[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






































































                                 
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