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



 
AMENDMENT IN THE NATURE OF A SUBSTITUTE TO H.R. 2795, THE ``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

                               __________

                           SEPTEMBER 15, 2005

                               __________

                           Serial No. 109-53

                               __________

         Printed for the use of the Committee on the Judiciary


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

                                 ______

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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

                              ----------                              

                           SEPTEMBER 15, 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. Emery Simon, Counsel, the Business Software Alliance (BSA)
  Oral Testimony.................................................     5
  Prepared Statement.............................................     6
Mr. Philip S. Johnson, Chief Patent Counsel, Johnson & Johnson, 
  on behalf of the Pharmaceutical Research and Manufacturers of 
  America (PhRMA)
  Oral Testimony.................................................     9
  Prepared Statement.............................................    11
Mr. Robert B. Chess, Chairman, Nektar Therapeutics, on behalf of 
  the Biotechnology Industry Organization (BIO)
  Oral Testimony.................................................    20
  Prepared Statement.............................................    23
Mr. John R. Thomas, Professor, Georgetown University Law Center
  Oral Testimony.................................................    35
  Prepared Statement.............................................    37

                                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..........................................    59
Prepared Statement of the Honorable Bob Goodlatte, a 
  Representative in Congress from the State of Virginia, and 
  Member, Subcommittee on Courts, the Internet, and Intellectual 
  Property.......................................................    60
Prepared Statement of the Honorable John Conyers, Jr., a 
  Representative in Congress from the State of Michigan, and 
  Member, Subcommittee on Courts, the Internet, and Intellectual 
  Property.......................................................    60
Response to post-hearing questions submitted by the Honorable 
  Chris Cannon, a Representative in Congress from the State of 
  Utah, to Phil Johnson, Chief Patent Counsel, Johnson & Johnson.    62
Response to post-hearing questions submitted by the Honorable 
  Darrell Issa, a Representative in Congress from the State of 
  California, to Phil Johnson, Chief Patent Counsel, Johnson & 
  Johnson........................................................    67
Letter to the Honorable Zoe Lofgren, a Representative in Congress 
  from the State of California, from Phil Johnson, Chief Patent 
  Counsel, Johnson & Johnson.....................................    69
Letter to the Honorable Lamar Smith, a Representative in Congress 
  from the State of Texas, and Chairman, Subcommittee on Courts, 
  the Internet, and Intellectual Property, and 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, and Prepared Statement 
  from Bob DeMatteis, Plastic Packaging Systems..................   189
Prepared Statement of Raymond V. Damadian, President and 
  Chairman, Fonar Corporation, Manufacturer of Scanners..........   193
Prepared Statement of Joy L. Bryant, Executive Director, National 
  Association of Patent Practitioners............................   196
Prepared Statement of Stephen Wren, Independent Inventor and 
  Actuary........................................................   203
Prepared Statement of Ronald J. Riley, President, Professional 
  Inventors Alliance USA.........................................   207
Letter to the Honorable Lamar Smith, a Representative in Congress 
  from the State of Texas, and Chairman, Subcommittee on Courts, 
  the Internet, and Intellectual Property, from Christine J. 
  Siwik, Rakoczy Molino Mazzochi Siwik LLP, on behalf of Barr 
  Laboratories, Inc..............................................   218


AMENDMENT IN THE NATURE OF A SUBSTITUTE TO H.R. 2795, THE ``PATENT ACT 
                               OF 2005''

                              ----------                              


                      THURSDAY, SEPTEMBER 15, 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 10:30 a.m., in 
Room 2141, Rayburn House Office Building, the Honorable Lamar 
Smith (Chairman of the Subcommittee) presiding.
    Mr. Smith. The Subcommittee on Courts, the Internet, and 
Intellectual Property will come to order.
    First, it's nice to look out and see a packed house today. 
That is indicative of the importance of the subject matter and 
of course the testimony of our witnesses, which will be 
forthcoming in just a few minutes. But I appreciate the 
interest.
    While I am mentioning those who are in attendance, I 
probably should apologize in advance to a lot of you all. Not 
everyone--that for good or for bad, what you are going to be 
hearing about today is a fairly arcane subject. It is not only 
complex, but it is legalistic, technical, and I just appreciate 
everybody's patience in trying to delve into this particular 
subject. We are going to be talking about such things as July 
substitutes and September redlines and apportionment and venue, 
and so on and so forth. So a lot of subjects we will discuss 
today, and, again, I appreciate the interest.
    Let me explain also why we have been slightly delayed and 
apologize to those of you all who did not get the word. There 
was a last-minute Republican conference meeting called to 
ratify the choice of the new Homeland Security Chairman, who is 
Peter King of New York. Because of that conference at 10:00, 
going from 10 roughly to 10:30, we had to postpone this 
particular hearing. But we will get started immediately. I am 
going to recognize myself for an opening statement, then the 
Ranking Member, then we will go to our witnesses.
    Today marks our fourth hearing on patent reform in the 
109th Congress. The first two focused on the contents of a 
Committee print and the third on H.R. 2795. Today we will 
explore the merits of an amendment in the nature of a 
substitute to H.R. 2795, the ``Patent Act of 2005,'' that was 
developed in late July pursuant to negotiations among 
Subcommittee Members, industry representatives, and 
professional associations. A second document, a September 
redline to the substitute reflecting further changes, also will 
be discussed.
    To arrive at this point is no small accomplishment, given 
the scope of the bill and the eventual application to so many 
lives and jobs. Notwithstanding our progress to date, the 
legislation is in fact at a crossroads.
    High-tech and financial service companies believe present 
law encourages individuals to acquire poor quality patents. 
These patent holders, sometimes called trolls, can extort 
settlements from manufacturers by threatening to shut down 
assembly lines in the course of infringement suits.
    It shouldn't become just another lawyer's game to divert 
money from purposeful endeavors like manufacturing computers 
and software, but some of the changes that we have considered 
may inadvertently hurt other important industries.
    Biotech and brand drug companies, for example, operate 
under very different business models that rely on a legal 
system that vigorously affects patent rights. Their concerns 
about profit margins, lawsuits and productivity are no less 
sincere than those of the high-tech community.
    In this regard, I hope that Members and witnesses will 
remain especially creative and open-minded as we attempt to 
thread the needle on two key issues, changes to patent 
litigation venue and apportionment of damages.
    In the seeking of compromise on the venue issue, we are 
taking a different approach. Instead of focusing on the 
frequency with which injunctions are issued, why not revise 
another statute that allows frivolous suits to be brought in 
patent friendly districts? We are now exploring the 
possibilities of allowing these suits to go forward but under 
more stringent terms; for example, only in districts in which 
the defendant has committed acts of infringement and has a 
regularly established place of business.
    Consistent with this approach, the redline document would 
require district court to transfer an infringement action to a 
judicial district or to a division that is a more appropriate 
forum; that is, to a district or division where one of the 
parties has substantial evidence or witnesses.
    Concerning apportionment, both the substitute and the 
redline document address the matter of determining the true 
value of an invention in an infringement action. In other 
words, how much value may be attributable to the inventor's own 
efforts versus the contributions from other sources, including 
the infringers.
    I am especially interested in learning what the witnesses 
think of the redline draft, which replaces the venue language 
of the bill with the transfer of venue provision. More than 20 
companies representing a broad cross-section of industrial 
interest support this provision. The redline text applies 
apportionment analysis to all inventions, not just 
combinations, distinguishes contributions arising from the 
patent invention to those attributable to the efforts of the 
infringer and clarifies that an infringed patent may not be 
credited with certain improvements that an infringer has 
incorporated into any infringing product.
    While all issues set forth in both documents are fair game 
for discussion today, I am particularly interested in these two 
issues, the venue and the apportionment of damages. I am 
convinced that either version, the July substitute or the 
September redline, with some tweaking will help individuals and 
companies obtain funds for research, commercialize their 
inventions, grow their businesses, create new jobs, and offer 
the American public products and services that make our country 
the envy of the world. In fact, that is what the patent system 
is supposed to do.
    That concludes my remarks. I will now recognize the 
gentleman from California, Mr. Berman, for his.
    Mr. Berman. Thanks very much, Mr. Chairman. Once again, 
thank you for scheduling this hearing on possible substitute 
amendments to the Patent Reform Act.
    I know, in addition to the amendment in the nature of a 
substitute, that was circulated in July, a number of individual 
companies have met together over the summer to try to produce a 
consensus bill, a draft of which has been circulating as well. 
In all honesty, at this point in the process I would prefer 
that the Subcommittee be actually marking up a bill, but I 
understand the situation.
    The witnesses all agree that patents are the foundation of 
American innovation, and they serve as the underpinning of the 
American economy. Strong intellectual property protection helps 
protect technology businesses, attract investors, provides 
incentives for drug companies to develop new drugs and allows 
independent inventors to make significant contributions to 
society.
    However, while robust property protection presents these 
benefits, when protection is given to questionable quality 
patents, the foundation begins to show its cracks. This leads 
to an increase in litigation, a decrease in investment, and 
casts doubt about the effectiveness of our patent system.
    At last week's hearing regarding oversight of the PTO, we 
heard consensus from all of the witnesses, including the 
director of the agency responsible for administering the patent 
process, that there is a problem with the quality of patents 
issuing from the Patent Office.
    It would be quite an accomplishment if we could reach 
consensus with this panel about the solution to the quality 
issue. Some of the proposed provisions of the original bill, as 
well as the substitutes, begin to address the quality in the 
initial stages of the examination process, such as the ability 
for third parties to submit prior art to the examiner.
    Over the number of years Congressman Boucher and I 
introduced precursors to this bill, we always agreed that the 
key to improving quality was providing examiners with the 
necessary prior art resources. Access to better information 
will yield better decisions by the examiners.
    Other provisions will enhance the quality of patents 
immediately after their issuance, such as the new post-grant 
opposition procedure. With the opportunity to establish a more 
comprehensive check on a patent's validity without resorting to 
an expensive and lengthy court proceeding, the bill will 
improve both the quality of specific patents and the patent 
system as a whole.
    Unfortunately, the goal of providing a true alternative to 
costly litigation, the second window provision, has been 
omitted from drafts of a substitute. Clearly a limited second 
window would shed more light on the quality and validity of 
questionable patents. With substitute options that do not 
contain the injunction provision or the second window options, 
I am left to ponder the fate of questionable quality patents 
that have already been granted. These patents will surely be 
litigated, but afforded a high presumption of validity, and 
therefore in all likelihood affirmed.
    What will be the effect on the economy that a questionable 
quality patent; for instance, a software program, can now be 
the reason for barring others from using their own truly 
inventive products? Shouldn't we consider how to rectify this 
problem as we discuss one of the most extensive patent reform 
bills since the 1952 act?
    Though there are main issues which still need further 
discussions such as duty of candor provision and obviously some 
of the disputed provisions in the latest coalition draft, I 
will look forward to hearing from some of the industry 
witnesses today and see how, if at all, their positions have 
shifted since we began this process.
    I hope to continue working with the group of cosponsors 
that you have put together, Mr. Chairman, to try to create a 
more perfect patent reform.
    Mr. Smith. Thank you, Mr. Berman. Without objection other 
Members' openings statements will be made a part the record. 
Before we begin our testimony, I would like to invite our 
witnesses to stand and be sworn in.
    [Witnesses sworn.]
    Mr. Smith. Thank you, please be seated.
    Our first witness is Emery Simon, Counsel to the Business 
Software Alliance, where he advises BSA on a broad range of 
issues, including copyright law, electronic commerce, trade and 
encryption.
    Mr. Simon received an undergraduate degree from Queens 
College, a Master's Degree from Johns Hopkins University and a 
law degree from the Georgetown Law Center.
    Our next witness is Philip S. Johnson, Chief Patent Counsel 
for Johnson & Johnson, who will be testifying on behalf of the 
Pharmaceutical Research and Manufacturers of America, or PhRMA. 
He serves as the co-chair of PhRMA's Intellectual Property/
Patents Focus Group and holds other leadership post in various 
IP trade associations. Mr. Johnson received his undergraduate 
degree from Bucknell University and his law degree from Harvard 
University.
    Our next witness is Robert Chess, Chairman of Nektar 
Therapeutics, who will be testifying on behalf of the 
Biotechnology Industry Organization, or BIO. Mr. Chess co-
chairs BIO's Intellectual Property Committee. He also teaches 
entrepreneurship and management of health care innovation at 
Stanford Graduate School of Business. Mr. Chess studied 
engineering as a graduate student at California Institute of 
Technology and earned a Master's Degree from the Harvard 
Business School.
    Our final witness is John R. Thomas, Professor of Law, 
Georgetown University Law Center. Professor Thomas also serves 
as the Visiting Scholar in Economic Growth and Entrepreneurship 
at the Congressional Research Service. He earned his Bachelor's 
Degree from Carnegie Mellon University, a law degree from the 
University of Michigan, and a Master of Law from George 
Washington University.
    Welcome to you all. We have your entire testimony, which 
will also, without objection, be made a part of the record. We 
look forward to your testimony today.
    Mr. Simon, we will begin with you.

              TESTIMONY OF EMERY SIMON, COUNSEL, 
              THE BUSINESS SOFTWARE ALLIANCE (BSA)

    Mr. Simon. Thank you, Mr. Chairman, Mr. Smith, and Members 
of the Subcommittee.
    My name is Emery Simon, and I appear before you today on 
behalf of the Business Software Alliance. H.R. 2795 and the 
amendment in the nature of a substitute would make fundamental 
important changes to the patent law.
    The BSA has had an opportunity previously to make its views 
known on the full exchange of these issues. Today I will limit 
my comments to a few of the most important changes in the 
substitute as certain proposals advanced by an ad hoc coalition 
on September 1, which you referred to, Mr. Chairman, as the 
redline document.
    Through its recent hearings this Subcommittee has heard 
that changes are needed in three areas, assuring patent 
quality, curbing excessive litigation and promoting 
international harmonization. BSA member companies believe in 
general the substitute addresses each of these key areas in 
ways that will improve and modernize our patent system.
    We urge the Subcommittee to modify the substitute in 
certain limited respects, and I will identify these in the 
course of my testimony.
    As Mr. Berman just said, the substitute would make a number 
of useful reforms aimed at ensuring patent quality. These 
include establishing a post-grant process to intercept bad 
patents and providing a workable mechanism aimed at enabling 
the PTO to receive prior art from persons other than the 
applicant. We believe these changes will improve patent quality 
and mitigate the need for parties to file expensive, disruptive 
lawsuits.
    With respect to curbing excessive patent litigation, we 
support the approach in the substitute with regard to monetary 
damages and to discouraging plaintiffs from engaging in 
inappropriate forum shopping.
    Specifically, the changes with respect to willful 
infringement will lead to better, more thorough searches by 
applicants and less litigation. This provision should reduce 
the need for expensive notice and opinion letters by 
establishing three clearly limited grounds for willfulness to 
be found.
    We also support the approach of the substitute in 
addressing the problem of forum shopping by plaintiffs and the 
changes proposed in the redline on September 1. The substitute 
would create a viable means for the defendant to have the case 
moved through a more appropriate venue. The practice of filing 
suits in jurisdictions with a demonstrated pro-plaintiff bent 
warps settlement demands and undermines confidence in the 
fairness of adjudicated outcomes. We think that the changes 
proposed in the redline improve upon that.
    On the issue of calculations of damages for infringement, 
we support the changes proposed in the substitute and oppose 
the changes proposed in the redline on September 1.
    The ad hoc coalition, the redline coalition proposal would 
perpetuate excessive unmerited and unfair damages awards in 
cases involving computers and software. Under current law, 
patent damage models are not required to focus on the economic 
value of the inventor's contribution. Instead damages can be 
based on the semantics of a cleverly drafted claim. This 
practice results in jury confusion because damage models can 
include significant value attributable not only to the new 
invention, but instead to already existing technology to prior 
art.
    The court should have the statutory authority to make a 
determination about what the technological contribution with 
the patentee is before a party is allowed to present royalty 
damages models. The statutory language should focus this 
determination away from clever claims and onto the patent. We 
support the substitute because it would provide courts with a 
statutory basis for requiring patentees to present damage 
calculations based on the proportional value of a patent 
invention alone, not on the cumulative value of all features 
included within a large product, which for a computer can be 
thousands and thousands of features.
    There may well be ways, Mr. Chairman, to improve the 
language in the substitute and we would like to work with you 
and others before full Committee consideration of this bill.
    We oppose, as I said, the ad hoc redline because by 
changing the term ``inventive contribution'' to ``claimed 
invention'' unscrupulous parties could well claim damages based 
on the scope of the claims in the patent rather than the fact 
specific actual use of the invention.
    A provision not now part of the substitute, but which is 
part of the redline, is the repeal of section 271(f). We urge 
you to make this change. Under recent court holdings 
interpreting 271(f), a copy of a computer program made outside 
of the United States will be included in support of the United 
States damages if the software is made from a master disk 
developed in this country. If the software had been developed 
outside of the U.S., this rule would not apply. We believe this 
reading of 271(f) creates an unintended incentive to make 
valuable development activity outside the U.S. and should be 
removed from the law.
    Finally, we note that in the course of your work the 
Subcommittee has considered a number of other issues, including 
second window for commencing a post-grant proceeding, limiting 
abuses of continuations of pending applications and additional 
reforms aimed at mitigating excessive litigation. We recognize 
the Subcommittee has reviewed each of these matters carefully 
and has decided not to address them at this time. These issues 
remain of deep concern to BSA members and to the technology 
industry as a whole. We are prepared at this point to support 
the Subcommittee reporting favorably the substitute with only 
the changes I have outlined.
    Thank you again.
    [The prepared statement of Mr. Simon follows:]

                   Prepared Statement of Emery Simon

    Chairman Smith, Mr. Berman and members of the Subcommittee, my name 
is Emery Simon, and I am counselor to the Business Software Alliance. I 
want to thank you for the opportunity to testify.
    Mr. Chairman, BSA commends you and the other members of this 
subcommittee for your demonstrated leadership in pursuit of improving 
our patent system. In our view, the amendment in the nature of a 
substitute represents an important step towards that goal.
    BSA members believe that the patent system is fundamentally sound 
and works well for most innovators, whether they toil in their garage, 
experiment in a university laboratory, or work for a large corporation 
that provides goods and services to consumers. We believe that a 
periodic review and recalibration of the patent law is not only a good 
idea, but essential to ensuring that patents remain a vital incentive 
for innovation.
    BSA members approach patent reform from a pragmatic, problem-
solving perspective. Our attention is focused on those areas of law and 
practice that present specific challenges for our companies' day-to-day 
conduct of their businesses.
    Through its recent hearings this Subcommittee has heard that 
changes are needed in three areas: assuring patent quality, curbing 
excessive litigation and promoting international harmonization. BSA 
member companies believe that, in general, the Substitute addresses 
each of these key areas in ways that will improve and modernize our 
patent system. We would urge the Subcommittee to modify the substitute 
in only limited respects, and I will identify those in the course of my 
testimony.
    First, the Substitute would make a number of useful reforms aimed 
at assuring patent quality at a time of increasing demands on the 
patent office:

          It establishes an enhanced post-grant process to 
        provide parties a second chance to intercept bad patents. We 
        believe this change will mitigate the need for parties to file 
        expensive and disruptive lawsuits.

          It will also provide a more efficient means to 
        challenge bad patents subject to the same evidentiary standard 
        used in the granting of the patent, namely a preponderance of 
        the evidence.

          And it will provide a workable mechanism aimed at 
        enabling the PTO to receive prior art information from persons 
        other than applicant. This change will leverage private-sector 
        resources to provide the examiner with more information upon 
        which to base determinations on the fundamental issue of 
        patentability and will help build a contemporaneous record that 
        reflects the extent of the examination by the examiner.

    BSA supports each of these reforms.
    With respect to curbing excessive patent litigation, we support the 
approach in the Substitute with regard to monetary damages and to 
discouraging plaintiffs from engaging in inappropriate forum shopping.
    As industry representatives have testified previously, the IT 
industry, like so many others, is encountering the enormous costs of 
dealing with patents of questionable quality. Today, hundreds of patent 
infringement cases are pending against computer software and hardware 
companies, costing the industry hundreds of millions of dollars each 
year. The fact that the patent system works well for other industries 
does not obviate the need to address this very real problem for the 
technology industry. Our industry is particularly vulnerable to such 
claims because our complex products often have hundreds of patented or 
patentable features contained within them.
    Left unchecked, these practices stand to disrupt the activities of 
true innovators and impede their ability to deliver products and 
services to consumers. We believe the changes contained in the 
Substitute would constitute an improvement over the current situation.
    Specifically, the changes with respect to willful infringement will 
lead to better and more through searches by applicants and less 
litigation. This provision should reduce the need for expensive notice 
and opinion letters by establishing three clearly limited grounds for 
willfulness to be found. In addition, we believe that disruptions and 
uncertainty will be reduced by requiring courts to first make a 
determination of whether a patent is valid and infringed before it 
considers willfulness issues, including pleadings, discovery and 
findings.
    We support the approach of the Substitute in addressing the problem 
of forum shopping by plaintiffs. The Substitute would create a viable 
means for the defendant to have the case moved to a more appropriate 
venue. The practice of filing suit in jurisdictions with a demonstrated 
pro-plaintiff bent warps settlement demands and undermines confidence 
in the fairness of adjudicated outcomes. It has proven very burdensome 
for technology companies sued in jurisdictions far removed from their 
principal places of business where the bulk of the evidence or 
witnesses are to be found.
    While we support the approach of the Substitute, we believe that 
the goals of promoting litigation efficiency and fairness can be 
accomplished in a clearer manner with certain changes in the wording. 
In preparing for this hearing your staff has directed us to look at 
proposals that have been developed by an ad hoc coalition of companies. 
We support the language they have developed to improve the Substitute 
on this issue of forum shopping.
    We also support the changes proposed by the Substitute as 
circulated by your staff with regard to the calculation of damages for 
infringement. Today, when a small component of a multi-faceted system 
or product is alleged to infringe a patent, the damage claim often 
seeks some portion of the value of the product as a whole, or the full 
scope of the claimed invention, such as a computer, rather than being 
limited to only the value of the infringing feature or functionality. 
In practice this means that damages can be calculated as 3 to 5 percent 
of the value of a $2,000 computer rather than the value of the item 
that may be just $1 or $2. This often leads to unduly inflated verdicts 
or settlement demands, and is unworkable when thousands of patents can 
apply to a product.
    We believe the language of the Substitute as circulated by your 
staff is generally correct and appropriate. The Substitute would 
provide courts with a statutory basis for requiring that patentees (and 
their expert witnesses) present damages calculations based on the 
proportional value of a patented invention alone, rather than on the 
cumulative value of all features included with a larger product. There 
may well be ways to improve this language, and we would like to work 
with you, Mr. Chairman, and other Members on this language before full 
Committee consideration of the bill.
    We understand that certain changes to this language have been 
proposed by an ad hoc coalition of interests, and we must state our 
opposition to their proposal. That group has erroneously characterized 
that language as having the support of technology companies. That is 
not the case. The ad hoc coalition draft ignores a serious issue by 
which abusers of the patent system can claim damages beyond the value 
of the contribution of the invention. By proposing to change the term 
``inventive contribution'' to ``claimed invention'', unscrupulous 
patentees could well claim damages based on the scope of the claims in 
the patent rather than the fact-specific actual use of the invention in 
the instant case.
    For example, in a case involving a built-in modem in a computer, 
the claim for damages was based on the value of the computer. Under the 
Substitute's formulation damages would appropriately be measured on the 
value of the modem. However, if damages were based on the claimed 
invention as some have proposed--the combination of a microprocessor, 
hard drive, motherboard etc., the royalty would be based on the value 
of the entire computer.
    BSA member companies often face plaintiffs who demand royalties 
based on the cost of the entire computer or the entire software package 
when their inventive contribution is limited to some minor improvement 
on some piece of the product involved. For this reason, we pledge our 
willingness to continue to work on this issue, but we must oppose the 
change proposed by the ad hoc coalition of companies.
    A provision not now part of the Substitute is the repeal of Section 
271(f). We urge you to make this change. In 1984, Congress added 
Section 271(f) to prevent companies from manufacturing components of an 
infringing product in the United States, and exporting those parts for 
assembly abroad to avoid the claim of infringement. Today, the 
provision has been interpreted by the courts in ways that deter 
domestic development of software. Under recent court holdings, a copy 
of a computer program made outside the United States may in some cases 
nonetheless be included as part of United States damages if the 
software is made from a ``master disk'' developed in the United States. 
If the software had been developed outside the U.S., this rule would 
not apply. The same issue may exist with respect to development of 
other information-based products that are made wholly outside the 
United States based on information developed in the United States. We 
believe this application of the law creates an unintended incentive to 
move valuable development activity outside the U.S., and should be 
removed from the law.
    BSA also supports provisions of the Substitute aimed at harmonizing 
U.S. law with that of other major jurisdictions by establishing a first 
to file system and requiring publication of all applications 18 months 
after filing.
    While our members' businesses and those of a growing number of 
American companies are global, there is no global patent system. The 
costs and uncertainty posed by a multiplicity of national patent 
regimes--all sharing the same basic goal, but each imposing disparate 
administrative burdens on inventors--is a matter that merits action. In 
this environment, it is essential that the U.S. recognize where its 
system is out of step with the rest of the world. The U.S. ``first-to-
invent'' system is an often-cited example. We believe a change to 
`first inventor to file' is timely.
    We also endorse the proposal that all pending applications be 
published at 18 months after their initial filing. Adopting full 18-
month publication will make the patent system more transparent and will 
complement the goals of the proposed third party submission of relevant 
prior art and post-grant opposition procedures.
    Finally, we note that, in the course of your work, the Subcommittee 
has considered a number of other issues including a ``second window'' 
for commencing a post grant proceeding, limiting abuses of 
continuations of pending applications and additional reforms aimed at 
mitigating excessive litigation. We recognize the Subcommittee has 
reviewed each of these matters carefully and has decided not to address 
them at this time. Although these issues remain of concern to BSA 
members, we are prepared to support the Subcommittee reporting 
favorably the Substitute with only those changes I have outlined.
    Again, thank you for this opportunity to testify.

    Mr. Smith. Thank you, Mr. Simon.
    Mr. Johnson.

TESTIMONY OF PHILIP S. JOHNSON, CHIEF PATENT COUNSEL, JOHNSON & 
     JOHNSON, ON BEHALF OF THE PHARMACEUTICAL RESEARCH AND 
                MANUFACTURERS OF AMERICA (PhRMA)

    Mr. Johnson. Thank you, Mr. Chairman. Mr. Chairman, and 
other distinguished Members of the Subcommittee, I am Phil 
Johnson. I am Chief Patent Counsel of Johnson & Johnson. I am 
here to testify today both on behalf of PhRMA and Johnson & 
Johnson.
    We appreciate the opportunity to provide this testimony on 
this important issue of patent law reform. Johnson & Johnson is 
a family of more than 200 companies and is the world's largest 
manufacturer of healthcare products.
    Taken collectively, Johnson and Johnson's companies 
represent the largest maker of medical devices in this country. 
We represent the second largest biotechnology business and the 
fourth largest pharmaceutical business.
    Johnson & Johnson companies employ 55,000 people in the 
United States, 7,000 of them in California alone. In reliance 
on the promises of rewards from the patent system, Johnson & 
Johnson companies this year expect to invest nearly $5.7 
billion in research and development.
    Mr. Chairman and the Subcommittee, with your introduction 
of the substitute H.R. 2795, we all took a great step forward 
toward meaningful patent reform. By eliminating provisions 
relating to injunctions, continuations and so-called second 
window post-grant opposition, while retaining many of the other 
provisions of the National Academy suggestions, you have moved 
our patent reform discussions much closer to consensus.
    During the Congressional recess, as has been noted, work 
continued to close the remaining gaps, especially those 
relating to the CREATE Act and the substitute's venue and 
damages provisions.
    As you know, a coalition text is the result, a coalition 
text which is now supported by some 33 companies, and I am now 
pleased to report that as of Tuesday also by the IPO, the 
broad-based Association of Intellectual Property Owners.
    While there seems to be general agreement among many of the 
witnesses today on the coalition text approach to venue, the 
same is obviously not true of the damages apportionment 
provision. At the outset, it should be noted that the National 
Academy of Sciences made no recommendation to revise the matter 
in which damages are assessed in patent cases. To many, 
including Johnson & Johnson, such a provision is simply 
unnecessary to patent reform. The current case law which 
applies Georgia-Pacific factor 13, among other factors, is seen 
to be working just fine.
    To others, Georgia-Pacific factor 13 is not being uniformly 
applied by the courts and should be codified. This latter 
approach appears to have been the intent behind the damages 
apportionment language in the substitute as it is in the 
coalition text.
    The problem with the language in the substitute is its use 
of the term ``inventive contribution.'' this is a term which is 
susceptible to many different interpretations where the 
language of the coalition text is not. Georgia-Pacific factor 
13 establishes an analytical approach for determining the 
realizable profit or value that should be credited to a patent 
invention in the context of a reasonable royalty determination.
    In determining that value under Georgia-Pacific, the profit 
or value stemming from the claimed invention is distinguished 
from the realizable profit or value added to the accused 
product or process by the infringer. The coalition text is true 
to this approach.
    Johnson & Johnson and many other companies oppose the 
suggestion that in determining patent damages only partial 
credit should be given to the realizable profit or value added 
by the patented invention taken as a whole. Such an approach 
would be unworkable and unprecedented in patent damages law. 
Patent damages would be trivialized in most cases and unfairly 
awarded in almost all.
    A patented invention should not be dissected into its 
subparts or subelements and then evaluated piecemeal in an 
effort to isolate whether inventive contributions might be 
present in some of these subparts and, if so, where they are. 
The reason is because to do so the true value of the invention 
will likely be lost.
    At some level all patented inventions are combinations of 
old elements. They are patentable precisely because as a whole 
they are more valuable than the sum of their parts. Under the 
inventive contribution analysis suggested by some, such 
synergies would never be recognized. Moreover, to ignore the 
value of the invention taken as a whole would undermine the 
principal purpose of the patent system, which is to reward 
inventors for the entirety of what their inventions have given 
to society.
    In conclusion, because of the Subcommittee's open and 
inclusive process, meaningful patent reform, as embodied by the 
coalition text, may now be within reach. Johnson & Johnson 
hopes that it is.
    I want to thank you for this opportunity to testify and 
stand ready to answer any questions you might have.
    [The prepared statement of Mr. Johnson follows:]

                Prepared Statement of Philip S. Johnson



                                APPENDIX



    Mr. Smith. Thank you, Mr. Johnson.
    Mr. Chess.

TESTIMONY OF ROBERT B. CHESS, CHAIRMAN, NEKTAR THERAPEUTICS, ON 
    BEHALF OF THE BIOTECHNOLOGY INDUSTRY ORGANIZATION (BIO)

    Mr. Chess. Chairman Smith and Members of the Subcommittee, 
I am pleased to testify before you today regarding the pending 
patent reform legislation, the amendment in the nature of a 
substitute to H.R. 2795. I would like to thank the Subcommittee 
for its continued leadership issues related to strengthening 
the foundation of American innovation, intellectual property.
    I am Rob Chess, Executive Chairman of Nektar Therapeutics, 
and I am here representing the Biotechnology Industry 
Organization. BIO is involved in the research and development 
of healthcare, agricultural, industrial and environmental 
biotech products. The industry is one of the most innovative 
industries in the U.S. economy, filing more than 40,000 
biotechnology patent applications in 2003 alone.
    I base my comments today based on 14 years of experience as 
executive of a top biotech company that is successful because 
of the strength and predictability of the patents. I am not a 
patent lawyer. Rather, I am an executive who will explain how 
important patents are to biotech and what may occur if the 
wrong reforms are enacted.
    Perhaps no other industry is as dependent as the biotech 
industry. A majority of biotech companies have no products on 
the market, but they do have patented innovative discoveries 
which may be translated into life-saving products over the 
course of years.
    To illustrate, I point to my own company, Nektar. Nektar 
has been in existence since 1991. We have had 17 rounds of 
financing and have several products on the market. Yet we are 
still not profitable. It is our intellectual property that has 
allowed us to gain the capital necessary to survive over those 
many years.
    One of Nektar's exciting products is Exubera, an inhaled 
insulin powder developed in collaboration with Pfizer. It is 
the first noninjectable form of insulin and could be a major 
advance in therapy for the 18 million Americans who suffer from 
diabetes. Their product, this product was recommended by an FDA 
advisory committee for approval last week but a key patent 
covering the product was granted in 2000.
    Upon word of the issuance of the patent covering inhaled 
insulin in dry powder form, Nektar's stock valuation increased 
by 20 percent. I have actually brought the product here today. 
Don't leave home without one. But this is it right here.
    Basically, what it does, I hope you don't mind if I give 
you a demo.
    Mr. Smith. Show and tell is fine.
    Mr. Chess. What the basic problem is there are about 5 
million diabetes in the U.S. who take insulin, another 3 
million who should. The key to controlling your diabetes is 
taking insulin 3 to 6 times a day. The average diabetic only 
takes it right now twice a day because of fear of injections. 
What we have done is basically done a way so they won't have to 
take meal-time injections anymore. What you do is you basically 
take this blister here that has the powdered insulin in it. 
Open it up just like this. Then stick it in right here just 
like you would your ATM card, pump it once, fire. See that 
powder there. You actually see that. That's actually--insulin 
is smoke. You just breathe that in by just opening the chamber 
like this, rather than taking a shot.
    I think it's actually going to make a huge difference in 
the lives of people and frankly solve--the biggest problem in 
diabetes therapy right now is getting people to comply with 
their insulin therapies.
    Nektar's story is similar to the story of hundreds of U.S. 
biotech companies in the United States. Investors will only 
invest in ideas if they are adequately protected by strong 
patents.
    Turning to the amendment, we are pleased that it is a 
substantial improvement over the introduced bill. We note that 
provisions that would have severely weakened the ability of 
innovators to obtain and enforce patent protection have been 
eliminated.
    Specifically the current provision does not contain harmful 
and permanent injunction reforms, a dangerous second window and 
post-grant and damaging limitless continuation of practice 
reforms. BIO members have legitimate needs for filing 
continuations. I can certainly tell you that from our country 
we just filed continuations in almost every patent that we do.
    Continuation practice allowed biotech inventors to obtain 
adequate protection for the full scope of their inventions. The 
practice is common in our industry because it can take 12 to 15 
years to bring a product to market. During the patent 
examination process, the inventor is likely to obtain a patent 
only on one aspect of his discovery. The issued patent will 
allow the inventor to seek capital investment to further the 
product development while he files continuations, applications, 
commensurate with the scope of the full discovery.
    The amendment, however, contains a venue provision which is 
cause for significant concern for BIO members because it shifts 
the advantage in patent litigation in favor of the defendant. 
It would only allow a lawsuit to commence in the district where 
the defendant resides or is located. BIO opposes this because 
resource limited biotech companies may be forced to file 
lawsuits far outside of their normal jurisdiction where small 
biotech companies may find it difficult to assert their patent 
rights.
    We urge you to eliminate this provision. That said, BIO 
supports many provisions in the substitute bill, including a 
first inventor to file system, allowing its signees to file for 
a patent, eliminating the best mode requirement, eliminating 
the inequitable contact defense, providing pre-grant 
submissions of prior art, simplify the definition of prior art 
and requiring publication within 18 months of filing, and 
reforming willfulness standards.
    I can see I am over time a little bit, probably because I 
did the demo. Should I continue here or----
    Mr. Smith. Without objection, please take an extra minute 
because of that demo. I never had anybody use that as an excuse 
before, but we will allow that today.
    Mr. Chess. I just can't resist.
    Mr. Smith. Maybe we ought to charge you for that little 
free advertising, I don't know.
    Mr. Chess. Actually, well, I hope not but some of you may 
end up using our product one day.
    While our members agree on many provisions of the 
substitute bill, there are areas where our members are decided. 
One disagreement concerns a standard of proof required to 
invalidate a patent in the proposed post-grant opposition 
procedure. As you know, the current substitute requires that a 
patent challenger show by a preponderance that the patent is 
still valid. We are basically divided on this between 
preponderance of evidence and clear and convincing standards.
    Let me just say a few words on the Coalition for Patent 
Reform proposal. We recently became aware of the proposal and 
have been apprised of their concepts. The proposal differs from 
your amendment in that it includes a new transfer of venue 
provision, repeals section 271(f), revises the previous 
provision of apportionment of damages and clarifies the 
conditions for patentability taking into account the CREATE 
Act. Like the substitute, we view the proposal as a substantial 
improvement over H.R. 2795.
    On the apportionment damages, what I can tell you is that 
we have not achieved a consensus yet, and we are still studying 
the proposal.
    On the transfer of venue provision in the coalition draft, 
we note that the draft removed the onerous venue provisions 
from the substitute amendment and replaces it with a transfer 
of venue provision. However, the primary objection to the 
coalition approach within our membership is the belief that 
transfer of venue motions will delay and divert patent 
infringement actions.
    In conclusion, BIO supports and applauds the continuing 
efforts of this Subcommittee to improve the patent system, yet 
urges caution that the delicate balance of the system may be 
maintained.
    Thank you, and I appreciate you allowing a little extra 
time.
    [The prepared statement of Mr. Chess follows:]

                 Prepared Statement of Robert B. Chess




    Mr. Smith. Thank you, Mr. Chess.
    Mr. Thomas.

            TESTIMONY OF JOHN R. THOMAS, PROFESSOR, 
                GEORGETOWN UNIVERSITY LAW CENTER

    Mr. Thomas. Mr. Chairman and Members of the Subcommittee, 
my name is Jay Thomas. I am delighted to have the opportunity 
to testify at this hearing in my individual capacity as a 
concerned observer of the patent system. By no means should my 
remarks be construed as representing the views of Georgetown 
University or the Congressional Research Service.
    The Subcommittee deserves congratulations for its 
perseverance in its efforts to reform the legal regime that is 
widely regarded as America's engine of innovation. Your 
leadership in advancing these reforms has been remarkable, and 
we remain confident that you will achieve the interest of 
patent owners, innovative industry, and the public.
    As the legislation continues to mature, the Subcommittee 
may wish to consider what has been described as its 
foundations, recent studies by the National Academies, Federal 
Trade Commission and most recently the National Academy of 
Public Administration.
    In addition, as originally presented, H.R. 2975 appeared to 
build on a number of themes, including reducing trolling, 
curbing practices that lead to cost and delays in patent 
litigation, adopting best practices from peer patent systems, 
and of course addressing perceived shortfalls in patent 
quality.
    The Subcommittee may wish also to consider the extent to 
which subsequent versions of the bill fulfill these basic 
goals. I am going to offer a few examples. New to the more 
recent provisions of H.R. 2795 are provisions directed toward 
venue and patent litigation. For policy reasons that remain 
obscure, Congress has enacted a specialized venue statute for 
patent cases and subsequent developments in the Federal Circuit 
have construed them in a liberal fashion, essentially making 
venue conterminous for personal jurisdiction. The result is a 
great deal of flexibility for patent plaintiffs.
    One of the versions of the bill would in fact define more 
stringent venue standards. Another would require or allow 
transfers of venue. A few observations could be made about the 
competing approaches, both of which have their merits.
    First, we have a Federal Circuit. We have one, the Patent 
Appeals Court, that hears most, if not all, patent appeals in 
this country. So forum shopping doesn't really involve the 
search for more favorable alternative interpretations of the 
law, but rather different judicial levels of expertise as well 
as distinct docket management systems that imply a different 
pace of litigation.
    Finally, one of the major themes of the bill is to reduce 
the cost and complexities of patent cases. The Subcommittee may 
wish to consider whether the September 1 proposal, which 
provides standards for transfer of venue, is in keeping with 
the remainder of the bill, which generally limits resource-
intensive satellite determinations in patent cases.
    Let me also turn now to continuation applications. 
Predecessor versions of the bill delegated authority to the PTO 
to regulate. That language has now been deleted. In the 
meantime the recently issued National Academy of Public 
Administration report recommended that limitations be imposed 
on the number of continuations that could be filed and 
developments in the courts proceeded apace.
    On September 9, the Federal Circuit decided Symbol 
Technologies v. Lemelson Medical, Education & Research 
Foundation, affirming a judgment that a patent was invalid for 
prosecution laches. Continuation practice is a long-standing 
feature of U.S. patent law and to some extent may even be 
required by the Paris Convention, which is a treaty the United 
States signed in the 19th century. Nonetheless, considerable 
concern both in the NAPA report and commentary by academics and 
scholarly practitioners have voiced concerns over potential 
abuses in connection with a limitless refiling of applications. 
As a result, the Subcommittee may wish to persist in its 
efforts to determine whether restrictions ought to be imposed 
upon continuations or not.
    With respect to oppositions, predecessor versions of the 
bill allowed oppositions to be brought 9 months after the 
patent issued or 6 months after the patentee brought a charge 
of infringement. More recent versions of the bill eliminate 
that latter alternative.
    Setting time limits for the instigation of a proposed grant 
proceeding requires a careful balancing of interests. The 
current proposal is in line with the established foreign 
practice which ordinarily requires an opposition to be brought, 
I think, either 6 to 9 months of patent issuance. These time 
limits prevent harassment or at least reduce potential for 
harassment of the patentee and provide stability for the 
proprietary right.
    On the other hand, the current U.S. equivalent to 
opposition, the reexamination proceeding, allows a request to 
be brought at any time during the life of a patent. Further, 
unlike foreign counterpart legislation, H.R. 2795 places strict 
limits on the length of opposition proceedings, might also 
reduce the opportunity to harass a patent owner.
    More liberal time restrictions may better highlight the 
U.S. PTO's role as a U.S. public service organization and best 
ensure the quality of patents that were not immediately 
believed to be of interest to affect this industry. As a 
result, the Subcommittee may wish to pay careful attention to 
time restrictions by use of oppositions for members of a 
public.
    I see that my time has just about drawn to a close. I very 
much thank the Committee for allowing me to testify. To your 
credit you have consistently solicited a wide range of use. I 
know that I speak for a wide number of legal academics and say 
we will remain available to you for technical assistance as you 
continue to plumb what you have properly described as an arcane 
field of law.
    Thank you very much.
    [The prepared statement of Mr. Thomas follows:]

                  Prepared Statement of John R. Thomas



    Mr. Smith. Thank you very much, Professor Thomas.
    Let me direct my questions first to Mr. Simon. As I 
mentioned in my opening statement, I am going to focus on venue 
and apportionment. Actually what we did was a breakdown and a 
chart on both issues. It looks like to me that there is not any 
strong opposition to the redline venue. Most folks seem to find 
it acceptable. In the case of PhRMA some members are on the one 
side, some members are on the other. But it looks like the 
September 1 draft is not necessarily objectionable. So let me 
focus on apportionment initially.
    Mr. Simon, my question for you is going to really be why do 
you support the July versus the September version. But I think 
you answered that in your testimony.
    Let me ask you this, without your volunteering to negotiate 
in open court over any details, do you think that a compromise 
is possible on apportionment?
    Mr. Simon. I think it's fair to say, Mr. Chairman, that 
technology companies and BSA have been nothing but ready to 
compromise in this process.
    Mr. Smith. Okay.
    Mr. Simon. I think it's also fair to say that there are 
certain places where we cannot go, where the support of our 
industry for this legislation should not be taken for granted. 
This is an extraordinarily important issue for us. Are there 
different ways to formulate it? Yes. But there is a core issue 
here that is really separating the parties.
    For our industry to look at products as a whole implicates 
an enormous exposure to damages, and that is simply not a place 
where we can go.
    Mr. Smith. Thank you. Mr. Johnson, in regard to 
apportionment, it is my understanding that initially PhRMA 
agreed to the July version and then I think must have changed. 
You must have changed your mind because you now support the 
September redline instead of the July substitute. Is that true 
that you initially did approve the July substitute?
    Mr. Johnson. Mr. Chairman, I am wearing two hats today. I 
will say that I don't think that PhRMA agreed either to the 
July version or to the coalition text as it is now for this 
matter. However, I do think that they did not express 
opposition to the coalition--rather, to the July 26th draft on 
apportionment as much as on venue. I know that they reached the 
second--however, in my written testimony I do point out that 
even some of the people in the coalition drafters, negotiators 
if you will, have the damages language that--the inventory 
contribution language in some of their earlier drafts, when 
they were, I believe, under the impression that the purpose of 
that text was to codify Georgia-Pacific factor 13.
    It only became apparent, really in the summer, in August, 
to many of those involved, that the provision that was being 
sought, at least the interpretation that was being sought for 
the inventive contribution language was this subpart or sub-
element approach to dissect the invention down to its subparts 
and to then inquire which of those subparts had, if any, 
inventive contribution.
    That really has become--this is not just a semantic 
difference in language, this is really a fundamental difference 
in that I think the coalition supporters and many others really 
feel that would go to the very heart of patent damages.
    Mr. Smith. Okay. We may follow up with you on that 
particular subject. I appreciate that point of view.
    Mr. Chess, in your testimony, you may not have so intended, 
but your testimony quite frankly reminded me of just how much 
has been taken out of the original bill and how much has been 
compromised and how much has been jettisoned and how many 
concessions have been made. Like I say, that might not have 
been the intent of your testimony, but it just reminded me of 
how far we have come, if you want to look at it that particular 
way.
    The other thing, is it a correct reading of BIO's stand 
that mainly, mainly because of having 1,000 member companies, 
that you really haven't taken a hard position on either venue 
or apportionment? I notice that you said some member companies 
support the September 1 draft in regard to that very issue. 
Others support the September draft in regard to apportionment. 
But because of the multitude of interest, that you represent, 
you haven't taken a hard position on either venue or 
apportionment. Is that a fair description?
    Mr. Chess. First of all, let me respond to the first thing 
you said. Actually, we have beenappreciative of the work, 
working with you and the others of the Committee, and how much 
progress has been made here. So we actually believe that the 
work that has been done----
    Mr. Smith. One person's progress is another person's 
concession.
    Mr. Chess. Yes, because you know, in our industry, as I 
think you gathered from my testimony and discussions that you 
have had, intellectual property is probably as important or 
more important to our industry than any other, because it's the 
very heart of what we are doing because the long development 
times and the certainty of being able to protect what you have 
developed 10, 15, 20 years out.
    Mr. Smith. Okay.
    Mr. Chess. In regards to the two specific questions you 
asked on apportionment and on venue, of those two issues the 
venue issue is a far more important one to us than the 
apportionment issue. On the apportionment we have different 
views within the industry. Some view that codifying one out of, 
I guess, 13 different ways of doing apportionment, you know, 
would be somewhat unusual and maybe cause the other ones to be 
less important. Others view it as just codifying something that 
frankly is done by judicial review anyway. So that is not a 
critical issue.
    On the venue, the venue is a very important issue to our 
industry. The key concern there is twofold. One of them is 
using provisions such as being proposed in the coalition as a 
delay tactic, so delaying the time that you are able to get 
injunctive relief, and also a great deal of concern, 
particularly from smaller companies like my own, of the 
difficulty of basically having venue chosen in some ways by the 
defendants in places that are far away and difficult for you to 
both work in.
    That said, we are still studying the September 1 draft and 
have not come to a----
    Mr. Smith. I have you down as open to considering the 
language, is that right?
    Mr. Chess. I think we are open to considering, open to 
discussion on it.
    Mr. Smith. Thank you, Mr. Chess.
    Professor Thomas, my time is up on questions, but I will 
take the liberty of making a quick observation on your 
testimony. It was unusual, it was subtle, it was understated. I 
thought it was effective, mostly persuasive or persuasive in 
many cases. But I appreciated your suggestions and comments.
    Now, you may not like this comparison, or maybe you will, 
but it reminded me a lot of what I have seen of Judge Roberts' 
writings. So depending on which side you are on, you may or may 
not consider that to be a compliment, but it is intended to be 
as such.
    The other thing regarding your testimony that I can't let 
pass, and that is that anyone, as you did on page 5, who refers 
to the plural of forum, which most of us would say forums, as 
fora, f-o-r-a, the Latin plural, can't be all bad.
    So anyway, we appreciate your testimony.
    The gentleman from California, Mr. Berman, is recognized.
    Mr. Berman. Well, thank you, Mr. Chairman, some can see it 
as similar to Judge Roberts, others can see it as patting your 
back on the one hand and picking your pocket with the other.
    Mr. Smith. Oh, that is too harsh, Mr. Berman.
    Mr. Berman. The reason I say that is we have a redline 
version with some--we have a bill which, to my way of thinking, 
has stripped out very significant reforms in the process. There 
are many still in it, but it has stripped out some very 
important reforms.
    It has gone the way that I gather a number of your member 
companies like in the way of apportionment. It has diluted the 
venue provision. That happens to be a dilution that I like. But 
I think it's better than the original venue provision that I 
saw in the July draft. And at least based on your answer to the 
Chairman, neither PhRMA nor BIO support the bill, even though 
all these changes have been made at the behest of BIO and 
PhRMA. What is going on?
    Mr. Johnson. I suppose I will volunteer to try to answer 
that. As for PhRMA, PhRMA has only more recently become 
involved in this and was not one of the original movers behind 
the legislation. They didn't submit text. It wasn't one of the 
organizations that was doing that.
    As for the redline, there simply hasn't been enough time 
since September 1 for, to my knowledge, any of the 
organizations that are larger professional associations and 
trade organizations to sit down and go through the procedures 
that are necessary for them to accept or reject as a whole. It 
was coincidental that IPO had its annual meeting on this over 
this past weekend and was able to do that.
    However, I would note that a number of PhRMA member 
companies are supporters of the coalition text. And I am not a 
politician, so I don't perhaps want to prognosticate what that 
would mean, but I would certainly--it shows that a number of 
pharmaceutical companies are supportive, as are companies from 
many other industries.
    Mr. Chess. As, you know, you can tell with the work that 
has been going on with the Committee, this is an area that is, 
as I mentioned earlier, absolutely critical to our industry, 
and we have put a lot of work as an industry into developing 
positions here. I don't think we would have put that much work 
in it if we don't ultimately like to see a bill move forward 
and see a deal struck that is acceptable to all parties.
    That said, I mean, developing a position within BIO with 
our thousand members is very difficult on something where it is 
so critical to so many different companies, and there's often 
divergent business viewpoints on that. We have worked very hard 
within BIO to come to a consensus view. We actually at our 
executive committee meeting in August, patent reform in the 
various proposals, were focused on it. We had a call in 
September that our board members joined on, and we are still 
working to sort of come up with a unified position.
    Some of the latest redline areas that Chairman Smith 
discussed, we are still studying and trying to come up with 
viewpoints, but we are working very hard to come up with a 
unified position among many different areas so we can work with 
the Committee in developing a bill.
    Mr. Berman. Well, all I know is Chairman Smith has convened 
a number of meetings with the representatives of PhRMA and BIO 
since last May. It seems like--and I know there have been 
countless meetings separate from us or with our staffs. It just 
seems to me that organizations as sophisticated and agile as 
the ones that comprise your organization members, if there 
isn't some process that allows decisions to be made over that 
period of time in the context of what constitutes necessary 
changes to get the organization support and what doesn't, there 
is something missing.
    Let me ask one last question on this time. I guess perhaps 
it's to Mr. Chess.
    We have taken out, I guess in the July draft, the second 
window. I think it's no surprise, I think that weakened the 
effectiveness of the reforms we sought. The argument was not to 
allow that second bite at the apple.
    At the same time, Mr. Chess, the reason I guess I am asking 
this question is, you sort of very strongly and emphatically 
came out for the continuations process unchanged, the right--
which apple is the second bite not appropriate at? You want to 
have it--unfettered ability to file continuation, file 
successive patents, but heavens forbid that someone who is 
totally unaware of the existence of the patent until they were 
sued or be sent a letter of infringement now wanted to utilize 
the post-grant opposition that they had their chance. Whether 
they knew it or not, it doesn't matter. They had their chance, 
if it passes, that's it.
    Do you see what I mean? There seems like there is an 
inconsistency, depending on which ox is getting gored.
    Mr. Chess. Well, let me explain. You know, at least in the 
context of our industry, which is, first of all, on the post-
grant, and I will sort of tie the two together in the second 
window, we need--and I can speak to our company--for bringing 
this product to market we have needed to raise $1.2 billion. 
The key to be able to do that for us is the certainty of the 
intellectual property. There is no way we would have been able 
to raise that kind of money if people thought our intellectual 
property wouldn't hold up.
    Having a second window where 8 years, 10 years, 15 years 
out, somebody can come back by a lower standard than what would 
have held up in a court and have a chance to basically 
invalidate our intellectual property would be a huge issue for 
investors, and I think that would make a major difference in 
the amount of flowback coming in.
    Mr. Berman. Let's just state that accurately. Someone who 
comes in at a point where they have been told that they are--it 
is alleged that they are infringing on a patent that they may 
have had no knowledge of and only has to show by a 
preponderance of the evidence that the patent never should have 
been granted in the first place, that's not what I would call a 
low standard.
    Mr. Chess. It certainly--as you know, sir, it's a lower 
standard than would be, you know, in a court. And certainly in 
our industry, you know, the patents are all published, people 
can read them and they have plenty of opportunity to look at 
the literature, you know, before embarking on an area.
    On the continuation in parts, in the biotech industry it 
takes many years to perfect an invention, particularly for 
smaller companies where you don't have the full resources to 
develop all the aspects of that. That's why in our company and 
many others you see many continuation of parts. They are not 
separate patents. They are basically taking the invention and 
basically fleshing it out over time so you are able to get the 
full value out of it.
    Mr. Smith. Thank you, Mr. Berman. The gentleman from 
Florida, Mr. Keller, is recognized for Committee questions.
    Mr. Keller. Thank you, Mr. Chairman.
    Mr. Chess, you are the chairman of a company that's been in 
business for 14 years and is still not profitable.
    Mr. Simon, you are the counsel for a group that you call 
the BS Alliance. With that background, why aren't you guys 
running for Congress?
    My first question. I am going to be directing most of my 
questions to the issue of litigation reform. But before I do, 
just looking at other parts of the bill, I can't help but 
notice, Mr. Chairman, that section 5 of this bill is called the 
duty of candor. So Congress is now telling private citizens 
that they have a duty to be candid. Isn't that a bit like 
Colonel Sanders telling people they have a duty to be nice to 
chickens.
    I think it may be subjective and a bit tough to bring some 
enforcement in that section, but I remain open minded in that 
section and every other one.
    With respect to litigation reform, let me begin with
    Mr. Simon. Do you think there should be additional reforms 
in this bill aimed at reducing excessive or frivolous 
litigation and, if so, what do you think they should be?
    Mr. Simon. It's a tough committee, Mr. Keller, because we 
have throughout this process identified a number of areas where 
we would like to see reform. For a variety of reasons this 
Subcommittee has decided at this time not to take up all of 
those areas. But the problem of excessive litigation continues 
to spiral out of control in our industry.
    If I may, let me just read to you the first sentence of an 
article in yesterday's ``Wall Street Journal'' by Bill Buckley. 
He writes: In one of Douglas Fuey's early business ventures he 
provided phony new vehicle titles for stolen cars. His partner 
Larry Day is a one-time Blackjack dealer in Las Vegas. 
Together, the two men have found a more active line of work 
suing cell phone companies for patent infringement. Earlier 
this year their company got $128 million in damages from Boston 
Communications.
    That's an example of what I think we are confronting that 
is going to become more and more of a problem. I think this 
bill will make a difference. I think that some of these issues 
have to be reconsidered by you over time.
    Mr. Keller. Okay. Mr. Johnson, do you think there are 
additional reforms aimed at reducing excessive or frivolous 
litigation that we might consider ?
    Mr. Johnson. I think there are. I couldn't estimate whether 
or not they would be politically acceptable. They are something 
that could be accomplished. We have considered a great many of 
them during our conversations. One that we have considered and 
rejected as probably not possible would be to adopt the English 
system of awarding attorneys fees to the prevailing party and 
as a way for deterring frivolous litigation.
    Mr. Keller. You considered that but didn't think ultimately 
that would fly?
    Mr. Johnson. Well, actually, I personally did, but I was 
advised. This is part of a larger process, and others advised 
me that was probably not something that could be accomplished.
    Mr. Keller. What about the idea of bigger sanctions for 
frivolous litigation? Did you all ever consider that?
    Mr. Johnson. Well, that would fall in that same category.
    Mr. Keller. Not really, because the loser pays. You can 
lose and still not have a frivolous suit, you know. You just 
have to pay the other side. There are some people that have 
legitimate suits, you know, just bad, bad ideas.
    Mr. Johnson. Yes. Well, we already have now in the patent 
laws the abilities for the courts to award trebled damages in 
attorneys fees but especially attorneys fees in exceptional 
cases, and that apparently is not sufficient to deter as many 
frivolous suits as we would like.
    Mr. Keller. Okay. Mr. Chess, of course, both of you 
gentlemen know I was joking about your respective backgrounds 
there. But do you have any ideas of any additional reforms that 
we might consider that would reduce frivolous litigation?
    Mr. Chess. Yes. Actually just on the note, the average 
biotech company, you might be interested, it takes about 15 
years to gain profitability. That includes sort of the 
successful one like Genentech and Amgen. It is a long road.
    Mr. Keller. I know, I am just kidding.
    Mr. Chess. I know.
    Mr. Keller. Okay.
    Mr. Chess. The one thing I can tell you--unlike the other 
people here I am not a patent attorney, so I can't give you 
probably kind of specific concepts here. The one I probably can 
reinforce is the importance of being able to enforce the 
patent, you know, in our industry, given the amount of, you 
know, investment we make. But I will sort of leave it to the 
others and perhaps if we can get back to you in writing on 
specific ideas on this area.
    [11:32 a.m.]
    Mr. Keller. Mr. Chairman, the final--if Mr. Thomas could 
also--or Professor Thomas, give us your thoughts. More 
sanctions for attorney fees, prevailing party get their fees 
paid, any other ideas that you think would help with reducing 
frivolous litigation.
    Mr. Thomas. I'm not in a specific position to advocate 
reforms before the Subcommittee. However, I can report 
scholarly discussion on three points. One is, of course, 
adoption of the English rule for fee shifting, which may reduce 
asymmetries in litigation risk profiles between troll 
plaintiffs and for innovative firms.
    Another possibility is that the patent system currently 
uses a specialized court at the appellate level. There may be 
an option for having magistrates, special masters who are more 
specialized at the trial court level.
    Finally, I think it's fair to say it's pretty widely 
believed that arbitration in the patent field has been a quiet 
failure, and the Federal circuit is currently embarking upon an 
arbitration proposal. Perhaps the Subcommittee could use its 
good offices to encourage arbitration as a means of reducing 
transaction costs associated with dispute resolution in the 
patent field.
    Mr. Keller. Thank all of you, Mr. Chairman. Yield back.
    Mr. Smith. Thank you, Mr. Keller.
    The gentlewoman from California Ms. Lofgren.
    Ms. Lofgren. Thank you, Mr. Chairman. As always, this has 
been a useful and enormously interesting hearing, and I 
appreciate that the witnesses would take so much time and 
explain their viewpoint on it. I'm struck again by the 
disagreements that are really rooted in some cases by the 
different business models that are present before us. And I 
think it is important and that we've had this spirit throughout 
that with whatever reform we have, we make sure that we nurture 
every element of our economy. It's important for all of us that 
biotechnology and IT, that everything flourish for the whole 
good of the American economy.
    Having said that, however, I remain frustrated that we have 
not yet reached an agreement where I think in some areas we 
could. And I was listening, Mr. Simon, to your testimony and 
your problem with the coalition print language on calculation 
of damages. And I'm wondering if you could provide examples of 
real situations you have encountered where a court awarded 
excessive damages to a patentee unfairly based on the whole 
product subject to the patent rather than simply the inventive 
contribution so we can understand your point of view a little 
bit better.
    Mr. Simon. Thank you, Ms. Lofgren.
    There have been a whole series of cases. We had a case some 
years ago where General Electric was sued over its magnetic 
resonance device, where a very small element of it was 
infringing, and the damages were calculated based on the entire 
MRI machine, which is millions of dollars, as I understand it. 
We had a case just a couple of years ago where Bose was being 
sued by JBL Speaker Manufacturers. What was at issue was an 
input into the speaker, how the analog information comes in. 
Again, the damages were based on the entire speaker rather than 
the patented port. Last year we had a case in Procom v. Symbol, 
which is a wireless technology which we now all use, the 80211 
standard. At issue was a power-saving feature in the chip. 
Again, the damages were calculated not just on the basis of the 
power-saving feature, but on the transmitter, the receiver, the 
entire technology.
    So if you'd like, I'd be happy to submit for the record 
specifics on these cases and many others.
    So we have a pattern where courts--where juries are 
awarding damages based upon entire products. And as you well 
know, for example, a computer may have as many as 2,000 or 
3,000 or 4,000 patents that read on to it. Well, if you award 1 
percent damages per patent, you end up with damages potentially 
swamping the entire value of the product. That's the threat 
that we confront.
    Ms. Lofgren. I think it would be helpful to the Committee 
if you could submit details for us to study.
    Mr. Simon. We'd be happy to.
    Ms. Lofgren. I would appreciate that.
    Mr. Thomas, I understand from your testimony that you 
believe that existing law under Georgia Pacific allows courts 
to--already--to apply an apportionment principle in patent 
cases. What do you think of how the court apportions damages 
based on facts in the cases just disclosed or mentioned by Mr. 
Simon? Do you have--what's going wrong here?
    Mr. Thomas. My experience at the Congressional Research 
Service has taught me to see both sides of many issues. It's 
fair to say that this is already a part of our law, at least 
with respect to reasonable royalties. There may be a lack of 
appreciation of that point. There may be disagreements as to 
the factual dispute. The notion is, well, why is someone buying 
this product? Are they buying it because of a particular 
advantage? They're probably not buying a car because of a 
patented windshield wiper, but they may be buying a speaker 
because of a patented woofer. So there's simply going to be 
independent factual determinations that have to be made on a 
case-by-case basis, and there will also often be disagreements 
about particular facts in particular cases. I can describe the 
problem as really no more than that.
    Ms. Lofgren. It was a number of months ago now, I submitted 
a memorandum that were suggestions not that I had made, but 
that had been made to me by academics, and I would never 
support the English rule when it comes to ordinary tort law, 
number one, because that's up to the States, not up to the 
Federal Government.
    And, number two, you can have injured parties that lack the 
means to actually hire counsel and seek justice in courts. 
Those rationales don't apply in this case because it is Federal 
jurisdiction, and you have people of means for the most part 
who can have the ability to protect or assert their rights.
    I'm wondering, Mr. Johnson, you talked briefly, in answer 
to my colleague's question, about the--adopting the copyright 
standard for attorneys' fees. How much do you think would that 
change the dynamic in terms of frivolous lawsuits? Actually, 
I'm over, but perhaps we could get a comment from others.
    And then the other suggestion made to me was to mandate 
attorneys' fees for defendants who respond to demand letters 
that subsequently invalidates the patent in court. I'm 
wondering if anyone has a perspective of how much that might 
heal the problems that face us.
    Mr. Johnson. May I respond?
    Mr. Smith. Yes. Mr. Johnson.
    Mr. Johnson. I think that adoption of the English rule 
would substantially deter the bringing of frivolous actions, 
and it would allow the bringing of some actions which now are 
not brought because the enormous cost of patent litigation may 
in some situations overshadow the recovery that's likely. I 
think if you envision what the BSA folks might refer to as 
trolls bringing an action against a large software company, for 
example, knowing that if they go to final judgment and lose, 
that they may have to pay the attorneys' fees incurred in such 
an action, that there probably would be a very different 
dynamic.
    Ms. Lofgren. Mr. Chairman, I know my time is up, and I 
appreciate Mr. Johnson's response. Could we just ask Mr. Simon 
to briefly comment, and then I'll yield back.
    Mr. Smith. Why don't we have one more response, and then 
you can also follow up with written questions, which I'm sure 
they'll be happy to answer as well.
    One more response, Mr. Thomas.
    Ms. Lofgren. Actually, I was wondering if Mr. Simon and 
BSA----
    Mr. Smith. Sorry; Mr. Simon.
    Mr. Simon. Mr. Chairman, with respect to the English rule 
that has been suggested, we think it would make a difference. 
The problem with frivolous litigation and attorneys' fees being 
paid by a frivolous plaintiff is you have got to have a real 
entity there. What we have in a lot of situations right now is 
the entities are suing are operations much like the one that 
Bill Buckley described in this article yesterday. So for 
entities like that, having to--at the end of the day having to 
pay potential legal fees, is not going to make that much of a 
big difference. If the suit is between two established 
entities, Johnson & Johnson and GE, there's a real disincentive 
there.
    So I'm not negating the fact it would have an impact, I'm 
just not sure----
    Ms. Lofgren. It just doesn't deal with the issue of 
stopping products shipping because of the exposure.
    Mr. Simon. That's one of the elements of it, too. I just 
didn't want to go down the injunction path with you.
    Ms. Lofgren. I understand.
    Thank you, Mr. Chairman.
    Mr. Smith. Thank you, Ms. Lofgren.
    The gentleman from Utah Mr. Cannon is recognized for 
questions.
    Mr. Cannon. Thank you, Mr. Chairman. If I could just follow 
up on this discussion about the English rule, which I always 
have disliked. I note that the Chairman has introduced a bill 
called the Litigation Abuse Reduction Act, LARA, which is in my 
Subcommittee, so we're working complementarily here. The idea 
behind that bill is we actually put teeth in rule 11 sanctions, 
which seems to me might actually go a long ways.
    Mr. Thomas in particular, or any other panelist who would 
like to talk about it, does rule 11 sanctions actually--do they 
work in this case, and would that improve the situation?
    Mr. Thomas. Again, there are a couple sides to every issue, 
but generally speaking, I think rule 11 has not historically 
proven to be a tremendous success in curbing abusive litigation 
practices.
    Mr. Cannon. Definitely not historically, but is it 
possible? Are you familiar with the bill we call LARA?
    Mr. Thomas. Yes, I've reviewed it. Generally speaking, 
patent litigation is very unpredictable; very difficult for 
individuals to determine in a jury trial system exactly what is 
going to happen. And so I think there often is a plausible 
argument of infringement and validity. I suspect I'm a little 
suspicious of the approach. Thank you.
    Mr. Cannon. By that you mean you don't think the approach 
would be effective, or you think given the vagaries of a jury 
trial, that it might not produce the justice from a judge 
making a decision about the frivolous nature of the case as 
compared with a jury?
    Mr. Thomas. For all those reasons you have described.
    Mr. Cannon. Mr. Johnson, do you want to comment on that 
one?
    Mr. Johnson. Yes. I think that there's quite a difference 
between expecting that a rule 11 sanction would be applied or 
might be applied when you finally get to trial and the dynamics 
that are involved in bringing suits and negotiating settlements 
in advance. The English rule, as we've discussed, would 
establish the certainty that the prevailing party would get its 
attorneys' fees, and that will change the dynamics in the 
settlement negotiations that take place.
    And we have to remember that the vast majority of these 
kinds of disputes are never tried. One case in thirteen or even 
less than that actually gets to trial. The possibility that 
rule 11 sanctions would be applied in the cases that get to 
trial would be sufficiently remote, so I'm afraid it wouldn't 
change the dynamics.
    Mr. Cannon. I think the nice thing about LARA is it can be 
applied at any stage. So if it becomes clear to a judge that a 
case is frivolous--what do we need to do to LARA to make it 
actually bite the guy who brings that frivolous case and then 
it's paid out of court?
    Mr. Johnson. If I may, the cases are sufficiently complex 
that in the pretrial stage it's unlikely the judges would 
develop the degree of familiarity and confidence to want to go 
and sanction one party or the other prior to trial. I think 
that's something courts would be reluctant to do.
    Mr. Cannon. They certainly have been reluctant to do that 
in the past. I think we need a change of view among our jurists 
today to get in, look at a case, see if it's got substance, and 
then sanction people. And that's what I hope LARA will do at 
some point in time. I think that is a duty that we need to 
start imbuing into the judiciary. I think LARA is a good step 
in that direction. I'm relatively passionate about that. That's 
why I'm asking these questions, because I want the judges to be 
thinking about what their responsibility is.
    Mr. Simon, let me go to you for a moment. In your testimony 
you support the repeal of section 271(f). There are companies 
in the U.S. that contend it is intended to protect intellectual 
property from overseas infringement. If intellectual property 
protection is the goal of our bill, does the repeal of 271(f) 
affect that goal?
    Mr. Simon. No, I don't believe so, Mr. Cannon. The 
provision was added to the U.S. Law in the 1980's, 1984, I 
believe, where we had a situation where folks were gaming the 
system. They were assembling parts that if they had been put 
together in complete product would have been infringing in the 
U.S., but the parts individually were not. What they were doing 
is shipping those products outside the U.S. to avoid the patent 
infringement in the U.S. and 271's added the law to make sure 
those folks could not get away with that.
    What we have now is an aberration, which is what we have 
now is if you do your full development of a computer program in 
the U.S., and you ship that master disk outside, and you 
actually install it in a new PC or phone or whatever outside 
the U.S., it reads 271(f) onto that situation. Nobody in the 
U.S. is trying to avoid patent infringement in the U.S. if that 
software is infringing in the U.S., it's infringing in the U.S. 
So what we have is an unfortunate incentive to do development 
outside the U.S. because 271 does not reach that situation as 
opposed to doing it here.
    So I don't think it has any impact on domestic--in fact, it 
would have a positive impact on innovation.
    Mr. Cannon. Positive affect on domestic, but isn't there a 
significant possibility that people in the U.S., companies in 
the U.S., will take software and have it developed outside, 
just like you would put a package of components together and 
make a device; isn't there a temptation to send software 
development outside the United States so that pieces can be 
brought together and not be subject to the same kind of 
infringement that there would be if it was developed in the 
U.S.? Isn't it two sides of a coin here?
    Mr. Simon. There are two sides to a coin, of course. I 
think what we have is a situation where the current law as it 
has been read by two separate court opinions acts as a 
disincentive to domestic development. The fact that companies 
do development both domestically and abroad has a lot more to 
do with business reasons right now, and we'd like to keep it at 
a business reason level rather than an aberration of the law.
    Mr. Cannon. Mr. Chairman, I cannot believe how quickly that 
light goes red. As I yield back, I just want to say one thing. 
That is, people in Bangladesh can buy air time to make a 
telephone call anywhere on Earth for a penny a minute. What 
we're doing here is not just about the health of American 
companies, which is very, very important, but it's about an 
environment in which technology can flourish and affect the 
poorest people on Earth. Never in the history of mankind has 
the ability of a poor nation to leapfrog into the next 
generation been so great as it is today. I think this is a time 
of great moral importance to America and to the world, and I 
want to thank our panel for the input on the topics today. 
Thank you.
    Mr. Smith. Thank you, Mr. Cannon. Mr. Cannon, thank you for 
also mentioning such a great piece of legislation.
    The gentleman from California Mr. Issa is recognized.
    Mr. Issa. Thank you, Mr. Chairman. First, I'd like to thank 
you, Mr. Chairman. I'd like to thank Mr. Boucher, certainly 
Ranking Member Berman, and Mr. Goodlatte for being an 
intellectual trust that has done so much of this for--don't be 
smiling, Bob. The truth is that I'm humbled to come to a 
Committee and work with people who have spent so many years, 
worked so hard to understand issues which are complex. And I 
know this is a hearing today, but the truth is that every once 
in a while I have to recognize that a few people in Congress 
have put inordinate time in to understand the issues better 
than others.
    I particularly want to follow up on what Mr. Berman said. 
And I know the red light will come on for me just as quickly.
    In my practical experience, and I have not studied law, so 
I had to pay for it one legal bill at a time, but I paid 
greatly, more than your Harvard degree actually. If we were to 
have a single reexamination by a single party, and that leads 
to an estoppel, one time, no second window, just to follow up 
on Mr. Berman, then from a practical standpoint, if you wanted 
to be Machiavellian, not that a lawyer would ever choose to 
recommend that a client do that, why not choose a weak 
opponent, let them file a weak re-exam, but throw in--and I use 
the word reexam because I'm older, I guess--but throw in all 
kinds of information, but do it poorly, compile it poorly, not 
particularly in the process? Then wouldn't you have what we 
already have in a reexamination process that already is 
available, and under the old law you would have all of the 
information there, a presumption that it was considered and 
evaluated fully, even though it's just sitting in the incoming 
record, and it follows the water for somebody who later is 
accused of infringement, is a significant potential infringer, 
believes that the art properly presented would be shown to be, 
you know, prior art that would 102 or 103 the patent, why in 
the world shouldn't there be an opportunity for a different 
defendant to have a different opportunity to present similar 
or, in some cases, the same information, but in a more--what 
they believe to be a more appropriate and cohesive fashion?
    Mr. Johnson, you have the biggest smile. You get it first.
    Mr. Johnson. Well, I think that both texts at the moment 
envision that there will be multiple opposers who will be able 
to file at the same time, and that if there are multiple 
oppositions, that they'll be consolidated.
    I also believe that the estoppel provisions only pertain to 
those who choose to participate and not to those who don't 
choose to participate, so that if someone wanted to file an 
opposition, and do a bad job at it at their own peril, I 
suppose that's possible. But none of the proposals foreclose 
the possibility of a later challenge in court, so that even 
regardless of what has been said in the opposition or what the 
conclusion of the opposition is, with the exception of those 
who have chosen to participate, and then only limited to the 
issue that is actually decided and the facts necessary for that 
decision, but with what exception, that narrow exception, those 
issues may be, in fact, relitigated later in litigation.
    Mr. Issa. I don't think that was Mr. Berman's question. His 
question really had to do with a repeat administrative action.
    Mr. Johnson. If I may respond to that. The reason that 
there is such opposition, broad opposition, to a repeat 
procedure is simply because the opposition procedure as it's 
now proposed was intended to be a fairly quick quality check 
on--inexpensive quality check on the quality of patents issuing 
from the Patent Office. It was not designed to be a replacement 
for patent litigation. It doesn't mean that at the end of the 
opposition period, though, that the public is without the 
ability to challenge the validity of a patent. Reexamination--
the reexamination procedure which we have now will continue to 
be in place, and, of course, later on should there become a 
real dispute and there be litigation----
    Mr. Berman. Would the gentleman yield?
    Mr. Issa. I certainly would, Mr. Berman.
    Mr. Berman. How would you feel if no second window and all 
that, but the district court judge had the ability to say, we 
refer this matter back to the Patent Office for a determination 
on whether its obviousness or novelty or any other elements of 
having a valid patent--the district court would have the 
discretion to make that referral.
    Mr. Johnson. In the reexamination context, district court 
judges don't have the authority at the moment to refer, but, in 
fact, it happens quite frequently. That is----
    Mr. Berman. You're talking to a postgrant kind of procedure 
where there's discovery and more of a process.
    Mr. Johnson. Yes. If you look today without the law at what 
happens in litigation, quite frequently after there is some 
considerable discovery in litigation, one party or the other 
may elect to go back into reexamination, and it happens 
actually fairly frequently. And at that time motions are 
brought frequently by the party going back into reexamination 
to stay the case pending the outcome of the reexamination. The 
judges weigh that and, generally speaking, grant those motions 
for stay unless they're brought on the eve of trial or--or 
there are other circumstances and then wait for the outcome of 
the reexamination in order to restart the case.
    Mr. Smith. Mr. Johnson, I'd like to move on if we can. The 
gentleman's time has expired. I'd like to give Mr. Goodlatte 
from Virginia the opportunity to ask a couple of questions.
    Mr. Goodlatte. Mr. Chairman, thank you for holding this 
hearing, and thank you for your fortitude in pursuing this 
issue. We've been down a long and arduous road, but making 
progress on this issue, and I thank you for that.
    I thank the gentleman from California for his kind words as 
well. I don't know that they're merited or not, but they are 
certainly well taken.
    I'd like to ask Mr. Chess and Mr. Johnson and Mr. Simon, as 
this legislative process moves forward, are you open to hearing 
and working on additional ways to tackle the injunction 
language and other litigation reform proposals, some of which 
we've talked about a little bit here, in a way that helps the 
technology community while not harming other traditional patent 
holders?
    Start with you, Mr. Chess.
    Mr. Chess. Obviously it's hard to answer a general question 
like that without understanding the specifics of what you have 
in mind. And clearly from the point of view of our industry, 
the current system from the biotechnical industry actually on 
injunctions actually works quite well. And so----
    Mr. Goodlatte. You understand, though, it doesn't work well 
for other people.
    Mr. Chess. I understand the technology situation, and 
actually I used to be in the technology industry. I started my 
career at Intel a long time ago. So I understand and am 
sensitive to some of the issues. So obviously we'd have to 
understand specifically what we have in mind, providing we can 
protect what we have that's important to Biotech.
    Mr. Goodlatte. Let Mr. Johnson answer that.
    Mr. Johnson. We're always willing to talk to anyone about 
anything that might lead to better results. But the fact of the 
matter is that we have spent a huge amount of time, and 
injunctions are fundamental to the patent right. When we're 
talking about injunctions, we're not talking about frivolous 
plaintiffs, we're talking about people who have won the 
lawsuits. We're talking in the permanent injunction context 
normally about someone who's not only won at the district court 
level, but also won on appeal.
    I think the idea that someone who has established their 
right under the patent so that it's been tested through the 
court system and found to be valid and infringed is entitled to 
an injunction. That's a fundamental basis of the property right 
we offer to patentees.
    Mr. Goodlatte. Mr. Simon. I'm going to follow up with their 
comments in just a second. I know your answer, so be brief so I 
can follow up.
    Mr. Simon. Sure. We're always willing to talk about it. 
I'll just put one other thing before you. There is a petition 
now before the Supreme Court to hear the MercExchange-eBay 
case, and this is exactly the issue that the Supreme Court has 
been asked to decide. So whether this Subcommittee, this 
Committee, or this Congress ultimately get to this important 
issue, there's a possibility that we can get a Supreme Court 
ruling on it.
    We'll talk more.
    Mr. Goodlatte. Let me ask the three of you this question 
that does get to a little more precision. Doesn't the plain 
meaning of the current injunction statute require that a judge 
weigh the equities when deciding whether to grant an 
injunction? And if you agree with that comment, how can anyone 
object to language in a bill that would ensure that the courts 
are carrying out the plain meaning of the current law?
    Start with you, Mr. Chess.
    Mr. Chess. As you're--I'm the nonpatent attorney in this 
group. You're probably getting into kind of technical 
specifics.
    Mr. Goodlatte. You asked me to get into the specifics.
    Mr. Chess. So I'd like the opportunity to confer with the 
bio folks and have the chance to respond back.
    Mr. Goodlatte. We'll try Mr. Johnson.
    Mr. Johnson. I believe courts do consider principles of 
equity in deciding whether to grant permanent injunctions.
    Mr. Goodlatte. Should we require them to lay them out step 
by step so it's clear to the parties in the case that the judge 
has indeed done that, as opposed to just hoping that they've 
done that when they issue an injunction?
    Mr. Johnson. Normally what happens is that when an 
injunction is sought, briefing is received by the court, and 
the court will hold a hearing. I know especially in the areas 
that we work, we don't, even if we win, always receive 
permanent injunctions, or they may be limited in scope in one 
way or another. And I know that the same is true on the other 
side. We have had situations where we've had cases where we 
have been allowed to continue to sell our products when it was 
deemed to be in the public interest to do so. So I believe it 
does work and that the courts do consider the public interest.
    Mr. Goodlatte. Mr. Simon.
    Mr. Simon. I found surprising in Biotech Industries' 
testimony a line on this specific issue, Mr. Goodlatte. On page 
6 at the very bottom, the written testimony says: If you 
allowed courts to weigh equities and balance hardships, our 
patent system would be weakened, and research and development 
would suffer.
    I didn't make that up, that's in their testimony. I think 
courts do weigh them. I don't think they give enough weight to 
them right now.
    Mr. Goodlatte. Thank you.
    Mr. Chairman, I know our time has expired here. I do have a 
statement that I would ask be made part of the record.
    Mr. Smith. Without objection, the opening statements will 
be made a part of the record.
    The gentleman from California Mr. Issa would like to direct 
a question that he would like responded to in writing. Mr. 
Issa.
    Mr. Issa. Thank you, Mr. Chairman. I'll be very brief. It 
will take some time and some thought to get the answers, but 
based on what I've heard here today, I'd really appreciate it.
    When we discussed 271(f), I believe I heard very clearly 
that it was an outcome that would occur, and it had occurred, 
that we tried to correct with the 271(f) in the '80's. We're 
now looking at stripping it away because we don't like the 
outcome, we want a different outcome.
    As fair and long-reaching as each of you can be in your 
positions, can you tell me, should we adopt in Congress a 
policy of calculating what the outcome would be, how it would 
affect business, and then put our law in effect in order to 
achieve that? Not just in 271, but obviously if we do it here, 
do we begin saying, let's change this? For example, should we 
arbitrarily reduce the length of a patent or type of patent 
because it would encourage business, or extend it because it 
would help one industry? Should I look at Biotech as getting a 
different length patent than other industries? Should I start 
doing that based on what amount of business occurs in the 
United States?
    And if you would give me that further discussion that will 
take a few paragraphs, I would appreciate it, because that's my 
question on 271 is do I do it because of the business outcome.
    Mr. Smith. Good question. Thank you, Mr. Issa.
    We have only 5 minutes left to vote, so we're going to need 
to adjourn. And on the way there, thank you all again for your 
testimony. It's been very helpful. And we will continue our 
discussions about the legislation. Thank you.
    [Whereupon, at 12 noon, the Subcommittee was adjourned.]


                            A P P E N D I X

                              ----------                              


               Material Submitted for the Hearing Record

Prepared Statement of the Honorable Howard L. Berman, a Representative 
     in Congress from the State of California, and Ranking Member, 
    Subcommittee on Courts, the Internet, and Intellectual Property
    Mr. Chairman,

    Thank you for scheduling this hearing on possible substitute 
amendments to the Patent Reform Act. In addition to the amendment in 
the nature of a substitute from July, I know a number of individual 
companies have met together over the summer to try and produce a 
consensus bill--a draft of which has been circulating as well. However, 
in all honesty, by this point in the process I would have preferred 
that this subcommittee actually be marking up the bill.
    The witnesses all agree that patents are the foundation of American 
innovation and therefore serve as the underpinning of the American 
economy. Strong intellectual property protection helps technology 
businesses attract investors, provides incentives for drug companies to 
develop new drugs, and allows independent inventors to make significant 
contributions to society. However, while robust intellectual property 
protection presents these benefits, when protection is given to 
questionable quality patents, the foundation begins to show its cracks. 
This leads to an increase in litigation, a decrease in investment, and 
casts doubt about the effectiveness of our patent system.
    At last week's hearing regarding Oversight of the PTO, we heard 
consensus from all of the witnesses, including the Director of the 
agency responsible for administering the patent process, that there is 
a problem with the quality of patents issuing from the Patent Office. 
It would be quite an accomplishment if we could reach consensus with 
this panel about the solution to the quality issue.
    Some of the proposed provisions of the original bill, as well as 
the substitutes, begin to address quality in the initial stages of the 
examination process, such as the ability for third-parties to submit 
prior art to the examiner. Over the past number of years, as 
Congressman Boucher and I introduced the precursors to this bill, we 
always agreed that the key to improving quality was providing examiners 
with the necessary prior art resources. Access to better information 
will yield better decisions by the examiners.
    Other provisions will enhance the quality of patents immediately 
after their issuance, such as the new post-grant opposition procedure. 
With the opportunity to establish a more comprehensive check on a 
patent's validity, without resorting to an expensive and lengthy court 
proceeding, the bill will improve both the quality of specific patents 
and the patent system as a whole.
    Unfortunately, the goal of providing a true alternative to costly 
litigation--``the second window provision'' has been omitted from 
drafts of a substitute. Clearly, a limited second window would shed 
more light on the quality and validity of questionable patents. With 
substitute options that do not contain the injunction provision or the 
second window options, I am left to ponder the fate of questionable 
quality patents that have already been granted. These patents will 
surely be litigated, but afforded a high presumption of validity and 
therefore, in all likelihood, affirmed. What will be the effect on the 
economy that a questionable quality patent (a software program) can now 
be the reason for barring others from using their own truly inventive 
products?
    Shouldn't we consider how to rectify this problem as we discuss one 
of the most extensive patent reform bills since the '52 Act?
    There remain issues which still need further discussion such as the 
duty of candor provision and obviously some of the disputed provisions 
in the latest coalition draft.
    I look forward to hearing from some of the industry witnesses today 
and see how, if at all, their positions have shifted since we began 
this process. I hope to continue working with the group of co-sponsors 
for this bill to try and create a more perfect patent reform.

                               __________

Prepared Statement of the Honorable Bob Goodlatte, a Representative in 
   Congress from the State of Virginia, and Member, Subcommittee on 
            Courts, the Internet, and Intellectual Property

    Thank you, Mr. Chairman, for holding this important hearing to 
examine the amendment in the nature of a substitute to H.R. 2795.
    Article I Section 8 of our Constitution lays the framework for our 
nation's patent laws. It grants Congress the power to award inventors, 
for limited amounts of time, exclusive rights to their inventions. The 
Framers had the incredible foresight to realize that this type of 
incentive was crucial to ensure that America would become the world's 
leader in innovation and creativity.
    These incentives are just as important today as they were at the 
founding of our country. As we continue our journey into the digital 
age, we must make sure that the incentives our Framers put into our 
Constitution remain meaningful and effective. The U.S. Patent system 
must work efficiently if America is to remain the world leader in 
innovation.
    It is only right that as more and more inventions with increasing 
complexity emerge, we should examine our nation's patent laws to ensure 
that they still work efficiently and that they still encourage, and not 
discourage, innovation.
    One industry sector which is beginning to showcase the potential 
problems inherent in our nation's patent system is the high tech 
industry. In today's economy, many high tech products involve hundreds, 
and even thousands, of patented ideas. Technological innovators must 
work to ensure that they obtain the lawful rights to use the patents of 
others, through licenses and other lawful mechanisms. However, it 
appears that a cottage industry is emerging that seeks to take 
advantage of the complexity of these products and loopholes in our 
patent laws to extort money from high tech companies, both large and 
small. To be sure, these problems are not limited to the high-tech 
industry--inventors in all industries are increasingly facing these 
types of problems.
    The solution to these problems involves both ensuring that quality 
patents are issued in the first place, and ensuring that we take a good 
hard look at patent litigation and enforcement laws to make sure that 
they do not create incentives for opportunists with invalid claims to 
exploit.
    The substitute would create a new post-grant opposition system in 
which any member of the public could request the USPTO to review the 
scope and validity of a patent within nine months from the date of its 
issuance. In addition, the substitute allows submission of prior art 
within six months after the date of publication of the patent 
application. These provisions will help ensure that interested parties 
have the incentive to challenge questionable patents at the beginning 
of the process and thus help ensure that only quality patents are 
issued.
    The substitute also contains many important litigation reform 
measures to help ensure that patent litigation benefits those with 
valid claims, but not those opportunists who seek to abuse the 
litigation process. Specifically, the bill creates a clear standard for 
``willful infringement,'' helps ensure that damage awards are fair, and 
contains new venue provisions to discourage opportunistic forum 
shopping. I look forward to working with Subcommittee to ensure that 
the damages language is structured to reward legitimate damages claims 
while discouraging frivolous and inflated damage claims.
    All inventors will reap the rewards of a streamlined patent system 
that ensures that good quality patents are issued, and that 
opportunists cannot take advantage of loopholes in our enforcement 
laws.
    Thank you again, Mr. Chairman for holding this hearing. I look 
forward to hearing today from our witnesses.

                               __________

Prepared Statement of the Honorable John Conyers, Jr., a Representative 
  in Congress from the State of Michigan, and Member, Subcommittee on 
            Courts, the Internet, and Intellectual Property

    I am happy to see that the private negotiations on patent reform 
have led to progress. While I also am pleased that some of the 
troubling provisions in the introduced bill have been discarded, I am 
concerned that new issues have been raised that would harm small patent 
owners and set a dangerous precedent for plaintiffs' rights.
    Let me say that I was an original cosponsor of the underlying 
legislation because I believe we need to make major changes to the 
patent system. 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.
    At the same time, however, I did have concerns with several of the 
provisions in the bill. One specific provision made it more difficult 
for legitimate patent owners to enforce their rights. I believe that 
proposal would have undermined the purpose of our intellectual property 
laws, which is to encourage investment into innovation.
    While this new draft does not include that proposal, it does 
contain new language that limits where patent owners may bring lawsuits 
against those who steal their inventions. Specifically, the bill says 
owners may bring lawsuits only in the defendant's principal or regular 
place of business. This is a significant departure from existing law, 
which permits suits anywhere the infringing product is sold.
    This idea would harm the rights of small businesses and independent 
patent owners, who may not have the resources to track down the 
defendant's place of business and to initiate litigation far from home.
    It also sets a dangerous precedent. I am concerned that other 
industries may come forward to limit where lawsuits against them could 
be brought. This would be a blow to plaintiffs' rights in the areas of 
gender discrimination, labor rights, and civil rights, just to name a 
few.
  Response to post-hearing questions submitted by the Honorable Chris 
 Cannon, a Representative in Congress from the State of Utah, to Phil 
            Johnson, Chief Patent Counsel, Johnson & Johnson



 Response to post-hearing questions submitted by the Honorable Darrell 
  Issa, a Representative in Congress from the State of California, to 
         Phil Johnson, Chief Patent Counsel, Johnson & Johnson



Letter to the Honorable Zoe Lofgren, a Representative in Congress from 
   the State of California, from Phil Johnson, Chief Patent Counsel, 
                           Johnson & Johnson



                              ATTACHMENT 1




                              ATTACHMENT 2



                              ATTACHMENT 3




                              ATTACHMENT 4




Letter to the Honorable Lamar Smith, a Representative in Congress from 
the State of Texas, and Chairman, Subcommittee on Courts, the Internet, 
   and Intellectual Property, and 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, and Prepared Statement from Bob DeMatteis, Plastic Packaging 
                                Systems



  Prepared Statement of Raymond V. Damadian, President and Chairman, 
              Fonar Corporation, Manufacturer of Scanners

    Please accept my testimony regarding H.R. 2795, the Patent 
Elimination Act of 2005.
    In 1972 I filed the first patent on MR scanning that originated the 
technology that is today called MRI. I think it is true that the 
original scientific discovery that I made while I was a university 
professor, and the patent it gave rise to, has proven its value as a 
betterment for mankind, a result for which I am truly grateful. For 
whatever appreciation the public may have for the invention I believe 
most of that appreciation is owed the U.S. Patent System. Unique in the 
world, the U.S. Patent System crafted by the Founding Fathers, achieved 
for the first time in all history that unique collaboration of the law 
and technology that enabled the individual of ordinary circumstance to 
dream great dreams, and be provided the means to protect his product 
and get it to the marketplace.
    I think in this vein it is important to appreciate that the MRI 
machine was not the product of either a Multi-National Corporation or a 
Japanese conglomerate with great amassed reserves of disposable 
capital. Instead it was the product, after the initial discovery, of an 
individual scientist and his graduate students, toiling underfunded in 
a university laboratory with only the hope of the U.S. Patent to rescue 
them if the insurmountable mountain of technological obstacles that 
stood in the way of such a scanner could ever be overcome. Indeed if 
H.R. 2795 existed in its present form when we were developing the MRI, 
MRI would never have come to pass.
    Our story is not unique. It is but one more of the many spectacular 
triumphs of that most extraordinary entity of human history and human 
law which we call the U.S. Patent System. We cherish it for what it has 
enabled us to accomplish. We cherish it for the protection it gave us, 
the ``little guy'', when mammoth multi-nationals sought to take our 
invention from us when it was finally complete after ten years. Thus 
when the U.S. Patent System that protected us and our MRI invention 
comes under attack by legislation like H.R. 2795 I quite naturally rise 
to protect the Patent System that protected us. In so doing we believe 
fervently we are protecting America. Hopefully you will forgive us when 
our passion for the U.S. Patent causes us to construe lawmakers who 
seek its destruction by legislation like H.R. 2795 as adversaries that 
have mounted an attack on America's very heart and soul. Perhaps our 
view comes from having fully engaged the U.S. Patent System, from 
having personally exercised all aspects of this majestic doctrine, and 
from having personally experienced its numerous ingenious attributes.
    Thus, when our first prototype MRI scanner was completed in 1977 
and performed the first scan of the live human body, and when we left 
the university to form the first MRI company, we needed to find 
investors who would invest in our fledgling enterprise to create the 
first commercial MRI product and bring it to market. Needless to say, 
the first question from investors was what will secure our investment 
in your start-up MRI enterprise called Fonar? The only answer we had to 
give was that we held the original patent. It was the only answer but 
it was sufficient. We received the investor capital we needed, Fonar 
was born, and three years later we introduced the first commercial MRI 
scanner to the medical world.
    Within a few years we were joined in the marketplace by a host of 
Japanese companies and Multi-National Corporations with scanners of 
their own, who ignored our patent, even while they themselves had made 
no technical contribution during the ten years of labor it took us to 
get from the first test tube experiments to the first commercial 
magnet. We resorted to the U.S. Patent. It rescued us!
    Our American judiciary gave no quarter to the size of the mammoth 
Multi-National Companies that had appropriated little Fonar's 
technology. They adjudicated with the same even hand for which American 
jurisprudence is famous and meted out fairly the dictates of our patent 
laws to the infringers of Fonar's patents. When the day was done all 
infringers admitted that Fonar had not been treated fairly and while 
none could say they were pleased to have to pay little Fonar, none 
argued that Fonar's contribution had not been major and none contended 
that Fonar in its 35 years of labor to bring MRI to reality and improve 
it, was not eminently deserving of the justice it was now receiving.
    Fonar had earned its place in the world. U.S. Patent Law saw to it 
that the holder of one of America's patents was protected from usurpers 
of its technology irrespective of their size. Fonar was helpless 
without that protection. U.S. Patent Law rescued America's MRI. Little 
Fonar, as a result, can continue to create the many life-saving 
benefits that lie ahead in the field of MRI.
    From this 35 year right of passage involving intimate experience 
with our patent laws, in action, we feel that we can come before your 
committee, usefully Mr. Merritt, with our experience, and comment 
firsthand regarding our impressions of H.R. 2795.
    In general it must be obvious to even the most casual reader, that 
H.R. 2795 is the unqualified enemy of small business and the small 
business inventor. It seeks to void most of the protections upon which 
small start-up technology businesses like Fonar have relied on for two 
centuries. It is not fair for the proponents of this bill to argue, as 
they have, that this bill is good for the inventor. If H.R. 2795 is so 
good for the small business inventor as its supporters have repeatedly 
represented, why then am I filing my testimony opposing it? Surely the 
distinguished gentlemen who are sponsoring it do not mean to suggest 
that I as a scientist am unable to determine for myself what is good 
for me and what is not. Regarding the Patent Elimination Act of 2005, 
H.R. 2795.
    I think it critical to remind reviewers of this bill that the US 
Patent is the heart and soul of the American Economy. Absent the 
patent; the telephone, the electric light, the computer, the internal 
combustion engine, the airplane, the radio and the vast array of other 
technologies the US Patent brought to life, American Industry and the 
American Economy that rests on it would not exist. Consequently 
America's inventors and the patents they depend on are America's 
lifeblood. To dismember the system that birthed them as the Management 
Amendment of H.R. 2795 intends, is to initiate a frontal assault on the 
U.S. economy itself. While it will be tempting to some to characterize 
this generalization as an overstatement it is not. Dismembering the 
U.S. Patent, as H.R. 2795 does, constitutes dismembering the very soul 
of U.S. economy. Its consequences cannot be overstated. Arguments that 
H.R. 2795 does not darken the soul of the U.S. economy will inevitably 
originate from corporate employees whose sole intent is to broaden the 
powers of infringement on behalf of their corporate employers, which 
corporate employees have never themselves crafted an invention and 
tried to start a company from scratch with the U.S. Patent as their 
only asset, as Thomas Edison, Alexander Bell, the Wright Brothers, 
Morse and the other legends of American Economic history did.
    While many of the provisions of the Manager's Amendment to H.R. 
2795, especially after they have been mischaracterized as ``reforms'' 
when they are eliminations, may be abstract to Congressmen and staff 
who are distant from the processing of defending one's patent in a 
courtroom, they are, in fact, virile in their intent and intentionally 
so.
    Speaking generally, as an inventor who has been through the entire 
courtroom process of getting a patent upheld against a conglomeration 
of multi-national enterprises intent on infringement the inventor needs 
not only EVERY provision the ``aspiring infringers'' are seeking to 
remove, he needs more.
    Indeed, except by firsthand experience of direct courtroom 
infringer assault, it is difficult to discern, given the legalistic 
lexicon in which the provisions H.R. 2795 are encoded, to comprehend 
the full measure of their malignancy. Thus granting the requested 
Limitations of Injunctive Relief when decoded into plain English is the 
literal enactment of a ``license to steal''. It is a blunt elimination 
of the patentee's right to say ``No'' (injunction) to the thief, ``You 
can't copy my invention and sell it as your own.'' It is self-evident 
that a patent without the right to say ``No, you can't make my 
invention and sell it'' is no patent at all. The First to File 
provision, another noxious initiative, plainly stated is another 
``license to steal'' for an amply financed corporate giant, like a 
Japanese conglomerate. It fully enables, for example, the well 
practiced craft by Japanese corporate employees of visiting university 
laboratories and other research facilities with their cameras and 
interrogating naive researchers on their discoveries and leaving the 
premises to immediately file patents on the inventor's new discoveries 
before the inventor himself. First to File eliminates the inventor's 
proof by laboratory notes and records that he is the true inventor and 
thus voids his right to his inventions. The Third Party Pre-grant 
review is a further provision for potential infringers or their 
designees to inspect a patentee's invention, prior to its allowance as 
a patent, which provision possesses the obvious deficiency that the 
invention can now be copied by the inspecting party before it issues as 
a patent, thereby avoiding literal infringement. Pre-grant Review 
further enables the inspecting party to intrude in the patent approval 
process itself and seek impedance of the application or even total 
blockage of it. Third Party Reexamination of Post-Grant Review means 
that an infringer, if this provision is granted by H.R. 2795, will be 
able to postpone his request for a reexamination of the inventor's 
patent by the Patent Office until after trial. By so doing he grants 
himself the power to challenge validity of the inventor's patent twice, 
once in the courtroom and once again, after court if the inventor is 
upheld and he loses.
    More importantly it enables the infringer to duck courtroom 
scrutiny of his invalidity argument and avoid full adversarial argument 
by opposing attorneys on the merits of his invalidity case in front of 
the Court and trial judge. Thus the infringer, by his Post-Grant 
Reexamination procedure, can avoid the risk of subjecting his 
invalidity argument to the full scrutiny of a detailed courtroom 
proceeding and save it for a second bite of the apple beyond the 
scrutiny of the court and trial judge once the patentee has won his 
case. Furthermore, since the Post-Grant opposition provision removes 
key protections for the inventor, his patent under the new provision 
can be challenged in Post-Grant oppositions by a limitless number of 
potential infringers up to the very date of its expiration 17 years 
after it's issuance. The patentee then, under this new provision will 
never unequivocally own a patent. He will thus be unable to secure 
finances from investors to initiate a commercial enterprise. The Best 
Mode requirement which H.R. 2795 seeks to scrap, is fundamental to the 
very rationale for a patent authorized by government. As Jefferson and 
Washington envisioned it, the patent was a limited exclusivity that 
could be awarded and enforced by government in exchange for full 
disclosure. Full disclosure would give the public access to the 
invention so others could improve on it and advance the state of the 
art of the technology. The Best Mode Disclosure requirement ensures and 
requires full disclosure of the patentee's invention in exchange for 
exclusivity. Compromising Best Mode Disclosure, by deleting the 
requirement that the best specific embodiment of the invention be 
disclosed, cheats the public of its right to that full disclosure in 
exchange for the public exclusivity to the inventor. Without full 
disclosure it becomes unduplicatable by ``one skilled in the art'' and 
the public is cheated of the use of that art. It further fails to force 
the inventor to specify his invention and therefore specify what will 
become the prior art for future inventions. The absence of a fully 
disclosed and fully specified prior art enables inventors to claim 
innovations at a later date in later patents, thereby falsely extending 
their patent's lifetime with innovations that were genuinely part of 
the original invention but left undisclosed (and unspecified) by the 
elimination of the Best Mode requirement. The remaining provisions, 
Prior Rights, Assignee Filing, Eradication, Limiting Damages, Removing 
the Inequitable Conduct Decision from Courtroom Adjudication, Limiting 
Damages and Limiting the User Scope of Applications, all possess 
onerous terms for the prospects of the inventor getting his patents 
upheld and his new business protected.
    These provisions and H.R. 2795 must not be enacted. Despite their 
characterization to the contrary there is not a single provision for 
the benefit of the inventor. All are designed to benefit the infringer.

   Prepared Statement of Joy L. Bryant, Executive Director, National 
                  Association of Patent Practitioners




  Prepared Statement of Stephen Wren, Independent Inventor and Actuary

    Mr. Chairman, Ranking Member Berman and other distinguished Members 
of the House Judiciary Subcommittee on Intellectual Property,
    Thank you for holding this September 15, 2005 hearing on proposed 
changes to the U.S. patent system--the best and strongest in the world. 
I am submitting my testimony in writing with the hope that it will 
become part of the public record by way of this hearing because it is 
apparent that the voice of the independent inventor concerning this 
legislation has been heard little if at all to date.
    There are many witnesses who have testified before this committee 
this year that have claimed to speak on behalf of independent 
inventors, small businesses and others entities who clearly will be 
harmed by the Amendment in the Nature of a Substitute to H.R. 2795, the 
Patent Act of 2005. To my knowledge, there has been little testimony on 
this legislation before this committee from actual inventors who have 
substantial first-hand experience with the U.S. patent system and the 
inner workings of the U.S. Patent and Trademark Office.
    I am an inventor with such experience as relates to the issues 
before the subcommittee. Quite frankly, my patience with the system has 
run its course. Unless real and positive changes are made within the 
U.S. Patent and Trademark Office, my present invention will be my last. 
Getting a patent in today's patent system is just too hard, too time 
consuming, too frustrating, too expensive, and too risky.

      REFORM THE PATENT OFFICE BEFORE CHANGING THE UNDERLYING LAW

    In my view the problems inventors currently face are within the 
USPTO and not in our underlying patent laws. This differs radically 
from nearly all of the testimony previously presented. How many of 
those previously testifying have had personal experience?
    The USPTO is in a crisis. The problem for inventors and small 
companies is that application pendency--the time it takes to get a 
patent allowed and issued--is far too long. I, for example, have patent 
applications with a pendency of over 13 years. Mr. Chairman, inventors, 
universities, and small companies simply cannot and will not continue 
to innovate with such long pendencies. It places a terrible burden on 
us to fund research and development and greatly increases our patent 
related expenses. Such pendencies make the patent system a sport of 
kings and eliminates independent inventors and small firms from 
participating. Moreover, legal changes in the 1990s such as changing 
patent term to 20 years from ``date of filing,'' only further erode the 
value of a patent. By the time it issues with these lengthy pendencies 
there can be hardly any patent term left. There may be none. With these 
pendencies alone, by the time your patent issues your technology is 
most often outdated and worthless.

     PATENT QUALITY IS NOT THE TRUE AIM OF THE MANAGER'S AMENDMENT

    Many supporters of this legislation speak of problems with patent 
quality. However, based on litigation results over the past few years 
decisions have been pretty well split 50/50 between patentee and 
infringer. That result suggests there is no great problem with patent 
quality in terms of the USPTO issuing invalid patents. Proponents who 
use this argument are simply not supported by the facts.
    Rather, the problem from my experience is that the USPTO is too 
hesitant to issue patents, not that they are issuing them too hastily. 
That theory would in part explain why pendencies have increased so 
substantially. If the committee would survey practitioners and 
applicants anonymously, I believe you will find they too feel long 
pendency is a significant problem. Many have told me so confidentially. 
It is difficult to believe, but the USPTO has to my knowledge and with 
all whom I have spoken, failed to survey applicants and their attorneys 
for feedback on many important matters. How can they faithfully serve 
their customers and the public if they do not know what customers want 
and need?
    Therefore, contrary to what proponents claim regarding quality of 
patents issued being the problem, it is those patents that are not 
issued where the true problems lie. The changes therefore being 
proposed by the Intellectual Property Owners Association (IPO), AIPLA, 
the Business Software Alliance and others--mainly large corporations or 
alliances of them--are at best unnecessary and at worst dangerous as 
many provisions would only further erode the patent system and act as a 
disincentive to invent for independent inventors and small companies. 
This is a very important segment of our intellectual property society--
the part most often responsible for breakthrough technologies which 
open new fields.
    My belief is this false issue of patent quality is being promoted 
before this subcommittee by large, multi-national companies to push for 
changes in U.S. patent law which will not strengthen it and therefore 
encourage innovation, but rather weaken it and thereby discourage 
innovation. As I review the Manager's Amendment I feel there are 
several portions that will have a substantial negative impact on the 
capabilities of small entities to benefit from the patent system. 
Further, I understand that with the Manager's Amendment revenues that 
have been diverted from the USPTO, fees that all entities--large and 
small--pay, will hereafter completely go to the agency instead of to 
other non-patent/trademark related issues. It will then be a true user 
fee instead of a hidden tax on inventors. With this funding change 
about to be instituted, why would Congress even consider changing the 
strongest and best patent system in the world before first seeing how 
the funding change will affect the system? The funding change alone may 
significantly reduce the need for if not eliminate any further 
legitimate need for changes in patent law.

 MANY WHO CLAIM TO SPEAK ON BEHALF OF INVENTORS AND SMALL BUSINESS DO 
                                  NOT

    Testimony from this year and from years past has caused me to try 
and help educate anyone connected to the U.S. patent system. As I 
indicated earlier, many organizations that have testified before this 
committee and before the Senate have stated they represent ``small 
business and individual inventor members.'' Specifically, the 
Intellectual Property Owners Association claim they represent small 
businesses and independent inventors. They do not.
    In viewing the composition of the IPO's committees, only large 
firms are represented (Microsoft, Xerox, Intel, . . .), as well as the 
large law firms (Kenyon & Kenyon, Howrey Simon, Drinker Biddle, . . .) 
who represent them. IPO, therefore, is merely a trade organization of 
large companies. It does not represent small companies and individual 
inventors to any meaningful degree. Consequently, organizations such as 
IPO that claim to speak on the ``little guy's'' behalf are misleading 
the committee at best.

             WHAT PATENTS MEAN TO THE INDEPENDENT INVENTOR

    Some proponents speak of patents ``being used to suppress 
competition.'' They are correct. That's the point of patents in the 
first place. The idea was always to grant to an inventor for a limited 
time exclusive use of their invention--e.g. a monopoly--as a reward for 
the advantages society receives from the invention.
    Out of thousands of patents issued by the Patent Office each year, 
some will unavoidably be bad. However, if patents are of poor quality--
bad--they likely will lose in court, or far more likely never make it 
to court and therefore be of no consequence. On the other hand, if 
patents are valid they will suppress infringers to the benefit of both 
the inventor and society, which was the purpose of the patent system. 
If a patent really is ``junk'' it is highly unlikely anyone will 
attempt to enforce it. Contingent attorneys, for example, will quickly 
see these facts and not waste their time on a lost cause. Contingent 
attorneys who cannot tell the difference between good and bad patents 
will not be in practice for long.
    I am sincerely curious whether those who support these so-called 
reforms and make such broad statements have ever personally tried to 
enforce a patent? Do they speak from experience or do they just wail 
away at what they don't understand like bloggers? Ignorance is bliss. 
More disturbingly, other proponents have their own agenda, and it is 
not to encourage innovation. These shadowy figures lurking, not always 
in the background, if left unchecked will cripple America's 
technological edge and thereby its long-term economic outlook.
    Likewise, many supporters of the bill rally around the concept that 
people are concerned about suspect and overly broad patents. As above, 
if a patent is overly broad or issued in error it will seldom be 
enforced or hold up. Patent owners think long and hard before asserting 
a patent because of the cost. Keep in mind it costs the patent holder 
about the same in court as it costs the accused infringer. That's why 
few patent cases ever make it to court (roughly 97% of patent suits 
filed are settled out of court). No one wants a nuclear war. Therefore, 
all this hand wringing over bad patents is merely pretense to 
anesthetize and paralyze the patent system. It is but a red herring.
    The real issue with these proponents is that big companies don't 
like it when small companies, universities, or independent inventors 
assert patents against them. The only patents big companies tolerate 
are their own. Even then their interest is merely as a tool to defend, 
not to truly innovate. Also and oddly enough, they by far own the 
largest number of patents. But of course from their view, only theirs 
are valid. I find this hypocritical. It is also disconcerting given the 
likely outcome of their assault on our patent system and to our 
nation's future innovation and economy that is directly dependent upon 
the innovation the patent system encourages.

  BILL IS ADDRESSED TO HURT SPECIFIC ENTITIES TO THE BENEFIT OF OTHERS

    As I stated earlier, the patent system is becoming a sport of 
kings. This bill will only worsen the situation. It prices small 
concerns out of the market and in so doing only further ensconces big 
companies in their markets, further cementing their stranglehold. The 
pending bill will only further widen the gap between the haves and the 
have-nots and the public will pay the price in the end with higher 
prices and inferior goods due to reduced competition.
    Certain witnesses and companies have complained about so-called 
``patent trolls.'' This label is most always used by large companies to 
describe small entities that have the audacity to assert patents 
against them. They have lost in court and so now they dissemble aiming 
to corrupt the patent system, even if it permanently damages the 
country. IPO itself has used this nonsensical term. It is interesting 
to think that though IPO claims to represent ``small business and 
individual inventor members,'' they speak like a big company. The IPO 
is not a sheep. It is a wolf. ``Patent troll'' is then a farce used by 
these large and unscrupulous parties in an attempt to defame inventors 
and small companies, and mislead Congress about what is really going on 
within our nation's intellectual property system. It is another red 
herring, attempting to obscure Congress from the truth.
    Proponents of this legislation use the argument that there is 
something implicitly wrong with a party who owns patents in only 
selling or licensing them and not actually building or using the 
patented technologies themselves. However, for over a century 
independent inventors have done just that. Edison himself was prolific 
in selling his ideas to other parties. Bell left the business end to 
others. Many inventors feel uncomfortable from past experience in 
commercializing their own inventions and prefer to leave that to those 
with more business acumen. Others simply prefer to invent and are happy 
to leave the business end to others. Clearly then, there is nothing 
wrong with an inventor leaving the business side of the invention to 
others such as through licensing of the technologies patented or an 
outright sale. Whoever coined the phrase ``patent troll'' was either 
ignorant of the invention field or a sly dissembler.

                      LARGE COMPANIES DON'T INVENT

    Still, it is the breakthroughs that lay the foundation for new 
fields. Before one can refine they must first establish. I am of the 
opinion that large companies will never seek to create markets for new 
technologies. They would rather wait until someone else does it then 
swoop in to use their large capital reserves to scoop up a large share 
of the developing market. Without a strong patent system independent 
inventors and small companies are at their mercy. Without a strong 
patent system there will be no independent inventors or small companies 
who risk all to create new markets for innovative technologies. That is 
why these large multi-national entities--with few exceptions--are 
begging Congress to make changes to U.S. patent law.

               BAD PROVISIONS IN THE MANAGER'S AMENDMENT

    My firm belief is that many of the provisions included in the 
Amendment in the Nature of a Substitute will irreparably harm small 
entities dependent on strong intellectual property laws here in the 
U.S. Without independent inventors and small companies to take the dare 
there will be a dearth of leadership into new promising technological 
fields--only a never-ending stream of minute cosmetic changes to a worn 
and musty product line. Without independent inventors and small 
businesses, our nation's economy will suffer. Many of these proposed 
changes will tip the scales of justice in favor of those with the 
deepest pockets and will thereby prove the undoing of small entities 
and independent inventors.
    In part, I have strong concerns about the following provisions: 
First-to-File, Prior User Rights, 18-month publication for domestic 
applications, and Third Party Re-examination. Each of these provisions 
benefit large, deep pocketed organizations and corrupt companies to the 
detriment of inventors and small business owners, many who will face 
unaffordable expenses and terrible consequences as a result of this 
proposed legislation.
    With Prior User Rights, small entities could face the near 
impossible task of competing against a well-funded corporation. This 
possibility will only add to the difficulty for those who seek funding 
from third parties such as venture capitalists. The risk will be that 
they may invest in a startup who at some later date in spite of having 
invented the product or technology may have to compete with a far 
larger competitor. This prior user provision then places in doubt the 
exclusivity right of a patent which was a fundamental principle as 
espoused in the U.S. Constitution. Funding sources will understandably 
be tentative.
    The publication at 18 months from filing an application is another 
provision of this legislation that would place small entities and 
inventors at a disadvantage. What is now accomplished in complete 
secrecy will at 18 months be throw open for the world to see. 
Currently, anyone who doesn't file overseas has the option of NOT 
having their intellectual property known before protections are 
guaranteed. This will eliminate that option. Once published, the 
inventor will have to maintain his lead in an invention that may yet 
need refinement against an army of far better funded adversaries. Often 
times, such as in the case of the television, perfecting an invention 
to make it ready for the marketplace can take years. Such was the case 
with Bell and his telephone, Philo Farnsworth and the television, Morse 
on the telegraph, and the Wright Brothers on the airplane. It took 
Chester Carlson years to develop xerography to a practical state. 
Often, this is the case. This provision will place small entities 
therefore at a critical disadvantage. It would force them into a 
situation where they will have to compete with a far better funded firm 
before they are ready. As above, this further erosion of the patent 
system will discourage inventors and investors and thereby innovation. 
Such then is the problem with both First to File and 18 month 
publication.
    How is an inventor protected after the 18-month publication should 
it be determined later that the ``invention'' was not patentable? Trade 
secrecy is the current option and that effectively will be taken away 
via publication. The danger of course is that inventors will begin more 
widely using trade secret protection where possible. But to encourage 
disclosure was another reason the patent system was established in the 
first place. The inventor discloses the invention and in return 
receives exclusive use of their invention for a limited time. It seems 
to me this provision will undermine an important reason the patent 
system was created.
    I have similar concerns about the First To File provision. Clearly, 
the advantage would be to well funded organizations who can much more 
readily prepare a patent application--specially having been tipped off 
by an inventor. That would present an impossible uphill climb for the 
inventor and encourage invention theft. I recall the confusion 
physicist Gordon Gould who invented the laser had when he delayed 
filing for about a year. In the interim another did. Fortunately, our 
First to Invent provision gave the patent to the true inventor. 
Similarly, Alexander Graham Bell came very close to being beaten to the 
Patent Office by Elisha Gray. Had he been 1 day later and had the 
proposed First to File provision been in effect, the Americana catch 
phrase would have become ``Ma Gray.''
    Another related concern is that the change to First to File will 
only further swamp the patent office. Large companies who are already 
inundating the PTO with applications will only increase the amount of 
applications they are now filing in an attempt to beat small entities 
to the punch rather than first perfecting an invention. The result will 
be a further overwhelmed examining body struggling to keep up with a 
weighty load. Clearly, large firms are far better able to use this 
shotgun approach with applications. This may be an important reason for 
the current backlog on unexamined applications causing these dangerous 
pendencies. This use of greater resources and funding will further 
place small entities at a disadvantage. The result is similar to the 
advantage large entities have over smaller adversaries now in the 
courts. Large companies will be able to use their size alone to gain a 
competitive advantage, just as they now do in the market place. 
Historically the patent system has had a leveling affect making smaller 
entities more competitive which in turn forced larger entities to stay 
current in technologies rather than just rely on their superior size to 
maintain market dominance. I am extremely concerned that nearly all of 
the proposed changes will have a considerable detrimental affect on 
competition.

                    CORPORATIONS VS. SMALL ENTITIES

    Patent law affects different business sectors differently. So it is 
imperative to understand that simply because large companies in one 
sector of the economy consider there to be problems with the law, their 
proposed changes (such as in the Manager's Amendment) are apt to create 
undue harm and burdens to others in their field and, quite likely, some 
or all parties in other fields. That is why there is such a strong 
presence on Capitol Hill of lobbyists who represent the Business 
Software Alliance, Pharma and BIO--three ``players'' who were invited 
to personally appear before the committee to testify.
    Consider what history has shown: independent inventors and small 
companies are most often responsible for technological breakthroughs. 
Witness Edison's light bulb, Bell's telephone, the Wright brother's 
airplane, Gould's laser, Fulton's steamboat, etc. The list goes on. 
Large firms rarely, if ever, have excelled at breakthrough innovations. 
Corporations have the wrong culture for it. Theirs is a culture of 
refinement of existing technologies, not on trail blazing new fields. 
There is too much risk for them in getting too far afield from their 
existing product line. As a case in point, when Alexander Graham Bell 
offered the telephone to Western Union, William Orton the then 
President of the giant telegraph firm rejected his offer and replied 
``what would I do with such a toy?''

                              CONCLUSIONS

    Patent law in the U.S. is critical to our economy. Patents are the 
lifeblood to all but the largest players in industry. Large 
corporations can readily compete and even dominate without patents. I 
suspect if you could hear what they say behind closed doors you would 
find their preference would be no patent system at all. That would 
provide far less risk to their market dominance. Without genuine 
intellectual property, there is little chance for all the rest. It is 
our intellectual property laws that have enabled competition in our 
country and placed us where we are currently in the world--Number One. 
We need to think carefully and study thoroughly before we make changes 
to them.
    Before considering any further changes to the current U.S. patent 
code, let reforms at the USPTO take place first. Do not put the 
proverbial cart of changes to our underlying patent protections before 
the horse of adequate funding to the USPTO. Also, please remember that 
changes take time, so don't act in haste because large multi-national 
corporations are making these requests. I for one do not believe that 
they are acting with the best interest of our country at heart, but 
rather their short-term bottom lines.
    There is much more at stake here than saving a handful of large 
multi-national companies litigation costs. My hope is that Congress 
will take the time and put in the needed effort to understand the 
consequences before proceeding with this legislation.
                               __________
           Prepared Statement of Ronald J. Riley, President, 
                  Professional Inventors Alliance USA

    Mr. Chairman, Ranking Member Berman, and other distinguished 
Members of the Intellectual Property Subcommittee.
    My name is Ronald J. Riley, and I am an inventor. I founded the 
Professional Inventors Alliance USA to bring a voice to Washington, 
D.C. since, generally speaking, anytime Congress approaches reforms to 
the U.S. Patent and Trademark Office and to the underlying patent laws 
of the United States, inventors are for the most part left out of the 
debate. In general, Congress hears from patent counsels who represent 
large corporations, such as the multinational organizations that 
support H.R. 2795, or any of its variations that have come to pass 
since its introduction in June. A most interesting thing to point out 
is that there is a so-called red-line version of the bill now referred 
to as the ``consensus'' draft. It turns out that 33 companies got 
together and decided that this is what they want from Congress.
    Thirty-three companies may make a consensus in the eyes of a few, 
but to those of use who use and depend on the current and strong patent 
system, we question the wisdom of accepting such a draft without full 
and comprehensive hearings that everyone can understand. This issue, 
while arcane, is one of the most important issues that will ever come 
before the U.S. Congress. It goes right to the heart of why our country 
is a world leader on so many fronts.
    Promoting the General Welfare of the Constitution does not, in my 
opinion, mean writing laws that seemingly benefit one sector of the 
nation to the detriment of the general public. Quite frankly, the 
public interest will not be served by the passage of H.R. 2795, or any 
of the variations that I have read to date. Moreover, the Constitution 
discusses specifically the exclusive rights conferred to authors and 
inventors to their respective writings and innovations. The legislation 
challenges the constitutional framework of exclusive rights for 
intellectual property owners in many ways.
    Additionally, proponents of this legislation suggest that these 
proposed changes will lead to more quality patents, less litigation, 
harmonization, and, somehow, more innovation. Those of us in the 
Professional Inventors Alliance could not disagree more with that 
assessment and we believe that the very large entities promoting this 
legislation are not being entirely accurate with their descriptions of 
the legislation to Members of this subcommittee, nor are they 
presenting the big picture of how this legislation could negatively 
impact our economy.
    I also would like to address something that I find very 
interesting. Proponents of patent reform tend to use questionable and 
sometime insulting terms in order to paint opponents of patent reform 
in a certain way. In the 1990s, the so-called submarine patent was the 
base issue that was showcased to obtain changes to the patent system. 
This year, it seems to be the term ``patent trolls.'' This term refers 
insultingly to those companies and/or individuals who trade in patents 
which they have obtained one way or another--legally--from inventors. 
In the United States, which was founded on the concepts of free 
enterprise and ownership of property, trying to stop such legal 
activities is questionable at best. If an inventor can do better by 
placing his invention in the hands of a professional patent marketer, 
this should not be thwarted. This is no different, in reality, than 
using a real estate agent for selling a house or commercial space.
    Q. Todd Dickenson, the former director of the U.S. Patent and 
Trademark Office and now a counsel to General Electric, testified on 
July 26 of this year before the Senate Judiciary Subcommittee on 
Intellectual Property that General Electric was a patent troll. In 
fact, he stated that almost every large company with patents is in some 
fashion a patent troll. So I hope this discussion of the so-called 
patent troll can be deleted from the debate.
    Intellectual property rights are as important as real property 
rights. As you all well know, the United States Supreme Court recently 
held in the Kelo decision that local governments may force property 
owners to sell out and make way for private economic development when 
officials decide it would benefit the public, even if the property is 
not blighted and the new project's success is not guaranteed. It is 
apparent that Congress understands how controversial the Kelo decision 
is. Real property and the laws regarding takings are easier to 
comprehend as Congress has stepped right up to address the Kelo 
decision in several ways.
    With all due respect to the Members of this Subcommittee, the 
Professional Inventors Alliance views all versions of H.R. 2795--
including the Manager's Amendment and the so-called Redline version--
the way real estate property owners view the Kelo decision. Many 
provisions of the legislation that the supporters claim will improve 
the system will, in fact, take intellectual property right out of the 
hands of the actual inventor without just compensation, or any at all 
for that matter.
    Private property is a foundation principal that has set our country 
apart from the rest. Fundamentally, many provisions found in the many 
versions of H.R. 2795 are to intellectual private property rights as 
the Kelo decision is the real private property rights. Therefore, it is 
with great hope and encouragement that the distinguished Members of 
this subcommittee and the rest of Congress, should the legislation 
progress forward, take a very, very close look at why the Professional 
Inventors Alliance believes strongly that provisions found in the many 
versions of this legislation will have disastrous effects on 
independent inventors, small- and medium-sized businesses throughout 
the country, and the economy as a whole.

First to File
    Every version of this legislation of which I am aware includes a 
provision known as First to File. Supporters of this system say that 
this change from the current and stronger ``first to invent'' system 
will stop the time-consuming ``interference'' legal arrangement 
necessary in determining who actually is the first to invent where such 
a question arises; therefore, there will be less litigation. This is 
false in that the numbers of patents that go through interference are 
minute. According to the U.S. Census Bureau and U.S. Patent and 
Trademark Office, in 2003 there were only ninety (90) inter partes 
interferences declared out of 367,000 patent application filings; there 
were 2721 ex parte interferences. This comes to .0076 of a percentage 
point. The bottom line is that there are not a lot of these cases 
brought through the system.
    The reality of a first-to-file system is that patents will be of 
less quality; prior art will not be researched thoroughly, if at all. 
In the race to file a patent, companies likely will file as many 
patents as quickly as possible thus jamming up the patent examination 
process with unnecessary proceedings. Such a system will encourage 
incomplete and poorly drafted concepts. These facts will make the 
system more--not less--litigious than the first to invent system. In 
fact, it could open the patent attorneys up to malpractice suits IF 
they didn't beat someone to the patent office to file the application.
    A significant side effect of first to file is that the large number 
of published patent applications which do not proceed to become issued 
patents become pseudo prior art which then is used to interfere with 
subsequent inventors getting the patents they are due. In other words, 
the ``new'' prior art is actually very poor and will lead to less 
quality in future patents. This runs contrary to what those who are 
promoting this legislation say with respect to this legislation.
    As we all know, harmonization is one of the ``reasons'' Congress is 
working to alter our patent system. Well, Japan has the first-to-file 
system and firms tend to file applications as soon as possible to 
prevent their rivals from using the invention before them. The point of 
this statement is that it shows that companies will game the system. 
Proponents of changing the U.S. system to one that is not as strong 
point to several scenarios as examples for why changes in the system 
are needed. Congress should be aware that there are calls for changes 
to the Japanese system, itself, because their system facilitates 
wholesale theft of their inventions.
    Finally, under a first to file system, far too many questions exist 
to determine how it will impact our tried and true system. For many 
patents--especially extraordinarily innovative ones--it takes years 
before a patent issues. There is a long pending timeframe now that is 
getting longer. The question then becomes: When does a first-to-file 
patent become a ``real'' patent? Also, when do subsequent filings that 
also may be ``real'' patents--get their chance at being issued and not 
stopped by failed first-to-file filings? In other words, is the first 
to file filing really the invention? This is a clear case of unintended 
consequences that will clog up the examination system and further clog 
up the courts with litigation that currently is non-existent under the 
first-to-invent system.

18-Month Publication of all domestically filed applications
    It is with great interest that I hear all of these corporations 
discuss harmonization with other countries' patent systems. We always 
hear specifically about Japan's patent system, and apparently the 
promoters of this legislation think highly of that system.
    Just this past July, an article from a Japanese media outlet 
written by Yomiuri Shimbun was published. I have included the article 
at the end of this written testimony and ask that it be made part of 
the official record.
    The central theme to the article was that Japan's intellectual 
property competitiveness is in decline. Interesting points were made 
about what Japan is giving away in terms of economic resources. The 
director of Japan's External Trade Organization's Intellectual Property 
Rights Beijing Office last year visited the head office of the Haier 
Group, China's largest consumer electronics maker. A Haier Group 
official ``proudly'' told the Japanese IP official that they use dozens 
of computers to search for patent applications submitted to the patent 
office in Japan, the United States and European countries to obtain 
useful information to develop ``their'' products. The Chinese company's 
official noted that it was for that reason alone that their company 
spends only small amounts of money on research.
    Rightfully stunned by the information, the Japanese IP director of 
External Trade discussed his experience with the head of a private 
patent office in Tokyo, who then turned around and asked his colleagues 
to figure out how often patent applications were being reviewed on the 
Japanese patent office's website from people in China and South Korea. 
Each day, from these countries respectively, Japan's patent office 
website was hit 17,000 and 55,000 times.
    This is astounding information that I hope the subcommittee 
understands. This Congress is on record as being very concerned about 
piracy by unscrupulous overseas firms. Foreign competitors, many whom 
we know already are stealing such information, can move forward 
untouched while harming the true creators and innovators of new 
discoveries and ideas. Japan's system is leaking and Congress is 
embarking on changing our laws to be in line with their poor ones. 
Legislation attempting to harmonize with Japan and the E.U. must be 
reconsidered closely and thoroughly. Perhaps Japan and the E.U. need to 
adopt some of our intellectual property protections.
    The article discusses that the IP competitiveness is a foundation 
of Japan's national strength. PIA argues that our current patent 
system, which has served this country well for over 215 years, is the 
foundation for our country's economic and innovative strength. There is 
a reason why the U.S. is a leader in the world although we are one of 
the youngest countries on the globe. The U.S. respects personal 
property, both intellectual and real property. In other countries, this 
is just not the case. That is why the Professional Inventors Alliance 
finds it alarming that Congress is actually looking to weaken our 
system of intellectual property rights protections that currently 
exists and are the strongest in the world.
    The pre-patent world publication after 18 months devalues the 
application process and actually makes it an adversarial opportunity 
for unscrupulous entities seeking to steal ideas from those 
legitimately going through the system. Therefore, the newly 
knowledgeable firms--both international and domestic--with an ability 
to review such published applications can begin to advance a not yet 
patented innovation. With the U.S. Patent Office's internet site, 
people around the world can see the details and begin to pirate and 
market ideas that are currently held in secret. This devalues the both 
the application and patent to the point where going through the system 
will prove more harmful to an inventor/small business trying to secure 
exclusive rights guaranteed by the Constitution. This cannot seriously 
be the intent of this Subcommittee, but it is the reality.
    Pre-grant publication is ill-conceived. Cutting-edge technologies 
take many years to go through the patent system. Right now, if an 
inventor files overseas they know that the application will be 
published after 18 months. This proposed legislation takes away even 
this modest protection--the current domestic filing with no 
publication--from the actual inventor. Moreover, for domestically filed 
applications, publication at 18 months worldwide of the application 
details that which historically in the U.S. has been held in confidence 
(secret) will harm the actual inventor.
    Secrecy ALWAYS has been a key ingredient of the U.S. Patent System. 
In fact, the Patent Office always has kept the details secret until a 
final decision was made regarding patentability. Under the current 
system, if the domestic-only filed application is not granted a patent, 
all of the information surrounding the application are returned to the 
inventor sealed thereby allowing the actual inventor to rework the 
application OR go the way of trade secrets. This provision, which is in 
all of the proposals, will take away this opportunity for inventors and 
small businesses to take their ideas and move forward and prosper even 
without patent protection but through what is known as trade secrets.

Third-Party pre-grant review
    Publication and third-party pre-grant review go hand-in-hand. This 
also is an attempt to harmonize the U.S. Patent System with that of the 
Japanese. This pre-patent/pre-publication review allows rival 
companies--both foreign and domestic--to learn the details of the 
innovation and challenge the examiner during what is now done in total 
secrecy. To reiterate, secrecy is very important so that the true 
inventor is protected and he/she can be assured the exclusive right to 
it and receives royalties.
    Aside from allowing others to learn all of the details of the 
applications before they are protected, adding this procedure for third 
party review will add delays to a patent. It also provides competitors 
time to research and learn more about the innovation in order to make 
their best objections against claims allowed by the patent examiner.
    This provision will add extra hurdles to the patent process to the 
detriment of the applicant (i.e., actual inventor). This will lengthen 
the time toward granting a patent, not lessen the time as proponents of 
the legislation claim. Moreover, this adds yet another place for 
unscrupulous competitors to learn about the innovation, put it into use 
and therefore claim prior use. This provision adds an additional 
measure to lessen the quality of the patent.
    The third-party participation in pre-grant reviews provision 
devalues the patent by allowing entities to learn and challenge what is 
currently being done in secrecy, which is very important so that the 
true inventor is protected and can be assured the exclusive rights to 
receive royalties. This participation also will delay the patent and 
further burdens to the examiners, which--according to Under Secretary 
Jon Dudas--are already over encumbered with work.

Third-Party Reexamination
    It is with great hope that every member of this subcommittee 
understands exactly it is that is being proposed in this legislation. 
The current Inter partes examination proceedings differ from the 
proposed post-grant opposition proceedings in that inter partes 
reexaminations already are available under the current process at any 
time during the life of the patent and are limited to patentability 
issues based on earlier patents or publications describing the 
invention at issue. This legislation expands inter partes 
reexaminations by removing the limitation that any requester is 
estopped from asserting at a later time patent invalidity on any ground 
that the requester ``could have raised'' during the reexamination 
proceeding. This allows continual post-grant oppositions by an infinite 
number of entities that obviously will harm those with limited funding 
(i.e., small businesses and independent inventors).
    Of course, the original limitation was intended to balance the 
equities involved in inter partes reexamination, and comported with 
fundamental notions of fairness. This is no different than what occurs 
if an infringer is sued in court and, having argued invalidity and 
losing, that same infringer cannot later bring a second lawsuit seeking 
to invalidate the same patent.
    PIA's position is that this is but another provision that will harm 
the small business and independent inventor by devaluing the exclusive 
right to a patent. It also will severely add to the costs of obtaining 
a patent and weaken the current system.

Prior User Rights
    Patent law favors the patent holder who applies the Founders' 
desire for placing patents in the public domain. H.R. 2795, the July 
Manager's Amendment, and the new September 1st red-line version of the 
bill bring ``prior user rights'' into U.S. law to harmonize with Japan 
and European patent law--expanding on the first-to-file patent right. 
Well, I've already discussed how the first-to-file proposal will harm 
independent inventors and small businesses. So, let's go over in detail 
how this provision will harm the U.S. patent system to the detriment of 
not only small business people and inventors but the interest of the 
general public.
    Prior user rights neutralize and devalue the exclusive rights to a 
patent. The concept is to allow anyone using technology that is covered 
by claims made in a patent to pay no royalties to the patent owner if 
it can be proven that the prior user actually utilized the innovation 
before the patent was issued. Prior user rights provide an open 
invitation to commit fraud in an attempt to avoid paying for the rights 
to use the patent. Moreover, these proposed rights create a never-
ending cause for more, rather than less, litigation.
    First, the inventor or small business must discover the use by the 
prior user party then file suit in order to get them to stop using the 
innovation (current process). Enactment of this legislation provides a 
prior user right that would give anyone--deep pocketed corporations, 
both foreign and domestic, for example--a new defense to use the 
patented innovation at will. This essentially diminishes to zero the 
value of the patent if the inventor is a small business / independent 
inventor and the ``prior user'' is a large corporation with a lot of 
money. The new prior user rights defense coupled with third-party pre-
grant review and 18-month publication fly in the face of the 
constitutional provisions rewarding those who disclose and patent their 
innovations.
    The question raised with allowing prior user rights is: What is the 
motivation for an independent inventor or small business to go through 
the costly patent process when that patent can be taken by another 
claiming prior use? Moreover, IF the idea of the legislation is to 
limit law suits, imagine if the owner of the patent has as much funding 
as the ``prior user''--this could then result in more--not less--timely 
and costly litigation. Again, this runs contrary to the authors' intent 
on limiting litigation.

Assignee Filing
    This provision has to be viewed from the eye of the beholder. This 
legislation allows employers, a.k.a. assignees, to have the absolute 
power to file an application without the signature of the actual 
inventor, or even the knowledge of the inventor! This proposal renders 
powerless the inventor against their employer with respect to patent 
ownership and control. It is always beneficial for there to be a record 
of the actual inventor.
    With a Congress that is so determined to show how strong they are 
with respect to property rights after the Kelo decision, this provision 
should be of major concern to a great many people.

Best Mode
    Eliminating ``Best Mode'' essentially would alter the definition of 
``prior art;'' simply put, this is any existing knowledge of a similar 
innovation via ways accessible by the Public. Current law requires 
inventors to disclose to the public the best use of the invention at 
the time the patent application is filed. Without this requirement, the 
inventor and not the public would know the full use of the patent. It 
also would allow for an unscrupulous inventor to increase the term of 
the patent protection by filing `improvements,' about which they were 
already aware, later. While the bill's authors claim that they want to 
improve the quality of patents, it seemingly would do the opposite.
    The ``best mode'' requirement makes it necessary to disclose a 
specific embodiment. Patent applications and patents without specific 
embodiments are respectively filed and issued in Japan and that is why 
a Japanese patent is often not a good piece of prior art. For a detail 
in a specific embodiment may be the very thing that can be put into a 
claim to make it allowable over the prior art.
    The purpose for which our Founding Fathers created the U.S. Patent 
System is to promulgate knowledge and technology. The ``deal'' with the 
federal government is that if an inventor provides enough details of 
the innovation so that someone skilled in the art could duplicate it, 
the government would provide the inventor an exclusive right (property 
right) for a limited time and keep others from using the invention. 
Therefore, there is no reason to hide the innovation and by virtue of 
knowing the ``best mode,'' others will learn how to utilize and improve 
upon it; thereby building knowledge for the public, as a whole. So 
anything but ``best mode'' is in effect gaming the system and cheating 
the intent of the patent system itself.
    Please understand about this term ``specific embodiment;'' It is 
necessary when making claims (i.e., value points) for the patent. 
Eliminating the `best mode' requirement may make it difficult for 
people to fully know and understand how the patent is supposed to work. 
The specific embodiment is the best mode of operation of the patented 
innovation. Not requiring best mode is yet another open invitation to 
game the proposed system by later filing the `true' best mode which had 
been withheld to gain longer effective patent terms.

Duty of Candor and Limitation of Inequitable Conduct
    While the legislation would codify a duty of candor (specific 
embodiment) owed by the patent applicants, it seeks to limit 
substantially the defense of inequitable conduct--intentional acts and 
omissions of a patent applicant or representative of a patent applicant 
during the course of obtaining a patent from the USPTO--by allowing it 
only to be pled where the court has first invalidated a claim and the 
accused infringer has a reasonable basis for alleging that (``but for'' 
conduct of the inventor) a reasonable patent examiner would not have 
allowed the invalidated claim to issue as part of the patent.
    Under the current system, the party alleging inequitable conduct 
must prove the threshold elements of materiality of the misstatement or 
omission and intent to deceive the patent office by clear and 
convincing evidence. The determination of inequitable conduct is 
committed to the district court's discretion. Inequitable conduct is 
highly factual, often turning on credibility of witnesses. Courts have 
long been viewed as best able to resolve highly factual questions such 
as intent to deceive. Moreover, the defense is not available, under the 
current language, until after there is a finding of invalidity. In 
essence, the defense is not available to a defendant until it has 
already won the case. Under the legislative proposals, however, the 
matter would then be referred to the USPTO and leave sole determination 
in the office with no right to appeal.
    The American Intellectual Property Law Association interestingly 
states that ``the current reliance on the courts for `enforcement' of 
the duty (of candor) 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.'' 
[emphasis added]. If it is rarely successful, it appears that the 
courts indeed are doing their jobs appropriately.

Determination of Damages
    This provision seeks to limit the damages to the portion of the 
total value of the method or apparatus in question by the value of the 
overall invention (entire market value rule). It seems that the courts 
are the best place for this to continue to transpire because a broad-
based law might have an adverse effect. For example, while attempting 
to hinder willful patent infringers, this provision would reward them. 
It also can be viewed as sort of compulsory licensing.
    If infringers are not worried about getting hit with the full 
market value of the overall invention, then they can simply view the 
infringement as a ``cost of doing business.'' Large corporations could 
hammer small businesses and inventors because the curtailing effect of 
damages due to the inventor would be lowered substantially.
    Let's take a look at an example to determine damages by the 
``portion'' of the ``total value''--Think in electronic terms of a 
wheelbarrow. If the invention in question were the wheel, and the 
entire wheelbarrow sells for $100, what is the contribution of the 
wheel? Though the wheel may be considered only 10 percent of the cost, 
its contribution to the whole is infinite. It is the causal component 
and without it, the wheelbarrow is worthless.
    Let's now consider that there is a wheel on the original product, 
but the new invention provides the equivalent of a ball or roller or 
other bearings which make the wheel work much better. What then is the 
value of the new invention? Would it be simply the cost of the 
bearings?
    With invention, one must consider what makes the invention enabled. 
Without the wheel or the bearing, it is not a wheelbarrow. Though other 
inventions may be more subtle, the value of the whole invention may 
rest upon the inventive content. This is because an improvement to the 
product may be the reason the newly combined devices can be sold at a 
premium (or even sold at all). That can be referred to as a 
``competitive edge,'' and without the new invention, it is just another 
of the same.
    This is the purpose of invention, since all but the seminal 
inventions are improvements on other previous inventions. The first or 
seminal invention might be a reduction or means of implementing a 
discovery that has not before been implemented. From that time, 
inventions based on that invention are improvements that may make the 
previous improvement(s) un-saleable or primitive. In short, the value 
of the invention is often not the ``part'' or ``portion'' of the 
overall value but it is the gestalt of the system because without it 
there would be no reason to use or by the ``invention'' over the same 
or similar product that does not include it.

Limitation of the Doctrine of Willful Infringement
    This section proposes limitations on treble damages to specific 
case where the defendant (willful infringer) has received a detailed 
written notice from the patent owner specifying all of the charges. 
Contrary to limiting lawsuits as the authors claim as one of their 
objectives in this legislation, this one would create more problems and 
litigation. For instance, patent infringers wouldn't be motivated to 
abide by the patent protections of the inventor in that they would pay 
less in damages related only to specific cases in combination with the 
market value changes. This would dampen efforts to thwart the stealing 
of intellectual property.
    Without the ability to sue for and collect damages because of 
``willful infringement,'' there is little if any reason for larger and 
well-heeled companies to stop infringing. A perfect example of such a 
company was RCA under the leadership of David Sarnoff. He spent years 
and millions of dollars fighting valid patents of Philo Farnsworth of 
Utah, the actual and seminal inventor of the systems of electronic 
television we use today. As a side note, his statue, not Sarnoff's, is 
in the U.S. Capitol to presumably celebrate his innovations in 
television.
    Here is one of the best examples of the hard road for the 
individual inventor--even one who invented one of the greatest 
breakthrough products in the world. Farnsworth, like many inventors, 
had to crawl along to market, fighting the entrenched large companies 
(RCA) and new technology. In this case, Farnsworth was a 14-year-old 
Mormon farm boy who realized, while plowing his potato field, that one 
could draw a picture on a phosphorescent tube, one line at a time. This 
is a brilliant insight that took him years to perfect. And when he did 
the large companies--RCA, front and center--did their best to destroy 
him. This is but another example how the Professional Inventors 
Alliance believes the various versions of H.R. 2795 will tip the scales 
in favor of the deep pocketed infringers to the detriment of the actual 
inventor.
    Because of the initial bill, references to proponents of the H.R. 
2795 bill as introduced, and comments made by members of Congress 
concerning the following provisions, we want to go on record to discuss 
both injunctive relief and limiting the scope of continuations.

Limiting Injunctive Relief
    While eliminating injunctive relief was part of the base bill, it 
is highly likely that proponents of the original version will continue 
to push for this provision. So I want to pay attention to it briefly 
because we understand that there will be efforts to ``put it back in 
the bill once it passes out of committee,'' as was stated by a 
distinguished member who sits on this panel, while he was addressing 
supporters of the legislation.
    In short, this is compulsory licensing under another name, which 
can also be classified as a regulatory taking. This provision 
unconstitutionally undercuts the ``exclusive rights of authors and 
inventors'' granted under valid patents by allowing the courts to 
determine ``equity'' in considering ``fairness of the remedy in light 
of all the facts and the relevant interest of the parties associated 
with the invention.'' Simply put, infringement is infringement and 
patent holders, under this section, cannot be guaranteed exclusivity of 
their invention. Moreover, this essentially is compulsory licensing 
under another name. In effect it is a regulatory taking of private 
property. This would be an enormous blow to universities, the 
independent inventor and small business owner, especially those who are 
attempting to obtain venture capital for the commercialization of their 
invention(s).
    In the case above (Philo Farnsworth vis-a-vis RCA) it took 
countless trials that in each one RCA lost. But they had power and 
money to try and return and retry ad nauseam until the Courts finally 
put their collective foot down. Few innovators and/or inventors could 
have survived this.

Limiting the Scope of Applications
    Proponents of limiting the scope of continuing applications would 
keep the inventor from broadening the scope of his/her claim after the 
initial filing of the patent application. Adding this provision could 
have very damaging side effects. The proponents of the legislation 
claim they want to do away with subjectivity in the examination 
process. In our opinion, this may have the very opposite effect.
    During the hearings on patent reform, Under Secretary Jon Dudas 
claimed that the increased mass of continuation applications has 
burdened the workforce. Also, that there are a ``few'' people who have 
used the continuation applications procedures to ``track'' the 
commercial development of a specific technology only to ``spring it 
upon'' an industry. So why not provide more money for more examiners to 
the USPTO instead of changing the entire patent system that will 
benefit only a select few?
    Thwarting the creativity of inventors by limiting claims to those 
in the initial application will severely hurt the patent system and 
unnecessarily deny applicants the right and opportunity to obtain 
protections for their entire inventions. Quite often applications for 
newly discovered ideas take a long time to go through the system. 
During that period, further ideas arise after the initial application 
is processed that had only the initial claims. By not allowing the 
inventor to make claims for his or her invention would lead to 
legitimate inventions going unprotected by the proposals before the 
subcommittee. At the same time it brings into question the 
constitutionality of the provision because the inventor is not provided 
such guarantees to exclusive rights.

                              CONCLUSIONS

    The Manager's Amendment, as well as the other variations of the 
legislation, if passed as currently written, would be an enormous blow 
to universities, the independent inventor and small business owner, 
especially those who are attempting to obtain venture capital for the 
commercialization of their invention(s). As I indicated I my opening 
statement, the Supreme Court's recent decision on Kelo is to private 
real property as many provisions of this proposed legislation is to 
private intellectual property.
    Taken in total, this would be the most comprehensive change to the 
patent system in history. At the same time, it would weaken the best 
patent system in the world to that of Europe and Japan. It would open 
our innovations to worldwide piracy through the many provisions in the 
bill--first to file, worldwide publication, third party input both pre- 
and post-grant, limitations on damages for infringement and prior user 
rights. Taken as a whole, patents as we know them today will be hugely 
devalued.
    There is nothing in any treaty to which the U.S. is a part that 
requires us to re-write our laws. While there are minimum requirements, 
the U.S. can maintain its strong patent system and still be compliant 
with all treaties. On the other hand, other countries are free to 
strengthen their patent systems to allow innovation and advancement to 
occur in their countries. Even with current protections set forth in 
our Trade Related Intellectual Property System that supposedly were 
written to protect U.S. intellectual property holders, dozens of 
nations that signed onto the agreement have not honored their 
commitments. Likewise, the U.S. has not enforced them since 2000.
    It needs to be pointed out that the USPTO takes in more than 
adequate financial resources through fees (inventor taxes or innovation 
taxes), which since the early 1990s have been diverted from use by the 
Patent Office by Congress and used for general obligations elsewhere in 
the federal budget. Recent temporary medications in our laws have 
changed this process thereby providing the USPTO with vastly more 
resources. Perhaps it would be better to allow the USPTO to hire more 
examiners to address the ``burdened'' workforce before altering (and 
severely weakening) the U.S. Patent System.
    It is clear that intellectual property experts from the 
international community also are calling for new patent procedures that 
will lessen unnecessary patent application filings. Even Japan's 
``experts'' are concerned with how unscrupulous companies in South 
Korea and China are utilizing the ``open applications system'' Congress 
is currently considering implementing in the U.S. To do so is 
frightening, not only from an independent inventor's point of view, but 
also for national security considerations. Members of the Professional 
Inventors Alliance are clearly concerned with the proposals pushed by 
multinational corporations that, if enacted into law, will have a 
devastating impact on our country's economy and innovative sprit and 
output! Please do your due diligence and listen not only to those 
promoting these provisions that will line their large and deep pockets. 
More importantly, please consider what the impact of changing the best 
system in the world and unilaterally dragging it down to mediocrity and 
how it will affect our country as a whole.
    On behalf of the Professional Inventors Alliance we respectfully 
request that Congress tread very, very carefully in this policy arena 
and not move forward with any of these controversial proposals that 
will benefit only a portion of those who benefit from the current 
patent system. After all, it has served this country well for over 200 
years.
    Thank you for the opportunity to present the views of the 
Professional Inventors Alliance. We have many ideas about how to 
improve the system and when called upon to provide those, we will be 
happy to do so. Please feel free to contact me if anyone has any 
questions concerning this testimony.



Letter to the Honorable Lamar Smith, a Representative in Congress from 
the State of Texas, and Chairman, Subcommittee on Courts, the Internet, 
  and Intellectual Property, from Christine J. Siwik, Rakoczy Molino 
        Mazzochi Siwik LLP, on behalf of Barr Laboratories, Inc.




                                 
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