[House Hearing, 109 Congress]
[From the U.S. Government Printing Office]
COMMITTEE PRINT REGARDING
PATENT QUALITY IMPROVEMENT
SUBCOMMITTEE ON COURTS, THE INTERNET,
AND INTELLECTUAL PROPERTY
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
APRIL 20 AND APRIL 28, 2005
Serial No. 109-11
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
DANIEL E. LUNGREN, California ZOE LOFGREN, California
WILLIAM L. JENKINS, Tennessee SHEILA JACKSON LEE, Texas
CHRIS CANNON, Utah MAXINE WATERS, California
SPENCER BACHUS, Alabama MARTIN T. MEEHAN, Massachusetts
BOB INGLIS, South Carolina WILLIAM D. DELAHUNT, Massachusetts
JOHN N. HOSTETTLER, Indiana ROBERT WEXLER, Florida
MARK GREEN, Wisconsin ANTHONY D. WEINER, New York
RIC KELLER, Florida ADAM B. SCHIFF, California
DARRELL ISSA, California LINDA T. SANCHEZ, California
JEFF FLAKE, Arizona ADAM SMITH, Washington
MIKE PENCE, Indiana CHRIS VAN HOLLEN, Maryland
J. RANDY FORBES, Virginia
STEVE KING, Iowa
TOM FEENEY, Florida
TRENT FRANKS, Arizona
LOUIE GOHMERT, Texas
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
BOB INGLIS, South Carolina MARTIN T. MEEHAN, Massachusetts
RIC KELLER, Florida ROBERT WEXLER, Florida
DARRELL ISSA, California ANTHONY D. WEINER, New York
CHRIS CANNON, Utah ADAM B. SCHIFF, California
MIKE PENCE, Indiana LINDA T. SANCHEZ, California
J. RANDY FORBES, Virginia
Blaine Merritt, Chief Counsel
David Whitney, Counsel
Joe Keeley, Counsel
Alec French, Minority Counsel
C O N T E N T S
Wednesday, April 20, 2005first date deg.
Part I......................................................... 1
Thursday, April 28, 2005second date deg.
Part II........................................................ 119
April 20, 2005first date deg.
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 Howard L. Berman, a Representative in Congress from
the State of California, and Ranking Member, Subcommittee on
Courts, the Internet, and Intellectual Property................ 2
The Honorable Bob Goodlatte, a Representative in Congress from
the State of Virginia.......................................... 3
April 28, 2005second date deg.
The Honorable Lamar Smith, a Representative in Congress from the
State of Texas, and Chairman, Subcommittee on Courts, the
Internet, and Intellectual Property............................ 119
The Honorable Howard L. Berman, a Representative in Congress from
the State of California, and Ranking Member, Subcommittee on
Courts, the Internet, and Intellectual Property................ 120
April 20, 2005first date deg.
Mr. J. Jeffrey Hawley, Legal Division Vice President and
Director, Patent Legal Staff, Eastman Kodak Company, on behalf
of Intellectual Property Owners Association (IPO)
Oral Testimony................................................. 6
Prepared Statement............................................. 8
Mr. Richard J. Lutton, Jr., Chief Patent Counsel, Apple, on
behalf of the Business Software Alliance (BSA)
Oral Testimony................................................. 16
Prepared Statement............................................. 17
Jeffrey P. Kushan, Esq., Sidley, Austin Brown and Wood, LLP, on
behalf of Genentech
Oral Testimony................................................. 24
Prepared Statement............................................. 27
Mr. William L. LaFuze, Partner, Vinson & Elkins, LLP, and Chair,
Section of Intellectual Property Law, American Bar Association,
on behalf of the American Bar Association and the ABA Section
of Intellectual Property Law
Oral Testimony................................................. 36
Prepared Statement............................................. 39
April 28, 2005second date deg.
The Honorable Jon W. Dudas, Under Secretary of Commerce for
Intellectual Property, and Director of the U.S. Patent and
Oral Testimony................................................. 121
Prepared Statement............................................. 124
Mr. Richard C. Levin, President, Yale University, on behalf of
the National Research Council
Oral Testimony................................................. 131
Prepared Statement............................................. 133
Mr. Nathan P. Myhrvold, Chief Executive Officer, Intellectual
Oral Testimony................................................. 136
Prepared Statement............................................. 138
Mr. Darin E. Bartholomew, Senior Attorney, Patent Department,
John Deere & Company, on behalf of the Financial Services
Oral Testimony................................................. 150
Prepared Statement............................................. 152
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
April 20, 2005first date deg.
Prepared Statement of the Honorable Bob Goodlatte, a
Representative in Congress from the State of Virginia.......... 4
Material Submitted for the Record
April 20, 2005first date deg.
Prepared Statement of the Honorable Howard L. Berman, a
Representative in Congress from the State of California, and
Ranking Member, Subcommittee on Courts, the Internet, and
Intellectual Property.......................................... 183
Letter to the Honorable Lamar Smith, a Representative in Congress
from the State of Texas, and Chairman, Subcommittee on Courts,
the Internet, and Intellectual Property, from William L.
LaFuze, Partner, Vinson & Elkins, LLP, and Chair, Section of
Intellectual Property Law, American Bar Association, on behalf
of the American Bar Association and the ABA Section of
Intellectual Property Law...................................... 185
Response to questions submitted by the Honorable Darrell Issa, a
Representative in Congress from the State of California, to J.
Jeffrey Hawley, Legal Division Vice President and Director,
Patent Legal Staff, Eastman Kodak Company, on behalf of
Intellectual Property Owners Association (IPO)................. 186
Response to questions submitted by the Honorable Darrell Issa, a
Representative in Congress from the State of California, to
Richard J. Lutton, Jr., Chief Patent Counsel, Apple, on behalf
of the Business Software Alliance (BSA)........................ 189
Response to questions submitted by the Honorable Darrell Issa, a
Representative in Congress from the State of California, to
Jeffrey P. Kushan, Esq., Sidley Austin Brown and Wood, LLP, on
behalf of Genetech............................................. 191
Response to questions submitted by the Honorable Darrell Issa, a
Representative in Congress from the State of California, to
William L. LaFuze, Partner, Vinson & Elkins, LLP, and Chair,
Section of Intellectual Property Law, American Bar Association,
on behalf of the American Bar Association and the ABA Section
of Intellectual Property Law................................... 195
April 28, 2005second date deg.
Prepared Statement of the Honorable Howard L. Berman, a
Representative in Congress from the State of California, and
Ranking Member, Subcommittee on Courts, the Internet, and
Intellectual Property.......................................... 198
Memorandum to the Honorable Lamar Smith, a Representative in
Congress from the State of Texas, and Chairman, Subcommittee on
Courts, the Internet, and Intellectual Property and the
Honorable Howard Berman, a Representative in Congress from the
State of California, and Ranking Member, Subcommittee on
Courts, the Internet, and Intellectual Property from Darin E.
Bartholomew, Senior Attorney, Patent Department, John Deere &
Prepared Statement from Jack Haken, Vice President, Intellectual
Property & Standards, U.S. Philips Corporation................. 200
Letter from Ryan M. Fountain, Attorney at Law, Mishawaka, Indiana
to Blaine Merritt, Chief Counsel, Subcommittee on Courts, the
Internet, and Intellectual Property, Committee on the Judiciary 203
COMMITTEE PRINT REGARDING
PATENT QUALITY IMPROVEMENT
WEDNESDAY, APRIL 20, 2005
House of Representatives,
Subcommittee on Courts, the Internet,
and Intellectual Property,
Committee on the Judiciary,
The Subcommittee met, pursuant to notice, at 4:38 p.m., in
Room 2141, Rayburn House Office Building, the Honorable Lamar
Smith (Chair of the Subcommittee) presiding.
Mr. Smith. The Subcommittee on Courts, the Internet, and
Intellectual Property will come to order.
We appreciate all the interest demonstrated by all the
folks today. This is an important hearing. It is the first of
several hearings on the subject, but I'm glad for everyone's
Also, let me say that there is a concurrent Members-only
briefing on Iraq that is being given by the Secretary of
Defense, and I know we've lost several Members to that
activity. Nevertheless, it doesn't diminish from what is said
nor the importance of the meeting itself.
I'll recognize myself for an opening statement and then
recognize the Ranking Member, and then we'll get to our
witnesses as soon thereafter as possible.
This hearing is the first of two that we will conduct this
month on patent reform. More specifically, today the
Subcommittee will explore the merits of a committee print that
incorporates a number of changes to improve the quality of
patents issued by the U.S. Patent and Trademark Office.
The print also speaks to certain patent practices that
disrupt the operations of manufacturers and other businesses.
The Subcommittee will hold its second hearing on the print
next week and a third hearing on a bill that I will introduce
shortly after that.
While the Subcommittee has documented a steady increase in
application pendency and backlogs at the PTO in recent years,
the consensus view among agency officials and the inventor
community is that efforts to address these problems should not
take precedent over improving patent quality.
Patents of questionable scope or validity waste valuable
resources by inviting third party challenges and ultimately
discourage private sector investment.
Accordingly, our Subcommittee has pursued a number of
initiatives over the past decade to improve the operations of
the PTO and the patent system. But concern over patent quality
and its effect on the economy at large has not been confined to
Congress and the PTO.
Comprehensive studies recently issued by the Federal Trade
Commission and the National Academies generated much discussion
within inventor, industry, and Government circles about the
present patent system and how it could be improved.
Critics of the U.S. patent system became more vocal as
their ranks swelled. They maintained that the gains of the
previous decade were too incremental or otherwise insufficient.
The Subcommittee responded in the last Congress by
conducting oversight hearings on seven reform proposals.
While we did not move an omnibus reform bill in 2004, the
hearings contributed to the growing sentiment that favors
enactment of such legislation in this Congress.
The committee print is a first step in that process. It
contains most of the leading recommendations developed by the
PTO and a broad cross-section of industry and trade
associations that are involved in the formulation of patent
It is expected that small businesses, independent
inventors, and other interested parties also will participate
in this dialogue and the eventual drafting of a bill based on
the print that I expect to move this spring.
I realize many competing interests are affected by our work
on this broad topic, With so much on our plate, ours is an
ambitious undertaking, at least by my account, but we still
expect to succeed.
With that, I'll recognize the Ranking Member for his
opening comments as well.
Mr. Berman. Thank you, Mr. Chairman. Perhaps we can talk
about patent protection in the new Iraq, and merge the briefing
with the subject of this hearing.
I want to thank you for scheduling this hearing and in the
past my colleague from Virginia, Mr. Boucher, and I have
introduced legislation on patent quality reforms a number of
times. I think the general discussion of the need to look at
many of these questions has attempted--has fostered a
discussions among diverse industry groups, all of which now
recognize the need for changes to the patent law.
While there are many differing views about how to amend the
law, we all share a common goal, which is improving the quality
of the patent system. Our patent system was designed to promote
continual innovation by providing strong protection for
However, if we protect invalid patents, the system will
have the opposite effect: that of hindering creative output.
And the introduction of poor quality patents into the
marketplace actually increases the amount of litigation and has
a negative effect on the economy.
The problem of low-quality patents cuts across the entire
spectrum of art units that the Patent Office examines. But the
chief culprit seems to be patents in the business methods and
The Patent Office has initiated what it calls a second set
of eyes review in an effort to address the problem. But this is
merely a stop gap measure. Without an assurance of sufficient
funding every year, the PTO can't maintain the staff it needs
to administer the reviews or implement new quality initiatives.
So funding for the PTO and an end to diversion I think
should remain as top priorities in any reform effort.
Any legislative solution to the problem of patent quality
must address deficiencies both at the front end of the
process--that is, the examination stage, which takes place in
the PTO--and at the back end, which takes place in the
The quality of patents system should be addressed both
from--from both perspectives. Inventors should have confidence
about the quality of the patents they receive before investing
further in research and development, and equally secure in the
knowledge they can properly enforce that patent.
I have a couple of concerns in this vein relating to the
committee print. The print primarily describes reforms to
litigation and remedy provisions. While I think many of the
suggestions are worthwhile and worthy of support, I'm concerned
that we are merely treating the symptoms without enough
emphasis on curbing the underlying--curing the underlying
disease. Patent quality needs to remain a focus, with an
objective of minimizing litigation on numerous invalidity
For example, including a provision on allowing submissions
of additional prior art to an examiner may be helpful in
addressing this poor quality problem.
Furthermore, much of the print speaks to harmonization of
U.S. patent law with patent law in the rest of the world. For
example, shifting from a first to invent paradigm to one of
first inventor to file. While this is a very important and
necessary discussion, having experienced the opposition that
can be generated on patent reform issues in certain areas in
the past, in the late 1990's, I'm concerned that opposition to
those provisions at this point will affect the ability to
achieve other essential patent reform.
So I'm looking forward to today's hearings--hearing from
today's witnesses to identify potential solutions to the
problems created by questionable patent quality. Just to note,
some of the suggestions for change, such as the injunction
provision, may not be palatable to some of the witnesses. But I
throw out a challenge to those witnesses: if you don't like
that provision, help us craft a resolution to the problem the
injunction provision was designed to address, that of the
patent's role. While the structure of the discussion may be
centered around the committee print, I hope that the witnesses
here and in the future hearings will identify additional
possibilities for resolving patent quality problems. I look
forward to working with you, Mr. Chairman, in drafting
effective patent legislation.
Mr. Smith. Thank you, Mr. Berman.
The gentleman from Virginia, Mr. Goodlatte is recognized.
Mr. Goodlatte. Mr. Chairman, thank you for holding this
important hearing to examine the committee print on improving
patent quality. As we all know, article I, section 8 of our
Constitution lays the framework for our Nation's patent laws.
It grants Congress the power to award inventors for limited
amounts of time exclusive rights to their inventions.
The framers had the incredible foresight to realize that
this type of incentive was crucial to ensure that America would
become the world's leader in innovation and creativity.
These incentives as just as important today as they were at
the founding of country, if not more so. We must make sure the
incentives our framers put into our Constitution remain
meaningful and effective. The U.S. patent system must work
efficiently if America is to remain the world leader in
It is only right that as more and more inventions with
increasing complexity emerge that we should examine our
Nation's patent laws to ensure that they still work efficiently
and that they still encourage and do not discourage innovation.
One industry sector which is beginning to showcase the
potential problems inherent in our Nation's patent system is
the high tech industry.
In today's economy, many high tech products involve
hundreds and even thousands of patented ideas. Technological
innovators must work to ensure that they obtain the lawful
rights to use the patents of others through licenses and other
However, it appears that a cottage industry is emerging
that seeks to take advantage of the complexity of these
products, combined with loopholes in our patent laws, to extort
money from high tech companies, both large and small.
To be sure, these problems are not limited to the high
tech industry. Inventors in all industries are increasingly
facing these types of problems. The solution to these problems
involves both ensuring that quality patents are issued in the
first place and ensuring that we take a hard look at patent
litigation and enforcement laws to make sure that they do not
create incentives for opportunists with invalid claims to
All inventors will reap the rewards of a streamlined patent
system that ensures that good quality patents are issued and
that opportunists cannot take advantage of loopholes in our
I look forward to exploring the details of the committee
print with the witnesses.
Again, Mr. Chairman, I thank you for holding this important
hearing, and I'd ask that my full opening statement be made a
part of the record.
Mr. Smith. And without objection, they will be.
[The prepared statement of Mr. Goodlatte follows:]
Prepared Statement of the Honorable Bob Goodlatte, a Representative in
Congress from the State of Virginia
Thank you, Mr. Chairman, for holding this important hearing to
examine the committee print on improving patent quality.
Article I Section 8 of our Constitution lays the framework for our
nation's patent laws. It grants Congress the power to award inventors,
for limited amounts of time, exclusive rights to their inventions. The
Framers had the incredible foresight to realize that this type of
incentive was crucial to ensure that America would become the world's
leader in innovation and creativity.
These incentives are just as important today as they were at the
founding of our country. As we continue our journey into the digital
age, we must make sure that the incentives our Framers put into our
Constitution remain meaningful and effective. The U.S. Patent system
must work efficiently if America is to remain the world leader in
It is only right that as more and more inventions with increasing
complexity emerge, that we should examine our nation's patent laws to
ensure that they still work efficiently and that they still encourage,
and not discourage, innovation.
One industry sector which is beginning to showcase the potential
problems inherent in our nation's patent system is the high tech
industry. In today's economy, many high tech products involve hundreds,
and even thousands, of patented ideas. Technological innovators must
work to ensure that they obtain the lawful rights to use the patents of
others, through licenses and other lawful mechanisms. However, it
appears that a cottage industry is emerging that seeks to take
advantage of the complexity of these products, combined with loopholes
in our patent laws to extort money from high tech companies, both large
and small. To be sure, these problems are not limited to the high-tech
industry--inventors in all industries are increasingly facing these
types of problems.
The solution to these problems involves both ensuring that quality
patents are issued in the first place, and ensuring that we take a good
hard look at patent litigation and enforcement laws to make sure that
they do not create incentives for opportunists with invalid claims to
The Committee Print addresses both of these concerns. It would
create a new post-grant opposition system in which any member of the
public could request the USPTO to review the scope and validity of a
patent within nine months from the date of its issuance. While this
provision would help to ensure that quality patents are issued, the
nine month limit is intended to prevent third parties from harassing a
patent owner. In addition, the Committee Print eliminates the provision
in current law that prohibits a party from raising an issue on appeal
that could have been raised during a reexamination proceeding. This
provision is meant to encourage more participation in the reexamination
process to ensure that only quality patents are issued.
The Committee Print also includes provisions to ensure that patent
litigation benefits those with valid claims, but not those opportunists
who seek to abuse the litigation process. Specifically, the bill
creates a clear standard for ``willful infringement,'' ensures that
injunctions are issued only when the patentee is likely to suffer
irreparable harm that cannot be remedied by the payment of money
damages, and ensures that damages awarded to a party are proportional
to the value that the party's invention contributes to the total value
of the defendant's product.
All inventors will reap the rewards of a streamlined patent system
that ensures that good quality patents are issued, and that
opportunists cannot take advantage of loopholes in our enforcement
Thank you again, Mr. Chairman for holding this hearing. I look
forward to hearing today from our witnesses.
Mr. Smith. Thank you, Mr. Goodlatte.
Before I introduce the witnesses, I'd like to invite you to
stand and be sworn in.
Mr. Smith. Thank you. Please be seated. Let's see our first
witness if Jeff Hawley, President of the Intellectual Property
Owners Association. Mr. Hawley also serves as Legal Division
Vice President and Director of the Patent Legal Staff for
Eastman Kodak in Rochester, New York. He earned a bachelor's
degree in electrical--excuse me--chemical engineering from the
New York University School of Engineering, and a law degree
from George Washington University.
The next witness is Richard Lutton, Chief Patent Counsel
for Apple Computer, where he oversees patent development,
licensing, and litigation for Apple's computer hardware and
software business. He will testify on behalf of the Business
Software Alliance. Mr. Lutton earned a bachelor's degree in
electrical engineering from Rice and a law degree from
Our next witness is Jeffrey Kushan, a Partner and Patent
Attorney at Sidley, Austin Brown and Wood's Washington, D.C.
office. He is testifying on behalf of Genentech, a
biotechnology company based in San Francisco. Mr. Kushan is a
graduate of the George Washington University Law School. He
also 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 final witness is William LaFuze, a Partner in the
Houston Office of Vinson and Elkins, where he specializes in
intellectual property law, with an emphasis on electronics, oil
field equipment and computer-related litigation.
Mr. LaFuze chairs the Intellectual Property Law Section of
the American Bar Association and will testify on their behalf.
He earned his undergraduate degree in physics from the
University of Texas, a master's in applied science from
Southern Methodist University, and a law degree from Texas as
Welcome to you all. We have your written statements, and
without objection they'll be made a part of the record.
Let me wish you well as you try to summarize those
testimonies, and I read every one, in 5 minutes. But do the
best you can, and then we'll look forward to asking you
questions about the rest of your testimony as well. Mr. Hawley,
we'll begin with you.
TESTIMONY OF J. JEFFREY HAWLEY, LEGAL DIVISION VICE PRESIDENT
AND DIRECTOR, PATENT LEGAL STAFF, EASTMAN KODAK COMPANY, ON
BEHALF OF INTELLECTUAL PROPERTY OWNERS ASSOCIATION (IPO)
Mr. Hawley. Thank you, Mr. Chairman and Members of the
Committee, and I'll do my best to stick to the 5 minutes.
As you noted, I'm speaking today on behalf of the
Intellectual Property Owners Association. IPO is a trade
association that represents companies and individuals in all
industries and fields of technology who are interested in
intellectual property rights.
We would like to compliment the Subcommittee on putting
together more than a dozen specific proposals for improving the
patent system in the committee print, and IPO enthusiastically
endorses the majority of the proposals; is concerned about one
of them; and is studying others.
You mentioned in your opening statement that this is indeed
an ambitious undertaking and with so many individual provisions
I think that's a bit of an understatement. This is going to be
a challenging time.
We believe that the principles underlying the U.S. patent
system are sound and that the system has served the country
well for over 200 years.
This is confirmed by the recent in-depth studies that, Mr.
Chairman, you mentioned--the FTC study, the National Academy of
Sciences study--and also a recent publication by the economists
Jaffey and Lerner. In spite of some popular press criticisms to
the contrary, the patent system provides important incentives
for our members and other innovators to create and
commercialize new technology.
However, as you have also noted, the U.S. Patent and
Trademark Office is in a bit of a crisis, caused by
underfunding, in turn caused by the diversion of user fees to
non-related Government programs, to the tune of about three-
quarters of a billion dollars in the last 10 years.
We are optimistic that the situation in the U.S. PTO is
turning around. We recommend that the highest priorities for
the patent system going forward, should be improving the patent
quality, as everyone has mentioned so far, reducing the cost of
patent litigation and international patenting, and also
reducing the uncertainty over the scope of patent rights.
Turning now to the committee print, we support establishing
a new post-grant opposition proceeding, which will allow the
public to request an opposition during a period of 9 months
after the grant of a patent.
We favor nearly all of the features of the post-grant
proceeding that are in the committee print. We have attached to
the appendix of our written statement a listing of the features
that we recommend for a post-grant opposition system.
We also support enthusiastically the proposed limitations
on the award of treble damages for patent infringement. We
believe these limitations will reduce litigation costs and
discourage unwarranted suits. The proposal will correct the
situation that some companies have said causes them to be wary
of even reading patents of their competitors for fear that the
company will, thereby, be on notice of patent infringement for
the purposes of willful infringement.
A significant improvement over current law is the very
welcomed clarification of the notice requirements that are also
found in the committee print, and we applaud you for that.
We support the awarding of the patent to the first inventor
to file. This change from first to invent procedure will
provide more certainty for patent rights. The first inventor to
file system is the best system for the United States and IPO
believes that it should be done even outside the context of
international harmonization. But its adoption is important for
our participation in the international harmonization efforts.
Recent studies by former PTO Commissioner Mossinghoff have
shown that the benefits of the first to invent system do not
justify its costs, and this very same conclusion was reached by
the National Academy of Sciences.
With regard to injunctions, while it may be possible to
change the balance slightly in favor of the infringer to reduce
abuses, the proposal in the committee print represents a
radical change and goes too far.
Compared to current law, this proposal shifts the burden
from the--to the patentee from the infringer. It requires that
an injunction be denied unless there is a reason to grant it;
whereas, under current law it's granted unless there is a
reason to deny it. It imports preliminary injunction concepts
into permanent injunction determinations and it encourages
courts to give substantial weight to whether or not the
patentee works the invention.
Our written statement explains why we believe the
injunctions proposal would diminish the incentive for
innovation provided by American patent system. We believe
exclusive rights should continue to be available to the same
extent for patented inventions as they are for a copyrighted
book--work, such as books, motion pictures, sound recoding, and
We again want to thank you for the opportunity for being
here today. I see I made it under 5 minutes comfortably and I
would be pleased to answer any questions.
[The prepared statement of Mr. Hawley follows:]
Prepared Statement of J. Jeffrey Hawley
Mr. Chairman and Members of the Subcommittee:
My name is J. Jeffrey Hawley. I am Legal Division Vice President
and Director, Patent Legal Staff, for Eastman Kodak Co. in Rochester,
New York. I am speaking today on behalf of Intellectual Property Owners
Association (IPO), of which I am the current elected President.
IPO is a trade association representing companies and individuals
in all industries and fields of technology who own or are interested in
intellectual property rights. IPO's membership overlaps with the
membership of many organizations, including BIO and BSA who are here
today. IPO members include more than 100 large and medium-size
corporate members and a number of small business and individual
inventor members. Our members file about 30 percent of the patent
applications that are filed in the United States Patent and Trademark
Office (PTO) by U.S. nationals. In addition to our legislative
interests, we comment frequently and in detail on PTO rules changes and
file amicus briefs in cases of interest to us. We have more than 850
people volunteering in 34 standing committees studying trends in IP
We appreciate the opportunity to discuss the April 14 Committee
Print, which contains more than a dozen significant proposals for
improving the patent system. We compliment the Subcommittee on
assembling so many promising ideas. IPO enthusiastically endorses a
majority of the proposals in the Committee Print. I will give an
overview and then summarize our reaction to each proposal.
OVERVIEW OF PTO AND PATENT LITIGATION ISSUES
Our members almost universally believe the patent system needs
improvement. IPO was one of the first organizations to say that the PTO
was in a ``crisis,'' when we testified before this Subcommittee in
2001. We expressed concerns about the quality of patents granted by the
PTO and the growing length of time required to grant or deny a patent.
Since that time, reports from the Federal Trade Commission (FTC) and
from the National Academy of Sciences (NAS) have recommended a number
of changes to the patent system to improve its effectiveness in
encouraging innovation in U.S. industry. In 2002 we endorsed the PTO's
21st Century Strategic Plan, which is directed at improving PTO
operations and is now being implemented.
The diversion of more than three-quarters of a billion dollars in
PTO user fees since 1992 has been a major factor in the PTO crisis. If
the PTO had had the opportunity to spend the diverted funds, which were
paid by our members and other PTO users for services they expected to
receive, today's picture would be very different. We are optimistic
that the situation at the PTO can be improved. Director Jon W. Dudas is
acting aggressively with the aid of more than $200 million annually in
additional funding provided by last December's patent fee increase to
address the office's problems. We understand that the PTO is hiring
more patent examiners and making efforts to improve employee recruiting
and training, recertify examiner skills, and improve patent procedures.
We are cautiously optimistic that no more user fees will be diverted in
the short term. The threat of fee diversion remains, however, and IPO
will therefore continue to support this Subcommittee's work to enact
legislation to permanently end fee diversion.
No silver bullet exists, of course, that can turn the PTO around
overnight. The patent quality problem is complex and not amenable to
any single solution. The time required to grant or deny a patent will
continue to increase for some years despite stepped-up patent examiner
hiring, because new examiners must undergo an extensive training
program to become productive and because training large numbers of new
examiners takes experienced examiners off the production line. We are
in an environment in which confidence in the validity of patents will
continue to be lower than desirable for the foreseeable future and the
time required to grant or deny a patent will be far longer than the
traditional goal that IPO continues to support--an average of 18 months
after filing the initial application until patent grant or denial.
The problems with patent quality and long PTO delays create
uncertainty about legal rights in technology. Uncertainty discourages
investment by patent owners and their competitors in research,
development, and commercialization of new products needed to maintain
the country's technological and economic strength.
Our members have experienced a sharp rise in patent litigation
costs. Hildebrandt International's 2004 Law Department Survey reported
that the companies surveyed spent 32 percent more on outside counsel
for intellectual property litigation in 2003 than in the previous year.
They spent only one percent more for outside counsel on non-IP
litigation. Some IPO members believe a substantial portion of the rise
in litigation costs can be attributed to organizations that have
engaged in abusive practices including threatening frivolous
lawsuits.\1\ A number of suggestions have been made by companies in the
information technology industry and others for legislation to reform
patent litigation. IPO believes some of these ideas have merit.
\1\ See generally materials from March 14, 2005 IPO conference
``Patent Trolls and Patent Property Rights'' (materials available from
Our members are also faced with high patent costs for protecting
their technology internationally. Under the existing system U.S.
applicants must file separate patent applications in separate countries
and regions that require different application content and format. This
process is costly and inefficient. In addition, patent offices around
the world are wasting large sums by duplicating each others' efforts in
A worldwide patent law harmonization treaty is needed. We also
believe international patent expenses can be reduced through
administrative and other changes by the U.S., Japanese, and European
patent offices, which receive the bulk of applications from U.S.
industry. Last week IPO, the American Intellectual Property Law
Association (AIPLA), the Japanese Intellectual Property Association
(JIPA), and the European industry association UNICE held the fourth in
a series of meetings to develop recommendations to enable the same
patent application to be filed, searched, and processed in the three
largest offices without the need for amendment during the granting
process. We hope to publish our final recommendations before the end of
the year. Many of the changes required to harmonize the world's patent
laws will require legislation, and we support the harmonization-related
legislative proposals in the Committee Print.
POST-GRANT OPPOSITION PROCEDURES AND
INTER PARTES REEXAMINATION PROCEDURES
Section 9 of the Committee Print establishes a new post-grant
opposition procedure. Establishment of a post-grant opposition feature
was recommended in both the FTC and NAS reports. Under Section 9, post-
grant opposition would enable any competitor of a patent owner or other
member of the public to make a request not more than nine months after
the grant of a patent for the PTO to reconsider whether the patent
should be granted.\2\ The party requesting an opposition could raise
any of the statutory requirements for patentability as an issue for
invalidity of the patent. The PTO Director could dismiss a request
lacking substantial merit and would be required to complete the
opposition procedure within one year. Limited discovery would be
available and appeals could be taken to the U.S. Court of Appeals for
the Federal Circuit.
\2\ Committee Print, pp. 36-49.
IPO strongly endorses establishing this type of post-grant
opposition proceeding. We believe the opportunity to request an
opposition should be available only for nine months after the grant of
the patent. The alternative view is that oppositions should be
available at any time after the grant of the patent throughout its life
or at least for a period of time at any time after the patent owner
receives a notice of alleged infringement or an offer to license. Those
favoring a short window of time after patent grant for requesting
opposition, including IPO, tend to view the opposition procedure as an
additional review of the patent examination process in the PTO and an
opportunity for members of the public to submit information and present
arguments that may not have been available to the Office. Those
favoring making oppositions available throughout the life of the patent
tend to view the procedure as an alternative to patent validity
litigation in U.S. District Courts. This would be similar to the
``revocation'' process that is found in the procedure of many foreign
countries. Although an opposition procedure should not be viewed as a
substitute for the Office performing a thorough initial examination,
the existence of an opposition procedure will reduce uncertainty and
increase confidence by patent owners and the public in the quality of
patents that have survived an opposition or have not been opposed.
Limiting the time for oppositions will help avoid possible harassment
of patent owners and avoid large numbers of opposition proceedings that
would overtax the Office's ability to handle the proceedings.
Importantly, an indefinite period of opposition exposure would hinder
the ability of startup companies to receive prompt funding through the
venture capital system.
Any opposition proceeding must be carefully balanced to protect the
interests of patent owners and competitors and to maintain the value of
patents as an encouragement for invention, research, development, and
commercialization. Changing one feature of a proceeding may require
changing other features in order to maintain the desired balance. IPO
has studied opposition procedures and developed a list of 16 inter-
related attributes that we believe would provide a balanced proceeding
and improve patent quality. Our list is attached to this statement as
Only a few of our suggested attributes differ from those in the
Committee Print. We recommend that: (1) the standard of proof applied
during an opposition proceeding should be the clear and convincing
evidence standard; (2) the requester of an opposition proceeding should
be required to publicly disclose its identity in every case; and (3) an
opposition proceeding requested by an accused infringer should be
stayed if an infringement suit is filed against the accused infringer
in a district court before the opposition is requested.
Section 9 of the Committee Print modifies the existing ``inter
partes reexamination'' proceeding that was established in 1999 by the
American Inventors Protection Act.\3\ Inter partes reexamination
proceedings differ from the proposed post-grant opposition proceedings
in that inter partes reexaminations are available at any time during
the life of the patent and are limited to patentability issues based on
earlier patents or publications describing the invention at issue--
documentary prior art. The Committee Print expands inter partes
reexaminations by (1) removing the limitation that a requester is
estopped from asserting at a later time patent invalidity on any ground
that the requester ``could have raised'' during the reexamination
proceeding; and (2) making inter partes reexamination available for any
patent granted on any date. The American Inventors Protection Act
limited inter partes reexamination proceedings to patents granted on
applications filed after November 29, 1999. The two limitations on
inter partes reexamination addressed by the Committee Print have
prevented significant use of inter partes reexamination to date. Only
about 75 inter partes patent reexaminations have been requested. IPO
supports the changes in inter partes reexamination in the Committee
Print. We believe that with these changes, inter partes reexamination
will be used more often. It will serve as a useful complement to the
proposed post-grant opposition proceedings by providing a relatively
simple and inexpensive proceeding for challenging a patent at any time
during its life on the limited grounds--documentary prior art--on which
the PTO has the most experience. With emphasis on prompt reexamination
announced by Director Dudas recently, inter partes reexamination will
also be a relatively rapid proceeding for obtaining determinations of
patentability. Availability of an improved inter partes reexamination
proceeding bolsters the case for limiting post-grant opposition
proceedings to a nine-month period after grant.
\3\ Committee Print, p. 35.
WILLFUL INFRINGEMENT AS BASIS FOR TREBLE DAMAGE LIABILITY
IPO supports the amendment in Section 6 of the Committee Print that
clarifies and limits the law on awards of treble damages for patent
infringement.\4\ The section implements recommendations of the FTC, the
NAS and others including IPO that treble damages should be assessed
against infringers only in limited situations. Some companies have
stated that existing judicial interpretations on treble damages have
caused them to be wary of even permitting their employees to read
competitors' patent documents for fear the company will be found to be
on notice of infringement for purposes of treble damages liability.
Some feel that treble damages are too readily available and encourage
owners of questionable patents to file law suits and obtain settlements
in cases in which defendants have not knowingly infringed a valid
\4\ Committee Print, pp.29-31.
The Committee Print prohibits an inference of willful infringement
based on the absence of an opinion of counsel and prohibits treble
damages based merely on knowledge of a patent or its contents by the
defendant. The Committee Print limits treble damages to specific
situations including instances where the defendant has received a
detailed written notice from the patent owner charging infringement and
identifying the specific patents, claims, and allegedly infringing
products or processes. A significant feature of this provision in the
Committee Print is that the notice from the patentee must be sufficient
to give declaratory judgment jurisdiction to the receiver of the
notice. This prevents the current tactic used by abusers of placing the
receiver of the notice in legal limbo--subject to the possibility of
treble damages but with no legal remedy to resolve the situation. Other
circumstances in which the Committee Print approves treble damages are
those in which (1) the defendant intentionally copied the patent
subject matter and (2) the patent was asserted against the defendant in
a previous judicial proceeding.
We believe these reforms on willfulness and treble damages will
reduce litigation costs and discourage unwarranted suits. These reforms
together with limited post-grant opposition proceedings and
improvements in inter partes reexamination proceedings would constitute
significant reform of the patent litigation system.
RIGHT OF FIRST-INVENTOR-TO-FILE
Section 3 of the Committee Print awards the patent to the first-
inventor-to-file when two inventors file patent applications, changing
the traditional U.S. first-to-invent procedure. IPO supports this
\5\ Committee Print, p. 7, amending 35 U.S.C. 135.
Awarding the patent to the first-inventor-to-file eliminates
interference proceedings in the USPTO. Fewer than one-tenth of one
percent of patent applications become involved in interference
proceedings, but proceedings are costly and the possibility of another
party proving a date of invention earlier that the invention date of
the first party to file causes uncertainty for patent rights. Data
compiled recently by Gerald J. Mossinghoff, a former head of the PTO,
indicates that small inventors fare no better under the first to invent
system than they would under a first to file system and perhaps not as
well.\6\ The Committee Print correctly uses the term ``first-inventor-
to-file'' to avoid any suggestion that a person who is not an inventor
can obtain a patent by filing an application earlier than the inventor.
\6\ Washington Legal Foundation Civil Legal Issues No. 129, April
IPO supports first-inventor-to-file because it is the best system
for the U.S. While its adoption would have a less immediate effect on
the U.S. patent system than many of the other proposals in the
Committee Print because of the small number of cases involved, adoption
of first-inventor-to-file system would have important ramifications for
the current talks on a possible substantive patent law harmonization
treaty. The U.S. is the only country in the world with a first-to-
invent system. In past harmonization talks the unwillingness of the
U.S. to change its system has been an emotional issue with other
countries. Additional visible support for a first-inventor-to-file
system in the U.S. has come recently in the form of endorsements by the
American Bar Association and the NAS report. Introduction of a bill in
Congress would be a positive sign that the U.S. may be prepared to
eliminate one of the obstacles to substantive patent law harmonization.
Section 7 of the Committee Print makes it more difficult for patent
owners to obtain injunctions to stop infringement of patents.\7\
Reducing the availability of injunctions was not a feature of either
the FTC or the NAS report. The IPO position will have to be updated,
but when this specific proposal was reviewed by the Board of Directors
in 2001, exactly as worded in Section 7, most members of the board were
unwilling to support it. I will explain the case against the proposal,
which contains concepts that IPO has strongly rejected over the years--
compulsory licensing and a requirement for the patent owner to use the
\7\ Committee Print, pp.31-32.
\8\ The U.S. Government has also been consistently critical of
compulsory licensing and working requirements in international
A fundamental distinguishing feature of American intellectual
property rights for more than 200 years, embodied in Article I, Section
8, Clause 8 of the U.S. Constitution, is that patent and copyrights
rights are EXCLUSIVE rights. Exclusivity comes from the availability of
permanent injunctions. Many believe the principle of exclusivity has
contributed mightily to America's leadership in technology, in the case
of patent rights, and to literary and artistic creativity, in the case
of copyright. Exclusive rights should be available to the same extent
for patented inventions and for copyrighted works such as books, motion
pictures, sound recordings, and software. We expect that because of the
way it is written, this particular proposal would come under
We understand the proposal to be directed to permanent injunctions.
It is sometimes said permanent injunctions issue at as a matter of
course at the conclusion of patent or copyright litigation. Professor
William C. Robinson of Yale University explained the distinction
between preliminary and permanent injunctions in his classic 1890
treatise The Law of Patents:
A preliminary injunction is not, like a perpetual injunction, a
matter of course, nor can its issue be governed by any
formulated and established rules. . . . A permanent injunction
issues as a matter of course, at the conclusion of a suit in
equity, whenever the plaintiff has sustained the allegations of
his bill, provided the patent has not then expired.\9\
\9\ Robinson, The Law of Patents (1890), Sec. Sec. 1170 and 1220.
This is not precisely today's law, however, and permanent
injunctions do not issue as a matter of course. A permanent injunction
is not issued if a case is exceptional--i.e., if a sufficient reason
exists for denying it. Permanent injunctions have been denied, for
example, because the defendant agreed to eliminate the infringement
within a period of time, or because of laches or estoppel, or, in rare
cases, because of ``public interest.''
By introducing a standard that, ``A court shall not grant an
injunction . . . unless . . . the patentee is likely to suffer
irreparable harm that cannot be remedied by payment of money damages,
the proposed language in the Committee Print would make a drastic
change in existing law. A permanent injunction would be denied unless
there was a reason to grant it--the opposite of the law today, where it
is granted unless there is a reason to deny it. Also, a major new
hurdle would be introduced with the requirement for irreparable harm,
which is a preliminary injunction concept. The likely effect of these
two changes would be to make patent rights in the U.S., in many cases,
subject to compulsory licensing, a common feature of patent systems
abroad. In addition, the Committee Print as presently worded would make
injunctions more difficult to obtain if a patent owner is not using the
invention. By encouraging courts to consider the patent owner's use,
this would essentially establish a requirement similar to ``working
requirements'' found in patent laws abroad that provide weaker
incentives for innovation. IPO has consistently been opposed to working
By removing the prospect of obtaining a permanent injunction in
many cases, Section 7 would remove an injunction as the patent owner's
leverage to encourage infringers to settle disputes by taking licenses.
With reduced prospect of an injunction, voluntary license agreements
would become more difficult to obtain and royalty rates would be more
often determined by courts and less often by market forces.
Supporters of this particular injunction proposal cite with
approval the fact that it would reduce the bargaining power of patent
holders and make it less likely that companies would be forced to shut
down product lines. The supporters feel they are being threatened with
too many patents of questionable validity or scope. We understand the
frustrations with the current patent litigation environment, but other
approaches exist for reducing patent litigation and for avoiding
becoming subject to a permanent injunction.
Permanent injunctions often are not issued because the parties can
negotiate a settlement or else the accused infringer can redesign its
product during the several years usually required to complete patent
litigation. If a product cannot be redesigned to avoid a patent, it may
be an indication the patent is for a fundamental invention and the
infringer should be prepared to withdraw the product and expect to pay
large compensation. Manufacturers can help themselves avoid patent
infringement by monitoring and analyzing patents and patent
applications as they are published by the PTO and by conducting product
clearance patent searches before new products are put on the market.
These practices are followed routinely in many industries.
The encouragement for courts to consider whether the patent owner
produces the invention itself, in the second part of Section 7 of the
Committee Print, is tantamount to a working requirement. This is
inconsistent with the concept of patents as intellectual property
rights. A working requirement would greatly diminish the value of
patents and the incentives for innovation they provide, particularly
for universities, which are not manufacturers, and for small businesses
and inventors who may lack resources to have a patented product or
service on the market before litigation.
We believe the proposed changes in the law on availability of
injunctions, as worded in Section 7, would be a major blow to
incentives for innovation provided by the American patent system and
would result in a huge decline in the value of patents now in force.
The role of the patent system in maintaining America's technological
leadership would be diminished.
Before deciding whether to adopt this specific proposal on
injunctions, we recommend that the Subcommittee obtain more information
than we have been able to collect in advance of this hearing on the
large number of cases in which patent injunctions have been granted and
denied, and the effects on various industries of making injunctions
more difficult to obtain.
OTHER PROPOSALS IN COMMITTEE PRINT
Definition of Prior Art
Section 3 of the Committee Print revises the definition of ``prior
art.'' \10\ These changes accommodate the first-inventor-to-file
system. Certain changes are required in the definition of prior art for
a first-to-file system. The Committee Print makes additional changes in
the definition of prior art that are not necessary for a first-to-file
system but which are designed to clarify and improve the law. IPO
supports these changes as part of the switch to a first-to-file system.
\10\ Committee Print, pp. 3-6, amending 35 U.S.C. 102.
Filing of Patent Applications by Assignees
Section 4 of the Committee Print permits a party to whom the
inventor has assigned or is under an obligation to assign the invention
(i.e., the real party in interest) to file the patent application on
behalf of the inventor.\11\ The Committee Print provides that if a
patent is granted to the real party at interest, the inventor will be
given such notice as the USPTO Director considers to be sufficient. IPO
supports assignee filing as a useful simplification in the procedure
for filing applications.
\11\ Committee Print, p.9.
Elimination of Best Mode Requirement
Section 4 of the Committee Print amends the patent code to
eliminate the requirement that an inventor must set forth the best mode
contemplated of carrying out the invention.\12\ The 2004 National
Academy of Sciences report identified this change in law as one of
three changes that might be made to eliminate subjective elements in
patent litigation and thereby reduce the cost of litigation and
increase the predictability of litigation outcomes.\13\ IPO supports
\12\ Committee Print, p.10.
\13\ ``A Patent System for the 21st Century,'' National Research
Council of the National Academies (2004) at 99.
Duty of Candor
Section 5 of the Committee Print codifies a duty of candor owed to
the PTO by patent applicants and other parties.\14\ IPO is still
studying the need for legislation on this subject. The NAS report
recommended duty of candor legislation as a way to limit the subjective
elements of patent litigation. The duty of candor today is defined by
PTO rules and court decisions It is important to have a strong duty of
candor that requires patent applicants to submit relevant prior art
they know about to the PTO. Prior art submissions are essential to help
insure the quality of granted patents. We would not favor any
legislation that would cause fewer relevant prior art references to be
submitted. If legislation would clarify the duty of candor and make
patent applicants more comfortable in volunteering explanations and
opinions about submitted prior art that applicants are reluctant to
express today because of fear of being charged with fraud, legislation
could be useful.
\14\ Committee Print, pp.10-29.
Damages When Invention Incorporated Into Larger Product or Method
Section 6 of the Committee Print provides that when an invention is
incorporated into a known method or apparatus any award of damages will
be based only on such portion of the total value of the method or
apparatus as is attributable to the invention.\15\ The proposal appears
to be directed at the so-called ``entire market value'' rule that has
been applied by courts in cases where the patented feature is the
entire basis for customer demand for the apparatus or method. Although
the proposal states a principle that produces the fairest result when
less than the total value of the method or apparatus is attributable to
the invention, the proposal as drafted could produce unfair results or
would not apply in some situations. In some cases the patented feature
is the entire basis for customer demand for the apparatus or method.
Some inventions involve eliminating a component from an apparatus or
method. Some inventions combine two known inventions with the
combination producing a new result.
\15\ Committee Print, p.31.
Section 8 of the Committee Print prohibits presentation of a patent
claim that is broader than claims presented at a specified earlier time
in the patent application or a predecessor application.\16\ IPO agrees
with the 2003 Federal Trade Commission Report stating that legitimate
uses exist for amending claims in continuing applications, thus any
proposal to address opportunistic broadening of claims should protect
such legitimate uses. IPO members have expressed some support for
placing limits on enlarging claims in continuation applications,
because continuation applications have been used to manipulate the
patent system in certain cases. Applicants have kept so-called
``submarine'' patent applications alive in the PTO for many years and
reshaped the claims as products or processes of others in an industry
evolved. Concerns about submarine patent applications have subsided as
a result of (1) the change of the patent term in 1995, so that it
expires 20 years after the filing of the first application, (2) court
decisions on ``prosecution laches,'' and (3) publication of most patent
applications 18 months after filing starting in 2000. Some concerns
about submarine applications still exist. The issues with the proposal
in the Committee Print seem to be whether it would be effective,
because it might be circumvented by presenting unreasonably broad
claims at the outset in every case, and whether the time periods for
enlarging claims are too short, given that applicants have legitimate
needs to amend and enlarge their claims in some circumstances.
\16\ Committee Print, p.32.
Publication of All Patent Applications After 18 Months
Section 9 of the Committee Print requires publication of all patent
applications 18 months after filing.\17\ The American Inventors
Protection Act exempted applications from publication if the applicant
requested an exemption because a corresponding application was not
being filed in another country. Most countries publish all
applications. We understand that about ten percent of applications
filed in the USPTO are not being published. IPO supports publication of
all applications in order to provide more information to the public at
an earlier date and increase certainty about the scope of patent rights
\17\ Committee Print, p.33. A few applications are not published
because of their importance to national security, and those application
would continue to be withheld from publication.
Prior User Rights
Section 9 of the Committee Print also amends the section on prior
user rights in the American Inventors Protection Act by (1) deleting
limitation to ``methods of doing or conducting businesses,'' (2)
deleting requirement for reduction to practice ``at least one year
before the effective filing date,'' and (3) extending rights to
``substantial preparation for commercial use.'' \18\ IPO supports these
changes to provide prior user rights for innovators in all fields of
technology and to make prior user rights more effective. Prior user
rights strike a balance between the interests of the first-inventor-to-
file a patent application and another party who provided a benefit to
the public by commercializing the invention early but chose to rely on
trade secrets, which may be more effective for protecting inventions
that can be used in secret, such as manufacturing processes.
\18\ Committee Print, p.34
Combinations of Components Outside U.S.
Section 10 of the Committee Print amends Section 271(f) to provide
that an item supplied from the U.S. is not a ``component'' for purposes
of patent infringement under that section unless it is a tangible item
that is itself combined physically with other components to create a
patented combination.\19\ Several IPO members have suggested that the
recent Eolas and AT&T cases involving Section 271(f) may have been
wrongly decided. IPO is studying the issue and has not yet taken a
position. If the cases were wrongly decided, other options may exist in
addition to the proposal in the Committee Print. IPO traditionally has
not favored legislation that would create different rules for different
categories of inventions, such as products and processes. We suggest
studying the option of outright repeal of Section 271(f), which was
enacted in 1984 in response to a single Supreme Court decision and may
not be important in today's global economy. Also, if the cases were
wrongly decided, organizations in the patent community can be expected
to file amicus briefs to seek clarification of the scope of existing
Section 271(f). We cannot take a position on this proposal without
\19\ Committee Print, p.49
Thank you again for the opportunity to discuss the Committee Print.
We believe the Subcommittee has a good start toward a comprehensive
patent law reform bill that would improve patent quality, increase
certainty as to the scope of legal rights, and reduce litigation
We look forward to working with the Subcommittee as it develops
formal legislation on patent law reform.
IPO Resolution on Establishing a Post-Grant Opposition System
As revised at the 11/09/2004 Board Meeting and
approved by the IPO Board of Directors
RESOLVED, that the Intellectual Property Owners Association supports
amendment of the patent laws to establish post-grant opposition
proceedings in which patentability of issued claims can be reviewed by
Administrative Patent Judges of the Board of Patent Appeals and
Interferences of the United States Patent and Trademark Office,
provided such proceedings include the following attributes:
1. [Time for Filing]--Any request for a post-grant opposition must be
made no later than 9 months after the date of the patent grant;
2. [Grounds]--Any ground of patentability, with the exception of
``best mode'' (35 U.S.C. Sec. 112, 1) and derivation (35 U.S.C.
Sec. 102(f)), may be raised in the request, but no issues of priority
of invention (35 U.S.C. Sec. 102(g)) nor enforceability shall be
3. [Threshold Showing]--Any party requesting initiation of an
opposition proceeding shall be required to make a threshold showing of
unpatentability of at least one claim of the patent before the patent
owner is required to respond to the opposition;
4. [Discovery]--Discovery from a party to an opposition shall be
limited to cross-examination of declarants;
5. [Additional Evidence]--Following initiation of a post-grant
opposition proceeding, the party requesting the proceeding shall not be
permitted to advance a new ground of unpatentability in the opposition
6. [Claim Amendments]--The patent owner shall have the right to amend
its claims in its response to the initial request and after any new
prior art is presented by an opponent after filing its initial request;
7. [Other USPTO Proceedings]--No party to the opposition proceeding
shall be prevented by the opposition proceeding from filing other
concurrent or subsequent proceedings in the United States Patent and
8. [Standard of Proof]--The standard of proof to be applied for
determining unpatentability of a claim during a post-grant opposition
proceeding shall be the clear and convincing evidence standard;
9. [Estoppel]--A judgment in favor of patentability of any claim in
the opposition proceeding shall estop the opposer from challenging
validity of that claim in other proceedings on the basis of evidence
and prior art presented during the opposition proceeding;
10. [Duty of Disclosure]--The patent owner's duty of disclosure during
the opposition shall be no greater than that applicable to a party in
litigation before a Federal court;
11. [Length]--The opposition proceeding shall conclude within 12
months of the expiration of the 9-month post-grant request period and
any patent claim surviving the opposition proceeding unamended shall be
subject to day-for-day patent term adjustment for any period of
pendency of the proceeding beyond the 12 months, excluding delays
caused by the patent owner;
12. [Identity of Opposer]--Any party requesting initiation of a post-
grant opposition proceeding must disclose its identity to the patent
owner in the opposition proceeding;
13. [Infringement Suit]--In the event an infringement action is
brought against an accused infringer prior to the filing of a post
grant opposition request by the accused infringer, then any opposition
proceedings involving the patent shall be stayed until the infringement
action is finally resolved;
14. [Appeal]--Judicial review of a post-grant opposition proceeding
shall be exclusively by way of appeal to the Court of Appeals for the
15. [Consolidation]--Multiple oppositions against a single patent
shall be consolidated into a single opposition action following the
expiration of the nine-month filing period; and,
16. [Right to Hearing]--Parties to an opposition shall have the right
to a hearing before the decision of USPTO on the opposition is reached.
Mr. Smith. Thank you, Mr. Hawley.
TESTIMONY OF RICHARD J. LUTTON, JR., CHIEF PATENT COUNSEL,
APPLE, ON BEHALF OF THE BUSINESS SOFTWARE ALLIANCE
Mr. Lutton. Thank you. Mr. Chairman and Members of the
Subcommittee, I'm Richard Lutton, Chief Patent Counsel for
Apple. I'm pleased to have the opportunity to present BSA's
views on patent quality and improvement.
We commend you for holding these hearings and for your
continued commitment to improving our patent system.
We believe the committee print correctly identifies the
most important areas where reform is timely, and we commend you
The IT industry, like so many others, is encountering the
enormous costs of dealing with poor quality patents. We are
also faced with a growing cottage industry of patent
assertions, orchestrated by entities with no business other
than acquiring and asserting patents.
Increasingly, they use the uncertainties of the civil
litigation system as their primary bargaining chip. The result
is that bad patents can cause a substantial litigation risks
and costs. Defendants in these suits now must spend an average
of $5 million defending themselves and in some courts, the
average is more like $8 million.
So what can we do?
Some witnesses will tell you that patent reform is
sufficient or that harmonization should be your goal. While my
written testimony details our support for these goals, we
believe more is required.
BSA believes the issues of the patent system cannot be
addressed by changes at the PTO alone. We're extremely grateful
to see the committee print recognizes the disruptive effects
that unwarranted litigation can have on the patent system as a
whole, and we support the approach the committee print has
taken with regard to monetary and injunctive remedies.
I'd like to address three specific provisions.
First, the law of triple damages for willful infringement.
We believe these punitive triple damages should be reserved for
cases of reprehensible conduct, such as copying a patent.
The current gamesmanship of artfully drafted notice letters
and opinion writing has little to do with ferreting out cases
of truly reprehensible conduct. Instead, it creates hardships,
including forcing a defendant to chose between defending
against triple damages and, on the other hand, preserving the
These hardships are used increasingly as a leverage point
by plaintiffs seeking only to maximize settlement value of a
case. Thus, we suggest that that prong of the willfulness test
should be deleted from the draft provision.
Second, BSA strongly supports the committee print's
proposals to add certainty to the measure of damages on complex
products. Today, when a small feature of a multifaceted product
is alleged to infringe a patent, the patentee is often--often
claims damages on some percentage of the value of the entire
product rather than only the infringing feature.
We believe reform is needed to rein in these damages
claims. The provision included in the committee print
accomplishes this goal.
Third, BSA strongly supports the approach taken by the
committee print to injunctions. That provision directs courts
to do what the law already says: balance equities before
issuing an injunction.
Today, the courts are interpreting this statutory
requirement very narrowly. Essentially the only reason for not
granting an injunction is national health emergency. This
interpretation of the public interest risks turning equity into
a needles eye that no case in our industry can thread.
We are mindful of the concerns of some groups that these
solutions to litigation issues not disrupt monetary injunctive
relief for appropriate cases.
We agree with this concern. Any solution must address the
problem narrowly without creating unintended disruptions in
other areas, and, of course, any solution must be consistent
with international norms and obligations.
Before I close, because I have a little bit of time left,
I'd like to address comments on--quickly on three provisions
related to PTO processes or harmonization.
First, with respect to post-grant opposition, we support
the proposed procedure, but we believe the issue of timing is
critical. The current committee print includes a single 9-month
window after issuance for initiating an opposition.
We do not believe this is sufficient to identify patents
We suggest instead two windows, with the second window
opening if and when a patentee has provided notice to a
Only a noticed party could use this second window.
Second, with respect to the wholesale redefinition of what
constitutes prior art, much of this change is not required for
harmonization with a worldwide first to file system. This new
definition also injects uncertainty and diminishes the scope of
what's considered prior art. We believe that could have
unintended negative impact on patent quality.
Finally, the committee print includes a provision
significantly reducing the effect of a patent applicant's
violating her duty of candor before the PTO. We question
whether this provision is appropriate, especially in an era of
increased emphasis on candor and full disclosure in dealing
with governmental agencies and public institutions.
Thank you for the opportunity to provide input on this
critical topic. We pledge our continued support and assistance.
[The prepared statement of Mr. Lutton follows:]
Prepared Statement of Richard J. Lutton, Jr.
Mr. Chairman and members of the Subcommittee, my name is Richard
Lutton and I am the chief patent counsel for Apple. I appear today
representing the Business Software Alliance (BSA). BSA welcomes the
opportunity to appear before you today on this important topic. We
commend you for holding these hearings and for your commitment to
improving our patent system.
The Committee print made available last week correctly addresses
the two major areas where BSA thinks patent reform is now timely:
improving the quality of patents issued by the Patent and Trademark
Office and alleviating the disruptive effects that excessive patent
litigation now poses. Overall, BSA supports the approach and the issues
identified in the Committee print and we look forward to working with
as you proceed with your efforts. As I will describe in greater detail
in a moment, there are areas where further clarification or changes to
the language would be positive, and there are some issues that are not
in the print which we believe merit consideration.
The software and computer industry is a creative engine that powers
innovation and growth. The industry's products and services give
individuals and organizations the tools they need to operate
intelligently, efficiently and productively. Indeed, over the past
thirty years, software and computers have become critical to economic
success, business competitiveness and personal quality of life. People
worldwide rely on the software and computer industry's tools to
communicate, to connect to the world, to get things done more
efficiently in the workplace, and to more fully enjoy the arts, hobbies
and leisure activities.
The members of the Business Software Alliance \1\ have a
significant stake in this Subcommittee's work regarding patent quality
and improvement. BSA represents more than twenty-five software and
computer companies with annual revenues well in excess of $300 billion.
Together, we hold about 100,000 United States patents. Our members are
both plaintiffs and defendants in patent suits. Many of our members
have established licensing programs to encourage the licensed use of
technology covered by our own patents and to respect the patent rights
of others. Simply put, patents play an essential role in how
information technology companies do research and how they develop and
commercialize products and services.
\1\ BSA members include Adobe, Apple, Autodesk, Avid, Bentley
Systems, Borland, Cadence Design Systems, Cisco Systems, CNC Software/
Mastercam, Dell, Entrust, HP, IBM, Intel, Internet Security Systems,
Macromedia, McAfee, Microsoft, PTC, RSA Security, SAP, SolidWorks,
Sybase, Symantec, UGS and VERITAS Software.
BSA members believe that the patent system is fundamentally sound
and works well for most innovators, whether they toil in their garage,
experiment in a university laboratory, or work for a large corporation
that provides goods and services to consumers. That said, we believe
that a periodic review and recalibration of the patent law is not only
a good idea, but also essential to ensuring that patents remain a vital
part of technological process. The current patent system has given rise
to too many low quality patents being issued, and a growing pattern of
assertions of weak patents that threaten to damage productive companies
and stifle innovation.
BSA members approach patent reform from a pragmatic, problem-
solving perspective. Our attention is focused on those areas of the law
and practice that present specific challenges for our companies' day-
to-day businesses. Thus, we believe that reform must address both the
administrative system responsible for the issuance of patents and the
litigation system responsible for enforcing patents.
1. PATENTS IN THE SOFTWARE AND COMPUTER INDUSTRY
As we enter the 21st Century, intellectual property is an ever more
critical source of economic value to society, individuals, companies
and governments. While copyrights have been and will remain a principal
way that technology companies protect their intellectual property, I
will limit my comments today to patents.
The increased importance of patents to technology companies has
resulted from a mix of legal and marketplace developments.
The 1981 Supreme Court decision, Diamond v. Diehr, marked a turning
point in the patentability of computer-implemented inventions. In that
case, the Supreme Court held that a machine that transforms materials
physically under the control of a computer program was patentable. The
Court's decision clarified earlier rulings that had been interpreted to
suggest that software programs would rarely qualify for patentability.
Subsequent decisions from lower courts have further clarified the law
in this area. As a result, U.S. patent applications from inventors in
the software sector have steadily increased.
Equally important are marketplace trends. For example, in today's
diverse technology marketplace, heterogeneity has become an important
element of technology and network effectiveness. Unlike the early days
of computing when consumers tended to purchase all their hardware and
software from only a single firm, consumers now often build systems to
meet their specific needs based on products sourced from different
suppliers. The ability of these different systems to work together is
essential. In this context, patents enable technology companies to
integrate systems and meet consumer's needs while ensuring a return for
Finally, changes made by Congress, especially the creation of the
Court of Appeals for the Federal Circuit in the early 1980's, have
brought generally greater importance to patents and more consistent
respect for the property right granted by a patent.
Today, patents are a key part of virtually every technology
company's intellectual property portfolio. The reasons are simple:
Patents provide critical protection for distinctive
technologies that may have been difficult to innovate but could
easily be replicated without the protections of a patent.
Patents ensure that technology companies have the
opportunity to be compensated for their contributions to
advances in their field of technology.
At the same time, and reflecting the way in which our
industry often operates, patent protection enables technology
developers to license or otherwise share key technologies with
customers, partners and even competitors, while still
preventing third parties from ``free-riding'' on their
Patents can encourage cross-fertilization of
technology through cross-licensing.
Collectively, patents provide a repository of
accumulated knowledge that allows new generations of innovators
to learn from the state of the art and, in some cases, design
new solutions that further advance that body of knowledge.
2. REFORM IS TIMELY
While patents are critical tools for the technology industry, there
are aspects of the patent system that present on-going challenges for
First, prior art (which is the totality of previously known
technologies against which a new invention is measured to ensure that
it merits a patent) is not as well documented for the computing field
as it is in some other areas. In part this is because, for many years,
patents were not readily available for software. It is also
attributable to the nature of large-scale commercial software and
computing--millions of lines of software code or billions of
transistors or other components that may require significant effort to
identify or understand. This makes the task of the patent examiner
difficult: she must determine the patentability of software inventions
without always having a complete understanding of what is already known
in the art. The result can be poor quality patents.
Second, the software and computer industry, like many high
technology industries, is a field with an extremely high concentration
of patents. For example, there may be as many as 200 patents that are
relevant to a single multifunction computer program; for example, the
Federal Trade Commission recently received testimony stating that there
are more than 90,000 patents that relate generally to
microprocessors.\2\ This concentration of patents within a technologic
field presents specific challenges not only for the software industry,
but also for biotechnology and other sectors.
\2\ See To Promote Innovation: The Proper Balance Of Competition
and Patent Law Policy, Report by the Federal Trade Commission, section
II.B., available at http://www.ftc.gov/reports/index.htm.
Finally, software and computers are examples of ``system''
products--they comprise thousands, even hundreds of thousands, of
individually functioning components and features all assembled in a
package for a customer. Because many of these features could be the
subjects of a patent, it is often the case that thousands of patents
may be relevant to a particular computer or software product. This
phenomenon--sometimes referred to as ``co-location of patents''--means
that any single patent covering a computer or piece of software
accounts for only a small fraction of the intellectual property value
of the entire system. Yet, too often, patent holders seek to recover
large percentages of the revenue generated by these complex systems in
exchange for only a single or small group of patents.
In combination, these issues make our industry susceptible to the
problems of poor quality patents and the uncertainties of litigation.
We approach reform from this perspective.
3. QUALITY PATENTS
BSA strongly supports the Committee for making improving patent
quality one of its key focal points. The Committee print clearly shows
that you understand this problem, and the legislative changes set out
in the print would go a long way towards making this situation better.
Poor quality patents, as detailed in recent studies by the National
Academy of Sciences and the Federal Trade Commission, hamper
competition and harm innovation. A questionable patent may lead
competitors to forego research and development in a particular area,
fearful of the risks that may be involved. Poor quality patents may
also require innovators to license unnecessarily thousands of patents.
BSA believes Congress should focus on four key areas that will
facilitate the issuance of higher quality patents:
(1) enhanced post-issuance processes to provide a second
chance to intercept bad patents;
(2) curtailment of abusive continuation practices that lead to
endless chains of patents with ever-broader claims;
(3) better support for receiving prior art, and better
processes for building a contemporaneous record that reflects
the extent of the examination by the patent examiner; and
(4) adequate PTO training and funding.
BSA commends the Subcommittee for including within its Committee
print specific and meaningful ways to improve the post issuance
Currently, the primary way to challenge the validity of an issued
patent is through litigation, a costly and difficult approach. BSA
supports the proposal in the Committee print to create a meaningful and
balanced opposition procedure enabling third parties to challenge
issued patents. Such a process would permit the Patent and Trademark
Office to take a careful look at any challenged patent in the context
of an adversarial proceeding likely to bring out the strongest
arguments in favor of, and against, continued existence of the patent.
This process augments a patent's initial examination and provides a
second, more granular filter through which a patent may pass if it is
to be used against an alleged infringer.
BSA recommends a number of areas where the language in the
Committee print can be improved. Most importantly, the timeframe for
initiating an opposition should be sufficiently long to permit the
relevant public to identify and assess the patent at issue. The single,
nine month window proposed in the Committee print is too short. In many
industries, a single window will not permit accurate assessment of the
validity and impact of a newly issued patent on products. We recommend
instead two windows. The first window should be two years from
issuance. The second window should be open for a period of one year
after a patent owner sends notice of infringement. This second window
is essential to allow companies to challenge a patent when, and if, it
is asserted even if a prior search would never have revealed a threat
from that patent.
In addition, under current law, the inter partes reexamination
process is so restricted as to severely limit its usefulness. In fact,
since the inception of this process, the Patent and Trademark Office
has received fewer than one hundred requests for inter partes
reexamination. BSA supports the Committee print provision relaxing the
current law's estoppel provisions and expanding its scope to include
patents filed before 1999, as well as those filed later.
Abuses of Continuation Practice
BSA supports the changes in the Committee print aimed at ending
abuses of continuation practices. Currently, a patent applicant may
file follow-on patent applications with broader and broader claims long
after the publication or issuance of its original patent application.
Through these mechanisms, some applicants keep their applications
pending for extended periods while monitoring the developments in the
relevant market. By modifying their claims to cover other companies'
products, often after those other companies have invested significant
funds in their products, such applicants can abuse the system.\3\ In
some cases, the patentees seek to obtain patent protection for ideas
that never occurred to the applicant before seeing them in the
marketplace. While this practice is currently permitted and even
sanctioned by the courts, a reform curtailing the ability to broaden
claims beyond the scope of the broadest claim previously published or
issued would roll back significantly the invitation to abuse created by
the current system.
\3\ See generally Mark A. Lemley and Kimberly A. Moore, Ending
Abuse of Patent Continuations, 84 Boston University Law Review 63
(2004), available at http://papers.ssrn.com/sol3/papers.cfm?abstract--
Availability and Consideration of Prior Art
An important step toward better patent quality would be to improve
the availability of prior art in the examination process. This issue is
not now addressed in the Committee print, and we urge you to consider
its addition as you proceed with your work.
Under current law, members of the public with relevant prior art
information have limited options to submit that information to the
examiner. The prior art may be submitted, but without comment on the
relevance of what may be hundreds of pages of carefully developed
disclosure. The result is that patents are often granted on the basis
of incomplete prior art information as an examiner has only 17 hours,
on average, to examine a patent. To address this issue, BSA believes
Congress should establish a mechanism for the public to submit prior
art and other information relevant to patentability, together with
commentary on that art and information.
Adequate Training and Funding.
Underlying any attempt to improve the quality of patent examination
must be a commitment to adequate funding for the Patent and Trademark
Office. The Committee print does not address directly this persistent
issue, but we are aware of and appreciate the Subcommittee's commitment
on this matter. Adequate funding is inextricably tied in with
permanently ending the practice of diverting patent fees to programs
outside the scope of the core PTO mission. Allowing the Patent and
Trademark Office to retain the fees that it generates would help ensure
that the PTO is able to provide high-quality examinations and to fund
4. REDUCE THE DISRUPTIONS CAUSED BY LITIGATION
BSA is extremely grateful to see that the Committee print
recognizes the disruptive effects that bad litigation practices can
have on the patent system as a whole. BSA supports the approach you
have taken in the print with respect to monetary and injunctive
remedies. This is an area of utmost concern to all technology
The reform provisions identified in the Committee print focus on
abuses of the current patent system that cannot be fixed by only
quality-enhancing changes. Congress must act directly to address the
most onerous sources of uncertainty in the civil litigation system.
Today, hundreds of patent infringement cases are pending against
hardware and software companies, and these companies spend hundreds of
millions of dollars each year defending themselves in these cases. This
is not to say that all of these cases are without merit, but that is
too often the case.
BSA commends you and strongly supports the Committee print for its
approach to these issues. BSA believes there are five key areas where
changes are needed:
(1) making clear that a patentee is entitled to claim damages
only on the proportion of the allegedly infringing product
attributable to the patent, and not including all the other
features and elements that may be also contained within a
multi-faceted product or system;
(2) recalibrating the standard for an award of punitive
damages for willful infringement to focus on truly
(3) clarifying and reiterating the current black letter
statutory requirement that the issuance of an injunction is
permissive and should be based on ``principles of equity;''
(4) reducing the burden of proving a patent invalid to a
``preponderance of the evidence'' in cases where the Patent and
Trademark Office did not consider the allegedly invalidating
prior art; and
(5) clarifying section 271(f) of the existing patent statute
to avoid discouraging research and development work done inside
the United States.
Apportionment of Patent Value in a Complex System or Product
BSA strongly supports the Committee print's proposals to ensure
damages reflect the actual harm. Today, when a small component of a
multi-faceted system or product is alleged to infringe a patent, the
damage claim often seeks some portion of the value of the product as a
whole rather than being limited to only the value of the infringing
feature or functionality. This often leads to unduly inflated verdicts
or settlement demands.
BSA supports the Committee print's approach to provide courts with
a statutory basis for requiring that patentees (and their expert
witnesses) present damages calculations based on the proportional value
of a patented invention alone, rather than on the cumulative value of
all features included with a larger product. The provision included in
the Committee print accomplishes this goal.
Punitive Damages for Willful Infringement
BSA supports the approach taken in the Committee print to address
the issue of willful infringement, and suggest that further changes be
made in the language to avoid perpetuating the need to have dueling
opinions from counsel.
The current law allows the courts to impose punitive increased
damages (up to three times actual damages) in cases involving willful
infringement. However, the standard on which they may be awarded under
current jurisprudence is far less than what is required for punitive
damages in other areas of law.\4\ In fact, merely knowing that the
patent exists is often the basis for an allegation of ``willfulness''
and a claim for triple damages, shifting to the defendant the burden of
showing the exercise of due care.
\4\ See Knorr-Bremse Systeme Fuer Nutzfahrzeuge Gmbh v. Dana et
al., 383 F.3d 1337 (Fed Cir. 2004) (Dyk, Circuit Judge, concurring-in-
Trying to satisfy this duty of care, patent defendants will often
seek the opinion of counsel. But reliance on that opinion in defense of
a charge of willfulness requires pre-trial disclosure of that opinion
to the other side, waiver of the attorney-client privilege and often
waiver of privileged materials relating to the subject matter of the
opinion generally. In some cases, this threatens even the integrity of
trial preparations. Thus, the existence of an opinion presents
defendants with a dilemma of whether to waive privilege in order to
defend against the charge of willfulness or, alternatively, preserve
the privilege.\5\ This choice can be especially unfair when plaintiffs
are allowed to use discovery obtained pursuant to the waiver to help
establish or color underlying liability for patent infringement.
\5\ See generally Mark A. Lemley and Ragesh K. Tangri, Ending
Patent's Willfulness Game, 18 Berkeley Technology Law Journal 1085
(2003), available at http://papers.ssrn.com/sol3/papers.cfm?abstract--
The uncertainty about willfulness has also led to the undermining
of one of the fundamental points of the patent system: that is,
disclosing to the public the invention. To avoid ``knowledge'' and
charges of willfulness, too many companies now instruct their employees
to avoid reading patents. This too can lead to reduced patent quality.
BSA believes that Congress should change the statute to make clear
that punitive increased damages should be imposed only when there is
evidence of reprehensible conduct, such as copying the patent or
violating a prior court order. The provision included in the Committee
print includes these concepts, and we support these changes. But it
also includes countervailing provisions that we fear would perpetuate
the current inefficient and costly practice. We fear the draft
provision would perpetuate the current gamesmanship by permitting a
well-drafted notice letter from the patentee to give rise to a charge
of willfulness. It would also continue the practice of having to obtain
counsel's opinions by making an ``informed good faith belief'' the
touchstone of liability. We fear, based on experience, that this
standard may be manipulated and does not reflect the sort of
reprehensible conduct by the infringer that should warrant punitive
Principles of Equity in Granting Injunctive Relief
BSA strongly supports the approach taken by the Committee print
directing courts to do what the law says: balance equities before
issuing an injunction. Section 283 of the current patent statute
provides that the courts ``may grant injunctions in accordance with the
principles of equity to prevent the violation of any right secured by
The Federal Circuit has in recent times interpreted very narrowly
the ability of a district court to consider equitable factors (largely
limited to health emergencies) when deciding whether or not to grant an
injunction. Only weeks ago, the Court overturned a district court's
judgment, based on the specific facts of the case, that a permanent
injunction was not warranted because of the patentee's demonstrated
willingness to license the patent.\6\ Only in cases of public health
emergencies or well-being has the Court readily considered non-issuance
of an injunction. Thus, the courts seldom engage in a balance of the
equities, and the granting of an injunction has become nearly
automatic. Moreover, there is no automatic stay of an injunction
\6\ MercExchange v. eBay, Inc. et al, 401 F.3d 1323, 2005 U.S. App.
LEXIS 4308, *41 (Fed. Cir. March 16, 2005).
Combined, these factors mean that an accused infringer must go into
a patent infringement trial prepared for the possibility of an
immediate injunction at the end of trial. This leverage point is
recognized and exploited by patentees who do not actually desire
injunctive relief, but use its threat to extract disproportionately
high payments from defendants. This problem is especially burdensome
for vendors of ``system products'' that, as explained above, may have
thousands of patented or patentable features contained within them. A
trial on any of those patents threatens to shut down the entire
BSA applauds the Subcommittee's inclusion of a provision
reestablishing an incrementally broader consideration of equitable
principles than is currently being practiced by the courts. We believe
this provision, while certainly not applicable in most cases, will be
meaningful in a small, but economically significant, set of the most
abusive patent assertions.
Burden of Proving Invalidity
An area not included in the Committee print, but which BSA thinks
requires attention, is the burden of proving invalidity. Under current
law, an issued patent is presumed valid and any party challenging
validity must overcome this presumption with ``clear and convincing
evidence.'' This is true even when it is clear that the patent examiner
did not have an opportunity to consider all of the prior art that forms
the basis for a later validity challenge. To address this issue, we
recommend that the evidentiary burden for challenging the validity of a
patent based in whole or in part on information or references not
considered during examination should be lowered to ``preponderance of
the evidence,'' to reflect the fact that the validity of the patent was
not in fact fully vetted relative to those prior art references.
Disincentives to Domestic R&D
The Committee print correctly recognizes that Section 271(f), as
interpreted by the Courts, presents potentially serious problems for
developers of software, and indeed for developers of any information-
based products. BSA supports the changes proposed in the Committee
print on this issue. Given marketplace developments since the enactment
of section 271(f), the Committee may want to consider repealing this
In 1984, Congress added Section 271(f) to prevent companies from
manufacturing components of an infringing product in the United States,
and exporting those parts for assembly abroad to avoid the claim of
infringement. Today, the provision has been interpreted by the courts
in ways that deter domestic development of software. Under recent court
holdings, a copy of a computer program made outside the United States
may in some cases nonetheless be included as part of United States
damages if the software is made from a ``master disk'' developed in the
United States. If the software had been developed outside the US, this
rule would not apply. The same issue may exist with respect to
development of other information-based products that are made wholly
outside the United States based on information developed in the United
States. We believe this application of the law creates an unintended
incentive to move valuable development activity outside the US, and
should be clarified or removed from the law.
The Committee print includes a number of provisions harmonizing
United States patent law with a worldwide first-to-file patent system.
BSA fully supports this goal: BSA member companies derive a substantial
portion of their revenues from overseas and hold numerous patents in
all major jurisdictions.
We fear, however, that the provisions in the Committee print could
have unintended consequences by making changes that go beyond what is
needed to normalize our laws with those of other countries.
Specifically, by reformulating the current law on the conditions for
patentability, these changes would call in to question decades of
established case law on prior art. This change could spur unnecessary
litigation to reformulate standards of prior art.
Specifically, by shifting away from the current categories of prior
art--especially subject matter that was used or offered for sale--the
provision included in the print risks the possibility that subject
matter already being used and commercialized within the United States
will nonetheless be patentable by a third party. The injection of an
inquiry whether subject matter was ``readily and effectively
accessible'' contemplates that subject matter that is harder to access,
even if widely deployed, will be unavailable as prior art. This could
result in an unintended new gamesmanship of patenting concepts already
in deployment commercially and may significantly increase the number of
patent filings for all manner of inventions. We question whether this
is a step that should be taken.
Instead, BSA encourages Congress to take an approach towards
harmonization that brings the United States into alignment with other
countries' laws without unnecessarily also diminishing the scope of
prior art by excluding materials that may have been difficult to
access, but were nonetheless publicly available.
Duty of Candor
The Committee print includes a provision significantly reducing the
effect of a patent applicant's violating her duty of candor in front of
the Patent and Trademark Office. We question whether this provision is
appropriate, particularly in this era of increased emphasis on candor
and full disclosure in dealing with governmental agencies and public
The purpose of the duty of candor is to compel a patent applicant
to provide the Patent and Trademark Office with as much information
known to the applicant as may be helpful to the examiner. The related
litigation defense of inequitable conduct asks whether the patentee
effectively commit fraud on the Patent and Trademark Office by
intentionally withholding such key information that the PTO's ability
to examine the patent was compromised. This current structure provides
a powerful incentive for applicants to act with utmost candor in front
of the Patent and Trademark Office.
The changes included in the Committee print risk undermining this
incentive in a number of ways. First, by moving to a ``but for'' test
for inequitable conduct, the proposed law would lower the incentive for
an applicant to err on the side of over-inclusion in disclosure, thus
potentially depriving the patent examiner of information that could be
material to examination. In addition, the changes to existing law on
who can be held liable for inequitable conduct seem to create the risk
that parties could participate in a fraud on the Patent and Trademark
Office, but avoid any adverse consequences of such behavior by
transferring the patent to a third party. Finally, by removing the
issue of breach of duty of candor from the court and placing it with
the Patent and Trademark Office, the proposal risks further overloading
We do believe, however, that it could be efficient and useful to
bifurcate the issue of inequitable conduct in litigation and present
that issue solely to a court after liability has been adjudicated.
Thank you again for the opportunity to provide input on the
critical topic of patent quality and improvement. BSA strongly supports
your efforts and commends you for the excellent Committee print. We
look forward to working with you in your efforts to improve the United
States patent system and ensure that it continues to serve this
country's great interest in promoting innovation and providing the
public with the benefit of that innovation.
Mr. Smith. Mr. Kushan?
TESTIMONY OF JEFFREY P. KUSHAN, SIDLEY, AUSTIN BROWN AND WOOD,
LLP, ON BEHALF OF GENENTECH
Mr. Kushan. Thank you, Mr. Chairman. I'm appearing today on
behalf of Genentech, a biotech company based in south San
Genentech appreciates the opportunity to provide its views
to you on the issue of patent law reform.
We commend you, Mr. Chairman, along with Mr. Berman and Ms.
Lofgren, and Mr. Boucher and your colleagues for starting this
important legislative discussion. We also want to thank the
Committee leadership, in particular Representatives
Sensenbrenner and Conyers for their significant efforts to curb
the diversion of patent fees.
Patent reform is a timely and important issue. Like many
other companies, the health of the patent system is a
critically important issue for Genentech.
To appreciate Genentech's perspective on the patent system,
you have to understand the challenges of developing a new
Biotech drug development is an extremely risky, expensive,
and long process. Genentech scientists must not only discover a
new viable drug candidate, but must spend many years testing
the drug to prove it's safe and effective.
It must also figure out how to produce the drug in large
volumes, while preserving the safety and effectiveness of that
drug. The time it takes from discovery to market entry
routinely exceeds a decade or more.
A good recent example is Genentech's Avastin product. This
product was--the product development effort for this product
started in 1989. Avastin was approved in 2004. That's 15 years
of effort and hundreds of millions of dollars of cost to
getting this product to market. And it wasn't until the FDA
approved this product was it clear that this product would be a
The length of and the unpredictable nature of the drug
development process raises important patent implications for
First, the effective patent life for a biotech drug is, as
a consequence of this long development process, very short.
Second, it is very challenging to ensure that the patents
filed in year one of the drug development process are going to
protect the drug product when it finally reaches the market 10
or 15 years later.
The patent system plays a critically important role for the
American public as well. Patients are the direct beneficiaries
of the patent system. It is the patent system that makes it
commercially feasible for companies like Genentech to discover,
develop, and bring to market new drugs to treat unmet medical
needs. It should not be surprising that Genentech is a frequent
user of the patent system. They file hundreds of applications
every year, and have been granted nearly a thousand U.S.
Genentech also has its fair share of patent litigation,
both offensive and defensive. Genentech, thus, has a
perspective of a company that has to protect its innovations
and a company that must frequently resolve conflicts over
patents owned by others.
In general terms, Genentech sees three significant
challenges to the health of the patent system.
First, the overall health of the patent system depends on
the PTO issuing valid patents in a timely fashion. If a mistake
is made by the PTO, it cost a company accused of an
infringement millions of dollars to fix that mistake.
Second invalid patents are not the only problem. Delays in
patents issuing is a significant problem, and is very
disruptive in the market. And it's disruptive to the process of
planning for development.
The PTO's ability to improve its examination process is
hindered by the ongoing problem of fee diversion. It's also
hindered by the structure of the current fee schedule and by
certain PTO practices, such as the restriction.
In the absence of an effective--the second major problem we
see challenging the health of the patent system is the absence
of an effective administrative procedure to review the validity
of a patent.
The only practical option today for challenging the
validity of a patent is litigation in the Federal courts. That,
as I said, can cost several million dollars. The other members
of the panel have also observed this.
An effective administrative procedure for reviewing patent
validity is long overdue. Genentech believes the system
proposed in the committee print is a good start. However,
several changes are needed to make this a more balanced and
effective procedure, and we invite the Subcommittee to review
our written testimony which sets out a number of the
improvements we think are appropriate. I'll just briefly note
two significant ones.
First, the way that post-grant oppositions would be started
and conducted as set forth in the committee print must be
The proposed system would permit an opposer to start a
proceeding simply by paying a fee. The patent owner would then
have to convince the Patent Office to not to conduct the
proceeding because it's meritless. This approach will induce
far too many unjustified opposition proceedings. It also
unfairly puts the burden on the patent owner to stop the
proceeding instead of putting the burden on the opposer to
justify starting the proceeding.
The second concern concerns the authority the PTO should
have to regulate the conduct of parties in the proceeding.
We believe the PTO should regulate the conduct of parties
using the same authority that courts use to regulate the
conduct of parties in litigation. Events that occurred during
the opposition proceeding should not be capable of rendering a
patent unenforceable, but if warranted should be addressed by
The third factor adversely affecting the health of the
patent system is the inefficient and unpredictable process of
resolving patent disputes through litigation in the Federal
courts. We acknowledge that the Federal Circuit has improved
much in the area of patent standards and clarity, but there's a
lot left to be done.
As a result, it's very difficult to predict if a patent
will be held valid, infringed, or enforceable. It's also
impossible to predict what the damage liability would be when
you are found to infringe a patent.
The uncertainty in today's litigation environment
unfortunately is being exploited by many to distort the value
of patents. In this respect, we'd strongly support reforms to
three areas. Willful infringement. We strongly support reforms
to that topic. We believe more must be done to regulate how
that type of pleading can be raised in litigation, because
there are litigation abuses possible.
Second, we think that reforms are need to the inequitable
conduct doctrine to adopt a much more objective standard.
The last point I'd like to make if you would give me 15 to
20 seconds is to address the issue of injunctive relief. And I
apologize for my inefficiencies compared to the first two
Mr. Smith. That's okay. We'll grant you that extra 30
Mr. Kushan. Thank you. The specific issue raised in the
committee print is who bears the burden of justifying the grant
of an injunction when a patent has been proven valid and
infringed. Genentech sees no reason why the burden should not
be placed on the shoulders of a proven infringer of a valid
U.S. patent to prove why an injunction should not issue. That
change that's being proposed would undo more than a century of
precedent and a very sound public policy reason, which puts the
burden on the infringer to justify why there is not going to be
an injunction. We're talking, as has been mentioned before,
about permanent injunctions. We are not insensitive to the
concerns about litigation problems, and we're willing to work
with the Committee to explore options to address the abuse that
is possible through that litigation environment that exists
And finally, I'll just indicate we do support moving to a
first invent system, and we're willing to work with the
Committee to improve the language to do that in the committee
print. Thank you.
[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 was the first biotechnology company, founded
in 1976, in South San Francisco, California. Genentech's mission is to
be the leading biotechnology company, using human genetic information
to discover, develop, manufacture and commercialize biotherapeutics
that address significant unmet medical needs. Genentech presently
markets 13 products, with more than 30 more in development.
Genentech very much appreciates the opportunity to provide
testimony to the Subcommittee today on the topic of patent law reform.
We commend you, Mr. Chairman, for your initiative in opening this
legislative dialogue on the topic of patent law reform. We also want to
recognize the past efforts of your colleagues on this topic, including
Mr. Berman and Ms. Lofgren.
Genentech is a company that was founded on innovation. It should
come as no surprise that patent protection and the health of the patent
system are thus crucially important to Genentech. The availability of
patent protection for its inventions is an important consideration to
Genentech in its research and product development activities. Assured
patent exclusivity encourages the investment of hundreds of millions of
dollars each year on efforts to research and develop new
Genentech also recognizes that the patent system faces several
First, the Patent and Trademark Office (PTO) faces serious
challenges in performing its statutory function of issuing valid
patents in a timely fashion. The primary cause of this problem is the
ongoing problem of fee diversion. The unpredictable nature of patent
fee diversion has made it difficult for the PTO to engage in the long-
term restructuring of its operations that is necessary to make the
patent examination process more reliable and efficient. We cannot
stress more emphatically that the most important legislative
deliverable for Congress in the effort to improve the patent system is
to ensure predictable and adequate funding for PTO operations.
Second, the current model used by the PTO in conducting examination
of patent applications needs to be seriously reevaluated. Presently,
every application that is filed today is placed into the queue for
examination. This requires the PTO to budget for and engage in an
unnecessary examination of many thousands of patent applications. The
United States is unique in the world in this respect--every other major
office conducts examination of applications only upon request and
payment of a fee. Exacerbating this problem is the approach the PTO
employs in ``restricting'' patent applications. The PTO requires
applicants to file additional patent applications when it believes a
first application has claimed more than one patentably distinct
invention. The PTO examiners, however, use an exceedingly narrow and
strict standard for restriction, which has led to a multiplicity of
unnecessary filings in the biotechnology area. These extra applications
make coherent and efficient examination of inventions very difficult,
and contribute to an artificial backlog of unexamined applications.
Restructuring the patent examination process to address these two
problems would result in examiners having more time to examine each
invention, and would thus significantly improve patent quality. We
encourage Congress to pursue such legislation in conjunction with the
current legislative effort.
Finally, the process of resolving disputes over patents through
litigation in the Federal Courts produces a high degree of uncertainty
for businesses such as Genentech. Although the Court of Appeals for the
Federal Circuit has done much over the years to clarify the
requirements and standards for patentable inventions, there still
remains a significant amount of uncertainty in how those requirements
and standards will be applied to biotechnology inventions by trial
courts and juries. As a result, it remains difficult to predict if a
patent will be held valid, if it will be infringed or if it will be
held unenforceable. Similarly, it is often impossible to predict what
damages a company will face if it is found to infringe a patent. The
uncertainty in today's patent litigation environment, unfortunately, is
being exploited by certain patent owners to distort the value of their
patent rights and to undermine the legitimate use of patents. Reforms
to the patent system--both as to the standards governing patent
validity and as to outcomes and consequences in litigation--are
necessary and timely.
Your hearing today provides a timely opportunity to engage on the
issue of legislative reform to our patent system. We welcome your
initiative in starting this discussion, and believe it will yield
The draft committee print proposes reforms across a broad spectrum
of elements of the patent system. Our comments today will focus on
those areas of greatest importance to Genentech; namely, proposed
reforms to the rights and remedies provided with the grant of a patent,
standards governing patentability, reforms to the inequitable conduct
doctrine, and post-grant opposition procedures.
In general, Genentech supports reforms in many of the areas
addressed in the Committee Print. However, certain proposals,
particularly those that could operate to deprive the owner of a valid
U.S. patent of its ability to prevent the unauthorized use of a
patented invention, would seriously alter the nature of the patent
right. Genentech opposes reforms of this nature, as they would
undermine the foundation upon which many of this company's business
decisions have been based; namely, the guarantee of exclusivity.
PROPOSED REFORMS TO THE STANDARDS GOVERNING INJUNCTIVE RELIEF
Section seven of the Committee Print would fundamentally alter the
nature of a United States patent by altering the standards governing
entitlement to permanent injunctive relief under section 283. While
Genentech is sympathetic to the problems associated with the
unpredictability of patent litigation, it cannot support legislation
that would call into question the basic premise under current law that
infringement of a valid patent can be enjoined.
Section 7 begins by incorporating into section 283 in express terms
the standard governing entitlement of any litigant to injunctive
relief. However, section seven then would prohibit a court from
presuming that there will be irreparable harm to the patent owner as a
consequence of a finding of infringement of the patent. The proposed
legislation also directs courts to consider evidence that would support
or negate any of the equitable factors governing the award of
injunctive relief, including whether or not the patent owner makes use
of the invention.
Section seven of the Committee Print thus would overrule the well-
established and long-standing precedent that the owner of a patent is
presumed to be irreparably harmed by an infringement of a valid United
States patent. The existing presumption is based on sound public policy
reasons, and we see no justification for altering this existing
precedent. The reason is simple--the value of a patent derives from its
status as a property right. There is nothing more essential to the
character of the patent as a property right than its capacity to
prevent unauthorized use of the patented invention.
More than a century ago, our courts recognized that the capacity of
a patent to prevent the unauthorized use of the patented invention was
the fundamental attribute that gives the patent its economic value.
This premise has been repeatedly affirmed by courts since that time.
See, for example, Polymer Technologies, Inc v. Bridwell, 103 F.3d 970
(Fed. Cir. 1996) (``The right to exclude others from a specific market,
no matter how large or small that market, is an essential element of
the patent right''). The recognition that the right to exclude is the
essential attribute of the patent right gave rise to the legal
presumption that is a foundation of the U.S. patent system; namely,
that the owner of a valid United States patent is irreparably harmed by
an infringement of that valid patent, in the absence of any further
evidence. There is no sound reason for not continuing to rely on this
premise. Genentech also sees no reason why the burden should not be
placed on the shoulders of the infringer of a valid United States
patent to show why that infringer should not be enjoined from its
continued infringement of the patent.
The specific issue implicated by the proposed modifications to
section 283 is who bears the burden of putting forward evidence to
establish that an injunction is appropriate once the patent has been
fully adjudicated and found to be valid and infringed. The standard
thus speaks to valid patents, not to patents that are of questionable
validity. It also concerns the question of permanent injunctive relief,
not preliminary injunctions that may be awarded pending resolution of
the litigation over whether the patent is valid or infringed. As a
standard governing the burdens that are to be applied with respect to
valid and infringed patents, it is appropriate to maintain the standard
in the form it exists today. Genentech believes the law appropriately
places the burden on the shoulders of the infringer to establish why an
injunction should not be granted. Whether that infringer is able to do
so or not will turn on the facts and circumstances of each case.
Genentech is not insensitive to the concerns expressed by many over
the disruption of ongoing business activities as a consequence of the
grant of a permanent injunction. Genentech certainly has its fair share
of defensive patent litigation. The question of permanent injunctive
relief, however, is one that is best left to the courts upon the body
of precedent that exists today. Genentech remains open, of course, to
measures that remove some of the uncertainty of patent litigation, or
which address the truly unique situations faced by those who advocate
for change of the law.
In this respect, Genentech encourages the Congress to focus on the
specific and unique concerns being expressed that have led to this
proposal. For example, one scenario that has been identified is the
potential grant of a permanent injunction in favor of a patent owner
that has taken no steps to bring a competing product to market, or who
has extensively licensed the patent on a non-exclusive basis to other
parties, and who can be fully compensated through money damages.
Genentech believes courts presently do consider such factors in
determining whether to award a permanent injunction. Similarly, some
concerns arise from the situation of a company facing the requirement
to immediately comply with an injunction issued by a District court. In
many instances, courts will stay the effect of the injunction pending
appeal of the judgment on validity or infringement, which provides the
infringer the time needed to alter its product or take other steps.
The most significant concern, however, appears to be the use by a
party that is not in the market of the accused infringer of the threat
of an injunction solely for the purpose of increasing the risk of
liability to a manufacturer, and to increase the amount of a potential
settlement. In that setting, significant questions of validity or
enforceability of the patent often exist. These problems have led to
more refined jurisprudence addressing issues such as prosecution
laches, enhanced obligations for written description and the like.
Certainly, if a patent owner elects to seek injunctive relief against
an accused infringer, and causes harm by such an assertion, that party
should face some consequences if the patent is shown to be invalid,
unenforceable or not infringed. One approach may be to simply alter the
amount of discretion given to courts to award fees and costs incurred
in defending against such a claim, and to ensure that such liability
extends to all parties that stand to gain economically from the
infringement action. Congress also may wish to consider legislative
solutions that specifically address the unique circumstances faced by
specific industries, but which will leave intact the well-established
body of law that ensures that a patent owner can rely on the
presumption of irreparable harm stemming from proven infringement of a
valid U.S. patent to establish entitlement to permanent injunctive
relief. Genentech believes such approaches may prove to be a more
fruitful avenue in deliberations for reform than the approach taken in
section seven of the Committee Print.
PROPOSED REFORMS TO THE STANDARD FOR WILLFUL INFRINGEMENT
In contrast to its views on proposals that would alter the standard
for injunctive relief, Genentech does support reforms to the law
governing the doctrine of willful infringement. The Committee Print
proposes to alter the standard by identifying three specific types of
actions as being indicative of situations of ``willful'' infringement
of a patent that are sufficient to justify the award of enhanced
Genentech believes that the articulation of the three scenarios
found in the legislation is a sound basis for proceeding. Genentech,
however, believes that these scenarios should be the only situations
that warrant a finding of ``willful'' infringement. Part of the problem
with the existing standard is that it is difficult to ascertain what
will constitute willful infringement under present law. Making a more
specific and explicit definition of those acts that will constitute
willful infringement will help address part of the problem. Genentech
also supports the approach in proposed legislation that precludes a
court from drawing an inference of willful infringement from the
absence of opinion of counsel, and that willful infringement may not be
established solely upon proof of knowledge of the patent by the
defendant prior to suit.
The changes proposed by section six of the Committee Print,
however, do not go far enough. A significant problem with the existing
willful infringement doctrine is that parties often claim willful
infringement simply as a litigation tactic. The claim then manifests
itself in demands for production of opinions of counsel as to the
validity or infringement of the patent, and efforts to place into
evidence information that is unnecessary and irrelevant to the question
of infringement. Genentech believes that in addition to establishing
more objectively defined standards for willful infringement, three
additional measures are needed.
First, the law should preclude a court from addressing the question
of willful infringement until after a party had been found to have
infringed the patent. Taking up the question of willfulness only after
a party has been found in a final unappealable judgment to have
infringed the patent will go far in helping to curb some of the abuses
that exist in today's modern litigation environment. Second, the
question of willfulness should be addressed only by the court, and not
by a jury. Finally, the law should preclude a party from attempting to
obtain discovery of opinions of counsel incidental to a claim of
willful infringement until after the court has first determined that
infringement was established. With these additional changes, Genentech
can support the reforms to willful infringement being proposed in
section 6 of the Committee Print.
REFORMS TO PRECLUDE LATE CLAIMING OF INVENTIONS
Section 8 of the Committee Print would treat as unpatentable
certain types of claims that are presented at a certain point in time.
The legislation appears to be focused on the problem of parties that
present broad claims long after an initial application has been filed,
with the intent of capturing the intervening market entry by a
competitor who believed that there would not be a patent obstacle.
While Genentech is sympathetic to some of the concerns raised with
respect to late-presented claims, it does not believe the proposed
legislation will provide a practical solution, and instead will create
significant problems for legitimate patent applicants.
Genentech notes that under existing PTO practices, biotechnology
patent applicants are often subjected to extensive restriction
requirements. This means that for each invention that is pursued in a
first application, Genentech often must file dozens of additional
applications to obtain meaningful and sufficient claim coverage. Under
existing law (35 U.S.C. 121), Genentech has the right to defer the
filing of these additional applications. If the law required the
immediate filing of dozens of voluntary divisional applications, as
proposed in the Committee Print as a solution to the late-claiming
problem, it would place unjustified additional expenses on
biotechnology applicants such as Genentech. More significantly, in many
cases, new questions of law or practice arise during the examination of
an application. These new standards not only cause applications to
undergo a protracted examination process, they also clarify what types
of claims a patent applicant may pursue.
The proposed solution also suffers from the practical problem of
determining when a claim is ``broader'' than a claim that was
published, issued or presented in a priority application. In most
instances, claims will be both broader and narrower than previously
presented claims. Forcing the patent examiner, and then the courts, to
determine if sets of claims are broader or narrower than earlier filed
claims will present immense challenges. Moreover, while many other
provisions in the legislation would go far in eliminating uncertainty
in the standards governing patentability, this measure would have
precisely the opposite effect.
For these reasons, Genentech generally opposes the approach
reflected in section 8 of the Committee Print, and encourages the
Committee to explore other ways of curbing the problem of late
claiming. Genentech also notes that courts are taking steps to address
late-claiming situations. See, e.g., Symbol Technologies v. Lemelson,
277 F.3d 1361, 161 Ed. Law Rep. 57, 61 U.S.P.Q.2d 1515 (Fed. Cir.
REFORMS TO THE STANDARDS GOVERNING ENFORCEABILITY OF PATENTS
Section five of the Committee Print proposes to reform the doctrine
governing inequitable conduct. Genentech strongly supports legislative
reforms in this area.
Section 282 provides that a party accused of infringement may raise
a defense that the patent is unenforceable. Unenforceability is a
defense distinct from invalidity of the patent or from non-
infringement. It operates to preclude the patent owner from enforcing a
patent that is otherwise meritorious--meaning that the invention
claimed in the patent is novel, not obvious, useful, and adequately
described. It has evolved over the years from several equitable
doctrines, the most dominant of which is the assertion by a defendant
that the patent is unenforceable because the patent owner committed a
fraud on the PTO in the process of obtaining the patent. From this
legitimate foundation, the doctrine of ``inequitable conduct'' has
arisen and flourished to an inappropriate degree.
As several courts have observed, claims of inequitable conduct have
become what is justifiably labeled as a ``plague'' on modern patent
litigation. Inequitable conduct is routinely raised in patent cases,
and often is based on the flimsiest of assertions. The reason is
simple--by pursuing this defense, a patent on an invention that is
otherwise meritorious can be nullified by making it impossible to
The inequitable conduct doctrine, however, has created significant
problems for patent applicants and for the PTO during the examination
of applications. The most significant is that communications between
the patent applicant and the patent examiner are now a contorted and
restricted dialogue, primarily because of the risk that these
communications made honestly and in good faith will be turned into a
story of inequitable conduct when the patents are put into litigation
in the future. Concerns about creating a foundation for a claim of
inequitable conduct may cause applicants to be overly inclusive in
citing information to the PTO. This often results in situations where
the patent examiner is given an immense amount of information solely
for the purpose of foreclosing a claim that the applicant was
concealing information from the examiner, thereby imposing unnecessary
burdens on the patent examination process. Moreover, applicants can be
put into a ``Catch 22'' situation in that they can later be accused of
``burying'' a reference if they cite many references to the PTO to
satisfy their Rule 56 obligation as defined by the courts.
Plainly, reforms to this doctrine are necessary. In general terms,
Genentech would support reforms that provide that a party could not
raise an assertion of inequitable conduct in respect of a patent unless
at least one claim of the patent were shown to be invalid on the basis
of the disputed prior art or information. Such a change would establish
a more objective threshold finding of significance for the disputed
subject matter and would supplant the existing ``materiality''
standard. Genentech would also support retaining the requirement in
present law that there be a distinct finding of a specific intent of
the applicant to mislead the PTO. Such reforms would change how parties
could raise inequitable conduct assertions in litigation, and would
reduce the opportunistic uses of such pleadings in litigation.
Genentech also would support enactment of measures to ensure that
patent applicants are forthcoming during the original examination of
patent applications. For example, Genentech would support measures that
provide the PTO or the courts with some authority to sanction parties
which it had determined had engaged in misleading or inappropriate
conduct before the PTO. The sanction of unenforceability of the patent
is not the only type of sanction that can be employed to ensure that
parties act with good faith and candor in the PTO. The approach taken
in the Committee Print reflects the type of authority that may prove
useful in this regard, although Genentech believes the present language
of section 6 can be substantially improved.
Genentech also believes that a more transparent examination process
can also be pursued in conjunction with these reforms. Genentech notes
that 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 substantive
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 that type of 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.
However, there is no good basis for not publishing all applications
18 months after they have been filed. Publication provides access to
the public of the contents of the application during the examination
process. Genentech thus would support amendments that would mandate 18-
month publication of all applications, and which enable third parties
to submit information, accompanied with a brief explanation of the
relevance of the information, on issues implicated during the
examination of the application. Of course, that right to submit
information must not entitle the third party to disrupt the examination
process, or to formally oppose the grant of the patent. Genentech
believes that such safeguards as 18-month publication of all
applications and limited third-party submissions during ex parte
examination, combined with the opportunity of more third-party
involvement during post-grant opposition proceedings, warrant revisions
to the inequitable conduct standards that give rise to so many baseless
claims today. Such reforms also would place the U.S. more on par with
the practices of other major countries including those that are members
of the European Patent Convention and Japan.
REFORMS TO THE STANDARDS OF PATENTABILITY
Sections 2 to 4 of the Committee Print would make substantial
changes to portions of title 35 that govern patent eligibility. In
principle, Genentech supports the approach taken in these sections,
with certain exceptions.
Genentech supports reforms that would implement a ``first inventor
to file'' standard in the U.S. patent system. Such a standard would
address what many improperly perceive to be an assured right of a first
inventor to obtain a patent. For reasons articulated well by the
National Academies of Science in their 2004 report on the patent
system, the existing ``first to invent'' standard creates immense
challenges for patent applicants and the public, in part, because it
requires the incorporation of many subjective criteria for
patentability into the patent system. It also necessitates inventorship
contests, known as interference proceedings, which are expensive,
complex and usually result in award of the patent to the first inventor
to file an application. Given the low frequency of these types of
conflicts, the expenses associated with them, and the immense record
keeping requirements they implicate, there is no sound reason for not
shifting to a first inventor to file standard.
The reforms being proposed would retain a requirement that any
applicant for a United States patent be filed by or on behalf of an
inventor of the subject matter being claimed. This approach will ensure
that the interests of inventors will be effectively protected.
Genentech supports these types of safeguards in the patent system. With
such a standard, however, conflicts may still arise over entitlement to
a patent. Section two of the Committee Print would propose to address
these conflicts through an interference proceeding. Such proceedings,
as proposed under a modified section 135(a), would be based on
``disputes'' over who is an inventor. Genentech believes a more precise
and specific standard, with specifically articulated outcomes of such a
proceeding, is needed, rather than what has been proposed for section
135(a). In particular, a dispute over entitlement of a true inventor to
a patent should be based on a proof of derivation of the invention by
the first party to file from the inventor. The proceedings should
result either in an entitlement to joint and several ownership of the
patent in dispute, or in the award of a patent to the second inventor
that files an application. Genentech is prepared to work with the
Committee to devise an appropriately focused and limited procedure for
resolving such disputes.
The conversion to a first-inventor-to-file patent system
necessitates reforms to sections 102 and 103 of the patent statute,
among other provisions. The approach taken in section two of the
Committee Print is a good start toward these reforms. A number of
specific issues, however, are not satisfactorily addressed in the
The revised law should confirm that subject matter in
a published patent application or in a patent shall have prior
art effect as from the actual or effective filing date of the
patent or published application only if that subject matter has
been described in a manner that complies with section 112,
first paragraph. This will maintain the existing law that
provides that the ``secret'' prior art effect of a patent or
published patent application (i.e., for the period before the
contents of the patent application are publicly known) is to be
limited to that subject matter that has been described in a
manner sufficient to justify the grant of a patent on that
subject matter. Revisions to proposed section 102(d) of title
35 are required to give effect to this change.
The standard for public accessibility of information
to qualify that information as prior art should be specifically
exemplified using more objectively defined criteria. In
particular, Genentech would support revision of proposed
section 102(c) to incorporate more precise and objective
language for the concepts of ``reasonable and effective
accessibility'' of prior art. Genentech also believes it will
be important to exemplify these concepts in the legislative
history of the proposed legislation.
Genentech supports elimination of the ``best mode''
requirement of section 112, first paragraph. This measure has
proven unnecessary and unhelpful in the patent system,
particularly in view of the enhanced obligations on disclosure
imposed by modern judicial interpretation of the requirements
for written description and enablement under section 112.
Genentech encourages the Congress to affirm the independent and
distinct nature of these two remaining elements of section 112,
first paragraph, as part of the legislative history explaining
the reform that would be made to this provision of title 35.
Certain changes being proposed, however, are unnecessary to
implement a first-inventor-to-file system. For example, Genentech would
oppose amendments to section 101 of title 35, which are unnecessary to
give effect to a first-inventor-to-file system. Genentech also
encourages the Subcommittee to further evaluate all of the changes
being proposed to ensure that the most efficient path is taken to
implementing these reforms. Changes that are not necessary to give
effect to the new standard should be avoided, particularly when they
may disrupt long-established concepts and definitions.
POST-GRANT OPPOSITION PROCEDURES
As we have previously testified before this Subcommittee, Genentech
strongly supports legislation that would create a cost-effective,
vigorous and fair procedure to review the validity of issued patents.
Our experiences teach us that claims of infringement of invalid patents
are increasing, and have the potential for causing significant,
unwarranted business disruptions. 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. Genentech thus supports the effort of the Subcommittee to
establish an effective and efficient post-grant opposition procedure,
and to revise the inter partes reexamination authority to make that
As Congress begins its deliberations on section 9 of the Committee
Print, 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 forestall
discovery of the 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 in our prior testimony, 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, or which leads to unjustified costs.
It is appropriate for this Congress to take up the task of devising
and implementing an effective post-grant opposition system. 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 fact that only a handful of patents have been the subject of inter
partes reexamination proceedings, despite the existence of thousands of
eligible patents, is a telling indication of the problems with the
current system. 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 effectively 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.
The recent reports from the Federal Trade Commission (FTC) and the
National Academies of Science (NAS) reinforce this conclusion. Each
organization recognizes that the PTO has a special expertise in
evaluating certain patentability issues, such as anticipation,
nonobviousness, enablement, written description and utility and that an
administrative patent validity review proceeding can be conducted more
rapidly than litigation in a Federal court. They correctly find 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
any new system should not permit third parties to harass patent owners,
or initiate groundless attacks on patents.
Past Congressional efforts to establish a procedure by which the
PTO can review the validity of an issued patent have been well-
intentioned, but have not produced a procedure that is viable. 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.
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. 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
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 remain a significant number of biotechnology patent
applications pending before the PTO that were filed before this
These limitations in the inter partes reexamination system have made
the procedure of marginal value to the public. It simply is not an
effective alternative to expensive, unpredictable and protracted
litigation in the Federal courts.
Genentech thus encourages the Congress to pass legislation now to
create a viable, cost-effective, and fairly balanced post-grant
administrative patent review procedure. The approach set forth in
section nine of the Committee is a good starting point, but several
important variables need to be revised to make that system acceptable.
Threshold Showing to Initiate Procedure--Genentech
believes that an opposition system should require any party
wishing to commence a proceeding to provide a cogent and well-
supported showing that at least one claim in the patent is
invalid, and require the PTO to make an independent
determination that the showing meets a threshold level of
question as to the validity of one or more claims in the
patent. If the initial showing is not sufficient, the Office
should not commence the proceeding. Genentech is flexible as to
the specific standard employed to make this assessment. One
possible standard is that the claim is ``prima facie''
invalid--meaning that, assuming the cited evidence is accepted
as true, the claim would be invalid. Other standards could be
employed as an alternative to the prima facie standard. The
approach taken in the legislation, however, is not viable. It
would permit an opposer to commence an opposition upon any
showing. The burden would then fall to the patent owner to
prove that the opposition proceeding is groundless. 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.
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.
While Genentech believes Congress should not include express
estoppel provisions in the post-grant review legislation, if
included, those provisions should not be comparable to the
codified and uncodified estoppel provisions applicable to inter
partes reexamination proceedings. Instead, they should apply
only to those issues actually addressed in the opposition
proceeding, and which were necessary to the final determination
of the Office.
Time Limits to Initiate and Conclude Proceeding. A
third party should be allowed to initiate a post-grant review
proceeding provided it has made an appropriate preliminary
showing only within a fixed period following issuance of the
patent. In our view, the optimal period is nine months.
Genentech believes a limited authority to commence an
opposition proceeding if the patent owner consents may also
merit consideration, if sufficient safeguards against
``coerced'' consent can be devised. To be viable, the post-
grant proceeding must be concluded within a reasonable period,
namely, 12 to 18 months. The legislation should confirm that
this deadline will be respected by the PTO.
Applicable to Any Patent that Can Be Enforced. The
system should permit review of any patent that is capable of
being enforced, subject to the threshold showings and
limitations noted above.
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,
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; namely, the right
to cross-examine a witness who offers testimony in the
proceeding, and, if the presiding authority finds it
appropriate, limited requests for admissions and an opportunity
for an oral hearing. Other measures, however, should be
expressly prohibited in the law. 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. Proposed section
328 should thus be amended to foreclose discovery other than
those types enumerated above.
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. 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 being proposed in section 9 of the Committee
Print 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
believes the legislation should impose identical obligations
and responsibilities on parties to an opposition proceeding.
This means, in part, that the legislation should include a
provision which holds that a patent may not be held
unenforceable due to those events that arise during the
opposition proceeding. Such a provision should also confirm
that if the PTO finds that one party has made a
misrepresentation, it should have the authority to take actions
to sanction that party appropriately. 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
Genentech stands ready to work with the Committee to improve section 9
of the Committee Print to create a well-structured and effective post-
grant opposition procedure.
Genentech thanks the subcommittee for the opportunity to present
its views on the topic of patent reform. As a significant user of the
patent system, Genentech believes it is desirable to pursue legislative
reform to improve this critically important system. We encourage
Congress to work with all sectors of the patent community to ensure
that the best package of reforms can be pursued and enacted into law.
Mr. Smith. Thank you, Mr. Kushan.
TESTIMONY OF WILLIAM L. LaFUZE, PARTNER, VINSON & ELKINS, LLP,
AND CHAIR, SECTION OF INTELLECTUAL PROPERTY LAW, AMERICAN BAR
ASSOCIATION, ON BEHALF OF THE AMERICAN BAR ASSOCIATION AND THE
ABA SECTION OF INTELLECTUAL PROPERTY LAW
Mr. LaFuze. Thank you, Chairman Smith and Members of the
Subcommittee, and thank you for this opportunity to testify on
behalf of the American Bar Association and that Association's
Section of Intellectual Property Law.
I currently serve as the chair of the ABA Section of
Intellectual Property Law. The views that I'm going to express
here today on awarding a patent to the first inventor to file
have been adopted as ABA policy, and, therefore, represent the
views of the entire 400,000 member Association.
Views expressed on other issues have not been approved by
the ABA and are, therefore, those of the Section of
Intellectual Property standing alone.
At the outset, it's important that you note that our
members represent a diverse cross section of interests. Our
members are attorneys who represent universities, individual
inventors, small businesses, and large businesses. Our members
are hired to assert patents against infringers. Our members are
hired to defend infringers against such claims.
Our members are typically on both sides of any patent
license negotiation, patent dispute, or patent litigation.
Given that our members represent virtually everyone impacted by
the patent system, I offer my testimony today as representing
really the best interests of the United States patent system,
and given the importance to our Nation, the best interests of
I would like to comment briefly on two distinct areas of
particular importance to the continued success of the U.S.
One area relates to the capabilities of the United States
Patent and Trademark Office; the second relates to substantive
As to the first topic, the U.S. PTO must have the financial
and human resources needed for it to undertake its crucial role
effectively and efficiently. The ABA IPL Section appears here
today to endorse major reforms to the patent system. These
reforms will impact the operation of the U.S. PTO. These
reforms, if enacted, will require the U.S. PTO to perform
expanded duties and responsibilities in a timely way. It will
need to do so with a high level of accuracy. Unless its
resources are sustained at adequate levels, many proposed
reforms, even though well designed could be frustrated.
While the committee print does not address U.S. PTO
capabilities, its proposed reforms will underscore the urgent
need to address this topic.
Let me now turn to the second topic, substantive patent
In February of this year, the ABA took the position that
the United States should now move from its current patent law,
the first to invent system, which is based on proofs of dates
of invention, to a first inventor to file principle.
The position of the ABA is two-pronged on the subject of
first inventor to file reforms, with the first prong calling
for adoption of the principles as domestic law and the second
advocating its incorporation into international harmonization
agreements. Let me briefly outline why the Association took
this important step.
The existing patent law, which is best described as a proof
of invention date system, is unacceptably expensive,
complicated, and unpredictable. The U.S. patent law today
requires that rival inventors fight for the right to patent an
invention in a so-called patent interference. An interference
fight proceeds at enormous expense with prolonged uncertainty
and little predictability as to the outcome.
Recent commentators have confirmed the adverse impact of
Over the last 20 years, independent inventors have lost
more of the interferences than they have won. As a group
independent inventors, despite having invested multi millions
of dollars in the patent interference system at a cost of about
$300,000 per interference have fared worse than they would have
achieved under a first inventor to file system.
We believe that moving U.S. patent law to a first inventor
to file system should be the centerpiece of any patent reform
effort. Indeed, as we outline in our statement, it will
facilitate and make more effective other important reforms.
On issues other than first to file, the section offers the
following proposals that appear in the committee print.
First, limit the enforceability defense based on
inequitable conduct to a but for standard and do not allow this
defense to affect otherwise valid patent claims. In this
respect, we differ from the others on the panel.
Establish a more prompt and cost effective means for
correcting defects and issued patents through a meaningful
post-grant opposition proceeding that addresses most issues of
patent validity implicated by such defects.
And third publish all applications at 18 months. The
publication of all applications would enhance certainty for the
inventors and the public as to the identity of prior art.
Four, limited allegations of willful infringement. Pleading
willfulness in virtually patent litigation complicates
discovery and raises issues of scope of waiver of attorney-
client privilege that could be avoided if appropriate reforms
The section would like the opportunity to work with you to
develop these reforms, and our specific proposal with regard to
willful infringement is to try the willfulness and discover the
willfulness separately from the trial on the liability
Fifth, we think that the elimination of best mode is
appropriate, particularly in an international context of patent
harmonization. Our position is that elimination of best mode
requirement represents a best practice in the patent
harmonization context, a view that the section shares with
virtually every major other NGO organization that has addressed
I'm again grateful for the opportunity to present the views
of the ABA IPL Section on these important issues related to
patent law reforms. We look forward to a constructive dialogue
that will expand the areas on consensus for pursuing such
reforms and we hope that our comments today will serve as a
constructive part of the dialogue that an effort of this
magnitude requires. Thank you.
[The prepared statement of Mr. LaFuze follows:]
Prepared Statement of William L. LaFuze
Mr. Smith. Thank you all for your encouraging comments as
well as your constructive suggestions.
I'm pleased in looking at everybody's testimony that there
seems to be so much agreement. Needless to say, that's not
surprising that there's going to be some disagreement, and
maybe we can talk about two or three of those issues a little
bit more extensively.
Let me go through the print and let me know if you disagree
with some of my conclusions.
This is section by section. Section 3, the first inventor
to file, the first to file, it's my understanding that everyone
supports that, although, Mr. LaFuze, I realize you feel that
harmonization only goes so far, and I agree with some of the
points that you have made there. But just in general I'm
talking about here.
On Section 4, the right to a patent, I think generally
everyone supports that or doesn't have a position. Same with
duty of candor.
Section 6, the right of the inventor to obtain damages.
Paragraph 6 I think most support, though there are some changes
and some details to be worked out.
Injunctions is an area--let me come back to that in a
minute because I know there is some disagreement.
The same thing on continuation applications. On section 9,
post-grant proceedings, expansion of 18-month publication,
everyone seemed to support.
Let's see on--let's see. Let me jump over to the other part
of post-grant opposition. General support with changes, and
does anyone disagree with Mr. Lutton's suggestion for the two
windows or are you familiar with that. Does anyone have any
strong opposition to that? Just a little bit of a variation of
I don't want to get bogged down on this, but, Mr. Hawley,
Mr. Hawley. Thank you, Mr. Chairman., IPO is actively
considering a number of different alternatives. Currently, the
Board of Directors' position is that the 9-month window is
correct for the procedure as it's defined. If you go to a
longer period or a procedure that's more like a revocation,
then some of the other features may need to be changed, such as
the standard of proof, and it becomes--begins to become quite
Quite concerned about long periods of indefinitiveness,
particularly for those of our members who need to take
advantage of the venture capital system and having their patent
at risk for long periods of time for small companies, start-up
companies is generally not a good thing for them.
So we are actively considering other alternatives, but at
the present time, we support just the 9-month window.
Mr. Smith. Okay. Mr. Kushan.
Mr. Kushan. Genentech is generally in favor of a fixed
period after the grant of the patent as the window of
opportunity for post-grant opposition proceedings. The main
reason for that is on balance as the patent life continues on,
we are in a situation where we're about to reach the market
with our drug product, and it's extremely difficult to have the
scenario of a patent challenge go back to the PTO once we're
that close to the market.
There are many concerns about how you balance that. We
certainly can appreciate the need for an efficient
administrative procedure being available when patent challenges
arise, but we have to balance that.
Mr. Smith. Okay. When it comes right down to it, we're just
talking about a few months to differentiate you all, and I
don't think in the end that's going to be one of the real areas
of disagreement. We'll I suspect be able to work that out.
But another subject that's a little bit more--it's equally
if not more critical are injunctions and there is some
disagreement there. Mr. Lutton, I think you feel that the
current system is not working.
Do you want to explain why? Whereas let's see Mr. Kushan
opposes the reform as well. If you'll give your reasons for
what' wrong with the status quo as well as whether you see any
areas where we can talk more about middle ground?
Mr. Lutton. Okay. Let me try to do that quickly. The--to
summarize the statute currently says that injunctions are
available based on principles of equity. What we believe is the
courts are not really following that or at least they're not
giving it any breadth beyond the cases of national health
emergencies. An illustrative case is this Merck Exchange
against eBay case that was just decided recently. It was an
appeal from the district court in Virginia, where the court
balanced equities and believed that an injunction was not
appropriate and the Federal Circuit reversed--this was only a
month ago--and essentially rejected a number of possible bases
for the denial of the injunction and effectively limited it to
only national health emergencies.
Our core focus is we'd like to see a little more breadth in
the word equity than national health emergencies, so we're
looking for any principles of equity, any ability of the
Congress to inject back into that standard or reinstruct the
courts that this is not just about health. It's about doing
equity for this injunctive relief.
Mr. Smith. Okay. Thank you, Mr. Lutton. The Gentleman from
California, Ms. Berman, is recognized for his questions.
Mr. Berman. Thank you, Mr. Chairman, and I'd like to
express the hope there might be a second round if we still got
to stick around here anyway, just because there's so many
issues raised by this excellent panel.
Just--my--just taking the area the Chairman was asking
about, all four of you agree with a post-grant opposition
process; is that correct?
That makes me--let the record show they nodded their heads
Mr. Smith. Well, with a few changes I think most do support
it as a matter of fact.
Mr. Berman. Yeah. Well, I think they all support a--we're
getting into how long it should be available and other issues,
but they all support it.
If--my assumption is you support it because you think it's
a more efficient and quicker way of resolving issues of
questionable patents than litigation, very expensive
If that's the case, why doesn't it make sense to open up
when a notice of infringement, a letter of infringement has
gone out, open up this process at that point for a short window
so that this more efficient process can perhaps avoid the need
for what now really looks like it might be a subject to
litigation, and I guess I'm asking that to the people who are
resisting that, which seems to be everyone except Mr. Lutton.
Mr. Lutton. Unfortunately so.
Mr. Hawley. Yes, I'll address that just very briefly
because again our--my mandate from the board is limited to our
past resolutions, but I can----
Mr. Berman. No, let's just talk among ourselves----
Mr. Hawley. Talk among ourselves and we'll be--give you
some of the perspectives that, as a result of some of the
discussions that we've had. And I think it was best put
actually by a good friend in the ABA, who talked about
designing a post-grant opposition system which, as you can see
from the committee print, has a very large number of features
to it. It's one thing to say that it would be wonderful to have
a post-grant opposition system and then it's another thing
altogether to agree on all of the details that might be
incorporated in such a system.
And the point that's typically made is that if you are
designing a post-grant opposition system for the purpose of
providing some kind of final review for patents that are just
issuing from the Patent Office, you design your system in terms
of the burdens of proof and the processes and everything else
in one way, and if you are really saying that a post-grant
opposition procedure is much more than that and akin to what we
find in most foreign jurisdictions, which is a revocation
proceeding, then you would design it in another way in terms of
the rules of evidence that would be----
Mr. Berman. But bring that down apart from--I didn't want
to address the total post-grant opposition. I understand it's
complicated. Just the issue of opening it up after the notice
of infringement has gone out. That's what I was asking about.
If one of you could sort of just try to address that aspect
Mr. LaFuze. If we're not requested to give views of our
groups, I would be happy to respond----
Mr. Berman. Yeah.
Mr. LaFuze.--to that. The systems that we have discussed
and the systems that are proposed are streamlined procedures.
Primary evidence coming in by affidavit or declaration----
Mr. Berman. Right. Right.
Mr. LaFuze. And only a right of cross examination, which is
a limited discovery. It's designed intentionally to hold down
costs, yet try to get to the meat of the problem.
For patents that are really of great value, there is some
concern that if you move all the review process from the
litigation from the courts to the Patent Office that there may
not be a full opportunity to really explore all the issues that
exist. And so I think the theory at least of some of us is that
if we try this opposition proceeding to correct mistakes that
are made in a relatively short time after a patent issues and
let's see how that works first, we can adjust the time as may
If all the litigation from the courts were moved to the
U.S. PTO, I think the U.S. PTO would be so overwhelmed. They
don't have the staff.
Mr. Berman. Right.
Mr. LaFuze. They don't have the money. They don't have
Mr. Berman. Right. Just because of the--my time--it's still
flashing. Does that mean I can get another question in.
Mr. Smith. The Gentleman is recognized for another minute.
Mr. Berman. All right. I mean you can't have patents of
great value that are challenged in a short post-grant
opposition so I'm not quite sure why the value of the patent is
the key here.
But let me just turn to the injunction for a second. I
guess this is to Mr. Kushan. You don't want to change the
provision on injunction. You want it to--I mean you talk a
presumption, but it's pretty automatic--finding of infringement
injunction issues. Is that an unfair conclusion?
Mr. Kushan. No.
Mr. Berman. Okay. Then would you be willing to go with an
automatic stay of an injunction pending appeal?
Mr. Kushan. That's an option. I think a lot courts do that
now, where a district court has found infringement; that the
patent is valid and is infringed, and an injunction is
appropriate; and then there is a disruption that's possible to
the market or to the other party.
Mr. Berman. The judges weigh the equity.
Mr. Kushan. They can weigh the equity as they do it now.
There are many cases recently----
Mr. Berman. Why is--if it's good for that, why isn't it
good for the injunction?
Mr. Kushan. Well, the proposal in the committee print is
not bad. What you have in the committee print is a shift in the
philosophy of entitlement to an injunction. It's going from an
entitlement that the patent owner, with a--this is a valid
patent that has been infringed. With that perspective, the
property right that is the patent gets its value by being able
Mr. Berman. What if you took it out of the burden argument,
and you just gave the injunction as a tool for a judge to
utilize where the judge concluded based on the evidence
presented at remedy that this was an equitable way to handle
it? You just sort of took it out the presumption that's issued
versus presumption that's not issued--just left it as a tool
for the judge?
Mr. Kushan. Well, a lot of business decisions, particularly
in the biotechnology sector, are premised on the patent being
able to exclude use that's not authorized under the patent.
That premise is very tangibly felt in the biotech sector
because it's a fundamental part of the business equation of
developing a biotech drug.
Mr. Berman. But we know that money can assuage.
Mr. Kushan. But in this setting, you know, it's not
necessarily a bad thing to force biotech companies to develop
different drugs. I mean there is a benefit overall to a system
where exclusivity is respected. My--I can only provide a
perspective of Genentech. Certainly, we have a reliance on the
exclusivity of the patent, and in the absence of evidence that
suggests that it should not be granted--an injunction should
not be granted--that the equity should tilt in favor of the
And again, I'll reiterate. We're dealing with valid
patents, not invalid patents. These are valid patents that are
infringed. So it's not one of these issues of we don't know
whether the patent is of questionable validity. This is a
legitimately issued patent. When you have that setting, you
should have the right to exclude, and let the burden fall on
the shoulders of the other party to show why an injunction
should not be issued.
But again, I don't want to be entirely negative about this
topic. The issue seems to be the use of that threat in an
inappropriate way to affect litigation and to increase risks
and induce settlements that are not appropriate. There are lot
of misuses of that threat. I think the Committee can spend some
time looking at reforms to the litigation equation that
mitigate that risk.
Mr. Berman. But there are a lot of misuses of this----
Mr. Smith. And the Gentleman's time has expired. The
Gentleman from Virginia, Mr. Goodlatte, is recognized for his
Mr. Goodlatte. Thank you, Mr. Chairman. Mr. Hawley, as I
mentioned in my opening statement, software and other high tech
companies face a serious problem. Many of their inventions and
products involve hundreds of patents which must be lawfully
cleared for use. In this environment, do you see how the threat
of a permanent injunction by one nefarious party could impede
the development of innovative products and encourage
disproportionate settlements from high tech companies? And if
so, what can be done to solve this problem without rolling back
permanent injunction, since I understand that's one provision
of this legislation you're not happy about?
Mr. Hawley. I apologize that I don't fully understand your
question, but let me say a few things in response.
The software industry and the microelectronic industry is
not unique in having products that are covered by large numbers
of patents. We are in the electro photographic copying
business, and I think you would be quite amazed at the stack of
patents that covers any particular electro photographic
machine. There could be thousands.
Mr. Goodlatte. I understand. One of those many hundreds of
patents is challenged and an injunction is issued. What do you
do about it if you can't have a----
Mr. Hawley. I think----
Mr. Goodlatte.--different way of handling injunctions than
is handled under current law?
Mr. Hawley. When you are faced with a patent infringement
suit on a portion of a large machine, maybe a small portion,
you have a fairly long period of time in which you can evaluate
the design around alternatives. Litigation lasts for a very
long time. You're usually well aware of the patent before it
Mr. Goodlatte. But can't the treble damages penalties that
are hanging over your head ensue from the date that it's been
brought to your attention that the patent might be infringed
upon and therefore if you loose that process all during the
time that you're doing exactly what you're talking about,
you're subject to quite a heavy threat of losses if you do not
settle up with this party that may be trying to hold you up
from every other aspect of moving forward with your product?
Mr. Hawley. Okay. You're getting into the area of treble
damages and with respect to treble damages in any serious
disputes you will have ameliorated your risk by obtaining--but
exercising your duty of due care and obtaining opinion of
counsel, and if the opinion of counsel is that you don't have
any other alternative, you design around the patent and go
about your business. Otherwise, you're not being--you're not
subjecting yourself to treble damages.
So the treble damages hanging over your head is that the
committee print addresses itself to is really--the provision in
the committee print is really an anti-troll provision in the
sense that we are now getting on a fairly regular basis non-
specific accusations of infringement that are essentially form
letters that are sent to hundreds--I've heard as many as
All of those place those hundreds or thousands of companies
into a legal limbo.
Mr. Goodlatte. I've got other questions to ask.
Mr. Hawley. I'm sorry.
Mr. Goodlatte. I'm going to have to cut you short. But let
me turn to Mr. Lutton and ask him based upon Mr. Hawley's
testimony that permanent injunction is the primary remedy by
which patent owners can enforce their exclusive rights, do you
believe the injunction provision in the committee print could
inhibit legitimate patent owners from getting an injunction in
cases in which there are only one or very few patent claims
involved in litigation? And if so, do you have some suggestions
on how to prevent that problem?
Mr. Lutton. The answer is no. I don't think it could
because the provision in the committee print is simply
instructing a court to do equity. It's providing another factor
that the court should consider or amplifying a factor that the
court should consider in administering equity.
That being said, I would echo again the comments I made
earlier that I do believe that what--the core of what we're
looking for is a reinjection of principles of equity into the
injunctive issue, reempowering courts to decide whether in a
particular case an injunction is needed or not. If it is
needed, it should be granted. If it's not, it shouldn't.
Mr. Goodlatte. Let me get in one more question if the
Chairman will allow me and just ask all the witnesses if they
can tell me why small businesses or independent inventors
should support any of the provisions of this print? What's in
it for them? Start with Mr. LaFuze.
Mr. LaFuze. First of all, it's a less costly system. Second
of all, it's a more predictable system. In a perfect
environment, you ought to be able to go to the Patent Office,
take a look at the file wrapper, take a look at what's publicly
available and tell what the scope of the patent is and whether
the patent is valid or not. The system that we have now is
predicated on many different kinds of secrets that are not
publicly available. You can't tell easily whether something has
been offered for sale what constitutes the bar. You can't tell
when somebody may have conceived, reduced practice, used
diligence in terms of advancing an invention. There are so many
unknowns with the system that we have today that you can't tell
really what rights you have very easily. And it's very
expensive to litigate them, as we all know. And we need a
system that gives a simpler, fairer, more cost effective, more
predictable outcome to the question of what valid rights do you
have as a patent owner.
Mr. Goodlatte. Mr. Kushan?
Mr. Kushan. Thank you. Two reforms are going to enhance the
ability of the independent inventor and small business to use
our patent system.
First, I think it's going to be a very good thing to dispel
the myth that the first to invent system has benefits for the
independent inventor. As a company that spends millions of
dollars in interference proceedings, it's certainly not a cheap
proceeding and if--considering as the statistics have shown,
that 13 or so people who got--were worse off because of the
system over the last decade, it's not benefiting them. A fairer
system is one where a true inventor who files an application
first gets the patent and there's no fight. There's no cost.
It's just over. That's more predictable, more certain, and it
will cost a lot less.
The reforms that Mr. LaFuze has walked through also make it
clear to understand what you're going to get.
Post-grant opposition proceedings are also valuable to any
patent owner, including the independent inventor. The big
question that companies face when they see a patent or license
offer is whether that patent is valid. If you have an
opposition proceeding and your patent has gotten through that
proceeding, that's going to be a very solid, definite and
certain legal right. And that's going to induce very healthy
negotiating processes between the patent owner and the company,
and I think everybody who values their patent right is going to
want to have that kind of an assurance of patent quality behind
Mr. Goodlatte. Mr. Chairman, do I have your lead to allow
the other two witnesses to answer that question or----
Mr. Smith. The Gentleman is recognized for an additional
minute for the other two witnesses to answer.
Mr. Goodlatte. You each get 30 seconds.
Mr. Lutton. I think this bill is tremendously beneficial to
small business. They benefit from quality of patents. They
benefit from predictability in the system, but most of all they
benefit from control around damages and injunction abuses. The
small business that goes out of business--if they have to spend
5 or 10 million dollars defending themselves, and there's so
much of that burden that they're bearing now that this bill
will be tremendously beneficial for them.
Mr. Goodlatte. Thank you. Mr. Hawley.
Mr. Hawley. You asked about what the benefits are. All of
the benefits that I could think of have already been stolen by
my other panelists here, so I would point you to the--again--
the injunction provision and the specific reference to
encouraging the court to consider in an injunction context
whether or not the patentee is actually themselves using the
invention. Many small business, small start ups, individual
inventors have not yet found the resources to do that. And this
would limit their ability to--and their opportunity to
negotiate good agreements because of not being users
themselves, they are at a disadvantage.
Mr. Goodlatte. Thank you very much. Thank you, Mr.
Mr. Smith. Thank you, Mr. Goodlatte. The Gentlewoman from
California, Ms. Lofgren is recognized.
Ms. Lofgren. Thank you, Mr. Chairman, and thanks for this
I have been talking with and listening to my constituents
now for some time and advancing the suggestion that this ought
to be the Congress that really spends a lot more time on issues
of patent law, and I think it's--this testimony today makes
clear why that's important. And certainly the draft before us
is recognition of the importance of this subject matter.
Having said that, it's not a surprise that we're going to
have to work through some of these issues yet and the good news
is that we have a great track record of people in the patent
community working together to come up with solutions that we
can all work with and feel good about.
I note that some of the recommendations in the draft bill
we had in H.R. 400 some years ago that was derailed for reasons
that I never felt very compelling and hopefully we'll have a
better chance this time in keeping valid measures intact in the
But I do want to go into the issue of the injunction.
Listening to Mr. Kushan and Mr. Lutton, it occurs to me that
your differing viewpoints really are a product of your
differing industries, and the things that you're saying are
valid. But the differences of opinion relate to the different
ways that biotech works as compared to other technology
companies. And it seems to me understanding--and I'm sure you
would--the point of view of the other guy because of the nature
of their business. There's got to be some way to come up with a
resolution that works both for biotech and for the computer
industry. I'm just convinced that there would be. So I'm hoping
and after we leave the witness table, there will be some
discussions and brainstorming on how we--and some suggestions
that we might look at to kind of solve and reach that kind of
accommodation that historically we always have done, and I know
we have fine organizations that can facilitate those
discussions if necessary.
I wanted to ask a question on the treble damages section--I
guess to you, Mr. Lutton--the change that it--if a defendant
has received a detailed written notice from the patent owner
charging infringement and identifying the specific claims in
patent and alleging infringing product. That limitation is that
a suitable one from your point of view or would you go with the
rest of them?
Mr. Lutton. I would like to--we would like to see that
provision, that part of the bill, removed, and I'll tell you
why. The current law is that mere knowledge of a patent can
give rise to a charge of willfulness. I do believe the
provision that you've got in here today will help take care of
that issue. But we believe that all it gives rise to is a more
artful form of letter writing. That allows a patentee to write
a nicely worded letter, put a defendant on notice of a patent,
expose them to triple damage, and we don't believe that's the
kind of egregious conduct that should accord--exposure for
We'd like to see instead that portion removed so that
instead the law focuses on only cases like copying or violating
a court order where there's truly some conduct warranting
punishment by triple damages.
The rest of the behavior that we want to incentivize is
perfectly adequately incentivized by the threat of a lawsuit
alleging infringement and awarding actual damages. So we don't
think that this is an area where we need that tripling of
Ms. Lofgren. Do the other witnesses agree or disagree?
Mr. Hawley. Congressman, if I may. The provision that is in
the committee print is simply one that you were talking about
here, and that is the notice requirement. It's simply one that
establishes when the accused infringer has a duty of due care.
And it doesn't automatically mean that if they eventually lose,
they are going to have to pay treble damages because in most
circumstances like that, they will ameliorate their liability
by doing a duty of due care thorough investigation. And we
think it's appropriate. Our members think it's appropriate. I'm
Ms. Lofgren. I don't want to interrupt, but we only have a
limited amount of time, and it seems to me--I mean there are
some academics that are making the assertion that the creation
of the appellate system actually had a result that eliminated
the balancing of equities. I don't know if that's true or not,
but I think we've all learned that what intend and what
actually happens isn't always the same. And the concern I think
that's been expressed is not what you've said because there's
nothing wrong with what you said, but that it really wouldn't
work out in the way that you've outlined. And I don't know the
answer, but we are going to have a second round, are we not,
Mr. Chairman? No? All right. Then I will--my time has expired,
but I would like if I could--and it could be later--Mr. Kushan,
you did mention a concern about the definition or prior art in
the draft, and I would like to know more about your concerns in
that area and we don't have time here. But if you could
elucidate that at a later date, I'm very interested in it.
Mr. Smith. Okay. Thank you, Ms. Lofgren. The Gentleman from
California, Mr. Issa, is recognized for his questions.
Mr. Issa. Thank you, Mr. Chairman. Boy, every question
leads to another question.
From a practical matter, if we look at the treble damages
question--and I'll take almost anyone's answer on this--but
isn't there essentially a problem today that to get treble
damages and more importantly to get your legal fees, which is
the first step. You know, often they do not use a multiplier,
but they at least--you're able to recover legal expenses, which
is also part of this willfulness.
Isn't there really conceptually a problem that it's a high
burden, and seldom accomplished, and you don't know if you're
going to get it 'til the end of the trial. So--and this is for
better or worse from my experience with 37 patents and way too
much time both before the PTO and in legal proceedings. Don't
we really have the question of notice, which obviously everyone
runs to some attorney, who, for a price, delivers you an non-
infringement opinion, and that sort of--that takes care of you
as a practical matter until some future point.
At the present time, that future point is the end of the
trial often or very late. As a practical notice if we
instructed the courts to move their markman hearings up, to
bifurcate and make those first instead of last, even it was a
preliminary, if that became the point at which constructive
notice is the point at which you could be eligible to pay legal
fees, the markman ruling is the point at which you're on notice
as to what the patent means. And as an inventor, I have to tell
you: I've sent out those letters and I've received those
letters over the years, and nobody ever tells you what you're
really infringing, because nobody wants to limit their claim,
so no one gets specific, and you're right, though. If we pass
the law as it is here, you'll simply have more clever letter
So as we're trying to finalize this document, are those
thresholds that you believe we should be working toward to try
to get to an effective definition of when damages are more than
ordinary and then before I let anyone answer on this, 'cause I
know we're going to run out of time, as a matter of injunctive
relief, my own experience, the judges don't grant it. What they
do is they tell you they'll give you effectively the
indubitable equivalent--and I can never pronounce that--I
apologize, and then what they do is they don't have a bond.
So isn't a major part of the injunctive problem the fact
that bonds are seldom ordered as a pre-judgment and injunctions
are seldom ordered because you really got to do well on that
preliminary injunction. You really have to have five guys you
already stopped and went through the whole trial process or you
don't get it. And so as a practical matter for inventors, they
don't get equity unless the guy has money at the end of the
road, because they don't get the injunction, because that's a
tough standard, and we're not likely to change it enough, but
they also don't get a bond until they have basically until it's
going up on appeal. Then 60 days after the judgement is made
final, they finally get a bond or a bankruptcy.
Is that an area that we should be working in, and I'd like
your comments on it because those are two of the 20 things I've
gotten written here that I think we haven't yet refined in our
I guess--since you've been the--Mr. Punitive and Treble
Mr. Hawley. I don't know where to start.
First of all, with respect--there was a comment that you
made that I think is illustrative of the problem that we see
with the injunctive provision is that you almost automatically
thought of the preliminary injunction standards of--and that
was what clicked on when you----
Mr. Issa. Well, because if you don't win at preliminary
injunction, you normally don't get an injunction from the judge
until the end of the trial.
Mr. Hawley. That's true. You don't get an injunction until
the end of the trial, but you do get damages up to the point of
Mr. Issa. By the way, just for you edification, I am a
little skewed. I worked for 20 years in consumer electronics.
Only once did I ever have a lawsuit against somebody that at
the end of the day really had to pay. You know, the fact is
that in that industry most often you're infringers have a
strong tendency to be people with very shallow pockets.
Mr. Hawley. Agreed. But to get to your point on willful
infringement. The real issue that the committee print addresses
is, in my view, and the view of many of my colleagues, is
really, as I said earlier an anti-troll provision. It really
eliminates the growing practice of sending out form letters;
and, thereby putting hundreds of people on ``willful
infringement notice.'' Our members are not upset about having a
duty of due care in appropriate circumstances. We think that
that's--that willful--that infringers should not be willful,
and if they're properly put on notice with the patent number
and the product that's involved, we think that's fair.
The problem we have with the form letter is that there is
no product. You could take Kodak out of the letter, put
Motorola in, and the letter wouldn't change at all. So we are
then faced with the prospect of having to go figure out
whether--what products they're talking about and that's not
always a trivial exercise.
So it's really an anti-troll provision because it's going
to cut out a lot of the extraneous legal work that is a result
of people protecting themselves from the prospect of treble
damages when they get these form letters.
The provision in the committee print also addresses the
issue that we've heard in the National Academy of Sciences
report and elsewhere where people are intentionally telling
their employees not to read patents because they're afraid that
the mere fact of reading them will result in a finding of
wilful infringement. Under the committee print, you have to
have actual notice. You have to copy or you have to have in
order for willfulness to kick in. So people should no longer be
concerned about reading patents.
Mr. Issa. Anyone else? With the Chairman's indulgence?
Mr. Smith. Mr. Lutton. Go ahead.
Mr. Lutton. Okay. I think we agree with your suggestion
that both in the area of triple damage and in the area of
injunction, there's a difference between what the law says and
what actually happens. And that's one of the reasons why we
view both of these provisions as really going to managing risk.
And for us, for every lawsuit we're involved in that goes to
final judgement, which, leaving my company aside, but for every
lawsuit that goes to final judgment, there is 25 more that
don't go to final judgment; that get adjudicated or settled
ahead of time, and for every one of those, there's 25 letters
that were written that never made it to a lawsuit at all.
And so we're really seeing a huge stacking of his risk and
everyone of those carries with it the potential threat of an
injunction; the potential threat of triple damages, which are
not decided until the very end of the road. And so these
provisions by bringing some certainty back into how those laws
are supposed to be applied and the conditions in which they're
going to apply will help eliminate the current conundrum that
we're in of all the decisions are decided at the very end and
they're all very draconian, and you can't really make any
reasonable judgments about which cases should be settled and
which ones should go forward because they're all threatening a
terrible dramatic remedy. So that's our issue.
Mr. Issa. Mr. Chairman, recognizing we're out of time and
there's no second round, I would only ask that we be able to
submit additional questions to the panel and receive back
answers in writing.
Mr. Smith. Okay. And without objection, all Members have
Mr. Issa, thank you for your questions, and it occurs to me
you may be the only actual inventor who is a Member of his
Mr. Issa. Well, actually only Roscoe Bartlett and myself
are inventors, patented inventors in the whole Congress.
Mr. Smith. Is that right?
Mr. Issa. And I can't figure out why in the world he's not
on this Committee.
Mr. Smith. And you're glad you are.
Mr. Issa. It's a conspiracy. Yes, we do have inventors of
Mr. Smith. The Gentleman from Virginia, Mr. Boucher, is
recognized for his questions.
Mr. Boucher. Well, thank you very much, Mr. Chairman. I
want to apologize first for being tardy at this hearing today.
We have the Energy Bill on the floor, and I've been tied up
with that for the better part of the afternoon.
But my absence here doesn't reflect a lack of interest in
this subject. I happen to think that patent reform is perhaps
the.single most important thing that we accomplish in the
course of this entire Congress. And I want to commend the
various externally interested parties that have come forward
and strongly urged the Congress to move forward aggressively on
Mr. Berman and I have been discussing this matter for the
better part of the last 4 years. We have now structured two
separate bills recommending various aspect of steps that could
be taken to improve patent quality, and we think generally
beneficiate the patent system overall, to the advantage of all
And I want to commend today Chairman Smith for the staff
draft or his draft that--I don't want to say it's just the
staff--it's Mr. Smith's draft that he has put together. It's a
very thoughtful document, and I think it reflects well the
debate and the general discussions we've had ongoing for the
past some time.
I'm going to take just a few minutes to ask you to comment
on several matters.
I have the general sense that the current system insulates
the patent examiner; it makes it very difficult for him to
acquire information about prior art. It discourages the
submission of that information by third parties. It contains a
post-grant opposition proceeding which is essentially
meaningless. It's a proceeding on the record, decided on
briefs. There's no opportunity for the summonsing of witnesses,
the cross examination of those witnesses. No live argument
before someone who can decide whether the patent was properly
awarded or not.
And then at the end of that relatively meaningless and non-
participatory process, estoppel applies. And so if you have
elected to take part in it, you're sort of bound by that
judgement. You're precluded from raising the issues in court
that could have been raised in the course of that post-grant
opposition that you've participated in.
So little wonder that it's not used today. People who have
real objections don't see this as a meaningful process.
The injunction that issues when there's a preliminary
finding of patent infringement that basically stops the
business activity for whoever the defendant is in that case is
also extraordinarily problematic and really interrupts
legitimate business activity at the present time.
And I'm wondering in addition to questioning you on the
adequacy of the staff bill with regard to these two matters,
whether there is anything in your opinion that the bill does
not contain that should be a part of it in this overall effort
to enhance patent quality.
So my question for those who would care to answer: Do you
find the post-grant opposition proceeding that is in the bill
to be helpful? Are there aspects of it that you would like to
see us improve beyond the provisions you see in the bill? It
does, as I understand it, allow for witnesses, allow for
argument, and it turns into a real adjudicatory proceeding
within the Patent Office the post-grant that today is basically
meaningless and the injunction provisions would require an
actual showing of irreparable harm, so it would tend to mimic
what we are familiar with in terms of injunctions apart from
the patent process. That strikes me as helpful. And I would be
interested in your reaction to those key provisions and your
suggestion for anything else that ought to be in the bill. Who
wants to go first?
Mr. Hawley. I'm never shy. I'll go first.
Mr. Boucher. Good. Thank you.
Mr. Hawley. I think what you're referring to is the
reexamination provisions that came in with the AIPA bill, and
this committee print address two of the issues with that that I
think will be helpful.
The first is to eliminate the estoppel effect of the
process in the Patent Office and the second is to open it up to
more patents. There was a rather severe limitation on the issue
date for patents that could be reexamined. There have only been
75 reexaminations, and most people that I've talked to the
estoppel provisions are the ones--is the reason that is most
often given, and this bill I think takes care of that.
Mr. Boucher. Let me just ask if you think the process that
is outlined in the bill for that reexamination, what I'm
referring to as post-grant opposition, is adequate or do we
need to amplify that process, that post-grant process?
Mr. Hawley. No. Our position is that the post-grant
opposition that is proposed for the first time in this
committee print, in conjunction with the improvements to the
reexamination provisions, are a good collection of tools for
the patentee to use.
We believe that the post-grant opposition procedure that is
in the bill, as I've said in my written submission, we agree
with virtually every provision that is in there. We think it
will be a good system. It will certainly not be a silver
bullet. It will not solve all the problems of the world, but it
will be a process that we believe people will use and that it
will--it is well balanced. To amplify a little bit on Bill
LaFuze's comments, it's a streamlined system. It's designed to
be finished in a year. It's designed so that that can be
accomplished. So it's not a revocation proceedings, which he
addressed. So we do think it's a good provision and we support
Mr. Boucher. And the injunction provision in the bill?
Mr. Hawley. The injunction provision in the bill we have
more difficulty with because it's not simply a minor--in our
view, it's not simply a minor tweaking of the current process.
It's a real change. It places the burden on the patentee to
establish the need for an injunction, whereas under most
circumstances now the injunction is almost a matter of right
and the defendant needs to say why it cannot. So that's a major
It also begins to import preliminary injunction concepts
that--and where the preliminary injunction law is going to be
borrowed I'm sure of it and the barrier is very high.
It also encourages the court to determine whether or not
the patentee is working the invention themselves, which we feel
is akin to a working requirement and will not be seen with
favor by small companies and small--and individual inventors.
Mr. Boucher. I think I know what you think about the
injunction. Mr. Lutton?
Mr. Lutton. Very quickly. We do support the post-grant. We
view it as a second chance to get it right on the patents that
matter. We think that second window which I referred to earlier
is a critical piece in order to allow us to focus on the
patents that really matter.
We're strong supporters of the injunctive provision that's
in there, but also believe that there are other ways to get at
that same issue, but we like that issue.
I have two other suggestions for you in terms of things
that are not in the bill that might be worth thinking about.
One is the submission of prior art by a third party from
the outside during the pendency of a patent application with
comment so that the interested public can provide the PTO with
the benefit of its thoughts on additional prior art.
The second idea is some consideration of whether the burden
of proof for invalidating a patent, which is clear and
convincing evidence, ought to be lowered in those instances
where the patent examiner has not had the opportunity to
examine the prior art that is at issue in the challenge later.
So clear and convincing may be a appropriate if the patent
examiner looked at this art. The patent examiner didn't have
that art. It's totally a new challenge. Maybe it's
preponderance of evidence.
Mr. Boucher. That's a very interesting proposal.
So you're saying keep the clear and convincing evidence
standard general but apply a preponderance of the evidence
standard where the examiner has not had an opportunity to have
benefit of evidence of prior art that whoever wants to
challenge the award of the patent happens to have?
Mr. Lutton. That's right. And I think the rationale would
be that the presumption of validity and the clear and
convincing evidence standard are premised on an examination of
the Patent and Trademark Office. If there was no examination
relative to that prior art, why the presumption?
Mr. Boucher. Does the availability of a strong and
accessible post-grant opposition proceeding where witnesses can
be brought in, argument can be held--you get an adjudication
before the patent actually leaves the Patent Office--ameliorate
to some extent the burden that this clear and convincing
evidence standard general imposes with regard to court
Mr. Lutton. To some extent, but not totally. You have to
look at post-grant opposition as a second coarser look at the--
or more granular--let me say it that way--more granular filter
through which a patent must pass. But it is not--it does not
have all of the flexibility and other opportunities over
litigation. There are cases that are going to be litigated even
after post-grant opposition. But I think it provides another--
you can really look at the first examination, which is on
average 17 hours, as the first filter. Post-grant for those
cases where it's brought a second filter. And then for the
cases that are not dealt with that way litigation.
Mr. Boucher. Okay. Yes, Mr. Kushan.
Mr. Kushan. I just want to briefly emphasize one point
about, and it's a cross-cutting point, whether you're talking
about post-grant opposition or other issues, focused on PTO
activities, one thing that we are concerned about is making
sure that we plan for the infrastructure to be sound and fully
funded and designed in a way which will be better than the
proceedings we have now. In the biotech sector, there are a lot
of interference proceedings. If we have that set of rules and
practices used to run opposition proceedings, it won't be a
very good system and we think you need to consider some
structural changes at the PTO to make sure that you have a very
well designed group of people running the opposition
proceedings. This might be done just by setting up a separate
division at the Patent Office to run those proceedings.
The funding issue is also critical, and I think given the
constraints we have with assured funding, you need to envision
a scenario where we have to prioritize the work of the PTO to
make sure that opposition proceedings don't turn into multi-
year proceedings because of funding problems. So with that,
I'll stop and encourage you to think about how these things
will run at the Patent Office as well.
Mr. Boucher. LaFuze?
Mr. Smith. Thank you, Mr. Boucher. Your time has expired.
Without objection, Mr. LaFuze, will you respond very briefly?
Mr. LaFuze. I will. First of all, the intellectual property
law section supports the post-grant opposition system that's in
place in the bill. And secondly, with respect to injunctions,
we don't have a position, so I will only offer my own personal
comments on that. I think the injunction issue needs to be
broken down into two parts. What happens after a trial is over
and a judgment is entered and a judgment and an injunction is
being considered pending appeal. And then I think the other
one, which is an entirely different circumstance, is what do
you do with an injunction when the court of appeals says the
patent is valid, the patent is infringed, and the remedies
under title V include the possibility of in injunction. I think
we need to break those up. There are things we can do with the
bond pending appeal. There are things that we can do with
attorneys fees if somebody gets an injunction and it turns out
they lose on appeal, and the defendant actually has been
injured that can be measured somehow monetarily, and I think if
we break those two issues apart, separate them, analyze them
differently, it will be easier to handle.
Mr. Smith. Mr. Boucher, thank you for your earlier comments
as well as your questions. I might have guessed with all
witnesses being lawyers we were going to have a little bit of a
problem with time constraints. But we had a lot to discuss
today as well.
Let me just make the observation that I think it's evident
to anyone who is here that not only is this an important piece
of legislation, but we're going to go forward in a bipartisan
way and I appreciate the supportive comments on both sides of
the podium up here.
We're also serious about going forward in an expeditious
way. We have a tentative mark up scheduled for the end of May.
That gives us I think a reasonable amount of time to continue
our discussions. And we still do have work to do on injunctions
and post-grant opposition and a couple of other continuation
applications being another area that we need to explore, too.
But we've made a lot of progress, and I appreciate all the
agreement and the time that you all have committed to the task.
This is the first, as you know, of a couple of hearings,
and we do expect to get to the end with your good help.
Mr. Berman. Would the Chairman yield?
Mr. Smith. Thank you, again. The Gentleman from California
Mr. Boucher. I just want to make about 20 seconds of
Mr. Smith. Okay. The Gentleman is recognized.
Mr. Boucher. To repeat in my opening statement the
congratulation on what you're doing on all this and how you're
going about it. And secondly, see if the witnesses other than
one of you spoke to the prior--third-party prior art issue--if,
in writing you could just give us your position on allowing the
Patent Examiner to get third-party prior art between
publication and grant. I think that's an issue the committee
print doesn't address, which having all your positions would be
Mr. Smith. Thank you. Thank you, Mr. Berman, and again
thank you, all. We stand adjourned.
[Whereupon, at 6:09 p.m, the Subcommittee adjourned.]
COMMITTEE PRINT REGARDING
PATENT QUALITY IMPROVEMENT
THURSDAY, APRIL 28, 2005
House of Representatives,
Subcommittee on Courts, the Internet,
and Intellectual Property,
Committee on the Judiciary,
The Subcommittee met, pursuant to notice, at 12:12 p.m., in
Room 2141, Rayburn House Office Building, the Honorable Lamar
Smith (Chair of the Committee) presiding.
Mr. Smith. The Subcommittee on Courts, the Internet, and
Intellectual Property will come to order.
First of all, let me express my appreciation to the great
interest we have in this hearing today. We probably have the
best attendance we have had all year on any hearing. We, of
course, had a hearing on the same subject last week, so maybe
the interest has been building as well. We expect to have
interest by Members and appreciate the three other Members who
are here today. This is not the best time necessarily to be
conducting a hearing--at noon--but we hope there will be other
Members who will stop by before we have a final vote and leave
I am going to recognize myself for an opening statement,
and then yield to the gentleman from California, the minority
Ranking Member, for his opening statement as well.
Today the Subcommittee on Courts, the Internet, and
Intellectual Property will conduct its second hearing on a
Committee Print to improve patent quality. The print is based
on the leading recommendations developed by the PTO and a broad
cross-section of industry and trade associations that are
involved in the formulation of patent policy.
There is no shortage of volunteers nationwide who want to
testify before this Subcommittee. I assure these individuals
and groups that their concerns will be heard and given due
Following this hearing, I will work with the Subcommittee
Members, the Patent and Trademark Office, and others to develop
a bill based on the print, that I expect to move this spring.
So I urge all interested parties to work toward areas of
compromise and concordance, knowing that no entity or
individual will be entirely satisfied with the finished
Still, there are areas of agreement and the trajectory is
encouraging. Creation of a post-grant opposition system, tweaks
to inter partes reexamination, more expansive use of 18-month
publication, a doctrine of a first-to-file construct,
elimination of the best-mode requirement, reformation of the
inequitable conduct defense, and an overhaul of the willful
damages prevention have generated much support. Hopefully,
reasoned discussions and good-faith negotiations will
generation support for other issues as well. I also want to
emphasize that subject matter not contained in the print could
still be included in the bill.
Last week's panel featured representatives of larger
mainstream industry groups. Today we welcome witnesses from
Government, small business, the Academy, and the financial
world. It is healthy and necessary to consider as many
different perspectives as possible. Such diversity will only
lead to a better work product.
I look forward to hearing from the witnesses shortly, and
now recognize the gentleman from California, Mr. Berman.
Mr. Berman. Well, thanks, Mr. Chairman.
Last hearing, we heard differing opinions about which
sections of patent law should be reformed, how those reforms
should be accomplished. Some of the witnesses stressed changes
in litigation rules for patent cases; others focused on the
need to harmonize U.S. patent laws with the foreign patent law.
But all the witnesses seemed to agree that bolstering the level
of patent quality is integral to a workable patent system.
The whole foundation of the patent system is the idea that
the Patent and Trademark Office grants high-quality patents.
However, in recent years, and particularly since the State
Street decision, a large number of questionable patents have
been issued, leading to increased litigation and uncertainty in
markets that are heavily dependent on patent rights. There are
many possible reasons for the questionable quality--lack of
funding resulting from fee diversion; lack of appropriate
resources or training materials; an increase in the backlog of
patent applications, which I gather--we will probably hear from
Mr. Dudas--has become stunning; or even exposure to a new
patentable subject matter, such as business method patents.
While the PTO has made great strides in addressing this
problem, more needs to be done to restore confidence in the
patent system. The Committee Print has provided a useful set of
guidelines that identify some of the key areas in need of
reform. Some of the provisions are almost identical to the ones
Mr. Boucher and I proposed last year. However, an issue we
addressed with our third-party prior art submission provision,
and which deserves greater attention in the Committee Print or
any future legislation, is how to address quality on the front
end of the examination process.
I anticipate a spirited discussion today on the merits of
some of the proposals in the Committee Print. And I guess I
submit a challenge to those critical of certain provisions. If
you have a problem with the proposal, help us craft a better
solution, because we are planning to introduce a patent bill,
as the Chairman mentioned, in the near future. I hope that the
many interested groups--and here I guess I want to echo the
Chairman--can work together to help us formulate some answers
to the problems facing the patent system today.
I look forward to working with you, Mr. Chairman, in
drafting this legislation, and yield back.
Mr. Smith. Thank you, Mr. Berman. And without objection,
the opening statements of other Members will be made a part of
Before I introduce the witnesses, I would like to invite
you to stand and be sworn in, if you will.
Mr. Smith. Thank you. Please be seated.
Our first witness is John Dudas, Under Secretary of
Commerce for Intellectual Property and Director of the U.S.
Patent and Trademark Office. In a previous life, Director Dudas
worked for this Subcommittee, so we welcome him back. He earned
a bachelor's degree in finance, summa cum laude, from the
University of Illinois and a law degree with honors from the
University of Chicago.
Our next witness is Richard Levin, a special friend and
president of my alma mater, Yale University. He co-chaired the
National Research Council that published a major study of the
patent system last year. President Levin studied history at
Stanford University and politics at Merton College, Oxford
University. He also holds a doctorate in economics from Yale
The next witness is Nathan Myhrvold, founder and CEO of
Intellectual Ventures, an invention company in Belleview,
Washington. He owns 14 patents and has several others pending.
Dr. Myhrvold received an undergraduate degree in mathematics
and a master's in geophysics and space physics from UCLA. He
later earned another master's in mathematical economics and a
doctorate in theoretical mathematics and physics from Princeton
Our final witness is Darin Bartholomew, senior patent
attorney for John Deere & Company. Mr. Bartholomew has
practiced intellectual property law for more than 10 years. He
earned an electrical engineering degree from Northwestern
University, a J.D. from John Marshall Law School, and a Master
of Laws from Georgetown University.
Welcome to you all. We have your complete written
statements, and without objection they will be made a part of
the record. We do ask that you keep your oral testimony,
though, to 5 minutes.
And Director Dudas, we will begin with you.
TESTIMONY OF THE HONORABLE JON W. DUDAS, UNDER SECRETARY OF
COMMERCE FOR INTELLECTUAL PROPERTY, AND DIRECTOR OF THE U.S.
PATENT AND TRADEMARK OFFICE
Mr. Dudas. Thank you very much, Chairman Smith, Ranking
Member Berman, and Members of the Subcommittee. I appreciate
your inviting me to testify today and I commend you for holding
these hearings on your multi-title Committee Print, which
proposes comprehensive changes to our patent system.
The benefits of our patent system have always been obvious
to Americans. You're all familiar with article I, section 8,
clause 8 of the U.S. Constitution granting Congress the power
to promote the progress of science and the useful arts by
securing for the limited times to authors and inventors the
exclusive right to their respective writings and discoveries.
That clause was adopted into the Constitution without a
dissenting vote and without even a recorded debate. History has
repeatedly affirmed the wisdom of our Nation's founders in
establishing these principles.
The tremendous ingenuity of American inventors, coupled
with an intellectual property system that encourages and
rewards innovation, has propelled the growth of our Nation from
a small agrarian society to the world's preeminent
technological and economic superpower. And all of our patented
technology finds its way into the public domain within 20
years, freely available to any and all. The success of our
system has also been the basis for economic development in
nations around the world.
Unfortunately, a growing chorus of critics now questions
whether the fundamental patent system will enhance or hinder
development in other nations. However, many of the nations
questioning the efficacy of that system have become hotbeds for
the manufacture and export of counterfeit goods, with more than
90 percent of goods, in some cases in some industries, being
counterfeited or pirated. Therefore we must actively educate
the world that respect for intellectual property benefits
Having and promoting the fundamentally right system,
however, is not enough. Even the best system in the world can
and should improve, and, as you know, at the USPTO our 21st
Century Strategic Plan began as directives from the President
and Congress that we improve. Recently we've announced three
internal reforms to improve our Agency's quality and
efficiency. We're increasing transparency, we're internally
improving our ex parte reexamination, and we're saving
applicants tens of millions of dollars by revamping our process
of applicants submitting appeal briefs. We're implementing a
multitude of improvements and we plan to do more.
We're also hearing legislative proposals in three general
categories, as you mentioned--operational, litigation reform,
and the convergence of international laws and best practices.
In my view, each of these must center on how the patent system
encourages innovation and, more importantly, serves the public
at large. We must look at these issues from every angle. We
must look at them from the perspective of the independent
inventor who may be the next Thomas Edison to the perspective
of a large company that believes its innovations are being
frivolously tied up in unnecessary legal knots.
As you reflect upon all of the proposals you hear, I urge
that you not focus exclusively on litigation nor exclusively on
the administrative process. Patent quality begins with the
application and it begins with the applicant. And I can tell
you that the number one challenge I hear from examiners today
is one of application quality. So I'm comforted by Ranking
Member Berman, your statement about the beginning of the
process both at the USPTO, but we'll take it one step even
further back, which is the quality of the application and the
quality of the process as it comes into the Office, as well as
what happens within the Office. I think all of these issues
need to be considered, but one component shouldn't be
considered to the expense of others.
We're committed at the USPTO to make sure that our
practices and policies promote innovation and the dissemination
of new technologies. While we implement operational reform, we
realize that measures within your domain will make valuable
contributions to the system. The USPTO and the Administration
are enthusiastic to continue working with you closely and be a
part of this hearing as you develop reform legislation to
ensure that the U.S. patent system remains the world's leader.
[The prepared statement of Mr. Dudas follows:]
Prepared Statement of the Honorable Jon W. Dudas
Mr. Smith. Thank you, Director Dudas.
TESTIMONY OF RICHARD C. LEVIN, PRESIDENT, YALE UNIVERSITY, ON
BEHALF OF THE NATIONAL RESEARCH COUNCIL
Mr. Levin. Chairman Smith, Congressman Berman, Members of
the Subcommittee, thank you for offering me the opportunity to
discuss the National Research Council's recommendations for
improving the patent system in the United States. Patents play
a crucial role in promoting technological innovation, which is
the most important underpinning of economic growth. I'm
delighted that the Subcommittee on Intellectual Property is
developing legislation to ensure that the patent system
continues to serve the Nation well.
The project undertaken by the National Research Council,
which I co-chaired with Mark Myers, a retired vice president of
the Xerox Corporation, was the most comprehensive review of the
patent system in decades. Our committee was perhaps the first
to bring together practicing patent lawyers, academic lawyers
and economists, business leaders, technologists, and inventors.
We started with highly divergent views, but over the course of
our deliberations our views converged and we reached consensus
on several important recommendations that are reflected in the
We concluded that, on the whole, the patent system is
working well and does not need fundamental revision. Yet we did
note some causes for concern. The sheer volume of patent
applications, especially those involving new areas of
technology--the Ranking Member referred to business methods as
an example--overwhelm--these new areas overwhelm the patent
examination corps in ways that affect the quality and
timeliness of decisions. In addition, it's become more
expensive to acquire patents, to obtain licenses to patented
technologies, and especially to enforce and challenge patents
Our recommendations are set forth in greater detail in an
accompanying written statement, but here I'd like to emphasize
three main themes.
First, Congress and the PTO should take steps to ensure the
quality of patents issued. The single most important step would
be the establishment of a simple administrative procedure for
opposing a patent after it has been granted. The process should
be timely and efficient so that uncertainty can be resolved
quickly without either inhibiting socially productive
investment by competitors in situations where the patent proves
to be invalid or by encouraging wasteful investment when the
patent proves to be valid.
A new opposition process is needed because the existing
inter partes reexamination procedure only permits challenges to
be lodged on narrow grounds. It's rarely used and has not
proven to be effective. The only way to challenge a patent
through the courts is to infringe it and draw either an
infringement suit or a demand to take a license. This is an
unnecessarily expensive way to resolve doubts about a patent's
validity, and disputes take many years to resolve while
technology, as we know, changes rapidly.
Patent quality can be improved also by the assiduous
application of the nonobviousness standard by the Patent and
Trademark Office. The PTO should develop new approaches to
gathering information about the state of the art in emerging
areas of technology, relying on outside experts when patent
examiners lack expertise. The committee commended the PTO for
the development of guidelines in emerging technology areas,
such as genomics and business methods. It's important to offer
such guidance promptly as new technologies emerge. The
committee also recommended that Congress provide more resources
for the PTO to hire needed examiners, to improve its
information systems, and to fund a post-grant opposition
procedure. Fortunately, the PTO will receive additional funding
through the fee increase that was approved by Congress last
A second theme, beyond validity, is the harmonization of
the United States patent system with the European and Japanese
patent systems. Differences among the world's major patent
regimes entail wasteful duplication of effort by both inventors
and by governments. The committee believes that gains in
efficiency from harmonizations would be considerable. The
United States is the only country that gives priority to the
first person to reduce an invention to practice. Elsewhere, the
first inventor to file is given priority. The latter test is
objective; the former requires years of discovery, reams of
depositions, and hours of trial testimony. Moreover, the U.S.
is the only country in the world that requires a patent holder
to hold that he has disclosed the best mode of practicing a
patent. This, too, is costly and time-consuming to prove.
Harmonization with global practice makes sense.
Finally, the committee recommended that Congress mitigate
other subjective elements of law that contribute to the
extraordinary expense of patent litigation. For example,
Congress would be well advised to eliminate or modify the
standards governing inequitable conduct. The bill addresses
that. There should be penalties for misconduct by patent
applicants, but misconduct should not automatically invalidate
the patent. Similarly, the doctrine of willful infringement
should be modified, because willfulness is subjective and
costly to prove, and the doctrine creates the perverse
incentive for inventors to avoid the study of prior art lest
they fail to cite a patent that turns out to be relevant.
I'm pleased that the legislation developed by the
Subcommittee is consistent with the recommendations of our NRC
committee. I would suggest, however, that the Subcommittee
reconsider the provision allowing the settlement of invalidity
claims during the post-grant review process. Settlement would
undermine a major objective of instituting a post-grant review,
and that is to clarify the grounds on which patents should be
granted in emerging areas of technologies. The parties settled
may resolve their disputes with one another, but it wont'
clarify the law or the practice of the Patent Office for future
Our committee also recommended that Federal judges faced
with resolving validity disputes in infringement cases should
have the option of referring the issues concerning validity to
the PTO administrative judges, who have expertise in post-grant
I would be pleased to answer your questions.
[The prepared statement of Mr. Levin follows:]
Prepared Statement of Richard C. Levin, Ph.D.
Good afternoon, Mr. Chairman, Congressman Berman, and members of
the subcommittee. I am Richard Levin, President of Yale University and
co-chair of the Committee on Intellectual Property Rights in the
Knowledge-Based Economy of the National Research Council. The Research
Council is the operating arm of the National Academy of Sciences,
National Academy of Engineering, and the Institute of Medicine of the
National Academies, chartered by Congress in 1863 to advise the
government on matters of science and technology.
Although most Academy studies are conducted in response to an
agency's or a congressional request, the study we will describe was
initiated by the Council's Board on Science, Technology, and Economic
Policy (STEP) because it recognized that the breakneck pace of
technological change across many industries was creating stresses in
the patent system that needed to be examined to ensure that it
continues to be a stimulus to innovation and does not become an
impediment to it.
Since 1980 a series of judicial, legislative, and administrative
actions have extended patenting to new technologies (biotechnology) and
to technologies previously without or subject to other forms of
intellectual property protection (software and business methods),
encouraged the emergence of new players (universities), strengthened
the position of patent holders vis-a-vis infringers domestically and
internationally, relaxed other restraints on the use of patents
(antitrust enforcement), and extended their reach upstream from
commercial products to scientific research tools and materials.
As a result, patents are being more zealously sought, vigorously
asserted, and aggressively enforced than ever before. There are many
indications that firms in a variety of industries, as well as
universities and public institutions, are attaching greater importance
to patents and are willing to pay higher costs to acquire, exercise,
and defend them. The workload of the U.S. Patent and Trademark Office
has increased several-fold in the last few decades, to the point that
it is issuing nearly 100 patents every working hour. Meanwhile, the
costs of acquiring patents, promoting or securing licenses to patented
technology, and prosecuting and defending against infringement
allegations in the increasing number of patent suits are rising
In spite of these changes and the obvious importance of patents to
the economy, there had not been a broad-based study of the patent
system's performance since the Depression. Accordingly, the National
Research Council (NRC) assembled a committee that includes three
corporate R&D managers, a university administrator, three patent
holders, and experts in biotechnology, bioengineering, chemicals,
telecommunications, microelectronics, and software, as well as
economists, legal scholars, and practicing attorneys. This diversity of
experience and expertise distinguishes our panel from nearly all
previous commissions on the subject, as does our study process. We held
conferences and public hearings and we commissioned our own empirical
research. The committee's report, A Patent System for the 21st Century,
released a year ago, provides a thoroughly researched, timely
perspective on how well the system is working.
High rates of technological innovation, especially in the 1990s but
continuing to this day, suggest that the patent system is working well
and does not require fundamental changes. Nevertheless, the committee
was able to identify five issues that should and can be addressed now.
First, maintaining consistent patent quality is difficult but
increasingly important in fast-moving fields. Over the past decade, the
quality of issued patents has come under frequent sharp attack, as it
sometimes has in the past. One can always find patents that appear
dubious and some that are even laughable--the patent for cutting and
styling hair using scissors or combs in both hands. Some errors are
unavoidable in a system that issues more than 187,000 patents annually,
and many of those errors will have no economic consequence because the
patents will not be enforced. Still, some critics have suggested that
the standards of patentability have been lowered by court decisions.
Other observers fault the USPTO's performance in examining patent
applications, variously attributing the alleged deterioration to
inadequate time for examiners to do their work, lack of access to prior
art information, perverse incentives to grant rather than reject
patents, and inadequate examiners' qualifications.
Because the claim that quality has deteriorated in a broad and
systematic way has not been empirically tested, conclusions must remain
tentative. But there are several reasons to suspect that more issued
patents are substandard, particularly in technologies newly subject to
patenting. One reason to believe that quality has suffered, even before
taking examiner qualifications and experience into account, is that in
recent years the number of patent examiners has not kept pace with the
increase in workload represented by the escalating number and growing
complexity of applications. Second, USPTO patent approval rates are
higher than in some other major nations' patent offices. Third, changes
in the treatment of genomic and business method applications,
introduced as a result of criticisms of the quality of patents being
issued, reduced or at least slowed down the number of patent grants in
those fields. And fourth, there does appear to have been some dilution
of the application of the nonobviousness standard in biotechnology and
some limitations on its proper application to business methods patent
applications. Although quality appears to be more problematic in
rapidly moving areas of technology newly subject to patenting and
perhaps is corrected over time, the cost of waiting for an evolutionary
process to run its course may be too high when new technologies attract
the level of investment exhibited by the Internet, biotechnology, and
What are the costs of uncertainty surrounding patent validity in
areas of emerging technology? First, uncertainty may induce a
considerable volume of costly litigation. Second, in the absence of
litigation, the holders of dubious patents may be unjustly enriched,
and the entry of competitive products and services that would enhance
consumer welfare may be deterred. Third, uncertainty about what is
patentable in an emerging technology may discourage investment in
innovation and product development until the courts clarify the law, or
inventors may choose to incur the cost of product development only to
abandon the market years later when their technology is deemed to
infringe. In sum, greater certainty about patent validity would benefit
innovators, technological followers, and consumers alike.
Second, differences among national patent systems continue to
result in avoidable costs and delays. In spite of progress in
harmonizing the U.S., European, and Japanese patent examination
systems, important differences in standards and procedures remain,
ensuring search and examination redundancy that imposes high costs on
users and hampers market integration. It is estimated to cost as much
$750,000 to $1 million to obtain comprehensive worldwide patent
protection for an important invention, and that figure is increasing at
a rate of 10 percent a year. Important differences include the
following: Only the United States gives preference to the ``first to
invent'' rather than the ``first to file.'' Only the United States
requires that a patent application disclose the ``best mode'' of
implementing an invention. U.S. law allows a grace period of one year,
during which an applicant can disclose or commercialize an invention
before filing for a patent, whereas Japan offers a more limited grace
period and Europe provides none.
Third, some U.S. practices seem to be slowing the dissemination of
information. In the United States there are many channels of scientific
interaction and technical communication, and the patent system
contributes more to the flow of information than does the alternative
of maintaining technical advances as trade secrets. There are
nonetheless features peculiar to the U.S. patent system that inhibit
information dissemination. One is the exclusion of a nontrivial number
of U.S. patent applications from publication after 18 months, an
international norm since 1994. A second U.S. idiosyncrasy is the legal
doctrine of willful infringement, which can require an infringer to pay
up to triple damages if it can be demonstrated that the infringer was
aware of the violated patent before the violation. Some observers
believe that this deters an inventor from looking at the patents of
possible competitors, because knowledge of the patent could later
subject the inventor to enhanced damages if there is an infringement
case. This undermines one of the principal purposes of the patent
system: to make others aware of innovations that could help stimulate
Fourth, litigation costs are escalating rapidly and proceedings are
protracted. Surveys conducted periodically by the American Intellectual
Property Law Association indicate that litigation costs, millions of
dollars for each party in a case where the stakes are substantial, are
increasing at double digit rates. At the same time the number of
lawsuits in District Courts is increasing
Fifth, access to patented technologies is important in research and
in the development of cumulative technologies, where one advance builds
on one or several previous advances. Faced with anecdotes and
conjectures about restrictions on research scientists, particularly in
biotechnology, we conducted a modest survey of diverse participants in
the field to determine whether patent thickets are emerging or access
to foundational discoveries is restricted. We found very few cases
although some evidence of increased research costs and delays and much
evidence that research scientists are largely unaware of whether they
are using patented technology. During our study, the Court of Appeals
for the Federal Circuit ruled that university researchers are not
shielded by the common law research exception against infringement
liability. This combination of circumstances--ignorance of intellectual
property on the one hand and full legal liability on the other--
represents an exposure that universities are not equipped to eliminate
by the kinds of due diligence performed by companies and investors.
TOWARD A BETTER PATENT SYSTEM
Our committee proposed seven steps to ensure the vitality and
improve the functioning of the patent system:
1) Preserve an open-ended, unitary, flexible patent system. The
system should remain open to new technologies, and the features that
allow somewhat different treatment of different technologies should be
preserved without formalizing different standards, for example, in
statutes that would be exceedingly difficult to draft appropriately and
equally difficult to change if found to be inappropriate. Among the
tailoring mechanisms that should be exploited is the USPTO's
development of examination guidelines for new or newly patented
technologies. In developing such guidelines, the office should seek
advice from a wide variety of sources and maintain a public record of
the submissions. The results should then be part of the record of any
appeal to a court, so that they can inform judicial decisions.
This information could be of particular value to the Court of
Appeals for the Federal Circuit, which is in most instances the final
arbiter of patent law. To keep this court well informed about relevant
legal and economic scholarship, it should encourage the submission of
amicus briefs and arrange for temporary exchanges of members with other
courts. Appointments to the Federal Circuit should include people
familiar with innovation from a variety of perspectives, including
management, finance, and economic history, as well as nonpatent areas
of law that bear on innovation.
2) Reinvigorate the nonobviousness standard. The requirement that
to qualify for a patent an invention cannot be obvious to a person of
ordinary skill in the art should be assiduously observed. In an area
such as business methods, where the common general knowledge of
practitioners is not fully described in published literature likely to
be consulted by patent examiners, another method of determining the
state of knowledge needs to be employed. Given that patent applications
are examined ex parte between the applicant and the examiner, it would
be difficult to bring in other expert opinion at that stage.
Nevertheless, the open review procedure I will describe next provides a
means of obtaining expert participation if a patent is challenged.
Gene sequence patents present a particular problem because of a
Federal Circuit ruling making it difficult to apply the obviousness
test in this field. This is unwise in its own right and is also
inconsistent with patent practice in other countries.
3) Institute an ``Open Review'' procedure. Congress should pass
legislation creating a procedure for third parties to challenge patents
after their issuance in a proceeding before administrative patent
judges of the USPTO. The grounds for a challenge could be any of the
statutory standards--novelty, utility, nonobviousness, disclosure, or
enablement--or the case law proscription on patenting abstract ideas
and natural phenomena. The time, cost, and other characteristics of
this proceeding should make it an attractive alternative to litigation
to resolve questions of patent validity. For example, federal district
courts could more productively focus their attention on patent
infringement issues if they were able to refer validity questions to an
Open Review proceeding. The result should be much earlier, less
expensive, and less protracted resolution of validity issues than we
have with litigation and of a greater variety of validity issues than
we have with re-examination even if it were used.
4) Strengthen USPTO resources. To improve its performance, the
USPTO needs additional resources to hire and train additional examiners
and implement a robust electronic processing capability. Further, the
USPTO should create a strong multidisciplinary analytical capability to
assess management practices and proposed changes, provide an early
warning of new technologies being proposed for patenting, and conduct
reliable, consistent, reputable quality reviews that address office-
wide as well as individual examiner performance. The current USPTO
budget is not adequate to accomplish these objectives, let alone to
finance an efficient Open Review system.
5) Modify or remove the subjective elements of litigation. Among
the factors that increase the cost and reduce the predictability of
patent infringement litigation are issues unique to U.S. patent
jurisprudence that depend on the assessment of a party's state of mind
at the time of the alleged infringement or the time of patent
application. These include whether someone ``willfully'' infringed a
patent, whether a patent application included the ``best mode'' for
implementing an invention, and whether a patent attorney engaged in
``inequitable conduct'' by intentionally failing to disclose all prior
art when applying for a patent. Investigating these questions requires
time-consuming, expensive, and ultimately subjective pretrial
discovery. The committee believes that significantly modifying or
eliminating these rules would increase the predictability of patent
dispute outcomes without substantially affecting the principles that
these aspects of the enforcement system were meant to promote.
6) Harmonize the U.S., European, and Japanese patent examination
systems. The United States, Europe, and Japan should further harmonize
patent examination procedures and standards to reduce redundancy in
search and examination and eventually achieve mutual recognition of
applications granted or denied. The committee recommends that the
United States should conform to practice elsewhere by adopting the
first inventor to file system, dropping the ``best mode'' requirement,
and eliminating the current exception to the rule of publication of an
application after 18 months. The committee also recommends that the
United States seek to have other jurisdictions adopt the practice of a
grace period for filing an application. These objectives should be
pursued on a trilateral or even bilateral basis if multilateral
negotiations do not progress.
7) Consider enacting a narrowly drawn exception from infringement
liability for some research activities. Here we do not propose specific
legislative language, but we do suggest some principles for Congress to
consider in drafting a narrow research exception that would preserve
the intent of the patent system and avoid some disruptions to
In making these recommendations, our committee was mindful that
although the patent law is designed to be uniform across all
applications, its practical effects vary across technologies,
industries, and classes of inventors. There is a tendency in discourse
on the patent system to identify problems and solutions to them from
the perspective of one field, sector, or class. Although the committee
did not attempt to deal with the specifics of every affected field, the
diversity of the membership enabled us to consider each of the proposed
changes from the perspective of very different sectors. Similarly, we
examined very closely the claims made to us that one class of
inventors--usually individuals and very small businesses--would be
disadvantaged by some change in the patent system. Some of the
committee's recommendations--universal publication of applications,
Open Review, and shifting to a first-inventor-to-file system--have in
the past been opposed on those grounds. The committee reviewed very
carefully, for example, how small entities currently fare in
interference proceedings, examination, and re-examination. We also
studied how European opposition proceedings affect small businesses. We
concluded they enjoy little protection and in fact are often at a
disadvantage in the procedures we propose to change. In short, we
believe that our recommendations, on balance, would be as beneficial to
small businesses and individual inventors as to the economy as a whole.
I appreciate the opportunity afforded by the committee to testify
on our conclusions and would be happy to answer any questions.
Mr. Smith. Thank you, President Levin.
TESTIMONY OF NATHAN P. MYHRVOLD, CHIEF EXECUTIVE OFFICER,
Mr. Myhrvold. Thank you, Mr. Chairman, Members of the
Committee, both thank you for having me here and for turning
your attention to a very important topic of patent reform.
My perspectives today are going to be based a little bit on
who I am. I started off as an academic physicist. I started my
own company and became a start-up entrepreneur in California in
1983. Microsoft acquired my company and so I became a corporate
executive, Microsoft's chief technology officer, for 14 years.
Five years ago, I left Microsoft and started Intellectual
Ventures, dedicated to the idea of invention and helping
inventors. Finally, I'm an inventor myself, so I understand the
Patent Office from that perspective.
Now, invention is critical to America; I don't need to
remind you of that. One point I think is very important,
though, is that the small inventor is critical to America.
Forty-five percent of America's patent holders are classified
as small entities by the Patent Office. That means they're
individuals, they're universities, or they're small businesses.
This cuts across every field of technology no matter how
exotic, no matter how cutting-edge. In fact, look at
semiconductors, look at nanotech, look at computers. You'll
find in those areas that individuals and universities together
often have more patents than the biggest companies in the
world. It's a diffuse group; it's also a vulnerable group,
because they depend on patent law very critically, much more so
than the big guys do. So as we approach patent reform, it's
very important that we keep them in mind. An unintended
consequence of shifting in one area can make the playing field
not level for the little guy.
I've studied the Committee Print. There's a lot that I
would commend the Committee on and I would agree with.
Actually, Chairman Smith summed up a whole series of things. I
won't repeat them all. I also want to echo my colleagues'
remarks that when you add something like post-grant
opposition--I think it's a good move--you've got to make sure
that it's funded and resourced. We can't heap more new things
on the Patent Office while they still have such a backlog of
the work they're supposed to ordinarily be doing.
I've also studied the Committee Print in other ways and, to
be frank, there are some things I don't agree with that I think
would be harmful. Most important of those, I think, are the
rule changes regarding injunctions. Now, patents are designed
to give ownership of inventions to inventors, and that
ownership isn't conditional on whether they make it or not.
That's what our system is. It's perfectly honorable to be an
inventor in a university or a small entity that doesn't
actually manufacture, in fact licenses to others.
Now, the injunction change, I feel, would really
disadvantage the small inventor. It would significantly erode
some of their rights. Ironically, it's been proposed as a
trial--or as reform to reduce litigation. I'm afraid it would
have exactly the opposite effect, increasing the number of
litigations and the size and complexity of each litigation. My
written testimony explains why.
So we have to be very careful that while we try to reform
litigation we don't accidentally create the Trial Lawyers Full
Employment Act. If you look around the world, you compare our
system to others, you find America has the strongest rights for
inventors of any place in the world. There's a bunch of other
countries that are very, right up on a par with us. I agree
about international harmonization; that's an important thing.
So the first rank of countries are very high. If you look at
this injunction provision, you can also find countries that
have that kind of law, and those typically aren't first-world
nations. Those are countries like the Philippines, Peru, or
Rwanda. Having strong rights for inventors is a very important
thing. We've got to make sure that, going into the 21st
century, we have the best possible incentive for all of
One other brief--I've got too many things, actually, to
list here. My written testimony covers them. There is, to me, a
very surprising loophole for software- or Internet-related
things, nontangible items in the Committee Print which would
dramatically reduce any royalties due legitimate patent holders
for any of these nontangible items. I think the 21st century
isn't a time when we should take an act like that. Clearly the
Internet and software and other very intangible things are
important to us.
Going forward, the committee has a challenging and
interesting task to balance all of these different factors. I
will make myself available both during the questions now and at
any point in the future to help out in that important process.
[The prepared statement of Mr. Myhrvold follows:]
Prepared Statement of Nathan P. Myhrvold
Mr. Chairman and members of the Subcommittee, my name is Nathan
Myhrvold. I am very pleased to have been asked to share my views as a
scientist and inventor on the patent system with the Subcommittee. My
personal history is very relevant to my remarks today, so permit me to
As long as I can remember I have been fascinated with science and
technology. I pursued science in school, earning a bachelor's degree in
mathematics, and master's degree in geophysics and space physics, both
from UCLA. I continued exploring other disciplines, getting another
master's degree in mathematical economics and a PhD in mathematical
physics from Princeton University. I would have finished school much
earlier if I had focused on one topic, but to be honest I never met a
kind of science I didn't like. This obsession with schooling might have
consumed half my life, but for the fact that I started early, entering
college at 14, and completing my PhD by age 23.
After Princeton I was hired by Cambridge University in England,
working directly for Professor Stephen Hawking. My research area was
quantum field theory in curved space time, perhaps one of the most
obscure and esoteric scientific disciplines. At that point in my life I
would have told you that I'd be an academic researcher. But life has a
way of throwing us curve balls. I took a three month leave of absence
from working with Hawking to go to the San Francisco Bay Area to help
some friends from graduate school on a software project. Before I knew
it I was caught up in entrepreneurial fever.
The year was 1984, and the software industry was still tiny. I
became the CEO of Dynamical Systems, a software start up with less than
a dozen full time employees. After two years of struggling to keep our
heads above water, we were acquired by Microsoft. I spent the next 14
years as a Microsoft employee, reporting directly to Bill Gates as
Microsoft's first Chief Technology Officer. I could scarcely believe
that I went from esoteric theories in physics to what would become the
largest software company in the world.
At Microsoft I championed the development of new technology.
Microsoft had zero patents and just two patent applications at the time
I joined the company. I advocated increases in R&D spending, and patent
filing, greatly increasing each of these. In 1991 I convinced the
Microsoft board of directors to start Microsoft Research, the first
major industrial research lab to be started in more than a generation.
Laboratories like Bell Laboratories, GE Research Labs, Xerox PARC, and
IBM Research, have made a tremendous contribution to America's
preeminence in science and technology. Unfortunately, these
institutions were founded 30 to 100 years ago, and there aren't many
recent examples. Very few of the new giants of technology have bothered
to invest in research and create similar research organizations.
Microsoft Research now employs over 700 researchers in seven
laboratories, and is ranked as one of the leading research institutions
in the world.
I retired from Microsoft in 2000, and founded Intellectual
Ventures, a company dedicated to investing in innovation and creativity
in the form of invention. The venture capital community exists to help
entrepreneurs start and finance new companies--at Intellectual Ventures
we help and finance inventors to invent. This includes both full time
employees, as well as working with inventors who are university
professors, academic researchers, small businesses that cannot afford
to patent without help, as well as independent inventors. I meet
frequently with inventors from all ranks, and have attached a recent
speech on invention given at Princeton University. Our company provides
both business expertise and financing to these inventors, and provides
inventors with a healthy share of the profits in their inventions.
My business career as a corporate executive has focused on managing
innovation and using patents as a business asset. However, I am also an
inventor with 17 issued US patents. I'm working on increasing that
number; for the last couple years I have filed over a dozen patent
applications a year which are still pending in the Patent Office. So,
in addition to using patents in business, I am also a customer of the
Patent Office and have seen the details of the patent process up close.
Given my varied career, I have seen the patent system from the
perspectives of pure academic research, a giant technology company, and
finally that of a small business. Each perspective offers different
views on the patent system. The Subcommittee will hear from people in
many of these directly through the process of these hearings. What I
can offer is the views of someone who has experienced all of them.
PATENTS: PROTECTING INVENTIONS
The patent system is a fundamental foundation of America's
innovation based economy. Like any other part of the free enterprise
system, the patent system offers economic incentive by allowing private
ownership. In a way, this is no different than real estate, or other
private assets. Private ownership of valuable assets is the basis for
the American economy.
The process of invention requires large amounts of the inventor's
time, energy and money. In order to create incentive for that
expenditure, the inventor gets ownership in the invention for a limited
time, after which it passes into the public domain. This system has
been a primary driver behind the tide of innovation that has kept
America number one in the world for at least the last century. The
system that encouraged and sustained great inventors like Thomas
Edison, Alexander Graham Bell and the Wright brothers is a critical
component of America's 21st Century goals to lead the world in
computing, biotechnology, nanotechnology and dozens of other exciting
SMALL INVENTORS: AMERICA'S ECONOMIC ENGINE
The leading component of America's invention output is driven by
individual inventors, academic institutions, and small and medium
businesses. The Subcommittee has heard testimony from large technology
companies, and their trade associations. These firms are important
inventors, and they frequently lead the list in terms of sheer number
of patents. However what is much less well known is the substantial
role that the little guy plays.
According to US Patent Office records, 45% of American patent
holders are classified as ``small entities'' which includes small
businesses, universities and individuals.
This pattern is repeated if you look in particular technology
areas. I have done empirical research to understand the nature of the
invention process, and found some remarkable results. It is not
surprising that the entities that hold the most patents on computer
processors include corporations like Intel and IBM. However, if you add
them up, universities, individuals and small businesses in aggregate
have substantially more processor patents than Intel or IBM--indeed
more than the two combined. The same pattern is found in every
technology field where I have looked. Small inventors have more
operating system patents than Microsoft, more networking patents than
Cisco and more wireless patents than Qualcomm.
The typical pattern in a technology field is that the top company
(or even the sum of the top five or ten companies) has only a small
fraction of the patents in that field--often no more than 10% of the
patents. Most invention is not done by the largest companies in the
field. Invention occurs across the whole spectrum of the economy--from
technology giants all the way down to the lone inventor in the garage.
Those lone inventors aren't just working on low-tech areas--no matter
how technical a field, a huge number of patents are held by private
individuals. Critics of the patent system sometimes talk derisively
about the ``myth of the small inventor'', ignoring their contribution.
Well, I am here to tell you that small inventors are not only alive and
well, but they actually contribute more inventions than the biggest
I think that it is very important for the Subcommittee to
appreciate the role that small inventors play when considering reforms
to the patent system. This is because small inventors depend on the
patent system far more than big companies do. The patent system is the
only means for the small inventor to get a fair shake, and any
semblance of a level playing field.
A large company has financial resources that a small inventor can
only dream of. They also have the ability to extract value from their
patents a variety of ways. Indeed many large companies use their
patents only on a defensive basis--that is a polite way to say that
they use their patents to maintain their dominant market positions,
rather than actively use them as revenue generators in their own right.
PROTECTING THE SMALL INVENTOR'S RIGHTS
A small inventor, on the other hand, depends almost totally on the
patent system to secure his ownership rights in the invention. A small
change to patent law can, as an unintended consequence, have
catastrophic effects on a small inventor who depends totally on his or
her patent rights to survive. A small inventor does not have huge
market share and other business assets to fall back on. Worse yet, the
small inventor almost invariably winds up competing with large, well
funded companies that have every possible advantage. Only the patent
system stands tall as the protector of the basic rights of small
Changes to patent law must be scrutinized carefully to make sure
that they do not tilt the playing field in a way that further
disadvantages small inventors. They do the bulk of America's inventing
and they deserve our support.
PROPOSED PATENT REFORM
I applaud the Subcommittee for its interest in patent reform and I
have studied the Committee Print. There are a number of needed reforms
that I agree with. In the interests of being concise I will focus here
on the most important areas where I think your efforts can be improved,
at least from my perspective.
First, I have to be frank and say I am disappointed that there
isn't more focus on what I think is the most important aspect of patent
quality--namely improving the quality of the patent examination
process. Most of the committee print covers rules about patent
disputes, and does not address the issues with getting patents examined
in the first place. Patent quality starts in the Patent Office itself.
Anybody who is a big customer of the Patent Office, as I am, can
tell you that they need some help. The backlog of patents has grown
larger, and the waiting time to get a patent has grown with the
backlog. Longer waiting is not a recipe for success in a world where
the pace of technology is going faster, not slower. Looking ahead, the
Patent Office must continue to hire and train new examiners, and keep
up with the pace at which invention occurs. This job isn't getting any
easier. Many of the proposals in the committee print are likely to
increase the burden on the Patent Office. For example, the post-
issuance oppositions with discovery will add process and personnel
Simply put, the Patent Office needs adequate resources to do its
job. Until the Patent Office is funded adequately to meet the demand
for patents, America's inventors are going to be poorly served. I know
that funding is a major occupation of Congress, which cuts across many
issues including this one. However, without adequate resources, the
Patent Office will be stuck in a situation where patent fees continue
to rise, as they did last year, without the service improving. This
amounts to a hidden tax on innovation. Is that really what serves
America best as we enter the 21st Century?
In fairness, I can't complain about the resources without adding
that I think the Patent Office does a good job within the constraints
it has. Some critics of the patent system like to point to silly
sounding patents, like a recent case mentioned in the press of a patent
on a peanut butter and jelly sandwich. Or, critics will claim that the
patent system is ``out of control'' and argue that there are many bad
patents. These claims are misleading.
Though some bad patents are inevitable, the vast majority of all
patents are sound and valid. No serious observer of the patent system
has reached any other conclusion. As one example, when patents are re-
examined by the Patent Office, the majority of the patents survive all
or in part. This is also true in litigation results--there is no data
on patents being found invalid en masse in the courts.
It is true that there are also some pretty frivolous sounding
patents--indeed there are web sites that feature them, like
www.patentlysilly.com. Looking at such a site it becomes obvious that
the creativity of American inventors covers the full range from the
sublime to the ridiculous, but that can leave the wrong impression.
Most patents are both serious and valid.
Another area where misconceptions are bandied about is the topic of
patent litigation. In a perfect world, property rights would always be
respected, but here on Earth disputes are an inevitable reality. Many
critics of the patent system wax hyperbolically about an ``explosion''
or ``epidemic'' in patent litigation. While it is true patent
litigation has risen in recent years, these critics aren't telling the
whole story. For example, the number of patent lawsuits each year is
actually lower than the number of trademark lawsuits. Historically,
copyright lawsuits used to outnumber patent suits, but in the late
1990s patent suits pulled ahead. However, in the last five years,
copyright lawsuits have grown over twice as fast as patent suits and
are set to overtake patent lawsuits, probably this year. Patent
lawsuits are neither more common, nor are they growing faster, than any
other form of intellectual property litigation.
A more telling point is that the number of patents has also grown.
It makes sense that with more patents, and more patent holders, there
is more opportunity for them to get into disputes. If you divide the
growth in patent lawsuits by the growth in patents you find that on a
per patent basis there were fewer lawsuits in 2004 than there were in
1985. This is hardly the makings of an epidemic. Instead the growth of
patent lawsuits reflects the growth of the use of patents, and the
growth of technologically innovative companies that rely on patents.
Let me be clear that I agree it is a worthy goal to reduce patent
litigation. Litigation saps resources that small inventors could put
toward more productive pursuits, like new inventions. Reducing the
likelihood of litigation, with the attendant cost, complexity and
uncertainty is a worthy goal.
injunctive relief for patent infringement should not be reduced
As a result, I cannot agree with one of the most extreme features
of the Committee Print, regarding changes in permanent injunctions.
This feature will greatly increase the volume, cost and complexity of
patent litigation. It will also harm the small inventor.
The Committee Print changes the way permanent injunctions are
granted, reversing principles, practices and legal precedents that date
back to the very origin of the Patent Office. Patents are designed to
give ownership of inventions to the inventor for a limited period of
time. They are property rights. When a court finds that those rights
are infringed, and another party is determined to trespass upon those
rights, the court may decide to issue an injunction.
The Committee Print weakens and threatens to eliminate the
injunctive relief due to the patent holder. It introduces an untested
and potentially volatile new condition of ``irreparable harm'' into the
injunction process. To put this in perspective, the Committee Print
says, in effect, that it is okay to take the property of the patent
holder as long as it won't irreparably harm them. This is tantamount to
saying it is okay for a squatter to camp on your lawn as long as the
harm to you isn't ``irreparable''. This flies in the face of the most
concepts of property. Furthermore, the test of harm includes the extent
to which the patentee makes use of the invention.
The latter point is quite telling. This feature of the Committee
Print amounts to tilting the playing field toward large product
companies and away from the small business, university and independent
It is important to note that this proposal to curtail overall
injunctive relief for patent owners is not confined to preliminary
injunctions, which are an altogether different body of law. It makes
sense to consider issues like irreparable harm when considering whether
to take the extraordinary step of issuing an injunction before trial.
This is already common practice in many aspects of the law, including
patent law. No change needs to be made here.
The permanent injunctions remedies for patent owners that the
Committee Print threatens to minimize--and, in large part, eliminate--
are an entirely different animal than a preliminary injunction.
Permanent injunctions occur only after a court has fully tried the
case. In practice, this usually includes multiple rounds of appeal
which occur over many years, so it is not an emergency rush to
judgment. Before a permanent injunction is granted, the court will have
carefully and definitively answered the question of infringement. In
addition, current law and surrounding case law already give the court
leeway to decide whether an injunction is appropriate.
Given the protracted legal maneuvering that precedes them, it's not
like these injunctions sneak up on you. A defendant typically has many
years notice. That time can be used to design around the patent in
question. This is commonly done in the technology industry. A design-
around renders an injunction moot, because the products no longer
infringe. Innovative product companies frequently have the option to
avoid injunctions through engineering rather than legal proceedings.
Injunctions come down to an issue of property. The infringer will,
by definition, be found to have trespassed on the patent's holder's
property, and the injunction is the eviction notice. No other part of
property law holds that a lawful property owner must show that he or
she is ``irreparably harmed'' before they can evict a squatter or
What motivates this unprecedented taking of private property
rights? Proponents of this approach make several arguments, none of
which hold water on closer examination.
The first argument is based on a misconception that the patent
system exists to cut a special break for companies that manufacture
products. The fact is that the patent system exists to protect and
encourage inventions, not products.
Products are protected by ordinary commercial law, and the economic
incentive to create and sell products is immediate and obvious--the
profits that flow from product sales. In sharp contrast, there is no
economic incentive for an inventor if others can take and use his
invention without justice. The patent system exists to address this by
acknowledging the constitutionally guaranteed exclusive rights that
inventors have in their inventions. This ``exclusive right'' is
meaningless if in most circumstances inventors cannot have ownership in
their inventions, including the right to exclude others.
The public good served by the Patent Office is to stimulate
inventors to come up with new technology that can change our world, and
see it enter the public domain after a period of time. This point is so
important it bears repeating--the patent system exists to protect and
stimulate inventions, not products.
Discriminating against patent holders on the basis of whether or
not they produce a product disenfranchises some of America's most
creative and prolific inventors. This broad group includes: university
professors and research scientists, who often make great breakthroughs
without having the facilities or resources to manufacture the products
commercially; individual inventors who are in the same situation; and,
finally small businesses who may commercialize some of their inventions
but frequently invent more than they are able to productize
There is nothing dishonorable in an inventor licensing his or her
inventions to companies that are in a better position to commercialize
the technology. This time honored practice has been around as long as
the patent system has. Thomas Edison, Nicola Tesla and other great 19th
Century inventors all licensed their inventions out to companies to
The tradition continues to this day. If you use a digital cellular
phone, the chances are high that Qualcomm licensed its CDMA technology
to the cell phone's manufacturer. DVD players rely on video compression
patent technology licensed from a consortium of inventors ranging from
Sony to Columbia University, while licenses to patents on inventions
from Ray Dolby and his company increase our enjoyment of music. Within
the technology industry companies like IBM, Lucent, Texas Instruments,
Sony, Philips, Thomson and many others derive significant revenues from
patent licensing activities.
THE COMMITTEE PRINT INCREASES THE NUMBER, COMPLEXITY AND
EXPENSE OF LAWSUITS
A primary justification advanced for the injunction proposal is
that successful and innovative companies need this legislation to beat
back a rising tide of nuisance lawsuits originating from greedy trial
lawyers and unscrupulous patent holders. I can sympathize with this
because when I was Microsoft, I frequently had to deal with patent
lawsuits in my role as Chief Technology Officer. Microsoft has the
dubious distinction of having been named as a defendant in patent
lawsuits 52 times in the last five years, making it the second most
``popular'' defendant in the country.
So, while I can understand the frustration that my colleagues in
large technology companies have, the reality is that the impact of
these lawsuits is exaggerated. Some horror stories exist, but they are
rare. The magnitude of the supposed problem is not borne out by the
I was curious, so I did a study counting the total number of
lawsuits filed against technology companies by entities that do not
produce products. The total of all these lawsuits over the last five
years was just over 2% of all patent lawsuits. Furthermore, fully half
of those lawsuits are from one very litigious company. Those horror
stories aren't about an epidemic, or a situation that is out of
control--it is actually a very minor phenomenon. I also counted the
number of patent lawsuits in which a large technology company was the
plaintiff--the result is 1.6%. Large technology companies generate
nearly as many lawsuits as the entities that have no products.
These numbers put some perspective on the problem. On one hand, we
have the potential to harm tens of thousands of small inventors. On the
other hand we have the supposed benefit--to reduce the total number of
lawsuits by perhaps one percent. It seems clear that the cure is far
worse than the disease.
This is particularly true because the proposal in the Committee
Print won't decrease litigation at all. In fact, it will dramatically
increase the number of patent lawsuits, as well as their complexity and
cost. Ironically, this proposal, which is often described as being yet
another much needed and important reform against the excesses of trial
lawyers, is in fact the trial lawyers' full employment act.
First there is the volume of the lawsuits. Today, about 97% of the
patent lawsuits that are filed settle prior to a trial. The entire
viability of the court system depends on this high settlement rate.
Even a small change would overwhelm the courts with vastly more trials.
Yet under the proposal, large companies will have no reason to settle.
Their principal motive in settling a patent suit before trial is to
avoid the possibility of an injunction should the company be found to
be infringing, and to avoid enhanced damages should their unauthorized
use of property be found to be willful. Without these threats,
companies being sued will adopt the best strategy for their
shareholders: refuse to settle and use the advantage of their deep
pockets to drag lawsuits out to the bitter end, secure in the knowledge
that no injunction can get in their way.
The complexity of the litigation also increases substantially,
because now several new issues have been added to the already complex
decision making process of the courts. In addition to determining
infringement, the courts must also try an entirely different set of
facts. The Committee Print directs that the court ``shall consider and
weigh evidence that establishes or negates any equitable factor
relevant to a determination of the existence of irreparable harm,
including the extent to which the patentee makes use of the
In simple terms, this is a second lawsuit tacked onto the original
lawsuit, complicating the already difficult patent litigation with an
entirely new set of issues. Provisions like ``consider and weigh
evidence'' mean a whole new area for motions, discovery and argument in
court. As it stands, patent lawsuits can take five to seven years, and
in some cases even longer. This new process will add substantially to
This isn't the only new complexity thrown at the courts. By
reducing or eliminating the right to an injunction, the courts are for
the first time put in the position of determining the terms and
conditions under which technology is licensed on a broad scale. Instead
of the marketplace, courts will now be the primary determinant of
This also greatly adds to the complexity of the litigation. Under
current patent law, the court may determine damages for past usage, but
the court explicitly does not interfere in the market for future use of
the patents. Instead, the court determines whether the property of the
patent holder is being used--if it is, then the court issues an
injunction and the two parties must work out for themselves what to do.
In many cases there is no future use, because the infringer will use
the many years that it took for the case to wind its way through the
courts to redesign their product. In other cases the infringer and
patent holder decide to settle based on their unfettered negotiations,
which take into account the full panoply of market factors and
competitive alternatives available in the modern economy.
Instead, under the proposal in the Committee Print, the court would
have to set future licensing terms. Economists have a name for this
scheme--it is called compulsory licensing. Numerous studies have shown
that it is a poor way to run a patent system. It is also out of keeping
with the key principles of the American economy and Constitution of the
The decision-making process inherent in this huge new
responsibility will weigh heavily on the courts. Current courts already
expend a lot of time and energy determining past damages. Adding the
future, which might stretch for a decade or more depending on the life
of the patents, greatly raises the stakes. Higher stakes generally
means more arguing on yet another issue--what should the future damages
be? One thing seems certain: this proposal would be a boon for expert
witnesses and the trial lawyers who deploy them.
Some critics of the patent system ask ``why aren't monetary damages
enough? Why are injunctions needed?'' There are several answers.
Corporations fear injunctions, and that's what brings them to the
settlement table, yielding a 97% settlement rate. Determining
commercial use and setting license fees will greatly complicate the
litigation process. But perhaps the most important reason is that this
compulsory licensing proposal will inject court mandated control over
future licensing rather than allowing the parties to work out a market-
THE PROPOSED CHANGES WOULD GUT PROTECTION FOR
The injunction proposal is the topic in the Committee Print that I
feel most strongly about. However, there are several other areas that
deserve some comment. The Committee Print has an innocuous-seeming
amendment to Section 271(f) of title 35 in the patent code.
Unfortunately, this amendment would dramatically strip the rights of
patent holders and would deal a serious blow to small inventors working
in what is otherwise one of the most exciting and dynamic areas of the
Section 271(f) is in plain terms a law designed to prevent patent
holders from being cheated by unscrupulous exporters. Patent law holds
that export of a patented invention outside the United States is a use
of the invention, just as much as sale inside the country would be.
Both export and domestic sale are on the same basis. Section 271(f) was
intended to close a loophole and prevent a company from exporting
components rather than an entire invention. It has worked well in that
purpose and substantial case law has developed around it.
Incredibly, the amendment proposed in the Committee Print creates a
gaping loophole for software, or any invention that includes software.
It requires that any ``component'' under 271(f) be a tangible item--
thus exempting software altogether. It additionally requires that the
tangible item ``is itself combined physically with other components to
create the combination that is alleged to infringe''.
Translating this to plain English, it means that a software company
could exploit the loophole created by this provision to export software
without it counting as an export. Software would not qualify as a
``tangible item'', particularly if it was exported by transmission over
the Internet or another computer network which these days is the
dominant way software is shipped and sold. Software composed of
multiple software components--as virtually all software is these days--
would also not count. Most software companies have the majority of
their revenue come from outside the US, so this provision would at a
single stroke cut the licensing revenues due a valid software patent
holder by a factor of two or more.
Software is not the only beneficiary of the loophole created by
this provision. Any invention that combines software and hardware could
also be able to use the loophole by simply exporting the hardware
physically, then downloading software to it. Literally millions of
inventions, ranging from aircraft navigation systems to videogames and
toys would suddenly have their exports made immune from justice.
What justification can there be to strip America's inventors of the
revenue from these exports? It is hard for me to imagine how, at the
onset of the 21st Century, anyone could pretend that only ``tangible
items'' have value when the Internet has become a ubiquitous channel
for commerce, and software is a multi-hundred billion dollar market.
THE PROPOSED CHANGES WOULD REWARD WILLFUL PATENT INFRINGERS
The topic of willful infringement is clearly an area of patent law
where reform is needed. The current willfulness standard should be
clearly reviewed. However, I cannot support the Committee Print which
goes too far in reducing the conditions under which a company can be
found liable for willfulness.
Note that willfulness goes hand in hand with the injunction issue.
If large corporations know that they don't have to worry either about
an injunction or about an increased financial penalty due to a finding
of willfulness, then they can infringe at will. At worst, a court will
make them pay a license fee, but even that is not certain because the
court might not make such a finding. Even if a court eventually rules
against them, the infringer can delay for many years. The best strategy
for a large company is simply to infringe widely, and refuse any
negotiation with the patent holder.
This creates an incentive for exactly the kind of behavior the
patent system is supposed to oppose. This is another example of a
reform that, as an unintended consequence, would increase the volume of
patent litigation by motivating companies to infringe. Small inventors
would be adversely affected because their only means to bring such
deliberate infringers to heel is to resort to expensive litigation they
can ill afford.
POST-GRANT OPPOSITION PROCEDURE WILL REQUIRE GREATER
PATENT OFFICE RESOURCES
Post-grant opposition to a patent is a concept that has been
proposed in various forms for many years. The value of post-grant
opposition is that it gives the marketplace the opportunity to be heard
and to help the Patent Office. However, this is appropriate only if
done for a limited time after issuance, with a strict time limit on the
opposition proceedings, and with conditions that would prevent it from
being used to manipulate the system. Otherwise this would become yet
another protracted and expensive dispute mechanism which would
disadvantage small inventors. It could also be yet another full
employment act for lawyers. The Committee Print proposes a nine month
limit from time of patent issuance. This is a reasonable compromise.
However, I would caution the Subcommittee that any post-grant
opposition of this sort will greatly increase the workload for the
Patent Office, and will therefore require additional resources. It does
not seem reasonable to ask the Patent Office to take on additional
duties knowing that they lack the necessary financial resources to do
so. Frankly, the Patent Office backlog is too long as it is, and if
post-grant opposition takes resources away to make the backlog worse,
this would be a net negative for the patent system. Indeed, improving
the patent examination process by giving the Patent Office adequate
resources would do more for patent quality than post-grant oppositions
would, and would reduce the need for them.
THE PROPOSED RESTRICTIONS ON CONTINUATION APPLICATIONS
SHOULD BE RECONSIDERED
The filing of continuations to a patent application is a
longstanding and valuable mechanism which has great merit in the patent
system. Small inventors (and many large inventors) often use
continuations because they cannot afford to put all of their ideas into
their first patent on an invention. So, they describe the invention via
the patent specification, and make their initial set of claims. Later,
they can file a continuation which draws new claims, but only within
the boundaries of the original specification. This is a well-
established practice that has developed a clear body of case law around
it, and has the important feature that small inventors can devote their
scarce resources to protecting specific inventions first (e.g., the
core invention of a start-up company) while pursuing protection for the
broader concepts in a continuation application. It therefore rewards
both early innovation and ongoing creative invention
The Committee Print seeks to place new conditions on the filing of
continuations. However, the terminology used in the Committee Print
removes an important inventor's right by requiring that patent claims
in continuations cannot be ``broader in scope than the broadest claim''
in the original case the continuation stems from.
Limiting continuation applications in this manner would unfairly
bias the patent system against the small inventor, and would result in
many legitimate inventions going unprotected by the patent laws,
resulting in decreased innovation due to removal of this protection.
Moreover, this odd provision seems intended to solve a problem that
no longer exists, namely the former situation where a U.S. patent
expired 17 years after its issue date, which encouraged certain
irresponsible patentees to drag the patent procedure out for decades,
obtaining a new 17-year term for each issuing patent. This scheme has
been eliminated by the adoption in the U.S. of a patent term of 20
years from the filing date, which is the international standard.
In addition, the practice of reissue applications already
incorporates a requirement that no broadening claims can be pursued
more than two years after a patent issues. The Committee Print would
create a conflict in the law by preventing a patent applicant from
pursuing broader claims in a continuation application, even though he
or she would be allowed to pursue a broader claim in a reissue of the
parent patent, even at a later date.
This provision is thus both unnecessary and in conflict with other
portions of the patent law, and would cause many properly patentable
inventions to go unprotected, stifling innovation by encouraging
companies to copy rather than invent.
PATENT QUALITY: IN EVERYONE'S BEST INTEREST
Lest it seem that I am unduly negative on the Committee Print, I
hasten to add that there are many features that I think are positive
moves which will strengthen the patent system. This includes reform to
the concept of ``best mode'' implementation. I appreciate the Committee
Print proposal to limit rampant assertions of inequitable conduct, the
growth of which has been referred to recently as a ``virtual plague.''
Of course, I would encourage the Subcommittee to consider carefully the
actual implementation to insure that it cannot be manipulated for delay
Another benefit is increased transparency through the publication
of all patent applications is another important reform. These are
important contributions which will strengthen the patent system for all
An area of particular importance is the harmonization of U.S.
patent law with international patent law. This is critical for
promoting American exports, and aids small inventors who lack the
resources to cope with inconsistent international requirements on their
Since the 19th Century America has been the guiding beacon of
invention for the world. Thomas Edison's light bulb was a tangible
symbol of that beacon, and since his day, millions of other American
inventions have followed in his path. Patents are the legal construct
that breathe economic life into those inventions by giving their
inventors a property interest in them. The resulting economic incentive
helps inventors spend their time, energy and money in the difficult
task of wresting secrets from nature and harnessing them into new
technology. America, with its patent system, has been unchallenged as
the invention capital of the world, and we have benefited enormously
from this legacy.
As we enter the 21st Century, our traditional economy is beset by
many challenges. International competitors such as China have already
learned how to manufacture goods at low cost, and are becoming more
technologically sophisticated with each passing day. As it stands, it
is becoming ever rarer for an American company that ``makes'' products
to actually do the manufacturing. Instead they design products that are
built by others, often outsourced overseas. What is the difference
between that, and an inventor who licenses his patents? It seems to me
to be very poor timing to disadvantage small inventors in favor of
large product companies, right at the stage when the real product
building is moving overseas. The future of America is more strongly
tied to invention than at any time in our past. We must support our
inventors, including those that are in universities and small
businesses, and plucky individuals working on their own.
The barriers to entry around the world are collapsing. Tom
Friedman, a columnist for the New York Times, and a close observer of
globalization likes to say that the world is becoming flat. If America
wants to remain competitive, we must play to our strengths and remain
the world's leading innovators and inventors. The patent system is the
bedrock on which this is founded. I want to thank the Subcommittee for
their work to keep the patent system, and by extension America,
competitive in this vital area.
Mr. Smith. Thank you, Dr. Myhrvold.
TESTIMONY OF DARIN BARTHOLOMEW, SENIOR ATTORNEY, PATENT
DEPARTMENT, JOHN DEERE & COMPANY, ON BEHALF OF THE FINANCIAL
Mr. Bartholomew. Thank you, Chairman Smith, Ranking Member
Berman, and Members of the Subcommittee. My name is Darin
Bartholomew. I am senior counsel for Deere & Company, where I
focus on intellectual property and technology matters. I am
pleased to testify today on behalf of John Deere Credit, the
Financial Services Roundtable, and BITS.
The Financial Services Roundtable and BITS are financial
services trade associations that represent some of the largest
financial institutions in the country, including banks, broker-
dealers, and other financial institutions. John Deere Credit is
one of the largest equipment finance companies in the United
States and is proud to be a member of the Financial Services
Roundtable. We agree with many of the concepts which you
include in the Committee Print and we appreciate the
opportunity to provide you and other Members of the Committee
Today, over 800,000 applications are pending in the PTO and
examiners are unable to spend enough time to provide a
meaningful examination on complex applications. This is
particularly true in the area of business method and financial
services patents. After the landmark decision in State Street
Bank & Trust Company in 1998, the number of pending patent
applications that involve financial services and business
methods have surged greatly. Because it typically takes more
than 3 years to get allowance of these applications, we are
faced with an avalanche of increased litigation risks for the
financial services industry.
There are steps that Congress can take to provide
protection against frivolous claims without impairing the
important protections afforded by intellectual property rights.
The main areas are creating an opposition proceeding, modifying
the standard for injunctive relief, improving the prior-user
rights defense, clarifying the damage rules, and promoting
The Committee Print on opposition proceedings does not
include a window for initiation of an opposition proceeding
upon the threat of patent infringement. However, we believe
that this is essential to improve the quality of patents issued
in the U.S. Organizations will not likely expend the resources
necessary to monitor patents in a 9-month post-grant window.
There is no tangible economic return for challenging patents
unless there is a threatened infringement or requirement to
license the application.
We believe that the 4-month window for launching an
opposition after a threat of patent infringement would foster a
more detailed scrutiny of patents than ordinarily occurs during
a typical examination in which an examiner expends about 25
hours or less. This would create an efficient two-level
examination regime within the U.S. for patents that are
asserted. Patents that are asserted represent less than 2
percent of issued patents, approximately 2,500 patents a year.
That would be a low administrative burden on the PTO to conduct
an opposition proceeding for patents prior to their assertion.
In the Committee Print, secrecy of the opposer was one of the
topics that is necessary to prevent retaliatory oppositions or
opposition wars between competitors. We felt that the
preponderance of the evidence standard proposed would provide
an incentive to use opposition proceedings instead of filing a
Turning to the area of injunctive relief, in the U.K.
injunctive relief is permitted anytime after expiration of 3
years from the date of the grant of the patent. This would
provide a strong incentive for actually using inventive ideas
instead of letting them sit on the shelf, and inventors would
be allowed to license to others to achieve and satisfy the
working requirements, which would meet the requirements of
With respect to business method patents, business method
patents have proved difficult to define in practice and are not
defined anywhere in the Patent Act. That's why we favor the
Committee Print that would expand the prior-right user defense
to all methods and to apparatus and systems. In addition, we
feel that the defense should be extended to cover other matters
so that we can achieve a standard in which the preponderance of
evidence is used to invalidate business method patents.
In clarifying the damage rules, we agree with the Committee
Print, but we have some modifications to refine language. These
modifications involve clarifying the level of knowledge that it
takes to prevent increased damage awards. We are in agreement
with the codification of this decision, in that the absence of
an opinion of counsel does not create an inference of willful
infringement, in concurrence with the recent Knorr-Bremse
With respect to the promotion of collaborative research,
the current novelty provision in the law includes a public use
provision as a novelty-barring event, and the U.K. and Europe
both include language that prior art must be publicly available
in their statutory provisions. Accordingly, we think that it is
appropriate to include a reference to ``public'' or ``publicly
available'' in the current statute. The presence of the word
``public'' supports the use of confidentiality agreements to
conduct collaborative research between organizations, and the
absence of ``publicly available'' would potentially lead to the
creation of a class of secret prior art that is disfavored by
the Federal Circuit and Congress.
We look forward to providing additional detail and working
with the Subcommittee to refine these concepts.
[The prepared statement of Mr. Bartholomew follows:]
Prepared Statement of Darin Bartholomew
Mr. Smith. Thank you, Mr. Bartholomew.
Director Dudas, in Dr. Myhrvold's written testimony, he
said his number one concern was patent quality, specifically
the PTO. And President Levin in his written testimony mentioned
a couple of things, that the number of patent examiners was not
keeping pace with the workload, that the U.S. seemed to be
approving patents at a higher percentage than other countries,
and he was concerned about the increasing dilution of the
nonobvious standard--all of which might be taken to point to
weaknesses in the Patent and Trademark Office.
In your statement a few minutes ago, you mentioned all the
reforms that you were undertaking or planned to undertake. Do
you really think you have the resources you need to accomplish
the goals, and if not, how do you propose getting those
Mr. Dudas. Thank you for that question. We also believe
that patent quality is by far the number one most important
goal. We also recognize that our office has broken records in
the number of applications we've received at the USPTO for each
of the last 20 years. We've recognized that the number of
examiners we've hired has not kept pace with that number of
One of the most important things we can do is, under the
strategic plan we put together 37 initiatives, and we basically
looked at our processes in a brand-new way. We looked at
quality from top-to-bottom. We used to measure quality in terms
of the very end of the process: should this patent have issued
or shouldn't this patent have issued. We now look at the
process in a broken-down manner. We have better ability to
train, we have better ability to find out specifically, down to
the art unit, down to the examiner, down to the director level
what issues we have with quality.
The issue--the question you have about resources, we have a
short-term solution in that the fees that passed will help us
hire a good number of examiners over the next number of years.
We'll always need--I can say that in the near future we will
always, always need examiners to examine patent applications.
But we need to find something more than just hiring additional
people because we have found that through the 1990's there are
times when you simply cannot keep up with the demand. You can't
find the number of people. I don't think we're at that place
right now, but I do think we have to find other ways.
One of the things that we had proposed is looking at
potential ways of competitively sourcing tasks. Other ways go
directly to the heart of what I mentioned earlier about
application quality. Our system prides itself on giving vast
flexibilities. We should continue to give flexibilities, but at
a time when we need to consider resources, we might have to
consider which flexibilities are necessary and which are simply
beneficial or desirable.
Mr. Smith. Okay. Let us know how we can help.
Mr. Dudas. Absolutely.
Mr. Smith. President Levin, I was going to go back to the
nonobvious standard. How can we ensure that courts, if they
are, don't continue to dilute the nonobvious standard; and is
one solution perhaps changing the language in section 103 of
the Patent Act, or is there a way to achieve the goal without
changing the language? Or what would you recommend?
Mr. Levin. Our committee debated this question of changing
103 quite extensively, and the majority concluded that we need
not do that. And we did not recommend it. There was a minority
of the committee, however, who felt that some toughening of the
statutory language would be useful, something like introducing
explicit language about an inventive step, such as they have in
However, we really did converge on the idea that a post-
grant review process would in many respects do the work of a
stronger standard. Many of the weak patents that are out there
are ultimately overturned by the courts applying the
nonobviousness standard. But so many of them get through,
particularly in these new areas of technology--genomics when it
first came in, and business methods when they first started to
get patented. And you have a period of years where the
presumption is to grant the patent and there's not enough
check. It takes years for the courts to check on the validity,
but if you had a post-grant review process it would get checked
much more quickly and the standards governing the PTO examiners
would be clarified. That would be the most important way to
improve patent quality.
Mr. Smith. That would have the impact that you desire.
Mr. Levin. I think the desired impact. And I think Mr.--
agrees with that.
Mr. Smith. Okay, thanks. One more question, President
Levin. I've read that the willful violation is charged in more
than 90 percent of all patent suits. What changes do you think
need to be made to reduce the number or make it harder to prove
Mr. Levin. It's just the standard practice, you know. The
plaintiff charges willful infringement and the defendant
counterclaims, you know, inequitable conduct. It happens in
most cases. That's why we think both these documents need to be
modified or abolished. The Committee's codification of making
it unnecessary to rely on exculpatory opinions is helpful, but
frankly, I think a majority of our committee believed that
simply eliminating treble damages for willful infringement
would be the right answer, which effectively eliminates the
It's a subjective determination, ultimately, what is
willfulness. And your--the draft bill actually introduces
another area of subjectivity, I think inadvertently, by talking
about this, you know, way out of a charge of willful
infringement by saying that a defendant might have an informed
good-faith belief that a court would hold a patent invalid.
Well, how are you going to determine that? That's just ripe for
asking for lots of discovery and lots of opinion and trying to
determine what somebody thought at some prior time. This is
just the sort of thing we're trying to avoid in eliminating
best mode, in eliminating first to invent, in eliminating
Mr. Smith. Okay, thank you. And without objection, I'm
going to yield myself an additional minute, realizing I'm
setting a precedent for other Members here as well.
Dr. Myhrvold, you do not want us to change the way
injunctions are granted. In that case, what do we do about the
shakedown lawsuits that seem to terrorize some people?
Mr. Myhrvold. Well, it's a very difficult issue. And of
course it's always easier to criticize a concrete thing than to
come up with something new, and that's why the committee has a
hard task here. When I was at Microsoft, the nuisance patent
lawsuits would come to the chief technology officer. So I
handled plenty of those. I think we're one of the most popular,
if that's the right term, defendants for that reason. So I have
great sympathy with reducing nuisance lawsuits. I don't have a
single magic formula, however, that says this is exactly how to
do it, and I wish I did.
Mr. Smith. Okay. Does anyone else have a solution for this
type lawsuits that we're talking about?
Mr. Smith. Good. Maybe it's up to us to decide. I don't
Yes, Mr. Bartholomew, do you have a----
Mr. Bartholomew. Yes. I think one of the things that we
could do to accommodate the small entities in this case is to
define the working, if you will, that occurs under that
injunctive relief standard to allow small entities to license
to others who make, sell, or use the inventions, and that it
might also be possible to agree on some other type of exemption
for small entities in the case of this requirement. The problem
with giving an exemption to small entities is that some LLC and
other small companies are set up expressly for the purpose of
asserting patents against larger companies, and that would
prove to be a difficult exception to get buy-off on.
Mr. Smith. Okay, thank you, Mr. Bartholomew.
Mr. Dudas. I'm sorry, I----
Mr. Smith. Director Dudas, if you will briefly give us a
Mr. Dudas. Very briefly. I'm probably testifying more as a
former staffer of this Subcommittee and Committee. But I would
commend your attention to, if litigation is the problem, to
look at litigation systems management reforms, et cetera--
loser-pays rules types of things.
Mr. Smith. Okay, that might be helpful. Thank you.
The gentleman from California, Mr. Berman, is recognized
for his questions.
Mr. Berman. And litigation reform in an area that is
Federal law would be very unique for the Judiciary Committee in
the House. We like to just do litigation reform on the things
that are in State courts. [Laughter.]
The injunction issue is very interesting. Dr. Myhrvold, I
had a chance to sit through a withering attack by one of your
employees on this portion of the bill. And perhaps--I have
actually now read these two, the existing law and our
provision, as opposed to just sort of dealing with this very
conceptually, and it seems to me there is a middle ground here
somewhere. There are two classic sort of positions. One is, a
guy has the patent, no one else should be able to do anything
with it unless it is with his permission. The other side of the
coin is you hear stories of some little portion of a very
expensive product for which there was a huge amount invested
and a tremendous amount of expense, and it is a very small part
of the final product. And apparently the way the law is
interpreted, and I can see why given the way the existing law
reads, it is only about preventing violations of a right
secured by a patent. Yes, the courts have discretion now, but
the only factor they really look at is whether the injunction
should issue to prevent the violation of any right secured by a
patent--the exclusivity issue. It tilts on that side.
I look at the language of the Committee Print and it seems
to tilt against really getting injunctions. You have to show
irreparable injury and--isn't there some way to deal with this
problem of essentially giving the holder of a patent a level of
leverage that really isn't equitable or sensible or in the
public interest and at the same time maintain some concept of
exclusivity for the patent holder in normal situations? I mean,
isn't there some way to bridge existing law and the Committee
Print on this that can create a dynamic where this doesn't
become an issue that bogs this bill down?
Mr. Myhrvold. You know, the tricky thing here is you're
balancing two sets of rights, you know, the rights of the
patent holder and the rights of everybody else, someone who's
claimed to be an infringer. One of the ways our court system
works is by balancing those rights. Today one form of this is
that 97 percent of all patent lawsuits settle before trial. And
they settle before trial because----
Mr. Berman. Because of a fear of an injunction.
Mr. Myhrvold. And so, in fact, the tricky thing is if you
reduce the likelihood of injunctions, what you wind up doing
potentially is doubling or tripling the number of patent
Mr. Berman. That is one way to look at it. Another way to
look at it is you enhance the value that the settlement has
some relationship to the damage, as opposed to the--I will be
careful not to get too literal here--but to the extraordinary
power that the guy who is likely to get the injunction has in
negotiating a settlement.
Mr. Myhrvold. One comment I'd make, then, is that a lot of
these issues are about war stories. You know, you've got the
little-inventor war story--little guy is disadvantaged by the
big company--and you have the big-company war story about the
nuisance lawsuits. It would be very interesting to have a real
statistical study and say, well, how often do these things come
up? How often is it that a tiny part of a big product, as you
said, does actually go all the way to trial and doesn't settle?
Mr. Berman. And it could be--but--well, but in the end, the
language I see in section 283 on injunctions certainly doesn't
take that situation into account. Which is why I think there is
an interesting--including the summary--a vision of this in the
Anyway, I don't know, President Levin, if you have----
Mr. Levin. Well, our committee didn't look at this, but I
think you're conceptually right. There would be a middle ground
that referenced a balancing of the rights of both sides. This
only talks about balance--it talks about balance, but it talks
about--or principles of equity to prevent the violation of a
right secured by a patent. If you want to go in between, you
could talk about balancing the rights of the patent holder and
the accused infringer.
Mr. Berman. Right. Let me try and get my additional minute.
Mr. Smith. Without objection, the gentleman is recognized
for an additional 2 minutes.
Mr. Berman. Oh. Great. Yes. Does this expand geometrically
or mathematically? [Laughter.]
Mr. Smith. It is not going to escalate more.
Mr. Berman. Let me turn to another issue. The publication--
I am thinking now in terms of our Committee Print. I like the
idea of publication after 18 months. I particularly like it
because I would like to see, I think, some ability for third
parties to provide prior art going in and obviously publication
is essential to providing prior art. But that causes some
problems. We have had that drill before.
The other issue, though, is first-to-file versus first-to-
invent. I understand changing it to first-to-file in terms of
harmonization, and there is a certain conceptual attractiveness
in saying, hey, if you are going to invent and you want to be
protected, go file it. But aren't you, when we do that,
creating a huge advantage for the big guy who can quickly hire
the lawyer and has him on staff and get the thing, and the
small inventor is trying to raise the money with his new
invention to put together the patent application and get it in?
We are going to get opposition on both of these from certain
folks. I am just wondering, isn't 18 months the more important
principle to establish here? And both of them are harmonization
issues, I guess, but--and aren't there some meritorious
arguments against going to first-to-file?
Mr. Levin. Let me take the 18 months first. I think we know
that the sky won't fall if we impose an 18-month requirement
because we've already imposed it on anyone who wants to take a
patent in another national jurisdiction. So all this bill would
do and what our committee recommends is extend that to people
who, by current law, can exempt themselves from that
requirement by promising only to file in the United States.
There's no logic behind that. And we know that it's workable to
have publication at 18 months and for the very reasons you
say--it gets the information out into the public domain and
allows challenges for prior art and also informs the people
working in related areas of technology as to what patent claims
are ahead of it in the queue. So it's a good thing to change
the 18-month requirement. It's not a full substitute for
switching to a first-to-file regime.
Mr. Berman. No.
Mr. Levin. The advantages of a first-to-file regime, in
addition to just the principle of harmonization, are the fact
that you avoid all the costly determination when there are
disputes about who was first. In one case, it's purely
objective who got to the Office first; in the other, first-to-
invent, what was in the mind of the inventor at what time--it
takes a lot of discovery and a lot of sorting through the
evidence. And here's the crux of it. There have been careful
statistical studies of this phenomenon. And what we find is
small inventors are not disadvantaged by the first-to-file.
That is to say, in the case of disputes that are--where there
are priority disputes, the first to file, according to Gerry
Mossinghoff's work, wins something like 93 or 97 percent of the
time. The exact number is in my testimony. And in fact, if
anything, the conclusions of Former Commissioner Mossinghoff
and of Mark Lemley, a lawyer at the University of California,
Berkeley, are that the evidence suggests that the current
situation actually slightly disadvantages small inventors who
don't have the capacity or resources to fight out the arguments
about, you know, who was first in the expensive way that it has
to be fought out today.
So first-to-file, in our view, would not favor the big
guys. It would just be a simpler, more efficient way to resolve
disputes about priority.
Mr. Berman. I agree.
Mr. Smith. Thank you, Mr. Berman. The gentleman from
Virginia, Mr. Goodlatte, is recognized for his questions.
Mr. Goodlatte. Well, thank you, Mr. Chairman, and thank you
for these continuing hearings on this legislation, which I
think everybody here on the Committee that is here today is
very, very interested in and we applaud you for your leadership
on it. And I want to welcome all these panel members,
particularly Secretary Dudas.
Mr. Secretary, I wonder if you could comment on whether or
not a post-grant opposition proceeding would help ensure the
quality of patents.
Mr. Dudas. I think a post-grant opposition proceeding would
go a great length to ensure quality of patent applications.
What you hear today is people find that reexamination is too
limited. It is too limited. Litigation is considered too
costly, too lengthy, too uncertain. Post-grant opposition
allows you to go before the Office. You have the expertise
there. It's something that's been in our Strategic Plan for
almost 3 years now and has been widely accepted in the studies
that have been done and the private-sector industry groups as
well. I think post-grant opposition is probably the most
important element for increasing quality for the system as a
Mr. Goodlatte. Mr. Myhrvold mentions in his testimony the
problems that patent backlogs cost for inventors. I am
wondering if, again, you would comment on this. How would this
post-grant opposition proposal impact patent pendency? How
could Congress help minimize the effect that proceeding might
have on patent pendency, if you are going to tell me that it
could slow it down?
Mr. Dudas. It wouldn't naturally slow it down. It could
possibly slow down production because of the resources we put
into that. The most important thing at that point, as we've
said in our Strategic Plan all along, is for any new
initiatives that we have in place, we will need to be able to
have appropriate funding to go along with that. But there's not
a natural policy reason why it would slow down pendency within
Mr. Goodlatte. So you wouldn't predict that simply
implementing that policy would have a resultant drag on the
productivity of your Agency?
Mr. Dudas. Not if it came with resources to fund it, that's
Mr. Levin. May I add an observation?
Mr. Goodlatte. Sure.
Mr. Levin. It might actually speed up pendency, because by
clarifying standards in emerging areas of technology might make
the examination process more efficient for patents behind in
Mr. Goodlatte. Very good.
Dr. Myhrvold, you mentioned some criticisms of the bill in
your testimony. How would the Committee Print help small
Mr. Myhrvold. Well, it--you know, there's a variety of
things in the Committee Print that I think are helpful to any
patent holder. I'm hard-pressed to think of any that help small
business particularly, but that's okay.
Mr. Goodlatte. No, if they are helped along with everybody
else, that is fine, but how--which ideas in this Committee
Print would you identify as helpful to small business?
Mr. Myhrvold. It's a little easier for me to identify the
ones that would be hurtful, sir.
Mr. Goodlatte. I know. That is why I want you to tell us
what would be helpful.
Mr. Myhrvold. Well, you know, I've seen the studies that my
colleague here referred to about first to file and so forth. It
generates lots of heat and passion in people, but I think is
actually probably better for folks to have it the way the
Committee Print does. I think this inequitable conduct thing
definitely needs to be reformed, and that's helpful to
everyone. Best mode is another thing, where--all of these
subjective areas, as this NRC committee found, only make it
harmful for everybody. So I think all of those are potentially
very, very good for every patent holder. I don't know of
anything in the bill that specifically something that
advantages small patent holders over anyone else. But patent
quality does help everyone.
Mr. Goodlatte. Anybody else want to address that?
Mr. Goodlatte. Okay, I have another one for you, Dr.
Myhrvold. How would the proposals in the Committee Print, or
would the proposals in the Committee Print increase or decrease
abuses in patent litigation?
Mr. Myhrvold. Well, I think the overall volume of
litigation would go up if this injunction feature were
implemented. And I'll explain briefly why. The first, as I
previously said, 97 percent of the cases settle. They settle
because the parties have a motive to settle. If in fact there's
no injunction at the end, then at least for that fraction of
cases where it seems unlikely, a large corporate litigant has
every interest in the world to keep the litigation going. So if
97 percent goes to 94 percent, that doubles the number of
suits. So it doesn't have to happen very often to have a big
In addition, there's two big additional responsibilities
heaped on the court here. The first is the determination of is
it irreparable harm, is it not; who's commercializing, who
isn't commercializing? The bill says, you know, ``shall duly
consider all evidence.'' Well, that means motions and discovery
and testimony, and it's a lawsuit tacked onto a lawsuit.
The third area is actually the most concern to me because,
if there is no injunction, that means the court must determine
the license terms and business model for all future use. Today
the court doesn't do that. That's another that's going to have
an enormous amount of testimony, litigation, and expert
witnesses associated with it.
Mr. Goodlatte. Anybody else want to address that point? Mr.
Mr. Smith. The gentleman is recognized for an additional
Mr. Goodlatte. I thank the Chairman.
Mr. Bartholomew. The injunctive requirement as it was
proposed in the Committee Print does not abolish the right to
injunctive relief. And as we interpret it, it primarily applies
to a permanent injunction rather than a preliminary injunction.
First of all, the injunctive relief is definitely available
where working occurs, that is, where the patentee makes use of
his invention. And we would favor extending that to allowing
the patentee, such as a small entity, to be able to--or any
entity, for that matter, to be able to work the invention
through licensing to others that may have manufacturing
capacity or other expertise that the small entity does not
Further, in looking at the language of the Committee Print,
it looks like that a totality of the circumstances test may
apply to considering the working requirement. That is, the
working requirement might be one factor in the overall
determination on whether to grant or deny injunctive relief,
but that other factors that relate to determining whether there
is harm would also apply.
Mr. Goodlatte. Thank you, Mr. Chairman.
Mr. Smith. Thank you, Mr. Goodlatte.
The gentlewoman from California, Ms. Lofgren, is recognized
for her questions.
Ms. Lofgren. Thank you, Mr. Chairman. And thanks to all the
panelists for your thoughtful testimony and also the more
expansive written testimony.
This is, for me, a great process because we are hearing a
series of knowledgeable people. And I think the Chairman has
made clear, we have a working draft. It doesn't have anyone's
name on it yet because we want to invite suggestions and end up
with the best product that really supports innovation and is
fair. So that is the spirit that I am going into this inquiry,
and your comments help a great deal.
Dr. Levin, your comment regarding the reasonable belief
issue, all of a sudden I realized I think you are right on
that. That is just going to invite a lot more litigation. I
personally think that is a very helpful observation.
Dr. Myhrvold, your comments and testimony, because it is
somewhat at odds with the rest of the panelists, does draw
attention. In your written testimony, on page 11, you talk and
draw our attention to what you describe as a gaping loophole
for software on 271(f). Can you expound on what your concern is
Mr. Myhrvold. Okay. Section 271(f) of the law covers what--
basically; I'm going to simplify it because both I'm not a
lawyer and we want to treat this at a high level. It covers
infringement on exports. If you have a patent, you're owed a
royalty, it's considered an infringement, you're owed a royalty
on both sales in the U.S. and exports. 271(f) covers what
happens--a definition of this export thing, broadly. And the
Committee Print introduces a very short amendment. It says a
component, under this term, shall be a tangible item, and it
shall be combined with other components. Now, what that means
is that any intangible thing is now not considered an
infringement for export under 271(f). Practically speaking,
what this means is all export of all software products would
not be covered.
So that means if you're a valid patent holder, you have a
royalty agreement with a software company, you wouldn't get
paid for all their exports, which for most software companies
in the United States is more than half their income. Not just
software. Actually, because it says ``tangible item,'' anything
involving Internet protocols or any other sort of tangible
purely electronic commerce, or an invention that has as a piece
of it--you know, an airplane navigation system, including the
airplane, but if the software was downloaded across the
Internet, then it wouldn't apply.
And so my issue here is we can't define the only valuable
items as tangible.
Ms. Lofgren. President Levin or other panelists, do you
concur or do you disagree with that?
Mr. Levin. I really hadn't focused on this provision and it
wasn't something we covered in our report, so I would leave it
to others to determine.
Mr. Dudas. This is something that we were looking at. I
can't give you a firm position. I can tell you it's also
something that's being reviewed in the courts and that's one of
the things we're looking at.
Ms. Lofgren. I wonder if it would be fair to ask each of
you to take a look at it and share whatever thoughts you might
have subsequent to this hearing. I don't know what I think
about it. I just was interested by the testimony and wanted to
On the whole issue of the permanent injunctions, Dr.
Myhrvold, obviously you are talking about the small inventor,
but a lot of the disputes aren't between the small guy and the
big guy, they are between the big guy and the big guy. And some
of what, in terms of--there is no way to really do a survey of
what is happening in the 97 percent of litigation that has been
settled, because it has been settled and oftentimes it is a
confidential settlement. So it is very difficult. Ultimately,
we are relying on anecdotes, which is not a good practice, but
it is the only thing we can do because it is all we have.
So just as a matter of law and principle, how do you--if
you were designing this, how would you allow a court to
establish the equities where you have, for example, a product
that has perhaps a multiplicity of patented materials owned by
or licensed by a variety of individuals and corporations,
challenged by someone who has a small component, who has the
ability, really, to extort a huge amount of money for what is
really a small part, versus all the other owners of
intellectual property there. I mean, I am not saying there
shouldn't be a remedy, but if--how would you--what tools would
you give a court to draw--if you were God? [Laughter.]
Mr. Smith. Without objection, the gentlewoman is recognized
for an additional minute. Perhaps more.
Mr. Myhrvold. So I can be God, but only for an additional
Ms. Lofgren. Only for 60 seconds. So don't waste it.
Mr. Myhrvold. You know, it's a great question. I'm going to
have to get back to you in detail. I think, you know, to--I
think actually statistical studies could be done, particularly
because really what's important here aren't the cases that
settle, it's the cases that actually go and injunctions are
filed--how often does this actually occur. I think that data
could be forthcoming. I don't personally have it.
It's a difficult issue. Today courts do have discretion and
courts will often exercise it. And so the whole question here
is do we know that the judiciary is abusing or not properly on
those things or not.
Ms. Lofgren. Well, it is not a matter of abuse but it is
how you set the standard both in statute but also in the law as
applied and interpreted by the judicial branch.
Mr. Myhrvold. You know, for example, I'd be really
interested to find out how often does this case occur. You're
absolutely right. A lot of patent disputes are one big company
suing another big company and all their suppliers. So maybe
this is a much smaller case, or much larger case, than we're
Ms. Lofgren. Thank you, Mr. Chairman.
Mr. Smith. Thank you, Ms. Lofgren.
The gentleman from Virginia, Mr. Boucher, is recognized for
Mr. Boucher. Well, thank you very much, Mr. Chairman, and I
want to commend you at the outset for calling the Committee's
attention to a very clear need, and that is to improve patent
quality through the passage of legislation. And I want to
commend you for putting before the Committee a very
constructive draft of a new law, which contains many features
that I find to be attractive. And I am glad to hear our
panelists today point to some of those very constructive
Mr. Berman and I have been for the last 4 years having
discussions about approaches that we could take in order to
improve patent quality. Four years ago, we drafted a bill,
introduced it. It contains a number of the concepts that are
now reflected in the bill introduced by Chairman Smith, or the
bill circulated by Chairman Smith. There are a number of things
that we looked at at that time that, however, are not reflected
in this draft. Let me just point to one of those in particular
and get your opinion about whether we are right about this,
whether Mr. Berman and I were right in proposing this.
The overall goal here is to improve patent quality. That
inevitably means we need to bring more pertinent information to
the attention of the patent examiner and to the post-grant
proceeding, to the Patent Office generally, so that mistakes
can be corrected before the patent leaves the Office. One of
the things that I think would really help to improve the
quality of the initial patent exam would be a clear
opportunity, with well-defined parameters, for third parties to
make submissions of prior art that they happen to have within
their possession. And Mr. Berman and I had recommended that.
Now, that clear procedure is not contained within the draft
we are currently considering. So the first question I have is
what is your opinion of having a clearly defined procedure that
would encourage submissions of prior art by third parties? And
if you have suggestions for the parameters of such a process,
please share that with us also. Mr. Dudas?
Mr. Dudas. Thank you. We do allow now at the Patent and
Trademark Office up to 2 months after publication the
submission of prior art, but with no relevancy statement. The
distinction made is you can submit prior art, that's accepted.
If you comment on the prior art, that's sent back or destroyed.
There is a statutory prohibition currently in place that says
we cannot have a pre-grant opposition procedure, so the
question is, in order to avoid harassment or delay of the
patent application, how do we get relevant art from the outside
along those lines?
We are open to the suggestion of how we can improve that.
We certainly believe that there should be a uniformity of any
type of submission that there is there. We are currently
looking at 2 months after 18 months--I'm sorry, it's published
at 18 months, then there's 2 months to submit prior art--moving
that time frame to bring in prior art. And then the question of
what's the right balance of whether or not there can be any
comment on that at all. That becomes more problematic, and
we've traditionally opposed pre-grant both in the U.S. and
elsewhere, where it looks like it can be--harass the applicant.
But a way of getting more prior art is something that we
have now that we'd like to expand, and we also do it in more
general ways through partnerships with the private sector.
Mr. Boucher. Well, I very much welcome your willingness to
have a conversation about ways we might amplify that process to
Other comments on the submission of prior art? President
Mr. Levin. It seems to me a bit of a confession of failure
if you don't allow the submission of prior art until
publication and don't require publication until 18 months, and
then are thinking about what would happen after that 2-month
window. It's like saying there's no hope for ever getting
pendency below 2 years. That's not the way the system should be
working. That shouldn't be our aspiration. Wouldn't it be a lot
better to speed up pendency, to actually beat the publication
deadline and actually have the publication of the patent come
when the patent issues, after 9 months or 6 months, and then
let people intervene with their prior art in an opposition
So why think in a mindset that assumes there's a 3-year
pendency? That's not the best system.
Mr. Boucher. But you do favor a clear provision that allows
for the submission of prior art, perhaps amplifying the
administrative process currently in practice at the Patent
Mr. Levin. Well, I think it's more important to speed up
pendency and introduce a post-grant review system, where of
Mr. Boucher. Well, we can do both, though. I mean, it is
not a mutually exclusive arrangement.
Dr. Myhrvold, do you want to comment?
Mr. Myhrvold. Well, I very much support both what
Commissioner Dudas and Dr. Levin said. I would love to have
six- or 9-month pendencies. That would be fantastic for
inventors. Maybe a little bit too much to hope for in the near
term. I think that the current administrative----
Mr. Smith. Without objection, the gentleman is recognized
for an additional 2 minutes.
Mr. Boucher. Thank you.
Mr. Myhrvold. You know, I think that the existing
procedures that the Patent Office has are good. By the way, I
support publication of all applications. I think transparency
in the process is very good, and this plays to that. And then,
as Director Dudas said, it's a matter of balancing, you know,
what the relevant time frames are. Obviously, if you have a 2-
year time to submit prior art, that pushes pendency back out
Mr. Boucher. Okay. I understand your point. Thank you.
Let me tell you what my practical concern is about the
automatic injunctions that follow today the finding of patent
infringement, and that is that it simply enhances dramatically
the leverage of the patent holder in order to negotiate what
may be an extraordinarily favorable settlement from his
perspective. Let me give you an example. Research In Motion,
the maker of BlackBerries, which we all carry now, originally
was confronted with a patent claim for $50 million. Once a
finding of infringement was entered, settlements commenced, and
the settlement turned out to be $450 million. And the incentive
that Research In Motion had to pay that king's ransom, that
shakedown, as Chairman Smith so well described the general
circumstance, is that automatic injunction would have
terminated the company's business. They would have had to stop
selling BlackBerries in the United States.
And I just think that leverage is unjustified. I think it
is too much. Now, the patent holder is going to get his damages
no matter what. There is going to be a trial or a settlement on
the question of damages. But why give the patent holder that
extraordinary amount of leverage and a shakedown opportunity?
Comments? President Levin.
Mr. Levin. I think that there's a certain logic in that and
perhaps--it's not something I've given a lot of thought to
previously, but some more balanced phrasing, rather than going
from presumptively there'll be an injunction to presumptively
there won't be, finding some kind of balancing test as a way of
changing the law would be a solution.
Mr. Boucher. But you agree the current structure is a
little bit unbalanced in having that automatic----
Mr. Levin. I agree with the factual assertion you made,
that it does give a lot of leverage to the patent holder.
Mr. Boucher. You are a careful witness, President Levin.
Mr. Dudas, do you want to comment?
Mr. Dudas. I'd be happy to comment. I think it goes back a
bit to what Congressman Berman had said earlier on the question
of how are you viewing this. One of the challenges as
intellectual property policymakers is convincing others that
intellectual property is property. And the question is, ``Is
this property?'' If you take a real property example, which we
often do when we're in other countries, the person who has the
beachfront property, who holds out when the shopping center
wants to come in. Do we say the shopping center's got a great
shopping center plan, we really think that they're going to go
ahead and build and they'll pay you money damages? I think it's
a question of, if that patent is intellectual property, is this
really reducing property rights; and a question of whether
we're shifting market decisions to judges, is I think what some
Mr. Boucher. I hear what you are saying. It is a kind of
theoretical response to a practical problem, and I find it less
than compelling. But I appreciate what you said anyway.
Mr. Dudas, with the Chairman's indulgence, I want to ask
you one question on a subject that has not been raised today.
Mr. Berman and I several years ago were quite concerned about
the award of business method patents and the fact that we saw
that as something of a runaway train. And there were some
notable examples that I think most people, most observers
really thought were inappropriate for patent awards. I mean,
what comes to mind is DoubleClick's patent on the reverse
auction. That wasn't exactly new. Reverse auctions have been
known since about 5,000 years ago. I mean, it was not exactly
novel. What was novel was that DoubleClick carried this out on
the Internet for the first time.
So we inserted a provision which, frankly, I still find
appealing, that says that if you are carrying out through a
computer implementation something that is well-known in the
physical world and is a commonly known practice, it is not
novel, it is obvious, it is not patentable.
What do you think about that? Is that something we should
do? It is not something that is in the draft we are now
considering, but we think it is still an important principle.
Mr. Dudas. I think it is something that we are considering
and should consider. I think the biggest problem that we have
with business methods patents or with new technologies is that
it's new and that it's something that the Office will deal
with. I'm one that hesitates to compare rejection rates with a
signal of quality, but when you have new technology, you often
have that come in. Business methods patents allowance rate is
now 16 percent. I think in that area in particular, finding the
new technology, finding the new art has largely addressed it. I
think this is something that we should be considering.
Mr. Boucher. Well, this comes right to the point, though.
Mr. Smith. Mr. Boucher, would you like another minute or
would you like to submit written questions to Director Dudas?
Mr. Boucher. Well, Mr. Chairman, may I ask unanimous
consent for one additional minute?
Mr. Smith. Without objection, the gentleman is recognized
for another minute.
Mr. Boucher. Thank you, Mr. Chairman.
Simply improving the quality of the information that comes
to the patent examiner doesn't solve a problem when the
standard, no matter what the quality of the information,
permits the award of the patent. So very simply, do you have a
standard now at the Patent Office that says that something
carried out for the first time by computer implementation--in
common parlance, carried out on the Internet--is not patentable
if this is a known practice in the physical world?
Mr. Dudas. I don't believe we have a standard that goes
along those lines. I think----
Mr. Boucher. And so my question is shouldn't we have one.
Just that simple.
Mr. Dudas. And I--the answer--it's a simple question, I
think the answer is probably more complex. If you carry
something out in the private world and you manage to do it
through software, software patents are----
Mr. Smith. I see I still have about 30 seconds for Mr.
Mr. Myhrvold. The devil's in the details here. If you had a
car that could drive itself, that's something that we can do in
the real physical world, no software can do today. The day they
do that, that's a breakthrough.
Mr. Smith. Thank you, Mr. Boucher.
The gentleman from California, Mr. Schiff, is recognized
for his questions.
Mr. Schiff. Thank you, Mr. Chairman.
President Levin, I wanted to follow up on one of the
questions that my colleague Howard Berman asked you earlier,
and preface it by saying that, you know, I am very proud as a
Californian that the UC has led in patents for several years
now. And Cal Tech, located in my district, is a proud Number
Two. There has been some concern raised, I think, at the UC
about the change, or proposed change, in going to the first-to-
file from a first-to-invent and what impact that would have on
universities that maybe don't have such a well-developed effort
to race to the Patent Office, and have a different practice, by
What impact do you think such a change would have on the
universities? Is that a concern to you, given your background?
How do you think it would change the behavior of universities?
Should there be some kind of a carve-out for universities and
their publications? What do you think the impact would be?
Mr. Levin. I would firmly oppose a carve-out for
universities on these grounds. I think the impact would be of
changing to first-to-file, is that we'd get a little more
efficient in our own internal processing of patents. I mean,
it's hardly an excuse that universities operate more slowly
than the private sector. We shouldn't rely on that. And I know
there are some colleagues within the university community who
are advancing the view that you suggest, but I think for the
most part they are the people who run our technology transfer
offices. And we had a recent meeting of the presidents of the
Association of American Universities, on the Committee on
Intellectual Property, that was unanimous in supporting the NRC
recommendations, including first-to-file. I think it's--you
know, if we're inefficient at processing patents, we shouldn't
be rewarded by the law. We ought to get better.
Mr. Schiff. Well, isn't that inefficiency due somewhat to
the different nature of a university from a private firm that
is in the business of----
Mr. Levin. We already have what is a very, I think,
appropriate but also generous provision of the law which allows
universities to file patents for inventions that were financed
by Federal grants. That's worked extremely well. The reason
that the University of California has done so well is because
of the passage of the Bayh-Dole Act, and it's had, I think,
massive salutary effects on our economy to get technology out
into the public domain. There's no reason--I mean,
organizations like the University of California or Yale or MIT
are well enough organized today that we ought to be able to
turn patents around just as fast as private sector. I don't see
any reason for a special exception.
Mr. Schiff. Anybody on that narrow issue have any different
Mr. Chairman, thank you. I yield back the balance of my
Mr. Smith. Thank you, Mr. Schiff. Why don't you yield the
balance of your time to Mr. Berman, who has another question?
Mr. Schiff. Yes, I would be happy to yield my time.
Mr. Berman. I am just wondering if the president of Yale,
who has spoken against carve-outs, what they think of the
University of California's desire to carve out immunity from
liability in copyright and patent cases. One test of your
cautiousness that Mr. Boucher observed. [Laughter.]
Mr. Levin. I'm not an expert on the doctrine of sovereign
immunity, but I think that it's an unfortunate consequence of
that doctrine that some universities are claiming exemption
from infringement, whereas private universities are liable for
Mr. Berman. And those same universities want to enforce
their patent rights----
Mr. Levin. That's right. Yeah.
Mr. Berman. --against others.
Mr. Levin. Yeah. I----
Mr. Berman. That makes it particularly strange, doesn't it?
Mr. Levin. We're prepared to play by the fair rules of the
game. We can enforce our patents and copyrights, other people
can enforce them against us. I think that's best for the
American economy. If there's a way to make that true for all
universities that doesn't violate important constitutional
principles, I would be in favor of it.
Mr. Berman. Now we'll need a hearing on that subject.
Mr. Smith. Thank you, Mr. Berman.
The other gentleman from California, Mr. Issa, is
recognized for his questions.
Mr. Issa. It is interesting that my years of watching Star
Trek have come in handy. As you were explaining the problem, I
immediate thought of the problem of firing while cloaked.
Didn't everyone want to have that ability to fire without being
fired back. And obviously, in that fiction it wasn't possible,
but in this reality it is possible.
As I ask my questions, I want you to understand that I am
not an attorney, I am not a patent attorney; I am a bit of a
bonehead engineer. But I always talk like I have experience,
because I do have 37 patents and plenty of time paying a lot of
lawyers, an awful lot of lawyers, and even a few judges, it
I knew that would get that reaction.
Mr. Smith. You may want to rephrase that. Refer to the
Mr. Issa. I cannot tell you how much I have spent over the
years with judges that were doing their first Markman ruling.
And I actually gave the money to the lawyer, but I knew that I
was paying for a judge to learn. If that clarifies it--yes,
that is what I meant, Mr. Chairman.
As somebody who has a lot of patents, and my company has
even more, I am concerned about a lot of things related to this
bill. First of all, I am an advocate of eliminating the ability
of people to swear behind, infinitely, their invention and
reduction to practice, because I have seen that abused. There
is no question, though, that a strict first-to-file is an
extreme move in the other way. And I would hope that as this
goes on--and I would like your comments on it--that there is
middle ground, that there is the ability to recognize that if
you run to the Patent Office with a half-baked, half-cocked
idea--which, by the way, those who can write those up the
quickest win--versus those who want to not only reduce to
practice, but they also want to reduce to a form, a patent
application, need to have some reasonable middle-ground time.
That would be my first question, is what about that middle
Mr. Levin. I think it's unnecessary. And the reason I would
cite that it's unnecessary is we've got thousands of American
corporations today that file for patents in Europe, in specific
jurisdictions in Europe as well as the EPO, and in Japan and
elsewhere around the globe who are filing on a first-to-file
basis and nobody's complaining about it. I don't see a problem.
Mr. Berman. Would the gentleman yield just on this point?
Mr. Issa. Certainly.
Mr. Berman. It isn't first to file----
Mr. Levin. It's first inventor to file.
Mr. Berman. First inventor to file. But your argument in
favor of the change was you won't have to have litigation about
who invented, but going to first inventor to file still leaves
that issue open to litigation.
Mr. Levin. It does. But it doesn't--it removes a big piece
of it because a big piece of it is who was first to invent. Now
all you have to do is establish that you are an inventor.
Mr. Issa. Reclaiming my time, I think the one thing that we
have to recognize is yes, those American corporations do it. I
was one of those American corporations. I have a number of
patents abroad. But of course I always worried about my home
market, and my home market gave me the ability to reduce it, to
have it ready, and then I always filed in the U.S. first--what
a surprise. And then, oh, by the way, you file during your
quiet period or during your secret period, if you will, and
within that 1 year. So I am not sure that under the current
law, with two standards, that you can use no objections
overseas as the panacea.
As to the question of elimination--and this particularly
goes to Mr. Dudas--the current law allows you do file and, even
if you are filing against a competitor and both of you are
selling in the market, get all the way to the end and not know
what dollars you are going to receive, whether you are going to
be Panduit or what standard of is the infringement going to be
analyzed as market share, is the infringement going to be
analyzed as if you were exclusive and there were no non-
infringing. All those issues are post-getting a decision, and
then you go into that whole other phase. As a result, if you
eliminate the ability to get treble damages, what you have done
is taken--and you put two levels of uncertainty into the
argument. You have put the level of uncertainty of even whether
you are going to get legal fees, and you have put the
uncertainty as to where you can get to the end of the day and
end up getting that famous 2 cents because they look and say,
well, there were so many other noncompeting uses that we are
not going to give you any of these tests that give you a
reasonable loss of profits.
If you do away with one, aren't you in fact going to have
to fix--and that is my question--fix the other so that there
would at least be better certainty as to your award if you
prevail, if you are going to take away the high end of treble?
And I just as for leave for them to answer.
Mr. Smith. Oh, okay. And without objection, the gentleman
has another 2 minutes as well.
Mr. Dudas. Can you premise your question again? I'm sorry,
I lost you at the very beginning.
Mr. Issa. Right now you start off and you file a lawsuit
against a competitor--you are in the market, he is in the
market, you believe that there is no non-infringing use, you
know of none--but you go through the entire multi-year process.
And even if he develops one during the period, he can diminish
your claim to where you start off saying I am entitled to lost
profits, he is doing $100 million worth of these, and that is
$100 million times my profit, that is 33 EBITDA, I am entitled
So you start off with this, hey, look, he is infringing $33
million a year of damages. You get to the end, and somebody
might give you a reasonable royalty, based on some judge or
jury--well, judge, basically, most of the time. He is going to
give you a reasonable royalty of 2 cents, based on your
invention and not lost profits, because during the time
somebody developed a non-infringing, or they believe there is a
non-infringing use. So you have a skew. You have from 2 cents a
unit that ends up being one-tenth of your legal fees, to $33
million a year. That is very often, at least in my experience,
the window you are dealing with.
When you say treble damages, at least the judge looks and
says hell, this isn't enough of an award no matter how--and he
says but it was willful, and he has the ability to triple it
and provide you reimbursement for your legal fees.
It sounds like this legislation anticipates, and some of
you are saying, let's take that away. And my question is,
assume for a moment we are taking it away. Don't you have to
give back something, or what you end up with is all of the
downside, none of the upside. And patent infringement is about
protecting real property. And so I would like your comments on
Mr. Dudas. I'm sorry. I agree that--and actually I'll take
it back one step. I think that there is a reason for willful
damages. I think there's a reason for treble damages. I think
the issue that has come up is the question of how it's being
applied and what it's doing. Our patent system is about
disclosure. If it's being applied in such a way that it's
causing people not to get more information, not to become more
informed, that that becomes a problem. So I would argue that
although we should look at how it's being applied, that there
is a basis for treble damages and willful infringement, and if
that is gone, there should be something to be looked at along
those lines. But I think that it shouldn't be gone.
Mr. Issa. Mr. Levin, you wanted to answer?
Mr. Levin. Well, this is more--you know, right now the area
of damages is left pretty much at the discretion of the courts.
And there are a variety of standards for awarding damages. And,
you know, it's perfectly possible to make, you know, strong and
credible cases that lost profits ought to be the basis for--and
in many cases they are the basis for an award. Are you really
objecting to the uncertainty, as opposed to the amounts?
Mr. Issa. I'll be very brief. If you don't know whether you
are going to get lost profits, and reasonable royalties can be
very small, you have--without treble damages you lose the
ability for a judge to say, look, this was willful infringement
and unless I can give him his legal fees and triple this 2
cents reasonable royalty, I can't bring any justice to this
arrangement because we have gone on for 2 years and $2 million
apiece, the guy has built his market on cheating on this guy,
and I am going to provide an injunctive relief today, but
unfortunately I am stuck with a standard of the industry
royalty which I don't intend on giving you, but--and
essentially you are getting a royalty charge as though I wanted
to give you one, in many cases, at the end of a court trial.
Mr. Levin. Yeah, but I've seen many cases in which the
argument for reasonable royalties is rejected in favor of lost
Mr. Issa. No, no, we are saying that if you don't bring the
certainty in, then the fact is, by eliminating the 3-times, the
judge has no ability to even balance what would seem to him to
be an unreasonable reward, but one in which he cannot use lost
profits. Remember, the lost profits are only good if there is a
non-infringing alternative--if there isn't a non-infringing
alternative. Once there is a non-infringing alternative, you
are dropping down this list and the dollars drop way off. And
like every other thing we have talked about here, there is
always a claim and there is always an expert who says there is
a non-infringing alternative. And no matter how crummy it is,
they have to consider it as though the expert is telling the
Mr. Levin. I see your point.
Mr. Smith. Thank you, Mr. Issa.
Let me thank the witnesses for their testimony today. It
has been most helpful, most informative. As you all know, we
hope toward the end of May to have a piece of legislation that
will be more final in its nature, and your testimony today has
helped us move the ball along and get closer to that goal.
I would also like to thank everyone in the audience for
their interest in the subject at hand. Really, this is the
first effort, I think, at comprehensive patent reform in a
number of years, as you heard several Members mention today.
And we appreciate your participation and interest and listening
With that, we stand adjourned.
[Whereupon, at 1:43 p.m., the Subcommittee was adjourned.]
A P P E N D I X
Material Submitted for the Hearing Record
Prepared Statement of the Honorable Howard L. Berman, a Representative
in Congress from the State of California, and Ranking Member,
Subcommittee on Courts, the Internet, and Intellectual Property
Thank you for scheduling this hearing on patent reform. In the past
4 years, my colleague from Virginia and I have introduced legislation
on patent quality reforms multiple times. Most recently, in October, we
introduced HR 5299, The Patent Quality Assistance Act, which attempted
to address many of the problems that continue to exist in our patent
system. The bill helped foster discussions among diverse industry
groups, all of which now recognize the need for changes to the patent
law. While there are many different views about how to amend the law,
we all share a common goal--improving the quality of the patent system.
Our patent system was designed to promote continual innovation by
providing strong protection for intellectual property. However, if we
protect invalid patents, the system will have the opposite effect, that
of hindering creative output. Furthermore, the introduction of poor
quality patents into the marketplace actually increases the amount of
litigation and has a negative effect on the economy.
The problem of low quality patents cuts across the entire spectrum
of art units that the Patent Office examines, but the chief culprits
are patents in the business methods and software area. The famed one
click patent and the patent for a method allowing automobile purchasers
to select options for cars over the internet, represent only a drop in
a very large bucket of questionable quality patents.
The Patent Office has initiated what it calls a ``second set of
eyes review'' in an effort to address the problem, but that is merely a
stop gap measure. Without an assurance of sufficient funding every
year, the PTO cannot maintain the staff it needs to administer the
reviews or implement new quality initiatives. Therefore, funding for
the PTO and an end to diversion of collected fees need to remain top
priorities in any reform effort.
Furthermore, any legislative solution to the problem of patent
quality must address deficiencies both at the front end of the process,
the examination stage which takes place in the PTO, and at the back
end, which takes place in the courtroom. Inventors should have
confidence about the quality of the patents they receive before
investing further in research and development, and equally secure in
the knowledge that they can properly enforce that patent.
In this vein, I have a couple of concerns relating to the committee
print. The print primarily describes reforms to litigation and remedy
provisions. While many of the suggestions are worthwhile, I am
concerned that we are merely treating the symptoms without enough
emphasis on curing the underlying disease. Patent quality needs to
remain a focus with an objective of minimizing litigation on numerous
invalidity claims. For example, including a provision on allowing
submissions of additional prior art to an examiner may be helpful in
addressing this poor quality problem.
Furthermore, much of the print speaks to harmonization of U.S.
patent law with patent law in the rest of the world, for example,
shifting from a first to invent paradigm to one of first inventor to
file. While this is a very important and necessary discussion, I am
concerned that opposition to these provisions at this point will affect
the ability to achieve other essential patent reform.
I am looking forward to hearing from today's witnesses to identify
potential solutions to the problems created by questionable patent
quality. Some of the suggestions for change, such as the injunction
provision, may not be palatable to some of the witnesses. However, I
throw out a challenge to those witnesses, help us craft a resolution to
the problem the injunction provision was designed to address, that of
the patent troll. While the structure of the discussion may be centered
around the committee print, I hope that the witnesses here and at
future hearings will identify additional possibilities for resolving
patent quality problems. I look forward to working with the Chairman in
drafting effective patent legislation.
Letter to the Honorable Lamar Smith, a Representative in Congress from
the State of Texas, and Chairman, Subcommittee on Courts, the Internet,
and Intellectual Property, from William L. LaFuze, Partner, Vinson &
Elkins, LLP, and Chair, Section of Intellectual Property Law, American
Bar Association, on behalf of the American Bar Association and the ABA
Section of Intellectual Property Law
Response to questions submitted by the Honorable Darrell Issa, a
Representative in Congress from the State of California, to J. Jeffrey
Hawley, Legal Division Vice President and Director, Patent Legal Staff,
Eastman Kodak Company, on behalf of Intellectual Property Owners
Response to questions submitted by the Honorable Darrell Issa, a
Representative in Congress from the State of California, to Richard J.
Lutton, Jr., Chief Patent Counsel, Apple, on behalf of the Business
Software Alliance (BSA)
Response to questions submitted by the Honorable Darrell Issa, a
Representative in Congress from the State of California, to Jeffrey P.
Kushan, Esq., Sidley Austin Brown and Wood, LLP, on behalf of Genetech
Response to questions submitted by the Honorable Darrell Issa, a
Representative in Congress from the State of California, to William L.
LaFuze, Partner, Vinson & Elkins, LLP, and Chair, Section of
Intellectual Property Law, American Bar Association, on behalf of the
American Bar Association and the ABA Section of Intellectual Property
Prepared Statement of the Honorable Howard L. Berman, a Representative
in Congress from the State of California, and Ranking Member,
Subcommittee on Courts, the Internet, and Intellectual Property
Thank you for scheduling this hearing to continue our discussion on
patent reform. Last week we heard differing opinions about which
sections of the patent law should be reformed, and how those reforms
should be accomplished. Some of the witnesses stressed changes in
litigation rules for patent cases, while others focused on the need to
harmonize. U.S. patent laws with foreign patent law. However, all of
the witnesses seemed to agree that bolstering the level of patent
quality is integral to a workable patent system.
The foundation of the patent system is the idea that the Patent and
Trademark Office grants high quality patents. However, over the past
few years, a larger number of questionable patents have been issued,
leading to increased litigation and uncertainty in markets that are
heavily dependent on patent rights. There are many possible reasons for
the questionable quality--lack of funding resulting from fee diversion,
lack of appropriate resources or training materials, an increase in the
backlog of patent applications, or even exposure to new patentable
subject matter, such as business method patents. While the PTO has made
great strides in addressing this problem, more needs to be done to
restore confidence in the patent system. Congress has an important role
to play in helping bring about that change.
The Committee print has provided a useful set of guidelines that
identify some of the key areas in need of reform. In fact, many of the
provisions are almost identical to the ones Mr. Boucher and I proposed
last year. However, an issue we addressed with our third party prior
art submission provision, and which deserves greater attention in the
committee print or any future legislation, is how to address quality on
the front end of the examination process.
I anticipate a spirited discussion today on the merits of some of
the proposals in the Committee Print. As I did last week, I submit a
challenge to those critical of certain provisions--if you have a
problem with a proposal, help us craft a better solution. Because we
are planning to introduce a patent bill in the near future, I hope the
many interested groups can work together to help us formulate some
answers to the problems facing the patent system today. I continue to
look forward to working with the Chairman to draft effective patent
Memorandum to the Honorable Lamar Smith, a Representative in Congress
from the State of Texas, and Chairman, Subcommittee on Courts, the
Internet, and Intellectual Property and the Honorable Howard Berman, a
Representative in Congress from the State of California, and Ranking
Member, Subcommittee on Courts, the Internet, and Intellectual Property
from Darin E. Bartholomew, Senior Attorney, Patent Department, John
Deere & Company
Prepared Statement of Jack Haken, Vice President, Intellectual Property
& Standards, U.S. Philips Corporation
Mr. Chairman and members of the subcommittee, I'm Jack Haken, Vice
President for Intellectual Property and Standards of U.S. Philips
Corporation. I appreciate this opportunity to express our views on a
topic of vital interest to Philips, namely preserving the current
patent protection against infringing exports that is provided by
Section 271(f) in Title 35 of the United States Code.\1\ As I will
explain in my testimony, we are opposed to the amendment proposed in
Section 10 of the Committee Print.
\1\ The proposed text for Section 271(f)(3) is confusing inasmuch
as it is unclear whether the phrase ``under this section'' is intended
to only apply to subsection 271(f) or to all of section 271 (e.g.
Whether the carve-out for intangible components will also change the
scope of domestic contributory infringement under section 271(c)). For
purposes of this testimony, we assume that the changes are intended to
affect only to subsection 271(f). If the proposal is carried-over into
later drafts, we suggest that the ambiguity be clarified.
Philips is a manufacturer of electronic and electrical products and
is one of the largest users of the patent systems in the United States
and other industrialized countries. Last year we filed U.S. patent
applications for about three thousand new inventions. Scientists and
engineers at our U.S. laboratories have made pioneering advances that
revolutionized and revitalized the electronics industry with
innovations that led to high definition television, optical CD and DVD
recording, digital cellular telephones, medical imaging and digital
rights management. In 2004 Philips reported income from licensing our
patented inventions that was well in excess of five hundred million
Section 271(f) is particularly important to our industry because it
allows us to protect our intellectual property rights when American
based companies export specialized components and parts kits for
assembly in countries that do not have useful patent enforcement
systems: in particular China, Taiwan, Korea and India.
As background, I would like to speak briefly about two major
changes that have affected the electronics hardware industry during the
past decade and which make Section 271(f) so important to us.
The first change is a well-recognized shift of high volume
electronics manufacturing from the United Sates to overseas contract
facilities. America is no longer a competitive site for manufacturing
this equipment, but we remain a primary source of new ideas, technology
and essential components that we export to the manufacturers. Royalties
on exports of patented technology are a significant reason that our
domestic research establishment remains vital.
The second change is, perhaps, not as visible as the first; in 1990
almost all consumer electronic devices were implemented in separate
specialized sets as combinations of hardware circuit elements. For
example, televisions, VCR's and telephone answering machines were
produced and marketed in separate boxes and often via different selling
channels. Today those same product functions are usually implemented in
software and we are moving toward a small number of common multiuse
hardware platforms. Software programs on personal computers and PDA's
now provide audio and video recorder functionality. Cameras and music
players are furnished as software features in cellular telephones and
television players will soon follow. In this context, the boundary
between hardware and software becomes fuzzy. Software and firmware code
effectively reconfigures the hardware circuits to perform particular
player or display functions that were formerly achieved in fixed
The interchangeability of electronic hardware and software has also
softened the boundaries between our traditional marketing and sales
channels. Today we find that the traditional electronics manufacturers,
major software houses and PC integrators are direct competitors for the
same consumer electronics product space.
Section 271(f) was enacted by Congress to plug a 1972 judicially-
created loophole that had allowed American companies to avoid liability
for patent infringement by unassembled kits of parts or essential
components of patented combinations which they exported for assembly
In March 2005 the United States Court of Appeals for the Federal
Circuit confirmed that software code that Microsoft had exported to
overseas manufacturers for incorporation onto the disk memories of
computer systems was a ``component'' within the meaning of section
271(f). Judge Rader found that Microsoft's software ``morphed'' into
hardware in the computer systems and that there was no indication of
Congressional intent that the statute would distinguish between
hardware and software or tangible and intangible components. Judge
Rader also found that any attempt to single-out the software industry
as exempt from Section 271(f) would run afoul of the United States'
treaty obligations under the TRIPS Agreement.
Let me cite some examples of Philips' patent licensing programs
that would have been negatively affected if proposed section 271(f)(3)
had been law when we obtained our relevant patents:
1) Optical Recording--Philips invented the technology that
enabled development of the CD and DVD industries. We have
patents in our portfolio that cover apparatus and methods that
format and index data on these discs. When we started licensing
these patents, the patented technology was implemented as
hardware circuits in disc drives and recorder sets. Today the
same technology is being implemented as PC software that is
internationally marketed and distributed over the Internet and
as firmware that is stored in semiconductor memory chips. We
have great concern that any requirement that limited export
patent protection to ``tangible'' items that are ``combined
physically'' would impact our ability to bring infringement
actions against exporters who utilize the Internet to
distribute original and upgrade software to manufacturers and
users in developing countries where local intellectual property
law enforcement is of little worth.
2) Speech and Image Coding--Philips invented important methods
and apparatus for speech and image coding which we license to
manufacturers of cellular telephone, digital cameras and set-
top boxes. Large scale production of these products has quickly
moved from the United States to other countries that have
immature intellectual property enforcement systems like Taiwan,
Mainland China and Korea, but American companies are, and are
likely to remain, the developers and providers of the
application and operating system software that controls the
hardware and implements the coding methods. The software is
often exported to manufacturers either as source code, master
object code copies or as firmware on semiconductor memory
chips. Upgrade software is regularly distributed over the
Internet and over cable television networks. Again we have
great concern that any requirement that limited export patent
protection to ``tangible'' items that are ``combined
physically'' would impact our ability to bring infringement
actions against exporters who distribute this original and
3) Medical Imaging--Philips is one of the world's largest
manufacturers of medical imaging equipment. Almost ten thousand
of our United States employees work on medical products. Much
of this equipment is computer-based; the processes that enable
our CT, MRI and ultrasound scanners and our patient monitoring
systems are executed and controlled by software. New
examination techniques and upgrades are distributed and
installed using data formats which arguably intangible and
would arguably be excluded from export patent protection if
Section 271(f) were amended as proposed in Section 10 of the
4) Digital Personal Video Recorders (PVR's)--Philips
manufactured the first Tivo brand personal video recorders and
the technology has already changed the television viewing
habits of the American public. Philips' patented video
compression technology enables these machines to pack recorded
video signals onto hard disk drives. Today the same
functionality and methods are implemented in PC software that
is bundled with operating systems and distributed over the
5) Digital Rights Management--Philips holds a significant
minority interest in InterTrust Technologies Corp. InterTrust
owns and licenses a large portfolio of patents for digital
rights management technology that enables the owners of
copyrighted music, video works, books and other proprietary
data to regulate and collect royalties when their properties
are distributed on electronic media and/or over the Internet.
In 2004 Philips reported a gain of over one hundred million
dollars from the patent licensing activities of InterTrust.
Components of many of these patented DRM systems are
necessarily distributed at the same time and over the same
media or channel with the creative materials that they manage
and protect. However we have great concerns that future
inventions in this area will not meet the ``tangible'' and
``combined physically'' limitations of proposed section
271(f)(3) and would thus not receive adequate export patent
6) Travel Route Planning--Scientists at our Briarcliff Manor,
New York laboratories invented and developed patented systems
that are used to plan travel routes in car navigation systems
and on Internet mapping web sites. The same methods have
application to robotic movement and to managing escapes from
disaster areas. Here again, we see infringing products and
upgrades being distributed and exported on electronic media and
over the Internet and again fear the loss of our enforcement
rights if section 271(f) protection is reduced.
Some of the other witnesses at this hearing may tell you that the
carve-out in proposed Section 271(f)(3) is directed at business method
patents and is necessary to prevent their abuse, but the language in
Section 10 of the Committee Print is much broader than necessary for
that purpose and will create a loophole that will allow software and
firmware houses to avoid liability for patent infringement of U.S.
patents by exporting their wares as ``intangible'' e-mail signals and
files on master disks with full knowledge that they will be converted
to tangible, physical form when received by their overseas customers.
At best, the language of Section 271(f)(3) constitutes discrimination
which favors the software industry over traditional hardware
manufacturers, at worst it will tend to drive the remainder of U.S.
electronic hardware manufacturing overseas to countries that do not
offer strong IP protection.
The software industry could achieve cost savings by moving its
development and production facilities overseas, but it has chosen to
remain in the United States and has flourished here, in no small part
because the copyright, trade secret and judicial processes in the
United States provides strong and effective protection for the
intellectual property content of software products. There is no
justification for letting them enjoy the benefit of our strong IP
system for their own products while, at the same time, they are allowed
to avoid exposure to other companies' patents when those same products
Letter from Ryan M. Fountain, Attorney at Law, Mishawaka, Indiana to
Blaine Merritt, Chief Counsel, Subcommittee on Courts, the Internet,
and Intellectual Property, Committee on the Judiciary