[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]



 
                           PATENT ACT OF 2005

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

                                HEARING

                               BEFORE THE

                 SUBCOMMITTEE ON COURTS, THE INTERNET,
                       AND INTELLECTUAL PROPERTY

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                                   ON

                               H.R. 2795

                               __________

                              JUNE 9, 2005

                               __________

                           Serial No. 109-24

                               __________

         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                  CHRIS VAN HOLLEN, Maryland
MIKE PENCE, Indiana                  DEBBIE WASSERMAN SCHULTZ, Florida
J. RANDY FORBES, Virginia
STEVE KING, Iowa
TOM FEENEY, Florida
TRENT FRANKS, Arizona
LOUIE GOHMERT, Texas

             Philip G. Kiko, General Counsel-Chief of Staff
               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

                          Ryan Visco, Counsel

                    Shanna Winters, Minority Counsel



                            C O N T E N T S

                              ----------                              

                              JUNE 9, 2005

                           OPENING STATEMENT

                                                                   Page
The Honorable Lamar Smith, a Representative in Congress from the 
  State of Texas, and Chairman, Subcommittee on Courts, the 
  Internet, and Intellectual Property............................     1
The Honorable Howard L. Berman, a Representative in Congress from 
  the State of California, and Ranking Member, Subcommittee on 
  Courts, the Internet, and Intellectual Property................     3

                               WITNESSES

Mr. Gary L. Griswold, President and Chief Intellectual Property 
  Counsel, 3M Innovative Properties Company, on behalf of the 
  American Intellectual Property Law Association
  Oral Testimony.................................................     4
  Prepared Statement.............................................     6
Mr. Carl E. Gulbrandsen, Managing Director, Wisconsin Alumni 
  Research Foundation (WARF)
  Oral Testimony.................................................    16
  Prepared Statement.............................................    19
Mr. Josh Lerner, Jacob H. Schiff Professor of Investment Banking, 
  Harvard Business School
  Oral Testimony.................................................    33
  Prepared Statement.............................................    34
Mr. Daniel B. Ravicher, Executive Director, Public Patent 
  Foundation (PUBPAT)
  Oral Testimony.................................................    36
  Prepared Statement.............................................    38

                                APPENDIX
               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..........................................    63
Prepared Statement of the Honorable John Conyers, Jr., a 
  Representative in Congress from the State of Michigan..........    63
Prepared Statement of the Honorable Zoe Lofgren, a Representative 
  in Congress from the State of California.......................    64
Memorandum of the Honorable Zoe Lofgren, a Representative in 
  Congress from the State of California..........................    65
Letter from Michael K. Kirk, Executive Director, American 
  Intellectual Property Law Association (AIPLA), in response to 
  questions to Gary Griswold, President and Chief Intellectual 
  Property Counsel, 3M Innovative Properties Company, submitted 
  by the Honorable Zoe Lofgren, a Representative in Congress from 
  the State of California........................................    67
Prepared Statement of the Computer & Communications Industry 
  Association....................................................    75


                           PATENT ACT OF 2005

                              ----------                              


                         THURSDAY, JUNE 9, 2005

                  House of Representatives,
              Subcommittee on Courts, the Internet,
                         and Intellectual Property,
                                Committee on the Judiciary,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 9:20 a.m., in 
Room 2141, Rayburn House Office Building, the Honorable Lamar 
Smith (Chair of the Subcommittee) presiding.
    Mr. Smith. Good morning. The Subcommittee on Courts, the 
Internet, and Intellectual Property will come to order.
    Let me say that I should have had more faith in our 
witnesses and in the audience. I had no idea you all would be 
here and be so prompt. When the building was closed this 
morning, I thought, ``Well, we'll be lucky to start at 10:00;'' 
then I backed it up to 9:30. Then I get a call that three of 
our witnesses have already showed up at 9:00, so I realized 
that we're going forward pretty much on time as expected. So 
thank you for your promptness, for your interest, and for your 
diligence in coming even though there was a delay, as you all 
know, getting into the building this morning.
    I'm going to recognize myself for an opening statement, 
then the Ranking Member, and then we'll proceed.
    Today marks our third hearing on patent reform in the 109th 
Congress. The first two focused on the contents of a Committee 
Print. I want to take a moment to commend the Members of this 
Subcommittee, all of the witnesses, and other interested 
parties who have contributed so much to this project over the 
past 6 months.
    To arrive at this point is no small accomplishment, given 
the scope of the bill and its eventual application to so many 
lives and jobs. The bill in its current form is, without 
question, the most comprehensive change to U.S. patent law 
since Congress passed the 1952 Patent Act.
    This Subcommittee has undertaken such responsibility 
because the changes are necessary to bolster the U.S. economy 
and improve the quality of living for all Americans. The bill 
will eliminate legal gamesmanship from the current system that 
rewards lawsuit abuses over creativity. It will enhance the 
quality of patents and increase public confidence in their 
legal integrity.
    This will help individuals and companies to obtain seed 
money for research, commercialize their inventions, grow their 
businesses, create new jobs, and offer the American public a 
dazzling array of products and services that make our country 
the envy of the world. All businesses, small and large, will 
benefit. All industries, directly or indirectly affected by 
patents, including finance, automotive manufacturing, high-
tech, and pharmaceuticals, will profit.
    The bill before us is a good first cut of what we 
envisioned when this process commenced. No doubt, it will 
undergo changes as we proceed to markup. In this regard, I 
encourage the industry working groups to continue negotiating. 
If interested parties keep talking and remain committed to a 
holistic approach in which the greater good prevails, then we 
can and will produce a patent bill that benefits all Americans.
    That said, I will note that the bill makes the following 
substantive changes from the Committee Print. First, in 
response to criticism of the apportionment of damages section 
of the print, the bill contains language from case law that 
more clearly distinguishes between an inventive contribution 
and other features.
    Second, the bill replaces the print text governing 
injunctive relief which does not allow a court to presume the 
existence of irreparable harm. Instead, the new language 
supplements the existing statute on injunctive relief by 
compelling a court to consider the fairness of the remedy in 
light of all the facts and the relevant interests of the 
parties associated with the invention. The provision also makes 
it easier for a judge to stay an injunction pending appeal.
    Third, the bill addresses the issue of continuations, by 
authorizing the PTO director to limit by regulation the 
circumstances in which an applicant may file a continuation and 
still be entitled to the priority date of the parent 
application.
    Fourth, the bill includes a second window for proceedings 
under the post-grant opposition system. This additional review 
must be initiated within 6 months from the date on which a 
notice of infringement is received.
    Finally, section 10 of the bill allows third-party 
submission of prior art within 6 months after the date of 
publication of the patent application. The third party must 
articulate the relevance of each submission, and pay an 
accompanying fee to defray PTO expenses and discourage 
frivolous submissions.
    The other provisions in the bill largely mirror those in 
the print, with the exception of clarifying technical and 
conforming changes.
    We intend to mark up this bill by the end of the month, so 
it is incumbent upon Subcommittee Members, industry 
stakeholders, the PTO, and other interested parties, to work 
hard and in good faith between now and June 30th.
    That concludes my opening statement. But before I recognize 
the Ranking Member, Mr. Berman, I do want to say in recognizing 
him that this is truly a bipartisan bill. It started off as a 
Smith-Berman bill. It is now a ``Smith-Berman-Goodlatte-
Boucher-Lofgren-Darrell Issa and, I hope, Bill Jenkins bill.'' 
We have a nice bipartisan bill going forward.
    And this isn't the first Smith-Berman bill; nor will it be 
the last Smith-Berman bill. There will probably not be a Smith-
Berman immigration bill, but there will be many more IP bills. 
And that's one of the advantages and satisfactions of this 
particular IP Subcommittee.
    So in saying so, let me thank Mr. Berman again for his co-
sponsorship and for his input along the process, and will now 
recognize him for his opening statement.
    Mr. Berman. Well, thank you, Mr. Chairman. And I have hopes 
that, with the passage of time, you will see the error of your 
ways, and there will be a joint Smith-Berman bill on 
immigration. [Laughter.]
    Thanks for scheduling the hearing on this Patent Act of 
2005. Thank you for your leadership in putting what I think is 
a credible and good bipartisan package of provisions together 
in this legislation, and for focusing both the Subcommittee and 
the interested parties and the public on an intention to move 
legislation expeditiously.
    A number of groups have worked diligently to arrive at a 
consensus on reforms necessary to improve existing patent laws. 
There seems to be agreement that any legislation should focus 
on three broad subjects: the decrease in patent quality; the 
increase in litigation abuses; and the need to harmonize U.S. 
patent laws with the patent laws of foreign countries.
    The Chairman and I and our staffs have carefully considered 
the copious comments on the Committee Print, and have carefully 
crafted H.R. 2795 to respond to the concerns.
    I initially became interested in patent reform primarily 
because of the multitude of questionable-quality patents that 
were being issued. High-quality patents are essential to a 
healthy patent system. Poor-quality patents tend to spawn 
litigation; which in turn creates uncertainty in markets that 
depend on patent rights. As a result, investors hesitate to 
invest; innovators hesitate to invent.
    That is why I'm pleased that there is strong support for a 
key quality provision in the bill allowing third parties to 
submit prior art to examiners within a limited time frame. With 
section 10, we have taken an important first step in addressing 
the problem of poor patent quality, by enabling examiners to 
have more information from additional sources. During the 
question-and-answer portion of the hearing, I intend to explore 
the merits of the additional quality measures, such as the 
second window in the post-grant opposition procedure.
    The bill is by no means a perfect solution, but I believe 
many of my additional concerns will be addressed as the bill 
goes through Committee. For example, the PTO has voiced some 
concerns about its ability to administer the provision on the 
duty of candor. If the agency tasked with managing the 
procedure believes it will have trouble doing so, it's worth 
taking a second look at the consequences of the language.
    Furthermore, I think the harmonization provisions need to 
be fleshed out a bit more to address the concerns of small 
inventors and universities; which I hope at least one of the 
witnesses will speak to today.
    As we move forward in this process, I hope we'll continue 
to seek a consensus on the best way to reform our patent 
system. I look forward to hearing from the parties interested 
in patent reform over the next few weeks, in order to rectify 
any unintended consequences presented by the text of the bill. 
Overall, I believe that our bill has addressed a number of 
pressing issues and will certainly create a healthier, more 
effective patent system. Thank you, Mr. Chairman.
    Mr. Smith. Thank you, Mr. Berman. And without objection, 
other Members' opening statements will be made a part of the 
record.
     And I'd like to invite our witnesses to stand and be sworn 
in.
    [Witnesses sworn.]
    Mr. Smith. Our first witness is Gary Griswold, President 
and Chief Intellectual Property Counsel of 3M Innovative 
Properties Company, who will be testifying on behalf of the 
American Intellectual Property Law Association, or AIPLA. He 
has practiced intellectual property for 27 years at 3M and 
Dupont, and has served as a past president at both AIPLA and 
the Intellectual Property Owners Association. Mr. Griswold 
received a B.S. in chemical engineering from Iowa State 
University, an M.S. in industrial administration from Purdue 
University, and a J.D. from the University of Maryland.
    Our next witness is Carl E. Gulbrandsen, Managing Director 
of the Wisconsin Alumni Research Foundation, or WARF, which is 
the patent management organization for the University of 
Wisconsin at Madison. Mr. Gulbrandsen received his B.A. from 
Saint Olaf College in Northfield, Minnesota. He also earned a 
doctorate in physiology from the University of Wisconsin, 
Madison; and a law degree from the University of Wisconsin Law 
School.
    Our next witness is Josh Lerner, the Jacob H. Schiff 
Professor of Investment Banking at Harvard Business School, 
with a joint appointment in the Finance and Entrepreneurial 
Management Units. His research focuses on the structure of 
venture capital organizations and their role in transforming 
scientific discoveries into commercial products. He also 
examines the impact of intellectual property protection, 
especially patents, on the competitive strategies of firms in 
high-tech industries. I have found very helpful his most recent 
book, co-written with Adam Jaffe, entitled ``Innovation and Its 
Discontents.''
    Our final witness is Dan Ravicher, Executive Director of 
the Public Patent Foundation, or PUBPAT, in New York. PUBPAT is 
a not-for-profit legal services organization that was formed to 
represent the public interest ``against harms caused by wrongly 
issued patents and unsound patent policy.'' Mr. Ravicher 
received his bachelor's degree in materials science from the 
University of South Florida, and his law degree from the 
University of Virginia.
    Welcome to you all. We have your complete written 
statements, which will be made a part of the record, without 
objection. And please, as you all know, limit yourselves to 5 
minutes on your opening remarks.
    And Mr. Griswold, we'll begin with you.

TESTIMONY OF GARY L. GRISWOLD, PRESIDENT AND CHIEF INTELLECTUAL 
 PROPERTY COUNSEL, 3M INNOVATIVE PROPERTIES COMPANY, ON BEHALF 
     OF THE AMERICAN INTELLECTUAL PROPERTY LAW ASSOCIATION

    Mr. Griswold. Thank you. Chairman Smith, Ranking Member 
Berman, Members of the Subcommittee, I am pleased to have the 
opportunity to present the views of AIPLA on H.R. 2795, the 
``Patent Act of 2005.''
    Like one-third of the AIPLA's active members, I come from 
the corporate world where I am currently president and chief IP 
counsel of 3M Innovative Properties Company, a subsidiary of 
3M, a company that sells over 50,000 different products, from 
pharmaceuticals to electronics to consumer products.
    A special AIPLA legislative strategies committee, 
established in the fall of 2003, was charged with devising a 
coordinated set of reforms to enhance the quality, speed, and 
efficiency of the patent system.
    The committee recommended that the patent laws be amended 
to: adopt a first-inventor-to-file system, with an objective 
definition of ``prior art;'' limit or eliminate the subjective 
elements in patent litigation; complete the desirable 
legislative enhancements originally proposed in the American 
Inventors Protection Act; and adopt a fair and balanced post-
grant opposition system that takes advantage of the elimination 
of the subjective elements in patentability criteria that 
accompany adoption of the first-inventor-to-file principle.
    AIPLA would like to highlight, however, the most 
fundamental problem in need of a solution: adequate and stable 
funding for the PTO. Both the National Academies of Science and 
the Federal Trade Commission, following their thorough reviews 
of the patent system, agree with AIPLA on this crucial point. 
The reforms in H.R. 2795 will require the PTO to play a greater 
role in the patent system, a role it cannot play unless it's 
adequately funded.
    Most provisions of H.R. 2795 contribute to improvements in 
the quality, speed, and efficiency of the patent system. These 
include new section 8 that authorizes the director to regulate 
the filing of continuing applications, while ensuring that 
applicants can obtain adequate protection for their inventions; 
and new section 10, which will provide the public with an 
opportunity to submit information to the office to improve the 
initial examination.
    These provisions, coupled with the provisions carried over 
from the Committee Print that implemented the recommendations 
of our special committee, will materially improve patent 
quality and simplify litigation.
    Other provisions which have found their way into H.R. 2795 
do not address these fundamental goals. Here, I am speaking of 
modification of the fundamental exclusivity of the patent 
right, and the transformation of post-grant procedure into a 
patent revocation procedure. Neither of these proposals will 
improve the quality, speed, and efficiency of the patent 
system.
    Of greatest concern to AIPLA is the proposal in section 7 
to modify the existing rules of granting permanent injunction 
for a valid and infringed patent. AIPLA strongly opposes this 
provision. It will devalue the property right of patentees by 
undercutting their traditional right to injunctive relief 
against adjudged infringers.
    Its impact will be especially harsh on independent 
inventors, who already face great difficulty in commercializing 
their patented inventions. It will be likewise equally harsh on 
universities, who are precluded in many, if not most, cases 
from directly commercializing their inventions and who must 
therefore rely on licensing and selling them.
    It will also set an extremely unfortunate precedent 
internationally for the United States, by suggesting to other 
nations that there need be no patent exclusivity for all 
inventions; that other nations can also pick and choose the 
patented inventions for which they grant exclusivity.
    This Subcommittee recently held hearings on the enforcement 
problems that the U.S. right-holders are experiencing in Russia 
and China. One can only imagine what might be considered a 
``fair remedy in light of the relevant interests of the 
parties'' in those countries. The danger of this provision 
seems inordinately high, in view of the other possibilities of 
addressing the problems it is intended to solve. AIPLA strongly 
urges that this provision be dropped.
    As I noted at the outset, AIPLA is a strong proponent of an 
effective and balanced post-grant procedure to allow the public 
to promptly correct mistakes made in the PTO in issuing 
patents. We strongly believe, however, that there should be 
only one window for requesting an opposition, and that the 
window should be 9 months after the patent is issued, to 
encourage the public to act promptly.
    After the initial 9-month period has passed and no 
opposition has been filed, patentees should enjoy a ``quiet 
title'' without a fear of later administrative challenges, 
except for inter partes reexamination procedure, which this 
bill has made more attractive.
    This brings me to the second window proposed in the new 
section of H.R. 2795, which would permit an individual to file 
an opposition not later than 6 months after receiving notice 
from the patent holder alleging infringement.
    AIPLA opposes a second window for bringing an opposition 
for the life of the patent. The post-grant procedure was 
conceived and designed as an early check on PTO quality. This 
proposed second window will remove the incentive to challenge 
patents during the first window, allowing improvidently granted 
patents to escape this important early quality-enhancing 
function and impede competition.
    A second window would increase the risks faced by patent 
holders, and dampen the enthusiasm for companies and venture 
capitalists to invest in the development and commercialization 
of patented technologies.
    Finally, a second window would, in effect, create a 
``patent revocation'' system that does not fit the design of 
the post-grant system. It would require a significant 
restructuring of the provisions on discovery, claim amendment, 
burden of proof, estoppel, etc. For all these reasons, AIPLA 
strongly urges that the second window be dropped.
    Thank you for the opportunity to present my views, our 
views, and I'd be pleased to answer any questions.
    [The prepared statement of Mr. Griswold follows:]
                  Prepared Statement of Gary Griswold
    Mr. Chairman:
    I am pleased to have the opportunity to present the views of the 
American Intellectual Property Law Association (AIPLA) on H.R. 2795, 
entitled the ``Patent Act of 2005.'' AIPLA congratulates you for your 
efforts to identify important issues affecting the U.S. patent system 
and to search for appropriate reforms to increase its effectiveness.
    AIPLA is a national bar association of more than 16,000 members 
engaged in private and corporate practice, in government services, and 
in the academic community. The AIPLA represents a wide and diverse 
spectrum of individuals involved directly or indirectly in the practice 
of patent, trademark, copyright, and unfair competition law, as well as 
other fields of law affecting intellectual property. Since our members 
represent both patent owners as well as those against whom patents are 
asserted, we have a keen interest in reforms that further an efficient, 
effective, and balanced patent system.
    I appear today in my capacity as a Past President of AIPLA and as 
the Chair of two Special Committees appointed by then President Rick 
Nydegger to review and prepare responses to two recent studies on the 
patent system about which I will say more in a moment. But like one 
third of AIPLA's active members, I come from the corporate world. I am 
currently President and Chief IP Counsel of 3M Innovative Properties 
Company, a subsidiary of 3M. 3M sells over 50,000 products, including 
consumer products such as ``Post-It'' Notes and ``Scotch'' Tape, 
pharmaceuticals such as Aldara for the treatment of basal skin 
carcinoma; medical products such as tapes, drapes, and software; 
brightness enhancement film used in laptops and cell phones; industrial 
products such as abrasives, adhesives and tape; and electronic products 
such as flex circuits and electrical connectors. 3M received 585 U.S. 
patents in 2004, ranking 34th of worldwide and 15th of U.S. companies.
                          the need for reform
    The U.S. patent system has, in certain respects, functioned 
remarkably well. Its successes today are in significant part 
attributable to a number of reforms that have been made by Congress 
during the past 25 years. The creation of the Federal Circuit, the 
passage of the Patent Law Amendments Act of 1984, the adoption of 
reexamination, and the enactment of the American Inventors Protection 
Act have made the patent system more open and much stronger as an 
incentive to invest in innovation. However, there are aspects of the 
U.S. patent system that are not working well today. Over the past 
decade, some of these elements of the patent system have, in fact, come 
to work less well.
    This conclusion is shared by others. Two recent studies of the U.S. 
patent system have produced lengthy reports that have largely come to 
the same conclusion. The Federal Trade Commission (FTC) report, 
published in October 2003, found that while most of the patent system 
works well, some modifications are needed to maintain a proper balance 
between competition and patent law and policy. The FTC made ten 
recommendations that focused on tuning the balance between patent 
owners' rights to effective exclusivity in valid patents and the 
public's right to be free from the competition-limiting effects of 
invalid patents.
    The report of the National Academies of Sciences' Committee on 
Intellectual Property Rights in the Knowledge-Based Economy was 
published just one year ago, in April 2004. Like the FTC effort, it was 
the culmination of a multi-year study of the patent system. The NAS 
report found that the U.S. patent system played an important role in 
stimulating technological innovation by providing legal protection to 
inventions and by disseminating useful technical information. Moreover, 
with the growing importance of technology to the nation's well-being, 
it found that patents are playing an even more prominent role in the 
economy. It concluded with seven principal recommendations to ensure 
the vitality and improve the functioning of the U.S. patent system, 
several of which overlap those made by the FTC.
    AIPLA has also studied the effectiveness of the patent system. 
Former AIPLA President Rick Nydegger recognized the need to review the 
functioning of the patent system almost two years ago and established a 
Special AIPLA Committee on Patent Legislative Strategies in an effort 
to provide more concrete and coordinated ideas for needed reforms to 
the patent law. The Special Committee was co-chaired by two other 
former AIPLA Presidents, Don Martens and Bob Armitage, and its 
membership was drawn from a diverse cross-section of AIPLA members. It 
included former senior officials of the United States Patent and 
Trademark Office, a retired federal district court judge, some of the 
nation's leading patent litigators including Past Presidents of our 
Association, and in-house IP counsel drawn from several industry 
sectors. I served on this Special Committee.
    In efforts paralleling that of our Special Committee on Legislative 
Strategies, I had the privilege, as I mentioned earlier, of chairing 
two AIPLA Special Committees that undertook an exhaustive analysis of 
the recommendations in both the FTC and NAS reports and offered 
replies. These parallel and sometimes intersecting efforts stimulated 
us to take a closer look at a number of issues and push to further 
develop and refine concrete proposals for reforms.
    The Association's position on needed patent law reforms coming out 
of this two-year effort consisted of four elements. First, adopt a 
first-inventor-to-file principle using so-called ``best practices'' 
developed in the context of international patent harmonization. Second, 
remove the ``subjective elements'' from patent litigation that are 
responsible for much of the excessive cost of enforcing and challenging 
patents. Third, complete the reforms started under the American 
Inventors Protection Act, a step which is greatly facilitated given the 
compelling merits for doing so as part of a first-inventor-to-file 
system. Fourth, create a true post-grant opposition system available 
during the first nine months after patent grant in which mistakes made 
in issuing the patent could be corrected in a manner that is both 
timely and that fairly balances the interests of the patentee and the 
opposer.
    After developing these reform proposals that were ultimately 
approved following several meetings of AIPLA's Board of Directors, we 
concluded that it would be highly desirable to take them to a broader 
public. After discussions with the officials responsible for developing 
similar recommendations in the FTC and NAS reports, we agreed with FTC 
and NAS to jointly sponsor three ``Town Hall'' meetings across the 
country. These were open forums to explain to all stakeholders the 
proposed reforms to the patent system and to allow them to offer their 
reactions and suggestions. We are holding the fourth and final meeting 
today where you, Mr. Chairman, are scheduled to deliver a luncheon 
address. This final meeting will allow us to distill the work of the 
three previous meetings.
    What is striking about the parallel efforts by these three quite 
different organizations with quite distinct missions are the many 
similarities in the diagnosis of what needs improving in the patent 
system and, especially between AIPLA and NAS, the convergence in the 
recommendations for doing so.
    For any organization putting together an effort at patent law 
reform, a critically important task is to make a clear separation 
between what is right with our patent laws--and does not requiring 
tinkering--and what is wrong with our patent laws--and, therefore, 
should be the subject of focused attention. Where, for example, could 
reforms have the biggest benefits for all users of the patent system? 
What is actually ready for reform today--because a sufficient consensus 
already exists or could be developed--and sufficient study and 
scholarship has taken place? And where might more study and reflection 
be needed before forging ahead with changes to the patent system? Our 
assessment is that our work with the NAS and the FTC in large part 
validates our four-point reform package as a possible way forward to 
near-term patent reforms.
    We have been especially mindful that patent law reform is never 
easy because of the diversity of the constituencies with a stake in the 
patent system. However, AIPLA believes that successful patent law 
reform has been and always will be an effort at inclusion. This comes 
naturally to us because our membership reflects the diversity of 
stakeholders in the patent system--clients of our members both obtain 
patents and challenge patents. Similarly, our members represent clients 
for whom money is not a critical limitation on the ability to use the 
patent system and clients for whom the cost of the patent system is the 
chief limitation on the ability to enjoy its advantages.
    Our notion of inclusion means, therefore, that reforms work to make 
a better patent system not only for inventors with adequate resources--
more often than not inventors connected with so-called ``large 
entities'' such as corporations--but also for the least financially 
able inventors--which includes many ``independent inventors,'' not-for-
profit institutions, and small businesses.
    Another equally important aspect of inclusion relates to the manner 
in which the patent system works to protect the interests of those who 
seek patents, those who challenge patents, and the public. The patent 
system works best when standards for patentability are rigorously 
applied and mistakes--that will inevitably be made when patents are 
issued that should not have--can be readily corrected. While much 
emphasis is understandably placed on making the patent system work 
better for inventors, a fair and balanced patent system needs to work 
equally well when a member of the public seeks to have a mistake made 
in issuing a patent quickly and inexpensively corrected.
    Against this background, AIPLA believes that the time is right for 
Congress to adopt a coordinated and interrelated set of reforms to the 
patent system as recommended by the NAS and which we support:

          Adopt a first-inventor-to file system with an 
        objective definition of ``prior art''--the information used to 
        determine if an invention is new and non-obvious.

          Limit or eliminate the subjective elements in patent 
        litigation, i.e., limit ``inequitable conduct'' and ``willful 
        infringement,'' and eliminate ``best mode.''

          Complete the desirable legislative enhancements 
        originally proposed in what became the American Inventors 
        Protection Act of 1999.

          Adopt a fair, balanced post-grant opposition system 
        that takes advantage of limiting or eliminating the subjective 
        elements in patentability criteria and other best practice 
        changes that accompany adoption of the first-inventor-to-file 
        principle.
        funding: an essential prerequisite for patent law reform
    Before discussing our legislative proposals for patent law reform, 
we cannot overlook the most fundamental problem in need of a solution--
adequate and stable funding and operational flexibility for the PTO. 
Any careful study of the U.S. patent system today would reach this 
conclusion--indeed, both the NAS and FTC recommended providing adequate 
funding for the PTO. The Office must be afforded the resources and 
capabilities to deal with a workload that has grown dramatically--both 
in size and complexity. As patent rights have become more important, it 
has become much more important that the quality of PTO's work improve. 
Important patents take too long to issue. Technologies new to patenting 
require building new capabilities for examining them, sometimes almost 
from scratch.
    The need for a more efficient and effective PTO will require 
adequate funding, but it will also require long-range planning, 
oversight, and accountability. The PTO can not be expected to 
successfully engage in such long-range planning without an adequate 
level of funding that it can depend on year after year, with no 
diversion of its fee revenues. AIPLA supported the PTO's development of 
the Strategic Plan requested by Congress. For the Office to be able to 
build new capabilities, improve its quality, become more efficient, and 
serve all its constituencies, it must anticipate, plan for, and invest 
in new capabilities. This requires on-going efforts at long-term 
planning that must include long-range financial and operational 
planning.
    Of course, PTO planning and Congressional oversight will mean 
nothing without adequate funding. Many of the reforms that AIPLA and 
others are proposing, such as post-grant opposition, will require the 
PTO to play a greater role in the overall patent system. AIPLA is 
dedicated to working with the Congress, both this Committee and the 
Appropriations Committee, to secure a financing structure that will 
allow the patent law reforms which we propose to be achieved. However, 
we cannot emphasize enough the importance of this goal: the most 
significant patent law reforms absolutely depend on the PTO having the 
financing and operational flexibility to carry them out effectively and 
efficiently.
                               h.r. 2795
    H.R. 2795 contains a number of proposals for modifying the patent 
system. As explained above, AIPLA developed its recommendations for 
patent system reform building on the extensive research and hearings 
held by the FTC and the NAS. Other associations interested in the 
patent system such as the Intellectual Property Owners Association, the 
Intellectual Property Law Section of the American Bar Association, and 
the Biotechnology Industry Organization were developing recommendations 
along lines similar to AIPLA.
    In January, we became aware of a proposal from the Business 
Software Alliance to revise the patent laws. In some respects, our 
concerns overlapped. For example, we agreed in concept on the need to 
adopt an effective post-grant opposition system and the need to 
constrain burdens placed upon industry by the current jurisprudence 
involving the doctrine of willful patent infringement. In other 
respects, our proposals diverged.
    AIPLA has worked hard to seek common ground. AIPLA invited the four 
organizations mentioned above to meet to determine whether it might be 
possible to narrow the differences between our positions. We have held 
a number of meetings with these organizations (March 16, March 31, and 
May 9). Recognizing that there were certain issues where the 
organizations were far apart, several working groups were established 
to seek common ground on these issues as well as on issues where the 
divide was not as large. These working groups addressed willful 
infringement, damages, injunctive relief, post-grant oppositions, and 
pre-grant submission of prior art. From May 31st through June 2nd, in 
response to your urging Mr. Chairman, and with the able assistance of 
your staff, we held additional meetings with an expanded group of 
organizations (the Information Technology Industries Council, the 
Pharmaceutical Research and Manufacturing Association, the National 
Association of Manufacturers, and the Financial Services Roundtable 
among others).
Sec. 3. Right of the First Inventor to File
    AIPLA supports the principle in Section 3 of H.R. 2795 that the 
first inventor to file an application for patent containing an adequate 
disclosure (35 U.S.C. Sec. 112) of an invention should have the right 
to patent the invention. This change in U.S. patent law would bring a 
much needed simplification of the process and reduce the legal costs 
imposed on U.S. inventors. It would also improve the fairness of our 
patent system, and would significantly enhance the opportunity to make 
real progress toward a more global, harmonized patent system.
    The current system requires complex proofs of invention and is 
fundamentally unfair to independent inventors and small entities due to 
its costs and complexities. It frequently does not award patents to the 
first to invent. It uniformly awards patents to the first-inventor-to-
file for a patent except in a very small number of cases where 
sufficient, corroborated invention date proofs can be marshaled to 
demonstrate that a second-to-file inventor can overcome the presumption 
currently afforded under our patent law in favor of the first inventor 
who filed.
    Moreover, the expense and complexity of the first-to-invent system 
mean that an inventor can be first to make the invention and first to 
file a patent application, but still forfeit the right to a patent 
because the inventor cannot sustain the cost of the ``proof of 
invention'' system. According to AIPLA's 2003 Economic Survey, the 
median cost to an inventor in a simple, two-party interference is 
$113,000 to complete the preliminary phase (discovery) and over 
$300,000 to the final resolution. Costs of this magnitude place 
independent inventors, small entities and universities at a clear 
disadvantage.
    This disadvantage has been heightened in recent years by the new 
right of foreign-based inventors to introduce invention date proofs. 
While a decade ago a U.S.-based inventor might have had some advantage 
because of the bar against relying on a foreign date of invention, this 
provision of U.S. patent law was outlawed by TRIPs. Thus, independent 
inventors, small entities and universities are now also subject to this 
kind of cost disparity from attacks brought by foreign applicants and 
parties.
    Former PTO Commissioner Gerald J. Mossinghoff presented empirical 
data at our Town Hall meetings based on his earlier research. See 
Gerald J. Mossinghoff, The First-to-Invent System Has Provided No 
Advantage to Small Entities, 88 J. Pat & Trademark Off. Soc'y 425 
(2002). His data demonstrated conclusively that independent inventors, 
whose right to patent their inventions depended on their ability to 
prove that they were ``first to invent,'' managed to lose more often 
than not. In an April 15, 2005 Working Paper published by the 
Washington Legal Foundation, Mossinghoff's most recent data suggests 
that the rate of loss by independent inventors has only accelerated 
over the past several years (Gerald J. Mossinghoff, Small Entities and 
the ``First to Invent'' System: An Empirical Analysis, http://
www.wlf.org/upload/MossinghoffWP.pdf ).
    An analysis by Professor Mark A. Lemley and Colleen V. Chien 
reaches an even more stunning conclusion. The Lemley and Chien findings 
suggest that the current first-to-invent contests ``are more often used 
by large entities to challenge the priority of small entities, not the 
reverse. This evidence further supports Mossinghoff's conclusion that 
the first to invent system is not working to the benefit of small 
entities.'' See Are the U.S. Patent Priority Rules Really Necessary?, 
54 Hastings Law Journal 1 (2003).
    Given the cost, complexity and demonstrable unfairness imposed by 
the present first-to-invent system, it is clear that a change to a 
first-inventor-to-file system in our patent law is justifiable simply 
on grounds that it is the ``best practice.''
    With the adoption of a first-inventor-to-file rule, 35 U.S.C. 
Sec. 102 can be greatly simplified. Prior art would no longer be 
measured against a date of invention: if information anticipating or 
making reasonably obvious the invention was reasonably and effectively 
accessible before the earliest effective filing date of a patent 
application, no patent issues. Similarly, the question of whether an 
inventor ``abandoned'' an invention would no longer be relevant. And, 
of course, proofs of conception, diligence, and reduction to practice, 
all of which require difficult and costly evidence of ``what the 
inventor knew/did and when the inventor knew/did it,'' become 
irrelevant.
    A first-inventor-to-file system will also clearly benefit large and 
small businesses. It will eliminate the present delays and uncertainty 
associated with resolution of interferences which complicate business 
planning. In addition, it will remove the potential cloud over 
important inventions that will always be present in a first-to-invent 
system.
Sec. 4. Right to a patent--Filing by Assignee
    As discussed above, AIPLA believes that it is paramount that the 
patent statute clearly provide that the right to a patent is, in the 
first instance, the right of the inventor as provided in section 4 of 
the Committee Print. This fundamental right is captured in the 
description of the priority system we propose: first-inventor-to-file. 
This right of the inventor is well understood in the laws of other 
countries--only the inventor has the right to a patent. The inventor 
can transfer this right through assignment if desired, but no one can 
take the invention and obtain a valid patent merely by filing the first 
application.
    To compliment this fundamental right, section 4 authorizes any 
person to whom the inventor has assigned the invention to file an 
application for patent. AIPLA supports this provision. It will greatly 
facilitate the filing of patent applications by companies where their 
employed inventors have assigned the title to the invention or where 
they are under an obligation to assign the invention.
Sec. 4. Right to a patent--Eliminate ``Best Mode''
    As noted above, NAS singled out three so-called ``subjective 
elements'' in patent litigation that should be limited or eliminated. 
The ``best mode'' requirement is the first of those subjective elements 
addressed in the Committee Print. Section 112 of the Patent Act 
requires that an application ``set forth the best mode contemplated by 
the inventor of carrying out his invention.'' To enforce this 
requirement, courts inquire whether the inventor, at the time of 
filing, knew of a mode of practicing the invention that the inventor 
believed was better than that disclosed in the application. This test 
is obviously subjective, focusing on the inventor's state of mind at 
the time an application was filed.
    Because the defense depends on historical facts and because the 
inventor's state of mind usually can be established only by 
circumstantial evidence, litigation over this issue--especially 
pretrial discovery--can be extensive and time-consuming. Further, the 
best mode requirement provides only a marginal incentive for a patentee 
to disclose more information than is required by the written 
description and enablement provisions of 35 U.S.C. Sec. 112. Given the 
cost and inefficiency of this defense and its limited incentive to 
provide additional disclosure to the public, the NAS report recommended 
its elimination and section 4 adopts that recommendation.
    AIPLA endorses this change. Section 4 of H.R. 2795 does not change 
the requirements that every patent application must provide the public 
a full description of the invention (i.e., the so-called ``written 
description'' requirement) and fully enable the practice of the 
invention the inventor seeks to patent (i.e., the so-called 
``enablement'' requirement). However, it removes the problematic and 
subjective best mode requirement, first introduced into the patent law 
in the 1952 Patent Act, that the inventor additionally include in the 
patent application the mode the inventor subjectively contemplated to 
be the best as of the day that the application was filed.
Sec. 5. Duty of candor
    The National Academies singled out the ``inequitable conduct'' 
defense as another of three so-called ``subjective elements'' in patent 
litigation that should be limited or eliminated. Inventors and patent 
owners desperately need to have Congress address the issue of the 
``inequitable conduct'' unenforceability defense. Section 5 does this.
    The defense of inequitable conduct applies when the patent 
applicant has made a material misstatement or omission with intent to 
deceive the PTO. Examples of conduct punishable as inequitable conduct 
might include the intentional failure to disclose a known prior art 
reference that is material to patentability (unless cumulative of other 
art already considered), or making false or misleading statements to 
the PTO such as when submitting false or misleading evidence of test 
data to support patentability. Despite the salutary intent of the 
doctrine, it has become an overused weapon in patent litigation. As 
noted in Burlington Industries v. Dayco Corp. 849 F.2d 1418 (Fed. Cir. 
1988), ``[T]he habit of charging inequitable conduct in almost every 
major patent case has become an absolute plague.''
    AIPLA agrees with the approach in section 5 to limit the 
``inequitable conduct'' defense by accused infringers in patent 
litigation to clear cases of common law fraud. Under section 5, the 
defense of inequitable conduct could only be pled where the court has 
first invalidated a claim and the accused infringer has a reasonable 
basis for alleging that, absent the fraudulent misconduct attributable 
to the patent owner (``but for'' the conduct of the patent owner), a 
reasonable patent examiner would not have allowed the invalidated claim 
to issue as part of the patent. Where such conduct is proven, a fraud 
has occurred and the patent would be unenforceable. Thus, while a 
patent owner who had engaged in a fraud to secure an invalid claim 
would not be able to enforce the patent--the patent owner's ``unclean 
hands'' would preclude such enforcement--section 5 would return the 
``inequitable conduct'' defense to its equitable roots. Importantly, it 
would drastically reduce the current practice of asserting this defense 
in virtually all cases, by limiting it only to cases where claims have 
first been found to be invalid due to such misconduct.
    However, of equal importance, section 5 would not excuse other 
possible misconduct by a patent owner that does not rise to the level 
of fraud--that is, misconduct that would not have resulted in an 
examiner allowing a claim even if the omission or misstatement had not 
occurred. Such misconduct would be referred back to the PTO by the 
court. Thus section 5 would keep intact the duty of candor and good 
faith on individuals associated with the filing of a patent 
application. Further, it would give the PTO the authority to administer 
that duty where questionable misconduct is uncovered during patent 
enforcement proceedings. Like other agencies, Congress should look to 
the PTO to enforce its own rules and charge it with the responsibility 
for doing so. No agency of government undertaking work of crucial 
importance to the nation should have rules mandating high standards of 
conduct for those appearing before it and not have responsibility, 
resources, and capabilities for administering and enforcing those 
rules. This would allow the Office--as part of its control over the 
duty of candor and good faith--to determine whether or not the 
allegations merited investigation and sanction in appropriate cases 
referred to it during litigation.
    Giving the PTO authority over the duty of candor and good faith 
means that the Office could address other related dilemmas faced by 
those representing clients who--justifiably and consistently--have 
opposed efforts by the Office to mandate more meaningful disclosures of 
information. Such more meaningful disclosures could clearly drive the 
efficiency and accuracy of the patent examination process--for example, 
by specifying the contents of statements to be submitted regarding the 
potential relevance of prior art. Today, if such statements are 
offered, they are fodder for the ``inequitable conduct'' defenses 
raised in patent litigation. Placing the PTO in control of the duty of 
candor and good faith would allow the creation of ``safe harbors'' for 
applicants satisfying enhanced disclosure requirements which could not 
later be used as grounds for an allegation of inequitable conduct.
    Giving the PTO such authority could also address an AIPLA concern 
for the post-grant opposition procedure, namely, that the duty of 
candor and good faith should meaningfully apply to opposers. An opposer 
that raises an issue of unpatentability should be no more free to 
mislead or misrepresent the facts in that proceeding than an inventor 
or patent owner in a PTO proceeding. This is a hole in the duty today 
with respect to reexamination that could be filled by giving the PTO 
such authority.
    We therefore support authorizing the PTO to investigate misconduct 
by opposers and third parties who request reexamination and to impose 
civil monetary sanctions on patentees and disbarment of their 
attorneys. In addition, where false statements have been made, the 
mechanism for sanctioning misconduct should include a mechanism for 
referrals to the Criminal Division of the Department of Justice.
    We believe that such proceedings by the PTO--where the Office 
elects to proceed after reviewing a referral from a court--would be 
relatively rare events, but nonetheless a much more effective deterrent 
to misconduct than the current unenforceability defense. The current 
reliance on the courts for ``enforcement'' of the duty is problematic 
because it can lead to the punishment of benign deeds and the failure 
to punish bad deeds. The ultimate ineffectiveness of the inequitable 
conduct defense today is probably best illustrated by the fact that it 
is raised and litigated in almost every important patent case, but is 
rarely successful.
Sec. 6. Right of the Inventor to Obtain Damages--Determination of 
        Damages
    Section 6 of H.R. 2795 also proposes to add a paragraph to 35 
U.S.C. 284 to limit the award of damages in the situation where the 
infringed patented invention is only one element of the defendant's 
method or apparatus. The provision seeks to limit the damages to the 
portion of the total value of the method or apparatus represented by 
the value of the patented invention.
    This provision addresses what is known as the ``entire market 
value'' rule, which permits recovery on the market value of an entire 
machine when the patented feature is the basis for customer demand for 
the machine. Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538, 1549, (Fed. 
Cir.) (in banc), cert. denied, 116 S. Ct. 184 (1995). There are cases 
where damages have been based on the value of an apparatus of which the 
patented invention was only one element. This occurred in a case where 
the patented invention was found to contribute substantially to the 
increased demand for the entire product and the infringer acknowledged 
that improved performance influenced its decision to incorporate the 
invention into its product. Bose Corporation v. JBL, Inc., 274 F.3d 
1354 (Fed. Cir. 2001).
    A different result was reached, and appropriately so, in Riles v. 
Shell Exploration & Production, 298 F.3d 1302 (Fed. Cir. 2002), where 
the patent claim was directed to a ``method of offshore platform 
installation.'' There the Court set aside a jury verdict because the 
plaintiff's damage model did not ``follow proper reasonable royalty 
criteria'' in claiming damages equal to the cost of constructing the 
platform, 298 F.3d at 1311. Thus, even though the claims were to the 
construction of the entire platform, the inventive character of the 
claimed platform was tied to a novel an element of the platform and 
damages were thus rightfully apportioned based on the value of the 
inventive element added to the platform rather than on the entire 
platform.
    Under current law, courts can flexibly assess each case on its 
merits and reach a fair determination on a royalty rate that will be 
adequate to compensate for the infringement. In determining a 
reasonable royalty, the courts look to the 15 Georgia Pacific factors 
and seem to manage quite nicely. Georgia-Pacific Corp. v. United States 
Plywood Corp., 318 F. Supp. 1116, 1119-1120 (S.D.N.Y. 1970). Therefore, 
we do not believe that a case has been made for codifying the many 
considerations in the case law on the proper calculation of damages.
    Having noted our reservation, however, we believe that the new 
formulation of a rule on the calculation of damages is very much 
improved over the version that appeared in the Committee Print, and it 
is one which we believe is more balanced and thus will be more 
acceptable to a wider constituency. It captures the essence of the 
guidance contained in the Georgia-Pacific case for apportioning damages 
in the case of infringement damages based on claimed combinations where 
patentability of the combination is essentially tied to the inventive 
character of a component of the combination rather than the combination 
itself.
Sec. 6. Right of the inventor to obtain damages--willful infringement
    The third of the three so-called ``subjective elements'' in patent 
litigation that NAS recommended for limitation or elimination is the 
doctrine of willful infringement. In its Report, NAS recommended that 
the doctrine of willful infringement be eliminated from patent 
litigation. It observed that the question of willful infringement 
involves an issue of intent that produces a significant discovery 
burden, introduces an element of substantial uncertainty, and 
complicates much patent infringement litigation. AIPLA does not 
recommend its elimination, but agrees with the limitation on willful 
infringement that is set forth in section 6 of the H.R. 2795.
    In practice, exposure to a claim of willfulness is not limited to 
cases of knowing, intentional infringement. Knowledge of a patent, 
coupled with a decision to engage in or continue conduct later found to 
be infringing, may be enough to result in treble damages. During the 
hearings conducted by the FTC, testimony revealed that some companies 
forbid their engineers from reading patents for fear that such acts 
might be used by a patentee to allege that, because the company had 
``knowledge'' of the patent, the company willfully infringed the 
patent. As reported by the FTC, ``the failure to read a competitor's 
patents can jeopardize plans for a noninfringing business or research 
strategy, encourage wasteful duplication of effort, [and] delay follow-
on innovation . . .'' (To Promote Innovation: The Proper Balance of 
Competition and Patent Law and Policy, Report by the Federal Trade 
Commission, Chapter 6, page 29 (October 2003)). This fear forcefully 
demonstrates the chilling effect that the law on willfulness has on 
what would otherwise be an appropriate use of patents, and how 
consequently the current law on willfulness effectively undermines the 
Constitutional purpose of the patent system, i.e., to promote the 
progress of the useful arts.
    Moreover, willfulness is asserted in most cases. Professor Kimberly 
A. Moore, George Mason University School of Law, conducted an empirical 
study of willfulness, looking at patent infringement cases that 
terminated during litigation from 1999-2000. Professor Moore found that 
willful infringement was alleged in over 92% of the cases, observing 
that her ``results suggest that willfulness claims are plaguing patent 
law. It seems unlikely that in 92% of the cases, the patentee had 
sufficient factual basis at the time the complaint was filed to allege 
that the defendant's infringement was willful.'' See Empirical 
Statistics on Willful Patent Infringement, 15 Fed. Cir. B.J. 227 
(2004).
    Additional problems arise from the Federal Circuit's opinion in 
Underwater Devices, Inc. v. Morrison-Knudsen Co., 717 F2d 1380 (Fed. 
Cir. 1983). The decision speaks of an accused infringer having an 
affirmative duty to exercise due care to determine whether he or she is 
infringing once given notice of another's patent, including the duty to 
seek and obtain competent legal advice from counsel. This permits 
patent owners to ``game'' the system and create an unequal bargaining 
position by simply ``notifying'' those in affected industries of the 
patent, and then demanding large settlements or else face the risk of 
``willfulness'' allegations at trial. This in turn leads to hundreds of 
thousands of dollars spent by company after company on opinions of 
counsel as insurance against a finding of willful infringement. This 
perceived obligation also leads to problems with attorney 
disqualification since the attorney giving the opinion will be called 
as a witness during the litigation. As a result, a company's chosen 
counsel cannot act as both its counselor and its trial attorney. Some 
states, such as the state of Virginia, do not even allow the attorney 
trying the patent infringement case to be in the same law firm as the 
attorney who drafted the infringement opinion. Complicated issues 
involving waiver of attorney-client privilege further exacerbate the 
matter.
    These difficulties were not obviated by the en banc reconsideration 
of Knorr-Bremse Systeme Fuer Nutzfahrzeuge GmbH v. Dana Corp. 383 F3d 
1337 (Fed. Cir. 2004). While the Court did rule that it is 
inappropriate for the trier of fact to draw an adverse inference with 
respect to willful infringement when a defendant has not obtained legal 
advice or invokes the attorney-client privilege, the decision leaves 
untouched the duty of due care and the circumstances which give rise to 
such duty.
    While section 6 retains the concept of willful infringement, it 
carefully limits the circumstances where a determination of willful 
infringement can be made to those in which an infringer is truly a bad 
actor. Of course, every successful patentee will still receive damages 
adequate to compensate for the infringement, together with interest and 
costs as fixed by the court. In general, however, absent deliberate 
copying of a patented invention with knowledge that it was patented, we 
believe there should be no finding of willful infringement unless the 
patent owner has provided to the infringer a written notification that 
details which claims of the patent are infringed and the particular 
acts that are alleged to infringe, rather than merely sending notice of 
the patent.
    Moreover, we agree with the further limitation in section 6 that 
there should be no finding of willful infringement if an infringer can 
establish that, once it had received notice, (1) it obtained competent 
advice of counsel that there was no infringement on the grounds of 
invalidity, unenforceability or non-infringement, and (2) it reasonably 
relied upon such advice. In the case of the intentional copying of an 
invention knowing it to be patented, the informed good faith belief of 
the alleged infringer must exist prior to the time the alleged 
infringing activity begins. This preserves an importance balance, 
requiring ethical and prudent behavior by those in an affected 
industry.
    Finally, we also agree that the absence of an opinion of counsel 
should not create an inference that the infringement was willful and 
that mere knowledge of a patent should not be the basis for enhanced 
damages. Again, these are important limits on willfulness that prevent 
excessive use of the doctrine.
    Accordingly, we support the provisions in section 6 limiting the 
circumstances in which a finding of willful infringement can be found.
Sec. 7. Injunctions
    Section 7 of H.R. 2795 would make two amendments to section 283. 
One of these proposed amendments to section 283 would significantly 
undercut the exclusive rights conferred under a valid patent to obtain 
final injunctive relief following a final, non-appealable holding that 
the patent is valid and infringed. It would provide that final 
injunctive relief might not be granted since ``In determining equity 
the court shall consider the fairness of the remedy in light of all the 
facts and the relevant interest of the parties associated with the 
invention.'' This would reduce, to some unknown degree, the possibility 
of patentees obtaining permanent injunctions to prevent the continued 
infringement of their patents following a final, unappealable judgment 
that their patents are valid and have been infringed.
    AIPLA strongly opposes this provision. It would devalue the 
property right of patentees by undercutting their traditional right to 
injunctive relief against adjudged infringers. The impact would appear 
to be especially harsh on independent inventors who already face great 
difficulty in commercializing their patented inventions. It would 
likewise be equally harsh on universities which are precluded in many, 
if not most, cases from directly commercializing their inventions and 
which must therefore rely on licensing or selling their inventions. It 
would also set an extremely unfortunate precedent internationally for 
the United States by suggesting to other nations that there need be no 
patent exclusivity for all inventions--that other nations can also pick 
and choose the patented inventions for which they wish to grant 
exclusivity. AIPLA strongly urges that this amendment not be made.
    The other proposed amendment would provide guidance to trial courts 
regarding the circumstances in which a preliminary injunction should be 
stayed, pending an appeal, following a ruling that a patent was valid 
and infringed. It would instruct courts to stay an injunction pending 
an appeal upon an affirmative showing that the stay would not result in 
irreparable harm to the owner of the patent and that the balance of 
hardships from the stay does not favor the owner of the patent. AIPLA 
had suggested this proposal to the Chairman and to the interested 
groups involved in the discussions regarding the content of a patent 
reform bill as the maximum limitation that should be imposed to meet 
the concerns of those who advocate limiting the grant of injunctions in 
patent infringement suits. We believe this proposal is balanced and 
appropriate and fully addresses the concerns of the proponents for 
change. Not only would it give an infringer the opportunity in 
appropriate cases to obtain a stay of any injunctive relief while it 
tests the correctness of the trial court's ruling, but it also allows 
the infringer additional time to negotiate a license or develop a non-
infringing alternative. Unfortunately, it was not accepted by others in 
the discussions we have been having, so perhaps it should be deleted 
from the bill.
Sec. 8 Continuation Applications
    In testimony before this Subcommittee last month, Under Secretary 
Dudas noted the increased workload for the PTO due to the large number 
of continuing applications filed in the Office. In addition, there is a 
concern that a few applicants have abused the use of continuing 
applications by using them to ``track'' the commercial development of a 
technology and then springing a patent on a mature industry. On the 
other hand, the predominant uses of continuing applications are totally 
appropriate. They are necessary where an application faces a 
restriction requirement or where an inventor makes an improvement in 
his or her invention or where an applicant and an examiner simply have 
not had an adequate exchange regarding the issues surrounding an 
application.
    To address these concerns in a balanced and fair way, AIPLA 
believes it appropriate to give the Director the authority to 
promulgate a regulation specifying the circumstances under which a 
continuation application may be filed. The PTO clearly is in the best 
situation to understand the difficulties that applicants face as well 
as the problems that the Office faces, including the impact on fee 
revenues that any limitations on continuations might impose. 
Regulations can also be adjusted to fine tune any needed limitations. 
Most importantly, the PTO could ensure that no such regulation would 
deny applicants an adequate opportunity to obtain protection for their 
inventions.
Sec. 9. Post-grant Procedures
    Taking advantage of the proposal to adopt a first-inventor-to-file 
system and to simplify the definition of prior art, section 9 proposes 
a post-grant opposition procedure. AIPLA believes that such a system 
can provide the public with an effective mechanism to promptly correct 
mistakes made by the PTO in issuing patents. We strongly believe, 
however, that there should be only one window for requesting an 
opposition and that the window should be nine months after a patent has 
issued to encourage the public to act promptly. These procedures should 
allow the public to correct improvidently granted patents--patents with 
claims that are too broad or patents that the PTO should not have 
granted at all. After the initial period of nine months has passed and 
no opposition has been filed, patentees should enjoy a ``quiet title'' 
without the fear of later administrative challenges, except for the 
inter partes reexamination procedure which this bill would make more 
attractive.
    Consistent with this approach, AIPLA agrees that, for an opposition 
brought within this nine month window from grant, an opposer should 
have the burden of proving the invalidity of a claim by a preponderance 
of the evidence. This is the same standard used during examination, and 
encourages use of the pre-grant procedure since the burden of proof is 
lower than that applied during litigation. Thus, consistent with this 
approach, we would retain the standard of ``clear and convincing 
evidence'' that applies in a patent infringement lawsuit or a 
declaratory judgment action seeking to invalidate a patent claim. In 
this way, the procedure strikes a balance--encourage the public to 
promptly eliminate questionable patents without unduly undercutting the 
patentee's right to benefit from the invention.
    This brings us to the second window proposed in the opposition 
procedure by section 9 of H.R. 2795 that would permit an individual to 
file an opposition not ``later than 6 months after receiving notice 
from the patent holder alleging infringement.'' AIPLA opposes having a 
second window for bringing an opposition for the life of a patent. The 
proposed second window, where the burden of proof is a ``preponderance 
of the evidence'' instead of ``clear and convincing evidence,'' will 
increase the risks faced by patent holders and dampen their enthusiasm 
for investing in the development and commercialization of their 
patented technologies. It will also increase litigation in the courts 
since patent holders, to ensure that their patents will not be tested 
by the lower presumption of validity, will file suit instead of 
approaching suspected infringers about possible license arrangements or 
avoiding any infringement. Finally, creating this kind of second window 
in effect creates a ``patent revocation'' system that will greatly tax 
the existing human and financial resources of the Office to find and 
train the needed personnel to administer such proceedings and will work 
undue hardships and prevent patent owners who can least afford it (non-
profit entities and individual inventors) from enjoying ``quiet title'' 
to their inventions. For all these reasons, AIPLA opposes the addition 
of the second window in H.R. 2795.
21Sec. 10. Pre-grant Submissions of Prior Art By Third Parties
    AIPLA supports the proposed amendment to section 122 to allow a 
member of the public to submit information to the PTO for consideration 
following the publication of patent applications. We believe that this 
proposal will complement the post-grant opposition proposal and assist 
applicants to obtain stronger, more reliable patent protection by 
ensuring that the best prior art is before the PTO. The section is 
balanced and ensures that applicants will not be harassed by multiple 
submissions. Thus, it is especially significant that the amendment 
leaves untouched the proscription in current subsection 122(c), and 
thereby prevents such submissions from becoming a type of pre-grant 
opposition. This will ensure that such submissions cannot be used to 
harass applicants. In addition, the provision is crafted in a manner 
that gives the public maximum opportunity to submit such information 
while at the same time protecting against the disruption of the PTO's 
examination process.
Completing the Reforms Begun In the American Inventors Protection Act
    There are other important parts of the patent law that are 
addressed in H.R. 2795 which we support. Moving to a first-inventor-to-
file system suggests that changes should be made to the prior user 
defense to patent infringement. We also endorse the proposal that the 
PTO publish all pending applications for patent at 18-months after 
their initial filing. This will make the patent system more transparent 
and allow the public to make earlier determinations of whether an 
invention is novel and non-obvious on the basis of all prior art. It 
also allows the public to prepare any evidence that may be available 
for submission in the 9 month opposition period after the patent 
issues.
                               conclusion
    The U.S. patent system continues to be an essential driver of our 
nation's economic and technological success, but there is a growing 
consensus that it is in need of adjustment. The NAS and FTC have 
reached this conclusion and AIPLA agrees. While we strongly oppose any 
weakening of the traditional injunctive remedy of the patent law and 
the addition of a second window in opposition proceedings, we believe 
that there are many desirable reforms in H.R. 2795 that do have the 
widespread support of all stakeholders. We now have an opportunity--
indeed, an obligation--to not only address the challenges of today, but 
also to prepare the U.S. patent system for the future.
    We commend you, Mr. Chairman, and the Ranking Member for your 
continuing leadership in striving to improve our intellectual property 
system. The AIPLA looks forward to working with you, the other Members 
of the Subcommittee, and your able staffs to support you in any way we 
can.

    Mr. Smith. Thank you, Mr. Griswold.
    Mr. Gulbrandsen.

TESTIMONY OF CARL E. GULBRANDSEN, MANAGING DIRECTOR, WISCONSIN 
                   ALUMNI RESEARCH FOUNDATION

    Mr. Gulbrandsen. Mr. Chairman, thank you for the 
opportunity to testify on the important topic of patent law 
reform. My name is Carl Gulbrandsen. I'm the Managing Director 
of the Wisconsin Alumni Research Foundation, known as WARF, on 
whose behalf I appear. The University of California also has 
expressed the concerns that I'll talk about this morning and 
that are expressed in my written statement.
    WARF was founded in 1925, and was one of the first 
organizations to engage in university technology transfer. In 
March of this year, WARF received the National Medal of 
Technology, the highest award that can be conferred by the 
President of the United States to individuals and organizations 
making lasting contributions to the country's wellbeing through 
innovation and technology. This award recognized the importance 
to the United States economy of university technology transfer.
    This Subcommittee played an important role in drafting the 
Bayh-Dole Act and its cardinal principal that the American 
public benefits from a policy that permits universities and 
small businesses to elect ownership in innovations created with 
Federal funds.
    The Bayh-Dole Act was predicated on a patent system that 
provides predictable and strong protection for discoveries 
generated at U.S. universities. For the Bayh-Dole Act to 
continue to be successful in stimulating further innovations, 
patents must provide significant disincentives to would-be 
infringers.
    If patent law is strong, then technology transfer can 
flourish; resulting in a profound and positive impact on the 
health, safety, and welfare of the people in this country and 
worldwide. If patent law is weakened, the technology transfer 
falters, as do American universities and companies that depend 
on university research, and the public.
    In 1980, when the Bayh-Dole Act was passed, approximately 
25 U.S. universities had technology transfer offices. No 
uniform Federal policy existed, and federally-funded 
discoveries were rarely patented and commercialized. Today, 
more than 230 universities have technology transfer offices, 
and universities are now the owners of tens of thousands of 
U.S. patents.
    Today's list of university inventions is also impressive. 
The list includes a lithography system, to enable the 
manufacturing of nano-devices, from the University of Texas, 
Austin; and an effective aneurysm treatment coming out of the 
University of California, Los Angeles.
    In the past two decades, intellectual property assets have 
become vital to the performance of the U.S. economy. Because of 
financial and administrative stresses in the United States 
Patent and Trademark Office, lapses in the quality of patents 
occasionally occur. It is my belief that low-quality patents 
issued from the PTO are the exception, rather than the rule. 
But even the exception should not be tolerated.
    As a member of the Patent Public Advisory Council, I know 
that the PTO is working hard to assure that all patents that 
are issued are of high quality. But as you know, the first line 
of defense against poor quality patents and slow decision-
making is to provide the PTO with the resources that it needs 
to hire and train skilled examiners and to implement effective 
electronic processing.
    H.R. 2795 contains a number of provisions that WARF 
supports. WARF supports a provision relating to a limited post-
grant opposition procedure, but not the second window, with the 
addition of appropriate curative amendments that are listed in 
my written statement. WARF also supports expanding the 18-month 
publication rule.
    I am also grateful to you, Mr. Chairman and Mr. Ranking 
Member, for your leadership and selflessness on enactment of 
the CREATE Act. I know that this important legislation would 
not have become law without your commitment to research and 
technology. And I would ask that you ensure that the CREATE Act 
be preserved, with the same effective date and legislative 
history as presently exist.
    The legislation before you also contains a number of 
provisions that will retard the success of university 
technology transfer and the creation of vibrant new university 
spin-out companies. WARF has great concerns with respect to 
four provisions.
    First, WARF objects to any change with respect to 
injunctive relief. H.R. 2795 tilts the playing field in favor 
of infringers. Currently, a presumption in favor of injunctive 
relief is built into the patent system, and this is for good 
reason. Injunctions respect the constitutional right of a 
patent owner to exclude others from using his or her patented 
technology.
    Second, WARF is concerned about limiting continuation 
practice, and believes that a change in the law would 
negatively impact universities if not tailored carefully to 
address only those overt abusive practices.
    Third, WARF opposes the expansion of prior user rights. 
Expanded prior user rights would encourage innovations to be 
kept as trade secrets, a practice which is contrary to the 
fundamental premise of the U.S. patent system which rewards and 
encourages disclosure.
    And fourth, the adoption of a first-inventor-to-file 
system, that is intended to bring us closer to the first-to-
file system used in Europe and the rest of the world, 
disadvantages universities and independent inventors. The first 
inventor to file a proposal would be a hardship for a vast 
majority of universities. And WARF would prefer that the first-
to-invent system be maintained.
    But if we must harmonize and move toward a first-to-file 
system, I would encourage the Committee to insert the proposed 
amendments suggested in my written statement, which are there 
to protect the rights of individuals and universities.
    Mr. Chairman, thank you again for your leadership, time, 
and attention. And if there are any questions, I'd be pleased 
to answer them.
    [The prepared statement of Mr. Gulbrandsen follows:]
               Prepared Statement of Carl E. Gulbrandsen




























    Mr. Smith. Thank you, Mr. Gulbrandsen.
    Professor Lerner.

    TESTIMONY OF JOSH LERNER, JACOB H. SCHIFF PROFESSOR OF 
          INVESTMENT BANKING, HARVARD BUSINESS SCHOOL

    Mr. Lerner. Mr. Chairman, thank you for the opportunity to 
testify here. More generally, I think the Committee ought to be 
congratulated for undertaking this series of thoughtful and 
very important process of patent system reform.
    In our recent book, ``Innovation and Its Discontents,'' 
Adam Jaffe, of Brandeis University, and I argued that the 
problem with the patent system today is systematic and 
fundamental. In the past two decades, the U.S. has strengthened 
patent rights, while weakening the standards for granting 
patents.
    While unpremeditated, these two policy changes have created 
a perfect storm, a complex and intensifying combination of 
factors that increasingly makes the patent system a hindrance 
rather than a spur to innovation.
    The incentives that the existing system provides induce all 
participants, whether inventors, competitors, or potential 
litigators, to invest in abusing the system, rather than 
innovating, and to hide and husband information for strategic 
and litigious purposes, rather than bringing it forward to 
facilitate the determination of who really invented what.
    Adam Jaffe and I argue that we really must start with a 
recognition that much of the information to decide whether a 
given application should be approved is in the hands of 
competitors of the applicant, rather than in the hands of the 
PTO.
    A review process with multiple potential review levels 
efficiently balances the need to bring in information from the 
outside with the reality that most patents are unimportant. 
Multi-level review, with barriers to invoking review and the 
thoroughness of that review increasing at higher levels, would 
naturally focus attention on the most potentially important 
applications.
    Most patents would never receive anything other than the 
most basic examinations. But for those applications that really 
mattered, parties would have an incentive and opportunities to 
bring forward information in their possession before the PTO, 
and the PTO would have more resources to help it make the right 
decision in the cases that really matter.
    Breaking the vicious cycle of bad examination and bad 
applications is the key to reform of the patent issuance 
process. But there are always going to be mistakes, and so it's 
important that the court system operate efficiently to rectify 
those mistakes, while protecting the holders of valid patents.
    Today, the legal playing field is significantly tilted in 
favor of patentees. Many observers highlight the right to a 
jury trial as a crucial problem. The evidence in a patent case 
can be highly technical, and the average juror has little 
competence to evaluate it. Having decisions made by people who 
can't really understand the evidence increases the uncertainty 
surrounding the outcome.
    The combination of this uncertainty with the legal 
presumption of validity--the rule that patents must be presumed 
legitimate unless proven otherwise--is a big reason why accused 
infringers often settle rather than fight, even when they think 
that they are right.
    The right to a jury of one's peers is a venerated concept 
in Anglo-American law, but there is ample scope to encourage 
judges to use pre-trial rulings and reports of special masters 
commissioned by the court to resolve more of the mostly 
technical issues that determine the outcome of patent 
litigation.
    While litigation will always be uncertain, it has been 
structured so that complex technical issues are addressed in a 
way to--it should be structured in a way that complex technical 
issues are addressed in a way to elucidate rather than obscure 
them.
    Thus, I very much applaud the Committee for its work. The 
Patent Reform Act of 2005 contains many good ideas, such as the 
long-overdue shift to a first-to-file system, a reduction in 
the reliance on the arcane institution of patent interferences, 
a raising of the bar for injunctive relief, the expansion of 
prior user rights, universal publication of patent awards, and 
an improvement in the ability of other firms to challenge 
patents after grant.
    At the same time, I would urge, as the above remarks 
suggest, consideration of further steps to facilitate pre-grant 
challenges to patent applications and steps to reduce the 
reliance on juries in patent cases.
    Thank you very much.
    [The prepared statement of Mr. Lerner follows:]
                   Prepared Statement of Josh Lerner
    This Committee is to be congratulated for initiating a series of 
thoughtful discussions of patent system reform. The importance of this 
discussion to the American inventors, corporations, and our society as 
a whole cannot be overemphasized.
    To be sure, the past decade has seen periodic uproars over patents. 
Amazon's ``one click'' patent for online shopping, RiceTec's patent on 
the basamati rice grown for centuries in Asia, PriceLine's reverse 
auction patents, and Acadia Research' s patents on digital transmission 
of audio and video are examples of patents that have triggered 
controversy and litigation.
    But while these troubling patents have been well publicized, the 
wrong lessons have all too often been drawn from these controversies. 
Commentators have tended to focus on the incompetence of the patent 
office in allowing ``bad patents.'' Other observers have concluded that 
the patent system is not working with respect to a particular area of 
technology. Concerns about software awards led, for instance, Jeff 
Bezos of Amazon to propose a new patent type for software in 2000 and 
demonstrators to take to the streets of Brussels earlier this year.
    In our recent book, Innovation and Its Discontents, Adam Jaffe of 
Brandeis University and I argue instead that the problem is systemic 
and fundamental. In the past two decades, the United States has 
strengthened patent rights while weakening the standards for granting 
patents. While unpremeditated, these two policy changes have created a 
``perfect storm'': a complex and intensifying combination of factors 
that increasingly makes the patent system a hindrance rather than a 
spur to innovation.
    Congress set us on this road in 1982 when it created a centralized 
appellate court for patent cases called the Court of Appeals for the 
Federal Circuit. The court--which advocates argued would simply ensure 
judicial consistency--has expanded the realm of what can be patented, 
lowered the standards for receiving awards, made it more likely that a 
challenged patent will stand up to legal scrutiny, and given 
patentholders more potent legal remedies.
    A decade later, Congress turned the Patent and Trademark Office 
(PTO) into a ``profit center''. The office has been pushed to return 
``excess'' revenue to the Federal treasury. This shift led to pressures 
to grant more patents, difficulties in attracting and retaining skilled 
examiners, and a torrent of low quality awards. These have ranged from 
the profoundly troubling cases above to absurdities such as awards for 
wristwatches (pawwatches?) for dogs, a method of swinging on a swing 
(``invented'' by a five year old), and peanut butter and jelly 
sandwiches.
    But railing against the incompetence or absurdity of the PTO misses 
the basic point, which is that the incentives of the existing system 
induce all participants--inventors, competitors and potential 
litigators--to invest in abusing the system rather than innovating, and 
to hide and husband information for strategic and litigious purposes 
rather than bringing it forward to facilitate determination of who 
really invented what. Reform of the system must change these incentives 
by:

          Creating workable opportunities for knowledgeable 
        competitors to challenge the novelty of inventions before a 
        patent is granted;

          Providing graduated application reviews, so important 
        patents are scrutinized carefully but time is not wasted on 
        applications that don't matter; and

          Leveling the playing field between litigants so that 
        frivolous patent holders cannot intimidate true innovators into 
        paying protection money in the form of patent royalties.

    Our proposed reforms starts with the recognition that much of the 
information needed to decide if a given application should be approved 
is in the hands of competitors of the applicant, rather than the PTO. A 
review process with multiple potential review levels efficiently 
balances the need to bring in outside information with the reality that 
most patents are unimportant. Multilevel review, with the barriers to 
invoking review and the thoroughness of that review both increasing at 
higher levels, would naturally focus attention on the most potentially 
important applications. Most patents would never receive anything other 
than the most basic examinations. But for those applications that 
really mattered, parties would have an incentive and opportunities to 
bring information in their possession before the PTO, and the PTO would 
have more resources to help it make the right decision in the cases 
that really matter.
    If bad patents with important consequences were weeded out by the 
PTO, the incentive to file frivolous applications in the first place 
would be reduced. This would break the current vicious cycle in which 
inventors are induced to make marginal applications by their likelihood 
of success, and the resulting flood of applications overwhelms the 
patent office and makes it harder to separate the wheat from the chaff.
    Breaking the vicious cycle of bad examination and bad applications 
is the key to reform of the patent process. But there are always going 
to be mistakes, and so it is important that the court system operate 
efficiently to rectify those mistakes, while protecting holders of 
valid patents. Today, the legal playing field is significantly tilted 
in favor of patentees.
    Many observers highlight the right to a jury trial as a critical 
problem. The evidence in a patent case can be highly technical, and the 
average juror has little competence to evaluate it. Having decisions 
made by people who can't really understand the evidence increases the 
uncertainty surrounding the outcome. The combination of this 
uncertainty with the legal presumption of validity--the rule that 
patents must be presumed legitimate unless proven otherwise--is a big 
reason why accused infringers often settle rather than fight even when 
they think they are right.
    The right to a jury of one's peers is a venerated concept in Anglo-
American law. But there is ample scope for judges to use pretrial 
rulings and reports of special ``Masters'' commissioned by the Court to 
resolve more of the most technical issues that determine the outcome of 
patent litigation. While litigation will always be uncertain, it has to 
be structured so that complex technical issues are addressed in a way 
designed to elucidate rather than obscure them.
    Thus, we applaud the committee for its work. The Patent Reform Act 
of 2005 contains many good ideas, such as a long-overdue shift to a 
``first-to-file'' system, a reduction in the reliance on the arcane 
institution of patent interferences, a raising of the bar for 
injunctive relief, nearly universal publication of patent awards, and 
improvements of the ability of other firms to challenge patents after 
grant. At the same time, we would urge consideration of steps to allow 
pre-grant oppositions, and to reduce the reliance on juries in patent 
cases, two issues not considered by the bill.
    The protection for true innovators created by a workable patent 
system is vital to technological change and economic growth. The 
problems in the existing U.S. patent system are structural, and the 
solutions need to be fundamental. As much as the Patent Office needs to 
do a better job, it can only do so if the system is modified so that 
all parties have incentives to help the PTO do its job, and the Court 
system provides a balanced, reliable backstop when mistakes are made.

    Mr. Smith. Thank you, Professor Lerner.
    Mr. Ravicher.

  TESTIMONY OF DANIEL B. RAVICHER, EXECUTIVE DIRECTOR, PUBLIC 
                       PATENT FOUNDATION

    Mr. Ravicher. Chairman Smith, Ranking Member Berman, and 
Members of the Subcommittee, patent reform is not about 
weakening the patent system. It's about strengthening the 
patent system so that it rewards innovation, not manipulation.
    I am Executive Director of the Public Patent Foundation, a 
not-for-profit legal services organization founded in 2003 to 
represent the public's interests in the patent system; and most 
particularly, the public's interests against the harms caused 
by wrongly issued patents and unsound patent policy.
    PUBPAT provides the general public and specific persons or 
entities otherwise deprived of access to the patent system with 
representation, advocacy, and education. Our work is funded by 
grants from the Rockefeller Foundation, the Echoing Green 
Foundation, the Rudolph Steiner Foundation, and the Open 
Society Institute, and by private donations from the public.
    Before commenting on the Patent Act of 2005, a very 
important point about the process by which patent policy is 
formed should be made. Despite what many people believe, the 
patent system has extremely far-reaching effects on all 
Americans. Although the public does indeed benefit from a 
properly functioning patent system, since patents are 
Government-sanctioned, absolute restraints on freedom and 
competition, the public can also be severely harmed by errors 
within the patent system.
    Unfortunately, it is too often the case that not all of the 
interests affected by the patent system are adequately 
represented in patent policy discussions. Specifically, the 
interests of the non-patent-holding public are almost always 
absent from any meaningful participation in decision-making 
about the patent system, despite the fact that they bear the 
brunt of its burdens.
    Patent policy should be made with consideration of all the 
public's interests, not just the specific interests of the PTO, 
patent holders, patent practitioners, and large commercial 
actors. As such, I am pleased to have been invited to represent 
those interests today, and I strongly urge you to continue to 
ensure that all affected interests are always adequately 
represented in patent policy discussions in the future.
    There are several ways to strengthen the patent system so 
that it benefits all Americans, and the Patent Act of 2005 
addresses many of them. Two of the most important issues 
addressed by the bill are injunctions and post-grant 
opposition.
    When discussing injunctions, we should keep in mind that 
the patent system's ultimate purpose is to deliver advances in 
technology to the American people; not simply line the pockets 
of patent holders. Although these ends are typically aligned, 
there does come a point at which over-rewarding patent holders 
can in fact retard technological development. This is why the 
patent right is limited, such as by a finite term.
    Similarly, if a patent holder is not making its invention 
available to the American public, courts should not issue an 
injunction against another party that desires to do so, if they 
can compensate the patent holder fairly for the advance that 
has been made.
    For example, but a few years ago, this House was deeply 
concerned about a patent that was being used in an attempt to 
enjoin an electronic communications device of importance to 
Representatives, the Blackberry. The concern was justified, 
because patents that are used to deny the American people 
access to technology cause unnecessary and unwarranted harm.
    The Committee Print's injunction provision guaranteed 
patentees an award of fair compensation by the courts, and 
accomplished the patent system's goal of bringing technological 
advance to the American people as quickly as possible. I urge 
you--I strongly urge you--to reinsert that provision into the 
Patent Act of 2005.
    With respect to post-grant opposition, the public should be 
empowered to oppose any patent at any time that it is harming 
them. The mere existence of a wrongly-issued patent can cause 
substantial public harm, by making things more expensive, if 
not completely unavailable; by preventing scientists from 
advancing technology; by restraining civil liberties and 
individual freedoms; and by diminishing the value of valid 
patents held by legitimate inventors.
    Thus, all patents should be eligible for post-grant review 
during their full term, just like they can be subject to 
reexamination at any time during their term. Unfortunately, the 
Patent Act of 2005 severely limits the timing of post-grant 
oppositions.
    The second window for filing oppositions triggered by the 
patent owner making an allegation of infringement is fair, 
because patentees cannot be heard to complain about being 
denied so-called ``quiet title,'' if they are the ones making 
the noise. Thus, although patents should be eligible for post-
grant opposition throughout their full term, I am pleased to at 
least see that oppositions can be filed against any patent that 
has been asserted by its owner.
    However, the bill limits such eligibility to only the party 
against whom the patent is asserted. To be meaningfully 
effective, post-grant opposition should be open to any member 
of the public, just like reexamination is, because a wrongly-
issued patent asserted against anyone harms everyone. And there 
will often be other parties more capable and more willing to 
defend the public from an aggressive patentee. To bar them from 
doing so would forsake the enormous potential post-grant 
opposition has to be an effective patent quality improvement 
tool.
    Thank you once again for inviting me to make these remarks 
about the Patent Act of 2005.
    [The prepared statement of Mr. Ravicher follows:]
                Prepared Statement of Daniel B. Ravicher




















    Mr. Smith. Thank you, Mr. Ravicher.
    It's my understanding that Mr. Berman has a commitment at 
10 that cannot be postponed, so I'm going to initially yield 
time to him for his questions.
    Mr. Berman. Well, thank you very much, Mr. Chairman. I 
appreciate it very much.
    I think initially--I think it's fair to state it's 
certainly my intent--and I think it's the Chair's and the 
Subcommittee's intent--on the issue of the CREATE Act, not to 
do damage to that law, and to the extent that we're 
inadvertently--it was chopped up in the Committee Print, 
hopefully, it's been rectified to some extent with the bill 
that's been introduced. And we're certainly interested in any 
other suggested changes to ensure that what we passed last year 
stays as law.
    Mr. Gulbrandsen. Thank you, Mr. Ranking Member.
    Mr. Berman. But, while I have you, your written testimony 
states that, ``Unless a strong and compelling showing is made 
that change is necessary, maintain the patent law as it is 
presently enacted. Elements of the Patent Act of 2005 represent 
the interests of a narrow group of companies from one or two 
industry sectors, and undermine the important policies upon 
which the Bayh-Dole Act is predicated. We should continue to 
search for consensus, rather than special-interest solutions.''
    That comment gets under my skin.
    After hearing just some anecdotal stories from 
practitioners in this area about the problem of poor patent 
quality, the Federal Trade Commission came out with a report 
calling for major reform. The National Academy of Science 
called for making major reform in the patent law. We have an 
economist here and a spokesman for a public interest group, 
calling for the kind of substantial reforms, or even larger 
reforms than we're proposing in this bill. And the notion that 
one particular organization, which has its own interests, 
assumes they speak for the public interest, and anyone who 
disagrees with them is representing narrow special interests, I 
find somewhat troublesome. And it seems to me we can talk about 
the merits of specific provisions without throwing out charges 
which on their face are preposterous.
    Mr. Griswold, when you talked about the inequitable conduct 
defense in your testimony, you mentioned that you would like to 
return the defense to its equitable roots: the injunction.
    Currently, section 283 reads that, ``Several courts having 
jurisdiction of cases under this title may grant injunctions, 
in accordance with the principles of equity, to prevent the 
violation of any right secured by a patent, on such terms as 
the court deems reasonable.''
    Yet the courts have automatically--not presumed, but 
essentially automatically--granted permanent injunctions upon a 
finding of infringement. And this practice is the general rule, 
with very narrow exceptions for significant public health 
consequences.
    Our objective is only to end the practice of the automatic 
injunction; not the entitlement to an injunction, the 
likelihood of an injunction. It's only to, up-front, change 
what the courts have turned into an essentially automatic rule. 
Why is there any additional uncertainty created, when section 
283, as it reads now, on its face allows for equitable 
considerations?
    Mr. Griswold. Well, as you mentioned, Mr. Berman, the 
courts have, in our view, basically followed what we believe 
the constitutional direction was; and that's grant exclusive 
rights to people who engage in inventive activity. So we 
support the idea that's continued basically over a couple 
hundred years, of providing those exclusive rights to 
inventors.
    Now, I understand the language you're talking about. But I 
can tell you, if the sentence that we have in H.R. 2795 goes 
into law, there'll be a whole new world of consideration of 
whether or not there should or should not be an injunction.
    And if you look at the language itself, it says that, ``In 
determining equity, the court shall consider the fairness of 
the remedy in light of all of the facts and the relevant 
interests of the parties associated with the invention.'' Is 
that all that we consider? What about the public and other 
folks?
    But what our view is, is that there is no need to change 
the injunction language. In fact, in our view, the thing to do 
is to take care of some of the main problems in patents----
    Mr. Berman. One final question.
    Mr. Griswold. Yes.
    Mr. Berman. As I understand it, a company called ``In 
Focus'' has sued 3M, for whom you are general counsel of one of 
their subsidiaries, for patent infringement.
    Mr. Griswold. Yes.
    Mr. Berman. Alleging that 3M copied an In Focus patented 
invention that is a safety feature that presents users from 
getting an electric shock when they changed a burned-out light 
bulb in projectors. As far as we can tell, this suit is still 
active.
    If 3M were to be found guilty of infringing In Focus' 
patent, should the court presume irreparable harm and 
permanently enjoin 3M from selling any products that have 
patent safety feature, without weighing or considering any of 
the equitable factors?
    Mr. Griswold. Our view is that--yes, that we think that if 
we are found--judged to be an infringer, that we should be 
enjoined. That's our view.
    Mr. Berman. Okay.
    Mr. Griswold. We don't go both--we don't see it different 
ways. It's one way.
    Mr. Berman. Okay.
    Mr. Smith. The gentleman's time has expired----
    Mr. Berman. Thank you very much, Mr. Chairman.
    Mr. Smith.--and his commitment looms.
    Mr. Berman. Yes.
    Mr. Smith. Okay. Mr. Griswold, Mr. Gulbrandsen, let me 
address my first question to you all. And this is to follow up 
a little bit differently on the question you were just asked.
    One of the subjects on which there continues to be much 
discussion is the subject of injunctions. And we all know the 
situation that troubles some companies today, which is to say 
injunctions have become almost automatic, granted in almost 
every case.
    Both of you all oppose the changes that we've made in the 
injunction language. My question for each of you, therefore, 
is, given the undisputed concerns--I think, legitimate--that 
many companies have, what is your solution for trying to 
dissuade patent trolls from filing specious patents or 
lawsuits? What do we do to try to stop the--if they're not 
frivolous, then they're sort of shake-down lawsuits that are 
filed?
    And Mr. Gulbrandsen, why don't we start with you, and then 
go to Mr. Griswold.
    Mr. Gulbrandsen. Well, I think that much of the complaint 
with respect to what you refer to as ``patent trolls'' is not 
something that I'm really that familiar with.
    Mr. Smith. Okay.
    Mr. Gulbrandsen. The complaints with respect to abuses in 
litigation really pertain to some suggestions with respect to 
Mr. Lerner's book, of more special masters and so forth for the 
courts so that the courts are more educated in this. I'm all in 
favor of having a more educated judiciary and better educated 
juries in litigating cases.
    But I do think, at the end of the day, you need to be--if 
you do win the case, if your patent is found valid and 
infringed, you need to have the right to exclude the infringer 
from using it, unless you're willing to license them.
    Mr. Smith. Right. Okay. Mr. Griswold?
    Mr. Griswold. Yes. My solution, or our solution, is to 
start with the major problem. The problem is patents of low 
quality. Because if people have patents that are of a high 
quality, and they've been to the Patent Office and have been 
examined over the best prior art, then as far as we're 
concerned, injunction should be granted, and it should be 
basically automatic.
    But what's nice about this particular bill is it deals with 
many of the patent quality issues. And if you look at a whole 
array of them, one of them it doesn't deal with specifically, 
but your Committee has dealt with, is PTO funding. And that's a 
key issue.
    Pre-grant submissions; inequitable conduct that allows the 
patent applicant to have more--be more relaxed in dealing with 
the Patent Office and not be concerned about what they say; 
post-grant review; expanded re-exam; even the work on the 
continuations. All these pieces help, relative to the patent 
validity.
    Mr. Smith. So you would suggest that we could get to the 
same goal--that is, reducing the number of shake-down 
lawsuits--by other means?
    Mr. Griswold. By other means; by improving the quality of 
patents. That's the key issue, is getting the quality of the 
patents right.
    And my experience is, don't change too many variables when 
you're trying to fix a problem. Fix that problem, and you will 
fix the rest of the problems. It's going to take a while to get 
that fixed, but that's the thing to take care of.
    Mr. Smith. Okay. Thank you, Mr. Griswold.
    Professor Lerner, you made two suggestions that I'd 
actually like the other witnesses to respond to, and then I'll 
give you the last word. You urged consideration of steps to 
allow pre-grant oppositions, and to reduce the reliance on 
juries in patent cases. These are two issues that we did not 
consider in the bill, that you've suggested.
    Let me just go down the line, if I might. Mr. Griswold, do 
you want to respond to those two suggestions?
    Mr. Griswold. Give me those suggestions again?
    Mr. Smith. The two suggestions were to allow pre-grant 
opposition, and to reduce the reliance on juries in patent 
cases.
    Mr. Griswold. Yes. Relative to pre-grant oppositions, we 
have been opposed to those forever, for the reason that it 
allows others to get into the process with the examination 
during the early phases, and manipulate it, and to the 
detriment of the patent applicant. So we have been opposed to 
that; in fact, opposed pre-hearing oppositions in Japan, and 
they removed those. So that is a key piece.
    Relative to juries in patent cases, that's a debate, and I 
think we've tried to move as much as we could over the 
decisions by the court. But many people believe that jurors 
make very good decisions in patent cases.
    Mr. Smith. Thank you. Mr. Gulbrandsen, can you be brief?
    Mr. Gulbrandsen. Yes. I would agree with Mr. Griswold, and 
just add additionally that, to the extent that we put more 
burdens on the Patent Office, we are actually going to 
exacerbate the problems of low-quality patents. We need to make 
sure funding is there, and that if you do post-grant 
opposition, which we favor, that in fact adequate resources are 
given to the Patent Office.
    Mr. Smith. Okay. Professor Lerner?
    Mr. Lerner. I would simply note that it seems that the 
process of evaluating patents which are in process is very 
challenging for an examiner. And I think even in the best of 
all possible worlds, where the resources are increased 
significantly, the amount of resources that--and the amount of 
time for examining any given patent is going to be quite 
modest.
    So I think that, you know, given the complexity of today's 
world, having the opportunity for outside input is extremely 
important.
    Mr. Smith. Okay. Thank you, Professor Lerner.
    The gentleman from Virginia, Mr. Goodlatte, is recognized 
for his questions.
    Mr. Goodlatte. Thank you, Mr. Chairman.
    Mr. Gulbrandsen, according to Mr. Griswold's testimony, the 
average interference action costs an inventor over $300,000. Do 
universities and independent inventors have the resources to 
fight these interference actions?
    Mr. Gulbrandsen. Interference actions certainly are 
expensive. But I've been at WARF for 8 years. We file about two 
to three hundred patents a year. We have about 2,000 pending 
applications. And during my 8 years, we have only had one 
interference.
    So the interference practice in the Patent Office is 1/10th 
of 1 percent of all U.S. patents filed. It is not a major 
problem with either the Patent Office or with universities, as 
far as I'm concerned.
    Mr. Goodlatte. Do you think that a change to a first-
inventor-to-file system would help reduce even further these 
interference actions?
    Mr. Gulbrandsen. Well, certainly, if the present proposal 
becomes law, interference practice would go away. But 
interference practice, again, as far as our experience is 
concerned, has not been a particularly burdensome issue.
    Mr. Goodlatte. Thank you. This is a question for all of the 
witnesses. We'll start with you, Mr. Ravicher. Since it was not 
previously in the Committee Print, could each of you briefly 
comment on whether you believe that allowing third-party 
submissions of prior art with comments during the examination 
period is a good idea?
    Mr. Ravicher. It's a good idea, but I doubt it'll be very 
effective, because the problem is a credibility issue with the 
PTO; not that they're incapable to adequately review patents, 
but that they're created--they are given incentives which 
decrease their ability to perform a quality review. They're 
encouraged, both at the agency level and at the examiner level, 
to just issue patents, ``Get them out of the office as quickly 
as possible, get it off my desk as quickly as possible.''
    So simply giving them more information may not do too much 
to actually help them, if you don't give them the time and 
enable the examiner to do the job that they are capable of 
doing.
    Mr. Goodlatte. Thank you. Professor Lerner?
    Mr. Lerner. I think it is a good idea. The one thing that I 
would add as a caveat is that it's important that submissions 
not basically limit people's ability to bring up the same prior 
art if it gets litigated subsequently. In other words, people's 
willingness to participate in essentially submitting stuff pre-
grant will probably be much reduced if it's the case that they 
are essentially going to be limited in terms of using that 
prior art if the patent examiner doesn't understand its 
importance. So I think it's important to make a provision in 
that regard.
    Mr. Goodlatte. Thank you. Mr. Gulbrandsen?
    Mr. Gulbrandsen. As a member of the Patent Public Advisory 
Council, I can tell you that the Patent Office strategic plan 
is directed in great part to increasing the quality of patents. 
We have a tremendous pendency of applications in the Patent 
Office. And if you exacerbate that pendency, that is going to 
damage the economy of this country more than the perceived help 
that additional third-party interaction during prosecution 
would help.
    Mr. Goodlatte. Thank you. Mr. Griswold?
    Mr. Griswold. Yes, we support the idea of third-party 
submissions. The key is having the Patent Office have the right 
information to make the decision. And as you heard me earlier 
talking about patent quality, we think it's a good feature.
    Mr. Goodlatte. Thank you. And Mr. Griswold, this question 
for you and Mr. Gulbrandsen. I understand that the current 
statute regarding injunctions was enacted over a hundred years 
ago. The statute calls on the courts to balance the equities 
when deciding whether to grant an injunction. However, I've 
heard reports that recent court decisions have resulted in 
almost automatic application of injunctions when infringement 
is found.
    Do you believe that the changes in the last hundred years 
in business methodologies and in the nature of certain products 
today, that can involve hundreds or even thousands of patents, 
are the very kinds of reasons why the statute was written to 
allow for some flexibility? Didn't the statute build 
flexibility into the law that perhaps is not being used today? 
Start with you, Mr. Griswold.
    Mr. Griswold. I believe that the grant of an injunction as 
being almost automatic is appropriate, as you heard me answer 
earlier. I think it goes both ways. If we are found to be an 
infringer, we should be enjoined; and I feel the same way if we 
go after somebody else.
    So I think the key is, as we bring in new technologies and 
different kinds of subject matter into the patent system, that 
those--the people practicing those subject matters act like 
others that do this every day. We understand what the prior art 
is; we do clearance opinions; we avoid patents of others; we do 
validity studies.
    That's the way it works. I think that's a good system, and 
I think that eventually, as I mentioned, patent quality and 
people practicing in that system will solve the problems that 
we're concerned about here.
    Mr. Goodlatte. If I might, Mr. Chairman, let Mr. 
Gulbrandsen answer the same question.
    Mr. Smith. Okay.
    Mr. Gulbrandsen. I would agree with Mr. Griswold. I think 
that the ability to get an injunction if your patent is found 
valid and infringed is one of the hallmarks of our successful 
patent system.
    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 for 
scheduling this hearing. I think this has been a very helpful 
process.
    As Mr. Berman mentioned in his statement, we were informed 
by the National Academy of Science, the Federal Trade 
Commission. We've had a number of hearings that have been 
enormously helpful. We've had a lot of input from academic 
groups and from non-profits, as well as associations and 
interested parties. So I think we've ended up with a bill which 
I think all of us have co-sponsored. We recognize this is not 
necessarily the final product, but it's a good starting point 
to move from. And I'm happy to be a part of the process.
    Along those lines, and as part of the process, I sent 
yesterday to each of the witnesses and to the co-sponsors of 
the bill some suggestions that are not proposals on my part, 
but suggestions that have been made to me primarily by 
academics and not-for-profit organizations, that would not be 
instead of the bill that has been sent to us, but in addition 
to the bill that has been sent.
    And they really go not to the procedural issues primarily 
that the bill focuses on, but the obviousness standards that 
are in law, that Mr. Ravicher really touched on in his written 
testimony and, Professor Lerner, that you touch on in your 
book--which, by the way, I enjoyed a great deal.
    I'd like first to ask unanimous consent that my memo be 
made a part of the record.
    Mr. Smith. Without objection.
    Ms. Lofgren. And I'm wondering if the witnesses have--I 
gave them to you beforehand so that I wouldn't surprise you and 
you might have an opportunity to give me your thoughts. And 
don't feel shy if you think they're bad ideas, because they're 
not my own. [Laughter.]
    And if we could start with Professor Lerner.
    Mr. Lerner. Well, I just wanted to highlight one set of 
ideas that I think really is a very important set of issues; 
which is the issues that were raised regarding the standard 
setting process. In many senses, when we think about the nature 
of innovation in the United States, we don't have these, you 
know, sort of giant corporate monoliths doing innovation by 
themselves. Instead, we have systems, where large companies and 
small companies work together.
    And standard-setting bodies play a very important role in 
terms of coordinating that process. But over the last 10 years, 
they've been increasingly basically subject to strategic 
behavior. The case of Rambus has gotten a lot of attention, but 
there's been a number of other quite disturbing cases.
    And I think that, at least as an item for future 
consideration, this is an area that the Subcommittee should 
think about very seriously, in terms of trying to address some 
of these abuses.
    Mr. Ravicher. The reduction in the obviousness bar to 
patentability is accurately identified as a substantial issue 
affecting patent quality. The problem is not with the statutory 
language. The problem is that the Federal circuit has taken the 
statutory language and added in its own requirements that have 
no basis in law.
    Specifically, they've added in a requirement that the prior 
art have a teaching suggestion or motivation to combine two 
references before you can use two references to make an 
obviousness rejection. This effectively eliminates what the 
statute requires a court to consider; namely, the knowledge of 
one having ordinary skill in the art.
    So the statute isn't flawed. The Federal circuit's 
application and addition to the statute is what's flawed.
    Ms. Lofgren. Well, if I may, I identify that as an issue. 
And the question is, what can the Congress do about it? And 
obviously, the court is the other branch, and they have their 
job to play. But it seems to me, a remedy that we do have is to 
clarify the statute so that they might be better informed as to 
what the law should be.
    Mr. Ravicher. Right. The so-called ``secondary 
considerations of obviousness,'' which don't exist in the 
statute, were created by the Supreme Court as a gut-check, 
last-second look to make sure that the original determination 
of obviousness isn't flawed.
    The Federal circuit has taken those secondary 
considerations and plugged them in front of the statute. So 
communicating to the Federal circuit that that was incorrect 
application of law would be very worthwhile.
    Ms. Lofgren. Mr. Griswold?
    Mr. Griswold. Yes, I'll comment on a couple of these. The 
first one was the eliminate the suggestion to combine test. We 
commented on that, and took a look at it in the response to 
FTC-3, Recommendation 3 of the Federal Trade Commission.
    We looked at this issue, and believe that, indeed--that 
this is appropriate to find some suggestion to combine 
references; rather than rely on some hypothetical person's 
skill in the art. And how are we going to figure that out? I 
think this may be a case where more of a bright-line test 
provides more certainty and is better than having a very fuzzy 
standard. So we support this and you'll find that in the FTC-3 
response.
    Ms. Lofgren. Thank you. And could Mr. Gulbrandsen answer?
    Mr. Smith. Yes.
    Mr. Gulbrandsen. I would be very reticent to change the 
obviousness--non-obviousness standard to an inventive steps 
standard. I think, again, many of these issues that are 
addressed can be addressed through increases in the support of 
the Patent Office, so that we are certain that we issue high-
quality patents and that they're examined appropriately the 
first time around.
    Ms. Lofgren. If I--my time has expired, but if any of the 
witnesses would----
    Mr. Smith. Does the gentlewoman want to be recognized for 
another minute?
    Ms. Lofgren. I would appreciate that.
    Mr. Smith. Okay. Without objection, she is.
    Ms. Lofgren. I won't use the whole minute. I would just 
welcome any written comments that any of the witnesses has on 
any of these questions. And I thank the Chairman.
    Mr. Smith. All right. Thank you, Ms. Lofgren.
    The gentleman from California, the holder of 37 patents, 
Mr. Issa is recognized for his questions.
    Mr. Issa. Thank you, Mr. Chairman. And I'll try to limit 
how much my experience as both a plaintiff and a defendant 
color my questions--but I'll fail.
    I'm a co-sponsor of this bill, very happily, because I 
believe that each of the areas that it addresses must be 
addressed. I want to echo the Chairman's statement when he said 
this was a first cut. But I want to limit it--both for the 
witnesses here, and perhaps for those who will see our 
statements--it's a first cut that has to be taken seriously. It 
cannot be assumed that we're going to throw out any of the 
aspects; that we're not going to address any of these areas. 
Because I think the Chairman rightfully has hit each of the 
areas in which there are failures to get the outcome that we 
think should be arrived at.
    And if anything, I would be the person adding more to this 
bill, to include professionalizing the district court, or its 
equivalent, since I think the Supreme Court--Judge Breyer, when 
he was over in the Senate, was brilliant in realizing that it 
was time to have a professionalized court for patents.
    I think he erred, and that the fed circuit was in fact the 
wrong place to put it. And rather than professionalizing the 
second look at something after the damage has been done, after 
an injunction has been issued, after people have posted appeal 
bonds--after, after, after--that, in fact, we should seriously 
look at professionalizing the district court.
    My experience has been--as many of you would empathize 
with, my experience has been that the junior, poor former 
magistrate that gets elevated is the guy that's going to get 
your patent case, if anyone can unload it. And with rare 
exceptions, judges who are experts in the area, the thing they 
know is not to take the case.
    Having said that, I'd like to concentrate on a couple of 
areas. First of all--and this would probably work for all of 
you--if we are to allow expanded reach into the patent 
application process, either pre- or post-, then would it be 
fair to say that we should include as a guidance to this court 
that I've already said is flawed still a de novo approach to 
looking at patent claims?
    In other words, are they allowed to fully discount for 
errors based on an equal standard that may have been made by 
the examiner? Or will they continue to be held to the 
assumption that the examiner looked at it, the examiner 
reviewed it, and therefore there is a high burden to undo that 
same material if it was seen by the examiner, even if it was 
just in a stack this thick that came in in the applicant's 
packet?
    And I think each of you, I'd appreciate an answer.
    Mr. Griswold. Well, we think that we certainly support the 
presumption of validity, and believe that the applicant has 
come forward, placed their invention into the process, and 
attempted to get a patent. And we believe that that should come 
with something; which is the presumption of validity, in our 
view.
    We also support, however, the post-grant review that's in 
this bill that has as a standard a preponderance of the 
evidence. And we think that that, as a continuation of the 
examination process, is a very effective way to address some of 
these concerns. But it should in our opinion be done in the 
first--within 9 months--that's when they should bring the 
opposition--after the patent grant. And that should be when it 
occurs; not later. No second window.
    Mr. Gulbrandsen. I think, at the end of the day, when the 
patent is issued, and if you do adopt a post-grant opposition 
proceeding that is limited in time, we need to have certainty 
with respect to the validity and the strength of that patent. 
Otherwise, in starting small companies, you are not going to 
attract investors to place their money at risk, if there is 
continued uncertainty as to whether those patents are going to 
be able to be enforced.
    Mr. Lerner. I would agree with the two speakers on the left 
that the right approach is not to get rid of the presumption of 
validity, but rather to make sure that that really means 
something or that the presumption is well grounded, by 
essentially having a higher quality system.
    I will point out, though, that I think there are a number 
of quite disturbing cases where it seems that, if anything, the 
district judge has taken a patent issuance which was actually 
carefully constructed and actually quite dramatically broadened 
it out. The Research in Motion case, which was alluded to 
earlier, was one example, I think. The Eolas case versus 
Microsoft would be another example, where it seems that, if 
anything, the judge was going beyond the scope of rather 
careful review that the Patent Office had conducted.
    Mr. Issa. Time passes quickly. One more answer.
    Mr. Ravicher. Yes. The presumption of validity is 
statutory. There's some empirical evidence that calls into 
question whether it's justified. But the problem with the 
presumption of validity is that the Federal circuit again has 
taken it and ratcheted it up way too far in favor of patentees 
by requiring that challengers of patents come in with clear and 
convincing evidence; which is almost as high as ``beyond a 
reasonable doubt''--much, much higher than just ``preponderance 
of the evidence.'' That's nowhere supported by the statute.
    The presumption of validity is fine, but the evidence that 
a defendant should have to come forward with is only a 
presumption of evidence that the patent's invalid; not clear 
and convincing evidence. That makes it too tough on them.
    Mr. Issa. So you would formally--just a last follow-up. You 
would formally say that shifting the burden not away from 
presumption, but to the fact that it's overcomeable by the 
defendant by, as you say, a preponderance of the evidence, 
should be the overall standard for all aspects, including the 
initial granting?
    Mr. Ravicher. Right, because that is the burden that the 
Patent Office uses during all of its proceedings. It's the same 
burden that's applied; especially with respect to art that no 
one's ever looked at before. If it's brand-new art, the first 
time anyone's seen it is in litigation, why should that have to 
be clear and convincing? It just doesn't make sense.
    Mr. Issa. Thank you, Mr. Chairman.
    Mr. Smith. The gentleman's time has expired.
    The gentleman from California, Mr. Schiff, is recognized 
for his questions.
    Mr. Schiff. Thank you, Mr. Chairman. There are really two 
areas that I wanted to inquire about. And I support a lot of 
the work in the bill, and am proud to support the bill.
    There are some issues that have been raised of concern that 
I want to get your thoughts on, in particular about the impact 
on universities; two of which are very strongly out in my neck 
of the woods, Cal-Tech and the University of California.
    Both of the witnesses before the Committee from the 
academic community and from the universities themselves, I've 
gotten conflicting views, even within the same university, even 
within people doing the same work in the same university. But 
the two primary concerns--although there are several that have 
been raised with me in the university setting--have been over 
the first-to-file issue and a preliminary injunction issue.
    And if I could start with Professor Lerner and Mr. 
Gulbrandsen, who seem to come from the same academic 
environment but take two different views on this, if you'd 
share a little bit of your thoughts on those two issues in the 
current print.
    And maybe if you can go beyond it, assuming that there are 
going to be changes made, are there any things that can be done 
to ameliorate the concerns that the universities have with the 
change that's being proposed?
    Mr. Lerner. Okay. Well, I guess I should start by just 
simply saying I'm speaking on behalf of myself, rather than on 
behalf of Harvard University.
    Mr. Schiff. Oh, before you do----
    Mr. Lerner. Yes.
    Mr. Schiff.--I just want to say, as the Jacob Schiff chair, 
that Jacob Schiff was my great-grandfather. However, it was 
Jacob Schiff, the kosher butcher; regrettably, not the wealthy 
financier who has endowed your chair. But nonetheless, you have 
a special place in my heart. [Laughter.]
    Mr. Lerner. Well, thank you. I think that in some sense--I 
think the point was just raised earlier, that the use of 
interference is extremely rare. I mean, I think in some sense, 
I regard that as sort of prima facie evidence that this is 
something which really ought to be gotten rid of.
    This is something which essentially is--only a tiny 
fraction of patents get into interferences. There is 
nonetheless a lot of resources spent worrying about these 
procedures. And certainly, it's fair to say that there's a well 
compensated interference bar in this city which has done well 
within themselves dealing with these cases.
    I think that, given that this is an element which is quite 
an outlier and is sort of so rarely used, I would very much see 
this as being a sort of very low-cost step that could be done 
toward the harmonization of the U.S. system with the rest of 
the world, and I just--particularly today, in the era where 
there's, you know, provisional filings which can be done on a 
very quick basis and are routinely done by university 
technology transfer offices, I don't see this as a major 
problem.
    Mr. Schiff. So you feel the universities can adapt?
    Mr. Lerner. Absolutely--in effect, they--I mean, given 
that, you know, pretty much every important patent today is not 
just filed in the United States, but filed in Europe and 
elsewhere, where essentially it is a first-to-file world, 
people are indeed, you know, sort of filing as soon as they 
can, using provisional applications.
    I think, with the injunctive issues it's a harder issue. 
But I will point out that, you know, sort of when we look at 
the history of the use of injunctive relief, you know, yes, 
it's been in the statute for a long time; but certainly, when 
you look at the history for the first, you know, several 
decades, there are a number of decades in which it was used. It 
was something that was used on occasion, but was not seen as, 
by any means, an automatic procedure.
    And I think that that kind of balances one that would be 
one that would be harmful. After all, universities, 
particularly after Madey v. Duke, have real worries about not 
only being initiators of litigation, but also being on the 
receiving end. And I think as a result, they have a lot to gain 
from having a well-working patent system. Thanks.
    Mr. Gulbrandsen. For private universities and for a 
university like the University of Wisconsin, Madison, that has 
a WARF with a large endowment, we could live with the system 
that you're talking about, provided the additional protection 
that I address in my written statement exists; namely, the 
requirement that the inventor, or who is filing on behalf of 
the inventor, sign an oath.
    For most of the public universities, however, they don't 
have a patent budget, and they need to rely on the good graces 
of a licensee to pay for the patent filing. For them, a race to 
the Patent Office just doesn't work. And for them, it would be 
a true hardship.
    In our case, more often than not, the technology comes to 
us after somebody has published their discovery. And so we can 
still race to the Patent Office, because we have the resources 
to do it and we are able to speculate on technology; we don't 
need to wait for a licensee in the wings. But for the great 
majority of public universities, this is going to be a real 
change of culture, and I think, at least initially, it will be 
a hardship.
    Mr. Schiff. May I just follow up for 30 seconds, Mr. 
Chairman?
    Mr. Smith. The gentleman is recognized for an additional 
minute.
    Mr. Schiff. Thank you. Professor Lerner, can you respond? I 
know you're a private university. How do you think the publics 
are going to be impacted?
    Mr. Lerner. Well, I think that it is fair to say that the 
sort of sophistication and skill of the operations, in terms of 
technology transfer, vary a lot; that there are some 
universities, including private ones like my own, as well as 
public ones like the University of California, which have very 
sophisticated operations, and many both private and public 
which are less well organized in that process and, as a result, 
are--probably, this is a real issue.
    But I think that this really argues for essentially making 
the investment on the part of the universities to essentially 
try to get the information about potential innovators earlier, 
and do that rather than trying to create some special exception 
for them.
    Mr. Schiff. Mr. Gulbrandsen?
    Mr. Gulbrandsen. I would just state additionally that 
universities are open environments. For the universities to 
change their culture and say, ``We've got to get to the Patent 
Office before we publish this discovery, or before we talk to 
anybody about it,'' is really a change for universities, even a 
change for Wisconsin. We encourage publication. That's what 
we're about. We're an open environment. And that's how 
technology works in this country.
    If I could just read to you what PROTON, which is the pan-
European network of knowledge transfer offices, says about the 
European patent system; its quote is, ``The European patent 
system, with its complexity and cost, is much less appropriate 
to university-based inventions than the U.S. system, and acts 
as a barrier to innovation for public research. It lacks a 
grace period, a provisional patent system, a continuation in 
parts system, and is several times more expensive. PROTON 
Europe is convinced that these changes account in large part 
for the much lower number of patented inventions coming out of 
public research in Europe.''
    Mr. Schiff. Thank you very much. Thank you, Mr. Chairman.
    Mr. Smith. Thank you, Mr. Schiff.
    The gentleman from Utah, Mr. Cannon, is recognized for his 
questions.
    Mr. Cannon. Thank you, Mr. Chairman. I appreciate this 
hearing. It's been very informative. And I'd like to just ask 
the panel, in series, if there are any things they would like 
to add to what has been said, if there's anything else that we 
ought to cover other than what's happened already. Thank you.
    Mr. Ravicher. There is one issue I address in my written 
testimony that I think is very important. Unlike trademark and 
copyright law, where there are defenses based on the exercise 
of constitutional rights, there is no such defense to patent 
infringement. And patents today, because life is more dependent 
on technology, it impacts all of our most critical freedoms. It 
impacts speech; it impacts privacy; it impacts assembly; it 
even impacts voting and religion. There are patents on 
everything you can imagine. It impacts all areas of life.
    Fortunately, we haven't had any horror scenarios where some 
such--a patentee has been trying to use it to foreclose someone 
from exercising their constitutional right. But I would prefer 
us to have an expressed provision that says, when 
constitutional rights are being threatened by patents, the 
patent shall yield to the constitutional right.
    Mr. Cannon. Thank you. If you just want to go down the line 
of the panel, that would be great.
    Mr. Lerner. I think this has been a very thoughtful 
discussion, and one which has brought out a range of important 
issues. And I think, you know, no doubt, the bill which gets 
ultimately marked up and delivered will address some of these 
issues; others perhaps will be left on the plate for future 
consideration.
    But certainly, I would just highlight, you know, some of 
the consideration around the issue that was raised earlier 
about the idea of whether the specialized court is at the right 
level; and particularly, whether some of the issues around 
addressing the quality of the first trials, of the district-
level trials, is a issue that perhaps the Committee might want 
to consider down the road. Thank you.
    Mr. Gulbrandsen. I again would like to thank the Committee. 
And I mean, this is very important work, and it is the most 
drastic change to the patent laws in 50 years.
    But I would like to also say that the United States remains 
the technological leader in the world, and we have been the 
technological leader for almost a hundred years. I firmly 
believe that one of the reasons why this country is such a 
strong leader in innovation is because of our strong patent 
system.
    So, we have to maintain a strong patent system. We have to 
encourage people to want to invest in start-up companies. 
That's where the innovation comes from. And, please, please, 
don't do anything that is going to diminish the strength of 
patents. And please encourage the continued innovation country 
is great for. Thanks.
    Mr. Griswold. Yes. I certainly would support the comment of 
not diminishing the value of patents. They are essential. 
They've been essential to 3M's business from 1907--1902, 
actually.
    But I would say this. I think the bill overall, with the 
two exceptions which I mentioned, is a good bill and will not 
negatively impact the patent system. But there are two pieces 
that I mentioned: the second window; and any language on 
injunctions is an issue.
    I would also say this; that relative to the burden of proof 
in the response to FTC-2, Recommendation 2, we went into great 
length in describing what the true burden of proof standard is 
and why it's appropriate. And I would refer the Committee to 
that for that discussion.
    Mr. Cannon. Thank you. I'd like to thank the panel members. 
I think it's been a very enlightening discussion. And yield 
back, Mr. Chairman.
    Mr. Smith. I thank you, Mr. Cannon. I, too, would like to 
thank the Members for their presence, the witnesses for their 
statements and their responses. This has been particularly 
enlightening. And also, for everyone in the room, this is a 
higher than usual turnout, and it indicates an interest in an 
important subject.
    Let me also add that, if we do our job--and I am confident 
that we will--and continue to massage this bill between now and 
the markup scheduled on June 30th, we will have a product that 
in fact will help businesses across the country; that will 
create jobs; that will spur the economy; that will stimulate 
innovation and creativity; and that will help many, many 
Americans. And that is our aim, and I believe that we will 
achieve that.
    And thank you again for your help along the way. We stand 
adjourned.
    [Whereupon, at 10:35 a.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
    Thank you for scheduling a hearing on the Patent Act of 2005. 
Several groups have worked diligently to arrive at a consensus on 
reforms necessary to improve existing patent laws. There seems to be 
agreement that any legislation should focus on three broad subjects: 1) 
the decrease in patent quality, 2) the increase in litigation abuses, 
and 3) the need to harmonize U.S. patent laws with the patent laws of 
foreign countries. The Chairman and I and our staffs, have carefully 
considered the copious comments on the committee print and have 
carefully crafted H.R. 2795 to respond to the concerns.
    I initially became interested in patent reform, primarily because 
of the multitude of questionable quality patents that were being 
issued. High-quality patents are essential to a healthy patent system. 
Poor quality patents tend to spawn litigation, which in turn creates 
uncertainty in markets that depend on patent rights. As a result, 
investors hesitate to invest and innovators hesitate to invent. That is 
why I am pleased that there is strong support for a key quality 
provision in the bill--allowing third parties to submit prior art to 
examiners within a limited time frame. With Section 10, we have taken 
an important first step in addressing the problem of poor patent 
quality by enabling examiners to have more information from additional 
sources. During the question and answer portion of this hearing, I 
intend to explore the merits of additional quality measures such as the 
``second window'' in the post-grant opposition procedure.
    This bill is by no means a perfect solution, but I believe many of 
my additional concerns will be addressed as the bill goes through 
committee. For example, the PTO has voiced some concerns about its 
ability to administer the provision on the duty of candor. If the 
agency tasked with managing the procedure believes it will have trouble 
doing so, it is worth taking a second look at the consequences of the 
language. Furthermore, I think the harmonization provisions need to be 
fleshed out a bit more to address the concerns of small-inventors and 
universities, which I hope at least one of the witnesses will speak 
today. As we move forward in this process, I hope that we will continue 
to seek a consensus on the best way to reform our patent system.
    I look forward to hearing from parties interested in patent reform 
over the next few weeks in order to rectify any unintended consequences 
presented by the text of the bill. Overall, I believe that our bill has 
addressed a number of pressing issues and will certainly create a 
healthier more effective patent system.
                               __________
Prepared Statement of the Honorable John Conyers, Jr., a Representative 
                 in Congress from the State of Michigan
    I am an original cosponsor of this legislation because I believe we 
need to make major changes to the patent system. At the same time, 
however, I do have concerns with several of the provisions in the bill.
    At the outset, it is important for our economy to harmonize our 
patent system with those of other countries. To this end, we should 
establish a system that awards the patent to the first-inventor-to-
file. We also should make it easier for third parties to challenge 
patents after they have issued as long as the process has some finality 
to it.
    Other sections, however, will require continuing discussions. I 
have not heard anyone deny that there are too many `bad' patents out 
there, patents that are overbroad or that the Patent and Trademark 
Office should have been denied as being obvious. Owners of such patents 
file infringement suits and receive either damages or injunctions for 
patents that never should have been issued. This drives up costs not 
only for businesses but also for consumers. To address this, we are 
faced with two options.
    Because of problems in a few industries, there are proposals that 
we make it more difficult to enforce patents. I fear, however, that 
this could disproportionately affect smaller patent owners, who would 
have a more difficult time in establishing harm from infringement if 
damages but not an injunction were awarded.
    In terms of scope, this approach may be too broad. It would affect 
owners of not just overbroad patents but also those that are entirely 
legitimate. It also would affect not just the industry in question but 
every industry that is vital to our economy, from biotechnology to 
software to high-tech. Finally, it could discourage investment and 
research into new drugs and technologies, as investors would not know 
whether any resulting patents would ultimately be enforceable.
    The second option, which I believe deserves greater consideration, 
is to prohibit such patents from issuing in the first place. Such an 
approach would help avoid infringement and related litigation costs 
altogether. It also would ensure against the issuance of injunctions 
for patents that should not have been granted without affecting the 
rights of legitimate patent owners.
    One proposal to accomplish this is to allow patent examiners to 
review more than just officially published documents. Patent examiners 
must be able to consult information that tells whether an application 
describes something that is not really new, even if that information 
was not a patent or a journal article. I would hope we can all agree 
that the PTO should be able to consider a wider variety of such prior 
art than it is currently permitted.
    We also need to revisit the standard that is used to determine 
whether an application describes something that would be obvious to 
people in the field. Even if an invention was not clearly explained 
somewhere, the concept of it may be too obvious to merit patent 
protection, and we should make that clear to the PTO and to the Federal 
Circuit. These two ideas, among others, could drastically cut the 
number of bad patents being issued and drive down costs for all of us 
without harming valid patent owners, large and small.
                               __________
 Prepared Statement of the Honorable Zoe Lofgren, a Representative in 
                 Congress from the State of California
    Today we are here to discuss the merits of the ``Patent Act of 
2005.'' But first I want to thank Chairman Smith and his staff for all 
their hard work on this bill and their willingness to work across the 
aisle on it. I also want to thank Ranking Member Berman and his staff, 
as well as the academic and industry groups who have tried to find 
creative solutions to some of the more vexing parts of this 
legislation.
    I know we have a lot of work left to do. I think our country needs 
patent reform and for that reason I am a cosponsor of this bill. But 
this is just the beginning of the process. The bill we are considering 
today includes many needed reforms that I think everyone can support. 
Obviously, there are aspects that will need further work and change.
    Patents are a critical source of this country's economic vitality. 
The strength of our patent system has spurred innovation and led to the 
creation of entire industries. But to ensure the continued success of 
our patent system, it is clear that changes need to be made. This 
legislation is a needed first step to move this process forward.
    As we continue to seek the right balance, I hope that we also 
consider other ways to improve patent quality. Over the last several 
weeks, I have received numerous suggestions including, among other 
things, suggested improvements to the non-obviousness standard found in 
section 103(a). While it is too early for me to endorse any of these 
suggestions, I hope that we can give them serious consideration.
    Again, thank you Mr. Chairman, I look forward to working with you 
and the other Members of the Subcommittee on this legislation in the 
weeks to come.
Memorandum Submitted by the Honorable Zoe Lofgren, a Representative in 
                 Congress from the State of California




Letter from Michael K. Kirk, Executive Director, American Intellectual 
  Property Law Association (AIPLA), in response to questions to Gary 
    Griswold, President and Chief Intellectual Property Counsel, 3M 
Innovative Properties Company, submitted by the Honorable Zoe Lofgren, 
       a Representative in Congress from the State of California
















          Prepared Statement of the Computer & Communications 
                          Industry Association

















                                 
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