follows:

        1.  Scope: The system must permit review of questions of 
        compliance with 35 U.S.C. Sec. 101 and Sec. 112, first 
        paragraph (other than best mode), in addition to Sec. Sec. 102 
        and 103. As noted earlier, compliance with the written 
        description and enablement requirements of 35 U.S.C. Sec. 112, 
        first paragraph, and with the utility requirement of Sec. 101, 
        is often an important inquiry for a biotechnology patent. These 
        issues also tend to be among the more significant issues 
        addressed during original examination, rather than prior art 
        issues. A system that omits the possibility of raising these 
        non-prior art issues would significantly reduce the value of a 
        post-grant review procedure to most biotechnology companies.

        2.  Estoppel. Participation in a post-grant review system must 
        not create any barrier for the participants to litigate patent 
        validity on issues that were not actually raised and addressed 
        in the post-grant review proceeding before the PTO. Genentech 
        believes Congress should avoid including estoppel provisions in 
        any post grant review legislation, and should specifically 
        avoid including provisions that are comparable to the codified 
        and uncodified estoppel provisions applicable to inter partes 
        reexamination proceedings.

        3.  Preliminary Showing to Initiate Procedure--Any party 
        wishing to commence a proceeding should be required to set 
        forth, supported by substantial evidence, a prima facie showing 
        of invalidity of one or more claims. If such an initial showing 
        is not made, the Office should not commence the proceeding. 
        Genentech believes this ``initial proof'' requirement is an 
        important part of any post-grant review procedure that could 
        result in invalidation of one or more claims of a patent. 
        Without this initial determination, patent owners could be 
        subjected to groundless challenges to their patents.

        4.  Time Limits to Initiate Proceeding. Any third party should 
        be allowed to initiate a post-grant review proceeding provided 
        it has made an appropriate preliminary showing within a fixed 
        period following issuance of the patent. In our view, that 
        period of time could range from one to two years after grant of 
        the patent. Genentech also believes it may be appropriate to 
        allow post-grant review proceedings to be commenced after this 
        fixed period has expired, but only in strictly limited 
        circumstances. One example would be where the patent owner 
        consents to having the proceeding commenced before the PTO. 
        Genentech remains open to consideration of additional, 
        appropriately limited circumstances in which oppositions may be 
        commenced after a fixed period from patent grant.

        5.  Applicable to All Patents. The system should permit review 
        of any patent that is capable of being enforced, subject to the 
        threshold showings and limitations noted above. Thus, the 
        system should permit review of patents issuing on applications 
        filed on or before the effective date of the American Inventors 
        Protection Act.

        6.  Limited Additional Evidentiary Procedures. Genentech 
        believes a viable post-grant review procedure should permit use 
        of evidentiary procedures that will provide a more rigorous 
        review of issues pertinent to the validity of a patent than are 
        permitted under the current inter partes reexamination 
        authority. At the same time, we recognize that if all the 
        evidentiary procedures available in litigation before a Federal 
        Court were allowed to be used in a post-grant review procedure 
        before the PTO, no benefits would be realized from using the 
        PTO-based procedure. As a result, Genentech believes it would 
        be appropriate to make available only certain limited 
        additional procedures in a post-grant review procedure. Such 
        additional procedures should include the right to cross-examine 
        a witness who offers testimony in the proceeding. Additionally, 
        if the presiding authority (e.g., an administrative patent 
        judge) finds it appropriate, certain additional procedures 
        could be made available including: (i) limited requests for 
        admissions, (ii) a limited number of interrogatories, and (iii) 
        the opportunity for an oral hearing. Other measures, however, 
        should be prohibited. In particular, parties to a post-grant 
        proceeding should not be subject to document production, or 
        forced to produce fact witnesses for depositions. Such 
        restrictions are appropriate and will not undermine the 
        effectiveness of the procedure, in part because they are 
        unnecessary. We note in this regard that the PTO, unlike a 
        court, can use officials with technical expertise in the 
        particular field of a patented invention to conduct and manage 
        proceedings. This provides the PTO with a capacity to 
        independently assess assertions made by the parties to the 
        proceeding. We believe these limitations on the types of 
        evidentiary measures made available in a post-grant proceeding 
        will help to ensure that the PTO procedure does not replicate 
        the functions of full-scale litigation in a Federal court.

        7.  Prohibit inequitable conduct challenges based on actions of 
        parties during post-grant proceedings. The inequitable conduct 
        doctrine operates to ensure that patent applicants during ex 
        parte examination of their applications are held to a higher 
        standard of dealing with the PTO. See, 37 CFR Sec. 1.56. A 
        party that does not meet his or her duty of disclosure to the 
        Office can cause that party's patent to be held unenforceable. 
        The reason for this enhanced duty of disclosure is that the ex 
        parte examination procedure is closed and the public cannot 
        participate. Unlike ex parte examination, however, post-grant 
        review procedures under consideration would be public and would 
        include the active participation of one or more parties opposed 
        to the patent owner. These factors eliminate the need for any 
        enhanced disclosure standards comparable those imposed during 
        original examination. Moreover, there is no comparable sanction 
        that can be imposed on third parties in such a proceeding 
        (i.e., those parties will be free to litigate infringement, 
        enforcement and invalidity in the future largely unfettered by 
        their participation in the proceeding). In view of this, 
        Genentech does not believe it would be appropriate to impose an 
        enhanced duty of disclosure on participants in a post-grant 
        proceeding that could result in the patent being held 
        unenforceable. Certainly, regulations designed to ensure proper 
        conduct of parties in such proceedings are appropriate, and 
        should be enforced by the PTO. If the PTO finds that one party 
        has made a misrepresentation, it should have the authority to 
        take actions to sanction that party during the proceeding. 
        Where such misrepresentations are discovered after the patent 
        emerges from the proceeding, courts may give due consideration 
        to the actions of the party, but should not be allowed to hold 
        the patent unenforceable.

        8.  Authority to Delegate Certain Issues for Resolution. The 
        PTO faces annual challenges and uncertainty in its funding. In 
        view of this, it would be desirable for Congress to allow the 
        PTO to delegate responsibility to private parties to resolve 
        certain fact issues. For example, as is the case with the 
        existing interference authority, the PTO may allow parties to 
        arbitrate certain issues. In a similar fashion, the PTO could 
        allow a third party to adjudicate certain conflicts, and then 
        to rely on those findings in making its patentability 
        determinations. This authority may be useful to have to ensure 
        that funding problems do not adversely affect the progress of 
        cases that have been commenced. Genentech believes, however, 
        that the ultimate determination of validity of the patent 
        within the context of these proceedings--once a proceeding has 
        been commenced--must remain the exclusive jurisdiction of the 
        PTO. In other words, while we support the use of appropriate 
        cost-saving measures, the PTO must continue to make its final, 
        independent determination of whether a patent meets the 
        statutory requirements of validity.
                              conclusions
    Genentech relies extensively on the patent system to protect its 
innovations. Our experiences teach us that invalid patents cause the 
greatest business disruptions--both when Genentech owns the patent and 
when Genentech is facing the patent. A cost-effective procedure that 
allows for robust participation by third parties, yet is appropriately 
limited to avoid prejudice and the problems of litigation before a 
Federal court, would provide immense value for patent owners and the 
public alike.
    As Congress begins it deliberations on this important issue, it 
should keep certain fundamental principles in mind. First, there is no 
right of a member of the public to retain and enforce an invalid 
patent. It also is not appropriate to permit entities to use the high 
cost and complexity of patent litigation to prevent discovery of 
invalidity of a patent. Invalid patents impose an immense and 
unjustified cost on American businesses, including companies in the 
biotechnology industry.
    Second, we believe a properly designed system must incorporate 
safeguards to ensure that it will not be abused by third parties. As 
noted above, the devil is in the details. The challenge is for Congress 
to create a procedure that provides a rigorous and balanced inquiry 
into the validity of a patent, and to make that procedure feasible for 
the PTO to administer. A system that permits a third party to paralyze 
a patent by initiating an open-ended administrative proceeding would 
seriously undermine the incentives and purpose of our patent system. 
Likewise, a proceeding that becomes comparable in complexity, burden 
and cost to litigation in the Federal courts would yield no benefits.
    Finally, a patent review system administered by the PTO must remain 
focused on those issues that the PTO has special expertise in 
evaluating, and work within the practical constraints of an 
administrative proceeding that is designed to be efficient but 
thorough. In particular, the system should avoid having the PTO 
evaluate questions of compliance with the ``best mode'' requirement of 
35 U.S.C. Sec. 112, or compliance with the duty of disclosure under 37 
CFR Sec. 1.56. The system should also build on the recognition that the 
PTO can bring a special technical expertise to independently evaluate 
scientific and technical questions that bear on patentability. At the 
same time, the PTO is not well-equipped to manage contentious 
proceedings that will turn on critical evidentiary questions. As such, 
we encourage the Congress to incorporate safeguards that take account 
of these limitations, and to not create a system that the PTO is 
incapable of effectively managing.
    Genentech thanks the subcommittee for the opportunity to present 
its views, and encourages the Congress to act promptly to enact this 
much-needed legislation.

                               ATTACHMENT














    Mr. Smith. Thank you, Mr. Kushan.
    Mr. Kirk?

  TESTIMONY OF MICHAEL K. KIRK, EXECUTIVE DIRECTOR, AMERICAN 
         INTELLECTUAL PROPERTY LAW ASSOCIATION (AIPLA)

    Mr. Kirk. Thank you, Mr. Chairman.
    I am very pleased to have the opportunity to present the 
views of AIPLA on the question of improving patent quality with 
a post-grant opposition system. Any time patents are issued 
which appear to be of questionable validity, it undermines the 
confidence of businesses and consumers. While the validity of 
such patents may be tested through litigation, reexamination, 
reissue and interference, all of these options suffer 
significant deficiencies.
    Litigation is expensive, averaging $1.5 million to $4 
million per party, depending on the amount at risk. Both types 
of reexamination, as has been pointed out, also have failings. 
They are limited to patents and printed publications. In ex 
parte reexamination, the third party requestor is effectively 
denied any opportunity to participate. Inter partes 
reexamination, which was designed to allow and encourage that 
participation, has failed primarily due, as was pointed out, to 
the stringent estoppel provisions and also to the requirement 
to name the real party in interest. Reissues and interferences 
generally are not available to challengers and therefore play a 
minor role in that respect.
    We agree with the PTO that the time is now for an effective 
post-grant opposition system. AIPLA has attempted, through the 
establishment of a blue ribbon committee back in November, to 
establish recommendations for a post-grant system, first by 
formulating a draft text of such a system to try to understand 
better what the problems would be when you get down to the 
details.
    In a perfect world, we would have a post-grant opposition 
system in which every issue relevant to patentability could be 
raised and resolved quickly and inexpensively. All parties 
would have the opportunity to obtain discovery, present 
affidavits and declarations, present live testimony, cross-
examine the opposing party's witnesses and generally conclude 
the proceeding rapidly, perhaps within 1 year.
    In the real world in which we live, however, this is not 
possible. Compromises are inevitable. The proceeding must be 
sufficiently attractive that the public will be willing to use 
it. The grounds must be those which the PTO can effectively 
handle. All parties must have a reasonable opportunity to 
present evidence and to test the evidence presented by the 
other party. They must have confidence in the decision makers, 
and patentees must be protected against undue harassment and 
delay.
    We believe that the proposal that we have developed 
accomplishes these goals in a fair and balanced manner. We 
would propose that the proceeding have the following 
attributes--first, a 9-month period in which to request an 
opposition to encourage the public to promptly challenge 
questionable patents--a requirement to identify the real party 
in interest, but allowing that name to be kept in confidence 
and disclosed only when required by issues of fairness. This 
avoids the need for requestors to identify themselves as 
targets for potential litigation. The proceeding should be 
handled by a panel of administrative patent judges, not by 
patent examiners. The patentee should have one opportunity to 
amend claims, but these claims should not be enlarged. 
Discovery should be generally limited to the cross-examination 
of affiants, with exceptions in rare circumstances.
    The requestor should have the burden of establishing facts 
by a preponderance of evidence that would result in a 
conclusion inconsistent with the patent's presumed validity. A 
patent owner could rebut this request with his own factual 
evidence and expert opinions. A 1-year limit for concluding the 
proceeding, extendable by 6 months, similar to the process that 
the International Trade Commission follows; an opportunity for 
an oral hearing should be present, with the filing of briefs, 
reconsideration and an appeal to the Court of Appeals for the 
Federal Circuit.
    Determinations of validity raised by a requestor would be 
preclusive against that requestor in any subsequent proceeding. 
And finally, any requestor should be precluded from later 
filing a request for an inter partes reexamination.
    The draft bill text appended to our written statement is 
the result of 6 months of focused efforts by our blue ribbon 
committee. We recognize that this is only the beginning. 
Achieving a fair balance between the competing objectives is 
challenging. New ideas and perspectives can always improve the 
outcome. We also believe that the success of any opposition 
procedure can only be proven in practice and that achieving a 
balance would require adjusting the post-grant procedure and 
its relationship to both types of reexamination and to the 
other procedures based on the experience achieved.
    One cautionary note that we would add: any post-grant 
opposition system will be of limited value unless the necessary 
resources are dedicated to its implementation. Hiring a number 
of properly-trained and skilled individuals to handle post-
grant oppositions, irrespective of the details of the proposal 
adopted, will be essential if the system is to achieve the 
results intended and desired.
    We believe that our draft proposal for a post-grant 
opposition system represents a solid foundation on which to 
build an effective system. We thank you for the opportunity to 
address this issue and look forward to working with the 
Subcommittee in designing such a system.
    Thank you.
    [The prepared statement of Mr. Kirk follows:]
                 Prepared Statement of Michael K. Kirk
    Mr. Chairman:
    I am pleased to have the opportunity to present the views of the 
American Intellectual Property Law Association (AIPLA) on the question 
of improving patent quality, specifically by establishing a post-grant 
opposition system in order to create a quick, relatively inexpensive, 
and effective means of challenging patents of questionable validity.
    AIPLA is a national bar association whose nearly 15,000 members are 
primarily lawyers in private and corporate practice, in government 
service, and in the academic community. The AIPLA represents a wide and 
diverse spectrum of individuals, companies, and institutions involved 
directly or indirectly in the practice of patent, trademark, copyright, 
and unfair competition law, as well as other fields of law affecting 
intellectual property. Our members represent both owners and users of 
patents, and have a keen interest in achieving an efficient and 
effective post-grant opposition system.
                              introduction
    AIPLA commends you, Mr. Chairman, for taking a fresh look at how 
patent procedures can be improved to strengthen the quality of U.S. 
patents and enhance the confidence of inventors, businesses, and the 
investment community in the patent system. Any time patents are issued 
which, on their face, appear to be of questionable validity, it 
reflects negatively on the patent system and undermines the confidence 
of business and consumers. While the validity of such patents may be 
tested through litigation or ex parte or inter partes reexamination, 
these proceedings all suffer substantial disadvantages.
    Litigation is very expensive. AIPLA conducts an Economic Survey of 
our membership every two years to collect data on a number of aspects 
of the practice of intellectual property law. According to the most 
recent Economic Survey, the average cost of patent litigation, 
including the costs of discovery, ranges between $500,000 and 
$3,995,000 per party, depending on the amount at risk.
    In addition, it is only possible to test a patent's validity 
through litigation if the patentee brings an infringement action 
against a competitor or provides the competitor with standing to bring 
a declaratory judgment action based on threats by the patentee. Thus, a 
competitor cannot challenge a patent in litigation before the 
competitor incurs the costs and risks of developing and marketing a 
product.
    Even where litigation is available to test the validity of a 
patent, the recent National Academy of Sciences (NAS) report, A Patent 
System for the 21st Century, reported that such litigation typically 
does not occur until 7 to 10 years after the patent is issued and final 
decision is not reached for another 2 to 3 years. Until the litigation 
has been concluded, there is uncertainty in the marketplace and 
uncertainty in the technology as to the scope of the patent right.
    Another method of challenging patents is through reexamination in 
the United States Patent and Trademark Office (PTO), either ex parte or 
inter partes. While a reexamination can be initiated by a competitor 
promptly after patent grant, both types of reexamination suffer 
significant deficiencies. Both types of reexamination are limited to 
challenges based on patents and printed publications and are decided by 
patent examiners rather than by Administrative Patent Judges (APJs).
    Ex parte reexamination, as its name implies, involves only the 
patentee and the examiner after it is initiated. Thus, a third-party 
requestor is denied any meaningful participation, allowing the patentee 
the exclusive right to argue the case to the examiner and to appeal any 
decisions adverse to the patentee. Moreover, the PTO has not succeeded 
in handling ex parte reexamination proceedings with the ``special 
dispatch'' required by the statute; one witness at the recent PTO 
Roundtable Regarding Inter Partes Reexamination reported that, based on 
a limited review, he found that ex parte reexaminations that went to 
the Court of Appeals for the Federal Circuit (CAFC) took 9.5 years from 
filing until issuance of the reexamination certificate (see Wegner, 
Transcript from Round Table Meeting, www.USPTO.GOV)
    Inter partes reexamination was conceived to provide a more balanced 
procedure for the public by permitting greater participation by third-
party requestors, but limitations added during the legislative process 
destroyed that balance. For example, unlike ex parte reexamination, 
which applied to all patents in force on the date of its enactment, the 
inter partes reexamination procedure only applies to patents issued on 
applications filed on or after November 29, 1999.
    Also, the name of the real party in interest has to be revealed 
upon requesting inter partes reexamination. This creates a chilling 
effect by requiring requestors to essentially identify themselves as 
litigation targets under the challenged patent. A further chilling 
effect arises from the stringent estoppel provisions that were added 
during the legislative process even though third-party requestors have 
no recourse to discovery to aid in presenting their cases.
              the time for post-grant opposition has come
    In view of the absence of an effective and inexpensive means to 
challenge patents, AIPLA, the PTO, the Federal Trade Commission (FTC), 
the NAS, and, just last week, the Intellectual Property Law Section of 
the ABA have all put forth suggestions for post-grant opposition 
proceedings as a means of permitting a more meaningful, timely and 
cost-effective opportunity for the public to challenge patents that may 
be of questionable validity.
    In 1996, AIPLA proposed the establishment of a post-grant 
opposition system to provide parties with an efficient, effective, and 
relatively inexpensive procedure to evaluate whether the claims of an 
issued patent are too broad or simply should not have been issued at 
all. The PTO, as part of its 21st Century Strategic Plan released in 
2002, called for the post-grant review of patents. Last October, the 
FTC, in its report entitled ``To Promote Innovation: The Proper Balance 
of Competition and Patent Law and Policy,'' also recommended the 
establishment of an effective post-grant opposition system. Earlier 
this year, the NAS, in its report mentioned earlier, recommended the 
creation of an ``Open Review procedure'' to provide ``more timely, 
lower cost, and more efficient review of granted patents'' to replace 
the current reexamination procedures. The resolution adopted by the IPL 
Section of the ABA is generally supportive of a post-grant proceeding 
along the lines of the proposal AIPLA has developed. The call for an 
effective, efficient post-grant system to review patents has reached a 
crescendo. It is time to act.
                aipla proposal for post-grant opposition
    In November 2003, AIPLA President Rick Nydegger created a Special 
Committee on Patent Legislative Strategies to focus on legislative 
changes that are desirable and achievable for the U.S. patent system. 
The Special Committee was co-chaired by two former AIPLA Presidents and 
included as members a former U.S. District Court judge, a former PTO 
Commissioner, five other AIPLA Past Presidents, and several other 
distinguished patent attorneys. Among the many topics reviewed by the 
Special Committee was post-grant review. Building on the earlier 
proposal of AIPLA and the more recent recommendations of the PTO, the 
FTC, and the NAS, the Special Committee developed what is believed to 
be an effective and carefully balanced post-grant opposition proposal. 
That proposal was approved by the AIPLA Board of Directors following 
additional deliberation during several meetings. The challenge is 
significant because, in the view of many, no country has truly achieved 
an optimal opposition system.
    In a perfect world, one would desire a post-grant opposition system 
in which every issue relevant to patentability could be raised and 
resolved quickly and inexpensively. Both opposer and patentee would 
have the opportunity to obtain discovery, be able to present affidavits 
and declarations, present live testimony, cross-examine the opposing 
party's witnesses and affiants, conclude the proceeding in no more than 
twelve months, accomplish this inexpensively, and protect the patentee 
from harassment. In other words, we would have the equivalent of a 
district court trial, but quickly and inexpensively and in the PTO.
    In the real world in which we live, however, this is not possible. 
In designing a post-grant opposition system, compromises are 
inevitable. We must seek the appropriate balance of procedures to 
accomplish the competing objectives, noted above, in a fair, effective, 
relatively inexpensive, and reasonably prompt review process.
    The proceeding must be sufficiently attractive for the public--
largely competitors of the patentee--so that they will be willing to 
request an opposition. The grounds for challenging patents must be 
those which the PTO can effectively handle. Both opposer and patentee 
must have reasonable access to procedures to present evidence in 
support of their case and to challenge that presented by the other 
party, but without the time-consuming, expensive discovery that 
accompanies patent infringement suits. And patentees, especially small 
business and independent inventors, must be protected against 
harassment from multiple sequential challenges, and against undue delay 
in resolving questions of patent scope and validity. We believe that 
the new proposal we have developed for a post-grant opposition 
proceeding addresses these competing goals in a fair and balanced 
manner.
    The principal features of our proposal for a new post-grant 
opposition proceeding are the following:

          Nine-month post-issuance period in which to request 
        the opposition.

          Requirement to identify the real party in interest, 
        but allowing its name to be kept confidential in appropriate 
        cases, until such time as justice and fairness require 
        disclosure.

          ``Front loading'' of the requester's evidence 
        supporting the opposition is required to expedite the 
        proceedings.

          Opportunity for the patent owner to respond with 
        evidence.

          Opportunity for the patent owner to amend the claims 
        at least once.

          Discovery is normally limited to cross-examination of 
        affiants, but could be extended if required in the interests of 
        justice.

          Requester has the burden of proof by a preponderance 
        of the evidence.

          One-year time limit, start to finish, but extendable 
        to no more than 18 months in appropriate cases.

          Opportunity for oral hearing, filing briefs, 
        reconsideration, and appeal to CAFC by all parties to the 
        opposition.

          Bar to any later inter partes reexamination by the 
        opposer and no concurrent reexamination proceeding until the 
        opposition terminates

          Estoppel against unsuccessful requester as to the 
        validity issues actually decided, but with exceptions for 
        issues based on later availability of new material evidence 
        regarding a legal or factual issue.

    We believe that the draft post-grant opposition proposal appended 
to our statement accomplishes these goals. The Special Committee held 
numerous meetings, prepared, debated, and revised several drafts, all 
the while receiving constant guidance from the Board of Directors and 
the substantive Standing Committees of AIPLA. As we worked to develop 
the details of a post-grant opposition procedure, we continually 
discovered new issues, the resolution of which has made our proposal 
more effective and balanced. Indeed, the varied background of the 
participants--attorneys representing independent inventors, large and 
small businesses, and universities--contributed to this balance.
    As previously noted, the present proposal has been approved by 
AIPLA's Board and we believe it is a commendable beginning. I say 
beginning because we recognize, based on our recent experience, that 
achieving a fair balance between the competing objectives of a well-
designed post-grant opposition proceeding is challenging, and new ideas 
and perspectives can always improve the product. I also say beginning 
because the success of any opposition procedure only can be proven in 
practice, and achieving a fair balance may well require adjusting the 
procedure or its relationship to ex parte and inter partes 
reexamination based on experience. I would like to outline for the 
Subcommittee the major features of our proposal, which is attached as 
an Appendix.
    Any person would be permitted to file a request for opposition to 
an issued patent. The opposition request must be made not later than 
nine months after the patent is granted. However, the patent owner may 
consent to the filing of a request at anytime during the life of the 
patent. The requester would be required to provide a complete 
disclosure of the basis for the opposition together with the request. 
Copies of any patents and printed publications relied upon must be 
provided. If the requester relies on factual evidence or expert 
opinions in support of the opposition, the requester must provide all 
such evidence and opinions in the form of affidavits or declarations at 
the time of filing the request.
    As with inter partes reexamination, the real party in interest must 
be identified. However, recognizing that this could discourage the 
filing of an opposition by a party fearful of identifying itself as a 
target for an infringement action, a real party in interest can request 
that its identity be kept separate from the file of the opposition. In 
such cases, the identity of the opposer would be made available only to 
government agencies or to persons demonstrating good cause.
    The need for protecting the identity of the opposer is balanced, 
however, by the interests of justice and fairness in certain 
circumstances. For example, under our proposal, a request cannot be 
made for keeping the identity of the real party in interest separate 
from the opposition file where the opposer relies upon factual evidence 
or expert opinions in the form of affidavits or declarations. The 
patentee must be able in such a situation to learn the opposer's 
identify in order to effectively cross-examine the opposer's affiants 
and declarants. Similarly, if an appeal is taken from a final decision 
of the PTO, the identity of the real party in interest must become part 
of the opposition file.
    AIPLA's proposed opposition proceeding would allow a broader range 
of issues to be raised than the existing reexamination proceedings, but 
they would not be coextensive with the issues of patent validity that 
could be raised in the courts. The issues in the opposition proceeding 
would essentially be co-extensive with the issues that a patent 
examiner considers in deciding whether to permit an application for 
patent to issue as a patent. We would exclude certain issues because 
they depend upon the state of mind of the inventors and are not 
susceptible to resolution in such an administrative proceeding without 
the availability of extensive discovery that would render the 
proceeding excessively expensive and lengthy. These include issues such 
as ``best mode'' in section 112 and priority of invention in section 
102(g). The proceeding would permit consideration of issues under 
section 101 (patentable subject matter), sections 102(a) (known or used 
by others) and (b) (public use or sale), section 112 ( 1 & 2--written 
description and enablement), section 251 ( 4--no broadened reissue 
claims) and double patenting (only one patent per invention).
    An opposition would be instituted upon request unless the Director 
determined it lacked substantial merit. The Director would assign the 
opposition proceeding to a panel of three APJs. The decision on the 
opposition would be made upon the prosecution record that was the basis 
for the grant of the patent and the additional submissions by the 
parties to the opposition proceeding.
    The patent owner would be afforded the opportunity to make a 
complete response to the opposition request and to provide factual 
evidence and expert opinions in rebuttal to the submission presented by 
the requester. However, the patent owner would not be permitted to 
later make additional evidentiary submissions, as a matter of right, 
after making the initial response to the request.
    A patent owner would have the right to amend the claims of the 
patent as a part of the patent owner's response to the opposition 
request. Any amended claim could not enlarge or broaden the subject 
matter claimed in the patent. Subsequent amendments could only be made 
upon a showing of good cause. Where an amended claim raises a new issue 
of patentability, the requester would be permitted to address that new 
issue.
    As noted previously, we believe that significant limitations must 
be imposed on the discovery available during an opposition in order to 
constrain costs and avoid unduly protracted proceedings. Thus, the only 
form of discovery that we believe should be available to any party to 
an opposition, whether the requester or the patent owner, is the right 
to cross-examine a person providing factual evidence or expert 
opinions. Thus, a patent owner would be able to depose a requester's 
declarants and affiants, and a requester would be able to depose a 
patent owner's declarants and affiants. Only those persons whose 
affidavits or declarations were submitted as part of the opposer's or 
the patentee's submission could be cross-examined by way of deposition 
by the other party during the opposition proceeding.
    Other than depositions of these declarants or affiants, additional 
discovery would only be permitted if the requesting party demonstrates 
that it is required in the interests of justice. One example of where 
this might apply is where cross-examination reveals the existence of 
evidence that rebuts the affidavits submitted by the requester. 
Discovery should be permitted in this situation so that the evidence 
could be obtained. Thus, discovery in an opposition proceeding should 
be available only to the extent that discovery is currently authorized 
in patent interferences pursuant to 37 C.F.R. Sec. 1.687(c).
    The Director would have discretion whether to accept or reject 
supplemental submissions. It is anticipated that the Director would 
administer this authority in a manner so as to balance fairness to the 
parties with the desirability of bringing the proceeding to a timely 
and prompt conclusion.
    An oral hearing would be held if requested by a party to the 
opposition, or ordered by the three-judge panel. Whether or not a 
hearing takes place, the three-judge panel would have authority to 
require the filing of briefs before deciding the issues raised in the 
opposition request. We would expect that briefs would be routinely 
required and operate in the manner of a typical pre-trial brief.
    The fact-finding would be done on a ``preponderance of the 
evidence'' standard. Since the opposition proceeding involves an issued 
United States patent, the presumption that the patent is valid remains 
in effect. Thus, the requester would have the initial burden of making 
arguments and establishing facts by a preponderance of the evidence 
that would result in a conclusion inconsistent with the patent's 
presumed validity. Unlike court proceedings, however, the determination 
of invalidity would be based on the ``broadest reasonable 
construction'' of the claim. This is the standard used to test the 
patentability of a claim during examination.
    The final determination of the Director in an opposition proceeding 
would be based upon a written decision, including findings of facts and 
conclusions of law on the issues raised in each opposition request.
    Any party adversely impacted by a decision should have the right to 
request reconsideration and modification of the decision, not less than 
two weeks from the date of the decision. Any party to an opposition 
proceeding dissatisfied with a final determination of the Director may 
appeal to the CAFC.
    A very important aspect of any post-grant-opposition proceeding is 
the effect the decision will have on the parties. If the estoppel 
provision is too harsh, no one will use the procedure, as we have seen 
with inter partes reexamination. If it is too lenient, patentees may be 
subject to needless repetitive challenges by the same party. Therefore, 
we believe that a determination with respect to any issue of validity 
actually raised by an opposer should be preclusive against that opposer 
in any subsequent proceeding, absent any factual evidence that could 
not have been reasonably discovered or presented. Given the relatively 
short, nine-month period for initiating an opposition and the limited 
discovery available to the parties, we believe this would strike the 
right balance.
    We believe it is extremely important that an opposition proceeding 
terminate with a final determination within one year after institution. 
This one-year period would serve the public interest by providing 
prompt final determinations of patentability issues raised in the 
opposition. Recognizing that exceptional circumstances could arise, 
however, we believe that any party to an opposition should be able to 
obtain an extension of the one-year period for no more than an 
additional six months upon a showing of good cause. In addition, the 
three-judge panel could sua sponte extend the period for six months.
    We would provide, as with interference proceedings, that an 
opposition proceeding could be terminated upon the joint request of the 
opposer and the patentee. Any agreement or understanding between the 
patent owner and an opposer would have to be in writing and the 
opposition would not be terminated until a copy was filed in the 
Office. The request would have to be filed before the panel issued a 
written decision. Where an opposition is terminated, there would be no 
estoppel as to that opposer. If requested, the agreement would be kept 
separate from the file of the opposition, and made available only to 
Government agencies on written request, or to any person upon a showing 
of good cause.
    Similar to reexaminations, any claim determined to be patentable 
would be subject to the intervening rights provision specified in the 
second paragraph of section 252 for claims in reissued patents.
    The opportunity to bring an opposition proceeding is intended to 
encourage members of the public to make prompt submissions of facts and 
expert opinions bearing on the validity of U.S. patents. The 
proceeding, therefore, is designed to provide greater certainty to both 
inventors and the public on the scope of valid patent rights. To ensure 
against harassment by a requester, no patent for which an opposition 
has been instituted should later be the subject of an inter partes 
reexamination request by the party that initiated the opposition. 
However, this would not apply to parties who did not initiate an 
opposition.
    The public should be able to continue to request ex parte 
reexamination based upon patents and printed publications for the life 
of a patent. This balance would best serve the public interest by 
granting members of the public administrative redress where questions 
of patentability exist for which additional consideration by the Office 
is desired, and in granting inventors finality in the administrative 
consideration of questions of patentability.
    In addition, we would give the opposition proceedings preference 
over reexamination proceedings. Thus, reexamination requests filed by 
third parties during the nine-month period would be considered to be 
requests for an opposition. Once an opposition is instituted, however, 
later requests for reexamination would be stayed until the opposition 
is terminated.
                           a word of caution
    The adoption of any post-grant opposition system by the United 
States would be of limited value unless the necessary resources are 
dedicated to its implementation. As a point of reference, the latest 
statistical report of the European Patent Office (EPO) indicates that 
the EPO granted 59,992 European patents in 2003. That same year, 2,634 
patents, or approximately 4.4%, were opposed. In the context of the PTO 
which granted 189,597 patents in 2003, this would translate into over 
8,000 oppositions. Even discounting this number by 90% to account for 
patent owners or others who would continue to use ex parte 
reexamination to test patent validity and who would be reluctant to use 
the post-grant opposition procedure, one could still be looking at a 
potential caseload that is many times the number of interferences 
currently handled by the Board. While interferences are admittedly more 
complex than the proposed post-grant oppositions, the adoption of a 
post-grant opposition system would require a significant increase in 
the number of APJs (20 of the 61 APJs currently at the Board are 
exclusively dedicated to interferences). Hiring the number of properly 
trained and skilled individuals needed to handle post-grant 
oppositions--irrespective of which proposal is adopted--will be 
essential if the system is to achieve the results intended. We cannot 
overlook this need when considering this change to the patent system.
                               conclusion
    AIPLA reiterates its support for an efficient, cost-effective post-
grant opposition proceeding to serve as an alternative to litigation 
for challenging patents of questionable quality. Such a system must be 
comprehensive and balance a number of significant factors, providing an 
attractive option for third parties while avoiding harassment of patent 
owners. We believe that our draft proposal for a post-grant opposition 
system represents a solid foundation on which to build just such a 
post-grant opposition system. We thank the Subcommittee for its time 
and attention to this issue and look forward to working with the 
Subcommittee in the design and implementation of such a system.
                               __________

                                APPENDIX

              Chapter 32_Post-Grant Opposition Procedures

Sec.

321.  Right to oppose patent; opposition request
322.  Real party in interest
323.  Timing of opposition request
324.  Invalidity issues
325.  Institution of the opposition proceeding
326.  Patent owner response
327.  Amendment of claims
328.  Discovery and sanctions
329.  Supplemental submissions
330.  Hearing and briefs
331.  Written decision
332.  Burden of proof and evidence
333.  Reconsideration
334.  Appeal
335.  Certificate
336.  Estoppel
337.  Duration of opposition
338.  Settlement
339.  Intervening rights
340.  Relationship with reexamination

Sec. 321. Right to oppose patent; opposition request
    (a) A person may request that the grant or reissue of a patent be 
reconsidered by the Office by filing an opposition seeking to 
invalidate one or more claims in the patent. The Director shall 
establish, by regulation, fees to be paid by the opposer. Copies of 
patents and printed publications to be relied upon in support of the 
request must be filed with the request. If an opposer relies on other 
factual evidence or on expert opinions in support of the opposition, 
such evidence and opinions must be filed with the request through one 
or more accompanying affidavits or declarations.
    (b) Copies of any documents filed pursuant to subsection (a) must 
be provided to the patent owner or, if applicable, the designated 
representative of the patent owner, at the time of filing under 
subsection (a), except that if a request is made that the identity of a 
real party in interest be kept separate pursuant to section 322(b), 
then the identity of the real party in interest may be redacted from 
the copies provided.
    (c) The file of any opposition proceeding shall be made available 
to the public except as provided in section 322.
Sec. 322. Real party in interest
    (a) The person making the request shall identify in writing each 
real party in interest and the opposition shall proceed in the name of 
the real party in interest.
    (b) If requested, the identity of a real party in interest shall be 
kept separate from the file of the opposition and made available only 
to Government agencies on written request, or to any person upon a 
showing of good cause. In the event that the identity of a real party 
in interest is kept separate from the file pursuant to this subsection, 
then the opposition shall proceed in the name of the individual filing 
the request as representative of the real party in interest. However, 
no request under this subsection to keep the identity of a real party 
in interest separate from the file of the opposition may be made or 
maintained if the opposer relies upon factual evidence or expert 
opinions in the form of affidavits or declarations during the 
opposition proceeding or if the opposer exercises the right to appeal 
under section 141.
Sec. 323. Timing of opposition request
    An opposition request made under section 321 must be made not later 
than nine months after the grant of the patent or issuance of a reissue 
patent, except that, if the patent owner consents in writing, an 
opposition request may be filed anytime during the period of 
enforceability of the patent. A court having jurisdiction over an issue 
of validity of a patent may not require the patent owner to consent to 
such a request.
Sec. 324. Limits on scope of validity issues raised
    The opposition request must identify with particularity the claims 
that are alleged to be invalid and, as to each claim, one or more 
issues of invalidity on which the opposition is based. The issues of 
invalidity that may be considered during the opposition proceeding are 
double patenting and any of the requirements for patentability set 
forth in sections 101, 102, 103, 112 or 251, fourth paragraph, of this 
title, except for:
    (a) the requirement in section 112, first paragraph, to disclose 
the best mode; and
    (b) issues arising under section 102(c), 102(f), or 102(g).
Sec. 325. Institution of the opposition proceeding
    (a) If one or more requests meeting the requirements of section 321 
are received by the Director that have not been dismissed as provided 
in this subsection (a), an opposition proceeding shall be promptly 
instituted, but not prior to nine months after the date of grant of the 
patent. The Director may dismiss an opposition request that the 
Director determines lacks substantial merit. The determination by the 
Director to dismiss shall not be appealable. The dismissal of an 
opposition request shall not be admissible in any civil action related 
to the patent against which a dismissed request was filed. If the 
opposition is instituted based upon more than one opposition request, 
the opposition shall proceed as a single consolidated proceeding, 
unless later divided as provided in subsection (b).
    (b) The parties to the opposition proceeding shall be the patent 
owner and each opposer whose request meets the requirements of section 
321 and has not been dismissed under subsection (a). The Director shall 
assign the opposition proceeding to a panel of three administrative 
patent judges, hereinafter in this chapter referred to as the 
``panel.'' The panel shall decide the questions of patentability raised 
in each opposition request for which an opposition has been instituted. 
The decision shall be based upon the prosecution record that was the 
basis for the grant of the patent and the additional submissions by the 
parties to the opposition proceeding authorized under this chapter. The 
panel may, in appropriate cases, divide the opposition into separate 
proceedings if the opposition involves multiple opposition requests by 
different parties.
Sec. 326. Patent owner response
    After the Director has instituted an opposition, the patent owner 
shall have the right to file a response to each opposition request 
within the time period set by the panel. The patent owner, in 
responding to an opposition request, shall file with the response any 
additional factual evidence and expert opinions on which the patent 
owner relies in support of the response through affidavits or 
declarations.
Sec. 327. Amendment of claims
    The patent owner is entitled to request amendment of any claims 
that are the subject of the opposition, including by the addition of 
new claims. Any such request for amendment shall be filed with the 
patent owner's response to an opposition request. The panel may permit 
further requests for amendment of the claims only upon good cause shown 
by the patent owner. No amendment enlarging the scope of the claims of 
the patent shall be permitted in the opposition.
Sec. 328. Discovery and sanctions
    (a) After institution of an opposition, the patent owner shall have 
the right to depose each person submitting an affidavit or declaration 
on behalf of any opposer, and each opposer shall have the right to 
depose each person submitting an affidavit or declaration on behalf of 
the patent owner. Such depositions shall be limited to cross-
examination on matters relevant to the affidavit or declaration. The 
panel shall set the times for taking the deposition of any affiant or 
declarant. No other discovery shall be permitted unless the panel 
determines that additional discovery is required in the interest of 
justice.
    (b) In the event that any party to an opposition fails to properly 
respond to any discovery under this section, the panel may draw 
appropriate adverse inferences and take other action permitted by 
statute, rule, or regulation.
Sec. 329. Supplemental submissions
    The panel may permit one or more supplemental submissions to be 
made by any party to the opposition, subject to the rights and 
limitations on discovery described in section 328.
Sec. 330. Hearing and briefs
    Any party to an opposition may request an oral hearing within the 
time set by the panel. If a hearing is requested or the panel 
determines sua sponte that a hearing is needed, the panel shall set a 
time for the hearing. The panel may permit the filing of briefs by the 
parties, and shall permit cross-examination of all affiants and 
declarants, either before the panel or by deposition taken under 
section 328.
Sec. 331. Written decision
    The panel shall issue a written decision on each issue of 
patentability with respect to each claim that is the subject of the 
opposition. The written decision shall consist of findings of fact and 
conclusions of law. The written decision shall become a final 
determination of the Office on the issues raised in the opposition 
unless a party to the opposition files a request for reconsideration 
and modification of the written decision within a time set by the 
panel, which period shall not be less than two weeks from the date of 
the written decision.
Sec. 332. Burden of proof and evidence
    (a) The opposer shall have the burden to prove invalidity of a 
claim by a preponderance of the evidence. The determination of 
invalidity shall be based upon the broadest reasonable construction of 
the claim.
    (b) The Federal Rules of Evidence shall apply to the opposition 
proceeding, except to the extent inconsistent with any provisions of 
this chapter.
Sec. 333. Reconsideration
    If a request for reconsideration of the written decision is filed, 
the panel may authorize a non-requesting party to file a response to 
the request for reconsideration. Following any reconsideration, the 
panel shall either deny the request for modification of the written 
decision or grant the request and issue a modified written decision 
that shall constitute the final determination of the Office on the 
issues raised in the opposition.
Sec. 334. Appeal
    A party dissatisfied with the final determination of the panel may 
appeal under the provisions of sections 141-144. Any party to the 
opposition shall have the right to be a party to the appeal.
Sec. 335. Certificate
    When the time for appeal has expired or any appeal proceeding has 
terminated, the Director shall issue and publish a certificate 
canceling any claim of the patent finally determined to be 
unpatentable, confirming any claim of the patent determined to be 
patentable, and shall incorporate into the patent any new or amended 
claims determined to be patentable. The issuance of the certificate 
shall terminate the opposition proceeding.
Sec. 336. Estoppel
    (a) Once the certificate has issued under section 335, the 
determination with respect to an issue of invalidity raised by an 
opposer shall be preclusive against that opposer in any subsequent 
proceeding involving that opposer as to any issue of fact or law 
actually decided and necessary to the determination of said issue, 
provided that, if the opposer demonstrates to a later tribunal that 
there is additional factual evidence that is material to an issue of 
fact actually decided and necessary to the final determination that 
could not reasonably have been discovered or presented in the 
opposition proceeding by that opposer, the opposer may raise that issue 
of fact and any determined issue of law for which the issue of fact was 
necessary.
    (b) For purposes of this section, the term ``opposer'' includes the 
person making the request under section 321, any real party in 
interest, and their successors in interest.
    (c) If the subsequent proceeding involves a real party-in-interest 
not identified to the patent owner pursuant to section 322, the real 
party-in-interest shall notify the Director and the patent owner of 
that fact and of the subsequent proceeding within 30 days after 
receiving notice that the subsequent proceeding has been filed.
Sec. 337. Duration of opposition
    The final determination described in section 333 shall issue not 
later than one year after institution of the opposition as described in 
section 325. Upon good cause shown, the Director may extend the one-
year period by not more than six months.
Sec. 338. Settlement
    (a) The opposition proceeding shall be terminated as to any opposer 
upon the joint request of the opposer and the patent owner, unless the 
panel has issued a written decision under section 331 before the 
request for termination is filed. If the opposition is terminated as to 
an opposer under this section, no estoppel under section 336 shall 
apply as to the terminated opposer. The written decision under section 
331 shall thereafter be issued only with respect to issues of 
invalidity raised by opposers that remain in the opposition.
    (b) Any agreement or understanding between the patent owner and an 
opposer, including any collateral agreements referred to therein, made 
in connection with or in contemplation of the termination of the 
opposition, shall be in writing. The opposition as between the parties 
to the agreement or understanding shall not be terminated until a true 
copy of the agreement or understanding, including any such collateral 
agreements, has been filed in the Office. If any party filing an 
agreement or understanding requests, the agreement or understanding 
shall be kept separate from the file of the opposition, and made 
available only to Government agencies on written request, or to any 
person on a showing of good cause.
    (c) Any discretionary action of the Director under subsection (b) 
shall be reviewable under section 10 of the Administrative Procedure 
Act.
Sec. 339. Intervening rights
    Any proposed amended or new claim determined to be patentable and 
incorporated into a patent following an opposition proceeding shall 
have the same effect as that specified in section 252 of this title for 
reissued patents on the right of any person who made, purchased, or 
used within the United States, or imported into the United States, 
anything patented by such proposed amended or new claim, or who made 
substantial preparation therefor, prior to issuance of a certificate 
under the provisions of section 335.
Sec. 340. Relationship with reexamination proceedings
    A patent for which an opposition proceeding has been instituted may 
not thereafter be made the subject of a request under section 311 for 
inter partes reexamination by the same opposer or on behalf of the same 
real party in interest. An ex parte reexamination request made by a 
person other than the patent owner during the nine-month period 
specified in section 323, or an inter partes reexamination request made 
during the nine-month period specified in section 323, shall be treated 
as a request under section 321, and no ex parte reexamination or inter 
partes reexamination may be ordered based on such request. A request 
for ex parte reexamination or inter partes reexamination made after the 
nine month period specified in section 323, and a request for ex parte 
reexamination made by the patent owner at any time, shall be stayed 
during the pendency of any opposition.

    Mr. Smith. Thank you, Mr. Kirk.
    Mr. Sun?

   TESTIMONY OF KARL SUN, SENIOR PATENT COUNSEL, GOOGLE, INC.

    Mr. Sun. Mr. Chairman, Ranking Member Boucher and Members 
of the Subcommittee, thank you for the opportunity to testify 
at today's hearing.
    Google takes pride in its ability to provide innovative 
products and services to help organize the world's information 
and to make it usable and accessible to all. We therefore 
believe that a properly-functioning patent system rewards 
inventors by providing a limited right to exclude. At the same 
time, we also strongly believe that the current patent system 
needs reform to ensure that competition and innovation are not 
stifled by the issuance of invalid patents.
    We believe that reforms need to recognize and address the 
practical realities of the patent system, including the 
accelerating rate of patent filings, an overworked and 
understaffed PTO examining corps, and fundamentally, the ex 
parte process by which patents are granted.
    Google supports reforms that create proper incentives for 
applicants and the Patent Office during the examination process 
provide for increased third-party involvement in a post-grant 
administrative review process and that allow subsequent 
judicial review, each of which steps are tailored to the 
particular challenges of the patent process.
    We believe that a post-grant opposition procedure would 
enhance the quality of patents granted under an otherwise ex 
parte examination system. We believe that a successful post-
grant opposition procedure would have a number of important 
components. First, a post-grant opposition procedure should 
offer third parties a meaningful opportunity to challenge the 
validity of issued patents. As a point of comparison, parties 
right now do employ the current inter partes reexam procedure 
because of several concerns, including, as mentioned here, the 
limited right to participate in the process and also the broad 
estoppel that results.
    Accordingly, we believe that the new opposition procedure 
would give opposers a real opportunity to participate by 
providing for limited discovery, expert testimony, oral 
argument and cross-examination and that this would occur before 
patent administrative law judges who are trained in the law and 
who are independent of the examining corps.
    Additionally, we believe that an opposition process should 
allow challenges based on any patentability grounds, not merely 
the lack of novelty and obviousness as is the case with the 
current inter partes reexam. Second, estoppel arising from 
patent opposition should be limited to the grounds that are 
raised and addressed in the opposition. Again, as a point of 
comparison, the broad preclusive effect currently given in 
inter partes reexamination is a significant disincentive for 
its use. At the same time, failure to oppose a patent should 
not have any bearing in potential later litigation, because 
parties should not be given artificial incentives to oppose 
patents.
    Third, to prevent harassment of patentees, opposition 
should be initiated within certain limited time periods. For 
example, as one possibility, allow opposition by any party 
during an initial 1-year period following the issuance of 
patent claims. However, because many third parties generally do 
not become aware of patents until they are notified by a 
patentee, consider giving these third parties an additional 
window of time within which to initiate opposition after they 
have received notice or threat of litigation.
    With such a system, after the initial period, patentees 
will have certainty that their patent cannot be opposed, except 
by third parties whom they themselves notify and threaten with 
infringement.
    Fourth, we believe that a presumption of validity should 
only be given to patents that have undergone the opposition 
process. There is general agreement that patent examiners need 
more time to examine applications. Current estimates for the 
total time that an examiner spends on average per patent 
application from start to finish range from between 8 to 25 
hours. Moreover, patent examination is conducted as an ex parte 
process between an examiner and the applicant with no third 
party involvement currently.
    Finally, examiners are rated according to a system that 
creates incentives for granting patents. Patents which are 
issued by an overburdened PTO without inter partes safeguards 
as to quality should not be accorded a presumption of validity 
courts.
    In addition to these observations on the mechanics of post-
grant opposition, we would also like to suggest just a couple 
of additional points for future consideration by the 
Subcommittee. First, consider requiring patent applicants to 
disclose the relevance of prior arts submitted to the PTO. This 
would simultaneously relieve examiners from the burden of 
attempting to decipher the relevance of prior art that the 
applicant submits and would also discourage applicants from 
dumping art of questionable relevance on the PTO.
    Second, consider providing prior use rights or similar 
protection from claims that are opportunistically broadened in 
continuation practice. Third, increase funding for the PTO so 
that examiners' work loads may be reduced. And finally, 
consider modifying the PTO rating count system to remove 
artificial incentives to grant patents. Instead, a system that 
provides neutral incentives can be implemented.
    Once again, thank you for the opportunity to testify today 
on this important topic.
    [The prepared statement of Mr. Sun follows:]
                     Prepared Statement of Karl Sun
    Chairman Smith, Ranking Member Berman, and Members of the 
Subcommittee, thank you for the opportunity to testify at today's 
hearing on the role of post-grant opposition in improving patent 
quality. My name is Karl Sun and I am Patent Counsel at Google.
                               background
    Google takes pride in its ability to provide innovative products 
and services to help organize the world's information, and to make it 
accessible and useful for people everywhere. We believe that a properly 
functioning patent system rewards inventors by providing a limited 
right to exclude, and thereby promotes innovation. At the same time, 
Google also strongly believes that the current patent system needs 
reform to ensure that competition and innovation are not stifled by the 
issuance of invalid patents.
    Reforms need to recognize and address the practical realities of 
the patent system, including the burgeoning rate of patent filings, an 
overworked and understaffed examining corps, and the ex parte process 
by which patents are granted. Google supports reforms that create 
proper incentives for applicants and the patent office during pre-grant 
examination, that provide increased third party involvement in post-
grant administrative review, and that allow subsequent judicial review 
tailored to the unique challenges of the patent process.
                            recommendations
    Google believes that a post-grant opposition procedure would 
enhance the quality of patents granted under an otherwise ex parte 
examination system. A successful post-grant opposition procedure would 
have a number of important components.

          First, we are in favor of a post-grant opposition 
        process and/or a substantially revised inter partes 
        reexamination process that offers third parties a meaningful 
        opportunity to challenge the validity of issued patents. 
        Parties do not employ the current inter partes reexamination 
        procedure because of several concerns, including their limited 
        right to participate in the process and the broad estoppel that 
        results.

          Accordingly, the new opposition procedure should give 
        opposers a real opportunity to participate by providing for 
        limited discovery, expert testimony, oral argument, and cross-
        examination before patent administrative law judges who are 
        independent of the examining corps. Additionally, an opposition 
        process should allow challenges based on any patentability 
        grounds, not merely lack of novelty and obviousness as is the 
        case with the current inter partes reexamination procedure.

          Second, estoppel arising from patent opposition 
        should be limited to grounds that are raised and addressed in 
        the opposition. In addition, failure to oppose a patent should 
        not have any bearing in later litigation. The broad preclusive 
        effect currently accorded to inter partes reexamination is a 
        disincentive for its use and should be reconsidered; at the 
        same time, parties should not be given artificial incentives to 
        oppose patents.

          Third, to prevent harassment of patentees, opposition 
        should be initiated within prescribed time periods. As one 
        possibility, allow opposition by any party during an initial 
        one year ``quality control'' period following the issuance of 
        patent claims. After the initial period, patentees may be 
        entitled to some certainty that their patent cannot be opposed, 
        except by third parties whom they themselves notify and 
        threaten with infringement. Because third parties generally do 
        not become aware of patents until notified by a patentee, these 
        third parties may be given an additional window within which to 
        initiate opposition.

          Fourth, a presumption of validity should be given 
        only to patents that have undergone the opposition process. 
        There is general agreement that patent examiners need more time 
        to examine applications. Current estimates for the total time 
        an examiner spends per patent application from start to finish 
        range from 8 to 25 hours on average.\1\ Moreover, patent 
        examination is conducted as an ex parte process between an 
        examiner and an applicant, with no third party involvement. 
        Finally, examiners are rated according to a ``count'' system 
        that creates incentives for granting patents. Patents which are 
        issued by an overburdened PTO without inter partes safeguards 
        as to quality should not be accorded a presumption of validity 
        by the courts.
---------------------------------------------------------------------------
    \1\ See Federal Trade Commission, To Promote Innovation: The Proper 
Balance of Competition and Patent Law and Policy (October 2003) 
(hereinafter FTC Report), ch. 5 at 4-5.

    In addition to the above observations on the mechanics of a post-
grant opposition process, Google would also like to suggest the 
following additional patent reforms for future consideration by the 
---------------------------------------------------------------------------
subcommittee:

          First, we should require patent applicants to 
        disclose the relevance of prior art submitted to the PTO. This 
        simultaneously relieves examiners of the burden of attempting 
        to decipher the relevance of prior art submitted by the 
        applicant, and discourages applicants from ``dumping'' art of 
        questionable relevance on the examiner.

          Second, provide prior use rights or similar 
        protection from allegations of infringement based on claims 
        that are opportunistically broadened in continuation 
        practice.\2\
---------------------------------------------------------------------------
    \2\ See, e.g., FTC Report ch. 4(II)(C)(1) at 26-31.

          Third, increase funding for the PTO so that 
        examiners' workloads may be reduced to allow an adequate amount 
---------------------------------------------------------------------------
        of time for considering patent filings.

          Finally, modify the PTO count system to remove 
        artificial incentives to grant patents. Patent examiners are 
        rated according to a point or ``count'' system that encourages 
        patent issuance.\3\ A system that provides neutral incentives 
        with respect to allowance versus rejection should be 
        implemented.
---------------------------------------------------------------------------
    \3\ See, e.g., Robert P. Merges, As Many as Six Impossible Patents 
Before Breakfast: Property Rights for Business Concepts and Patent 
System Reform, 14 Berkeley Tech. L.J. 577, 609 (1999).
---------------------------------------------------------------------------
                               conclusion
    Thank you again for the opportunity to testify today and to share 
Google's perspective on this important topic.

    Mr. Smith. Thank you, Mr. Sun.
    Mr. Toupin, let me address my first question to you, and 
that is, well, first of all, let me observe that it is amazing 
to me that there is general agreement on the need for post-
grant opposition, and there is general agreement at least--yes, 
general agreement on a lot of suggestions as well, which makes 
this panel one of the most agreed and agreeable that we've had, 
I think.
    But, Mr. Toupin, my question for you is that it seems to me 
that we might really supplement rather than replace the current 
reexamination system that we have right now. We are talking 
more about post-grant today, but don't you think we ought to 
take the best of the present and combine it with a lot of your 
suggestions for the post-grant opposition?
    Mr. Toupin. The 21st Century Strategic Plan suggests that 
inter partes reexam be abandoned; that it is not going to be 
effective for the reasons that have been indicated.
    Mr. Smith. So you would for replacement, not supplement.
    Mr. Toupin. Replacement in that respect. With respect to 
third party initiated ex parte reexamination, I believe that we 
suggest some form of discretion with respect to third-party 
initiated reexams might be appropriate if you also have a post-
grant review but maintaining that system.
    Mr. Smith. Okay; fair enough, thank you.
    Mr. Kushan, you may have been the only witness to have 
mentioned privatization, although you didn't use that word. You 
suggested that we, let's see, in the case of arbitration of 
specified issues that we perhaps private parties as a cost-
saving measure. Would that unnecessarily complicate matters, or 
would that streamline matters?
    Mr. Kushan. One of the things that motivated that 
recommendation was the recognition of uncertainty in the 
funding of the office uncertainty and complexity of these 
proceedings, and we draw on our experience in litigation where 
we are able to offload some issues for resolution.
    There's also some experience in the PTO in interference 
proceedings where there is some capacity to do a bit of an 
offloading exercise. To some extent, if there is a way of 
delegating to an entity or allowing the parties resolve certain 
factual issues as part of this proceeding, we believe that this 
would facilitate and essentially control the volume of work 
that's associated with any one proceeding, and it is typically 
encountered in litigation where you sort things out.
    But we were trying to find ways of putting some type of 
safeguards into the system, because we know that there are 
going to be proceedings which are going to be extremely 
complex, and we see a risk of having these proceedings start 
and essentially paralyzing the patent for an indefinite period.
    Mr. Smith. Thank you, Mr. Kushan.
    Mr. Kirk, it is clear to me that certainly, large 
corporations are going to benefit from post-grant opposition, 
but would smaller businesses and independent inventors benefit 
as much as the larger corporations?
    Mr. Kirk. Mr. Chairman, I think that the fact that we can 
provide an attractive procedure that would determine the 
validity of claims of issued patents more efficiently, more 
effectively, quicker, than District Court litigation, which, as 
I noted, runs into the millions of dollars, is going to help 
large and small companies but especially the small company and 
the independent inventor.
    Mr. Smith. Thank you, Mr. Kirk.
    And Mr. Sun, you suggested in your written testimony that 
only patents that have been challenged in an opposition 
proceeding should be entitled to a presumption of validity. 
Isn't that a pretty tough standard? And why would that be 
justified to, in effect, make that requirement?
    Mr. Sun. Well, Mr. Chairman, I think we believe that with 
the way the current system is set up, with the ex parte 
process, what the PTO is doing and what we probably wanted to 
do was to do the initial pass of making sure that there is 
nothing clear out there that would preclude the issuance of a 
patent. But I think what we are talking about here including 
with the post-grant opposition process is that right now, there 
is something fundamentally wrong with the system, which is that 
patents are making their way through which should not have been 
granted in the first place.
    And given that that is the reality, we think that it is not 
justified that patents all receive a presumption of validity in 
the situation where we all acknowledge that there are many 
patents being questioned.
    Mr. Smith. Thank you, Mr. Sun.
    That completes my questioning, and the gentleman from 
Virginia, Mr. Boucher is recognized for his.
    Mr. Boucher. Well, thank you very much, Mr. Chairman. I 
want to say at the outset that I share Chairman Smith's 
pleasure through the fact that we have parties appearing today 
who, shall we say, are not always in agreement when it comes to 
matters of patent policy, and today, I am pleased to note a 
broad area of agreement on a number of matters.
    I actually took the opportunity to synthesize and place in 
chart form various aspects of each of your testimony, and this 
chart reveals a very interesting fact, and that is on three 
broad areas, there is basic agreement. Now, I think there may 
be some shading differences with regard to how you would do 
each of these three things, but I detect basic agreement on 
these matters.
    First of all, you are all in favor of post-grant opposition 
and having a legislated process for putting that into place. 
Secondly, I note that each of you favors the general 
requirement that all patent applications be published after 18 
months. Now, I've always thought that was good, particularly if 
you had some kind of window inside the patent review process 
itself for the opportunity for third parties to submit evidence 
of prior art.
    Obviously, if they don't know a patent application is 
pending, they wouldn't have any reason to submit the prior art, 
and the publication serves the very valid function of providing 
that notice. As I indicated in my opening statement, we have 
some substantial problems in getting that adopted in the House. 
That actually was tried once before, and we were not successful 
for reasons I will not dwell on today. Why give your opponents 
publicity?
    But it is difficult, and it may be as difficult now as it 
was four or 5 years ago, the first time we undertook that 
exercise. Nevertheless, I think it is beneficial. But, you 
know, you need it less if you know you have got a really good 
post-grant opposition process, because by the time the patent 
is awarded, notice is automatically provided. Anybody who has 
got prior art and is paying attention would then be in a 
position through the post-grant opposition process to have that 
evidence of prior art or other matters that might affect the 
validity of the patent be submitted.
    Nevertheless, I still think publishing after 18 months is 
in theory a good idea. I notice all of you were in agreement.
    The third area in which I notice agreement among each of 
you is with respect to making modifications in the current 
process for inter partes reexamination. I guess I just have a 
basic question, and that is this: if we put into place a really 
good post-grant opposition proceeding, and it meets the 
standard of providing a fair opportunity for anyone who has got 
a legitimate basis for challenging a patent to come in and make 
his case and have administrative law judges perhaps within the 
Patent Office make a determination, why should we also retain 
the inter partes reexamination process?
    Why have two avenues through which these matters can be 
raised? Is there any value in keeping that second door open? Is 
there a category, perhaps, of individuals who might find the 
post-grant process to be unduly burdensome or perhaps 
unaffordable who might want to take advantage of a more 
simplified and less formal inter partes reexamination?
    I don't know, and so, I will ask you that question. I note 
that each of you is basically recommending keeping it, possibly 
as modified by what Mr. Toupin said during his response to the 
Chairman's question, but I would be interested in hearing your 
views on why we need to keep both of these avenues open.
    Mr. Kirk?
    Mr. Kirk. Let me step in first if I might, Mr. Boucher. 
From our perspective, we have discussed this, and our viewpoint 
was first, we would like to see an effective post-grant 
opposition system in place and operating, to see it implemented 
and working properly. Once that is in place, and we are 
comfortable that it can be implemented properly and is working 
the way we had intended, then, I think we would certainly want 
to turn our attention to the post-grant--to the inter partes 
reexamination system to see how that might be changed in the 
future, keeping in mind that most of the proposals for post-
grant discuss having a limited period, 9 months in our case, 1 
year in others.
    There needs to be some mechanism after that period for 
effectively challenging the patents, and given an opposition 
system that works properly, I think that could be worked out, 
and then, perhaps, inter partes reexamination would just 
disappear. But we sort of take the approach of ``let us see if 
it works first'' before we start throwing things out.
    Mr. Boucher. So you were saying if you time-limit the post-
grant opposition proceeding, you would need some other avenue 
to remain open, perhaps indefinitely, for individuals who may 
not have been in a position to challenge within the window of 
the post-grant proceeding.
    Mr. Kirk. That is true, but that can also be accomplished 
by, for example, as the PTO suggested, having an open window 
following, for example, a threat sufficient to establish 
declaratory judgment standing so that they then could bring a 
proceeding within a period of time.
    Mr. Boucher. But it would be triggered on some event such 
as that; is that correct?
    Mr. Kirk. Well, that is one way of doing it. I would not 
want to say that this should be the only way of doing it. I 
think again, we have to wait and see. How well does it work? 
How expensive is it? How fast is it? Once we understand that 
and see that, I think many changes could be made.
    Mr. Smith. Without objection, the gentleman is recognized 
for an additional 2 minutes so the other witnesses can respond 
to the question.
    Mr. Boucher. Thank you, Mr. Chairman.
    Mr. Kushan?
    Mr. Kushan. I think one way to look at the two regimes is 
kind of a bare bones and a deluxe proceeding, with the 
difference in the concept of opposition being that you get 
additional evidentiary procedures put at your disposal so you 
would be able to depose or cross-examine witnesses that are 
being advanced to throw their views into the mix. You can get a 
hearing, things of that nature.
    One benefit at least conceptually not in the system as 
implemented but conceptually of the inter partes regime is that 
it is a simpler proceeding, and it may be suitable for settings 
where you have really clear-cut issues of patent validity. 
Maybe the best perspective is to absorb the simplified process 
into a structure which is basically the opposition proceeding 
and then allow the judge that is going to be conducting the 
proceeding to decide exactly how much discovery is needed.
    I think one concern we have had, and it is in our written 
testimony, there are some types of discovery which we think 
should definitely be avoided in an opposition proceeding, which 
if you allow them to go into that proceeding would essentially 
eliminate the difference between that and litigation.
    And so, perhaps one perspective to take to this is to 
envision a simplified pathway within the authority to conduct 
the more rigorous proceeding which allows the additional 
evidentiary tools.
    Mr. Boucher. Okay; Mr. Sun, would you care to comment?
    Mr. Sun. Sure. Congressman, I think I would echo what Mr. 
Kirk said, which is I think our position is that the first 
point to be made is that the post-grant opposition is one that 
is a more robust procedure and is one that we would like to see 
put in place.
    After that is in place, it may well be the case that an 
inter partes reexam is a good complement to the opposition 
procedure. And it is possible that many times, it will be the 
case that it will not be necessary. But I can envision a system 
where the inter partes reexam continues to be a documentary-
based procedure where it is conducted before an examiner as 
opposed to a patent judge, so it would, in many senses, be 
simpler for someone who wants to challenge that process, and it 
may well be the case, as you mentioned, that that is an avenue 
that some people would still want to take advantage of. But I 
think it remains to be seen.
    Mr. Boucher. Well, thank you each for those answers.
    I just have one other brief question. This can be a yes or 
no. In fact, I hope it is, because my time is up. Would you 
each agree that as we set about this task, we should be guided 
by the principle that in repairing the inter partes reexam, we 
should eliminate the estoppel concept? That is part of the 
question. The other part is in the post-grant opposition 
proceeding, should the standard of proof simply be 
preponderance of the evidence?
    Can I get a yes from each of you with regard to those 
questions?
    Mr. Kirk?
    Mr. Kirk. Yes.
    Mr. Boucher. Excellent.
    Mr. Kushan?
    Mr. Kushan. Yes, on the first one, and the second one is 
maybe a little bit more complicated, but generally, it should 
be once you get the proceeding started, yes.
    Mr. Boucher. Okay; all right.
    Mr. Toupin?
    Mr. Toupin. As to the first, we have a different solution 
to inter partes reexam, so I can't answer yes or no on that 
one. With respect to the second one, yes, we contemplate once a 
proceeding was underway, it would be preponderance.
    Mr. Boucher. Okay.
    And Mr. Sun?
    Mr. Sun. Yes.
    Mr. Boucher. Thank you very much.
    Thank you, Mr. Chairman.
    Mr. Smith. Good question, Mr. Boucher. Thank you.
    And the gentlewoman from California, Ms. Lofgren, is 
recognized for her questions.
    Ms. Lofgren. Thank you, Mr. Chairman and thanks to the 
witnesses for their excellent testimony. And as the Chairman 
and Ranking Member, or today's Ranking Member, have mentioned, 
there is actually remarkable agreement on the basic outlines of 
what we should do. As many of you know, in 2001, I had a patent 
reexamination bill that would have expanded the existing 
procedure by enlarging the scope of challenges and also setting 
a 12-month deadline and changing the estoppel issue by allowing 
third parties to later introduce evidence which was not known 
at the time of the proceeding.
    And in talking to people, I reached the conclusion that it 
would not necessarily be useful to reintroduce that bill 
because of this process that is moving forward, although I 
think there are some elements that are certainly similar and 
some things that go beyond that concept of a few years ago.
    One of the benefits of being last in the questioning is 
that all of your questions have already been asked, and so the 
remaining question that I have that has not already been asked 
by Mr. Smith and Mr. Boucher really has to do with the 
evidentiary load.
    I mean, it is a fine line between providing sufficient 
opportunity to really flush out the information without 
destroying the ability to have a streamlined procedure by 
having too much process. And I am just sort of wondering, what 
should we make available to the parties? I mean, shouldn't we 
allow for depositions? Shouldn't we allow for interrogatories? 
How would we limit that? How do we get the information out 
without destroying this whole new innovation? Do you have 
thoughts on that for us to ponder or at least benchmarks on how 
we would approach that question?
    Any of you? Maybe I'll go to--Mr. Kushan wants to answer 
first; and I'd like to hear from all of you on that point.
    Mr. Kushan. This is definitely an important variable in the 
design of the system, because if you let things run amok, it 
scares people, particularly patent owners, from either 
supporting this type of regime or not. I think if you look at 
the environment of a post-grant proceeding, you have the 
benefit of someone who can evaluate issues at a technical level 
in a very good, in an accurate way, so you have the benefit of 
an expert listening to the technical arguments.
    I think it is a fairness issue to be able to cross-examine 
or depose someone who has been put up by the other party into 
the proceeding. We don't want to see the proceeding give an 
authority to call out witnesses and to make it a litigation-
like process, where you are essentially trying to pull all the 
stuff into the proceeding. That would, I think, cross the line.
    There may be some value for interrogatories and requests 
for admissions. I think that would be something that should be 
left in the hands of the APJ to assess whether that is 
necessary in the proceeding. Again, this is an objective 
question that they are answering a validity, and they have, at 
the Patent Office, an ability to answer that on their own.
    So you can use that inherent advantage that they have.
    Ms. Lofgren. Do you agree with that, Mr. Kirk?
    Mr. Kirk. I think we are generally in the same area on 
this. I think there are two issues that are related. One is the 
breadth of the issues that you can allow to be considered in 
the post-grant opposition, the extent to which you are going to 
allow evidence to come in, and what type of evidence. We 
certainly think it would be proper to have affidavits, 
depositions, to be able to cross-examine by affidavits and 
depositions the witnesses of the other party, and to have that 
come forward.
    You get into certain issues, for example, best mode, which 
is very subjective, and it is in the inventor's mind. This kind 
of an issue, which is raised frequently in court, requires a 
great deal of discovery. Usually, it doesn't result in any 
invalidity finding, but nevertheless it occupies a lot of time 
in court and a lot of expensive discovery. That we believe 
should be kept out, the issue and with it the discovery that 
one might need to really fairly evaluate that.
    So you are compromising on the one hand enough evidentiary 
flexibility to encourage people to use the system; on the other 
hand, not so much that you would harass that----
    Ms. Lofgren. That is an interesting approach. I hadn't 
really thought of that.
    Mr. Toupin and Mr. Sun, do you have further comments? I 
realize I'm almost out of time.
    Mr. Toupin. Thank you. We think that there are three 
elements that work in this. First, there has to be a 
substantial initial showing generally in the line of a prima 
facie case. That would allow an APJ to closely define what 
issues would be subject to discovery. We don't recommend that 
either the tools of discovery or the substance that would be 
available for inquiry be limited.
    We currently have experience with the full range of 
patentability issues being able to be raised in interference 
proceedings. These APJs know how to do it and know how to do it 
expeditiously.
    Ms. Lofgren. You are cleanup, Mr. Sun.
    Mr. Sun. I was just going to add what was just said, which 
is in the interference proceeding, I think there already is 
some mechanism there. I think we would also be in agreement 
that the amount of process is in some sense dependent on the 
scope of what can be covered, and we would be in favor of a lot 
of the 112 issues being in play, and so, there would be a need 
for a similar process, but we think the combination of the APJs 
being able to have power to handle discovery as well as the 
expertise that already exists; things should be manageable in 
that fashion.
    Ms. Lofgren. Thank you very much, and thank you, Mr. 
Chairman.
    Mr. Smith. Thank you, Ms. Lofgren.
    Let me thank all the witnesses. This has been particularly 
informative for us and a particularly helpful panel. And as I 
mentioned in my opening statement, we will use your testimony 
to draft legislation which we expect to take up if not 
immediately then sometime within the next several months, I 
would hope. And so, it is not often we have hearings that lead 
directly to legislation, and it's not often that we have so 
many panelists that agree generally on the direction we should 
take, so it's much appreciated, and we thank you all for being 
here, and with that, we stand adjourned.
    [Whereupon, at 5:18 p.m., the Subcommittee adjourned.]
                            A P P E N D I X

                              ----------                              


               Material Submitted for the Hearing Record

Prepared Statement of the Honorable John Conyers, Jr., a Representative 
 in Congress From the State of Michigan, and Ranking Member, Committee 
                            on the Judiciary
    There has been a long debate in the patent community on whether the 
United States should implement a new system for challenging patents 
after they have been issued, otherwise known as post-grant opposition. 
This system would be broader than the reexamination process that exists 
now. While there are strong arguments in favor of an opposition system, 
there are policy questions that should not be ignored.
    It cannot be denied that the patent laws are a major incentive for 
investment and research into new technologies, whether the field is 
life-saving drugs, computers, or a new method of transportation. 
Because patents may discourage competition, we rely on the Patent and 
Trademark Office to make sure that the patents it issues are narrow and 
clear. Because developments in technology has exploded in recent years, 
information is widespread, and applications are up, it is difficult to 
properly review every application in a timely manner. If investors and 
researchers cannot rely on the validity of patents, either someone 
else's or their own, then the flow of ideas and capital will be 
severely restricted.
    That is why it is vitally important for the PTO to be able to 
correct patents even after they have been issued. While we do have such 
a system in place, known as reexamination, the process is unwieldy and 
limited. That is why there has been broad support for the new 
opposition proceeding. We must allow for third parties to be more 
involved than they are in reexaminations, for appropriate evidence to 
be introduced, and for broader patent eligibility questions to be 
asked.
    As I stated earlier, though, I do have concerns. The only reason we 
are thinking of making it easier to challenge patents is because there 
is a problem of bad patents being issued. If we are going to address 
this problem, though, we must not only make it easier to challenge them 
but also prevent them from being issued in the first place. In other 
words, I hope that a movement toward post-grant opposition will not 
deter our efforts from making sure the PTO has what it needs to review 
patent applications thoroughly the first time.
    Second, if we do establish an entirely new type of proceeding, it 
is important to consider what resources will be required at the PTO. 
The PTO has made a push for outsourcing many of its functions on the 
grounds that it does not have enough trained personnel to concentrate 
on its core function of evaluating applications. If it does not have 
the resources now, I wonder what strains an opposition system would 
create.
 Letter to Rep. Lamar Smith and Rep. Howard L. Berman from Stephan H. 
  Lawton, Vice President and General Counsel, Biotechnology Industry 
                              Organization














  Letter to Rep. Lamar Smith and Rep. Howard L. Berman from Warner R. 
 Broaddus, Vice President, General Counsel & Secretary, and Charles S. 
  Berkman, Associate General Counsel and Chief Patent Counsel, Ligand 
                            Pharmaceuticals




                                 
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