[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]
PATENT QUALITY ENHANCEMENT IN THE INFORMATION-BASED ECONOMY
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON COURTS, THE INTERNET,
AND INTELLECTUAL PROPERTY
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
__________
APRIL 5, 2006
__________
Serial No. 109-99
__________
Printed for the use of the Committee on the Judiciary
Available via the World Wide Web: http://judiciary.house.gov
_____
U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON: 2006
26-914 PDF
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512-1800
Fax: (202) 512-2250 Mail: Stop SSOP, Washington, DC 20402-0001
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
----------
APRIL 5, 2006
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................ 2
The Honorable Zoe Lofgren, a Representative in Congress from the
State of California, and Member, Subcommittee on Courts, the
Internet, and Intellectual Property............................ 3
WITNESSES
The Honorable Jon W. Dudas, Under Secretary of Commerce for
Intellectual Property and Director of the U.S. Patent and
Trademark Office
Oral Testimony................................................. 4
Prepared Statement............................................. 7
Mr. James Balsillie, Chairman and Co-Chief Executive Officer,
Research in Motion
Oral Testimony................................................. 14
Prepared Statement............................................. 16
Mr. Robert A. Stewart, Director and Chief Patent Counsel of
Americas, UBS AG
Oral Testimony................................................. 22
Prepared Statement............................................. 25
Mr. Mark A. Lemley, William H. Neukom Professor of Law, Stanford
Law School
Oral Testimony................................................. 35
Prepared Statement............................................. 36
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.......................................... 67
Prepared Statement of The Institute of Electrical and Electronics
Engineers-United States of America (IEEE-USA).................. 67
PATENT QUALITY ENHANCEMENT IN THE INFORMATION-BASED ECONOMY
----------
WEDNESDAY, APRIL 5, 2006
House of Representatives,
Subcommittee on Courts, the Internet,
and Intellectual Property,
Committee on the Judiciary,
Washington, DC.
The Subcommittee met, pursuant to notice, at 4:55 p.m., in
Room 2141, Rayburn House Office Building, the Honorable Lamar
Smith (Chairman of the Subcommittee) presiding.
Mr. Smith. Subcommittee on Courts, the Internet, and
Intellectual Property will come to order. Thank you all for
your patience and for waiting. We obviously had a series of
votes that we were not exactly expecting at 4 o'clock this
afternoon. Plus there was a privileged resolution we weren't
necessarily expecting to take up another half hour. I was told
this was an angry crowdawaiting us, and I am glad you calmed
down a little bit and we will proceed as quickly as we can, but
having started late, I also need to say as well that we are
expecting another series of votes in 1 hour, so we will
probably enforce the 5-minute rule fairly strictly, and try to
move along with the testimony with the questions as quickly as
we can.
I will recognize myself for an opening statement. Today,
the Subcommittee returns to the gift that keeps on giving,
patent reform and the 109th Congress. We have devoted much time
and energy to this project. And I expect progress to continue.
In light of our ambitiousness and the competing interest
involved, perhaps it is not surprising that we haven't
eliminated all differences by now. I have announced a new round
of hearings for this spring with the intent of further
illuminating a need for reform and to nudge the process along.
That said, today's hearing addresses patent quality
enhancement.
While the Subcommittee has documented a steady increase in
application pendency and backlogs at the PTO in recent years,
the view among agency officials in the inventor community is
that efforts to address these problems should not take
precedent over improvement of patent quality. Patents of
questionable scope or validity waste valuable resources by
inviting third-party challenges and ultimately discourage
private sector investment.
At the front end of the system, we can do much to enhance
the quality of patents issued by ensuring that PTO is allowed
to keep all of the revenue it raises. While money isn't the
answer to all of life's problems, American inventors and the
public are best served by a fully-funded agency that can devote
sufficient sources to hiring outstanding examiners, retaining
experienced workers and modernizing PTO operations.
In addition, every patent reform draft reviewed by the
Committee this term has included a provision to allow third
party submission of prior art.
This will help examiners to determine whether the
inventions under review truly are new and nonobvious.
But no matter how diligent and thorough PTO examiners are,
there will also be some patents issued that prompt questions
about scope and validity. This is why the Subcommittee is also
committed to improving patent quality at the back end of the
system. This includes enacting improvements to the
underutilized PTO re-examination proceeding.
Significantly, the Subcommittee also is committed to the
creation of a post grant opposition system that will enable
parties to resolve patent disputes in an administrative
setting. In other words, concerns about patent quality can be
addressed more quickly and less expensively in such forum
compared to litigation in Federal Court.
The final comment on how we should examine quality, it is
self-evident that all persons and entities affected by the
operations of the U.S. System endorsed patent quality
enhancement in the abstract, however, actual patent practice
frequently involves the competing and conflicting interests of
different businesses and individuals.
For example, a software developer might endorse a specific
change to the current statutory treatment of injunctive relief
where damages computations set forth in title 35. The same
revisions would be opposed by a number of patent interests,
especially those in the biotechnology and the pharmaceutical
industries.
Different entities use the patent system in different ways,
depending on their respective business models. It is important
to acknowledge that dynamic when reviewing changes intended to
enhance patent quality. That concludes my remarks, and the
gentleman from California, Mr. Berman, is recognized for his.
Mr. Berman. Thank you, Mr. Chairman, I apologize for being
late.
I believe this may be the 6th hearing on patent reform in
this Congress. I want to start out by sincerely thanking the
Chairman for his hard work in highlighting the need for patent
reform in this Congress.
He brought together a large coalition of bipartisan Members
to support a patent reform bill and managed to almost achieve
consensus among the different party interests.
However, I must state that I wonder about the benefits of
pursuing further hearings on the identical issues we discussed
last year, if there are few new ideas being proposed and no
further clarity about which legislative approaches this
Subcommittee should follow regarding patent reform.
I am concerned that merely discussing the issue without any
movement on a legislative proposal will further entrench the
parties in their respective positions. The recent cases which
have been settled, NTP, BlackBerry, or have been granted cert
by the Supreme Court, eBay versus Merck exchange, demonstrate
that the time to address these issues is sooner rather than
later.
Past attempts at achieving more comprehensive patent reform
have been met with resistance. However, the call for
legislative action is loud.
The New York Times has noted ``something has gone very
wrong with the United States patent system.'' the Financial
Times has stated, ``it is time to restore the balance of power
in U.S. Patent law.'' therefore, today Congressman Boucher and
I have introduced a narrowly tailored patent quality bill to
address some of the more urgent concerns.
Once again, I firmly believe that robust patent protection
promotes innovation. However, I also believe that the patent
system is strongest and that incentives for innovation are
greatest when patents protect only those patents that are truly
inventive. When functioning properly, the patent system should
encourage and enable inventors to push the boundaries of
knowledge and possibility. If the patent system allows
questionable patents to issue and doesn't provide adequate
safeguards against patent abuses, the system may stifle
innovation and interfere with competitive market forces.
High patent quality is essential to continued innovation.
Litigation abuses, especially those which thrive on low quality
patents, impede the promotion of the progress of science and
the useful arts. Thus we must act quickly--I hope the 109th
Congress--to maintain the integrity of the patent system.
Thank you, Mr. Chairman.
Mr. Smith. Thank you, Mr. Berman. I am hoping other Members
will allow their opening statements will be made a part of the
record, but if not, the gentlewoman from California, Ms.
Lofgren is recognized.
Ms. Lofgren. I will be very brief. First, I want to thank
each of the witnesses for their really very excellent
testimony, which I have had a chance to read. You know, only a
few of us who follow these patent issues as closely as the
Members here do. I, however, participate in the debate on the
floor that is going on at the same time. So I have to apologize
in advance for leaving and I wanted to especially let the
witnesses know that I have read their testimony. I hope to be
back for questions and I thank the gentleman for having this
hearing.
Mr. Smith. Thank you, Ms. Lofgren. Before I introduce our
witnesses, would you please stand and be sworn in. Please raise
your right hand.
[Witnesses sworn.]
Mr. Smith. Thank you and please be seated. And we are
operating with a makeshift mike up here, which seems to have
some back noise here.
Let me introduce our witnesses and we will proceed. Our
first witness is Jon Dudas, Under Secretary of Commerce for
Intellectual Property and Director of the U.S. Patent and
Trademark Office. In his previous life, Director Dudas worked
for this Subcommittee. So we welcome him back.
He earned a bachelor's degree in finance summa cum laude
from Illinois and a law degree with honors from University of
Chicago.
Our next witness is Jim Balsillie, chairman and CEO of
Research In Motion, or RIM, the manufacturer of the BlackBerry,
which I have in my pocket. He is a graduate of the University
of Toronto, and the Harvard School of Business. A chartered
accountant, he also holds a doctorate from Wilfrid Laurier
University in Waterloo, Ontario.
Our next witness is Robert Stewart, director and chief
patent counsel of UBS AG in the Americas. Headquartered in
Switzerland, UBS AG is the world's largest wealth management
firm for private clients. Mr. Stewart's responsibilities
include intellectual property litigation, prosecution,
licensing mergers and acquisition and contractual matters for
UBS AG. He studied electrical engineering at Polytechnic
University located in Brooklyn, and earned his law degree from
Georgetown University.
Our final witness is Mark Lemley, the William H. Neukom
Professor of Law and director of the Program in Law, Science
and Technology at Stanford law School. In addition to his
teaching and writing, Professor Lemley is of counsel to the San
Francisco law firm of Keker and Van Nest. He earned his
undergraduate degree with distinction from Stanford University
and his law degree from University of California Berkeley.
Mr. Smith. Welcome to you all. We have your statements and
without objection, they will be made a part of the record. As I
mentioned we would like to try to stay in the 5-minute rule so
we can try to finish with our questions before the next series
of votes commences, and with that, Mr. Dudas, we will begin
with you.
TESTIMONY OF THE HONORABLE JON W. DUDAS, UNDER SECRETARY OF
COMMERCE FOR INTELLECTUAL PROPERTY AND DIRECTOR OF THE U.S.
PATENT AND TRADEMARK OFFICE
Mr. Dudas. Thank you. Mr. Chairman, Ranking Member Berman
and Members of the Subcommittee, thanks for holding this
important hearing on patent quality.
Every private property system requires certainty of
property rights and a fair method to adjudicate disputes. The
quality of patents is a fundamental element of establishing
certainty. The intellectual property system in the United
States is the envy of the world, and it is a shared
responsibility of the courts, the Congress, and the
Administration to ensure that the best system in the world gets
even better. With the activities in the Supreme Court and in
this Committee, it is clear this is a responsibility taken
quite seriously.
It is also a responsibility that the Administration takes
quite seriously, and we at the USPTO are proud of the progress
we have made. I have testified in the past that we would be
improving the way we hire, the way we train, the way we
promote, the way we reconfirm skill levels, the way we
emphasize quality throughout the examination process, and the
way we conduct our quality reviews.
We have, and I am happy to report that we have shown
measurable improvement in every quality goal I just mentioned.
That information is more specifically laid out in my written
testimony. But even with improved patent quality, what can you
do if you believe the USPTO has made a mistake? Congress, in
anticipating such concern, gave broad rights to all applicants
and literally everyone who is concerned about another's patent.
And these systems for challenging patents have improved as
well.
On any patent the USPTO issues, any person has a right to
request a reexamination of a patent that the USPTO has issued.
It can be requested at any time. And it can be requested on any
patent.
We have greatly improved this process by establishing a
central reexamination unit. And in doing so, we have
dramatically increased the thoroughness, consistency, the
quality and the timeliness of reexaminations. Where once it
could take more than 4 years to even see an action is brought
down to nearly 2 years in almost all cases. We believe we will
have all cases, most all cases done within 2 years, completed
within 2 years at the Patent and Trademark Office fairly soon.
So patent applicants, and those who wish to challenge
patents issued to others, have important and many options and
many responsibilities, and indeed rights. And as I have learned
working on important issues in this Committee for 5 years, with
every right is a responsibility. So, while most are quick to
remind policy makers of their rights, some are a bit more
hesitant to raise the issue of their responsibilities. But a
private property right system depends on the responsible
behavior of all, not just Congress, the courts and the
Administration, but every applicant and every entity interested
in other patents has responsibilities as well.
Every applicant has a duty to disclose all relevant
information and only relevant information. Some applicants give
us no relevant information and some give us reams and reams of
irrelevant or useless information, virtually burying that which
is important--in some cases, not in most. We also sometimes
receive multiple continuations, essentially do-overs after a
patent application has been rejected in an effort to wear down
an examiner who rejected it the first time, or in the hope that
another examiner will get the case and grant the patent.
There are many legitimate uses for continuation as well,
but we want to address this behavior.
Applications with inordinate numbers of claims are also a
problem. All these are choices that some applicants make,
choices that degrade the quality of the patent process and the
patents issued. The USPTO has proposed rules to address some of
these issues and we are considering other proposed rules to
address the rest.
There are many things we need to do at the Patent and
Trademark Office, and there are many things we need to do
throughout our system. But I'd like to take off on the theme
that the Chairman and Ranking Member pointed out. I think
everyone involved has a responsibility to promote sound
proposals that will improve patent quality, even if it means
they will not get everything they want immediately.
There are two proposals pending before this Subcommittee
that are widely supported throughout the intellectual property
community that I think will directly and dramatically improve
patent quality. I think we should all support public
participation of prior art submissions and post grant
opposition. There is plenty of opportunity to work in good
faith to resolve the many remaining issues that are more
controversial.
But we may be able to make a real difference now. And we
may need to get those provisions enacted now. Both provisions
allow everyone to better exercise both their rights and their
responsibilities.
Public prior art submissions allow anyone to give the USPTO
information believed to help with the quality examination. Post
grant opposition allows anyone to challenge an issued patent in
the most effective and most efficient manner. We have to
approach it with the right balance but philosophically these
are largely supported by nearly everyone in the intellectual
property community.
I look forward to working with the Subcommittee on these
provisions. I look forward to working with the Subcommittee to
swiftly resolve the many other important issues we face. I am
honored to be here and I look forward to answering all your
questions.
Mr. Smith. Thank you, Mr. Dudas.
[The prepared statement of Mr. Dudas follows:]
Prepared Statement of the Honorable Jon W. Dudas
Mr. Smith. Mr. Balsillie.
TESTIMONY OF JAMES BALSILLIE, CHAIRMAN AND CO-CHIEF EXECUTIVE
OFFICER, RESEARCH IN MOTION
Mr. Balsillie. Thank you very much. Chairman Smith, Ranking
Member Berman, and Members of the Subcommittee. My name is Jim
Balsillie, and I am chairman and co-chief CEO of Research In
Motion. I am pleased to appear here before you to speak on the
issue of patent quality in the context of RIM's experience in
the U.S. Patent system.
RIM is the leading developer for innovative wireless
solutions for the worldwide mobile communications market. RIM's
BlackBerry products and services are used by tens of thousands
of corporate and Government organizations around the world. Our
largest market is United States, which accounts for more than
half of RIM's revenues. And our biggest customer is the U.S.
Federal Government.
RIM is proud to serve the Department of Defense, the
Department of Homeland Security, and the U.S. Congress, just to
name a few of our valued Federal customers.
As the Members of the Subcommittee are aware, last month,
RIM paid over $612 million to settle a patent lawsuit brought
about by a patent holding company NTP. Despite the fact that
the Patent Office had rejected all of NTP's patents, and it was
very likely to declare these patents invalid, RIM was forced to
pay one of the largest settlements in U.S. History in order to
end the uncertainty caused by the lawsuit.
By appearing before you today, it is my hope that we are
helping to advance patent law reform. The NTP case raises many
questions, but there are a few that are particularly relevant
to the scope of this hearing.
First, and perhaps most puzzling for those who follow the
NTP case, it is the role of the Patent Office versus the
courts, particularly in the context of the reexamination
process. In our case, our all of the five asserted NTP patents
were completely rejected by the PTO in multiple office actions
upon reexamination. At the time of the hearing on the
injunction on February 24th, two of the three patents remaining
had final office actions issued that rejected all of the claims
on at least 3 grounds each.
The remaining patent had all of its claims rejected as
unpatentable on at least four grounds, including a
determination that RIM had invented what NTP was trying to
claim for itself.
Even with these patent office rulings, the District Court
judge appeared unmoved, and his comments during the proceedings
suggested that he viewed the Patent Office rulings as
irrelevant to his decision.
A recent article in Newsweek Magazine that compared the NTP
case to a judge in a murder case pondering execution while
ignoring new DNA evidence that exonerates the accused. Congress
should, at a minimum, provide industry with certainty as to the
relevance of reexamination proceedings.
Second, it is generally agreed that the Patent Office does
not have the resources it needs to effectively review more than
300,000 applications it receives each year. Consequently,
concerns have been raised about the length of time it takes to
process a patent application and the quality of patents that
ultimately issue. The Patent Office has introduced two proposed
changes to address these concerns. The first attempts to limit
the number of claims in a patent. The average number of claims
in a patent is 22.
In the NTP case, NTP's eight patents had an average of 240
claims each, with one having 655 claims. The NTP patent with
655 claims was initially issued by the Patent Office without a
single documented office action.
The second proposed change attempts to place some
restrictions on continuation practice. Eight of the nine claims
ultimately issued to NTP were continuations filed more than 8--
more than 7 years after the initial NTP patent was filed. The
Patent Office concluded that six of the nine claims were based
on RIM's own technology.
NTP was able to aggressively use the continuation process
to copy RIM's ideas and seek an injunction that would prevent
RIM from practicing what it invented. We think the facts in our
case support the need for reform in these areas.
Third, there is the matter of when an injunction is the
proper remedy for patent infringement. We understand and
appreciate the concerns that the pharmaceutical biotechnology
and some independent vendors have expressed about changes to
this standard. However, we firmly believe that the concerns
raised by the technology sector can and should be addressed
without harming others.
We want to help Congress work with all others interested in
improving the patent process so no other company in any
industry experiences what RIM endured.
Making technology products available to the public requires
an aggregation of hundreds of different ideas in the
development of products.
In our case, the District Court was prepared to provide an
injunction against us, our partners and customers, even though
NTP had publicly acknowledged that they desired a monetary
solution and that the threat of an injunction increased their
leverage for a higher payout.
Congress has directed courts on how to apply injunctive
relief in section 283. At a minimum, it should not allow judges
to undermine standards established in the law by this body.
This would dramatically reduce the daily Russian Roulette that
patent assertion companies are playing on the whole U.S. Tech
and telecom system, which is currently condoned.
Further enabling a patentee to obtain compensation for a
patent that far exceeds the value of the patent invention
cannot help but impact the economic and social benefits that
the patent system was introduced to achieve and may well deter
rather than promote innovation.
We hope that Congress will keep these serious risks and
costs in mind as it goes forward with Patent law reform. Mr.
Chairman, thank you again for the opportunity to appear before
you today. I will be pleased to take any questions you may
have.
Mr. Smith. Thank you, Mr. Balsillie.
[The prepared statement of Mr. Balsillie follows:]
Prepared Statement of James Balsillie
introduction
Chairman Smith, Ranking Member Berman and Members of the
Subcommittee, my name is Jim Balsillie and I am Chairman and Co-Chief
Executive Officer of Research In Motion. I am pleased to appear before
you today to speak on the issue of ``Patent Quality,'' and am grateful
for the opportunity to share with you RIM's experience with the United
States patent system.
Research In Motion (RIM) was founded in 1984 and is a leading
developer of innovative wireless solutions for the worldwide mobile
communications market. Through the development of integrated hardware,
software and services that support multiple wireless network standards,
RIM provides platforms and solutions for seamless access to time-
sensitive information including email, phone, Internet and intranet-
based applications. RIM's award-winning BlackBerry products and
services are used by tens of thousands of corporate and government
organizations around the world.
RIM technology also enables a broad array of third party developers
and manufacturers to enhance their products and services with wireless
connectivity to data. RIM operates offices in North America, Europe and
Asia Pacific and has approximately 5 million subscribers in over sixty
countries. Our largest market is the United States, which accounts for
more than half of RIM's revenues. Our biggest customer in the United
States is the federal government. RIM is proud to serve the Department
of Defense, the Department of Homeland Security and the U.S. Congress,
just to name a few of our valued federal customers.
As the Members of the Subcommittee are certainly aware, last month
RIM paid $612.5 million to settle a patent lawsuit brought by patent
holding company, NTP. Despite clear evidence that the Patent Office had
rejected the NTP patents and was very likely to declare these patents
invalid, RIM was effectively forced to pay one of the largest
settlements in U.S. history in order to end NTP's highly publicized
threats and the associated uncertainty felt by RIM's U.S. partners and
customers.
Underlying virtually every debate about patent laws are two
distinct views of the nature of patents. Simply put, are patents an
absolute property right, or a property right that must be construed in
the context of its Constitutional objectives?
The latter point of view is not new. The Supreme Court in Graham v
John Deere Co. reiterated Thomas Jefferson's conclusion that the
primary objective of intellectual property is to promote the Country's
social and economic benefits and not to protect inventors' so-called
``natural rights.'' In other words, patent rights are granted as a
means to an end, and not the end itself. If the patent right is
asserted in a manner that does not promote social and economic benefit,
then it has become unmoored from its Constitutional foundation.
Many, however, are of the view that, because the Patent Act grants
the `right to exclude,' in order to give effect to this right,
patentees must have virtually automatic injunctive relief for a breach
of their rights. Those that hold this view also generally believe that
patentees ought to be free to seek whatever compensation they are able
to extract for their invention--even if that compensation bears no
correlation to the value afforded by the invention in their patent.
In the end, Congress must choose which characterization of patent
rights better reflects its objectives for patent law and the
Constitutional mandate that granted patent rights must promote the
useful arts. If nothing else, RIM's experience in the NTP case
demonstrates that there are significant undesirable social and economic
costs contrary to promoting the useful Arts when patents are treated as
an absolute property right. We hope that Congress will consider these
costs carefully in deciding which is the appropriate characterization
of patent rights.
We understand and appreciate the concerns that Pharmaceutical,
biotechnology and some independent inventors have expressed regarding
changes to patent laws. We continue to firmly believe, however, that
the concerns raised by the technology sector can be addressed without
harming these other sectors. By appearing before you today, it is my
sincere hope that we are helping to advance meaningful patent law
reform, thus helping to assure that no other company experiences what
RIM endured over the past five years. I believe that RIM's experience
will prove instructive for all who care about innovation,
competitiveness and free enterprise.
role of the u.s. patent and trademark office
The NTP case raises many questions, but there are a couple that are
particularly relevant to the scope of this hearing. We should first
ask: ``What is the role of the U.S. Patent and Trademark Office (PTO)
in the patent system and how can the quality of patents be improved?''
reexamination proceedings
Perhaps the most puzzling thing for those who followed the NTP case
is the role of the patent reexamination process in pending litigation.
If the patent system is to function properly, policymakers must clearly
define what role the reexamination of patents should play in the patent
system and what impact they should have on any court proceeding.
The Patent Office has realistically acknowledged that, with 300,000
applications per year, mistakes are inevitable and the easiest way to
deal with this problem in the short term is to focus their limited
resources on improving the processes to reexamine patents after they
have issued. While historically the Patent Office reexamination process
has been criticized, in 2005, the Patent Office established an elite
group of examiners to complete reexaminations with the `special
dispatch' required by Statute and its own procedures. According to
these procedures, priority is to be given to patents that are in
litigation.
RIM commends the Patent Office for implementing these much needed
changes in the reexamination process. However, in our case, this
initiative came too late. If these new procedures and commitment to
special dispatch had been implemented earlier, the first office actions
for the reexaminations, which began in December 2002, would have issued
by April 2003, several months before the district court ruled on NTP's
first injunction request. Instead, the first office actions did not
start to issue until March of 2005.
All of the five asserted NTP patents were completely rejected by
the PTO in multiple Office Actions upon reexamination. At the time of
the hearing on the injunction on February 24 of this year, two of the
three patents remaining in suit had final office actions issued that
rejected all of the claims on at least three grounds each. The
remaining patent is in inter partes reexamination in which an action
closing prosecution (substantially the same as a final office action in
the ex parte reexams) had issued rejecting all claims in the '592
patent on at least four grounds each, including anticipation of each
claim by RIM's own technology--i.e., a determination that RIM invented
what NTP was trying to claim for itself.
Even with the Patent Office issuing these rulings, the District
Court hearing the case was unmoved. Although the Court did not formally
enter a ruling at that time, the Judge's comments during the
proceedings emphatically suggested that he viewed the final office
actions as irrelevant to his decision--in spite of the fact that (1)
the liability ruling on which injunctive relief would be granted was
based on deference given during trial to the Patent Office's expertise
in initially granting the patents, (2) the PTO specifically indicated
in its office actions during reexam that it was seeking to address the
concerns raised by the Court about reexamination timing, and (3)
several patent practitioners have noted the exceptional quality of
these office actions (as compared to the original examination to which
deference was given at trial even though no substantive examination was
apparent). Countless media articles commented on the Court's
indifference to the PTO's rejections, including a recent article in
Newsweek magazine that compared the NTP case to a judge in a murder
case pondering execution while ignoring new DNA evidence.
As this Subcommittee contemplates patent reform, RIM respectfully
suggests that this circumstance should be addressed and that clarity be
given as to the relevance of reexamination proceedings, possibly by
providing formal guidance to the courts on what deference to give the
Patent Office's reexamination proceedings during its different stages
as the Court weighs the procedural options in litigation (e.g., stay
the litigation or limit injunctive relief pending the outcome of the
reexamination).
grant of patents
It is generally agreed that the Patent Office does not have the
resources it needs to effectively review the more than 300,000
applications it receives each year. Concerns have been raised both
about the length of time it takes to process a patent application, and
the quality of patents that ultimately issue, (e.g. broad and vague
specifications, broad and inconsistent claim language, `obviousness' of
claimed inventions, patents seeking to claim technology that already
exists in the public domain, etc.).
Few would contest that the Patent Office is overburdened. Last
year, Patent Commissioner John Doll was reported saying, ``When you've
got 1.3 million cases in backlog, and it's taking [four to six] years
to take a first office action, you've got to ask the question: Is the
patent system still actually working, or are we just stamping numbers
on the applications as they come through?''
Commissioner Doll is not alone. In a survey by the Intellectual
Property Owners Association of the nation's top patent lawyers, over
half rated the quality of patents issued in the U.S. today as less than
satisfactory or poor. Unless the Patent Office gets more resources,
including additional qualified examiners, and is able to reduce the
demands on its existing resources, the future may not be much better.
According to the survey, over two-thirds of respondents said they
thought the patent process would get longer, not shorter, over the next
three years. And nearly three-quarters said they thought they would be
spending more time, not less, on patent litigation over the coming
years.
limitation on number of claims
One of the ways to reduce the demands on the Patent Office's
existing resources is to deter patentees from filing excessive numbers
of claims in a patent. Why is the number of claims important? The
Patent Office's recent figures suggest that the average number of
claims in a patent is twenty-two. However, a small number of patentees
file patents with many times this number of claims. For example, in the
NTP case, NTP's eight patents had an average of 240 claims each, with
one having 665 claims!
Patents with an excessive number of claims put a huge burden on the
process and can compromise the quality of the patents issued. The
analysis required to ensure that the language in a patent claim is
unambiguous, properly disclosed in the patent, and not claiming known
technology that is already in the public domain, is by its nature a
time-consuming one. Our understanding is that with the huge volume of
patent applications, examiners' performance is assessed based on
``counts'' allotted to them when specified activities are completed.
They receive the same number of ``counts'' for allowing a patent,
regardless of the number of claims in that patent. Therefore, a patent
with an excessively large number of claims may receive less scrutiny
per claim and thus be more likely to issue without the substantive
examination required to ensure high quality patents.
In our case, an NTP patent with 665 claims issued without a single
documented office action. The prosecution history consists solely of
references to undocumented meetings with the applicants. Indeed,
Qualcomm noted in its request for a director-initiated reexamination of
the NTP patents, ``[w]e understand that the U.S. Examiner allowed over
1690 claims in five U.S. Patents...without ever issuing an action on
the merits, with the exception of one double-patenting-only rejection
on the '172 patent.''
Excessive claims also result in considerable expense for parties
defending actions by patent holders. Patent assertion companies may
send letters to a large number of industry participants ``suggesting''
the desirability of a license, as NTP did to 47 companies, including
RIM. The cost of a legal opinion as to the infringement/validity of
claims increases with the number of claims. Further, the litigation
cost and burden on the defendant of preparing a defense in court
increases with the number of claims. For example, NTP sued RIM under
all of its claims--over 1,900 in eight patents. Even though NTP
ultimately reduced this number to 16 claims in five patents shortly
before trial, the strain posed by the initial large number of claims
had NTP's desired effect of prejudicing RIM's ability to fully and
fairly defend itself in the fast-paced litigation of the so-called
``Rocket Docket.''
The Patent Office recently has proposed rules changes to limit the
initial review of a patent application to ten claims (which would
generally include all independent claims) unless the applicant prepares
an ``examination support document'' to reduce the workload of the
examiner with respect to additional claims. RIM understands the Patent
Office is encountering resistance to its proposed changes from the
patent prosecution bar, but nonetheless encourages Congress to support
the Patent Office's endeavors to address this problem.
limit continuations
Another issue of patent quality relates to the ability of patent
holders to file multiple continuation applications during the life of
the patent. In the aftermath of the NTP litigation, we have to ask if
the ability to file continuations in this manner is consistent with the
objectives of progressing innovation.
Why are continuations an issue? While there are bona fide reasons
to file a continuation, patentees can (and do) use continuations to
gain a monopoly over later innovations that they never envisioned. In
particular, a continuation enables a patentee to draft new claims based
on what it has learned about the products of others, years after the
patentee initially filed its patent. Giving a patentee the ability to
draft claims that copy the independently developed technology of
another company--claims the patentee otherwise would not have thought
of--and then use those copied claims to shut down or hold-up that
company is contrary to the most basic principles of fairness, and to
the Constitutional mandate that patents must promote innovation.
In the case of NTP's suit, four of the five patents asserted at
trial were continuations. After RIM's success on appeal, there were
nine claims in three patents left at issue in the suit, all but one
were from continuations. Six of these claims were in the '592 patent,
which was a continuation filed more than eight years after NTP's first
patent application. NTP filed the '592 patent application six months
after RIM launched the BlackBerry solution, and NTP sued RIM on that
patent the day after it issued. NTP plainly crafted the '592 patent
claims to specifically cover what RIM already had independently
developed. Indeed, in the reexamination of the '592 patent, the Patent
Office determined that RIM--not NTP--was the first to invent what NTP
claimed in its '592 Patent. Thus while RIM never copied the inventions
in the NTP patents, NTP was able to aggressively use the current
continuation process to copy RIM's ideas and seek an injunction that
would prevent RIM from practicing what RIM invented.
Shortly after commencing its lawsuit, NTP refused RIM's request to
explain precisely why it thought RIM infringed NTP's patents. NTP
indicated that it did not matter whether or not RIM would be found to
infringe in the initial trial, because NTP would simply draft another
continuation based on what it learned at trial and sue RIM again. In
fact, NTP even attempted to add over 32,000 claims in its reexamined
patents, including claims intended to cover a design that RIM had
confidentially disclosed to NTP.
The Patent Office is proposing restrictions on continuation
practice by requiring a patentee to explain why the claims sought in a
second or subsequent continuation could not have been included in the
original application or first continuation. RIM understands that these
proposals are being resisted by the patent prosecution bar for a
variety of reasons, some of which reflect valid concerns and a need for
further clarification by the Patent Office, (for example the potential
impact on existing patents drafted with a view to the continued
availability of continuations, and the impact on divisional practice)
and others that may simply reflect an interest in resisting any limit
on the service they provide for their clients. RIM encourages Congress
to support the Patent Office achieving reform in this area.
remedies for patentees
A second key question raised by the NTP case is: ``Should there be
limitations placed on the compensation available to patentees?'' In
order to ensure that the costs associated with patents do not outweigh
the social and economic benefits afforded by them, restrictions must be
in place to ensure that the compensation for a patent bears some
reasonable relation to the actual value of the invention in that
patent. Bringing a single wireless technology product to market and
into the public hands is very risky and involves a myriad of complex
technologies--e.g., display screen technology, RF technology,
application software, etc. Such products typically involve hundreds of
inventions as well as the development, production and distribution of
hardware and software components. If there are no limits on the
compensation each patentee can seek for each of the hundreds of
inventions in those products, there may not be sufficient remaining
resources to bring the product to market--or even to compensate other
patentees. In the NTP case, the Federal Circuit concluded that the
patented invention in the NTP patents was the integration of an
existing email system with a wireless system.
The patents left it to RIM and others to design and build a two way
handheld with desktop computer-like processing power, handheld email
applications and operating system software, battery management systems,
encryption software, special keyboards, communication protocols across
the email and wireless system, redirector software and a relay
infrastructure to route data between the email system and the wireless
network--as well of course as the pre-existing email system and
wireless network. In other words, the NTP patents did not come close to
disclosing what is required to place in the hands of the public an
actual, commercially viable and useful product. Inventor's rights are
important. But if the ultimate objective is to put technology into the
hands of the public at a reasonable price, no single patentee should be
able to demand compensation that far exceeds the value of its actual
and specific contribution to the ultimate product or system.
Although some may ask ``why can't we let the marketplace take care
of the problem'', the reality is that the current law on injunctions
effectively gives patentees a gun, and the availability of a gun to one
party in negotiations tends to skew the results that would otherwise
naturally occur in the marketplace. Patentees are effectively able to
use the Courts as a weapon to extort settlement amounts far greater
than the reasonable market value of their patents.
injunctive relief
As was widely reported during the course of the NTP litigation, and
especially in the last six months, RIM faced the very real possibility
of an injunction being imposed by the District Court by patents
asserted by a patent assertion company.1 NTP further leveraged this
threat against RIM by hiring a public relations firm to instill fear
amongst RIM's customers and shareholders by way of a publicity
campaign, effectively threatening millions of American customers in
order to put additional pressure on a public company to capitulate to
excessive demands. Even with a solid workaround design, the uncertainty
inherent in a threat of an injunction created some disruption of our
business. An injunction was not warranted in the NTP case, and the
possibility that an injunction was available in such circumstances
demonstrates the need for reform. These circumstances include not only
those discussed in this section, but the Patent Office reexaminations
described earlier, in which the Patent Office had fully and finally
rejected all the remaining claims in suit as unpatentable at the time
of the hearing in the District Court in February 2006.
In the general case, injunctive relief for patent infringement 1)
should not be virtually automatic, and 2) should not be made available
where the patentee has clearly acknowledged it is seeking monetary
compensation and is using the injunctive remedy as leverage solely to
obtain money in excess of market value. Although there is a clear need
to ensure that small inventors can receive reasonable compensation in a
timely manner for their patents, these objectives can be accomplished
without a virtually automatic injunction.
Remedies, as opposed to rights, are typically tailored to the
individual circumstances. Injunctions are viewed as extraordinary
remedies in other areas of the law and are generally only available
upon a demonstration of the inadequacy of money as a remedy--i.e. where
the nature of the harm caused to the injured party is such that it
cannot be compensated for with money. Even though in Section 283 of the
Patent Act Congress appears to have applied the same traditional four
part test for the availability of injunctive relief as applies in other
areas of the law, the courts appear to ignore this Congressional
mandate by creating an attenuated version of the test for patent cases.
It is easy to see how in many instances damages would not be an
adequate remedy in a patent case, but this should not make it an
essentially irrebutable presumption. Where a patentee's business
depends on excluding others from using its invention, money would
probably not be an adequate remedy. However, an entity whose business
is granting non-exclusive licenses has by its nature relied on a
business model built on an inclusive, rather than exclusive, use of the
technology by others. Such a patentee has no bona fide need to exclude
and can be adequately compensated with money. And to be clear, we are
not suggesting that such a patentee does not get any remedy. The issue
is not whether they get a remedy, but what is the appropriate remedy.
In such cases, the proper remedy is monetary relief rather than
injunctive.
Some argue that this impacts a patentee's ability to choose its
licensees. The reality is that once a patentee has made the decision to
grant a non-exclusive license, as opposed to an exclusive one, a
patentee is not generally selective about its licensees. Unlike
copyright or trade marks, patents tend to cover broad ideas (rather
than narrow implementations), and the quality of the implementation of
a broad patented idea would rarely reflect negatively on the patentee.
Certainly, it would be unusual to find a patent assertion company that
was selective about its licensees. The standard non-exclusive licensing
business model in our industry is simple--maximize revenue by
maximizing the number of licensees. A monetary award, rather than
injunctive relief, should not impact on the patentee's ability to
acquire other licensees. Indeed, because courts can award enhanced
damages and must award at least a reasonable royalty, it is difficult
to see how it could promote innovation by enabling a patentee that is
not engaged in putting technology into the public's hands to shut down
one that is, solely to enable the patentee to extort more than a
reasonable royalty. The argument frequently heard that patentees need
an injunction to avoid courts imposing their views of a reasonable
royalty is specious. Courts award damages in every other area of law,
and injunctions in those areas are not issued as a matter of course
simply because the litigant might have a different view as to the
appropriate amount of the award.
One final point on injunctive relief: even if Congress concludes
that damages are an inadequate remedy for patentees engaged in the
business of granting non-exclusive licensees generally, injunctions
should not be generally available to patent assertion companies. The
activities of patent assertion companies are inherently at odds with
the objectives of patent law. If every patentee decided to avoid the
costs and risk inherent in going into business and instead waited for
someone else to come up with the same idea and implement it and then
charge the second company to stay in business--the costs of the patent
system would soon outweigh its benefits. The patent assertion model is
not the business model of independent inventors and universities
seeking to introduce new technology to the market by licensing their
technology to third parties for its commercialization. The patent
assertion business model requires that the invention already be in the
marketplace, else there is literally no one for them to assert the
patents against. This business model effectively results in consumers
paying twice for innovation--first for the real and substantial
independent research and development costs incurred by the alleged
infringer and second for the royalties paid to the patentee so that the
alleged infringer can use that independently developed technology.
There are additional economic costs because the royalties paid by the
alleged infringer are not available for research and development or
investment in capital infrastructure that might bring prices down.
These costs can be significant and may even threaten the ongoing
availability of a product or viability of a company, as there is no
limit on the amount that the patentee can seek in compensation for the
use of its patent--and no incentive for the patentee to limit its
demands to an amount reflecting the value of its invention. Congress
should take steps to ensure that Courts properly apply the traditional
test for injunctive relief in patent cases it mandated in Section 283,
and do so in light of the specific Constitutional objective that
patents must promote the useful arts.
willfulness
A finding of willful infringement entitles a patentee to an award
of up to treble damages. The standards by which willful infringement is
established must also be considered. Does it further the Constitutional
objectives of the patent system to place the entire burden of
determining whether there is an infringement of a patent on an alleged
infringer, as is currently the case? Recent case law suggests that a
patentee need only provide notice of a patent to a defendant to
establish willful infringement. Under recent case law, patentees
apparently are not required to make a clear claim of infringement, or
to support their allegations of infringement in order to successfully
allege willful infringement. This means that, with the cost of the
stamp to deliver a vague letter mentioning its patents to a company,
patentees can impose on that company costs easily exceeding tens of
thousands of dollars to acquire legal opinions as to the validity and
infringement of any patents provided. The patentee does not have to
lift a finger to determine whether there is infringement, yet they can
impose substantial costs on a targeted defendant to seek legal opinions
that meet the rigorous requirements that case law requires for those
opinions to be deemed competent.
In the NTP case, NTP mass-mailed letters to 47 companies, including
RIM in January 2000. RIM responded with a letter to NTP asking for
additional information about its patents. NTP claims never to have
received the letter, and made no further effort to contact RIM until
NTP filed suit. Nonetheless, RIM was found liable for willful
infringement based on what RIM did or did not do after receiving NTP's
letter. The fact that the patent owner took no interest and forwarded
no claim charts or otherwise showed there was an infringement simply
did not matter. A recent case in the Court of Appeals for the Federal
Circuit further suggests that, even if NTP had acknowledged receipt of
RIM's letter, it would have no obligation to respond to inquiries or to
provide support for its claims of infringement in order for it to
obtain enhanced damages for willfulness. Thus, even though a patent
owner does not deem the potential infringement worthy of investing time
and money to do a proper infringement analysis and may never even bring
a claim of infringement, the targeted defendant must do so or risk
treble damages and the brand of ``willful infringer.''
To illustrate the economic costs inherent in this bias towards
patentees, one need only consider the NTP case. With 1920 claims in the
NTP patents, each of the 47 companies would likely have to spend at
least $200,000 for a legal opinion of invalidity and/or non-
infringement. Thus, for about $19 in postage, a single patentee like
NTP can require 47 companies to divert over $9 million from other
industry endeavors to obtain legal opinions regarding NTP's patents.
Although it is currently rare for that many claims to be asserted, it
is common for companies to receive dozens of such letters each year and
to spend several hundreds of thousands or more each year on external
legal opinions alone (not including the salaries and overhead for those
that deal with these issues).
It seems outrageous that companies must invest this sort of money
in formal legal opinions as a result of vaguely crafted patent notice
letters where the patentee has determined it is not worth its time or
money to provide even a basic explanation as to why there may be
infringement.
relation of compensation to value of patented invention
Without any restriction on the amount of compensation a patentee is
entitled to for its patented invention, there are a number of
circumstances in which, rather than promoting the useful Arts, patents
can result in a reduction in the technology available to consumers or
at least a significant increase in its price.
One such instance is where the royalty rate for a particular patent
fails to take into account that a single product requires patent
licenses with multiple technology companies covering hundreds of
patents. For example, the royalty rate determined by the jury at trial
in the NTP case was 5.7% of the gross revenue on RIM's handsets,
software and services. Considered in isolation 5.7% may not seem an
onerous royalty. However, were each of our existing patent licensors to
be entitled to this same 5.7%, neither RIM nor any other technology
company could afford to bring the product to market.
Similarly, significant economic and social costs can result from
permitting a patentee to recover damages not only on the revenue of a
party supplying products that directly or indirectly infringe a patent,
but also on bona fide third party products or services used in
combination with these products where those third party products or
services would not themselves directly or contributorily infringe the
patents. For example, there is a growing tendency for patentees with
patents covering, for example, a small component of a handheld or a
handheld software application, to seek royalties based not only on
revenue generated by the handheld manufacturer's products, but on
carrier network service revenue as well. These types of patents likely
add no innovation to the wireless carrier network, which essentially
acts as a pipe to deliver data from the handheld. The carrier's
business model requires it to make services available to a wide range
of products with no real depth of technical knowledge about these
products. If in fact the handheld component or software application
does infringe a patent, in these circumstances the carrier might well
look to the supplier to indemnify it for any resulting damages. If
those damages are calculated based upon not only the manufacturer's
revenue, but the revenue from carriers' services as well, the
manufacturer may be required to pay damages on money it has never
received, and the total damages may exceed its total revenue for the
infringing product. This is not only inconsistent with industry patent
licensing practices; it simply is not economically feasible.
A patent system that affords patentees ready access to compensation
reflecting the value of their patents would seem better suited to
achieve both protection for the patentee and the promotion of the
useful Arts. RIM encourages Congress to provide guidance to the Courts
and certainty to industry to achieve this end.
conclusion
Mr. Chairman, thank you again for the opportunity to appear before
you today. I hope that my testimony has been helpful to you and Members
of the Subcommittee as you consider reforms to the patent U.S. patent
system. If I can be of any further assistance to you with this very
important work, I am at your service. I will be pleased to take any
questions you may have.
1 A patent assertion company is an entity whose primary business is
enforcing its patent portfolio against technology companies that have
independently researched, developed and commercialized similar
technology. Such patent assertion companies typically do not practice
the patented technology at all, but merely expend their energies in
drafting claims in their pending continuation patent applications to
claim for themselves successful products independently developed by
others. Their business model is very different from that of independent
inventors and universities that work to place in the hands of the
public products that are not already in the marketplace by partnering
with industry to commercialize their patented inventions, typically
providing substantial know-how to implement their invention and related
technology.
Mr. Smith. Mr. Stewart.
TESTIMONY OF ROBERT A. STEWART, DIRECTOR AND CHIEF PATENT
COUNSEL OF AMERICAS, UBS AG
Mr. Stewart. Thank you. Chairman Smith and Ranking Member
Berman. My name is Robert Stewart, and I am the chief patent
counsel for UBS AG in the Americas. I am pleased to testify
today on behalf of the Financial Services Roundtable and BITS,
which are affiliated financial services trade associations. The
Financial Services Roundtable represents over 100 of the
largest diversified financial institutions who account directly
for millions of jobs. The Financial Services Roundtable would
like to commend Chairman Smith and the rest of the Subcommittee
for their time and effort in an attempt to strengthen the
quality of the U.S. Patent system, and encourage innovation
without discouraging economic activity.
In particular, I would like to commend Congressman Berman
for the introduction of his thoughtful bill today.
As you know, the financial services community is intensely
interested in patent quality and litigation issues, and is
grateful for you for considering these matters.
It is perhaps too easy and convenient to place the entire
burden for patent quality on the staff of the U.S. Patent and
Trademark Office, who I will refer to as the PTO.
We believe that Director Dudas and his staff continue to
overcome the challenges facing the PTO, including reducing the
backlog of pending applications. However, the fact remains that
over 800,000 applications are pending in PTO and examiners
aren't able to spend enough time to provide meaningful
examination. As a result, patent quality has suffered and
patents of dubious quality threaten to destruct lawful economic
activity. Patent quality can be improved by improving the
disclosure of relevant prior art, improving the quality of
district court decisions, and the inclusion of an effective
post grant opposition proceeding, and we mustn't forget
litigation reform measures.
We can improve the disclosure by ensuring that relevant art
is disclosed in a meaningful way to examiners that are pressed
for time. Any examination by the PTO is only as reliable as the
information that the examiner is readily able to apply to the
claims under review.
And in furtherance of this goal, we are quite pleased that
H.R. 2795 has a third party submission procedure which will
allow for more effective disclosure of relevant prior art to
the examiners at the PTO.
Also, Congress should adopt an interlocutory appeal of
claim interpretation. The Federal circuit frequently overturns
claim interpretations, and as you may be familiar with Kimberly
Moore's work, 35 percent of District Court claim
interpretations were overturned between 1996 and 2003. The
inconsistent claim interpretations between the District Court
and the Federal Court are representative of the U.S. Patent
system's wasteful use of limited judicial resources.
So to further improve the efficiency of the judicial
resources, an interlocutory appeal to the Federal circuit
should be permitted after a Markman hearing, where the claims
are interpreted by the District Court. This new procedure will
help mitigate the judicial inefficiency that occurs when a full
trial is conducted based on an incorrect interpretation of the
patent.
In addition, Congress should support specialized patent
courts. Many District Court judges have no special or technical
patent expertise, and have never been admitted to practice
before the U.S. Patent and Trademark Office, whereas patent
attorneys hold technical degrees and pass a special patent bar.
Therefore, we encourage preferential venue in the 10 District
Courts that currently handle the most patent matters and
professor Moore has also been very instructive on this
particular matter as well.
We also strongly support the establishment of a post-grant
opposition proceeding with a second window that will allow
anyone who is threatened with a patent infringement action to
follow a request for an opposition proceeding within 6 months
after receiving notice. Without the 6-month window, many
organizations may not expend the resources necessary to
invalidate a patent in an opposition proceeding.
The second window could be subject to a clear and
convincing standard of proof.
As for litigation reform, the patent quality problem cited
above make the need for litigation reform all the more
compelling. Congress can and should provide financed firms and
other businesses with the additional safeguards against
frivolous claims without impairing the important protections
afforded to intellectual property. As owners of intellectual
property, we have as much interest as anyone in protecting true
innovation that benefits society has a whole.
Specifically, Congress should clarify the damages role with
respect to willfulness and apportionment, limit venues to the
place of incorporation, expand the scope of prior user rights
beyond business methods, and modify the standard for injunctive
relief.
In conclusion, the Financial Services Roundtable is a
strong believer in the U.S. Patent process as fundamental to a
healthy U.S. Economy.
Given the importance of the patent process, the PTO should
be fully funded without fee diversion and given adequate
resources to perform its duties. At the same time, it is not
enough for the PTO to turn out patents in greater quantity if
those patents are not of the highest quality.
I know that Director Dudas shares this view, and we
appreciate his dedication to patent quality issues. Moreover,
because of increases in frivolous claims of patent
infringement, we encourage you to continue your focus on
appropriate defenses and other tools for litigation risk
management. We look forward to participating further as you
develop and move legislation to improve the patent laws. Thank
you.
Mr. Smith. Thank you, Mr. Stewart.
[The prepared statement of Mr. Stewart follows:]
Prepared Statement of Robert A. Stewart
Mr. Smith. Professor Lemley.
TESTIMONY OF MARK A. LEMLEY, WILLIAM H. NEUKOM PROFESSOR OF
LAW, STANFORD LAW SCHOOL
Mr. Lemley. Thank you, Mr. Chairman. I think everybody can
agree there are bad patents out there. The Patent Office, I
think, is doing more and more to try to solve the problem and
try to weed out the bad patents. But the reality of the
situation is we are never going to find them all. And it's
probably not even cost effective to find them all in the Patent
Office, because somewhere between 90, 95 percent of patents,
once they are issued from the Patent Office, are never heard
from again.
Instead, it seems to me if our focus is patent quality
enhancement, what we need to do is try to find the patents that
matter, weed out the bad patents that actually matter that are
going to affect people later in life.
One way to do that is post grant opposition. And endorse
both the H.R. 2795 and the Berman-Boucher bill that proposed
post grant opposition system. Though, in fact, it seems to me
the disputed issue in the post grant opposition area, which is
whether we can have a second window, have an opportunity to
identify those patents, when they become relevant in
litigation, is the critical issue. Without an opportunity for
people to file a post grant opposition at the time that they
are aware of a patent, the post grant opposition becomes
somewhat illusory.
We can go further. In my paper I submitted along with my
testimony, I suggest a sort of what you might call a gold-
plated patent mechanism, where people could opt in for their
most important patents to higher scrutiny, submit a search, ask
for more time from the Patent Office, pay a higher fee, and in
exchange, get something of value, in exchange get a patent that
was treated by the courts with greater respect, with more
deference.
Both of these systems would allow us to focus the patents
that matter because they would harness the information that
private parties have and that the PTO currently doesn't have
about which of the patents is important to focus on and which
ones are not.
I also think, though, that you can't discuss patent quality
without talking about the problem of Patent lawsuit abuse.
There is a very real problem out there confined, I think, to
some industries, but to a very wide and important sector of the
economy, of patent lawsuit abuse. To some extent, those are bad
patents being asserted. They are patents that shouldn't have
been issued, that are invalid, that people are asserting.
But there is also a problem even with patents that are
legitimately issued, when people wait in the wings and surprise
a mature industry or a standard setting organization with a
patent that he they didn't know about after it has been to--for
people who have already made irreversible investments, when
people overclaim the breadth of their patents, when they
actually invent something, but pop up 10 years later and claim
they invented something much broader covering an entire
industry that they hadn't thought of at the time, or when they
use the threat of injunctive relief or of damages in excess of
actual compensatory value to coerce a settlement, that so often
happens in patent litigation where the defendant might have a
good claim that the patent is invalid, might have a good claim
that they don't infringe, but isn't willing to put their
product on the line.
The testimony we just heard about Research in Motion is, in
one sense, exceptional. They actually took the case all the way
to litigation. Most people aren't willing to take that risk and
so they settle.
You can solve those problems, it seems to me, in a couple
of ways. You can get at the problem of hiding in the wings with
publication and with limitations on continuation practice, and
you can get at the problem of holdup or threats of holdup by
restricting the ability to claim super compensatory damages to
cases in which they are really warranted, where the conduct
really is copying, or by giving the district courts, confirming
that the district courts have in the existing statute, the
discretion to consider equitable factors in deciding whether or
not to grant injunctive relief.
Now, the one thing it seems to me that the patent reform
process has taught us is that different industries have very
different experiences with the patent system. The way the
patent system affects you if you are in the IT industry is very
different than if you are in the biotech or the pharma
industry. I think for that reason it is unlikely you are ever
going to get broad industry consensus on meaningful patent
reform.
You can either throw up your hands and do nothing, or I
think you can try to tailor the patent reform efforts in such a
way that they actually target the problems that exist in
certain industries without doing real harm to other industries.
So you can tailor damages rules to the problem of component
industries. You can tailor injunctive relief by giving the
District Court the discretion to decide only in a few cases, is
injunctive relief inappropriate; and in cases where it is a
vital part of the patent right, we should keep it.
You can even tailor things like post grant second window
perhaps by having a lack of notice rule. Anyone who is on
notice of a patent doesn't get a second window. They have to
file in the first window. But if you didn't know about the
patent, then you ought to have a opportunity to challenge it.
All of these things, it seems to me, have one thing in
common, which is they solve real problems in the patent system
that are industry specific, not by writing industry specific
laws, but by writing general laws that will effect different
industries differently, and that is what I urge you to do.
Mr. Smith. Thank you, Professor Lemley.
[The prepared statement of Mr. Lemley follows:]
Prepared Statement of Mark A. Lemley
introduction and executive summary
Reforming the patent system is important. Patents are critical to
innovation, and the patent system generally works well in encouraging
invention. But the system also has problems, and is in need of an
overhaul. In particular, improvements can be made in two main areas:
(1) finding tailored ways to improve patent quality without wasting
money examining unimportant patents; and (2) preventing abuses of the
system by people who use patents not for their intended purpose of
supporting innovation, but to hold up legitimate innovators.
Let me be clear at the outset that these are both important
problems, and patent reform that addresses those problems will be an
important step in encouraging innovation in the United States. It is
particularly important that Congress act to prevent abuses of the
patent system by those who use the patent system not to develop and
make products but to squeeze money out of those who do. While there are
as yet no reliable statistics on the extent of the holdup problem,
there is no question that it is a widespread and extremely serious
problem in the semiconductor, computer, Internet and telecommunications
industries. Large, innovative companies such as Intel and Cisco never
have a week go by without threats of suit from a non-manufacturing
patent owner claiming rights in technology that the defendants did not
copy from the patent owner--usually they've never even heard of the
patent owner--but instead developed independently. While there is a
legitimate role for small and individual inventors who patent their
technologies and license their ideas to others, increasingly the patent
owners are not contributing ideas at all, but popping up years or even
decades later and trying to fit an old patent to a different purpose.
Unscrupulous patent owners do this because the law permits it, and
because it gives them a chance to make a lot of money--under current
law, far more money than their technology is worth.
Patent reform needs to deal with these abuses of the system without
interfering with the normal, legitimate use of the system to protect
and encourage innovation. Doing so requires careful balancing of the
interests of patent owners, technology companies, and the public.
One fact that complicates patent reform efforts.is that the patent
system works very differently in different industries. See Dan L. Burk
& Mark A. Lemley, Policy Levers in Patent Law, Va. L. Rev. (2003).
While innovators in the semiconductor, computer, Internet and
telecommunication industries identify abusive patent litigation as the
major problem they face, there is no similar problem in the medical
device, biotechnology and pharmaceutical industries. Those industries
have very different characteristics--pharmaceutical patents are more
likely to cover a whole drug, rather than one of 5,000 different
components of a semiconductor chip. So patent owners in the
pharmaceutical industries don't have to worry about and endless stream
of patent owners asserting rights in their drugs. Further, innovators
in the biotechnology and pharmaceutical industries consider patent
protection far more important to their R&D efforts than do the
information technology industries. The challenge is to craft a unitary
patent law that can accommodate the very different needs of each of
these important industries.
Because patents are so important to a large group of stakeholders,
and those stakeholders have such diverse interests, it may not be
possible to get universal agreement on all aspects of a comprehensive
reform bill. A workable bill will necessarily involve compromises, and
won't leave everyone happy. That is not a reason to abandon the effort.
It is important that something be done to improve patent quality and
reduce patent lawsuit abuse. Rather, it suggests the need to take
measured steps towards reforming the system.
In the sections that follow, I discuss a number of proposed
reforms. I have also attached copies of two short papers with ideas for
dealing with both problems, one entitled ``What To Do About Bad
Patents'' and co-authored with Doug Lichtman at the University of
Chicago and Bhaven Sampat at Columbia, and the other a speech I
recently gave entitled ``Ten Things To Do About Patent Holdup of
Standards (And One Not To).'' Some of the ideas in those papers are
reflected in pending or proposed legislation; other ideas may be worth
thinking about as the patent reform effort continues.
publication and post-grant opposition
Summary: Requiring publication of all patent applications and creating
a post-grant opposition system are important changes that will
improve the patent system.
The first goal of patent reform should be to ensure that the
procedures in the Patent and Trademark Office are adequate to identify
and weed out bad patents when it is cost-effective to do so. Two
proposed changes will help.
First, it is extremely important that the patent system require
prompt publication of all U.S. patent applications. Section 122(b)
currently permits some patent applications to avoid publication, with
the result that some applicants can conceal their invention from the
public for years. Those applicants can then take a mature industry by
surprise when the patent issues. Requiring publication of all
applications 18 months after they are filed will put the public on
notice of who claims to own particular inventions, allowing companies
to make informed research, development and investment decisions.
Second, post-grant oppositions are a valuable addition to the
patent system that will help identify and weed out bad patents without
the cost and uncertainty of litigation. The post-grant opposition bill
is well-written and will significantly improve the patent system.
The best approach is one that permits a post-grant opposition to be
filed either within 9 months after a patent issues or within 6 months
after the opposer is notified of infringement, whichever comes later.
The addition of the second, 6-month window has been controversial in
some circumstances, but it is critical to the success of the post-grant
opposition procedure. Because of the long timelines associated with
many patents, and the fact that those engaged in patent holdup often
wait for years after patents issue before asserting them, limiting
opposers to a 9-month window after the patent issued would render post-
grant opposition ineffective for the majority of patents. An example is
pharmaceutical patents. Because of the long FDA approval process,
potential generic manufacturers will likely have no idea at the time a
patent issues whether the drug it covers will survive clinical trials
and be approved for sale. By the time they know which patents are
actually important, it would be too late to oppose them. This problem
extends to other industries as well. Submarine patentees and other
trolls often sit on patent rights for many years before asserting them
against manufacturers. In order to take advantage of the nine-month
window, those manufacturers would have to guess which of the millions
of patents in force might become important a decade from now. Since
only 1% of patents are ever litigated, forcing them to make such a
guess would make the system worthless to most of the people who would
use it.
Including a second window for defendants who were not on notice of
the patent when it issued seems an appropriate way to solve this
problem. This gives a short period in which to oppose patents once they
are brought to a company's attention, without permitting undue delay.
damages: reasonable royalty and willfulness
Summary: Changes to the entire market value rule in reasonable royalty
damages and limitation of willfulness claims are both important
steps that will help deal with serious problems in the patent
system. The reasonable royalty portion of H.R. 2795 does not
need any modification. The willfulness provision of that bill
improves the current law in certain respects, but could be made
better still.
Reasonable Royalties. The reasonable royalty provisions in the
existing law create significant problems in those industries in which
patented inventions relate not to an entire product, but to a small
component of a larger product. Because courts have interpreted the
reasonable royalty provision to require the award of royalties based on
the ``entire market value,'' juries tend to award royalty rates that
don't take into account all of the other, unpatented components of the
defendant's product. This in turn encourages patent owners in those
component industries to seek and obtain damages or settlements that far
exceed the actual contribution of the patent. There are numerous cases
of just this problem occurring. Most notably, there are hundreds of
``essential'' patents covering proposed new standards for third-
generation wireless telephones. Carl Shapiro and I have an empirical
study of this ``royalty stacking problem'' in progress right now. As
originally drafted, H.R. 2795 solves this problem by encouraging the
courts to consider the contribution of other elements of the invention.
There seems to be consensus that reasonable royalty damages should
be limited to the share of a product's value that comes from the
invention, and that patentees should not be able to capture value they
did not in fact contribute. The only question is how to get there. H.R.
2795 does so in a straightforward way, by requiring courts to determine
the value of the ``inventive component'' of the product. A proposed
``Coalition Draft'' of HR 2795 circulated in the fall of 2005 would
make a seemingly small change, from ``inventive component'' to
``component of the claimed invention.'' Unfortunately, this change
could have the unfortunate consequence of allowing patentees to
manipulate their damages by changing the way they claim their
invention. For example, the inventor of the intermittent windshield
wiper could claim the wiper alone, or alternatively could choose to
claim a car including an intermittent windshield wiper. The invention
is the same, and the patentee shouldn't be able to capture more money
by phrasing the claim in the second way than the first. But the
coalition draft may produce just such an effect, since the ``claimed
invention'' is literally the whole car and not just the windshield
wiper.
Willfulness. The doctrine of willfulness is a mess. Over 90% of all
patent plaintiffs assert willful infringement, even though most of the
defendants in those cases developed their products independently and
had never heard of the plaintiff or its patent. Patent law currently
punishes not just those who copy from the patent owner but also these
independent developers. But independent developers are not ``willful''
in any ordinary meaning of the term. Rather, the way the courts have
interpreted patent law has created a bizarre game. By sending a
carefully crafted letter, patent owners can cause companies to have to
obtain written opinion letters and waive the attorney-client privilege,
and if they don't can declare them willful infringers for continuing to
sell products they designed in good faith and without knowledge of the
patent. It is important to clean up the willfulness doctrine. [While
some have proposed eliminating it altogether, I think that goes too
far. Enhanced damages for willfulness serve as an important deterrent
in those cases where the defendant really does steal the technology
from the patent owner.]
H.R. 2795 makes two important changes that reduce the abuse of
willfulness. First, it requires a letter that puts the defendant on
notice of a patent to be sufficiently specific that a defendant can
file a declaratory judgment action asserting its innocence. This should
reduce the casual, off-hand sending of such letters. Second, by
requiring the pleading and litigation of willfulness only after a
defendant has been found to infringe, H.R. 2795 eliminates many of the
harms associated with the court's reliance on advice of counsel,
because the defendant will not have to decide whether to waive the
privilege until after the primary trial has ended. Further, by
requiring bifurcation of willfulness, the bill simplifies the patent
litigation process by separating out discovery as to willfulness and
eliminating the need for that discovery in the cases where the patent
is ultimately held invalid or not infringed. [Once this bifurcation
occurs, the same jury that determined validity obviously cannot make
the delayed willfulness determination. The sensible way to solve this
problem is to make willfulness a question for the district judge, just
as the damage enhancement for willfulness already is.].
However, H.R. 2795 as currently written leaves intact the opinion
letter ``game'' for many patent lawsuits. Because a defendant's only
defense to willfulness under the statute is the existence of ``an
informed good faith belief'' in invalidity or noninfringement,
defendants are as a practical matter extremely likely to decide they
have to obtain an opinion, rely on the advice of counsel, and therefore
waive the attorney-client privilege. This waiver distorts legal advice
in difficult ways, making settlement more difficult. See Mark A. Lemley
& Ragesh K. Tangri, Ending Patent Law's Willfulness Game, Berkeley
Tech. L.J. (2003).
This problem could largely be solved if defendants could rely on
strong (though ultimately unsuccessful) arguments to avoid a finding of
willfulness. To do this, section 284(b)(3) of H.R. 2795 should be
modified by adding after ``under paragraph (2)'' the following: ``if
the infringer offered an objectively reasonable defense in court or''.
This would make either an objectively reasonable argument or a
subjectively good faith belief grounds for avoiding willfulness. It
makes little sense to conclude that defendants are acting willfully if
the case was a close one. Adding an objective reasonableness defense
would permit defendants who think they have a strong argument to rely
on that argument, rather than having to waive privilege.
injunctive relief
Summary: Injunctive relief is an important part of the patent right,
but it is subject to abuse in certain situations. It is
important to preserve the right of injunctive relief in the
case of legitimate patent claims, while preventing those who
abuse the system from using the threat of injunctive relief to
extort money from legitimate innovators. H.R. 2795 takes a step
in the right direction by giving courts the power to stay
injunctive relief pending appeal where doing so wouldn't harm
the patentee. It takes another step in the right direction by
explicitly introducing fairness concerns, but it is important
that those concerns be determinative only in limited contexts
and that injunctive relief be available in the normal case of
patent infringement.
The goal of any revision to the injunctive relief sections of the
patent law should be to ensure that people who actually need injunctive
relief to protect their markets or ensure a return on their investment
can get it, but that people can't use the threat of an injunction
against a complex product based on one infringing piece to hold up the
defendant and extract a greater share of the value of that product than
their patent warrants.
Section 283 of the Patent Act by its terms provides the tools
needed to achieve this goal: district courts are granted the discretion
to decide whether and under what circumstances to issue patent
injunctions. The statute provides that courts ``may'' grant injunctions
once infringement is found, but only ``in accordance with principles of
equity'' and ``on such terms as they deem reasonable.'' 35 U.S.C.
Sec. 283. Those principles of equity are well-established in a long
line of cases, both from this Court and from the regional circuits.
See, e.g., Weinberger v. Romero-Barcelo, 456 U.S. 305, 312 (1982)
(setting out the four equitable factors to be considered in granting
injunctive relief: (i) whether the plaintiff would face irreparable
injury if the injunction did not issue; (ii) whether the plaintiff has
an adequate remedy at law; (iii) whether granting the injunction is in
the public interest; and (iv) whether the balance of hardships tips in
the plaintiff's favor); see also Mueller v. Wolfinger, 68 F. Supp. 485,
488 (D. Ohio 1946) (applying the factors under predecessor to Section
283). Before the creation of the Federal Circuit, regional circuits
applied these principles, and occasionally denied permanent injunctive
relief to patent owners based on their application of traditional
equitable principles. See, e.g., Foster v. Am. Mach. & Foundry Co., 492
F.2d 1317, 1324 (2d Cir. 1974); Vitamin Technologists, Inc. v. Wisc.
Alumni Res. Found., 146 F.2d 941, 956 (9th Cir. 1945); City of
Milwaukee v. Activated Sludge, Inc., 69 F.2d 577, 593 (7th Cir. 1934).
Unfortunately, the Court of Appeals for the Federal Circuit has
effectively read the terms ``may'' and ``in accordance with principles
of equity'' out of the statute. In no case in the last twenty years has
the Federal Circuit permitted a district court to apply its equitable
powers to refuse a permanent injunction after a finding of
infringement.1 Indeed, the court's grant of permanent injunctive relief
is so automatic that it rarely even recites the equitable factors any
longer, relying instead on an all-but-conclusive presumption that
injunctive relief is appropriate. In this case, for example, the
Federal Circuit made it clear that a district court had the power to
deny injunctive relief only in exceptional circumstances. MercExchange,
LLC v. eBay, Inc., 401 F.3d 1323, 1339 (Fed. Cir. 2005). Further, the
only exceptional circumstance the court identified was one involving
imminent danger to public health, in which case the court suggested it
might be appropriate to consider the public interest in access to the
invention. While the Supreme Court is considering that case at this
writing, there is no guarantee they will interpret the statute as it
was actually written rather than as the Federal Circuit has done.
Holdups occur on a regular basis under the Federal Circuit's
mandatory-injunction standard. Patentees can obtain revenue in excess
of the value of their technology by threatening to enjoin products that
are predominantly noninfringing and in which the defendant has already
made significant irreversible investments. In numerous cases, the
parties settle for an amount of money that significantly exceeds what
the plaintiff could have made in damages and ongoing royalties had they
won. In these cases it is not the value of the patent but the costs to
the defendant of switching technologies midstream that are driving the
price. For example, one patent owner charges a 0.75% royalty for
patents that don't cover industry standards, and 3.5% for patents that
do cover industry standards. Mark R. Patterson, Inventions, Industry
Standards, and Intellectual Property, 17 Berkeley Tech. L.J. 1043, 1059
n. 61 (2002). The patent owner can demand nearly five times as much
money once the industry has made irreversible investments in a
particular technology. Many other patent owners report settling their
cases for dollar amounts significantly in excess of what they could
have won in royalties. The windfalls to the patentee in these cases
stem from the ability to threaten to shut down the defendant's
technology altogether.
Holdup is of particular concern when the patent itself covers only
a small piece of the product. A microprocessor may include 5,000
different inventions, some made by the manufacturer and some licensed
from outside. If a microprocessor maker unknowingly infringes a patent
on one of those inventions, the patent owner can threaten to stop the
sale of the entire microprocessor until the defendant can redesign its
product and retool its plant to avoid infringement. Small wonder, then,
that patentees regularly settle with companies in the information
technology industries for far more money than their inventions are
actually worth. Defendants are paying holdup money to avoid the threat
of injunctive relief. That's not a legitimate part of the value of a
patent; it is a windfall to the patent owner that comes at the expense
not of unscrupulous copyists but of legitimate companies doing their
own research and development.
Explicit consideration of principles of equity would give the
courts the tools they need to deal with this problem. Patent owners who
do not manufacture the patented or any other competing good, and who
seek only to license their invention at a reasonable royalty, should be
entitled to injunctive relief only if they would be irreparably injured
by the infringement. If the patentee has an adequate remedy at law,
that fact properly weighs against granting injunctive relief. Those
equitable principles would also permit courts to consider the balance
of the hardships, so that the ordinary grant of injunctive relief can
be avoided where it would have significant negative consequences and
little affirmative purpose, as in the case of the 5,000-component
invention. At a minimum, courts should delay the entry of injunctions
pending appeal in order to give the defendant a chance to implement a
design-around if in fact they can do so without infringing the patent.
I should be clear that the application of equitable principles
would not mean that injunctions are generally problematic. Injunctive
relief is an important part of the patent law, and in most cases there
will be no question as to the patentee's entitlement to such relief. To
begin, equity warrants an injunction absent extraordinary circumstances
if the patentee practices the patent in competition with the accused
infringer. Even if the patentee doesn't sell the patented product, if
it sells a different product in the same market, equity should entitle
it to an injunction to prevent an infringer from competing with the
product it does sell. Similarly, if patentees assign or exclusively
license the patent to someone who competes in the marketplace, they
should also be entitled to injunctive relief under normal
circumstances. And even if the patentee hasn't done these things in the
past, if it is actively engaged in research and development and
preparing to do so in the future equity might well support injunctive
relief. Patentees also ought to be entitled to an injunction in cases
where the defendant copies the idea from the patentee, even if the
patentee is not participating in the market and has no plans to do so.
Infringers shouldn't be able to copy an invention from the patentee,
knowing that if they are caught they will still only have to pay a
royalty. Even if none of these things are true, some injunctions won't
lead to a risk of holdup, and so even patentees who don't meet any of
the criteria listed above will often be entitled to an injunction. This
is the virtue of equitable discretion--courts can grant injunctions
when they are warranted, without being bound to grant them when they
create more problems than they solve. The grant of discretion in the
statute should be coupled with legislative history making it clear that
injunctive relief is the normal remedy and will be available in the
circumstances just described. Doing so will help to avoid the risk that
other countries will seize upon our equitable doctrines to try to
inappropriately limit patent rights.
Permitting stays will further help solve the problem of holdup by
threat of injunctive relief. Confirming the equitable power of courts
to stay injunctions is a good idea. It will give companies time to
retool their factories to avoid infringement. At the same time, the
irreparable harm limitation ensures that patent owners that actually
need injunctive relief, like pharmaceutical companies litigating
against generics, will be entitled to get it.
venue
Summary: Some limitation on venue in patent cases is desirable.
Patent cases, unlike general federal civil cases, can today be
brought anywhere a patented product is sold or used. In practice, this
means that they can be brought in any district in the country. Patent
plaintiffs (and declaratory judgment plaintiffs too) engage in forum-
shopping, seeking a location perceived as most favorable to their side.
There is no reason the law should permit such forum shopping. A
rule that allowed the plaintiff to sue in either its home forum or the
defendant's home forum would give ample consideration to the
plaintiff's interest in convenient adjudication while reducing the
worst abuses. Such a rule wouldn't solve the forum-shopping problem
entirely--one can imagine patent litigation companies setting up shop
in a favored jurisdiction in order to take advantage of that forum--but
it will help.
1 The Federal Circuit occasionally affirms a refusal to grant
preliminary injunctions, see Hybritech Inc. v. Abbott Laboratories, 849
F.2d 1446, 1458 (Fed. Cir. 1988), or to enter injunctions when the
patentee has failed in some other aspect of proof, see Odetics, Inc. v.
Storage Tech. Corp., 185 F.3d 1259, 1273 (Fed. Cir. 1999) (patentee
committed laches, and could not enjoin products produced during the
period of its laches). But not since the 1984 decision in Roche
Products Inc. v. Bolar Pharmaceuticals Co., 733 F.2d 858, 866 (Fed.
Cir. 1984), has it refused to enter a permanent injunction because of
considerations of equity.
ATTACHMENT 1
ATTACHMENT 2
Mr. Smith. Mr. Dudas, let me direct my first question to
you. Everyone in this room has probably read a number of
articles about the RIM case, the BlackBerry case. And I would
like for you to respond to a couple of points that Mr.
Balsillie made and that I would make, and that is the
impression that we have had from reading these articles and
looking at the case is that the Patent and Trademark Office
issued patents that were questionable, and then when it came to
the reexamination of some patents did not act with dispatch.
Would you respond to those points?
Mr. Dudas. Certainly. I think one of the points about
reexamination is it shows largely that the process does work in
that----
Mr. Smith. Because it cost BlackBerry over a half a billion
dollars to learn that lesson.
Mr. Dudas. If you look at reexaminations, it gives you an
opportunity to challenge a patent that the Patent and Trademark
Office has issued. So I think philosophically, it is something
we think post grant is better. On special dispatch, I think it
is unacceptable to be taking the amount of time that the office
had taken just 3, 4 years ago, where it took 4 years before we
even touched an action.
I testified before this Subcommittee that that was going to
change, that we were going to make certain we had an action on
every case before 2 years. We were able to do that I think
special dispatch has real meaning now.
The special reexamination unit not only increases quality,
it increases consistency. In some cases we are taking 30 times
the amount looking at reexamination. Professor Lemley had a
good point, there is a difference between 408,000 applications
that come in that you have to deal with every single one of
those in an appropriate manner, or looking at 540, where
someone says we have a substantial question. But I will also
point out there is an excellent point on anyone's part, we
should have these done. We believe we will be able to get them
done eventually within 20 months very soon.
But the other thing to look at as well is the
responsibility of the patent applicant who is involved in a
reexamination and the responsibility of the requesters. There
are many cases where the request for reexamination did not come
upon a notice letter, it did not come upon being sued, it did
not come upon losing a motion to dismiss. But the reexamination
question is not coming in until after that case is lost in
court, there is a finding of damages and it goes forward.
If the request comes in sooner, we certainly would be able
to get it done sooner. Judges are less likely--the evidence
shows both in terms of policy, and in fact--judges are less
likely to stay cases once a full decision has gone through a
full discovery and a full decision has been made. That is an
issue, I think, where there is responsibility across the board.
I think we can give folks a stronger sense that the Patent and
Trademark Office is doing a better job which makes us a more
viable alternative.
Mr. Smith. Mr. Balsillie are you at least partially
reassured by those remarks?
Mr. Balsillie. Yes, I am. I think the improvements in the
Patent Office are appropriate. And we support them. And I think
they are making some positive directions. And it is too easy to
make the Patent Office a scapegoat. Some of the things that I
have experienced is that we think when there is reexaminations,
there needs to be clarity also to the courts, just what is the
strength of the patents and what is the strength of the
reexamination rulings?
In our case, all of the final office actions, rejecting all
of the claims and yet that had no weight in injunctive relief,
so there is a special dispatch element, but there is also an
element of waiting and quality that the court should be guided
in this case as well.
Mr. Smith. Thanks. Mr. Dudas, one more question I have
actually been waiting weeks to ask you this. Let's assume that
we agree that you could be doing a better job when enforcing
the nonobvious standard.
And I think you would agree that we would hope that courts,
district courts would be a little more strict in how they
interpret the nonobvious standard. This is not a issue that was
called to my attention, but this is a paper napkin ring that is
the kind typically wrapped around napkins of plastic wear, you
know rectangular piece of paper with a little glue on one end.
This was patented many years after it allegedly was being
used informally. This to me may be an example of a patent that
was obvious rather than nonobvious. And I don't know the origin
of this, but to me, this has always seemed a little bit like
the peanut butter and jelly sandwich that is being patented,
and an example, perhaps, of how we can do a better job along
the process.
Do you have any comments on that?
Mr. Dudas. Absolutely. I will comment more generally, and
then I will get specifically to that.
Mr. Smith. Be very quick.
Mr. Dudas. I will get specific. There is a concern--it is
certainly frustrating to some examiners when they feel that
they have a finding of obviousness, and they need to show
something more specifically. We don't want to have willy nilly
discussions of obviousness, et cetera. But there is no question
we share the same goals as the Federal circuits and the courts
that have given us guidance, which is to not do too much
second-guessing. At the same time, we do think it is a worthy
area to be looking into.
Mr. Smith. Thank you, Mr. Dudas. I will have additional
questions after the other Members have asked their questions.
The gentleman from California, Mr. Berman.
Mr. Berman. Thank you. I would like to pick up on the
issues raised by the Chairman's initial question, and your
response, and I would like to ask, Director Dudas, would you
prefer to be Secretary Dudas, which is better? I don't know.
But I would like to ask you, and then I would like to ask Mr.
Balsallie to comment, and Professor Lemley, if he would, an
issue that has come up that you now just discussed, at least I
wasn't aware of until last fall, is this issue on inter partes
reexamine, where we spoke about the effect of instituting an
inter partes after a decision of the District Court.
So what I would like to know at this point is what do you
believe the effectiveness of a PTO review, which finds a patent
invalid, should be on a district court decision during various
trial phases? If the PTO is in the middle of the review and the
court is in the middle of the liability phase, should the court
stay the proceeding? What if the court is in the damages phase,
what if the PTO has made a decision that the patent is invalid?
What should be the effect on the liability or damages phase?
And should those same conclusions apply in where it is an ex
parte reexamination proceeding? Also, what should the deference
be to the enter party's decision in the district court? And to
what extent in all this are you--if what the Chairman
originally proposed last year in his legislation--we didn't
address this issue then, but in the bipartisan bill that he
proposed, that changed, that provided a better kind of balance
on the injunction issue and a second window, and a post exam
process and a second window and made a number of these changes,
should your answers to these questions, would they be different
if that were now the law?
Can you answer these 14 questions?
That is a continuation process.
Mr. Dudas. That is not one question. There are a lot of
claims as well. But at any rate, the world we live in now,
quickly, I will answer as director. If any ex partes
reexamination upon being filed, we will follow through its
conclusion regardless of when it's filed. We have no authority
to stay that. An inter partes reexamination, we must stay it
after a final decision, which means a CAFC decision, or a
district court decision that hasn't come forward.
I agree that----
Mr. Berman. But if the district court decision has come
down finding a patent was valid and infringed, but the other
side still has time to file a notice of appeal, or is pursuing
an appeal----
Mr. Dudas. We are not estopped. However in that case, we
have the authority, we believe, under good cause, to stay the
proceeding within our office, and so as not to waste
administrative resources while the CAFC makes that
determination. We have done that in a case that is outstanding
right now, and there is an action against us in the Eastern
District of Virginia suggesting we don't have that authority.
We believe we do have that authority.
The law is fairly clear that we are estopped in an inter
partes, case after a final decision. It's also clear under the
law, we believe, that we must go on in any ex partes
reexamination regardless. I think the policy should be that
there needs to be certainty. There shouldn't be a policy of who
goes first.
I talked to a number of Federal judges about this and off
the record the discussion has been along the lines of, if the
Patent and Trademark Office can get a reexamination done within
a certain amount of time, then they would more likely stay
their actions.
But you are in an exact point. The question becomes, I
believe, at what point is the reexamination requested? I think
there is a difference in judges' minds. There is a difference
certainly in our minds, from a policy perspective not from
under the law, but from a policy perspective, if a
reexamination is filed before you go to court or before the
discovery phase versus after a decision has been made, findings
have been found, et cetera. That looks more like a second bite
at the apple. And it seems to me, as Under Secretary, at this
point we need to have clearer rules along those lines.
I think the same is true for post grant. I think the post
grant opposition proceeding that we would suggest would have a
second window. It would allow for the PTO to stay an action in
the cases--it would only let you in a second window if you had
a threat of a lawsuit. And I think there are answers to that
where judges have the opportunity to stay and the PTO does.
There is a lot more to this answer. I know my time is up, but
the key is when is that requested. But I do think certainty
will help.
Mr. Balsallie. In the case of Research in Motion, it's
really a real-life case. It is not a hypothetical case. And
when you look at the wireless system that we employ, in our
preliminary searches of the Patent Office, there is
approximately 1.1 million patents that apply to our wireless
system. Now, if you applied 2 to 3 dozen average claims, that
means we have 30 million approximate claims that could apply
against BlackBerry. And it takes one claim to shut down the
whole system. That is what I call Russian Roulette.
And then you come at us and then what happens is with that
Russian Roulette, somebody is holding a gun to your business,
and has the ability----
Mr. Berman. Worse than Russian Roulette.
Mr. Balsallie. I am trying to be polite, but there is no
limit on what they can ask. For they can ask for $612 million
and my kidney. So there is no limit. And that is Russian
Roulette and worse.
And then you have--and so definitely, when somebody is not
practicing, they are not furthering the arts. And this doesn't
prejudice innovators, and it doesn't prejudice those that sell
products. And there is a contradiction between somebody wanting
to be protected with irreparable harm, but really, all this
want is money.
And there is no harm done in just prescribing a royalty and
keep it in, keep it paid and just keep it in escrow. There is
no irreparable harm.
And in terms of the reexamination process, I have yet to
understand why the patent--injunction is a blunt instrument.
And the only place where it is used almost absolutely is in the
patent process.
Yet, it's this broad system with tens of millions of
claims.
It doesn't bear any relation to what would protect the
society and furthers innovation. It's an anomaly. And in our
case, we actually, they actually did find office actions. They
actually did their job. It was done. It was in three cases. And
what is ironic is we were stayed as the primary inventor, so we
are being shut down for something the Patent Office said
shouldn't have been issued, and we are the inventor and the
courts gave no weight to it. And in fact, there was some joking
by the courts that if we stop wireless e-mail, it won't be
``the end of the free world.'' yet I thought it wasn't about
the end of the free world, it was about a balance of equities.
Mr. Smith. Thank you, Mr. Balsillie. Let me go back to a
couple of questions that I had, and give you all a chance to
respond as well.
I have an intervenor here. I didn't see you until right
now. Welcome back, and the gentlewoman from California is
recognized for her questions.
Ms. Lofgren. Thank you, Mr. Chairman. There are so many
questions, but I think I just like each of the witnesses to
comment on a back end, if you will, question, with respect to
injunctions. We have been, the three of us and several other
Members have been working through these issues in public
hearings, in discussions, in various forms and formats
throughout this Congress, and one of the things that I have
been told, and I would like you to comment on, is that in the
area of patent litigation, once there has been an ajudication
of infringement, an injunction is awarded against the
infringing party in virtually every instance, which is very
different from other types of litigation where it is more
difficult to get injunctive relief. And I think that is exactly
the issue that is before the court today on the Merck exchange
eBay case, and I don't think it would be appropriately
necessary to talk about that one case.
But I am interested in, one of the prongs of the injunction
standard is ordinarily the prospect of irreparable harm, harm
that can't be made whole by a monetary award. And it seems to
me in a situation where a patentee does not compete in the same
line of business as the infringing party, what could the
irreparable harm be that couldn't be made whole by a monetary
award? And what is the theory of irreparable harm in that case?
And I think probably this had a lot to do with the RIM case
and perhaps, Mr. Balsallie, I hope I am not mispronouncing your
name, but I am particularly interested in NTP's theory of
irreparable harm for injunction as well as, certainly,
Professor Lemley. I appreciate you have come all the way from
Stanford to be here today. I make that trip every week, so I
know it is not easy to do.
Mr. Balsallie. Very briefly, because Professor Lemley
certainly has great background in this, and I would say that we
were puzzled because they put forward that all they wanted was
money, but they wanted an irreparable harm remedy. And it was
really to extract more leverage than due the value of the
patent. It was never clarified. They never answered why. It was
just an automatic. They didn't practice anything, any
innovation, they didn't further the arts. One of their patents
was issued, they filed a suit, it was issued well after
BlackBerry had been in the market through continuation. So, I
mean, I am at a complete loss to give you any understanding as
to why that instrument was used.
Mr. Lemley. The existing statute says, courts may grant
injunctions in accordance with principles of equity, which
seems to suggest that courts and patent cases ought to do
exactly what they do in copyright cases, in real property
cases, in personal property cases, which is considered
irreparable harm, balance of the hardships and so forth. But
the Federal circuit, over the last 20 years, has kind of
drifted into a rule that really is, I think, unique to patent
cases, which is an absolute entitlement to injunctive relief
once the patent has been found invalid and infringed.
I think that is a mistake. Now let me be clear. I think
injunctions are normally the right remedy. They are the right
remedy where you have somebody competing with the patent owner,
whether or not the patent owner is practicing the same
invention. I also think they are the right remedy where the
defendant engaged in copying from the patent owner. You
shouldn't be able to copy and then continue using the
technology.
But, I think it is important for this Committee to
emphasize that the traditional principles of equity and the
ability for district courts to sort of think through the
question of whether injunctive relief is appropriate, in any
given case, really is and ought to be an important part of the
patent system.
Mr. Lemley. At the eBay hearing last week, counsel for
MercExchange said, well, you shouldn't change this rule of
absolute entitlement to injunctive relief because Congress has
already thought about changing injunctive relief, and they
haven't acted.
Ms. Lofgren. We actually thought about readopting the
statute we have.
Mr. Lemley. I heard a proposal on the Senate side you ought
to italicize the word ``may'' in section 283. I don't know
whether it's possible to italicize something in the United
States Code, but that is not a bad start.
Ms. Lofgren. If I could, I just have a little bit more
time. I'm interested, Professor, you had--we have heard
opponents of the coalition draft talk about the ability of
courts to reduce damage awards in patent litigation to take
account of the portion of an infringing product's value
contributed by nonpatent components, and I have heard from
proponents that the current law does not actually accomplish
this, in part because of the deficiencies we all agree need to
be addressed at the front end.
Can you talk just briefly about your view of inventive
contribution rather than whole claims under current law?
Mr. Lemley. Yes. The current law, like in the injunction
context, at least nominally gives you the ability to deal with
this problem because it allows courts to take into
consideration all of the other nonpatented components of the
invention. The problem is courts don't generally do so, or at
least they don't do so to a significant extent.
I'm producing an empirical study on this issue right now.
What we find is they reduce damages a little bit as royalty
percentage in component industries, but not by very much; in
fact, so little that on average a component product would have
only 1.3 or 1.4 components in it. That's, of course, not true.
You could solve this problem theoretically in the courts if
you could get the courts to really take all of this into
account, but it's hard to do so, and so I think actually
encouraging them specifically to consider this in the statute
by focusing on the inventive contribution that is the subject
of the patent and how it relates to the broader product will
get us damages numbers that are in line with the patentee's
actual contribution, which is what I think we want at the end
of the day.
Ms. Lofgren. Thank you very much. Thank you, Mr. Chairman.
Mr. Smith. Thank you.
Let me return to a subject that is a part of our patent
reform effort and, Mr. Stewart and Mr. Lemley, ask you about
it. This is the second window review under the postgrant
system. I think all of our witnesses support that, as do I, but
there are others who oppose the postgrant system because they
say that will potentially unsettle any patent title, so to
speak, and the owner of that patent will always be concerned
that they may be challenged. What is a good response to the
concerns of those who oppose the postgrant system. Mr. Stewart
and Mr. Lemley.
Mr. Stewart. I agree with the Subcommittee that the
postgrant opposition is a very effective tool, and the second
window is more so effective. The postgrant opposition, as I
think it's currently situated, gives 9 months after the grant
in which you could challenge a patent, and EPO has a similar
statute on the books.
This situation with the second window is that typically
most firms do not monitor competitors' patents to a large
extent, especially in the financial services industry. In
addition, when you monitor firms, that opens up a whole another
can of worms in terms of liability and willfulness and things
of that nature. So if you're not monitoring the competitors'
patents that are coming out, you don't have an opportunity to
take advantage of that first 9-month window, and it's only when
you receive that letter, if you will, or that lawsuit or
whatever the case may be at a later point do you have an
opportunity to really look at the patent and actually challenge
it in the USPTO and take advantage of the opposition precedent.
We've had numerous problems with monitoring of competitor
patents because of some of the willfulness issues you guys have
tried to address.
Mr. Smith. Mr. Lemley.
Mr. Lemley. I think the answer to--what's a good answer to
that objection is we already have a system in which you can go
back to the Patent Office and ask for a reexamination at any
time, regardless of how long you wait, and the reason we have
that normal reexamination system is we think it's actually
better and cheaper to try to get the patent validity sorted out
in the Patent Office without having to go through litigation
that costs $5 million a side.
I think of postgrant opposition as a sort of improvement in
the reexamination process. It's not and shouldn't be full-
fledged litigation, but it ought to be something more and have
more involvement than a regular reexamination system. And then
it seems to me to be reasonable to say not, as we do with
regular reexam, you can bring it at any time, but you can bring
it within a few months after you find out about the patent.
That can happen either because the patent issued, I think,
in the pharmaceutical industry--everybody is going to know
about these patents on basically the day they come out, so
second window maybe isn't so necessary. But in the IT industry
and the financial services industry, as Mr. Stewart indicates,
people don't find out about these patents until years later, or
they may read them and not have any idea that they are going to
be asserted against a different technology three generations
down the line. Giving a limited period of time in which to go
to the Patent Office and short-circuit, if we can, patent
litigation is the right thing to do.
Mr. Smith. Thank you, Professor Lemley.
Mr. Dudas, I'd like to propose a question actually from a
constituent of mine, but it bears on some of the subjects at
hand. RIM is upset that the reexamination of the NTP patents
were not conducted with special dispatch as the Patent Act
requires. I have also heard this is the constituent patentee
who has been stuck in a reexam proceeding for nearly 6 years.
As an act of fairness he suggested we require the office to add
day-for-day term extension to any patent that is the subject of
reexamination when that proceeding has not concluded after 2
years. In other words, if the office has not made a final
determination after 2 years, the patent will receive additional
term protection for each day thereafter. What's wrong with that
idea, if anything?
Mr. Dudas. The first thing that is wrong is that the
reexamination has taken 6 years. I'm not aware; I can follow up
to find out a little bit about that. We have gotten an action
on every reexamination pending over 2 years. I don't know if
this involves appeals or whatnot, but we have to make certain
that's not a case where people are involved in reexaminations
for 6 years unless it's caused by their own actions.
The question about patent term extension, I think that is
probably not the right answer, because even pending before
reexamination, your patent is valid, determined valid, still
has a presumption of validity, et cetera. The patent term
extension we have now says if the office takes too long, and
you don't yet have your patent rights, you're losing under a
20-year filing term, so we'll give that back to you. But under
the patent reexamination, the patent is still valid and can
still be held.
I think this is an excellent opportunity, and I will invite
the oversight of the Subcommittee to make certain that I make
good on the pledges I have made that we are going to get these
things done more quickly. I think patent term extension might
skew the incentives.
Mr. Smith. Thank you, Mr. Dudas.
Any other questions?
The gentleman from California.
Mr. Berman. Thank you, Mr. Chairman.
I want to give Professor Lemley a chance to answer my
initial questions, if I could. I also have another question,
but I just have to follow up on something.
Are you saying that in your case your opponents ended up
through the continuation process filing or refining or changing
a patent claim after your product was already out in the
market, and that patent, that refined patent, became the basis
for the finding of infringement?
Mr. Balsillie. That was all but one of the claims in our
case, yes. And the patent was issued long after our product was
in the market, and then they sued us the day it was issued.
Mr. Berman. Was the refinement made after your product
was----
Mr. Balsillie. Yes, it was.
Mr. Berman. They knew what you were doing.
Mr. Balsillie. In fact, I'll even tell you we disclosed the
work route to them, and they filed continuations on that work
route. Absolutely. You bet.
Mr. Berman. Mr. Lemley.
Mr. Lemley. Just to emphasize, that is actually one of the
most problematic abuses of the continuation process is the use
to identify something that your competitors come up with and
change your patents to do it.
Just briefly on the question of staying litigation pending
reexam, I agree with Director Dudas on this, there are reexams
filed because people actually want to get the patent's validity
determined early on, and there are reexams filed for strategic
reasons late in litigation because there is no real cost to
doing so.
It seems to me the courts, I think, are, generally
speaking, getting it right, staying the litigation if you file
your reexam early, not staying the litigation if you're filing
your reexam late just as a strategic matter. That seems to me
the right result.
Mr. Berman. What about after--what if the, quote, infringer
has lost a judgment and then asserts reexam?
Mr. Lemley. That seems to me sort of very late. If you wait
until you have already got your day in court, and then you're
going to the Patent Office and saying, I want to use a process
that's designed to be less expensive and avoid having to go
have my day in court, that's maybe not the way we want the
system used.
Mr. Berman. Director Dudas, we talked at one point about
the issue of quotas for examiners and this whole issue of--is
there a disservice in having quotas which keep a patent
examiner from spending more time on a particularly complicated
case, and has there been any discussion about the wisdom of
that in the office?
Mr. Dudas. Absolutely, vast discussion. The bottom line is
more time on a patent application, more time will lead to
higher quality. I don't think it's necessarily a one-to-one
relationship. All this, though, relies on a balance of 408,000
applications, we have to be able to examine. Right now we
examine all claims in every application, and hiring 1,000
examiners a year at an 8 percent rate, we never actually get to
the point where we're turning the tide on pendency. Very
important, not saying we get it to an ideal point, but turning
the tide. A reexamination is very much like that. There are not
time limits. If it takes 30 times the amount of time, we take
30 times the amount of time.
One of the things that we are considering, big ideas, is
should we be examining every single claim and every single
application. And one of our rules actually suggests let's at
least look at a couple first, and then we can possibly look at
all the rest later unless you abandon some of them. Even
further down the line, talk about having a more robust
examination for some applications.
Mr. Smith. Thank you, Mr. Berman, Mr. Dudas.
We are going to vote, and as a result we'll need to adjourn
the Subcommittee. But thank you all for your testimony today.
It has been very, very helpful. So we will stand adjourned.
[Whereupon, at 6:01 p.m., the Subcommittee was adjourned.]
A P P E N D I X
----------
Material Submitted for the Hearing Record
Prepared Statement of the Honorable Howard L. Berman, a Representative
in Congress from the State of California, and Ranking Member,
Subcommittee on Courts, the Internet, and Intellectual Property
Mr. Chairman,
I believe this may be the sixth hearing on patent reform this
Congress. I must thank the Chairman for his hard work in highlighting
the need for patent reform this Congress. He brought together a large
coalition of bi-partisan members to support a patent reform bill and
managed to almost achieve consensus among the different party
interests. However, I wonder about the benefits of pursuing further
hearings on the identical issues we discussed last year if there are
few new ideas being proposed and no further clarity about which
legislative approaches this subcommittee should follow regarding patent
reform. I am concerned that merely discussing the issue without any
movement on a legislative proposal will further entrench the parties in
their respective positions. The recent cases which have been settled
(NTP/BLACKBERRY) or have been granted cert by the Supreme Court (EBAY/
MERCEXCHANGE) demonstrate that the time to address these issues is
sooner rather then later.
Past attempts at achieving more comprehensive patent reform have
been met with resistance. However, the call for legislative action is
loud. The New York Times has noted, ``[s]omething has gone very wrong
with the United States patent system.'' The Financial Times has stated,
``[i]t is time to restore the balance of power in US patent law.''
Therefore, today, Congressman Boucher and I have introduced a narrowly
tailored patent quality bill to address some of the more urgent
concerns.
Once again, I firmly believe that robust patent protection promotes
innovation. However, I also believe that the patent system is
strongest, and that incentives for innovation are greatest, when
patents protect only those patents that are truly inventive. When
functioning properly, the patent system should encourage and enable
inventors to push the boundaries of knowledge and possibility. If the
patent system allows questionable patents to issue and does not provide
adequate safeguards against patent abuses, the system may stifle
innovation and interfere with competitive market forces.
High patent quality is essential to continued innovation.
Litigation abuses, especially those which thrive on low quality
patents, impede the promotion of the progress of science and the useful
arts. Thus, we must act quickly during the 109th Congress to maintain
the integrity of the patent system.
----------
Prepared Statement of The Institute of Electrical and Electronics
Engineers-United States of America (IEEE-USA)
IEEE's U.S. members are among the most frequent users of the USPTO,
and therefore we have a compelling interest in ensuring that legal
principles governing patent policy are consistent. By virtue of the
practical experience of its members, the IEEE-USA respectfully believes
that its views can assist this committee in evaluating the effect of
patent reform proposals on technical innovation, especially that of
independent inventors and small businesses. We support patent reforms
that enhance our members' abilities to secure the patent protection
they need, the lack of which would adversely affect our country's
competitiveness, economy, and technological advancements.
IEEE-USA believes that our nation's global competitiveness and our
economy are directly tied to the innovations made by inventors of all
types, including independent inventors, inventors employed by small
businesses, inventors employed by research laboratories and
universities, and inventors employed by Fortune 500 companies. The
historical growth of more than one Fortune 500 company can be traced to
the success of a startup with a handful of inventors that obtained
funding due in great part to being able to protect their intellectual
property. As such, the voice and concerns of the independent inventor
and of small business entities must be considered along with the voice
and concerns of larger entities at all stages of developing and when
implementing changes to the patent process.
We commend the Judiciary Committee's efforts to explore the
complicated issue of patent reform. However, IEEE-USA believes that an
investigation of patent reform requires Congress to assess all
concerns, including those relating to the actions of patent infringers
and patent trolls. If Congress reacts to concerns about patent trolls
without assessing the consequences for patent holders who are subjected
to patent infringers, then Congress might risk implementing bad
legislation.
Patent reform requires the consideration of all viewpoints. Within
IEEE's U.S. membership, there is a diversity of views about patent
reform. In contrast, witnesses at the Wednesday, April 5, 2006,
Judiciary Subcommittee on Courts and Intellectual Property oversight
hearing on ``Patent Quality in the Information-Based Economy''
presented a surprisingly unified position. Their testimony focused on
restricting either the scope of patent coverage or the strength of
patent enforcement provisions, without any real consideration of
individual patent holders who may have valid concerns about losing
their rights. In fact, the hearing presented the views of a Canadian
company (Research in Motion), a Swiss Company (UBS), a legal scholar
and the Under Secretary of Commerce for Intellectual Property. Many
countervailing views, including the views of inventors and small
business owners, were not presented.
The IEEE-USA looks forward to assisting the USPTO and Congress in
your efforts to improve the efficiency and quality of the patenting
process. We believe that the subcommittee should hear a representation
of all views before deciding on patent reform. More specifically, IEEE-
USA believes that the subcommittee should hear from U.S. companies and
at least one practicing patent attorney (that is not directly employed
by a single company).
About IEEE-USA
IEEE's U.S. members include inventors, innovators, designers,
independent entrepreneurs, small business owners, and employees of
firms that acquire, license and exploit intellectual property. Their
collective efforts promote our nation's prosperity, security, and
competitiveness by fostering technological innovation. IEEE supports
the engineering process of creating, developing, integrating, sharing
and applying knowledge about electronics, information technologies and
physical sciences for the benefit of the profession and humanity.
This statement was developed by the Intellectual Property Committee
of the IEEE-United States of America (IEEE-USA) and represents the
considered judgment of a group of U.S. IEEE members with expertise in
the subject field. IEEE-USA is an organizational unit of the Institute
of Electrical and Electronics Engineers, Inc., created in 1973 to
advance the public good and promote the careers and public policy
interests of the more than 220,000 electrical, electronics, computer
and software engineers who are U.S. members of the IEEE. The positions
taken by IEEE-USA do not necessarily reflect the views of IEEE or its
other organizational units.