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

                              PATENT HARMONIZATION

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

                                    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 27, 2006

                                   __________

                               Serial No. 109-100

                                   __________

             Printed for the use of the Committee on the Judiciary

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

                                     _____

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                                 WASHINGTON: 2006

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                           COMMITTEE ON THE JUDICIARY

                F. JAMES SENSENBRENNER, Jr., Wisconsin, Chairman
    HENRY J. HYDE, Illinois              JOHN CONYERS, Jr., Michigan
    HOWARD COBLE, North Carolina         HOWARD L. BERMAN, California
    LAMAR SMITH, Texas                   RICK BOUCHER, Virginia
    ELTON GALLEGLY, California           JERROLD NADLER, New York
    BOB GOODLATTE, Virginia              ROBERT C. SCOTT, Virginia
    STEVE CHABOT, Ohio                   MELVIN L. WATT, North Carolina
    DANIEL E. LUNGREN, California        ZOE LOFGREN, California
    WILLIAM L. JENKINS, Tennessee        SHEILA JACKSON LEE, Texas
    CHRIS CANNON, Utah                   MAXINE WATERS, California
    SPENCER BACHUS, Alabama              MARTIN T. MEEHAN, Massachusetts
    BOB INGLIS, South Carolina           WILLIAM D. DELAHUNT, Massachusetts
    JOHN N. HOSTETTLER, Indiana          ROBERT WEXLER, Florida
    MARK GREEN, Wisconsin                ANTHONY D. WEINER, New York
    RIC KELLER, Florida                  ADAM B. SCHIFF, California
    DARRELL ISSA, California             LINDA T. SANCHEZ, California
    JEFF FLAKE, Arizona                  CHRIS VAN HOLLEN, Maryland
    MIKE PENCE, Indiana                  DEBBIE WASSERMAN SCHULTZ, Florida
    J. RANDY FORBES, Virginia
    STEVE KING, Iowa
    TOM FEENEY, Florida
    TRENT FRANKS, Arizona
    LOUIE GOHMERT, Texas

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

        Subcommittee on Courts, the Internet, and Intellectual Property

                          LAMAR SMITH, Texas, Chairman

    HENRY J. HYDE, Illinois              HOWARD L. BERMAN, California
    ELTON GALLEGLY, California           JOHN CONYERS, Jr., Michigan
    BOB GOODLATTE, Virginia              RICK BOUCHER, Virginia
    WILLIAM L. JENKINS, Tennessee        ZOE LOFGREN, California
    SPENCER BACHUS, Alabama              MAXINE WATERS, California
    BOB INGLIS, South Carolina           MARTIN T. MEEHAN, Massachusetts
    RIC KELLER, Florida                  ROBERT WEXLER, Florida
    DARRELL ISSA, California             ANTHONY D. WEINER, New York
    CHRIS CANNON, Utah                   ADAM B. SCHIFF, California
    MIKE PENCE, Indiana                  LINDA T. SANCHEZ, California
    J. RANDY FORBES, Virginia

                         Blaine Merritt, Chief Counsel

                             David Whitney, Counsel

                              Joe Keeley, Counsel

                              Ryan Visco, Counsel

                        Shanna Winters, Minority Counsel

                                C O N T E N T S

                                  ----------

                                 APRIL 27, 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

                                   WITNESSES

    Mr. Q. Todd Dickinson, Vice President and Chief Intellectual
      Property Counsel, General Electric Company
      Oral Testimony.................................................     4
      Prepared Statement.............................................     6
    Mr. Robert A. Armitage, Senior Vice President and General
      Counsel, Eli Lilly and Company
      Oral Testimony.................................................    11
      Prepared Statement.............................................    14
    Mr. Gary Mueller, President and Chief Executive Officer, Digital
      Now, Inc.
      Oral Testimony.................................................    35
      Prepared Statement.............................................    38
    Mr. Pat Choate, Political Economist and Author of ``Hot Property:
      The Stealing of Ideas in an Age of Globalization''
      Oral Testimony.................................................    53
      Prepared Statement.............................................    55

                                    APPENDIX
                   Material Submitted for the Hearing Record

    Prepared Statement of the Honorable Howard L. Berman, a
      Representative in Congress from the State of California, and
      Ranking Member, Subcommittee on Courts, the Internet, and
      Intellectual Property..........................................    73
    Copy of the Coalition Bill from Q. Todd Dickinson, Vice President
      and Chief Intellectual Property Counsel, General Electric
      Company........................................................    74

                              PATENT HARMONIZATION

                                  ----------

                            THURSDAY, APRIL 27, 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 9:09 a.m., in
    Room 2141, Rayburn House Office Building, the Honorable Lamar
    Smith (Chairman of the Subcommittee) presiding.
        Mr. Smith. The Subcommittee on Courts, the Internet, and
    Intellectual Property will come to order.
        Good morning to you all. Appreciate the interest in such an
    important subject.
        And let me explain that we're going to proceed. The Ranking
    Member, Howard Berman of California, is at a mandatory party
    meeting and will be here, he hopes, in time for questions. And
    other friends to my left will be here about approximately the
    same time.
        But I think it will be good to get our testimony on the
    record and go on and get off to a timely start.
        I'm going to recognize myself for an opening statement. And
    then we'll, as I say, swear in the witnesses and begin the
    testimony.
        Also let me say that I appreciate the gentleman from
    Tennessee, Mr. Jenkins, being here this morning and helping us
    get off to this good start. We need two Members here at least.
    And so, Mr. Jenkins is the indispensable Member this morning.
        Today, the Subcommittee conducts its sixth hearing in the
    109th Congress on patent reform. We're going to explore the
    merits of promoting global harmonization within the patent
    system. Inventors and the public are better served when patent
    systems world wide share the same basic components or
    framework.
        For example, a harmonized patent system reduces legal fees
    associated with filing and prosecuting the applications in
    several countries. Harmonization also inhibits forum shopping
    across national boundaries during patent disputes involving
    scope, viability, and ownership. Perhaps most importantly, a
    harmonized system creates greater certainty regarding patent
    rights internationally, which enhances the value of those
    rights for the affected owners world wide.
        As our previous hearings on patent reform have
    demonstrated, it is imperative that we improve the quality of
    issued patents that circulate in the economy here and overseas.
    Patents of acceptable integrity attract investors who
    commercialize inventions. This leads to the creation of wealth,
    new jobs, and enhanced living standards for patent owners and
    their employees.
        Better still, it means the public derives enormous health
    and lifestyle benefits that flow from the development of new
    products that incorporate patented inventions. This is why
    harmonization was one of the principles that animated the
    Subcommittee's work on patent reform this Congress.
        In terms of the hearing scope, harmonization is a large
    thematic umbrella. It potentially invites discussion, of
    course, of many other issues. That said, certain issues that
    are incorporated in H.R. 2795 and related substitute drafts are
    fair game for consideration, including the following topics.
        For starters, H.R. 2795 changes the U.S. system from one
    that protects an individual who invents first--who invents
    first to one that protects an individual who invents and files
    first. The current U.S. system leads to uncertain and expensive
    patent disputes and is at odds with the international first to
    file standard.
        Most of the witnesses who testified at our previous
    hearings support a first to file system, although we may
    encounter opposition from some independent inventors.
        Second, H.R. 2795 deletes the best mode requirement from
    section 112 of the patent act that sets forth the requirements
    for the contents of a patent application. The National Academy
    of Sciences report recommended the deletion of the best mode
    requirement, which requires the description of the best mode
    the inventor contemplated for carrying out the invention at the
    time the application is filed as one of the subjective elements
    in the patent law that adds unnecessarily to the cost of patent
    litigation.
        Other industrialized nations have not adopted a best mode
    requirement, and I believe we are better served without it as
    well.
        Third, H.R. 2795 and subsequent drafts require all U.S.
    filed applications to be published within 18 months of filing.
    The last comprehensive patent law that Congress passed adopted
    this standard, but with a major exception. The provision does
    not apply to applications that are not filed in a third country
    that also requires publication.
        Publishing an application after 18 months places a company
    on notice that a patent relevant to its business may issue,
    which allows the company greater opportunity to revise its
    operations and rethink investment strategies. The bill
    eliminates the existing loophole and extends the 18-month
    publication feature to all applications.
        And fourth, H.R. 2795 creates a new post grant opposition
    system that allows patent disputes to be resolved in a less
    expensive administrative forum compared to District Court
    litigation. This permits any member of the public to request
    that the PTO review the scope and validity of a patent within 9
    months from the date of its issuance, a time limit intended to
    encourage early weeding out of questionable patents and to
    prevent harassment.
        The system provides full rights of appeal to the Federal
    circuit by an opposer of any adverse decision in the
    proceeding.
        While these subjects are fair game for discussion today, I
    encourage the witnesses and Members to broach other
    harmonization issues as well. For example, what are the major
    impediments overseas to harmonizing the world's patent systems?
    Does harmonization serve the interest of independent inventors
    as well as big businesses?
        We have a good panel of witnesses who can speak to these
    matters, and I look forward to their testimony. That concludes
    my opening statement. Without objection, all Members' opening
    statements will be made a part of the record.
        Mr. Smith. At this point, I'd like to ask the witnesses to
    stand to be sworn in.
        [Witnesses sworn.]
        Mr. Smith. I thank you. Please be seated.
        Our first witness--oh, excuse me. I wanted to recognize
    Adam Schiff to my left, the gentleman from California, and I
    didn't look to my left.
        Do you have an opening statement or any comments to make?
        Mr. Schiff. No, Mr. Chairman. I'm just glad to join you. I
    look forward to hearing the testimony of the witnesses.
        Mr. Smith. Thank you, Mr. Schiff.
        Our first witness is Todd Dickinson, vice president and
    chief intellectual property counsel for General Electric. Mr.
    Dickinson previously served as the under secretary of commerce
    for intellectual property and the director of the U.S. Patent
    and Trademark Office. He is a graduate of Allegheny College and
    the University of Pittsburgh School of Law.
        Our next witness is Robert Armitage, senior vice president
    and general counsel for Eli Lilly and Company. He also serves
    as a member of Lilly's policy and strategy committee. Mr.
    Armitage received a bachelor's degree in physics and
    mathematics from Albion College and a master's degree in
    physics from the University of Michigan and a law degree from
    the Michigan law school as well.
        The next witness, Mr. Mueller, is president and CEO of
    Digital Now. His company develops digital imaging technology
    for the photo processing industry and other consumer software
    products. He earned his bachelor and master of science degrees
    from the Rochester Institute of Technology and his MBA from
    Marymount University.
        Our final witness is Pat Choate, a political economist who
    served as Ross Perot's vice presidential running mate on the
    Reform Party ticket in 1996. Dr. Choate is also a policy
    analyst, public speaker, and the author of six books, including
    most recently ``Hot Property: The Stealing of Ideas in an Age
    of Globalization.''
        He teaches advanced issues management at George Washington
    University and serves as the director of the Manufacturing
    Policy Project in Washington. Dr. Choate performed his
    undergraduate work at the University of Texas at Austin--
    institution I represent--and earned his doctorate at the
    University of Oklahoma. We won't talk about the OU-University
    of Texas games. [Laughter.]
        Mr. Smith. Welcome to you all. Again, we have your complete
    statements, which will be made a part of the record, and please
    limit your testimony to 5 minutes.
        Mr. Dickinson, we'll begin with you.

       TESTIMONY OF Q. TODD DICKINSON, VICE PRESIDENT AND CHIEF
        INTELLECTUAL PROPERTY COUNSEL, GENERAL ELECTRIC COMPANY

        Mr. Dickinson. Thank you, Mr. Chairman, Ranking Member
    Berman who was here a bit ago, and other Members of the
    Subcommittee.
        As the Chairman indicated, my name is Todd Dickinson. I'm
    honored to be here today. I presently serve as the corporate
    vice president and chief counsel for intellectual property for
    GE and was formerly the under secretary of commerce for IP.
        In that role, I enjoyed particularly working with this
    Committee on the American Inventors Protection Act, which was a
    successful opportunity to move a number of these issues
    forward, though there is still some more work to be done.
        At GE, I am fortunate to manage one of the largest IP
    portfolios in the world with one of the broadest ranges of
    technologies and issues. We have content-based issues in our
    film and television business, NBCU. We have genomics and
    proteomics issues in our biosciences group. We have aircraft
    engine technology and lighting technology, plastics technology.
    We like to say we may be the only company that's won both a
    Nobel Prize and an Academy Award.
        Because of the breadth of those issues and perhaps the past
    experiences, it gives us, I think--it gives me an opportunity
    to comment broadly, but also to focus in particular on some
    consensus approaches, which I think might be helpful to this
    Committee on a number of the patent reform issues that we've
    talked about.
        As the Chairman alluded to, both the Federal Trade
    Commission and the National Academies of Sciences dealt very in
    depth with a number of these issues, produced very extensive
    and important reports and recommendations, and a number of
    those recommendations have found their way into 2795 and other
    legislation and I think have served as the primary impetus for
    that.
        But also as a part of that process, Mr. Chairman, you asked
    that a number of members of the intellectual property
    community--trade associations, companies, and others--come
    together and try to have a consensus approach to this--to this
    extremely important topic. We worked very hard last summer, and
    a group that came from that, named the--called ``the
    coalition''--and I think my colleague Mr. Armitage may refer to
    it as well--developed a so-called ``coalition text,'' which I
    think the Committee may be familiar with, which of--includes a
    number of the issues in an actual text of a bill.
        And I'd request, if it was possible, to have that text
    entered into the record. I'm not here representing the
    coalition today.
        Mr. Smith. Let me interrupt you. Without objection, that
    text will be made a part of the record.
        [The information referred to follows in the Appendix]
        Mr. Dickinson. Thank you.
        Patent harmonization, as you've alluded to, is probably one
    of the most important issues facing both the patent system
    today and, frankly, the global economy today. The fact that we
    have territorially based administration and maintenance and
    enforcement regimes for patents around the world make--foster
    extraordinary redundancies in cost and in time and in
    resources.
        GE spends something like $32 million a year on patent
    prosecution and maintenance of our foreign portfolio. And a
    significant portion of that is a function of this multiplicity
    of systems.
        We're trying--we're working very hard, for example, to see
    if we can get Europe to pass--to ratify the London agreement,
    which would simply allow for English language prosecution in
    many countries in Europe. That would save us over a million and
    a half dollars a year alone.
        So patent reform around the world, not only here in the
    United States, is extremely, extremely important.
        Let me touch on a couple--I've been a participant in WIPO,
    the World Intellectual Property Organization, on a number of
    these issues. That process, candidly, Mr. Chairman, is stalled,
    and that's unfortunate.
        I represent the American Bar Association at the Standing
    Committee on Patents. And for a variety of reasons, issues in
    developing countries around genetic resources and the so-called
    development agenda, issues around patentable subject matter,
    that effort is, frankly, just sitting dead in the water at the
    moment, and that's unfortunate.
        The current Administration chose to develop a group of
    countries, brought a group of countries together recently at
    the Patent and Trademark Office, the so-called Alexandria
    Group, which has been a good attempt--a very good attempt, and
    we should applaud them for that--to try to deal with
    harmonization among just one set of countries, developed
    countries who have, I think, the bulk of the interest in this
    regard and whose--and may be able to multilaterally and outside
    of the WIPO framework develop a program which will get us
    further down the road. So I would hope that this Committee
    would look into that and applaud those efforts.
        As far as the best practices that this bill contains, and I
    think one of the goals of global harmonization in WIPO and in
    the Alexandria Group has been to identify best practices. A
    number of them have found their way into 2795, and I'd like to
    comment briefly on those best practices.
        First and foremost is the one which you mentioned, which is
    the first inventor to file. We are alone in the world among
    countries having--retaining the so-called first to invent
    system. It's a costly system. With all due respect to my good
    friends in the independent inventor community--and as director
    and commissioner, I don't think anyone else was closer to that
    independent inventor community--the first to invent system is a
    failed promise.
        The way we resolve the disputes in that area is through a
    process I think you know called interference. It can cost
    hundreds of thousands of dollars to resolve that. A study that
    was done by my good friend and colleague former commissioner
    Mossinghoff shows that even when the small inventors enter that
    system, they are disadvantaged by that system
    disproportionately, and it's a system that's crying out for
    change.
        The change would be to move to the first inventor to file
    system, which is captured in the bill as it currently stands.
    And I would hope that any version of that bill that comes forth
    from this Committee would include first inventor to file.
        Several other things, you did mention particularly the
    elimination of the best mode. That always seems like a good
    idea because it seems to foster the idea of greater disclosure.
    What is the best mode of your invention?
        What happens and has happened in reality and in practice is
    that it's become a trap for the unwary. In litigation, it's a
    defense that gets interposed on occasion, and it's kind of a
    ``gotcha'' in litigation and does not really satisfy the goal,
    I think, for which it was originally intended.
        Eighteen-month publication, complete 18-month publication.
    Again, an excellent goal. One of the disappointments of the
    AIPA was that we did not have full and universal 18-month
    publication. It has proved successful.
        The folks who opposed it, primarily again, and our
    independent inventor community have disproportionately not used
    the opt-out provision. It's used by some particularly important
    technologies, frankly, in my opinion, to try to game the system
    a little bit, to buy a little more time, to keep their
    disclosures from being made. And it undermines, I think,
    confidence in the system as a whole.
        You mentioned externally around the world where there needs
    to be other reforms and the grace period. I think in terms of
    best practices, the U.S. grace period is, indeed, a global best
    practice. And we need to make sure that we bring the grace
    period to other countries around the world, and I'm pleased
    that those discussions are underway.
        I think one additional topic, which I think may get touched
    on and is in the current draft of the legislation--and my good
    friend Mr. Armitage will probably touch on it as well--is what
    is the definition of prior art?
        We should eliminate secret prior art, which is currently
    available around the world, to undermine I think the value and
    virtue of a number of the patents in the United States. We
    should also make sure that we--and I think it's appropriate to
    redefine the availability--redefine prior art as that which is
    reasonably accessible. Given the global nature of our
    information systems now, reasonable accessibility is an
    appropriate standard.
        And finally, I wouldn't be--I would be remiss, Mr.
    Chairman, if I didn't touch on what is for many of us in the
    community, and certainly as a former director, maybe the most
    important recommendation in both of the reports that we
    mentioned, and that's continuing to end the diversion of patent
    office fees to other governmental purposes.
        Mr. Smith. Mr. Dickinson, you know I agree with you on
    that. But I think we need to move on.
        Mr. Dickinson. I thank you very much, Mr. Chairman.
        [The prepared statement of Mr. Dickinson follows:]
                    Prepared Statement of Q. Todd Dickinson
                                  introduction
        Chairman Smith, Ranking Member Berman, and Members of the
    Subcommittee:
        My name is Todd Dickinson and I am honored to appear before the
    Subcommittee on an issue that critical to our Nation's economic growth
    and prosperity: patent reform. I presently serve as the Corporate Vice
    President for Intellectual Property of the General Electric Company,
    and was formerly Under Secretary of Commerce for Intellectual Property
    and Director of the United States Patent and Trademark Office. I hope
    that these experiences may offer a valuable perspective on some of the
    issues facing us in this area, in particular the impact of patent
    reform legislation on issues of international harmonization.
        As Director, I enjoyed working on the cause of adapting our patent
    system to the needs of the 21st Century. I was particularly proud that
    the Congress passed and President Clinton signed the American
    Inventor's Protection Act of 1999, during the time I lead the USPTO,
    and that we had the opportunity to work together on the implementation
    of that Act, leading to many vital and important changes in how the
    USPTO operated and was organized.
        At General Electric, I am fortunate to help manage the intellectual
    property assets of one of the world's largest corporations. GE's IP
    holdings and concerns are extraordinarily broad, ranging from content-
    based copyright issues in our film and television organization, NBC
    Universal, to genomics and proteomics patenting in GE Healthcare, with
    everything else in between from aircraft engines to engineered
    polymers. We may be the only company that has won both a Nobel Prize
    and an Academy Award(r).
        Because of that breadth of IP issues and concerns, we are uniquely
    positioned to participate in this debate about patent reform. With such
    an extraordinary investment in technology, the need to protect that
    investment and the shareholder value it represents, makes the U.S
    patent system and its global analogues, more important than ever to us
    at GE. While our system is one of the greatest and most productive in
    the world, as with all systems, evolving needs require a regular review
    and reform in order to ensure the promise of the system is fully
    realized.
        In my previous role as USPTO Director and now at GE, I have
    followed with keen interest the two studies of the U.S. patent system
    undertaken by the Federal Trade Commission/Department of Justice and
    the National Research Council of the National Academy of Sciences and
    the resulting reports. I was a witness several times before both bodies
    and was a reviewer of the NAS report. In general, both reports were
    thorough, well-thought out, and made recommendations the majority of
    which were highly appropriate to advancing the cause of patent reform
    in positive ways. I am heartened that the reports have served as a
    motivation for the cause of patent reform, and congratulate this
    Committee for its hearings on this topic.
        Towards that end, and in the interest of attempting to find a
    consensus position on a number of the important patent reform issues
    currently under consideration, GE has also actively participated in a
    coalition of some 30 of the most recognized and well-respected
    companies in the world, representing a wide array of our most important
    technologies, including Eli Lilly, whose General Counsel, Robert
    Armitage is testifying here today as well. This Coalition, which also
    includes the American Intellectual Property Law Association and the
    Intellectual Property Owners Association, has worked hard to find
    common ground and our proposals represent some of industries best
    thinking on how to deal with the specifics of the patent reform agenda.
        We do not undertake this effort lightly, however. As one of the
    leading academic economists recently noted with some concern in his
    extensive review of these issues:

            ``Social progress in our technological age is intimately bound
            up with the creation and protection of intellectual property.''
            . . . ``[But j]ust when intellectual property (IP) has made its
            greatest contributions to this nation's technological growth,
            many critics on all sides of the political spectrum have
            assailed the soundness of the underlying legal structures.''
            \1\
    ---------------------------------------------------------------------------
        \1\ ``Intellectual Property for the Technological Age'', R.A.
    Epstein, University of Chicago, April 2006, Executive Summary and p. 7.

        As stewards of this system, and the benefits it brings the world,
    we must resolve to make sure that whatever reforms or changes come
    forth are ones which serve the public's interest, and encourage the
    economic development which that public deserves.
                              patent harmonization
        One of the most critical issues facing the patent system today,
    globally, is the need for harmonization of patent laws and procedures.
    With their territorially-based administration, maintenance, and
    enforcement regimes, the current systems foster extraordinary
    redundancies in cost, time, and resources. These inefficiencies inhibit
    the ability of inventors, large and small, to obtain and maintain the
    protection they deserve, and encourage the innovation so vital to
    global economic development. GE innovation has resulted in an active
    global portfolio that comprises over 38,000 patents and this number
    includes over 5,700 global patent applications in 2005. We also filed
    over 2700 U.S. patent applications in 2005. The cost to obtain and
    maintain this portfolio is not trivial. In 2005, GE spent in excess of
    $32,000,000 on the patent prosecution and maintenance of the foreign
    portfolio, a significant portion of which is a function of the
    multiplicity of world systems.
        Efforts at greater harmonization have been debated for years, with
    only modest success. As a negotiator of intellectual property issues on
    behalf of the U.S. government, and now as a delegate to the World
    Intellectual Property Organization, I have witnessed the frustrations
    in this area first hand. While we have succeeded in negotiating new
    treaties in many other areas of intellectual property over the last
    decade to deal with rapidly evolving changes in the technology and
    content worlds, substantive patent harmonization has proven difficult
    and challenging for a variety of reasons. I would like to first address
    the current state of play on international harmonization and some of
    the concerns we have on that current status.
                    standing committee on the law of patents
        Substantive patent law harmonization has been a topic of discussion
    in the World Intellectual Property Organization (WIPO) since at least
    the mid-1980s in response to increasing calls for harmonization of
    national and regional patent laws.
        Following the last major, but unsuccessful, effort to advance
    substantive harmonization in 1991 at the WIPO, and the completion of
    the Patent Law Treaty of 2000, dealing with procedural matters, renewed
    discussions on a draft Substantive Patent Law Treaty (SPLT) began again
    in earnest in May 2001 in the Standing Committee on Patent Law. Only
    limited progress has been made in WIPO, the discussions, especially
    those over the past few years, having been marked by attempts on the
    part of a coalition of developing countries to inject a number of
    highly sensitive political issues into the discussions and to introduce
    other proposals that seek to undermine the goals of patent law
    harmonization or generally weaken patent rights. These have primarily
    involved issues regarding patent application disclosures of the source
    of origin of genetic resources/traditional knowledge and exceptions to
    patentability or patentable subject matter.
        As a way of moving forward, the U.S. delegation has actively
    supported a compromise proposal to limit the scope of work of the
    Standing Committee on the Law of Patents (SCP) to discussions regarding
    a limited number of issues, the so-called ``mini-basket'', which
    includes the issues of the definition of prior art, priority of
    invention to be awarded to the first inventor to file the patent
    application, a grace period for filing after the public disclosure of
    the invention, and issues relating to novelty and inventive step.
        Unfortunately, efforts to reach a specific work plan for the SCP
    thus far have been unsuccessful. In fact, the most recent attempt to
    define the work plan, the informal meeting of the SCP held from April
    10-12, 2006, failed to reach agreement on such a plan for harmonization
    talks.
                             group b+ consultations
        While in the past efforts focused around the original work plan of
    the SCP in WIPO, it is becoming increasingly apparent that success in
    the near term at WIPO is not likely. For this reason, new avenues and
    strategies for attaining progress on substantive patent law
    harmonization have been explored.
        In February of 2005, the USPTO was instrumental in setting up the
    ``Alexandria'' group or ``Group B+'' comprised of members of like-
    minded countries interested in harmonization. The inaugural meeting was
    attended by 20 nations, the European Union, and the European Patent
    Office and resulted in the unanimous decision to establish a technical
    working group for the express purpose of discussing certain areas of
    patent law harmonization.
        Since its inception, the Group B+ , or ``Alexandria Group'', has
    been meeting biannually and been working toward harmonization on this a
    limited number of issues. While significant progress has been made,
    certain sensitive issues remain, however, such as first-to-file, grace
    period, and secret prior art treatment and effect. Also, some of the
    European delegations have expressed reservations over proceeding with
    harmonization discussions outside of WIPO, if WIPO will not be the
    forum where an agreement is ultimately reached. The USPTO and the Bush
    Administration should be congratulated for taking the initiative on
    this effort to establish the Alexandria Group and to move its agenda
    forward, and we look forward to additional engagement and progress in
    the future.
                    best practices and patent harmonization
        High among the principals underlying the work of the SCOP and of
    the Alexandria Group's efforts has been a desire for so-called ``deep
    harmonization'' resulting from an understanding of what are the best
    practices among the world's patent systems. This identification of best
    practices also underlay in many ways the study and reports of both the
    Federal Trade Commission/Department of Justice and the National
    Academies studies and reports. In particular, it is important to note
    that the comprehensive National Academies of Science report, among its
    recommendations for patent reform, addresses broadly the importance of
    reducing the redundancies and inconsistencies among national patent
    systems. They specifically recommend reconciling application priority,
    i.e. first-inventor-to-file, elimination of the best mode requirement
    and universal publication of all patent applications.\2\
    ---------------------------------------------------------------------------
        \2\ ``A Patent System for the 21st Century, National Research
    Council of the National Academies, June 2004, pp. 11-12.
    ---------------------------------------------------------------------------
        I have been asked to comment specifically on certain issues in H.R.
    2795 and various other draft bills which have discussed, which relate
    in particular to harmonization such as those identified above, and am
    pleased to do so.
          resource allocation and the uspto: permanently end diversion
        Before delving into the patent reform issues, however, I want to
    briefly address another issue that probably most significantly affects
    the successful functioning of our patent system. As both the NAS and
    FTC reports highlighted, the USPTO must have sufficient resources to
    perform its critical role in administering the patent system. For
    years, the USPTO was denied these resources as patent and trademark
    fees, paid to the USPTO in return for specific services, were diverted
    to unrelated government agencies and activities. As a former Director,
    I have seen and had to manage first-hand the problems this denial of
    funds causes in the USPTO. While Congress and the current
    Administration are to be commended for fully funding the USPTO during
    the current fiscal year, fee diversion from prior years has left the
    USPTO with a tremendous work backlog, obsolete systems, and an
    inability to restructure. As contemplated in H.R. 2791, recently
    introduced here in the House, the USPTO would be given authority to
    raise its fees, but also gives statutory assurance that those fees will
    not be diverted to unrelated programs.
        Too often we regard this issue as ``Mom and Apple Pie'' in the mix
    of patent reform issues. It would be tragic to have it be overlooked in
    the debate over more procedural reforms, and remains probably the
    single most important reform to our system this Congress could and
    should make. This Subcommittee, and you Mr. Chairman, should be
    commended for the support they are giving, and have consistently given,
    over the years to a permanent solution to the diversion problem.
        In the event that additional resources are provided, we would
    submit that attention should be focused on using those funds to provide
    additional examination time for examiners, continuing to increase the
    searching resources and databases available to examiners, and training
    and other means to continue to develop the technical and legal
    expertise of our examining corps.
                             first-inventor-to-file
        One of the major obstacles to global harmonization has
    traditionally been resolution of the basic question of who is entitled
    to priority of invention. Alone now among the world's countries, the
    U.S. has maintained a system awarding priority of inventorship to the
    so-called ``first inventor''. This seemingly innocent characterization
    has become fraught with difficulties of definition, proof and cost. The
    rest of the world awards priority to the first inventor to file their
    patent application. While this debate has been ongoing for decades, the
    time appears to be at hand for the U.S. to join the rest of the world
    in implementing this simpler, fairer and less burdensome means for
    awarding priority.
        As the groundbreaking study by my colleague and friend, former PTO
    Commissioner Gerry Mossinghoff, has shown, the very individuals who in
    recent tradition have been most concerned about this change, the
    individual or small inventors, have actually been disadvantaged by our
    current system.\3\ The primary means for determining inventorship when
    there is a contest is a process in the USPTO known as interference.
    Costly,\4\ rule-bound, and time-consuming, the interference process is
    a failed promise for individual inventors, as well as small and medium
    size enterprises, universities and non-profit organizations, who also
    have sometimes opposed such a change.
    ---------------------------------------------------------------------------
        \3\ Interestingly, it should also be noted that, in testimony
    before this Subcommittee's predecessor, a representative of small
    inventors once stated, ``[W]e endorse a first-to-file rule.'' Statement
    of Burke E. Wilford, National Director, the American Society of
    Inventors, Exhibit D, Hearings before the Subcommittee on Patents,
    Copyrights and Trademarks of the Committee on the Judiciary, United
    States Senate, 90th Congress, May 17-18, 1967, p.291.
        \4\ It is often estimated that the cost of an interference from
    declaration to resolution is routinely in the hundreds of thousands of
    dollars.
    ---------------------------------------------------------------------------
        Moreover, since this was last seriously debated at the
    international level, during the first Bush Administration, many other
    structural and systemic changes have helped level the playing field
    relative to concerns previously expressed. The adoption of provisional
    applications, the availability of technical and legal resources on the
    internet, and electronic searching and filing capabilities on-line have
    made the application process more accessible and timely to all
    Americans.
        This past year, both the NAS report and the American Bar
    Association's House of Delegates urged the U.S. to change to a ``first-
    inventor-to-file'' (FITF) system as a best practice.\5\ While it has
    sometimes been suggested that the U.S. should not unilaterally move to
    this FITF system, and should only consider it as part of an overall
    package of international harmonization treaty obligations, the
    advantages of this system in terms of simplicity, cost, and a serious
    reduction in uncertainty about priority, argue strongly in favor of
    making such a change now. It may also be that such a good faith move on
    the part of the U.S. will reinvigorate the stalled negotiations at the
    WIPO, an important and valuable goal in itself, and will help
    facilitate possible agreement in the Alexandria Group's work.
    ---------------------------------------------------------------------------
        \5\ The applicant must still be the true inventor. Inventions
    derived or stolen by others would not permit that deriver or thief to
    be considered the true inventor. For this reason, the term of art used
    to describe the new system is ``first-inventor-to-file''.
    ---------------------------------------------------------------------------
        Therefore, I would like to strongly support Section 3 of H.R. 2795
    which would change the U.S. patent system from a first-to-invent system
    to a first-inventor-to-file system. Often known as just first-to-file,
    the bill calls the new system ``first-INVENTOR-to-file'' to make clear
    that an individual cannot obtain a valid patent if he is not an
    inventor, i.e., if the individual derived the invention from someone
    else and then file, or as some small Inventors are concerned
    surreptitiously learn of their invention and beat them to the USPTO.
    Under the new system, among two or more competing inventors the patent
    would go to the inventor with the earliest ``effective'' patent filing
    date.
        With the switch to first-inventor-to-file by the U.S., no country
    in the world would have a first-to-invent system. I join with my
    colleagues in support of proposed changes that would amend Title 35 to
    award priority to the first inventor to file a patent application, and
    urge this subcommittee to include language to that effect in any patent
    reform statute under consideration.
         definition of prior art and grace period as ``best practices''
        We also support the propose redefinition of prior art to that which
    consists of information that is available to the public anywhere in the
    world. Public availability requires reasonable accessibility and
    includes all types of communications as well as public display and
    uses. This may directly impact patent examination and, by extension,
    overall quality, and will also hopefully be available in a post-grant
    review procedure, also currently under consideration and a major
    recommendation of the NAS and FTC/DOJ reports. It also consistent with
    the currently-considered harmonization proposals and, thereby advances
    that goal, as well. This is additionally true in its removal of the
    ``in this country'' limitation on the use of such prior art. In today's
    globalized trade environment, with significantly easier access to data
    from around the world, the anachronistic limitation to domestic art has
    little place in our patent regime.
        Along with this, a ``grace period'' would apply to all publications
    of the inventor including earlier published patent applications. This
    grace period would arise by operation of law without any requirement
    for the filing of a declaration. The Coalition text supports a more
    extensive grace period than the one contained in the Chairman's July
    26th substitute text, and was the work product of on on-going dialogue
    with the university community for whom this issue is particularly
    resonant.
        We also support the elimination of so-called ``secret prior art''
    which might also be available to avoid art which would other invalidate
    inventions. This elimination is also a major discussion issue in the
    ``mini basket'' of harmonization issues currently under discussion.
    Permitting secret prior art, creates uncertainty and frustrates the
    goal of searching for prior art for the purpose of improving patent
    quality.
                    repeal of the ``best mode'' requirement
        The best mode requirement of 35 U.S.C. Sec. 112 requires patent
    applicants to disclose what they consider to be the best way of
    carrying out their claimed invention. HR 2795 proposes eliminating this
    requirement. This change would accomplish two purposes. First, it would
    bring the US patent system into conformance with many other
    jurisdictions throughout the world, which lack such a requirement.
    Second, this change would eliminate a point of subjectivity in order to
    make patent validity more predictable. Repeal of the ``best mode''
    requirement would remove another barrier to global harmonization.
        Furthermore, while this has often been portrayed as a positive, in
    that it seems to encourage greater public disclosure, in practice, it
    has more often resulted in a trap for the unwary or a ``gotcha'' in
    patent litigation, further undermining confidence in the system.
                              18 month publication
        Universal publication of patent applications after 18 months is the
    norm in the rest of the world. However, in the U.S. patentees who do
    not wish to file for a foreign patent can opt for non-publication of
    their patent application, so long as they give up their right to file
    on that invention outside of the U.S. Section 9 of HR 2795 would
    eliminate this anomaly of the U.S. patent law. This change would also
    lead to greater disclosure and sharing of information and, of course,
    remove another barrier to harmonization.
        It also prevents entities from making important and expensive
    investments of research dollars, unaware that that research may at some
    point infringe an issued patent. This is not a wise use of limited
    research dollars. This also, by extension, encourages additional
    research, which is all to the public good. In any event, it is my
    understanding that USPTO statistics show that there is only a minor
    ``opting out'' that is occurring, but it may be in important
    technologies,\6\ where the applicant may be using the opt-out
    provisions initially to avoid exposing their technology publicly for a
    period, while opting in later. Such gamesmanship should not be
    encouraged, especially when the public policy grounds for publication
    are so strong in the first place. 18 months is enough time for
    inventors to determine whether or not to proceed with the publication
    and prosecution or to abandon the application and keep it a trade
    secret. We support universal publication.
    ---------------------------------------------------------------------------
        \6\ And, interestingly, apparently not often by independent
    inventors, who lobbied strongly and successfully for inclusion of the
    opt-out language in the American Inventors Protection Act.
    ---------------------------------------------------------------------------
                                   conclusion
        In conclusion, while a member of the Coalition, and supportive of
    that text, GE supports much that it in HR 2795, in particular in the
    areas of harmonization which I have identified, and applaud the
    continuing efforts of this subcommittee to improve the patent system,
    globally, by updating U.S. law and practice to permit a more globally
    harmonized system. Intellectual property protection on an international
    level is a critical element of GE's research and development cycle and
    to our continued introduction of innovative products and services to
    global markets.
        I would be pleased to respond to questions from the Subcommittee.

        Mr. Smith. Thank you, Mr. Dickinson.
        Mr. Armitage.

      TESTIMONY OF ROBERT A. ARMITAGE, SENIOR VICE PRESIDENT AND
                 GENERAL COUNSEL, ELI LILLY AND COMPANY

        Mr. Armitage. Yes, thank you, Chairman Smith, for the
    opportunity to be here this morning.
        I'll begin. Thank you, Chairman Smith, for the opportunity
    to be here this morning to speak on the topic of patent
    harmonization and its relationship to broader issues of patent
    reform.
        I, frankly, am most appreciative of the efforts that you
    and other Members of your Subcommittee have undertaken to
    advance the cause of patent reform in this Congress, including
    the development of legislative proposals that would advance
    harmonization along with broader patent reforms.
        In my written testimony, I attempted to set out at some
    length how patent harmonization efforts have been and remain
    inherently intertwined with broader efforts at patent reform.
    My written testimony offered a fairly detailed tour of the
    three major reform efforts over the past 40 years--the 1966
    President's Commission, the 1992 DOC Advisory Commission, and,
    as Mr. Dickinson referenced, the more recent National Academies
    report.
        Remarkably, whether these efforts were undertaken in the
    '60's or the '90's or at the start of this century, they
    consistently reached many of the same conclusions. Significant
    and some might say radical measures must be undertaken by
    Congress to elevate patent quality. Improving patent quality,
    however, is only one aspect of measures that must be undertaken
    to ensure civil justice for patent litigants.
        Like many others whose businesses are greatly impacted by
    the U.S. patent system, my company supports a fair, balanced,
    and comprehensive patent reform bill to both elevate patent
    quality and advance civil justice for patent litigants.
        Indeed, as Mr. Dickinson said, the reforms that we seek are
    now supported by three dozen major companies and leading IP
    associations. These reforms would result in greater
    harmonization with patent systems outside the United States,
    but harmonization for its own sake is not really the driver
    behind these reforms.
        In our view, we agree with Mr. Dickinson that the National
    Academies recommendations should represent the template for
    designing patent reform in this Congress. We believe first
    inventor to file, elimination of the best mode requirement,
    publication of all applications at 18 months, and introducing a
    new 9-month window for post grant oppositions that would be
    open to all issues of the validity of a patent ought to be
    enacted into law.
        First inventor to file, by itself, would remarkably
    simplify our patent system and simplify the work of the Patent
    and Trademark Office. It would also, frankly, be a necessary
    predicate for conducting a post grant opposition that would be
    open to all issues of whether a patent was valid or not.
        Perhaps the most important benefits from making harmonizing
    changes to the U.S. patent system would be the objectivity and
    transparency that it would introduce into the patent law. The
    reforms in 2795 in a few words would allow someone with
    sufficient knowledge and skill to pick up any U.S. patent, read
    it, reference only publicly accessible information, and be able
    to make a full and complete determination of whether the patent
    is valid or not.
        And as we well know, today's patent system, even after
    millions of dollars of discovery of issues that are sometimes
    based on secret prior art, sometimes based on subjective
    impressions of the inventor in what was or was not the best
    mode always leaves uncertainty and doubt in whether a patented
    invention is, indeed, validly patented.
        Also, adopting a full set of reforms would facilitate the
    initiative that Director Dudas at the United States Patent and
    Trademark Officer has been championing to increase
    responsibility of applicants. It would do so by creating a safe
    harbor for inventors who obtain fully valid patents, so that
    those fully valid patents couldn't later be challenged in court
    on the basis that the patent was procured through inequitable
    conduct.
        Finally, as Mr. Dickinson noted, the patent reform process
    in this Congress appears to have slowed because of
    controversies over a few issues. The most controversial of
    these issues relate to disabling or at least diminishing the
    availability to inventors of adequate remedies when their
    patents have been found both valid and infringed.
        If Congress were to move forward, however, with patent
    quality and related reforms that advance civil justice for
    patent litigants, we believe that these misguided calls for
    diminishing or disabling patent remedies would cease.
        We have heard the arguments that it's unfair to put a
    company out of business or force the payment of a king's ransom
    because of a patent of questionable validity that can't be
    effectively challenged either administratively or in the
    courts. However, with the enactment of patent quality and
    related civil justice proposals that we support, that specter
    would disappear.
        When a high-quality patent is issued, and its claims are
    properly limited to truly novel and innovative technology that
    an infringer can't avoid by redesigning a product or
    incorporating any alternative technology, no possible
    justification should exist for denying such an inventor the
    full economic rewards from his contribution, including the
    assurance that ongoing infringement of such a valid patent will
    be stopped by the courts.
        Thank you for permitting me this opportunity to speak today
    as part of your ongoing efforts at patent reform.
        [The prepared statement of Mr. Armitage follows:]
                    Prepared Statement of Robert A. Armitage

        Mr. Smith. Thank you, Mr. Armitage.
        Mr. Mueller.

       TESTIMONY OF GARY MUELLER, PRESIDENT AND CHIEF EXECUTIVE
                       OFFICER, DIGITAL NOW, INC.

        Mr. Mueller. Thank you, Mr. Chairman and Members of the
    Committee, for allowing me to be here today and express my
    views on patent harmonization.
        I would also like to thank the competitive--the Association
    for Competitive Technology for its leadership on this issue and
    helping me prepare for this testimony.
        My name is Gary Mueller, and I'm the president and chief
    executive officer of Digital Now. We're a small, Herndon-
    based--Herndon, Virginia-based company. We have several
    employees on staff locally and a handful of programmers
    throughout the United States, and we highly leverage our
    partners and our suppliers in our business.
        Despite our small size, we think we're poised to take
    advantage of emerging technology and being a leader in consumer
    services on the Internet. In the past, we've built film
    scanners and Internet photo sites for photo finishers. Now
    we're providing digital safe deposit box services to safely and
    securely store files, digital emotional property that belongs
    to the consumer, such as digital photos, home videos, important
    documents and records, as well as digital IP, or intellectual
    property, that consumers buy over the Internet, such as music,
    ring tones, e-books, and games.
        Let me say up front that I support the changes in the
    patent processes in the U.S., including the harmonization
    efforts. I specifically support the first to file proposal and
    the proposal to file all publications or patent applications
    within 18 months of their filing date.
        I'll try to be succinct. I have four points to make from a
    small business perspective. One disclaimer first. I am not a
    patent attorney.
        Okay. Point one. File locally, grant globally. In 1999, we
    got a patent for a lamphouse technology quite unique for--and a
    film-scanning technique capability. Because of the cost and
    complexity, we decided not to file outside the United States.
    It was a mistake.
        In the fall of 2000, I was at Photokina, which is a large
    trade show for us in Cologne, Germany. And I was shocked when
    Gretag, a large equipment company based in Regensdorf,
    Switzerland, was openly showing the use of our patent in a new
    competitive scanner.
        When I discussed the issue with our patent attorney, he
    just told me it was too late. Wait until they enter the U.S.
    market.
        The lack of that patent protection cost me European sales
    and revenue. That impacted U.S. jobs and hurt my ability to
    build a great next product.
        So I'm sensitive to this issue of harmonization, as someone
    who has to make payroll and watch the bottom line. It makes no
    sense to pay for the same work of patent searching and
    examination to be done for the same invention in each country
    where patent protection is sought. Small companies simply can't
    afford it. A single search and examination in a single office
    should be recognized in every other country where patent
    protection is sought.
        Point two. File now and attract the cash cow. As a small
    business, our goal is not to put competitors out of business,
    but to bring others into our businesses. Patents are a key tool
    to attract investment equity, secure business loans, develop
    supplier and channel partners, and, yes, ensure that we're
    fairly compensated for what we created.
        When I learned Gretag was violating our patent, I did not
    want to put them out of business. I wanted to play ``Let's Make
    A Deal.'' As a big company, they had more resources, stronger
    world-wide distribution channels, and a customer support
    infrastructure. That's leverage for what we bring to the
    market.
        We are now seeking new investors for our new initiatives,
    and guess what they ask first? ``Do you have any patents?''
        We've already mentioned the Mossinghoff study. So I won't
    go into that. But I believe that that study supports the
    position of first to file, and we see that as an important
    element for our business as well.
        Point three. Turbo charge the PTO. In my own view, speed,
    or the lack thereof, is one of the biggest issues facing my
    industry when it comes to patents. They say that speed kills on
    the highway. Well, pendency kills on the information
    superhighway. The longer I have to wait for a patent to be
    granted, the longer I have to wait for that tool to attract
    investment and partners.
        The average length for receiving a patent from the U.S. PTO
    is 29 months. For software, a very changing industry, the
    average pendency is even longer--40 months. Our own patent on
    image rotation, automatic image rotation, took us almost 6
    years to get.
        I've had to abandon other patent applications and,
    therefore, the business opportunities that those patents
    represented because the market moves faster than the PTO
    office. The opportunity to participate and probably improve the
    marketplace was lost.
        In today's fast-paced world, a patent delay is a potential
    market denied. Why? Because, as a small business, I have to
    weigh the risks of ongoing costs of R&D and commercialization
    against the ability to protect that investment from those that
    can outpace me.
        This also speaks to speed in publishing all applications in
    18 months. If someone has beaten me to the punch, I want to
    know about it right away, as soon as possible, and cut my
    losses. Go to plan B.
        If not, I'm in a better position to raise funds, take the
    additional risk, continue development, and, best of all, get a
    product to the market and sell it.
        Clarity would come with the publication of all patent
    applications at 18 months after the filing date. We would have
    more information about the competitive environment in which we
    operate.
        Point four. Small business entrepreneurs need an on-ramp to
    get in the game. As a small business, we have to deal with
    ``bet the company'' issues almost every day, much more than the
    larger counterpart sitting at the table. We are often in the
    red to prove our technology and our business models.
        Consequently, we have to ante up early in the process
    $30,000 or more to get through the patent application process.
    That money would otherwise be used to keep the doors open by
    paying the rent or making the payroll. To suggest that we
    should not spend this precious capital on improving our
    products and services, but spend it by rushing to the patent
    office is a very tough sell in our environment.
        There is a real and persistent fear among entrepreneurs,
    who are often cash poor, that inventions disclosed and patents
    applications once published will be stolen by larger, deep-
    pocket competitors. These fears can be best addressed by a
    patent system driven by quality, clarity, and speed.
        Achieving progress on these points helps a lot. Education
    is also going to be important to re-educate the small
    entrepreneur.
        In general, bad behavior fosters bad behavior. Bad behavior
    because of the length of the patent process, the backlog of the
    PTO, and the system in general fosters bad behavior by
    entrepreneurs and inventors.
        Harmonization, improving the PTO performance will foster
    good behavior, especially with small business entrepreneurs. We
    will trust the system, have greater clarity, know where we
    stand with our initiatives and ideas, and we'll use the system
    to our advantage.
        Mr. Smith. Mr. Mueller, we're going to need to move on. I
    think you got your four points in, though.
        Mr. Mueller. I did. Perfect timing.
        [The prepared statement of Mr. Mueller follows:]
                       Prepared Statement of Gary Mueller

        Mr. Smith. Thank you very much.
        Mr. Choate.

      TESTIMONY OF PAT CHOATE, POLITICAL ECONOMIST AND AUTHOR OF
          ``HOT PROPERTY: THE STEALING OF IDEAS IN AN AGE OF
                            GLOBALIZATION''

        Mr. Choate. Thank you, Mr. Chairman.
        I'm here today on behalf of the Professional Inventors
    Alliance. The two founders of that, Ron Riley and George----
        Mr. Smith. Mr. Choate. Yes, pull the mike a little bit
    closer to yourself.
        Mr. Choate. Okay. I'll be happy to.
        I'm here on behalf of the Professional Inventors Alliance.
    Two of the founders of that organization, Ron Riley and George
    Margolis, are here with us today.
        Small inventors are part of a group called the ``small
    entity inventors.'' That is independent inventors, small
    businesses such as Mr. Mueller's, nonprofits, academics. They
    make up and contribute 45 percent of the patents done in this
    country.
        If you remove the foreign patent applications submitted,
    they're the largest contributors to the patent system. They
    make the most patent applications. And studies done by the
    Small Business Administration reveal that they produce more
    highly sighted patents than large firms on average, and small
    patenting firms produce 13 to 14 times more patents per
    employees as large patenting firms.
        They're an important part of the innovation in this
    country. And so, how patent law affects them is vastly
    important to our technological and innovative future for this
    country.
        The question really is not whether one is for or against
    harmonization. Harmonization is a good thing. No one opposes
    having similar administrative procedures. I think it's a good
    thing for the world to file patents in English. English is the
    language of commerce in the world today.
        The question of reasonable access to prior art is--is a
    very desirable thing, and it's facilitated by the Internet.
    Researchers such as myself increasingly depend upon it. Ten
    years ago, I employed two research assistants. Today, I employ
    none. The Internet serves that function actually even better.
    And I think no one objects to standard searches.
        The question is, is in this process of harmonization, will
    we lower the U.S. patent standards to that of other countries,
    or will we raise--insist upon raising the standards of other
    countries to our own, which I think is the finest patent system
    in the world and has served us very well for two centuries?
        As I take a look at the issue, there are three major issues
    that this patent system faces today. The first is the extended
    pendency rates. In the past 12 years, they've gone from 19
    months to almost 30 months.
        We talk about wanting a surge of innovation in this
    country. We can go over into Virginia, and there is something
    like 500,000 to 600,000 patent applications in a warehouse
    waiting for their turn to be considered. If we could get the
    pendency rate down to something like 6 months, we could unleash
    a vast amount of new innovations.
        And what we're talking about here are some simple
    procedures and the Congress appropriating another billion or $2
    billion to hire more patent examiners, which would be one of
    the best investments this country could make.
        The second major question is piracy. So much of what we're
    talking about today reflects our inability to deal with piracy.
    Now this Congress and this country led the way in the 1990's to
    create TRIPs, a major shift in world intellectual property
    rights. We created for ourselves and to get those rights, we
    swapped off the American apparel and textile industry. We have
    major rights there.
        But when we deal with countries such as China, we have not
    filed a single WTO case against China, and they're facing major
    violations.
        And then finally, the premature--what I call the premature
    publication of patents. The issue, it would seem to me, is not
    to pick up that 10 percent of inventors that are left out of
    that, but for us to go and renegotiate to take the United
    States off that 18-month patent rule.
        Think about it, what it says. First of all, we've set up
    the rule, the 18-month rule, because we're unwilling to deal
    with the pendency issue. We're unwilling to deal--if we were
    issuing patents at 6 months, there'd be no need for an 18-month
    rule.
        Alexander Graham Bell, for example, got his patent in 3
    weeks. It was 600 lawsuits, including 5 challenges at the
    Supreme Court. This is doable.
        But more importantly, what we find is this 18-month rule is
    a major boon to pirates around the world. The Japanese patent
    office, for example, sent some of their people to China,
    visited with various countries. And what they found was rows
    and rows of computers where the Japanese--I mean the Chinese
    companies were pulling down the information off the Net about
    Japanese and English and German and American patents. And they
    said, ``We don't need to research. All we need is this access
    to the 18-month rule.''
        And moreover, when the Japanese went back and checked their
    own computers, they found they were getting 17,000 hits a day
    from Chinese companies looking into their patents, and they
    found that South Korea was hitting it 50,000 times a day.
        Another thing that happens with the 18-month rule, if an
    inventor makes a filing for a patent, if it goes up at 18
    months and if he's denied or if that inventor is denied a
    patent, after that 18-month rule the application is filed, he,
    in effect, loses the right to operate his innovation as a trade
    secret. It's given away already.
        Now about a third of the patent applications every year are
    rejected. We're losing 60,000 or 70,000 innovations a year that
    inventors have, where they could use it as a trade secret, re-
    release it entirely to the world.
        As to the question of best mode, the golden covenant that
    the Constitution provides is an exchange of knowledge for a
    grant of the exclusive right to use. Best mode is, I think, a
    necessity.
        This country has had some very bad experiences in the past.
    As we moved into the early part of the century and World War I,
    Germany had a monopoly on dyes, certain chemicals, painkillers,
    analgetics, aspirin, et cetera. The Germans cheated. The
    Germans didn't give the best mode of use.
        When the Dupont Company, at the direction of the U.S.
    Government, moved to try to replicate those inventions in a
    time of crisis, what they discovered is that if you followed
    the techniques laid out by I.G. Farber and others, you'd kill
    your chemist. Best mode is very important.
        And thank you for your questions, and I am glad to come.
        [The prepared statement of Mr. Choate follows:]
                        Prepared Statement of Pat Choate
        Mr. Chairman and Members of the Committee:
        Thank you for the invitation to present my thoughts on ``Patent
    Harmonization.'' I appear as a member of the Advisory Board of the
    Professional Inventors Alliance--a group of independent inventors that
    support strong patent protections.
                                 the three p's
        The U.S. patent system has three major problems today.

            1.  Pendency rates are far too long, denying the nation new
            innovations in a timely manner;

            2.  Piracy of U.S. intellectual property rights is not being
            adequately addressed;

            3.  Premature publication of patent applications at 18-months
            is (a) enabling the theft of U.S. intellectual properties, (b)
            denying patent applicants the ability to use their innovations
            as trade secrets, and (c) encouraging inventors not to file
            patent applications, thereby diminishing the nation's general
            knowledge.
        Proposals to shift from a first-to-invent to a first-to-file
    system, to eliminate the ``best mode'' requirement in a patent
    application and to expand the publication of patent applications will
    weaken the U.S. Patent System and discourage American innovation at
    just the moment both should be strengthened to meet expanding global
    competition.
                          six national economic tools
        The President and Congress have six basic tools to direct the U.S.
    economy:

            1.  Fiscal Policy

            2.  Monetary Policy

            3.  Exchange Rate Policy

            4.  Trade Policy

            5.  Technology Policy

            6.  Competition Policy (Antitrust)

        For more than two centuries, the strongest of those six has been
    U.S. Technology Policy, the heart of which is the nation's system of
    intellectual property laws and the rights they create. Those laws and
    rights, the strongest in the world, have encouraged national innovation
    and the spread of general knowledge beyond anything achieved by any
    other country in history.
        These intellectual property rights, in whatever form they exist,
    are ultimately social contracts between the originator of an idea and
    society. The arithmetic of the exchange is simple: the temporary award
    of ownership allows the public to benefit from new ideas and encourages
    the creation of even more innovations.
        What varies among nations is the way they balance this quid prod
    quo--ownership for disclosure--and which interests they favor in their
    patent policies.
        At its heart, the American system of intellectual property
    protection--whether that protection comes as a patent, copyright,
    trademark, computer mask, or trade secret--favors the rights of
    ownership. U.S. law gives inventors and writers the long-term,
    exclusive right to make, use, or sell their creations and powerful
    legal means to defend their rights in U.S. courts.
        Most other nations, however, still view an originator's discovery
    as a legacy to society almost from the inception. Thus, those
    intellectual property systems favor the quick distribution and shared
    commercialization of new ideas, even if this puts the inventor or
    writer at a disadvantage.
        Think about cameras. In the United States, Kodak violated
    Polaroid's instant photography patents, lost their case in court and
    then had to pay Polaroid $1 billion in damages. In Japan, by contrast,
    one company develops a killer application, such as technology to
    stabilize shots, but all other Japanese camera makers soon introduce
    the same technology. In the U.S., the innovator could use that
    technology to sweep the market. In Japan, a government-approved and
    often a government-guided cartel shares the technology among
    competitors.
        The differences of national emphasis--ownership vs. sharing--among
    the U.S. European, and Japanese intellectual property systems are
    substantial.
        The stated or explicit goal of patent harmonization efforts is to
    synchronize these divergent patent systems so they generally work
    alike. In itself, this bringing together of national systems is
    desirable.
        However, there is an unstated, and vital, issue involved: Will
    patent standards and protections be raised or lowered in the
    harmonization process? Harmonize up? Or, harmonize down?
        That is the choice now before Congress.
                              parties in conflict
        For almost two centuries, Congress has set intellectual property
    rights by allowing the affected parties to find a compromise. Now that
    process is impaired, largely because of the changing nature of the
    parties at interest. Before the 1960s, the battle was between domestic
    industries and between individual industries and large corporations.
    With globalization, the conflict is between national systems, which
    means foreign nations and their corporations versus both small and
    large entity inventors. As U.S. corporations offshore their R&D and
    manufacturing, their interests are increasingly aligned with those of
    foreign-based multinational companies that are trying to weaken U.S.
    protections for small entity domestic inventors.
        Small versus Large Entities--The United States Patent and Trademark
    Office (USPTO) distinguishes between what it terms ``small entities''
    (independent inventors, companies with 500 or fewer employees, not-for-
    profit organizations and universities) and ``large entities'' (larger
    corporations).
        Until the last half of the 20th century, the principal patent
    conflict was between independent inventors and large U.S.-headquartered
    corporations, reflecting the fact that individual inventors are a
    natural enemy of the status quo, large corporations and state-owned
    enterprises.
        ``Innovation is a hostile act as it threatens the status quo and
    those who benefit from it,'' says inventor Paul Heckel. That threat,
    Heckel claims, explains the difference between the U.S. patent system
    and those of Japan and Europe. Those systems were developed to minimize
    the threats to entrenched interests, while ours was created after our
    Revolution when the entrenched interests, that is, the British, had
    been overthrown and those in power had little but the vast future of a
    nation to develop.
        The American experience is that these small entities, particularly
    independent inventors, can devastate an entrenched interest, almost
    overnight. Indeed, doing just that, and becoming rich and famous is the
    dream of most such entrepreneurs. Moreover, it happens repeatedly in
    America. Small entity invention has a particular American quality,
    reflecting our culture. Even with all the filings from large U.S.
    corporations and their counterparts from around the world, small entity
    inventors still file roughly 45 percent of all U.S. patent applications
    every year. That happens nowhere else in the world.
        Such innovation is the very heart of what Austrian economist Joseph
    Schumpeter called ``creative destruction.'' For more than two hundred
    years, it has been the engine of America's economic growth. It is our
    principal hope for meeting the global economic challenge we face.
        For the small entity inventors, their IP rights are essential.
    Patents provide them the means to raise capital, make license
    arrangements and defend themselves against infringers. As surely as
    night follows the day, other nations will seize upon patent changes to
    weaken intellectual property rights in the United States and thus
    weaken those same IP rights abroad.
        Moreover, with weakened protections, no U.S. IP holder will be
    safe, whether small or large. In a world where China, India, and other
    nations are quickly becoming the world's workshop--manufacturing
    everything from the simplest to the most advanced technologies--a large
    and growing number of traditional U.S. corporations are in reality
    little more than intellectual property holders, who are ``non-
    practicing'' their technologies. In this radically different economic
    environment, the protection of those corporations' intellectual
    property rights is vital because those rights are what constitute their
    stockholders' real value.
        Small Entities versus Transnational Entities--Europe, Japan, China,
    India and other nations aggressively use their patent systems as a tool
    of national development. Changes in U.S. patent laws that enable their
    corporations to get a look at U.S. patent applications before a patent
    is awarded is to their advantage. So, too, processes that ease their
    ability to challenge U.S. patents as a means to coerce a license or
    shorten the duration of a patent through confrontation, or place the
    validity of a patent into legal limbo is also to their advantage.
        Since the early 1990s, one of the principal goals of Japanese and
    European-financed lobbying in the United States has been to change U.S.
    patent practices. Theirs is a formidable force. Overall, the Center for
    Public Integrity reports that foreign governments and corporations now
    fund almost one-third of all lobbying in Washington, D.C. When the
    lobbying dollars of the largest U.S.-based corporations and their trade
    associations is added to the foreign efforts, almost 80 percent of all
    lobbying dollars come from a coalition of businesses and governments
    that wish to weaken U.S. patent protections. Their goal, moreover, is
    fully understandable--in America, an inventor with strong patent
    protections, a contingency fee law firm, and access to the federal
    court system is a real economic threat to a patent pirate.
                     harmonizing down u.s. patent standards
        Not surprisingly, many U.S. corporations have long sought to weaken
    patent protections for independent inventors. Repeatedly over the past
    forty years, a succession of Presidents has appointed patent reform
    commissions dominated by these corporate interests. Their reports
    repeatedly offer the same solutions--(1) they seek to cut the term of
    patent protection; (2) they seek to give the world a look at a patent
    application before the USPTO grants patent protection; (3) they seek to
    weaken the legal remedies and damage awards to small entity patent
    holders; and (4) they seek to change the award of an invention from the
    first-to-invent to the first-to-file a patent application.
        In short, these corporate-led commissions have urged Congress to
    harmonize down--that is, to make the U.S. patent system more like that
    of Japan and Europe rather than have U.S. patent negotiators try to
    raise the patent standards of those nations to that of the United
    States.
        Moreover, the temptation of the Executive Branch of the U.S.
    Government to reduce IP rights is great. The temptation arises out of
    the creation of TRIPS within the World Trade Organization, which has
    put IP rights into trade negotiations. In the past, the United States
    has traded away various U.S. industries to secure global trade
    agreements--textiles, apparel and steel are the most visible examples.
        In the current WTO round, developing nations refused to begin the
    negotiations unless the United States would agree to compulsory
    licensing of pharmaceuticals. The USTR capitulated, putting this nation
    on a slippery slope of IP concessions in exchange for trade rights.
        Indeed, we are already along that path. China is a flagrant
    violator of U.S. IP rights, yet our government refuses to bring a case
    against China at the WTO for denying U.S. intellectual property owners'
    rights that are supposedly theirs under China's accession agreement to
    the WTO. Again, the U.S. is swapping away IP rights for foreign policy
    and other trade goals.
        This ``harmonize down'' effect comes into sharp relief by reviewing
    a landmark GAO study--Intellectual Property Rights--US Companies'
    Patent Experiences in Japan, published in the spring of 1993. It
    provides a baseline comparison of the U.S. and Japanese patent systems,
    as they existed 13 years ago. The changes since then are dramatic.
        In this study, GAO examiners interviewed Japanese patent officials
    and lawyers, and they surveyed 300 corporations who were top patent
    holders in Japan. The respondents were top U.S. patent holders in three
    sectors--chemicals, semiconductors, and biotechnology--and included 90
    percent of the U.S. companies that were part of the top 200 U.S. patent
    holders in 1991. Almost half of these companies had 10,000 employees or
    more, 32 percent had between 501 and 10,000, and 19 percent had 500 or
    fewer. More than 90 percent of these respondents had also filed patent
    applications in Japan during the past five years, two-thirds held ten
    or more Japanese patents, and all were experienced international
    businesses. The majority of these respondents were also large
    enterprises, with 60 percent reporting sales of more than $1 billion
    annually.
        While the 300 responding companies had all the resources needed to
    hire the best talent and do whatever the Japanese required foreign
    businesses to do in Japan, two-thirds reported significant problems
    dealing with Japan's patent system. By contrast, only 25 percent said
    they had similar patent problems in Europe and 17 percent in the United
    States.
        In stunning detail, the GAO study also revealed that, unlike the
    United States, which administered its patent system in a country-
    neutral manner, Japan's patent system then was at once a defensive,
    offensive, and a strategic tool of national development. It was being
    used to (1) keep foreign goods out of Japan, (2) protect proprietary
    Japanese technology, (3) examine the inner workings of the best foreign
    technology and (4) get foreign patents under advantageous conditions.
        The GAO concluded that the differences in patent policy between the
    U.S., Japan and Europe were as follows:

              The United States awarded patents to the person who
            is the first-to-invent. Europe and Japan awarded patents to the
            first-to-file an application.

              The United States provided seventeen years of
            protection from the date it issues a patent, no matter how many
            years the USPTO took to process the application. Europe and
            Japan provided protection that ended twenty years after the
            filing date, despite how much time they consumed in the review
            process.

              United States patent applications were secret until
            the government granted a patent. All other nations published
            patent applications eighteen months after an applicant files.

              The United States gave inventors a grace period of
            one year in which to file an application after they have shown
            their invention to the public and imposed no restrictions on
            the ways originators may reveal their inventions. Europe and
            Japan gave inventors a grace period of six months for
            disclosure and limited the types of disclosures they could make
            without losing their right to a patent.

              The United States and Europe excluded third parties
            from the patent review process. The Japanese Patent Office
            allowed third parties, including rival companies, to
            participate in their patent reviews.

              The United States did not allow third party
            opposition during the patent review process. Japan allowed
            third parties to oppose a patent application even before they
            grant an award. Europe allowed third party opposition but only
            after they grant a patent.

              The United States Patent Office automatically
            examined every patent application filed. Europe allowed patent
            applicants to defer examination for up to six months. Japan
            allowed patent applicants to defer examination for up to seven
            years.

              The United States accepted patent applications in all
            languages. Europe accepted applications in the languages of
            nation party to the European Patent Convention. Japan accepted
            the patent applications in Japanese.

              The United States and Europe processed patent
            applications rapidly, generally in nineteen months or less.
            Japan processed patent applications slowly, generally in six to
            seven years.

              The United States' and Europe's scope of patent
            protection is wide, giving the inventor exclusive rights within
            a broad boundary of claims. Japan construed the scope of its
            patent protection as narrowly as possible.

              The United States and European legal systems eased
            the private enforcement of patent rights. Japan has discouraged
            private action.

        Most of the 300 corporate respondents to the GAO survey answered
    that they were unable to protect their intellectual property in Japan,
    and many also acknowledged that they were forced to enter cross-
    licensing and partnership deals with Japanese rivals that they would
    never have even considered in Europe or the United States.
        If these large transnational corporations were unable to cope in
    Japan, then most individual inventors and small firms faced an almost
    impossible task.
        In the intervening years, Japan has made some changes in its patent
    system. It has established a tribunal to hear patent cases, takes
    applications in English, hired more examiners and lowered its pendency
    rate. Yet, its basic system remains unchanged. It uses the first-to-
    file approach, limits patent terms to 20 years, pre-publishes
    applications and permits third party opposition.
        As this list reveals, the direction of U.S. patent law changes over
    the intervening years has been to change the U.S. patent system so that
    it is more like Japan's.
        Moreover, the USPTO is taking (May 3, 2006 deadline) public comment
    on a proposed rule on the practice of continuation applications that
    will further make the U.S. system like Japan's--a rule that will cut
    the number of a patent claims in an application.
        As you know, pendency is an ongoing and increasing problem for the
    PTO and frankly for American competitiveness. However, any change in
    PTO rules that limits the number of continuations and the number of
    claims will not affect pendency. But, it will create great suffering
    for small entity inventors--universities, biotechnology firms, emerging
    technology companies, small businesses and independent inventors.
    Currently, they can file a patent application and modify it as one's
    research progresses. Application and revision costs are borne by the
    applicant progressively and timely public disclosure occurs.
        The proposed rules restrict the patent applicant to 10 claims and
    to 1 continuation absent special circumstances. The PTO thinks that
    this will reduce examiner workload and relieve pendency, though it has
    yet to demonstrate this. Instead, the rules create new, amorphous
    requirements that the patent applicant must meet. Essentially the rules
    mean that the patent applicant must perform the examination process
    themselves all in advance. This radical change represents a first step
    toward converting the PTO into a registration system.
        This rule change is so significant it is something for Congress and
    not for the PTO to decide. I urge this Committee to review those
    proposed changes and comments in hearings.
                           three harmonization issues
        First-to-Invent Versus First-to-File--For more than two centuries,
    the United States has awarded a patent to the first person to invent
    the creation. All other nations award the patent to the first person to
    file a patent. The Governments of Japan and Europe support U.S.
    adoption of a first-to-file system. Several Presidential and academic
    study commissions also favor a first-to-invent approach. In the 1993
    GAO survey, three-quarters of the companies with 10,000 employees or
    more favored a first-to-file system, as did about half the companies
    with 501 to 10,000 employees.
        In that survey, of course, a quarter of the large corporations and
    about half of the mid-sized companies favored a continuance of the
    first-to-invent approach. I am unaware of any survey of small entity
    inventors on this issue. Various independent inventor groups, however,
    advocate leaving the first-to-invent system in place, arguing that it
    is functioning well.
        In a recent study of whether small or large entities are advantaged
    or disadvantaged by the first-to-invent approach, former Commissioner
    of Patents and Trademarks Gerald J. Mossinghoff did a statistical
    analysis of what happens when two parties claim to have invented
    something at nearly the same time, a process called interference cases
    or two-party decisions. If there were problems in the first-to-invent
    system, a large number of such cases would exist.
        Remarkably, in the 22-year period 1983-2004, Mossinghoff found
    there were only 3,253 two-party decisions, a period when the USPTO
    received 4.5 million applications and granted more than 2.4 million
    patents. Thus, there were on average only such 155 such cases per year,
    or as Mossinghoff pointed out, fewer than one in one thousand
    applications filed.
        Mossinghoff also found that the number of small entities advantaged
    in that 22-year period by the interference process was 286 and the
    number disadvantaged was almost the same (289), a strong statistical
    suggestion that the USPTO was ably managing the process.
        Mossinghoff's data provides a strong argument for not changing from
    a first-to-invent to a first-to-file patent system. Specifically, the
    supposed disadvantage of the present approach is that it leads to
    confusion and conflicts. Yet, as Mossinghoff's data reveals, the number
    of interference cases in the 22 years analyzed was administratively
    trivial.
        His data also reveals that small entities were involved in only
    17.6 percent of these two-party cases, although they generate 45
    percent of all patent applications. The overwhelming majority of those
    interference cases (82.4 percent) were between large entities fully
    capable of financing their advocacy.
        Mossinghoff's data reveals that the number of small entity
    inventors affected by interferences occurs only with one of every 7,800
    applications. This is so statistically insignificant as to be
    irrelevant. One of 7,800 is not a problem.
        The point is that our present system is not adversely affecting
    large or small entity inventors. Then, why change it? Why go to all the
    trouble, all the costs of changing to something else, when the benefits
    are so illusory and slight? If there is some benefit other than doing
    like other nations do, advocates of that change should be forthcoming
    as to what that is.
        The other question raised in Messinghoff's paper is about the
    ability of those few, those one of 7,800, inventors to finance the
    legal costs of a two-party case. He found that 575 small entity
    inventors took their cases to conclusion, which also strongly suggests
    that legal costs were not a barrier, even for those few.
        The question of legal costs is related to a broader argument made
    for altering the U.S. Patent System, namely that the U.S. is in a
    ``patent litigation'' emergency--that is, a flood of lawsuits with
    little or no merit is threatening the innovation process.
        I examined that issue in a recent working paper published by the
    U.S.-China Economic and Security Review Commission (A Great Wall of
    Patents, October 2005). I concluded from publicly available data that
    the U.S. does not have a patent litigation crisis. Indeed, the data
    makes clear that the threat of lawsuits for most inventors is actually
    diminishing.
        The real litigation threat is to a handful of large corporations
    whose business models rely on the aggressive, unapproved and
    uncompensated use of the patented works of others. The owners of that
    intellectual property are suing these large companies and winning large
    awards. In appeal, the courts are upholding these awards as valid. Now,
    a handful of these large entity patent holders have banded together and
    are trying to achieve through legislation what they cannot get in the
    courts--easier access to the IP of others, at a lesser cost and with
    fewer penalties.
        Federal judicial caseload statistics for patent lawsuits and USPTO
    data on patent applications and patents issued reveal:

              An inventor is less likely to be involved in a patent
            suit today than in the past. The number of patent lawsuits
            filed per the number of patent applications filed has been on a
            downward slope since 1990.

              Likewise, the number of patent lawsuits filed per the
            number of patents granted by the USPTO has also declined even
            greater--almost 13 percent between 1988 and 2004.

              Only 5/10,000 of one percent of patents issued are
            challenged in a patent trial.\1\
    ---------------------------------------------------------------------------
        \1\ Calculated from data contained in Federal Judicial Caseload
    Statistics, 2004, Table C-4 and Performance and Accountability Report:
    fiscal year 2004, Table 1, p. 116.

              In 2004, more than 28 percent of patent lawsuits
            settled with no court action required.\2\
    ---------------------------------------------------------------------------
        \2\ Calculated from data contained in Federal Judicial Caseload
    Statistics, 2004, Table C-4.

              In 2004, more than 53 percent of patent lawsuits
            settled before pretrial.\3\
    ---------------------------------------------------------------------------
        \3\ Ibid.

              In 2004, more than 14 percent of patent lawsuits
            settled during or after pretrial.\4\
    ---------------------------------------------------------------------------
        \4\ Ibid.

              In 2004, only 96 patent cases went to trial, which
            represents only 3.5 percent of all patent cases filed that
            year.\5\
    ---------------------------------------------------------------------------
        \5\ Ibid.

        Put into context, the number of patent lawsuits that went to trial
    during the period 2001 to 2004 rose from 76 cases to 96.
        Fewer than 100 patent trials a year is not a patent litigation
    crisis--particularly in a nation that issues almost 200,000 patents
    annually and where litigants settle almost all patent lawsuits before
    trial.
        Although the current first-to-invent system is working very well,
    imagine what is likely to happen if Congress were to change it to the
    first-to-file approach.
        The large corporations could standardize their global patent
    operations and perhaps get some savings out the efficiencies. They are
    well accustomed to working in first-to-file systems around the world.
        For the small entities, the shift would be chaotic. They are not
    accustomed to the first-to-file approach. Their experiences and
    knowledge of the patent system are grounded in the first-to-invent
    system. Hundreds of thousands of inventors, academics, lawyers and
    paralegals would be forced to learn a new system--a costly and
    disruptive process at best for them, and for the USPTO.
        The first worry on the part of many inventors and academics would
    be whether someone would steal their innovations and rush to the USPTO
    to file an application--a legitimate concern in today's world of
    unchecked piracy. Indeed, Chinese inventors are now taking patent
    applications posted on the Net and using that information to be the
    first-to-file in China.
        The fear of patent piracy, here and abroad, would motivate
    countless inventors to rush to file. Inevitably, the result would be a
    flood of premature patent applications. In turn, the influx of such
    applications will greatly burden the USPTO at a time when patent
    pendency is already rising.
        And what are the principal gains from incurring these costs and
    dealing with the resulting chaos, other than pleasing patent
    bureaucrats in other countries and allowing transnational corporations
    to save a few patent-processing fees? Other than being like other
    nations, what is the advantage to the United States and small entity
    inventors for making such a shift?
        In short, the advocates of this change have failed to prove that
    the marginal benefits of this shift will equal the marginal costs and
    inventor confusion. This is significant, for we are at a moment when
    larger patent issues loom, such as unchecked patent piracy by nations
    such as China, the growing technological challenge from abroad and
    rising pendency rates at home. Our limited USPTO resources should be
    devoted to those issues, rather than to a change that would create
    unproductive chaos.
        Imagine the response if we were to ask England and Japan to change
    from a right to a left hand drive system for their automobiles so they
    could be like us and thus make life easier for our automakers. Congress
    should view their demands for patent harmonization in a similar way--
    deciding what is in our inventor's and our country's best interests.
        Best Mode--Should inventors be required to include in their patent
    applications the ``best mode'' to replicate and use their creations?
        I think the answer is yes--absolutely. The golden covenant of a
    patent is simple--exclusive use in exchange for making public new
    knowledge. Otherwise, the patent grantee gains the benefits of
    government-licensed exclusivity, while denying the public the full
    knowledge to which they are entitled.
        In the early part of the 20th century, I.G. Farben, the giant
    German chemical cartel, was granted hundreds of chemical patents in the
    United States, giving them exclusive use over their creations. However,
    Farben cheated. When DuPont and other chemical makers tried to
    replicate those processes during World War I, they discovered that
    vital elements were missing. Indeed, Pierre DuPont, who lost more than
    $100 million of 1917 dollars trying to replicate those chemicals,
    claimed that if DuPont chemists had followed the Farben patents, they
    would have been killed.
        The point is the United States should not give exclusive rights to
    inventors unless they share with the public the best and true mode.
    Expanding public knowledge is one of the patent system's most important
    functions.
        Pre-Publication of Patent Applications at 18-Months From Filing--In
    1999, the United States enacted harmonization legislation that required
    the USPTO to reveal to the world vital information from all patent
    applications that have been on file for 18-months. An exception was
    made for those inventors who seek a patent that is limited to the
    United States. Today, approximately 10 percent of patent applications
    fit that criteria and are not published on the Internet at 18-months if
    not granted.
        The 18-month rule may be meaningless for large entity inventors. It
    devastates small entity inventors--giving competitors and pirates the
    world over vital details about their creations before patent
    protections are granted.
        The 18-month rule is driving small entity inventors away from the
    patent process, denying the nation substantial knowledge. In the past,
    an inventor could take a failed application and apply the knowledge as
    a trade secret. With 18-month publication and 30 months plus patent
    pendency, the secret is spilled to the world. The USPTO rejects about
    one-third of all patent applications. This means that approximately
    60,000 to 70,000 potential U.S. trade secrets will be made available to
    U.S. competitors and pirates worldwide annually.
        Are foreign competitors stealing ideas and technologies from what I
    label the premature publication of patent applications? Consider this:
    In 2004, the director of Japan's External Trade Organization's
    Intellectual Property Rights Office in Beijing visited a leading
    Chinese company. The head of that corporation's intellectual property
    division showed him a room with several dozen computers whose exclusive
    purpose was to search the patent applications put up on the Internet by
    the USPTO and its equivalent in Japan and Europe. The Chinese executive
    explained it was easier and far less expensive to pull information from
    foreign patent applications than to do their own research.
        When informed of this, the Japanese Patent Office began monitoring
    the number of hits its patent application files on the Net were
    getting. They counted 17,000 hits per day from China and 55,000 per day
    from South Korea.
        Likewise, the very system that is supposed to protect America's
    most precious technological secrets is revealing them prematurely to
    the rest of the world. When I explain the 18-month publication rule to
    business executives, they are dumbfounded that such a thing could be
    possible.
        I conclude that the real issue is not whether to include the 10
    percent of patents under the 18-month rule, but how to stop pre-
    publication altogether. I cannot imagine any benefits to U.S. inventors
    or the nation from the present approach, while the liabilities are
    obvious.
                                   conclusion
        Harmonization of the world's patent systems is a desirable goal for
    the United States. The vital question in that harmonization process is
    whether the United States should lower its standards to those of other
    nations or whether we should work to raise their standards to ours.
        Put another way, what is there in the patent systems of Germany,
    France, Italy, England, Japan, Brazil, India and South Korea that is so
    superior to that of the U.S. that Congress should change two centuries
    of success to follow their lead and be like them? The argument that all
    other nations do something--that the U.S. should join a herd simply
    because there is a herd--is insufficient reason to change U.S. patent
    laws that have worked so well for this nation for so long.
        As I describe in this testimony, the U.S. has followed the lead of
    other nations in recent years and lowered its vital patent standards in
    the name of harmonization. Those changes, and those now before the
    Congress, weaken U.S. IP protections. Our independent inventors are
    greatly disadvantaged by those changes--shorter effective patent terms
    and the premature publication of patent applications particularly.
        It would be very useful to have these harmonization issues
    rethought in a forum where small entity inventors--independent
    inventors, small companies, non-profit organizations and academic
    inventors--are an integral part of the process. Such an exchange would
    be congruent with our long tradition of bringing a balanced compromise
    on patent policy to the Congress.
        Thank you for allowing me to share my perspectives with you.

        Mr. Smith. Thank you, Mr. Choate.
        To me, one of the primary purposes of today's hearing is to
    try to better answer the question of why independent inventors
    sometimes object to our efforts to try to implement a first
    inventor to file, the harmonization that you all have been
    talking about. And my questions are going to be focused
    primarily on trying to answer that particular question.
        Mr. Dickinson, for example, you mentioned in your testimony
    that the very individuals who, in recent tradition, have been
    most concerned about this change, the individual or small
    inventors, have actually been disadvantaged by our current
    system.
        In just a minute, I'm going to ask you all to respond to a
    couple of Mr. Choate's points. But I'd like for you to go into
    a little bit more detail, Mr. Dickinson and Mr. Armitage. You
    mentioned harmonization, bringing in objectivity and
    transparency. Mr. Mueller, you actually said that a patent
    system that requires application for the same invention to be
    researched and re-examined in each country where patent
    protection is sought makes little sense in today's global
    marketplace, and that harmonization will reduce the cost and
    complexity of obtaining patent protection around the world.
        If you can go into a little bit more detail, elaborate a
    little bit more as to why you think independent inventors are
    actually benefitted by harmonization? And maybe you can
    speculate--I'm going to give Mr. Choate equal time in a
    minute--maybe you can speculate as to why independent inventors
    seem to be opposed to the idea of harmonization?
        And Mr. Choate, just a quick comment, your direction. You
    said you supported the concept of harmonization in some areas,
    but you had concerns about this particular proposal. I wonder a
    little bit if conservatives like you and me sometimes just
    don't resist change regardless.
        And I'm going to come back to that theory in just a minute.
    But Mr. Dickinson, if you will begin?
        Mr. Dickinson. Thank you, Mr. Chairman.
        A couple of questions there. Let me see if I can respond.
    And I have pretty good contact with the independent inventors,
    talk with them a lot about these issues, and particularly this
    issue of first to file versus first to invent.
        Interestingly, I think the record shows that some 30 years
    ago, when hearings were held on this topic, the roles were
    actually reversed. The independent inventors actually supported
    moving to first to file, while the largest entities in some
    cases resisted it. Now we seem to have changed sides a little
    bit. I don't think the arguments have really changed, however.
        The challenge with first to file, and I think the reason
    why independent inventors--and they probably can speak for
    themselves--but I think the reason why they tend to generally
    oppose it is that they're worried on a couple of things.
        One, that they will lose the so-called race to the Patent
    and Trademark Office. And that, on its face, is not such--
    there's maybe some validity to that on its face. In reality,
    large companies like mine, we have fairly--we try to make them
    very streamlined, but we have fairly cumbersome processes for
    approval. We have fairly elaborate mechanisms for taking the
    inventions from the bench, going through the invention
    disclosure process, and on up to an application.
        So, for us, we're a little inhibited in that race.
    Independent inventors, on the other hand--particularly with the
    development of the Internet, the opportunity now to
    electronically file patent applications, the ability to do
    research and to find legal resources, patent legal resources on
    the Internet and do the searching on the Internet--they are
    able to make those decisions a lot quicker.
        Mr. Smith. Let me interrupt you because I want to--Mr.
    Choate made a point in his written testimony that I'm not sure
    he mentioned it in his oral testimony that maybe we're trying
    to address a problem that doesn't really exist.
        He makes the point that if there were problems in the first
    to invent system, a large number of interference cases would be
    filed, and they are not. So would you address that?
        Mr. Dickinson. That's an interesting question. I think one
    reason why there aren't that large number of interferences is
    because of circumstances that give rise to the interference
    and, by extension, the concern that independent inventors have,
    the fact that two inventors coming to the same invention in
    roughly the same period of time only happens in a very few
    instances.
        I think we declare each year something on the order of, off
    the top of my head, 400 interferences out of 400,000 patent
    applications that might be filed. So that process of
    determining who the first inventor is only occurs in a very
    minor subset. That dispute only occurs in that little--in that
    little----
        Mr. Smith. Mr. Dickinson, let me sneak in another question
    here to Mr. Armitage and Mr. Mueller. Mr. Choate also makes the
    point somewhat similar to the one I just repeated. Our present
    system is not adversely affecting large or small inventors,
    then why change it? Why go to all this trouble? Mr. Armitage?
        Mr. Armitage. Can I first go back and maybe add a little
    perspective on your original question----
        Mr. Smith. Sure.
        Mr. Armitage [continuing]. About why sometimes independent
    inventors think of the first to file system as a bad deal for
    them.
        In some of the discussions I've had over several decades,
    first of all, they think it's a true first to file system--in
    other words, whoever files first is going to get the patent--
    rather than a system that truly protects the inventor who files
    first. And if you're not the inventor and just the first filer,
    you're not entitled to a patent.
        In your bill, in fact, there's a section--a new section on
    inventors rights contests. If someone who files first and
    they're not the inventor, they don't get a patent. The first
    inventor to file gets the patent.
        Second thing, and I think it's very important given what
    Mr. Choate said, sometimes when first to file is used, people
    think they're getting the European patent system with no grace
    period, where if an applicant files two patent applications on
    the same subject matter or similar subject matter, one
    application can collide with the other and destroy the right to
    fully patent the invention.
        They also think they're getting the European rule on
    absolute novelty, where any divulgation of the invention, even
    if it isn't publicly accessible, can be prior art. And in fact,
    in the first inventor to file proposal that's in H.R. 2795,
    none of those are true. It's a very inventor-focused system.
        Mr. Smith. Thank you, Mr. Armitage.
        I'm going to come back and ask some more questions in just
    a few minutes. And Mr. Choate, we'll be sure and give you equal
    time.
        For now, my time is up, and the gentleman from California,
    Mr. Berman, is recognized for his questions.
        Mr. Berman. Thank you very much, Mr. Chairman.
        I apologize for not being here during most of the
    testimony. I sort of came in the middle of Mr. Choate's
    testimony, where mostly you were talking about the--the--your
    dislike. And I think I was aware of that because it was
    controversial at the time of the 18-month publication.
        But I am curious that from the testimony, both you and Mr.
    Dickinson cite the study by Commissioner Mossinghoff for
    opposite propositions. Dickinson says it supports the change to
    first to file. Mr. Choate says it shows the advantages of
    maintaining the current system.
        Can you each respond to the other one's arguments?
        Mr. Dickinson. I think the principal take-away from
    Commissioner Mossinghoff's study was that the purported
    advantage to small inventors by the current system doesn't
    really exist and that when small inventors get into the dispute
    resolution mechanism for that contest, the interference, that
    they are disproportionately, actually negatively affected. And
    that's irrespective of the fact that it costs probably multiple
    hundreds of thousands of dollars to be able to even try to take
    advantage of that mechanism.
        So that in the first instance, because of the cost, small
    inventors might not even be able to prove that they were the
    first inventor. And secondly, if they are able to do that, if
    they are as we say the ``junior party''--namely they are the
    second filer, but are seeking to prove they were the first
    inventor--the junior party routinely loses. Loses some 80
    percent of the time because of the nature of the rules, the
    nature of the interference practice, and because the first
    filer is very often able to demonstrate they were also the
    first inventor.
        Mr. Berman. Mr. Choate?
        Mr. Choate. First of all, in the Mossinghoff study, it
    found that the small entity inventors were advantaged 286
    times, and they were disadvantaged 289 times. That's 3 case
    difference. Now what that says is it's a wash at 289 to 286.
    Moreover, more dramatically, it says there's 576 such cases
    over a 22-year period when you were dealing with something like
    4.5 million patent applications.
        When you run those kinds of numbers, 500 cases--500 plus
    cases out of 4.5 million, and it splits, it says, first of all,
    the interference process is working fairly. Secondly, it says
    with 500 out of 4.5 million, it is a trivial, it is
    statistically totally insignificant in the management or
    operation of a system----
        Mr. Berman. But the figure is the figure of the number of
    patents filed.
        Mr. Choate. That's right.
        Mr. Berman. Not the number of places where two people----
        Mr. Choate. No, no.
        Mr. Berman [continuing]. Claim to have invented the same
    thing.
        Mr. Choate. The point I'm making is when you have a system
    where you're filing 4.5 million patents and you only have--you
    have less than 600 instances over 22 years where there's a
    contest, it means that that is so small, it means the system
    works so well that you only have 600 cases out of 4.5 million.
    It's a tribute to the system.
        Mr. Berman. That's the system with the 18-month
    publication?
        Mr. Choate. No. It's the system with the way that we file
    patents now, a first to file system. I have other arguments
    against the 18-month rule.
        But the current system, from the Mossinghoff data, if you
    had this kind of efficiency in any business, everyone would be
    coming to study how you did it.
        Mr. Dickinson. Mr. Berman, just a quick, brief follow-up. I
    think the data that Mr. Choate references actually proves the
    other point.
        I mean, we have so few of these contests, the need to
    determine who the first inventor is versus the first to file is
    so infrequent and so costly that there is very little harm in
    moving the system to first inventor to file to achieve the
    bigger goal of getting global harmonization.
        Mr. Berman. And why couldn't I draw the other inference
    it's very little reason to change it?
        Mr. Armitage. Could I jump in here? This morning on NPR,
    there was a report that a new virus, a new vaccine against the
    Marburg virus had been tested in monkeys and appears to be very
    effective.
        Now it's stupid for researchers to work on the Marburg
    virus because it kills very few people, right? Wrong. It's a
    horrible death if you happen to have the Marburg virus, and
    also the fear in any community when that virus infects even one
    person is horrific.
        Going back to what Mr. Mueller said, that's exactly the
    problem that faces the patent system. If you're a small
    inventor in an interference, it can be death. And not only
    that, the way the first to invent system works, you never know
    you're the first inventor because you never know when someone's
    secret invention date will come out of hiding, and they get
    your patent. Either take it away and give someone else a patent
    and exclude you from marketing the products you've developed,
    or simply invalidate your patent.
        So it's really the fear that it injects, the uncertainty it
    injects into every patent in the entire system that makes those
    small number of deaths intolerable.
        Mr. Smith. Thank you, Mr. Berman.
        The gentleman from California, Mr. Schiff?
        Mr. Schiff. I just wanted to follow up on one issue related
    to the first to file, first to invent, and ask you to speak for
    some people that are not at the table today. The university
    community I know has raised some concerns about moving to a
    first to file system. And I know within the university
    community, in fact, within the individual universities, there
    are difference of opinion.
        But give us your assessment, pro and con, of what this
    change will mean to universities. I know they're concerned,
    among other things, with not being able to compete with the
    private sector in the race to file and the different nature of
    the academic process at a university. If you could share your
    thoughts on those issues?
        Mr. Mueller. I'll speak from my perspective. I went through
    getting my master's in electrical engineering and doing a paper
    and developing research on how to do film scanning. And came up
    with some novel ideas and some new techniques.
        From my perspective, when I look at this strategy, I
    believe there's an opportunity to foster under a first to file
    system. If that was in place, somebody would have tapped me and
    said, ``Gary, that's great. Let's write it up, and let's get it
    into the process.'' And why can't that be part of the
    educational system, especially with all of the research that's
    going on there now?
        And as a small company, we're always looking at research
    activities and working with graduate students that have some
    great ideas that may apply to ours. And I would think that in a
    first to file system, if encouraged and trained to the small
    entrepreneurial community that includes strong element of
    educational institutions, that that would be a great place to
    capture those ideas and credit to first person that invented
    it, have them file it, and then attract businesses like myself
    to say, ``Well, gee, I saw this patent application. You've done
    some research on this. I've now got a job for you.''
        And so, I look at it from that perspective and say the
    first to file, with the discipline of understanding that it's
    there and the encouragement to the educational institutions
    would be a great plus.
        Mr. Schiff. So you think that the universities can easily
    adapt if they educate their researchers, Ph.D. candidates to--
    --
        Mr. Mueller. They should be doing that. I mean, I was
    recently up at Penn State because my son's looking at going
    there, and I actually ran into a lady who was actually teaching
    a minor in entrepreneurialship as part of the engineering
    department.
        And I think that if you bring the educational environment
    and the research that goes on in the educational environment
    together with this concept of ``great idea, great graduate
    paper. New intellectual property has been invented here. Let's
    get you into the system.'' I think that would be a tremendous
    plus for the American educational system as well as the
    entrepreneurial environment in the U.S.
        Mr. Schiff. If you could give me, I don't know if you
    wanted to add on also, but I'm curious, too, about in the
    effort to find consensus on this, are we missing the bigger
    problem at the patent office in terms of the delay and the
    backlog? Are we going after the low-hanging fruit rather than
    the bigger problem?
        Mr. Dickinson. Speaking to the latter maybe, as a former
    director, I think that a number of the challenges and problems
    of the PTO can be addressed by some of the reforms we're
    talking about.
        But as I mentioned earlier, I think the biggest and best
    way to do that is to make sure that the PTO has the resources
    that it needs. And then when it gets those resources, that it
    deploys them effectively and efficiently. I think one of the--
    --
        Mr. Schiff. On that second point?
        Mr. Dickinson. Yes.
        Mr. Schiff. Which do you think is the bigger problem, a
    lack of resources or lack of effectively utilizing the
    resources they have?
        Mr. Dickinson. Fortunately, because of the work of this
    Congress and several previous Congresses and the
    Administration, full funding has come in the last several years
    on an annualized basis to the PTO. So the resources are moving
    to be in place.
        The next thing we'll have to see is whether they can be
    deployed in ways which try to ameliorate some of the problems.
    I was very fortunate that, at several points, I was able to get
    the resources and hiring necessary. I think in 3 years running,
    I hired 900 examiners each of those years, and pendency started
    to come down. It literally does.
        So while we like to say you can't buy your way out of the
    problem, you can buy your way out of a big chunk of the problem
    by hiring the folks who do the professional work.
        And then, candidly, one important point. I think you need
    to give the examiners more time. I think no single deployment
    of those resources--this is a personal opinion--better serves
    the examiners' cause and better serves our causes as applicants
    than to get more time for examination, both in terms of quality
    and, I think by extension a little bit, pendency.
        Mr. Schiff. Yes, sir.
        Mr. Choate. To the question of the universities and the
    small inventors, we've used the system that--for 200 plus
    years. And our whole administrative structure is built around a
    first to invent. All of our forms, all of our people, all of
    our knowledge, all of our lawyers, our paralegals, the whole
    system is set up to operate in the way that it does, and it
    operates very well.
        If we administratively change this system, the first thing
    that you're going to have from small inventors and academics
    and small businesses is that fear is going to be acted upon
    that others are going to rush. And so, what you're going to
    see, I think, is a flush of premature applications going to the
    patent office. Applications that haven't been thought out or
    done in the way that they should be, which, in turn, will
    exacerbate our problem with pendency upon the backlog.
        I mean, the question I think that should be paramount here
    is do the marginal--what are the marginal benefits of making
    this radical change in our country against what are the
    marginal costs of undertaking that?
        I think the costs are going to be far more enormous than
    the benefits that are going to be laid out. I think where the
    attention should go, rather than taking a patent system and
    taking our patent people and focusing them into creating and
    administering this new system, it should be to give them the
    resources that they need and go after that pendency rate.
        For the Congress to set some Apollo moon shot objective to
    say that in 3 years, you want that pendency rate down to 18
    months, and a year after that, 12 months, and a year after
    that, in 6 months. As Mr. Mueller said and as I think the
    history of the patent system says, if we can move those patents
    through there, we can get those innovations online, and that's
    what's in the best national interest.
        Mr. Smith. Thank you, Mr. Schiff.
        Do you want to respond real quickly, Mr. Armitage?
        Mr. Armitage. Just one comment. In terms of the kind of
    surgery to the patent system first inventor to file is, you can
    think of it as an appendectomy. Okay, something gets taken out
    that had no function anyway.
        Literally, what you're doing and every time there is a
    contest over who should get a patent is first determine who
    filed first. You can't have a patent interference unless you
    know who filed first. And then in those rare cases someone has
    proofs of invention to prove they invented first, that's the
    appendix that gets cut out.
        So, in other words, there isn't any infrastructure that
    needs to be rebuilt in a first inventor to file. There is just
    this piece of the patent system that has enormous cost and
    uncertainty that gets removed. And indeed, I think we
    demonstrated with data on how much interferences cost, how long
    they take, that this is a seriously inflamed appendix.
        Mr. Dickinson. Quickly----
        Mr. Smith. Yes, Mr. Dickinson?
        Mr. Dickinson [continuing]. With regard to the university
    community and a small addition to that, too.
        International harmonization often pairs a grace period with
    first to file. We like to not try to link them, but they are,
    for good or bad, inextricably linked. Europe and other major
    developed countries don't have a grace period. That's
    particularly disadvantageous to the university community, where
    publication is the norm.
        So you're constantly worrying about whether an early
    publication is going to defeat the absolute novelty in a
    country in Europe, which does not have a grade period.
        If we were able to get the international harmonization, and
    that would--I think it requires a pairing of first inventor to
    file and grace period--the university community would actually
    be better served, I think.
        Mr. Smith. Thank you, Mr. Schiff.
        Let me go back to that question, Mr. Mueller, with you, and
    I appreciated your response to Mr. Schiff's question about the
    impact on universities.
        A university president with whom I spoke recently who is an
    expert on patent reform said basically what you did, which is,
    yes, there would be some initial, you know, inconvenience., but
    they could adjust, and they could adapt. And if you took the
    long view, it would be better for everybody involved.
        And Mr. Choate, that gets back to the direction I was going
    with you and which is I just wonder if there is just sort of a
    resistance to change regardless of or irrespective of whether
    there is a great deal of harm or a great deal of benefits?
        And I'm going to quote you, part of your written
    statement----
        Mr. Choate. Okay.
        Mr. Smith [continuing]. Which is a little bit different
    than what you just said a minute ago. You were talking about
    the cost far outweighing the benefits.
        In your written statement, you said that all the cost of
    changing to something else when the benefits are so illusory
    and slight. And I wonder if that wasn't a quote, a slight
    admission of a slight benefit as a result of harmonization?
        And to me, the benefits are real and not imagined, not
    illusory. But even your own statement says they may be slight.
    But that gets back to my point. Do you just oppose
    harmonization just because it is a change, and it's a little
    bit of an unknown future?
        Mr. Choate. Well, two things. As with everything, there are
    benefits to--there would be benefits to having everything the
    same. It would cut some of the administrative costs for those
    corporations, obviously, that are engaged internationally. It
    might speed time, and certainly I acknowledge that in my
    testimony.
        And as far as defending the status quo, that's a very
    unusual--I find myself in a very unusual position doing that. I
    don't usually defend the status quo. But in this particular
    case, I think it merits defending.
        I think the existing system, though we might like it to be
    somewhat different, that the cost of changing it and the chaos
    of changing it would be great. And----
        Mr. Smith. Let me ask some of the other witnesses to
    respond. You made the point a while ago you thought there might
    be a rush to file if we changed the system. I don't know
    whether that would occur or not. But if it did, it would sort
    of wash by and then we'd be back, left with a better system
    perhaps.
        But Mr. Dickinson, Mr. Armitage, Mr. Mueller, do you want
    to respond to some of the points we've been discussing?
        Mr. Armitage. Yes, I think the question I would have is
    rush to file by whom?
        Forty some percent of our patent system is foreign
    inventors who come to the U.S. patent office. They already file
    based on a first inventor to file principle. You have another,
    maybe quarter of the patent system that's large entity,
    domestic-based inventors. They're already operating under a
    first inventor to file system to the extent they file globally,
    and most do.
        And then you have independent inventors, small businesses,
    and universities that, if they're getting any kind of good
    legal advice, know the imperative to file applications promptly
    once they're able to make a complete disclosure of the
    invention. And there are a couple of reasons.
        One, technology moves quickly. Prior art is published. Your
    invention may be unpatentable if you wait to file. And of
    course, if you're waiting to file in the hope of winning a
    patent interference, good luck.
        If you're a small entity inventor, the costs and delays and
    the lost opportunities of not having the presumption of being
    the first inventor because you were the first filer leaves you
    with very little prospect of winning a patent interference.
        So if there are a few inventors who, as a result of this,
    get better legal advice and file their applications in a little
    more timely manner, that's a big plus for them and for the
    patent system.
        Mr. Smith. Thank you, Mr. Armitage.
        Mr. Choate, one other question for you. Then I'll give Mr.
    Mueller a chance to respond.
        Why wouldn't it be an advantage to the independent inventor
    as a small businessman, business owner, to have harmonization
    where their patents would be better protected in other
    countries? If they were dreaming big dreams and expected their
    patents to be used across the world, why wouldn't they benefit
    from harmonization?
        Mr. Choate. Well, having their patents defended in other
    countries is, as we have learned, is really not a function of
    designing better patent laws. It's a function of the
    willingness of the U.S. trade representative to insist that
    American inventors' rights be respected and that treaties be
    enforced.
        Mr. Smith. Yes. Which we know is difficult.
        Mr. Choate. Which we know is difficult. So, in that
    circumstance, the best option for the small inventor is to say
    who may or may not get their rights enforced overseas is to
    ensure that a system that works is continued. They're
    comfortable. They're comfortable with this system.
        Mr. Smith. Thank you, Mr. Choate.
        Mr. Mueller, you had a comment a while ago?
        Mr. Mueller. Yes, I just wanted to respond to the comments
    that maybe there's going to be a rush to the patent office. And
    I'm sitting here saying, well, guess what? As a small business
    person, I'm not rushing unless I think I have something that's
    really worth it because I'm still facing the cost of the whole
    process to do this, and I've got other uses for those funds.
        So I think that's going to be a significant mitigating
    factor. And then when I go back and think about the educational
    institutions, how many grad students I know that have deep
    pockets that can do that as well?
        So--and they're the ones that are actually, when they're
    doing their graduate paper and doing the research, they're
    doing a plethora of studies and analysis and looking at what
    everybody else has published and what everybody else has done.
    So they're doing their homework.
        And if they think that they've got something they can go to
    the patent office with, it's probably worth the time and an
    effort to pursue it.
        Mr. Smith. Thank you, Mr. Muller.
        Let me see if other Members have questions. The gentleman
    from California, Mr. Berman?
        Mr. Berman. Well, thank you, Mr. Chairman.
        I note, Mr. Armitage, that you chose not to confine
    yourself to the issue of first to file and decided to comment
    on other aspects of patent reform. So I'd like to just pursue
    that with you a little bit.
        You criticized the second window provision of our bill, a
    provision that was once in an earlier draft, a bill that was
    circulated by the Subcommittee. I'm not particularly wedded to
    the second--I mean, one window, two windows, whatever. It's
    finding a way that we can address the problem of the quality of
    patents that have already issued.
        And having one window right after the patent is issued I
    don't think is adequate to dealing with that. I mean, we see
    patents that are being litigated now that were issued 6 years
    ago and 5 years ago. You mentioned the coalition support for
    reform that permits the public to see post issuance revocation
    of any patent at any time, which is what I think. But are you
    referring to the current inter parte/ex parte re-exam?
        I know that you know the limitations of that process, and
    how do we avoid--how do we try to provide a useful, effective
    alternative to costly litigation that goes on and on at
    tremendous expense to both sides? That's what we were trying to
    do with the second window, to have something when the person
    knows that they're being charged with infringing conduct.
        Mr. Armitage. You raise a good question. The coalition, in
    its September 1 text that will be part of the record of this
    hearing, actually proposed that post issuance revocation of all
    patents at any time during the term of the patent be available
    either through the new post grant opposition procedure, which
    was designed to have a 9-month window immediately after the
    patent granted, or by expanding inter parte re-exam in several
    important ways.
        First of all, inter parte re-exam today is not open to all
    patents. It would be. Second, inter parte re-exam today can't
    be effectively used because of the estoppel against later going
    into court and really having the opportunity to fully litigate
    the patent when you have full discovery available. That would
    go away.
        Mr. Berman. What would go away?
        Mr. Armitage. The draconian part of the estoppel principle
    that basically makes it unusable. So what----
        Mr. Berman. Oh, I thought you said----
        Mr. Armitage. Would go away under, frankly, 2795 as well as
    the coalition text.
        Mr. Berman. But----
        Mr. Armitage. So we would be left with then, at any time
    during the life of the patent, the ability to raise any new
    question of patentability based on a patent or a printed
    publication.
        Mr. Berman. But without discovery?
        Mr. Armitage. Without discovery. And therein, I think, lies
    the rub. Because even in a post grant opposition, there is
    going to be very limited discovery available. And indeed, for
    certain kinds of prior art, such as unpublished prior art based
    on foreign knowledge of a patented invention, that is a serious
    compromise in the 9-month window for post grant opposition.
        Now it's a limited compromise because if you're talking
    about an alleged public disclosure in India that occurred a
    year or two before the patent was filed, and now you're talking
    about an opposition immediately after the patent was granted,
    it may be fair to have that administrative proceeding with
    limited discovery be able to wipe out a patent.
        But let's fast forward 15 years into the life of the patent
    and then say do you really want less discovery than you can get
    in a Federal District Court? And do you really want simply an
    administrative proceeding that was entirely designed to be a
    quality check in the immediate post issuance period?
        My concern with your bill, Representative Berman--which I,
    frankly, admire your willingness to stick with the patent
    reform issue given all of the difficulties--is that it goes
    just a step too far.
        In a post grant opposition, you can raise all issues of
    patentability. You have in an inter parte re-exam the ability
    to raise almost all issues of patentability except if you want
    to prove public knowledge of an invention based on its use or
    sale, which could be anywhere in the world. And frankly, that,
    to me, is a bridge too far for an administrative proceeding.
        Mr. Smith. Thank you, Mr. Berman.
        Mr. Schiff?
        Mr. Schiff. Sir, I have no further questions.
        Mr. Smith. Okay. Thank you.
        That concludes our hearing. Thank you all very much for
    your testimony. You've been very informative.
        I am not sure we resolved everything, but at least we know
    more than we did. And so, appreciate your expert testimony.
        With that, the Subcommittee stands adjourned.
        [Whereupon, at 10:20 a.m., the Subcommittee was adjourned.]
                                A P P E N D I X

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                   Material Submitted for the Hearing Record

    Prepared Statement of the Honorable Howard L. Berman, a Representative
         in Congress from the State of California, and Ranking Member,
        Subcommittee on Courts, the Internet, and Intellectual Property
        Mr. Chairman,
        Thank you for scheduling this hearing on patent harmonization. The
    past hearings on patent reform have primarily focused on litigation,
    quality, and damages issues, but have not really delved into the
    specifics of the harmonization issues--so I appreciate the opportunity
    to do so now. We have tried to bring in all the interested parties in
    this debate--by having witnesses from the technology and pharmaceutical
    sectors (among others), public interest groups, academics, and the
    USPTO. Our last attempt at harmonization was met with resistance by the
    small inventor community and that is why I believe that it is extremely
    important to include individual inventors in this process. Individual
    inventors are responsible for nearly half of all U.S. Patent
    applications filed each year.
        Article I, Section 8 of the Constitution is the basis for our
    patent system today: Congress has the power to promote the progress of
    science and useful arts, by securing for limited times to authors and
    inventors the exclusive right to their respective writings and
    discoveries. The United States stands apart in awarding patent
    protection to the inventor who is ``first-to-invent.'' Some question
    whether we are global leaders in innovation specifically because we
    reap the benefits of a first to invent system.
        Confidence in the patent system is essential to encouraging
    innovation. When functioning effectively, the patent system should
    encourage inventors to push the boundaries of knowledge and
    possibility. Two presidential commissions have recommended that the
    U.S. change its patent system to a first-inventor-to-file system--first
    in 1966 and again in 1992. Most recently, the National Academies of
    Science recommends adopting that change as well. The advantages to
    amending the ``first to invent'' standard so that the ``first inventor
    to file'' is entitled the ownership of a patent seem clear. This change
    will bring U.S. patent laws into harmony with international patent laws
    and create ease in determination of priority rights. However, even
    though this change may encourage inventors to file more quickly and
    enable inventions to enter the public realm sooner, we must listen and
    evaluate the concerns of inventors, both large and small, as part of
    making substantial reform to the system's framework. I have always been
    a strong believer in the importance of robust patent protection and as
    we move towards a global economy, harmonization of patent laws becomes
    an extremely important issue for discussion.
        I yield back the balance of my time.

                                  ----------

     Copy of the Coalition Bill from Q. Todd Dickinson, Vice President and
         Chief Intellectual Property Counsel, General Electric Company