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


 
                    PATENT TROLLS: FACT OR FICTION?

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

                                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

                               __________

                             JUNE 15, 2006

                               __________

                           Serial No. 109-104

                               __________

         Printed for the use of the Committee on the Judiciary


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


                                 ______

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                       COMMITTEE ON THE JUDICIARY

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

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

    Subcommittee on Courts, the Internet, and Intellectual Property

                      LAMAR SMITH, Texas, Chairman

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

                     Blaine Merritt, Chief Counsel

                         David Whitney, Counsel

                          Joe Keeley, Counsel

                          Ryan Visco, Counsel

                    Shanna Winters, Minority Counsel


                            C O N T E N T S

                              ----------                              

                             JUNE 15, 2006

                           OPENING STATEMENT

                                                                   Page
The Honorable Lamar Smith, a Representative in Congress from the 
  State of Texas, and Chairman, Subcommittee on Courts, the 
  Internet, and Intellectual Property............................     1
The Honorable Howard L. Berman, a Representative in Congress from 
  the State of California, and Ranking Member, Subcommittee on 
  Courts, the Internet, and Intellectual Property................     2
The Honorable Darrell Issa, a Representative in Congress from the 
  State of California, and Member, Subcommittee on Courts, the 
  Internet, and Intellectual Property............................     3

                               WITNESSES

Edward R. Reines, Esq., Weil, Gotshal & Manges, LLP
  Oral Testimony.................................................     5
  Prepared Statement.............................................     7
Mr. Dean Kamen, President, DEKA Research & Development 
  Corporation
  Oral Testimony.................................................    11
  Prepared Statement.............................................    14
Mr. Paul Misener, Vice President for Global Public Policy, 
  Amazon.com
  Oral Testimony.................................................    18
  Prepared Statement.............................................    19
Mr. Chuck Fish, Vice President and Chief Patent Counsel, Time 
  Warner, Inc.
  Oral Testimony.................................................    23
  Prepared Statement.............................................    26

                                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..........................................    57
Letter from Mark T. Banner, Banner & Witcoff, LTD, Intellectual 
  Property Law, with attachment from Chief Judge Paul R. Michel, 
  to the Honorable Lamar Smith and the Honorable Howard Berman...    59


                    PATENT TROLLS: FACT OR FICTION?

                              ----------                              


                        THURSDAY, JUNE 15, 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 9:05 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.
    I am going to recognize myself in opening statement and the 
Ranking Member, and we'll get to our witnesses immediately 
after that. We are looking forward to a great hearing today and 
learning a lot from who you are testifying.
    This morning, the Subcommittee will conduct its seventh 
hearing on patent reform in the 109th Congress by exploring the 
much-maligned patent troll. We hope to define trolling behavior 
in the modern patent world, determine its degree of privilege 
in the patent system and explore legislative reforms to combat 
it if needed.
    Complaints about trolling heightened public interest in 
patent reform and led to the development of the legislative 
drafts that our Subcommittee has reviewed. According to its 
critics, the troll is an individual who invents a patent 
product or process of suspect legal integrity or who acquires 
such a patent from a third party. The owner is characterized by 
someone who makes money by extorting a license from the 
manufacturer who allegedly has infringed the patent. Fearing 
the possibility of an injunction will force the manufacture to 
cease operations, the company settles.
    Critics of the patent system, including many high-tech and 
software companies, believe that trolls contribute to the 
proliferation of poor quality patents. Ultimately, these 
critics assert trolls force manufacturers to divert their 
resources from productive endeavors to combat bogus 
infringement suits. Other companies and individuals argue that 
licensing is a standard and a time-honored component of the 
patent system. They also assert that some proposals to change 
certain provisions in the Patent Act will disadvantage many 
legitimate companies, vendors, and universities.
    As our previous hearings have demonstrated, patent practice 
frequently pits conflicting interests against one another. For 
example, a software developer might endorse a specific change 
to the current statutory treatment of injunctive relief where 
damages computation is set forth in the Patent Act. The same 
revisions would be opposed by a number of patentee interests, 
especially those in biotechnology and pharmaceutical 
industries.
    Different entities use the patent system in different ways, 
depending on their respective business models. It is important 
to acknowledge this dynamic when evaluating the propriety of 
revising the patent system to combat trolling or promote other 
goals. Still, the patent system should reward
    creativity, not legal gamesmanship.
    In terms of the hearing scope, I hope the witnesses direct 
their testimony to subjects that have been addressed by H.R. 
2795, the Patent Reform Act and other substitute drafts that 
the Subcommittee has reviewed. This includes a discussion about 
injunctive relief, especially in the wake of the Supreme 
Court's decision in eBay v. MercExchange, apportionment of 
damages continuations and PTO operations, generally.
    Now that concludes my remarks; and the gentleman from 
California, Mr. Berman, the Ranking Member, is recognized.
    Mr. Berman. Thank you very much, Mr. Chairman; and thank 
you for scheduling this hearing so quickly after the eBay 
decision.
    As we have tried to move forward with patent reform, our 
efforts have been stymied by the many groups clinging to the 
notion that there was an entitlement to an automatic injunction 
upon a finding of infringement. I am hopeful that, as a result 
of the Supreme Court's findings, we are able now to progress 
with legislation.
    Congressman Boucher and I introduced our patent bill 2 
months ago, believing that the Federal circuit's interpretation 
of the injunction statute invited abuse. We said that if we 
could merely underline or bold the current words in the statute 
guiding the infrastructure of injunction words like ``may'' and 
``equities'' and ``reasonable'', we would have done so.
    Our goal is to achieve what the Supreme Court has now done 
for us: a return to the standard originally intended, that of 
providing courts with discretion and requiring a weighing of 
the equities. Therefore, I don't believe at this time there is 
any further need to legislate on the injunction issue.
    However, the concurrence in the eBay decision raises 
additional issues relating--to quote an industry newly 
developed in which firms use patents not as a basis for 
producing and selling goods but instead primarily for obtaining 
licensing fees.
    Perhaps the place to start at this hearing is not the 
question of whether patent trolls are fact or fiction but 
rather the definitional question of what is a patent troll. 
Justice Kennedy asked it best. Is the troll the scary thing 
under the bridge or is it a fishing technique?
    Depending on where you are standing, the view from the 
bridge may render the same equity, either a patent holder who 
is simply trying to enforce his rights or a patent troll who is 
unfairly leveraging newly acquired property.
    In part, some of the irony surrounding the analogy to a 
troll is that, if I remember my fairy tales correctly, the 
troll usually loses in the end, contrary to what occurs in the 
marketplace today with patents. While I can provide no clear 
definition, I can tell you that in undertaking an effort to 
clarify aspects of the patent law to prevent the abuse of the 
system, there is no attempt here to impose a use requirement on 
a patentee. That's not what we are trying to do. There is no 
attempt to prevent general licensing, and there is no attempt 
to weaken intellectual property rights.
    I have concerns about those who take advantage of the 
current patent system to the detriment of future innovations, 
whether called trolls, entrepreneurs or those that shall not be 
named. There is a significant problem if the patent being 
asserted is of questionable validity.
    I firmly believe that robust patent protection prevents 
innovation. However, I also believe that the patent system is 
strongest and that incentives for integration is the greatest 
when patents protect only those inventions that are truly 
inventive.
    When functioning properly, the patent system should 
encourage and enable the inventors to push the boundaries of 
knowledge and possibilities. If the patent system allows 
questionable patents to issue and fails to provide adequate 
safeguards against patent abuses, the system itself may stifle 
innovation and interfere with competitive market forces.
    When considering these principles together, I introduced a 
bill which provides the reform necessary for the patent system 
to achieve its intended goal of promoting innovation, including 
amendments to the Wolfowitz Standard, submission of third-party 
priority and a post-grant opposition procedure. These reforms 
are clearly not the only possibilities, and I look forward to 
hearing from the witnesses as they describe other alternatives 
and suggestions.
    As the New York Times has pointed out, there is legislation 
in the House to address the issue, and it needs to be taken up. 
I hope that introduction of the bill, in combination with the 
recent Supreme Court decision and these hearings, will 
facilitate the necessary advancement of patent reform 
legislation. High patent quality is essential to continued 
innovation litigation abuse. Especially those which thrive on 
low-quality patents impede the promotion of the progress of 
science and useful arts.
    I would still love to be able to act quickly during this 
109th Congress to maintain the integrity of the patent system.
    Thank you, Mr. Chairman.
    Mr. Smith. Thank you, Mr. Berman.
    Without objection, other Members' opening statements will 
be made a part of the record.
    Does any other Member wish to be recognized for an opening 
statement?
    The gentleman from California, Mr. Issa.
    Mr. Issa. Thank you, Mr. Smith.
    Mr. Smith. Before you go on, Mr. Issa, if you will yield 
for a minute.
    It wouldn't surprise me if I anticipate what you are going 
to comment on. Because you may have noticed that two of our 
witnesses mentioned one of your favorite subjects and that is a 
specialized patent court, and that may or may not be what you 
want to comment on.
    The gentleman is recognized.
    Mr. Issa. I will put the balance of my statement into the 
record. I think you have succinctly hit on an issue that I hope 
that we do speak of more today.
    I do want to add to both of your opening statements, 
though, by saying that today I hope that we will look at 
injunctive relief also and look at it in terms of mend it, 
don't end it.
    With that, I yield back.
    Mr. Smith. Thank you, Mr. Issa.
    Before I introduce our witnesses, I would like for them to 
stand and be sworn in, please.
    [Witnesses sworn.]
    Mr. Smith. By the way, I have never told this story before, 
but many years ago when I was first sworn in to Congress, I had 
my two young children with me. They were aged 7 and 9 at the 
time. And when the Speaker asked us to raise our hand to take 
the oath of office, both my children raised their hands and 
took the oath along with me, and I always felt that the 21st 
District had three Members of representatives for a couple of 
years there.
    But you are not under the same regimen of that.
    I also want to recognize a colleague of ours who has just 
joined us, Congressman Bass of New Hampshire. He has a 
constituent and a friend as a witness today, and I don't know 
whether Congress Bass wants to introduce Mr. Kamen or whether 
you want me to introduce Mr. Kamen.
    Mr. Bass. If the distinguished gentleman will yield to me, 
I am most grateful for his accommodation. At the appropriate 
moment, if I could introduce my friend from New Hampshire, I'll 
be most grateful. I am in no hurry.
    Mr. Smith. Why don't we go out of order and why don't you 
introduce Mr. Kamen?
    Mr. Bass. I will only say that it warms my heart to see 
Dean Kamen stand up there and put up his right hand and say 
that he'll tell the truth. Maybe we should do that every time 
we get together.
    I am honored to introduce to this Committee my friend from 
New Hampshire, Dean Kamen. Dean Kamen really works and 
represents what is the heart of America's economics and 
industrial future. He is truly an inventor, and he owns and 
runs one of the Nation's few really successful modern 
development labs.
    I often think to myself that Dean sits in his office on the 
edge of the Merrimack River in Manchester and the elevator 
opens all day long and these frogs jump out of the elevator and 
they hop down the hall into his office and they sit there and 
he kisses every one of them. Some of them, 9 out of 10 of them, 
remain exactly as they are, and he chucks them out of the 
window into the river behind him. All of a sudden, he kisses 
one, and it turns into a prince, and that prince goes on to 
become cures for people that have heart problems, people who 
are diabetic and need good insulin pumps, people who want 
different mobility devices and people who are in the business 
of trying to develop a long-term, stable energy future for our 
country.
    I know you are having a hearing today on the issue of a 
very thorny issue of patent regulation, if you will. But 
anything that you do that makes it difficult for people like 
Dean Kamen to be innovative and to bring new products to the 
U.S. Economy legitimately would be very tough for our country, 
and I appreciate his appearing here today.
    He's a wonderful friend of mine and a great and 
compassionate American. So I thank you for being here today.
    Thank you, Mr. Chairman.
    Mr. Smith. Thank you, Mr. Bass. You got Mr. Kamen off to a 
good start this morning.
    I'll resume and introduce the rest of the witnesses.
    Our first witness is Edward Reines, a partner in the 
technology litigation practice of Weil, Gotshal & Manges in 
Redwood Shores, California. Mr. Reines is secretary of the 
Federal Circuit Bar Association and serves on its Board of 
Governors. He also teaches a patent litigation course at the 
University of California Berkeley's Boalt Hall of Law. Mr. 
Reines received a J.D. From Columbia Law School and a BS from 
the State University at New York in Albany.
    Dean Kamen has been introduced. The only thing I might add 
to the wonderful introduction you received is you are the 
founder of DEKA Research and Development Corporation, which 
creates inventions and provides R&D services for corporate 
clients. The only other thing to add and the metaphor that Mr. 
Bass used, that you created 150 princes: 150 successful 
patents.
    Our next witness is Mr. Paul Misener, Vice President for 
Global Policy for Amazon.com. In this capacity, Mr. Misener is 
responsible for formulating Amazon.com's public policies 
worldwide, as well as for managing the company's policy 
specialists in Washington and Brussels. He received his BS in 
electrical engineering and computer science from Princeton 
University and his J.D. From the George Mason School of Law.
    Our final witness is Chuck Fish. Mr. Fish is Vice President 
and Chief Patent Counsel for Time Warner. In addition to 
handling Time Warner's patent affairs, Mr. Fish is a frequent 
speaker about legal matters before trade associations and other 
organizations. He is a graduate of the United States Naval 
Academy and Wayne State University Law School.
    Welcome to you all. We have written statements and your 
complete testimony. Without objection, the complete testimony 
will be made part of the record.
    As you all already know, we hope you'll contain yourselves 
and limit yourself to 5 minutes during your formal remarks, and 
we'll follow up with questions in just a minute.
    That concludes my introduction.
    Mr. Reines, we will begin with you.

          TESTIMONY OF EDWARD R. REINES, ESQ., WEIL, 
                     GOTSHAL & MANGES, LLP

    Mr. Reines. Thank you, Chairman Smith, Ranking Member 
Berman and Members of the Subcommittee. Thank you again for 
inviting me to appear before this Committee on patent issues.
    To understand my vantage point, you need to understand I 
come from a law firm that has a very broad-based patent 
litigation practice. We have got about a hundred attorneys, 
full-time patent litigationists throughout the country. We 
represent all kinds of parties: big companies, little 
companies, all kinds of technologies, plaintiffs, defendants. 
We have gotten verdicts for tens of millions of dollars. We 
have defended against claims for tens of millions of dollars.
    So we have got a very balanced viewpoint. We are beholden 
to no type of client or any client in specific, and I hope that 
permits me to give the Committee an informed view from the 
trenches day-to-day in a courtroom or in a deposition room or 
looking at documents and not someone who is in the lobbying 
business.
    So I can give you a view from the front lines, and I hope 
it is a balanced and informed one. After I give my views, I am 
happy to answer any questions and hope to.
    Before I get to the substance of my testimony, I want to 
express appreciation for the investment this Committee has put 
into patent issues. As Chairman Smith says, there have been 
seven hearings. We all know patents are notoriously dense in 
terms of the subject matter and can be quite esoteric, and we 
appreciate the work of the Committee and the staff in taking on 
this important issue.
    To get right to the question of patent trolls, which is the 
question that the Committee has framed for today, I want to say 
at the outset the term was coined about 7 years ago and a lot 
of ink's been spilled and Internet blogs filled trying to come 
up with a precise definition of the contours of who is a patent 
troll and who is not. Serious publications like the Wall Street 
Journal have all addressed this question.
    I want to directly answer your question and say that, based 
on my experiences, I think it's fairly characterized that 
trolls do exist. So it is a fact.
    One instance is a company that we litigated against was a 
small group of attorneys that had pooled some money, bought a 
patent for $50,000 at a bankruptcy auction, basically a 
scavenger hunt. After spending $50,000, demanded billions of 
dollars from a very large, successful American company. And, 
fortunately, after a lot of expense and distractions of 
engineers and managers and other people that can be 
productively engaged in business, we eliminated the claim as 
having no reasonable basis. But I can conclude, based on that, 
that, yes, there are patent trolls that are out there. I think 
that entity fairly constitutes one.
    I'll note that none of the qualities that I described 
doesn't develop any technology. Only lawyers buy something 
cheap and try to make a lot money out of it. None of them would 
fit a Dean Kamen.
    So that is a pure patent troll, and they go exist.
    Now having concluded that a patent troll exists doesn't 
necessarily answer the question that we want to answer, and 
that is how productive is the exercise of defining a patent 
troll for the process of patent reform. I think it is very 
elusive to come up with a definition that's neither 
overinclusive nor underinclusive. It is an emotional hot-button 
to categorize or label someone as a troll, and I would be 
concerned that too much focus on that would detract from the 
important mission of patent reform.
    So I think it is to understand there are patent trolls, but 
the way I see for patent reform, you roll up your sleeves and 
you craft patent reform, is to address abusive practices, 
whoever engages in it and not try to necessarily define 
something with certainty and go at it that way.
    Regarding undesirable conduct, that is worthy of attention 
regardless of who engages in those actions. There are six areas 
that I think are appropriate for the Committee to consider. 
This really doesn't go in to the patent quality issues. That's 
a separate subject for a different hearing.
    But in terms of addressing troll-like behavior, or 
undesirable behavior in litigation or negotiations, whoever 
performs it, willfulness and treble damages based on 
willfulness is an important one.
    Submarine patents is important, continuation of these. The 
Patent Office is doing good work on that, but I think it is 
going to need this Committee's report.
    Damages law hasn't kept up with the changes in innovation 
in the nature of technology.
    Forum shopping and different forum issues have come up and 
injunctions. Just to address Representative Berman's comment on 
injunctions, I am hopeful that the eBay decision will remove 
the debate between various industries about injunctions from 
being implemented to successful patent reform, and I think that 
will be true. I think I have heard that in a lot of the hallway 
discussions, and I am hoping that that will be so.
    I have written extensive comments on these subjects, and 
I'll be happy to answer questions, but with the rest of my I'll 
leave it at that.
    Mr. Smith. Thank you, Mr. Reines.
    [The prepared statement of Mr. Reines follows:]

                 Prepared Statement of Edward R. Reines

                                   I.
                              INTRODUCTION

    Thank you for asking me to share my thoughts concerning the 
question of ``patent trolls'' and effective patent reform. My name is 
Edward Reines, and I am a Partner in the law firm of Weil, Gotshal & 
Manges, LLP. I specialize in patent cases and I am based in Silicon 
Valley. I am honored to appear again before this Subcommittee.
    Let me briefly describe our patent litigation practice so you can 
understand more about my vantage point. Weil, Gotshal's patent 
litigation practice is national; we try cases from coast to coast. We 
have a team of nearly one hundred attorneys who concentrate on patent 
litigation. At any given time, we handle dozens of active patent cases. 
We represent small entities and we represent large entities. We 
represent plaintiffs and we represent defendants. We have won verdicts 
for many millions of dollars and we have defended against such claims.
    In sum, as an attorney who works day-to-day in the patent 
litigation trenches, beholden to no class of litigant, I plan to share 
with the Subcommittee an informed and balanced perspective from the 
front-lines. In that regard, these are my independent views, not those 
of my law firm or any of its clients. I also welcome the opportunity to 
answer any questions you may have.

                                  II.
                  THE TIME IS RIGHT FOR PATENT REFORM

    At the outset, as a member of the patent community at large, I 
would like to express appreciation for the investment this Subcommittee 
and its staff have made in taking a close look at patent reform. Patent 
issues can be esoteric and there are many other issues on the 
Congressional agenda that may be viewed as more glamorous.
    There is a building consensus that now is the right time for patent 
reform. Innovation is the life-blood of our economy and a key 
contributor to our global competitiveness. While there are fringe 
pundits who would eliminate our patent system, there can be no serious 
question that a vibrant patent system is a key ingredient to a thriving 
technology sector. However, for its own health, the patent system 
deserves reform now; much as an overgrown plant requires pruning to 
regain its balance and vitality. Concerns in the business community 
about excesses and abuses are at a high.\1\ This breeds cynicism and 
undermines confidence in the patent system. Moreover, the upsurge in 
Supreme Court activity in the patent area, and the media spotlight on 
high-profile patent matters such as the Blackberry(c) case, confirm 
that this is the right time for this Subcommittee to continue to lead 
the national debate on patent reform.
---------------------------------------------------------------------------
    \1\ Joe Beyers, ``Perspective: Rise Of The Patent Trolls,'' CNET 
News, October 12, 2005 http://news.com.com/Rise+of+the+patent+trolls/
2010-1071--3-5892996.html (``The shakedown is on. In the aftermath of 
the dot-com bust, a new kind of business with a simple, yet potentially 
lethal, model has emerged. Call them the `patent trolls.' '').
---------------------------------------------------------------------------
                                  III.
                     THE QUESTION OF PATENT TROLLS

    The term ``patent troll'' was coined about seven years ago to refer 
to abusive patent litigants.\2\ Since then, a lot of ink has been 
spilled--and internet blogs filled--attempting to define exactly who is 
a troll.\3\ Serious publications from Business Week to The Wall Street 
Journal have addressed this issue.\4\
---------------------------------------------------------------------------
    \2\ See Brenda Sandburg, ``You May Not Have A Choice. Trolling for 
Dollars,'' The San Francisco Recorder, July 30, 2001 (quoting Peter 
Detkin, ex-Intel legal counsel).
    \3\ See, e.g., Dennis Crouch, ``What is a patent troll?,'' 
Patently-O Patent Law Blog at http://www.patentlyo.com/patent/2006/05/
what--is--a--paten.html. Anyone familiar with modern-day patent 
litigation should not be surprised that patent lawyers would dedicate 
such energy to attempt to arrive at a definitive meaning for a common 
term.
    \4\ Don Clark, ``Inventors See Promise In Large-Scale Public Patent 
Auctions,'' Wall Street Journal Online, March 9, 200; Lorraine 
Woellert, A Patent War Is Breaking Out On The Hill, Business Week, 
July, 2005.
---------------------------------------------------------------------------
    To answer directly the question posed for this hearing, the 
existence of entities fairly characterized as patent trolls is a fact. 
If lawyers start a company purely to buy a patent out of bankruptcy, 
and promptly seek royalties that are one hundred thousand times what 
they just paid for the patent, you have a patent troll under any 
reasonable definition. This is particularly true where the demand is 
based on an implausible theory of infringement.
    I can tell you based on first-hand experience that such entities 
do, in fact, exist. But a valid, working definition that is neither 
over-inclusive nor under-inclusive is elusive. This is true because 
entities which attempt to exploit the existing imbalances in patent law 
take all shapes and forms. The only limit is human ingenuity. Thus, 
when it comes to the hard work of rolling up your sleeves and shaping 
patent reform legislation, it is my view that we are best off targeting 
actions that are undesirable when undertaken by any litigant. 
Nonetheless, an examination of the characteristics of what some 
consider a ``pure troll'' may be useful in highlighting the nature of 
the imbalances which need reform. Such an entity:

          Has no significant assets except patents

          Produces no products

          Has attorneys as its most important employees, and

          Acquires patents, but does not invent technology 
        itself.

    The patent community's efforts to define a patent troll with 
precision have borne fruit by provoking helpful, and often passionate, 
discussion about who is abusing the patent system and how they can be 
deterred. However, effective reform legislation that addresses abusive 
practices generally will not only get at the root of the ``patent 
troll'' problem, but it also will evenhandedly deter undesirable 
behavior regardless of who engages in it. In the end, because the 
debate over whether this litigant, or that litigant, is a troll can 
provoke an emotional controversy over the intrinsic worth of a company 
or person, there is a risk that too much focus on labeling particular 
entities as patent trolls will distract from the greater patent reform 
effort.

                                  IV.
                UNDESIRABLE CONDUCT WORTHY OF ATTENTION

    Much of the patent reform debate has focused on patent quality and 
the need for improvement at the Patent Office. In litigation, we see 
many patents that are valid and which were properly granted by the 
Patent Office. We recently tried a case in which we enforced patents 
covering an invention for which a Nobel Prize was awarded. To be sure, 
such patents are important. Nevertheless, based on the mixed quality of 
the patents seen day to day in litigation, patent quality is 
undoubtedly a subject worthy of scrutiny. However, because this 
Subcommittee has already conducted productive hearings on patent 
quality, and because patent quality is not specific to the ``patent 
troll'' issue, I will focus my testimony on undesirable conduct by the 
users of the patent system, rather than patent quality per se. That 
said, the need for an even-handed review of patent validity is 
essential, and the Committee should examine post-grant opposition 
mechanisms that allow for an opposition to be filed after a patent 
infringement lawsuit is brought.
    Below, I identify six areas for potential reform to improve the 
patent system and discourage undesirable behavior.
A. Treble Damages--Willfulness
    Top among the areas worth attention as part of patent reform is 
treble damages based on claims of willfulness. Too often, patent owners 
use the threat of treble damages to attempt to extract a greater 
settlement than is warranted. This frequently happens in negotiations 
before a case is filed. In patent cases, the specter of treble damages 
is easy to create because it does not take much to level an allegation 
of willful infringement. Indeed, I cannot recall a patent infringement 
complaint that did not have a request for treble damages based on an 
allegation of willfulness.
    Abusive litigants will commonly ``notify'' a defendant of many 
allegedly infringed patents leading up to the filing of a complaint, 
often using clever lawyer language to implicate as many patents in its 
portfolio as possible. A company in receipt of such a letter is put in 
a difficult situation. If it would like to have a traditional legal 
opinion to respond to a willfulness allegation, it obviously needs to 
secure and pay for an opinion from an independent law firm each time it 
receives a notice letter. The cost of an opinion can easily reach 
$50,000 and up per patent, not to mention the time of corporate legal 
and technical staffs to manage the opinion process. In such 
circumstances, it can be economically rational for the accused to 
simply settle the matter before expending the resources and time 
necessary to gather outside legal opinions for every threatened patent.
    Moreover, should the case go to litigation, defendants are put to 
the difficult choice of waiving the attorney-client privilege to prove 
that they in fact relied upon ``competent'' legal advice. If they do 
not waive the privilege, they will be unable to rely upon the 
exculpatory advice they sought and received. However, if they do waive 
the privilege there are heavy costs. Such a waiver is highly invasive 
and handicaps the defendant from the outset because it is forced to 
unilaterally turn over its legal theories and strategy. In addition, 
given the volume of so-called ``notice'' letters that are sent, it is 
difficult as a practical matter for even the most conscientious legal 
staff to secure legal opinions for every patent brought to its 
attention that cannot be called into question in some way by a skilled 
trial attorney if the case goes to trial.
    In short, the current rules for willful infringement invite abuse 
and are worthy of this Subcommittee's attention. The duty to respond to 
an allegation of patent infringement should only arise when a direct 
allegation of infringement has been made.
B. Submarine Patents
    Submarine patents are a problem often associated with patent 
trolls. Submarine patents are patents that are secret until long after 
the date of invention and long after the market in an area of 
technology has developed. Under current United States law, publication 
of a patent application can be delayed until a patent is actually 
granted if one does not file corresponding foreign patent 
applications.\5\
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    \5\ See 35 U.S.C. Section 122.
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    When the existence of a patent application remains secret, the 
market becomes quite vulnerable to a late-issuing patent. This is 
because market participants build products and develop industries blind 
to the claimed patent rights of others. Once the market adopts a 
technology, altering products to remove that technology can be very 
expensive and disruptive. Customers get used to a particular technology 
and will resist change. This is true even if the selected technology is 
no better than available alternatives. For example, in our country, 
household appliances have developed based on the design of the common 
electrical wall plug with which we are all familiar. It would be very 
difficult to now change the plug style we use in this country, even 
though we know that there are equally effective wall plug designs 
successfully used around the world. Thus, taking this example, when 
adopting a style of wall plug it would be beneficial to know who is 
claiming the exclusive rights to which style plug so an informed choice 
can be made.
    In short, submarine patents provide a patent owner with unfair 
leverage as a result of stealth. This problem can be addressed by 
requiring publication of patent applications 18 months after filing for 
all patent applications regardless of whether related applications are 
filed abroad.
C. Continuation Applications
    A problem related to the issue of submarine patents is the 
unlimited right patent applicants have to file continuation 
applications when seeking patents. As things stand, after receiving a 
patent on an initial patent application, the applicant can submit an 
unlimited number of continuation applications. This allows an applicant 
to obtain a patent but also ``keep alive'' a duplicate of that patent 
application by filing a ``continuation.'' New patents can then be 
sought on the same technology for years to come.
    This common practice allows a patent owner to file suit based on 
its initial patent while a continuation of the patent application 
remains pending in the Patent Office. Inevitably, applicants exploit 
information gained in litigation or from the marketplace to shift their 
patent rights over time to cover the products in the marketplace rather 
than to cover what they believed was invented. One negative effect of 
this practice is that patent owners can threaten a product not only 
with its existing patents, but with the promise that new and improved 
patents will issue long into the future. Product makers are then 
motivated to settle rather than face a long future of patent litigation 
by a tenacious patent owner, even if they believe they can win the case 
they are then litigating.
    The Patent Office is seriously considering the revision of its 
continuation rules to address this area of abuse. The Subcommittee 
should support the Patent Office in its laudable effort to reform 
continuation practice, as appropriate. In addition, the Subcommittee 
should continue to monitor this issue to determine whether legislative 
reform is warranted.
D. Damage Apportionment
    The issue of damage apportionment is important, but often 
overlooked. The problem stems from the fact that modern technology is 
so complex that one product can relate to thousands of patents. Patent 
owners often seek a substantial royalty that is a percentage of the 
value of the overall product, even where the patentee's inventive 
contribution relates to an extremely small aspect of the product. Thus, 
if a product sells for $100,000, the patentee will often seek 5% or 
more of the overall price of the product for a $5000 royalty per 
product, even if the patent relates only to a minor and rarely used 
option. This problem is particularly acute when the patent owner sells 
no products. This is because there is no risk that overreaching royalty 
demands it makes will be used against it by others.
    Unfortunately, current law does not do a good job of ensuring that 
a patentee receives a royalty in proportion to the true role of the 
patented invention. As an example, in many cases damages' experts will 
rely on the traditional principle that, as a ``rule of thumb,'' 
licensors should receive a quarter to a third of the profit made on a 
product. However, if there are five patents relevant to a complex 
product, much less thousands, all the profit and then some would go to 
patent licensors applying this ``rule of thumb.'' The party that 
actually created and sold the product would be forced to lose money on 
its products sales, under this common royalty analysis. Yet, this type 
of testimony is often permitted because of years of authority and long-
standing licensing practices from a bygone era.
    Another factor is that the legal form of patent claims can be 
manipulated to inflate damage demands and awards. A patentee can draft 
a patent claim to cover a large and expensive product even where the 
invention relates only to a minor and inexpensive component. For 
example, if one were to invent a new type of windshield wiper, patent 
law permits the patent to be granted on a standard car with the 
improved windshield wiper. Under common interpretations of patent law, 
the royalty percentage is then based on the price of the entire car, 
not just the improved windshield wipers. This, not surprisingly, 
inflates unduly the plaintiffs' demands.
    Put simply, in the real world, a host of factors impede attempts to 
put a patent in context so one can effectively explain to a jury this 
concept of proportionality. For example, judges often do not want a 
trial to involve what other patents may cover a product beyond those 
that are allegedly infringed because it is complex enough for the jury 
to determine whether the asserted patent or patents cover the product. 
In addition, a juror is subjected to so much focus on the asserted 
patent and the accused feature in the trial process that efforts to put 
into perspective the limited role of the patented technology are 
difficult.
    Reforms to the law of patent damages are worthy of this 
Subcommittee's attention and simply codifying existing caselaw, such as 
the so-called ``Georgia Pacific'' factors, is insufficient.
E. Choice of Forum
    Another area worthy of the Subcommittee's attention is the forum 
selection system for patent cases. Some commentators complain about 
generalist courts that do not have sufficient patent expertise or 
sufficient resources to resolve patent cases fairly. On the other hand, 
other commentators pick on one or two courts because they attract a lot 
of patent cases. But the issue is not any particular venue or region. 
Rather, the issue is that the breadth of the current patent venue 
statute allows plaintiffs to select a courthouse with such latitude 
that the selected forum--wherever it may be--is often viewed by the 
defendant as unfairly inconvenient, unsympathetic or otherwise 
unfavorable.
    Some have proposed experiments with specialized patent courts, 
others have proposed major revisions to the venue statute, still others 
believe the current venue transfer rules are more than adequate to 
address this issue. Regardless of the ultimate answer, this is an area 
worthy of the Subcommittee's attention.
F. Injunctions
    Until the Supreme Court's recent eBay decision, the law of 
injunctions in patent cases was susceptible to abuse. Settlement 
negotiations often featured graphic, and public, threats of a permanent 
injunction designed explicitly to gain undue settlement leverage. 
Courts would almost always grant permanent injunctions. Exceptions were 
rare. To avoid the near automatic injunction required an extreme 
situation, such as the potential for a public health emergency or a 
threat to national security.
    Hopefully, the eBay decision will improve the law of patent 
injunctions and thus bring closer together the various groups that 
support patent reform. But while the eBay decision encourages a greater 
weighing of the equities by district courts, the decision was not 
determinative as to the future direction of the law of injunctions in 
patent cases. Accordingly, this is an area worthy of continued 
monitoring by the Subcommittee.

                                   V.
                               CONCLUSION

    A healthy patent system is important to the continued success and 
progress of the American economy and society. Our current system is in 
need of reform. Patent trolls exist and they are a problem. However, 
the proposed definitions of that term are over-inclusive, under-
inclusive or, more frequently, both. Abuse in the patent system is best 
addressed by identifying undesirable conduct that should be deterred 
regardless of who engages in such conduct. I hope this testimony helps 
the Subcommittee identify areas of abuse so that balanced patent reform 
can be pursued. Improvements in patent law in a very direct sense 
improve the prosperity of our technology community, which is a crown 
jewel of the American economy. The work undertaken by the Subcommittee 
and its staff directed towards patent reform is therefore most 
appreciated.

    Mr. Smith. Mr. Kamen.

              TESTIMONY OF DEAN KAMEN, PRESIDENT, 
            DEKA RESEARCH & DEVELOPMENT CORPORATION

    Mr. Kamen. First of all, thank you for those very kind 
remarks, but I wish I was getting a prince out of only 10 
frogs. It is way worse than that in the real world. Thank you.
    I also have only 5 minutes; and, not being a lawyer, I 
would just say that I of the reasons I am interested in this 
situation is I've had two kinds of business models in my life, 
and I only recently found out after reading the definition of a 
troll that I am one. So I would like to explain to you what my 
business was and what it is and why I think it is maybe a 
little unfair and dangerous to characterize people that 
licenses products as trolls.
    So my first business I started when I was in high school. 
My older brother was in medical school. He's a brilliant guy, 
and he would come home on the weekends and complain about the 
fact that equipment didn't exist for treating very, very small 
babies, neonates, that he was trying to develop cures for their 
cancers. I built them little pumps over the next couple of 
years. He would take it to the various schools, the university 
where he was, and there was a broader and broader need for 
these things.
    Over about a 6-year period, after taking only a few months 
or, at most, a year to get the first ones out, it took about 6 
years to build a whole business by which I was designing, 
building, testing, manufacturing, and then delivering these 
things. I had to build a whole sales organization, and it 
worked, and we had a successful little business.
    We sold that business to a giant company for a couple of 
reasons. It had grown to be a few hundred people, only 10 or 12 
of which were still doing the research on our next generation 
of products. And running that business was a lot of work. It 
took a lot of capital. It took a lot of time. And I didn't 
think we were very cost-effectively getting their product to 
the market because we had one product or two products and we 
had to support a whole infrastructure to put them out.
    We sold the business, and I decided I could either work on 
any one of the new products I had, and it would probably take 
another 6 or 8 or 10 years to convince the world we had a 
better solution to get it built and delivered, but you only get 
a few cycles of that in a lifetime and in a career.
    My other alternative was, why don't I focus on solving 
these problems, creating these prototypes which we could 
develop relatively quickly, take them to these giant companies 
who do what they do well. They have marketing, they have sales, 
they have distribution, they have infrastructure, and I deliver 
the solutions to them. Because I thought we were better at 
doing that than these big companies and we would create by 
doing that business model a win-win situation.
    I win because I get to do the front-end fun stuff. I get to 
kiss a lot of frogs, and I can work on a lot of projects. And 
the big companies win because I deliver stuff to them and they 
can throw it out if they like and they didn't have to waste 
time on new stuff. But if they like it, they can take it. And 
mostly the public would win, because I could get way more 
products out to way more people more quickly; and it would cost 
the public less because they are taking advantage of this 
larger infrastructure of my big corporate client.
    Over the next few years, we worked on as many diverse 
things as we made the first home dialysis systems. There's now 
80,000 of them out there. We made our hundred millionth 
disposable for that this year. We built iBots for people who 
can't walk up stairs. We built stents for people to eliminate 
surgery.
    We now have the same 200 people I had--well, not the same. 
We have the same quantity of people, but they are all 
development people. We work on a lot of stuff. We kiss a lot of 
frogs, but if we get to something that looks good, and we 
deliver it to a large company, and they do what they do well, 
they get out to the public, it is a way faster process of 
getting innovation out there.
    My concern is when I walk into that big company they've got 
marketing, they've got distribution, they've got everything. If 
I show them what I have got, the only thing that I have on my 
side of the table is that patent; and the only way to convince 
them that they should commit the huge resources to turn that 
into a product is to be able to say that I can deliver this to 
you in return for supporting this product and you singularly 
are going to have to pay for the development and introduction. 
You singularly--you exclusively will have the right for some 
period of time to do this. You give me my royalty; you get your 
product. The product gets to the public, and it works.
    And I think that was the purpose of the patent system. Big 
companies probably don't need that. They've got de facto 
standards; they've got market standards. I think the patent 
system was intended to help encourage everybody to be able to 
participate in being innovative without needing to be a giant 
company. I think it works.
    I have got 200 people and 200 families that are supported 
by that system. I have got a lot of big clients that like what 
we deliver to them, and I think the public has gotten a lot of 
benefit from what we do.
    Mr. Smith. Okay. Thank you, Mr. Kamen.
    [The prepared statement of Mr. Kamen follows:]

                    Prepared Statement of Dean Kamen



    Mr. Smith. Mr. Misener.

           TESTIMONY OF PAUL MISENER, VICE PRESIDENT 
              FOR GLOBAL PUBLIC POLICY, AMAZON.COM

    Mr. Misener. Good morning, Chairman Smith, Mr. Berman and 
Members of the Subcommittee. Thank you very much for inviting 
me to testify on this important matter.
    Mr. Chairman, let me begin by thanking you for your 
leadership and resolve on patent reform. You and your 
Subcommittee have long recognized the centrality of 
intellectual property to our information economy; and now, with 
household brand names involved in well-publicized lawsuits, the 
importance of sensible patent litigation reform is becoming 
increasingly obvious to the public. We also greatly appreciate 
the efforts of the Ranking Member and others who have worked 
hard on this important issue.
    Let me thank you on the Subcommittee for passing section 
115 reform last week. As with music licensing, the law of 
patent litigation must now be rebalanced. More than any other 
request in my testimony this morning and on behalf of my 
customers and company, I ask that you continue your leadership 
in patent reforms so that legislation can be enacted next year 
at the latest.
    I also ask that you consider Amazon's particular experience 
with patent litigation in our two specific proposals to solve a 
pair of problems we have encountered.
    At the outset, Mr. Chairman, let me offer my general 
thoughts on so-called patent trolls. In testimony today and 
elsewhere, I have tried to avoid using the term ``troll,'' not 
because troll-like behavior does not exist or should not be 
proscribed but, rather, because the term may vilify entities 
that are simply taking advantage of the currently flawed patent 
litigation system.
    Mr. Chairman, notwithstanding Amazon.com's extensive and 
growing portfolio, which includes at least one well-known 
business method patent that we have enforced against a 
competitor, we have long recognized the need to rebalance the 
patent litigation system which, in our view, currently is 
unfairly skewed in favor of patent owners.
    Indeed, Amazon.com has seen patent litigation from both 
sides, and we believe the system needs to be tipped back to a 
level in fairness to entities that bring patented technologies 
to consumers. Our patent litigation experience over the past 6 
years has reinforced our belief in a need to rebalance the 
current needs system.
    In the Pinpoint case, we were sued for over $60 million for 
damages in the allegations that our customer personalization 
techniques infringed a patent covering cable TV movie systems. 
In the IPXL case, we were sued for tens of millions of dollars, 
with the plaintiff alleging that our 1-Click ordering service 
infringed a patent covering a bank ATM interface. And, last 
year, for $40 million, we settled with the owner of a host of 
E-commerce patents, nearly two dozen of which were purchased 
for less than $2 million. Soverain had alleged that a few of 
these patents tread on our use of the virtual shopping cart and 
other features on our Web site.
    Besides the threat of automatic injunction, we encountered 
in our litigation experience two essential problems with patent 
law. First, we had little or no way of knowing in advance of 
the relevance of patents at issue; and, second, in none of 
these cases did the plaintiffs substantially practice the 
patents at issue. Yet in all of these cases the damages sought 
reflected plaintiffs' belief that they were entitled to 
compensation beyond reasonable royalties.
    Based on this experience, Amazon now respectfully offers 
two patent litigation reform proposals.
    In Amazon's first proposal, we ask that Congress ask 
successful claimants with method patents to obtain damages only 
back to the point that the defendant had actual notice or 
knowledge of the alleged infringement.
    For the same reasons that constructive or actual notice is 
required of the owner of an apparatus patent who practices the 
patented invention, fairness requires notice with regard to 
method patents. Therefore, for method patents, where 
constructive notice is not workable, Amazon proposes that the 
law be rebalanced to require actual knowledge of the patent by 
an infringer before damages can accrue.
    In Amazon's second proposal, we ask that Congress clarify 
that when courts analyze whether a plaintiff should be entitled 
to such an award of lost profits as a matter of law, a 
plaintiff should be entitled to such an award only if and for 
the time that the defendant's infringing product competes with 
a product that the plaintiff makes or sells.
    Although the general rule that is that if the plaintiff is 
not in the marketplace, it is only entitled only to a 
reasonable royalty, some courts still will occasionally allow a 
plaintiff that does not practice the patent nonetheless to 
argue to a jury that it is entitled to obtain lost profits. 
These outlier decisions create needless uncertainty and impede 
or artificially inflate the cost of settlements. Therefore, 
Amazon asks that Congress clarify that patent owners that are 
not genuinely in the marketplace competing with the defendant 
are not entitled to lost profits but, instead, to a reasonable 
royalty.
    In conclusion, Mr. Chairman, by virtue of our experience 
with patent litigation, Amazon.com believes that reform is 
essential; And we are very grateful for your leadership in this 
area. To the list of several excellent proposals already on the 
table, we would like to add the two suggestions I have 
described this morning to address specific shortcomings in the 
patent litigation system that we have encountered.
    Thank you again, Mr. Chairman. I look forward to your 
questions.
    Mr. Smith. Thank you, Mr. Misener.
    [The prepared statement of Mr. Misener follows:]

                   Prepared Statement of Paul Misener

    Good morning, Chairman Smith, Ranking Member Berman, and Members of 
the Subcommittee. My name is Paul Misener. I am Amazon.com's Vice 
President for Global Public Policy. Thank you very much for inviting me 
to testify on this important matter. I respectfully request that my 
entire written statement be included in the record.
    Mr. Chairman, let me begin by thanking you for your leadership and 
resolve on patent reform. You and your Subcommittee have long 
recognized the centrality of intellectual property to our information 
economy and, now, with household brand names involved in well-
publicized lawsuits, the importance of sensible patent litigation 
reform is becoming increasingly obvious to the public. We also greatly 
appreciate the efforts of the Ranking Member and others on the 
Subcommittee who have worked hard on this important issue. Relatedly, 
let me also thank you and the Subcommittee for passing Section 115 
reform last week. Amazon believes that, as with music licensing, the 
law of patent litigation must now be rebalanced.
    Therefore, more than any other request in my testimony this 
morning, and on behalf of our customers and our company, which is 
dedicated to bringing novel products to consumers as quickly as 
possible, I ask that you continue your leadership in patent reform so 
that legislation can be enacted next year, at latest. I also ask that 
you consider Amazon's particular experience with patent litigation, and 
our two specific proposals to solve a pair of problems we have 
encountered. As I will describe in detail, Amazon asks that Congress:

        1.  allow successful claimants with method patents to obtain 
        damages only back to the point that the defendant had actual 
        notice or knowledge of alleged infringement and, as under 
        current law, in no case back more than six years before the 
        complaint was filed; and

        2.  clarify that when courts analyze whether a plaintiff should 
        be entitled to an award of lost profits as a matter of law, a 
        plaintiff should be entitled to such an award only if, and for 
        the time that, the defendant's infringing product competes with 
        a product that the plaintiff makes or sells.

    At the outset, Mr. Chairman, let me offer my general thoughts on 
so-called ``patent trolls,'' a moniker usually ascribed to entities 
that own and enforce patents without substantially practicing them. 
Although this term provides a vivid, colloquial image of some 
plaintiffs in patent litigation, agreement on a definition of ``troll'' 
may not be easy to attain and, more importantly, is not necessary for 
Congress to dramatically improve our patent system. So, in my testimony 
today and elsewhere, I have tried to avoid using the ``troll'' term, 
not because troll-like behavior does not exist or should not be 
proscribed but, rather, because the term may vilify entities that 
simply are taking advantage of the current, flawed patent litigation 
system. Put another way, as a matter of fairness and sound public 
policy, America's patent litigation system needs to be rebalanced, but 
we need not specifically define ``trolls'' in order to do so.
    Mr. Chairman, notwithstanding Amazon.com's extensive and growing 
patent portfolio, which includes at least one well-known business 
method patent that we have enforced against a competitor, we have long 
recognized the need to rebalance the patent litigation system which, in 
our view, currently is unfairly skewed in favor of patent owners. 
Indeed, Amazon.com has seen patent litigation from both sides, and we 
believe the system needs to be tipped back to level in fairness to 
entities that bring patented technologies to consumers. Six years ago, 
only months after we successfully sued to enjoin a competitor from 
infringing our 1-Click patent, we made several proposals that actually 
would have curtailed the rights of patent plaintiffs. Since then, there 
have been several positive changes to the overall patent environment, 
including the provision of full funding for the U.S. PTO and the 
Supreme Court's recent decision in the MercExchange case. In addition, 
Amazon has half a decade more experience in patent litigation. Based on 
these changes and direct experience, Amazon has modified its specific 
reform proposals from the year 2000, but still strongly believes that 
patent litigation reform is needed to rebalance the rights of patent 
plaintiffs and defendants. This morning, I will offer two modest 
proposals with respect to damages.
    But before I describe these proposals, please allow me to provide 
some background on Amazon's experience. As noted before, we have a 
significant and growing patent portfolio, including two business method 
patents commonly known as the ``1-Click'' and ``Associates'' patents. 
Despite how these patents occasionally have been portrayed in the press 
and elsewhere, we continue to believe that they represent novel 
inventions that seem obvious only in hindsight.
    For example, at the time we filed our 1-Click patent application 
in the summer of 1997, online sales were focused entirely on the 
``shopping cart'' and ``checkout line'' metaphors, with all the 
attendant consumer steps needed just to buy something. Our inventors 
recognized that, on the Web, such steps are not necessary, and 
described a much simpler, consumer-friendly, and innovative method for 
making purchases. Extensive, well-publicized attempts to invalidate 
these patents, even with monetary bounties available, have failed. We 
were--and remain--confident in the strength of these patents, and the 
fairness of litigating them against infringing competitors such as 
Barnes and Noble which, at the time of our litigation, had vowed to 
crush our business; had not invested in developing novel online 
purchasing technologies; and, in many instances, appeared to be copying 
features from Amazon's website.
    Nonetheless, we soon recognized another side of the story: the 
potential for litigation excesses by patent owners. This recognition 
came in part because, early in the year 2000, we became associated in 
the press with litigation abuses, and were criticized by some of our 
customers. Rather than rejecting or simply ignoring this criticism, we 
did some soul-searching and, in March 2000, made proposals to Congress 
which, if they had been adopted, would have restricted our rights as a 
patent plaintiff.
    In one proposal, we suggested that the term of business method and 
software patents be dramatically shortened to something on the order of 
three to five years. To our way of thinking, the businesses to which 
such patents apply change so rapidly that inventors could get enough 
benefit from a few years of protection without stifling innovation over 
the longer term. In another proposal, we suggested that some pre-grant 
opposition process should be instituted in order to help the patent 
office discover (with the help of third parties) any prior art. This, 
of course, was one way to engender more confidence in the patent system 
that appropriately grants protection to some inventions that may seem 
obvious in hindsight.
    These proposals, we thought, would help future patent litigation 
defendants by insulating them from infringement suits long after an 
invention was novel and by increasing, in some fashion, the ``quality'' 
of patents, thereby reducing defendants' need to do the hard work of 
invalidating faulty patents. At the same time, we strongly supported 
this Committee's efforts to allow the U.S. PTO to retain and spend all 
the funds it collected in patent filing fees. More numerous and better-
compensated patent examiners, we knew, would both improve confidence in 
the system and reduce patent examination delays.
    By now, of course, we recognize that a dramatic change to something 
as fundamental as patent term, especially so soon after the 20-year 
post filing term was adopted to harmonize with the international norm, 
would be highly unlikely and probably unwise. And although a short, 
pre-grant opposition period may still be better than the current 
circumstance for applications for U.S.-only protection, a post-grant 
opposition period, such as proposed in H.R. 2795, as well as in H.R. 
5096, would be better yet. And, of course, Mr. Chairman, we are very 
grateful for your and your Subcommittee's leadership in changing the 
funding mechanism for the U.S. PTO. We believe that, fully funded, the 
PTO now is much better situated to examine patent applications in a 
timely manner and issue patents only to novel inventions.
    Our patent litigation experience over the past six years has 
reinforced our belief in the need to rebalance the current system 
between patent owners and others who practice patents. Several separate 
matters, in which Amazon was accused of infringement by Pinpoint 
Incorporated, IPXL Holdings, and Soverain Software, illustrate this 
experience.
    In the Pinpoint case, we were sued for over $60 million in damages 
on the allegation that our customer personalization techniques 
infringed a patent covering cable TV movie systems. In the IPXL case, 
we were sued for tens of millions of dollars with the plaintiff 
alleging that our 1-Click ordering service infringed a patent covering 
a bank ATM interface. And last year, for $40 million, we settled with 
Soverain, owner of a host of broad ecommerce patents, nearly two dozen 
of which reportedly were purchased for less than a million dollars. 
Soverain had alleged that a few of these patents read on our use of the 
virtual ``shopping cart'' and other features on our website.
    In each case, we were forced to pursue our litigation strategy 
under the cloud of automatic injunction for successful claimants that, 
before last month's decision in MercExchange, gave plaintiffs the 
plausible threat of closing down a significant part of our business if 
we did not come to terms, regardless of the equities of an injunction 
under the traditional balancing test. Although we are satisfied that 
the MercExchange decision has removed the threat of automatic 
injunction, we strongly believe that other problems with patent 
litigation that we have confronted should be addressed in reform 
legislation.
    Besides the threat of automatic injunction, we encountered in our 
litigation experience two essential problems with patent law. These are 
the two problems we propose this morning to solve with legislation.
    First, we had little or no way of knowing in advance the relevance 
of the patents at issue. Both the Pinpoint and IPXL actions involved 
business method patents on intangible products in fields distant from 
Amazon.com's core business and, thus, made the plaintiff's claims to 
relevant intellectual property all but impossible for us to discover or 
anticipate. And, likewise, in the Soverain cases, the widespread 
availability of online shopping carts, and commonly used underlying 
technologies, including so-called ``session IDs,'' made the patents at 
issue appear highly unlikely to be validated or enforced.
    Second, in none of these cases did plaintiffs substantially 
practice the patents at issue, yet in all of these cases the damages 
sought reflected plaintiffs' belief that they were entitled to 
compensation beyond reasonable royalties as if they had made the 
investments and taken the risks incident to practicing the patents, and 
as if Amazon had taken business from them.
    Based on this experience, Amazon now respectfully offers two patent 
litigation reform proposals, each with respect to damages. Although 
these proposals are focused only on damages, we believe they would go a 
long way to rebalancing the currently imbalanced patent litigation 
system.
    Please note, of course, that we also generally support other 
proposals for patent reform already included in bills before Congress. 
For example, we support the damage apportionment language in H.R. 2795. 
Where the value of the defendant's product is a combination, the damage 
award should reflect the incremental value attributable to the patented 
invention. And, as already indicated, we support enactment of some sort 
of post-grant opposition procedure, which is addressed in H.R. 2795 as 
introduced, as well as in H.R. 5096. Lastly, we generally support other 
proposals advocated by the Coalition for Patent Fairness, which seeks 
various legislative reforms.
    Mr. Chairman, we respectfully request that Amazon's two proposals, 
which I will now describe, be considered in addition to these other 
proposals.
    In Amazon's first proposal, we ask that Congress allow successful 
claimants with method patents to obtain damages only back to the point 
that the defendant had actual notice or knowledge of alleged 
infringement and, as under current law, in no case back more than six 
years before the complaint was filed. This would rebalance today's 
system wherein a defendant can be liable for infringement damages with 
but little or no reliable way of knowing in advance the relevance of 
the patents at issue.
    Under law today, plaintiffs with method patents need not put 
defendants on any sort of notice in order to obtain damages for 
infringement over the previous six years. In contrast, the law requires 
the owner of an apparatus patent to mark all products covered by the 
patent to be able to collect damages for infringement prior to time the 
infringer received actual notice of the patent. If an apparatus patent 
owner marks its products, then the law permits the patent owner to 
collect damages going back six years from the filing of the 
infringement lawsuit. This approach is entirely reasonable for 
apparatus patents. If a company without knowledge of a particular 
patent decides to make a product covered by the patent, it will, in the 
course of its standard market research, discover the patent owner's or 
a licensee's product, and a simple inspection of that product will 
reveal the existence of the patent. Marking enables others to study the 
patent and either seek a license from the patent owner or develop 
products in a manner that does not infringe the patent. Thus, the 
marking requirement provides meaningful constructive notice for 
apparatus patents, at least where the patent owner or licensee is 
practicing the patent.
    With a method patent, however, current law entitles a successful 
plaintiff to collect statutory damages for infringement going back as 
far as six years without any obligation to put the world on notice of 
its patent and, as Amazon has found, with the defendant often having no 
reasonable way of knowing that it is infringing. If a company develops 
a system that practices a patented method, market research will not 
likely reveal the existence of the patent because marking is not 
required or, in many cases, even possible. And, in addition to being 
expensive, infringement searches are far from reliable: infringement 
analyses must be performed on a claim-by-claim basis and each patent 
can have dozens or even hundreds of claims, and finding the relevant 
claims in the relevant patents is almost a matter of luck.
    Under this system, a company like Amazon has no realistic, reliable 
way of discovering a relevant patent or potential infringement until 
the patent owner decides to tell us about it. Patent owners know this 
difficulty, of course, and thus they can intentionally wait until an 
infringing company has accrued six years worth of damages before 
bringing the patent to the attention of that company. Patent owners 
also can wait to see which companies succeed, then sue only those that 
do. And because the infringer did not even know about the patent, it 
had no reason to try to mitigate damages.
    For the same reasons that constructive or actual notice is required 
of the owner of an apparatus patent who practices the patented 
invention, fairness requires notice with regard to method patents. 
Therefore, for method patents, where constructive notice is not 
workable, Amazon proposes that the law be rebalanced to require actual 
knowledge of the patent by an infringer before damages can accrue. The 
actual knowledge requirement should include the receipt by the 
infringer of actual notice from the patent owner, or knowledge obtained 
by the infringer independent of the patent owner. Only by requiring 
actual knowledge of the patent by the infringer before damages can 
accrue will companies that respect the intellectual property rights of 
others be able to avoid being unfairly blind-sided with costly 
infringement claims.
    In Amazon's second proposal, we ask that Congress clarify that when 
courts analyze whether a plaintiff should be entitled to an award of 
lost profits as a matter of law, a plaintiff should be entitled to such 
an award only if, and for the time that, the defendant's infringing 
product competes with a product that the plaintiff makes or sells. That 
is, we ask that damages be limited to a reasonable royalty where the 
patent owner does not substantially practice the patent. A plaintiff 
who does not make or sell a product (patented or otherwise) that 
competes with the defendant's infringing product should not be entitled 
to seek lost profits as a matter of law. Our proposal would address the 
problem of plaintiffs not substantially practicing the patents, yet 
seeking infringement damages as if they had made the investments and 
taken the risks incident to practicing the patents, and as if their 
sales had been hurt as a result of the infringement.
    The rationale for this clarification is straightforward. An award 
of lost profits presupposes that the plaintiff would otherwise be 
collecting profits on some sales but for the infringement of the 
defendant. But it is at least arguable, under current law, that a 
plaintiff who has not invested the time and effort, or risked the 
resources, to develop a product, nonetheless may be able to obtain 
damages beyond a reasonable royalty.
    Although the general rule is that if a plaintiff is not in the 
marketplace, it is entitled only to a reasonable royalty, some courts 
still occasionally allow a plaintiff that does not practice the patent 
nonetheless to argue to a jury that it is entitled to obtain lost 
profits. These outlier decisions create needless uncertainty and impede 
or artificially inflate the cost of settlements. Therefore, Amazon asks 
that, without disturbing the other factors that bear on a patent 
owner's entitlement to lost profits, Congress clarify that patent 
owners that are not genuinely in the marketplace competing with the 
defendant are not entitled to lost profits but, instead, to a 
reasonable royalty.
    In conclusion, Mr. Chairman, by virtue of our experience with 
patent litigation, Amazon.com believes that reform is essential and we 
are very grateful for your leadership in this area. With the 
MercExchange case decided, we hope that meaningful patent reform can be 
enacted soon. To the list of several excellent proposals already on the 
table, we would like to add the two suggestions I have described this 
morning to address specific shortcomings in the patent litigation 
system that we have encountered.
    Thank you again, Mr. Chairman. I look forward to your questions.

    Mr. Smith. Mr. Fish.

          TESTIMONY OF CHUCK FISH, VICE PRESIDENT AND 
            CHIEF PATENT COUNSEL, TIME WARNER, INC.

    Mr. Fish. Thank you, Mr. Chairman, Ranking Member Berman, 
Members of the Committee for being able to talk to you today 
about the real issue of patent trolls. I think there is 
consensus on the table that it is hard to define the problem 
and also that it is really the behaviors that we ought to focus 
on and the impact of those behaviors.
    But to address the opening statement of the Chairman, Mr. 
Chairman, I think when--if you ask the question what is the 
degree of prevalence of patent troll behavior, you assume that 
there is an empirical answer, and it is difficult to give you 
an empirical answer unless one can come up with an agreed 
definition, which I think most people would agree is hard to 
do. I'll give you, hopefully, some ideas about a negative 
definition what isn't a patent troll, but I would suggest 
respectfully, sir, that this really isn't a question that we 
are going to be able to answer empirically, although there are 
facts and factoids that are perhaps helpful.
    To address Mr. Berman's comment about litigation that 
thrives on low-quality patents, we think you are exactly right, 
sir, and that that is a major part of the problem that we see.
    We would add that the litigation thrives because it exists 
in an environment that provides incentives for just the sort of 
behavior that turns the patent system on its head. That we 
think is what the several proposals look to change, and we 
applaud the Committee for its work on those activities.
    As Members of the Committee know, Time Warner is a company 
whose lifeblood is intellectual property. We believe that all 
forms of intellectual property rights are very important to 
this country. In fact, we would agree with the Founders that 
property rights are basic to a society where there are ordered 
liberties. It is important in today's context that we talk 
about how important the patent right is, because patent rights 
are also important and it's important that they are national 
rights. It's just as important today as it was when James 
Madison wrote in Federalist 43 that it could only be a national 
right that would protect this, that States couldn't take care 
of the problem.
    In fact, there is an interesting paper that I would 
recommend to the Committee and others who are interested in the 
history. Professor Adam Mossoff from Michigan State University 
Law School recently wrote an interesting paper examining the 
patent privilege. He uses the term ``privilege'' in the 18th 
century sense of a civil right which protects a property right 
and tries to develop the notion of how have we treated patents 
in our history. You know, not merely in the way that the 
Supreme Court talked about it in John Deere, this notion of a 
bargain, but actually as a fundamental property right that's 
secured by civil rights through the statute.
    So Time Warner agrees these are very important property 
rights and that the property rights shouldn't be diminished. 
The issue, though, is how are the property rights enforced and 
how does the system work and is it balanced; and we submit 
respectfully that it's not. In fact, in our view, there is 
every indication that, whatever it is we call the people who 
are responsible for the trend, there is a harmful trend that 
exists toward speculation and litigation based on patents and 
away from product innovation that is supported by strong 
intellectual property rights.
    Here's where I'll give you my negative definition. I think 
if you can find an entity that actually creates technology that 
is--that invents products rather than inventing patents, if you 
can find an entity that actually creates prototypes of its 
products and tries to sell those, if you can find an entity 
that employs engineers and scientists as an engineer and a 
scientist rather than as a legal assistant who combs through 
patents looking for claims against others, you are looking at 
someone who is not a patent troll.
    Also, I'll submit to you that some--this is one of the 
reasons to call people like Mr. Kamen a patent troll, if in 
fact anybody ever did. It just doesn't make sense.
    So starting with the basis that intellectual property 
rights are important, the thing that we have seen the Committee 
focusing on and what we applaud the Committee for focusing on 
is the way that the patent system operates today. We believe 
there has been an undeniable increase in patent litigation and 
in patent assertions, many of them brought by former tort 
lawyers who have found patent litigation more interesting than 
other previous forms of litigation.
    In the brief period that's left, I would like to say thank 
you to the Committee for your focus on the important issues 
that exist. We recognize that the Supreme Court has helped us 
with patent reform, not only in the eBay case but potentially 
in this KSR v. Teleflex case, as well as in the Microsoft case 
on worldwide damages.
    We think, though, that it is important for the Committee to 
examine the way the system operates; and I am very glad to be 
here to help you.
    Mr. Smith. Thank you, Mr. Fish.
    [The prepared statement of Mr. Fish follows:]

                    Prepared Statement of Chuck Fish



    Mr. Smith. Mr. Reines, let me add just address my first 
comments to you and next to Mr. Kamen.
    First of all, thank you for your testimony. I find it very 
helpful, and I appreciated your efforts to define troll. I 
would like to say at the outset that I think the definition is 
oftentimes too broad and certainly would not be applied to Mr. 
Kamen by any definition that I would agree with; and I think we 
are going to make some progress today in coming up with a 
definition, because I think we're in general agreement with 
what a ``troll'' is or is not, as Mr. Fish just mentioned.
    I also like your six potential areas of reform. You didn't 
get to go into them in too great extent during your testimony, 
but maybe we could explore a couple of those in a minute.
    But, initially, I wanted to read your complete definition 
of a patent troll and ask the other witnesses if they agreed or 
disagreed with your testify; and then we'll come back with a 
couple of questions.
    You said, such an indicated patent troll has no significant 
assets except patents, produces no products, has attorneys as 
its most important employees and acquires patents but does not 
invent technology itself.
    Is there anybody who would disagree with that definition, 
or is that a fairly applicable, valid, narrow definition?
    Fairly good. All right. You are looking quizzical, Mr. 
Kamen.
    Mr. Kamen. I don't know whether in order to fit you need to 
have any or all of those characteristics. There are four of 
them I guess I have. I do create the intellectual property.
    Mr. Smith. I don't think any of these would apply to you, 
if that's what you are worried about, and I think that's why it 
is a workable definition.
    And, Mr. Reines, do you want to highlight any of those six 
particular areas as needing more attention than others?
    Mr. Reines. I think I would like to highlight two. One is 
the damages law.
    Mr. Smith. Right.
    Mr. Reines. The complexity of technology now is different 
than technology when patent law first developed, and I think we 
need to look at ways to ensure that for the portion of damages 
for the contributions. We deal with cases where there are 
thousands, millions of features of a product and people are 
seeking large royalties.
    Mr. Smith. I think Mr. Misener had the same recommendation 
as his first proposal. So that's a common element here.
    Mr. Reines. And the second thing I guess I would highlight 
is the area of willfulness. The threat of treble damages, as 
you can just imagine, is so significant. And let me just 
explain a little bit about it, because I think it is important 
to appreciate the practicalities of it.
    Basically, if you are informed of a patent and you're told 
you are infringing or someone thinks you infringe, there is an 
argument you have a burden to go get a legal opinion from an 
independent lawyer, and that alone can be $50,000 and up. What 
happens often is someone will either find not 1 patent but 15 
patents or 20 patents, and you don't know which one's the real 
one at the end of the day is going to be in dispute. But yet a 
prudent person might go and get 15 or 20 opinions for $50,000 
each, and that's just not the right way to run a railroad. It 
creates undue leverage.
    I think some of the proposals that the Committee has come 
up with on that are good ways to get at that to make the 
standard of reality notice the one that, if someone is going to 
threaten you with at any time, you have the ability to take 
them to court to clear the air and you are forced to such a 
high standard that you have an opportunity to set--clear the 
air and sue them to be free from their allegation.
    Mr. Smith. Good suggestion. I'll ask the others about those 
in a minute.
    One question I had for you had to do with something in your 
testimony. You stated that even when some patents are properly 
issued that they can still be abused through litigation. How is 
that? Why aren't people just asserting their legitimate rights 
if the patent has been issued correctly?
    Mr. Reines. I hope to cover a series of examples, but one 
is the willfulness example. Just because you're arguably 
infringing about the patent doesn't meant that you were 
willfully doing it without disregard to someone's rights.
    Mr. Smith. Okay. Thank you.
    Mr. Kamen, I thought you gave a good definition of a troll, 
and I was going to ask the other witnesses if they agreed or 
disagreed with your definition, and you actually came up with 
two definitions of bad actors. One was those who 
inappropriately assert questionable patents, which is what I 
would use to define trolls. The other one was bad actors who 
deliberately infringed on legitimate patent rights of others. 
We are really not talking about that quite so much.
    Does anyone have any disagreement with the definition of 
accuracy to inappropriately assert questionable patents as 
being a patent troll. Mr. Fish?
    Mr. Fish. Yes, sir. I have a quibbling disagreement, but I 
am a patent lawyer, so I hope you'll forgive me.
    The problem with the definition is that it doesn't teach us 
anything. That is to put a term like ``inappropriately assert'' 
it doesn't distinguish between patentees who believe that they 
are being appropriate or something else. So I don't think--I 
think it's descriptively true, but I don't think it is 
prescriptively true.
    Mr. Smith. Unfortunately, you are going to confirm 
everything Mr. Kamen thinks about lawyers by quibbling with 
this definition. But, nonetheless, it is a valid point.
    Mr. Kamen, one last question for you. I'll come back on a 
second round, and I'll have questions for the other witnesses. 
Do you feel--with regard to injunctions, do you feel they 
should be granted automatically, or do you agree with the eBay 
case and its finding?
    Mr. Kamen. Well, the word ``automatic'' is a very severe 
term, but----
    Mr. Smith. But a lot of people think that's the system we 
have been operating under for a number of years.
    Mr. Kamen. I am not a lawyer, but I know in contracts there 
is one standard; and having a deed to property, for instance, I 
think is a different standard.
    I could disagree with a person about some contract, and you 
can go settle that somewhere. But the certainty when I get a 
deed for the property from my house says to me I own this 
thing, the certainty when I buy a U.S. Government bond that it 
says will pay the borrower--it doesn't say sometimes. And I 
don't think the certainty of the different Government 
documents--not the deed, maybe not the bond but the patent--has 
that same kind of certainty. If it doesn't have that, I can't 
do business with a large company if they think, well, maybe 
I'll have it.
    Mr. Smith. So you do not quibble with automatic injunctions 
then.
    Mr. Kamen. I think if I have passed the first test of 
getting a patent and then went to court and both proved it was 
valid and it was infringed, those were three major 
opportunities for somebody to take issue.
    Mr. Smith. Okay. Good. Thank you, Mr. Kamen.
    Mr. Berman is recognized for his questions.
    Mr. Berman. Well, this discussion has taken me off where I 
wanted to question you and decide to focus on something else.
    First of all, I am not sure where this notion of defining a 
patent troll came from. I don't think that's particularly going 
to be a rewarding effort in terms of patent reform.
    The real issue is, are there changes in the system to make 
sure things that shouldn't have been patented but are being 
patented--making changes in that system so that the things that 
shouldn't have been patented aren't? And part of that is giving 
to people who do that work a chance to have a broader access to 
what is out there in the world. So to find out if something is 
novel gives some alternatives to litigation to people who 
think, wait, that was a big mistake.
    So, yeah, you've got uncertainty, but before you get 
absolute certainty there is a period of time where somebody can 
come and say you shouldn't have been able to get the deed to 
that property.
    What if there is somebody on the other side of that river 
that apparently runs through Manchester, New Hampshire, who 
doesn't have any engineers, who patents every monkey he kisses, 
who doesn't have a single engineer working for them and spends 
not a cent on development? All he does is spend his time 
sitting around and waiting to find out if there is somebody 
anywhere or anywhere in the country or in the world who is 
starting to manufacture and produce something that he can make 
enough of a case that it might infringe on his monkey, that 
somebody will pay him to go away. Is that an activity that is 
essential to innovation in America that should be rewarded and 
that the process should be accepted and legitimate?
    Mr. Kamen.
    Mr. Kamen. No. I think everything you said I would 
violently agree with, and I would characterize it as saying 
let's solve the problem at its source. Let's make sure only 
real inventions--they are really novel. They will really not, 
obviously, get a patent. And I would be willing to live in a 
world where it's tougher for me to get patents if I knew that, 
in return for reaching a higher standard, I had the certainty 
that I presumed I've had in the past.
    Another way to say it, I would agree with you if we should 
go after bad actors, whatever you call them--and, frankly, when 
bad actors game a system, and it happens in every system 
everywhere, I think the people it ends up hurting the most 
specifically isn't even the public. It is the good actors in 
that same system, because it puts them in question, in doubt, 
and it typically elicits a response which tries to fix it with 
a broad brush.
    In this particular case, I think the people that really do 
invent, the people that really do what I think the process was 
made to do will be hurt if these bad actors are allowed to go. 
But all laws, unlike the physical law, physics, very precise, 
the laws that I see written by humans are always a balance of 
judgment. Let's make the speed limit 50, not 70, because it is 
a little safer, but you don't make it 20 because you always 
have to deal with the balance.
    In this particular focus, everybody's focusing on one kind 
of bad actor, the troll, or whatever you call somebody who is 
abusing the system by exerting unrealistic, unreasonable, 
unfair influence. And I am sure you could, if you only look at 
that end of the bad-actor scale, fix it by being more 
Draconian. But there is equally bad potential at the other end, 
companies that knowingly, willfully violate things because they 
think it is too hard to go after them. It is too difficult to 
get--for the little guy to fight.
    So while you might fix this if that's the only part of the 
thing we focus on, then, in the balance, what is going to 
happen if you make it relatively easy for somebody to say, I am 
not going to respect your property rights and if you want me 
off your property you have got a real problem. I think that 
will cause more people to tend to abuse the system on the other 
end. It will make the courts more full of more cases because 
companies will say, I have no reason to settle with you. You'll 
have to go through all of these things, all of these processes, 
and then, in the end, all you are going to get from me is what 
you would have gotten in the first place--some royalty.
    I think we need to make sure we don't throw out the baby 
with the bath water.
    Mr. Berman. I would think if you create a system which 
would allow large companies to do that with essential impunity, 
you'd be destroying the patent system so--and who's going to 
spend the time and the energy and inventiveness to go out and 
figure out that innovative solution if that's what they face? 
So I couldn't agree with you more.
    My time has expired.
    Mr. Smith. Thank you, Mr. Berman.
    The gentleman from California, Mr. Issa, is recognized for 
his questions.
    Mr. Issa. Thank you, Mr. Chairman.
    I, too, share the frustration that a troll is whoever is 
coming after me sometimes. There are 50 percent of all lawyers 
I found are good. They work for me. All of my patents were 
pioneer. I doubt the authenticity or certainly the originality 
has been asserted against me. It is a lifetime phenomenon that, 
Dean, I know that someday you are going to run into me on the 
receiving end. You are not always going to be coming up with 
great innovations.
    As a matter of fact, probably two generations of Segway 
from now, somebody anticipating where you are going will have 
patented some feature that they think you are going to want. 
And that is the challenge, that is the challenge of the patent 
system.
    I can only say that this Committee is committed to, one, 
tightening up what it takes to get a patent; two, dealing 
beyond mark men with early discovery of what a patent actually 
means, what it is really limited to.
    I have always said that, although I respect the right of an 
inventor to have 5,000 dependent claims if he wants and at a 
reasonable price--and I've had more than a few go-rounds with 
the PTO on their theory that you should be punitive if somebody 
has more claims--that the claims, whenever possible, should be 
penalized for having more words in them than necessary.
    On that note, I want to do one thing, because I think this 
Committee should set a tone, and I would like each of your 
comments on it with the limitations of the Constitution. Just 
quickly, I'll remind everyone that the only guidance we have 
under a body of law that we cannot change, which is the 
Constitution, we cannot change alone, is that it says to 
promote the progress of science and useful arts by securing for 
limited times to authors, inventors, the exclusive right to the 
respective writings and discoveries.
    We can take out the authors for a moment, but before we do 
that, it is interesting to note that exclusive is an absolute 
right in the copyright which falls from this. Yet we have 
mandatory licensing arrangements and we, on the dais, deal with 
that, with that exact problem with a former Member. Sonny Bono 
wrote, I've Got You Babe, but the radio stations got it without 
his permission under a theory of law that they're promoting his 
product and they didn't pay him for it. Fortunately, the record 
companies did; and so, on balance, he did okay.
    But we have gone away from pure exclusive. When we talk 
about eliminating the injunctive relief or somehow further 
limiting it, I always am back to the question of don't we still 
have the obligation of exclusive that is here? So going back to 
the whole question of trolls, which is the subject for today, 
to the extent that somebody is called a troll, what do we do to 
limit--constitutionally limit what they can be awarded? Should 
this Committee provide a balance, evaluation to the judge and 
the jury that would allow them to somehow reduce the amount 
paid if somebody could be defined as a troll?
    And before you answer, I might remind you that if a woman 
is raped, the first thing the plaintiff--the defendant does is 
describe her as promiscuous in order to somehow minimize the 
crime that was committed against her.
    So with that terrible analogy, but I think necessary, what 
would you have us do if someone is shown to be a troll of a 
valid patent?
    And I'll start with Mr. Kamen, because, obviously, you have 
described yourself as--misdescribed as a troll, and I agree 
that you were misdescribed by anyone who would say that.
    Mr. Kamen. Well, again, I don't envy people that have to 
live in the vagaries of laws of people, not the laws of 
physics. They're not precise. But my point was that, at least 
in my situation, the ability to give a company who I'm asking 
to uniquely and exclusively pay for the development, 
manufacturing, distribution of a good idea, the only thing I 
can offer them in return is that I will exclusively give it to 
them, and I can only make that promise to them and deliver on 
it if I believe and they believe that my patent can do that.
    So I think exclusivity is extremely important at one ends 
of this debate. At the other end, if it's abused, since it is a 
very powerful thing, it presents a problem. I think all rules 
created by man have that problem. I think you have a number of 
ways, however, to prevent that from happening. They exist 
today, and we should be very, very cautious about trying to 
focus on this one issue--and we can argue about how big this 
issue really is, or however big it is. If we only look at the 
issue of what a troll might do and snuff it out by some change, 
like you can't have exclusive right and injunctions, what will 
be the impact, the overwhelming impact, on a 200-year history 
of using patents to create the most innovative society on the 
planet.
    Mr. Issa. Thank you, Mr. Chairman.
    If the others could answer briefly if they have a comment.
    Mr. Smith. Okay. Very briefly. We are going to have another 
round of questions. The gentleman's time has expired, but does 
any other witness have a brief answer to Mr. Issa's question?
    Mr. Misener. Mr. Issa, just very briefly. It seems to me 
that it would be very difficult to take that approach in 
litigation itself, because then the first step in litigation 
would be the defendant trying to define and prove to the court 
what the plaintiff is or is not. It would be better, in our 
view, to try to define and proscribe behaviors rather than 
trying to--instead of a system where we would be as a defendant 
in the position of having to prove what the plaintiff is.
    Mr. Smith. Mr. Fish.
    Mr. Fish. Yes, sir. Very briefly, I think one other thing, 
Mr. Issa, if you look at the way that damages law is applied in 
patent cases, and you applied it fairly, it isn't about 
labeling the patent owner. And, in fact, I think rape shield 
laws have hopefully moved toward fixing that problem in other 
areas. It's about looking at the harm which comes to them, and 
components of that harm include what was the value of what they 
actually created? How were they hurt if they were a competitor 
or not? If those rules were generally applicable, you know, are 
there worldwide damages available when it only happened in the 
United States--if those rules were applicable, I think it could 
work, sir.
    Mr. Issa. Okay. Thank you.
    Mr. Smith. The gentlelady from California Ms. Lofgren is 
recognized for her questions.
    Ms. Lofgren. Thank you, Mr. Chairman.
    And, Mr. Kamen, I think the last time I saw you you were in 
San Jose in front of about 500 screaming teenagers at the FIRST 
Robotics, so thank you very much for all that you've done for 
young people across the United States. I know many of the kids 
in San Jose who got so excited about science and technology 
through Robotics, and it's a wonderful contribution that you've 
made to our country and deserves more recognition than you've 
got.
    As I've listened to the testimony and questions here today, 
it's interesting that--you know, we've really taken our time 
here, and I think that's right. We're trying to sort through a 
very complicated subject so that we don't--first, do no harm, 
but also, we do recognize there are some abusive situations 
going on here, and we want to make sure that we have a positive 
impact on them. Luckily--it's like quantum physics; you can't 
observe it without changing it.
    And so I think just the fact that we've had these hearings 
has had some positive impact. And luckily the Supreme Court has 
woken up a little bit. I don't know if that's because of our 
hearings--I wouldn't presume that we would have that impact on 
the Justices--but I do think that the eBay case is going to 
force the courts to look at the merits before issuing a 
temporary injunction is a positive thing. And I have suggested, 
too--all of the things that we've looked at really have been 
about process, they've been about remedies. They haven't been 
about the substantive law. And I actually made a suggestion--it 
wasn't me, actually, some academics made some suggestions about 
a year and a half ago that we take a look at the substantive 
law. There was no real interest in doing that in the patent 
community, so I dropped that. But I think the obviousness issue 
is part of the problem here. And the fact that the court is 
going to be taking a look at that may help us. And I'm 
perfectly satisfied to let the courts take that on since we are 
not going to, and perhaps for very good reasons.
    The question in my mind is now that we have the eBay case, 
you know, we don't need to change everything in the remedies. 
What one or two other things might kind of set this on its 
right course? If you had to pick two other things that we would 
impact by way of either--assuming that we--you know, the Patent 
Office is doing its best. We're getting them more resources, 
they're implementing their plan, but the job that they face is 
just an overwhelming one, and I think that the Patent Office is 
filled full of people who are doing their best. But if we leave 
that office to one side, would it be willfulness, would it be 
postgrant review, would it be apportionment of damages? If you 
had to do just two things that might tinker the balance to 
right this course, what two things for each of you would it be?
    Mr. Fish. I would say I think you're right, ma'am. 
Hopefully it would be good if the Supreme Court actually does 
take cert in the KSR case or an appropriate case. We don't have 
that yet.
    I would say that following eBay, there are two issues--
maybe two and a half. The first issue is that, as a result of 
eBay returning us to what the patent statute says and 
traditional equity jurisprudence, the role of the district 
courts is more important. So following eBay, venue becomes a 
very important issue. And we would applaud balanced, careful--
--
    Ms. Lofgren. To the venue issue.
    Mr. Fish. The venue issue, yes, ma'am. Or perhaps dealing 
with it procedurally, as Mr. Issa and others have recommended.
    The second one I would say is damages in general. And the 
subparts of that would be--if I'm allowed to sort of make more 
than two--willfulness first; apportionment second so that you 
don't assume that every patent is, in fact, a pioneering 
patent. You know, in fact, the discussion back and forth on 
that, it strikes me as very, very interesting. Because we're 
told that it's a bad thing to do to focus on the difference 
between the thing that was claimed and the prior art, that that 
somehow messes up the system. It seems to me, though, if it's 
true what we're told by our opponents, that most patents are 
this sort of incremental approach, that they're just a little 
bit beyond that which is known, then shouldn't the general rule 
be that most patents don't go to the entire value of a product 
or a service, most patents are not pioneering?
    Ms. Lofgren. So if there is a lot of prior art, it would 
actually have an impact in a way on the damages; if there is 
none, it's breakthrough.
    Mr. Fish. Yes, ma'am. I think that if we started at the 
general rule that in general you don't get to claim the whole 
product or the whole service, rather you have to show an 
entitlement to that, that would be good. So my two would be 
venue and the fixing of damages.
    Mr. Misener. Thanks, Ms. Lofgren.
    We would also agree that fixing the damages circumstance in 
today's law would be the principal way to rebalance the system. 
You know, you have the inventor of the Segway on this panel, so 
he knows more about rebalancing than I. Thank you. But it is 
the case, though, that we have come across these circumstances 
in our litigation where there are things that are just inflated 
and not realistic.
    It is a fiction, for example, for us to have--for there to 
be a marking of a method patent. So a lot of times we've just 
simply been surprised; it wasn't like we were trying to do 
anything wrong or infringe, we just were surprised by even the 
relevance of the patent.
    The other fiction that's out there is that many of the 
plaintiffs we've come up against have sought lost profits when 
we are not in competition with them in any form. They're not 
either practicing, or we're in a completely different business.
    And so if those two aspects of damages were rebalanced, we 
would see those would be the most important reforms.
    Mr. Smith. Thank you, Ms. Lofgren.
    The gentleman from California Mr. Schiff is recognized for 
his question--oh, I'm sorry. Were there other witnesses who 
wanted to respond to that question? I didn't see any--I'm not 
sure--we're waiting to see whether any witnesses wanted to--I 
didn't detect any interest in any more response, but Mr. Kamen. 
And then Mr. Cannon would be recognized next.
    Mr. Kamen. Well, you asked for two, and you said but put 
aside that they do quality patents. I'm a member of the PPAC 
group that's been trying to work with the Patent Office, and I 
can tell you that I don't think you can put that one aside 
because it's like, other than that, Mrs. Lincoln, how was the 
show?
    There is a pendency now of 500,000 patents. As we all know, 
there is an explosion in the number of people trying to get 
patents, which I think is a good thing. As someone has pointed 
out, sophistication is going way up in probiotics and genomics. 
It's harder and harder. I think we really do have to give them 
better ways to hire and retain--you've given them more money. 
They might not even spend all the money you gave them this 
year, but they tell me they can't use it in a way that can give 
bonuses or do things to attract and retain good people, which 
is an inefficient system.
    Ms. Lofgren. With the indulgence of the Chair, I will very 
quickly--I just wanted that to be put aside for the purposes of 
this question. We very much understand that there is an issue 
in the office. There is a plan to improve it. We want to 
implement that plan. I mean, it's only for the purposes of this 
question. And my time is----
    Mr. Smith. Okay. Mr. Reines has a brief response as well.
    Mr. Reines. Yeah. I just say willfulness, and again, it's 
rightsizing it, not eliminating it, in case there's any 
ambiguity about that. And then I think apportionment. If you 
come up with a new rear-view mirror, the patent claim can claim 
it as a new car with a new rear-view mirror. The royalty 
shouldn't be on the whole car just because that's the form of 
claiming. And those are the kind of issues we need to address.
    Mr. Smith. Thank you, Ms. Lofgren.
    The gentleman from Utah Mr. Cannon is recognized for his 
questions.
    Mr. Cannon. Thank you, Mr. Chairman.
    First of all, I would just like to thank Mr. Kamen for 
coming today. It's refreshing to get the insight of someone 
actually who is involved in these issues, and your insights 
have been very, very helpful. So thank you.
    I'd also like to just note for the record that in an 
apparent attempt, Mr. Misener, to contain our prurient 
tendencies, we're talking about trolls rather than the Swedish 
model today.
    But for you, Mr. Misener, and also for Mr. Reines, I'd like 
to get some elaboration for the record about--I don't even know 
what to call it. It's like a doctrine, it's like a set of 
religious briefs that we've developed in the tech community 
that has resulted in a world where you can take an incredibly 
advanced device--I mean, this thing probably has 2,000 patents, 
but I expect not 50 bucks in patent royalties, because there is 
this kind of religious brief that what we ought to be doing is 
creating new products and winning in the market rather than 
focusing on royalties for our innovations that other people 
pick up and use. And so we have a huge cross-licensing.
    Micron is now one of the major patent players. My view of 
their--I'm saying this, this is not their position, but I 
suspect the reason they're so aggressively involved in, and 
that is because they're the last DRAM manufacturer. And by 
fewer devices, because it costs more money because we have 
patents out there, we're going to have a slowing of the growth 
of--in DRAM, and that will hurt their long-term profitability. 
So they're investing in maintaining this kind of religiosity, 
this religious set of beliefs involved around cross-patenting 
or cross-licensing. And that set of beliefs is fundamental and 
very, very important for the development of technology not only 
here in America, but in the world.
    Now I may be overstating that, but I would like to have 
your insights into what's going on. But the reality is, in the 
development of innovation, and the cross-licensing, and the 
lack of charging for those things, and what that's doing to the 
world, and why that's important, if I'm right in my assessment, 
why that's important for what's happening with the 
technological development of the world.
    Thank you, Mr. Misener and Mr. Reines.
    Mr. Reines. I mean, I think what you're describing is what 
we call in the trenches the ``patent thicket,'' that there is 
just a thicket of patents, and how do you work your products 
through that. And I think your device there probably is covered 
by a lot more than thousands, it's probably hundreds of 
thousands, and I think part of that is just the advancement of 
technology. And complexity is unavoidable, but part of it is 
not letting excesses make the ability to license and cross-
license effectively and release products, be able to do that 
more efficiently, and I think some of the areas that the 
Committee is looking at will do that.
    Mr. Misener. Thank you, Mr. Cannon. And just to add to 
that, it seems to us that we are trying to innovate in a number 
of different ways, as well as our competitors are, and we're 
all within a few months of each other in many different areas 
of innovation. If they're all out there practicing, as we are, 
in marketing and providing services to their customers as we do 
to ours, I think cross-licensing is a very efficient way to 
manage the development and deployment of innovations.
    The problem arises largely when entities are not 
practicing, and there is sort of this--we're up against sort of 
an unequal circumstance where we're at risk of losing 
something. They are not at risk because they're not practicing 
it.
    We settled last year, as I mentioned before, for $40 
million on patents that we question their validity. We still 
do. We also question whether we were infringing. But the fact 
of the matter was that the patent at issue went to our shopping 
cart, and Amazon without a shopping cart is not a particularly 
useful thing for consumers. And so as a result we were anxious 
to settle in a way that would not have occurred if the patent 
had been held by one of our competitors.
    Mr. Cannon. In the case of Amazon, you guys sell books, and 
now many other things, but you're relevant today because you do 
it in an environment of technology. You know, I'm a big fan of 
your company because I love the shopping cart that allows you 
to buy a bunch of stuff, and with two clicks I'm out of there. 
I'm not a very good typist, and typing in my credit card number 
is something that is daunting to me.
    So your company exists in a world that is highly dependent 
upon many other activities for success, and your success is 
really actually good for the world, because I just--if I might 
talk about a book, I read a book recently, and autobiographical 
piece, by a guy named James Watson, who was a majority whip in 
the House and then became a majority whip in the Senate, a 
great guy, and it's a wonderful book, and it's out of print. So 
I popped on to Amazon and found a bunch of copies. And, by the 
way, you linked to other sellers where there were more copies.
    So the richness of the environment--and I don't mean to 
just pump Amazon.com, the environment that we live in today--
oh, my red light is flashing.
    Mr. Smith. The Chairman is recognized an additional 2 
minutes.
    Mr. Cannon. I just hate when people are waiting to talk, 
and I don't want to take time from Mr. Schiff, but just let me 
say that this is a moral issue. The patent issue is a moral 
issue that affects not only my life and the richness of my 
life, but the lives of people worldwide. I can do Amazon.com on 
this device; I couldn't on other earlier devices. This is a 
world that we don't want to slow down by stupid decisions. On 
the other hand, it comes back to what I think Mr. Kamen way 
saying: It's a matter of balance, so we hope to do the right 
thing.
    And I yield back what time I don't have, Mr. Chairman.
    Mr. Smith. Mr. Schiff will use it. Thank you, Mr. Cannon.
    The gentleman from California Mr. Schiff is recognized for 
his questions.
    Mr. Schiff. Thank you, Mr. Chairman.
    Having just bought a book through Amazon that was also out 
of print, where I was connected to a private seller, I 
certainly didn't want to interrupt that point.
    I wanted to explore a little bit more the analogy, Mr. 
Kamen, that you made, and I think you have the advantage of all 
of us, not being a lawyer, because you somehow are able to 
express these complex subjects in ways that people can actually 
understand.
    If we're talking about too many deaths on the highway, 
there are a lot of remedies for that. You can lower the speed 
limit, not to 20, but maybe to 55; you can require people to 
wear seatbelts, as we have; and maybe go beyond that, you can 
also require the automakers to make safer cars and build in 
airbags. And the question is, so what combination do we do 
here?
    I think everyone at the table would agree and everyone here 
would agree that the consensus answer, and probably the largest 
piece of the puzzle, is improving the quality of the patent 
process, the issuance of the patents, make sure they're good 
patents, and we are trying do that. And part of that is money, 
part of that is management, but none of that will be--none of 
us will be deterred from doing that by any other remedies we 
look at.
    Congressman Berman has also thought about ways to improve 
the process where maybe if a patent isn't issued so well on the 
front end, there is a way to come in and challenge that after 
the fact.
    What I was interested in exploring, and maybe this is 
already--one of my Committee Members can correct me--maybe this 
is already a component of existing law, but in the broader 
legal practice where we have problems with vexatious litigants, 
many States have statutes that go after vexatious litigants who 
have been repeatedly shown to be a problem. And I wanted to ask 
what you would think about some kind of a vexatious patent 
litigant where you have courts find repeatedly that someone is 
pursuing patents, and they are ultimately deemed to be a troll, 
so you go after the worst culprits on the one end. And then I'd 
like to ask my friends on the other side, what about vexatious 
infringers? Should we look at having a three strikes you're out 
when courts find it was done with malice? Anyway, I'd love to 
hear your thoughts on that.
    Mr. Kamen. I guess what I was going to answer Congresswoman 
Lofgren of the second most important thing was that there ought 
to be penalties for people that game the system. And I think 
the whole general process that you people should be looking at 
is not how to figure out how to put a bigger burden on the 
potential victims, but go after the people that are doing the 
bad things. And instead of undermining the rights of good 
people that have property, because if it was abused, their 
right would have been too strong, you go after these people.
    You pointed out that it was a bunch of lawyers that, in 
fact, were these trolls. Somebody else pointed out that it was 
a company that didn't have engineers. What I learned from this 
is what I already knew: Inventers are good people, lawyers are 
bad people. But you've now figured out how to----
    Mr. Schiff. So you're saying vexatious litigant is 
redundant.
    Mr. Kamen. Well, for instance, I would say that really in 
all the different kinds of gaming of systems that you see, 
eventually the legal system figures out how to parse words and 
do things, these imprecise things. We know that the cost in 
every field, whether it's torts, the cost of litigation is so 
high, we hear that companies will willingly pay because it's a 
good business decision. But that's like saying we do negotiate 
with terrorists, and that just causes more of that activity.
    The companies shouldn't pay if they're not guilty, but then 
the people that can sue with these marginal and sometimes, we 
all know, invented positions don't have much of a downside. 
That's the problem with a lot of the gaming in not just 
patents, but other kinds of legal issues this country is 
facing. So one of the ways to deal with that is some form of 
loser pays. There ought to be a way to penalize people that are 
abusing this system, not take the people that aren't abusing 
the system and keep throwing more burdens on us. Go after the 
people that are the bad actors at both ends. And if there's a 
big company that has repeatedly just disregarded people's 
rights, they are as bad as the trolls at the other end that are 
clogging up the system. But you people ought to focus on 
getting rid of the bad actors and supporting the good ones.
    Mr. Schiff. If I could ask the other witnesses, is there 
anything in current law that has kind of a three strikes effort 
against the vexatious patent litigants? And what do you think 
about where you find the company three times maliciously, 
willfully violating a patent, whether there ought to be some 
sanction on that end as well?
    Mr. Reines. I can address that. There is a provision 
exceptional case which says--if there is an exceptional case on 
either end of the spectrum, in other words, exceptionally bad, 
there is a lack of basis on either side--there can be an 
attorneys' fees shifting, and there can be increased damages in 
the case of a plaintiff.
    So it's not whether you've done it three or four times, but 
on a per-case basis that judgment can be made. I think the 
point that the reset on that is--so that's there for someone 
that's acting really bad. But the reset is that there's a lot 
of actions that a patent owner can take that can make it such a 
pain in the butt to deal with it that you will give them 
$30,000 or $40,000 to go away so you don't have to pay $50,000 
just to protect yourself from a willfulness allegation. And 
there are instances of people, it's not uncommon, that send out 
300 letters or 400 letters and explicitly say, I am asking you 
for a royalty that is less than what it will take you to get 
one of your in-house people--forget outside lawyers--to look at 
the problem. That happens; that happens a fair amount.
    And the question is, Dean raises a good point, well, don't 
negotiate with hostages; but the problem with that is that the 
number of demand letters at these places--nastygrams is what 
they're called, and Ms. Lofgren knows about this from the 
constituents in the Silicon Valley area, I mean, they get 
dozens and dozens a year. You can't fight every battle, and 
$30,000 can eliminate a problem.
    Mr. Misener. Mr. Schiff, I would only add that it seems
    to me it still would be very difficult to have to define 
and prove at each turn the vexatious litigant, either a 
plaintiff or defendant. And we just believe that if we were to 
address the damages forum that we've suggested and others have 
suggested, that you actually take away the incentive for 
vexatious litigation rather than trying to define and punish 
the vexatious litigants. It seems to me it would be a burden on 
the other party to sit there and have to define whether or not 
the opposing party had participated in such activities in the 
past----
    Mr. Schiff. I want to just interrupt. If there is an 
existing provision, as the shifting of costs, et cetera, you 
can simply define it as where an attorney has had that happen 
in three different cases, where the judges found it to be a 
sufficiently unmeritorious claim or offense that they have 
shifted fees three times.
    Mr. Misener. But again, it would be the other party in the 
position of having to dig up that evidence, present it to the 
court, have the court find it--either that, or some sort of a 
commission that keeps track of it. Again, if the incentives for 
vexatious litigation are removed, then there would not be the 
vexatious litigation or vexatious litigants.
    Mr. Fish. If I may, sir, I would point out two things. The 
first one is this sort of concept of three strikes and you're 
out or something is a concept that I would say makes sense in 
the criminal context, but not in the civil context. And so if 
we have a rule which exists, and we do, that says if it's an 
exceptional case, attorneys' fees, which, of course are massive 
in patent cases, can be shifted. The problem is that the rule 
doesn't operate to protect--it doesn't operate the same for 
plaintiffs and defendants. If you're found to be a willful 
infringer, it's not at all uncommon that you also pay 
attorneys' fees for the plaintiff. If you bring a case that's 
frivolous, it's very rare that it works out. So that could be 
balanced.
    The other problem I would point out, and this is perhaps 
one of the distinctions between civil behavior and criminal 
behavior, is that it's really not as clear as it might be in 
the civil context. So if you don't know beforehand, if there's 
a legitimate dispute about what does the patent cover, whether 
you're a plaintiff or you're a defendant, it seems to be much 
more draconian to punish people after the fact, after the 
courts have told them you were right, Mr. Defendant, you were 
wrong; Mr. Plaintiff, for example.
    Mr. Smith. Thank you, Mr. Schiff.
    Mr. Misener, let me address a couple of questions to you, 
but on the way there what I want to do is read to the other 
witnesses a proposal that you made and ask them to comment on 
that proposal and then give you the last word.
    And, Mr. Reines, we'll ask you to comment first on this 
proposal.
    Congress allows successful claimants with method patents to 
obtain damages only back to the point that the defendant had 
actual notice or knowledge of alleged infringement, and as 
under current law, in no case back more than 6 years before the 
complaint was filed. Is that clear? Okay. What is your comment 
on that?
    Mr. Reines. I mean, I think basically that's a notice 
requirement for damages for method claims, and I think that 
works. My only caution about that is that virtually any claim 
that's cast in terms of method can be cast in terms of 
apparatus, and vice versa. And so I'd want to look at 
addressing it on the apparatus side to make sure we're not just 
having everybody flock to one form or another, but it sounds 
like something worth considering.
    Mr. Smith. Thank you, Mr. Reines.
    Mr. Kamen.
    Mr. Kamen. I'm not competent to--I am sure that the lawyers 
will find the unintended consequence and make it more important 
than what you're trying to do. That's a subtlety, I'm not----
    Mr. Smith. Okay. Thank you.
    Mr. Fish.
    Mr. Fish. Yes, sir. I think it's correct to characterize it 
as a notice requirement, and it's a good idea. The main reason 
I think it's a good idea is because there's a fiction that 
exists that it's possible for complicated systems and for 
standards in recovery operability, for example, that it's 
possible to search the Patent Office records to find all the 
patents that one might infringe. In fact, it's not humanly 
practically possible.
    There is an interesting paper that Professor Doug Lichtman 
from the University of Chicago published just about a month ago 
that talks about patents and standards and makes exactly that 
point that, in fact, in these industries it is not something 
that can be done. And so more notice makes it better, sir.
    Mr. Smith. Okay, thank you.
    And, Mr. Fish, that leads to my next question I wanted to 
address to both you and Mr. Misener, and it is this: What does 
Amazon.com, what do Time Warner do to try to avoid the 
infringement lawsuits? Do you conduct clearance searches? What 
do you try to do to limit our liability and limit your 
exposure?
    Mr. Misener. Yes, thanks, Mr. Chairman. We do. We conduct 
the searches. We employ a lot of smart outside counsel and 
inside counsel to help us and our technical team examine the 
possible--the intellectual property that could apply to what 
we're trying to do, the patents that may be out there.
    The notice requirement really goes to the issue of 
something being so distant and hard to find that we're trying 
to encourage the communication between the patent owner and a 
practitioner like our company. And so let that communication 
happen, let them tell us that they think it may apply. They can 
send us a letter. We may disagree with them, but that would be 
the point when the damages could start accruing if we turned 
out to be wrong, but at least let us know about it. If it's in 
a completely different area, and it's not markable--I mean, 
this is part of the fiction that Mr. Fish mentioned, for this 
apparatus patents there is this marking, and you will 
presumably discover the patent by looking at your competitor's 
product or relevant products, but with a method, there is 
nowhere to market, and if it's so distant that we wouldn't know 
where to look, we're just asking for us to be notified that 
this intellectual property is out there.
    Mr. Smith. Okay. Mr. Fish, anything to add to that?
    Mr. Fish. Yes, sir. I would point out two things, without 
talking about privileged matters that I, as an attorney for the 
corporation, couldn't and wouldn't talk about. Time Warner and 
all of the various Time Warner companies provide their products 
oftentimes through integrating the technologies that others 
have developed. And so we go to vendors who sell us, for 
example, cable set top boxes, or pieces of software that AOL 
incorporates into its client or whatever.
    One of the things that we do our best to do is to get the 
vendors of that technology to clear it before they sell it to 
us. And so there are requirements in our contracts and things 
that say you have the rights, and you sell it to us, and you 
will indemnify us. And that becomes increasingly difficult in 
an increasingly complex world where there's more and more 
that's combined.
    Secondly, we try to be reasonable, erring on the side of 
caution. Since we're a company that depends on intellectual 
property rights, we think it's vital that we respect other 
people's intellectual property rights. And so we do clearances 
where we can. We try to figure out where there are issues, and 
we try to use our limited resources to be as respectful of 
other people's rights as we can, sir.
    Mr. Smith. Thank you, Mr. Fish.
    And, Mr. Misener, one last question for you. This goes to 
the 1-Click patent for which Amazon.com is becoming famous. And 
of course it's under review by PTO. But--I know your answer, 
but could not Amazon.com be accused of being a troll for 
patenting the 1-Click?
    Mr. Misener. Oh, we have for about 6 years now. But it's 
inaccurate, and here are the reasons why. First of all, there's 
been a lot of complaint about whether or not it was an 
innovation. And truly it's not innovative only in hindsight. At 
the time it was a radical departure from the shopping cart 
model which was ubiquitous on the Web. But more to the point, 
we have exercised this patent only against a competitor who at 
the time we exercised it had publicly announced their intention 
to crush our business. This was not some scheme to hit up small 
users of 1-Click or similar technologies, it was really to get 
at a competitor who had not invested anything in developing 
this technology and had, again, avowed to crush us.
    Mr. Smith. Okay. Thank you, Mr. Misener. And thank you all.
    Mr. Berman, do you have any additional questions? Mr. 
Berman is recognized.
    Mr. Berman. Thank you.
    Paul Barton David, one of Amazon.com's founding 
programmers, called the 1-Click patent an extremely obvious 
technology. And Tim O'Reilly, who's been involved in shaping 
Internet trends, describes the 1-Click patent as an attempt 
to----
    Mr. Smith. Mr. Misener, we did not coordinate our questions 
here.
    Mr. Berman [continuing]. Has not gotten up to speed on the 
state of the art in computer science. It's been a raging 
controversy, and I have no idea whether it's valid or not--
because I'm a lawyer. But the controversy itself was one of the 
issues that got at least a few of us 5 or 6 years ago thinking 
about some issues of reform.
    Let's talk about in your testimony you state last year for 
$40 million we settle with Soverain, owner of a host of broad 
e-commerce patents, nearly two dozen of which were purchased 
for less than a million dollars. We settled for 40 million. Did 
you believe these patents to be invalid because they were too 
broad?
    Mr. Misener.We still believe them to be invalid.
    Mr. Berman. Because they were too broad?
    Mr. Misener.In part because they were too broad.
    Mr. Berman. Did you attempt to initiate a reexamination?
    Mr. Misener.Yes, we did. And it was not going to be 
completed in time to be relevant to the case.
    Mr. Berman. Do you consider this company a patent troll 
because they purchased the patents for less than a million 
dollars, which presumably didn't represent the value of the 
patents?
    Mr. Misener.I've shied away as defining them as a troll or 
not. We were----
    Mr. Berman. Nobody has shied away from calling you a troll 
over one claim.
    Mr. Misener.That's true. We worked, by the way, with Mr. 
O'Reilly; we came and met with Members of Congress 6 years ago 
because we agreed that there were areas to improve the patent 
system at the time. We got it immediately. And I will say that 
there was a large bounty put on 1-Click, I think it was about 
2001, 2002, and there was essentially this contest with a large 
reward to find prior art, and none was found. This has been one 
of the best known patents around for the past 6 years and still 
no prior art has surfaced. So I think that goes to whether or 
not this particular patent was novel.
    Mr. Berman. Although isn't it fair at this point to note 
that the Patent Office, within the last month, has granted a 
reexamination and request based on substantial new questions of 
patentability based on a prior art reference?
    Mr. Misener. Absolutely. And we're not surprised by it. And 
the only, perhaps, surprise is it took so long to get to that 
point, but we've looking forward to the reexamination.
    Mr. Berman. On the Soverain case, would you have settled if 
the eBay decision had come out?
    Mr. Misener.As a hypothetical, it's hard to imagine,
    but it was a concern to us that we could see a major part 
of our business----
    Mr. Berman. Because of the automatic injunction.
    Mr. Misener. Exactly. And again, Amazon without the 
shopping cart is not a particularly good business.
    Mr. Berman. All right. I think--well, let me just ask Mr. 
Fish one question in my remaining time.
    You talk about sort of the patent courts, or Mr. Issa's 
proposal regarding creating some patent judge specialists to 
try and create better expertise in the patent area among our 
Federal judges. Is it possible--to what extent will the problem 
be compounded? What if one of the pilot projects for testing 
this out was the Eastern District of Texas, and so that 
plaintiffs now--that that became a specialized court and 
plaintiffs ran there. Could this process aggravate the problem 
of forum shopping?
    Mr. Fish. Well, Mr. Berman, I actually am not here to argue 
with the Eastern District as a venue. It's been the case, I 
think----
    Mr. Berman. You must have a case there, huh?
    Mr. Fish. We have, I think, actually several. It's been a 
case, since we had a patent system, that forum shopping has 
happened. I mean, you can go back to the steamboat patents and 
look at people who are making allegations about forum shopping.
    I think that either the kind of proposal that we have 
floated, which is an article I patent specialist court for 
pretrial matters that would return the case to article III 
courts and maintain the jury right would work. And we find one 
of the great things about the patent reform debate is, you 
know, you have Time Warner and also the EFF telling you that 
there are such things as patent trolls. You have Time Warner 
and Nathan Myhrvold agreeing--saying that specialized patent 
courts might be a good idea. So it's fun that that happens.
    In either case, though, I think, sir, either if you have 
Mr. Issa's proposal, which we understand to be improving the 
process sort of through self-selection and adoption of 
resources, or through taking the article I route and making it 
more like the Court of Federal Claims, we think it would be 
better because you could get a higher quality of decision up to 
the Federal Circuit, so the Federal Circuit could produce 
higher quality opinions, and as a system it should work, yes, 
sir.
    Mr. Berman. Thank you very much, Mr. Chairman.
    Mr. Smith. Thank you, Mr. Berman.
    On the way to recognizing the gentleman from California Mr. 
Issa, let me just say that this Subcommittee is going to be 
having a hearing on his idea of a specialized court in July; so 
that is a subject that we will be looking into pretty soon.
    The gentleman from California Mr. Issa.
    Mr. Issa. Thank you, Mr. Chairman.
    And thank you, Mr. Berman, for continuing that continuity 
between each of us.
    Mr. Fish, since we did broach that subject of what we might 
for today call augmentation of our court system, because the 
pilot is intended to do five districts in which you will have, 
as you said, self-selection of interested judges, at least one 
of whom is not on senior status, and obviously the resources, 
particularly when it comes to the support systems--you know, 
there is a strange phenomenon in our district courts which is 
that you can have all the clerks you want, but the judge makes 
the decision. So then the balance is can we make a judge 
understand Mr. Kamen's latest invention, or, for that matter, 
the genome--you know, I mean, where do we draw the line on, you 
know, DNA testing, et cetera?
    The answer, obviously, is a balance between the two. And 
hopefully by giving the resources and by having at least five 
of the busiest districts in the pilot, we're going to try to 
prevent forum shopping.
    But I do have a question which is related to specifically 
trolls. Assuming for a moment a troll is not how they 
purchased, how they got how many engineers they have--I might 
mention that more than in passing, I have 37 patents, and I'm 
not a degreed engineer. So one might say I didn't employ 
engineers, and therefore I was a troll, and at least one of my 
patents I never actually created the product, but only because 
I didn't make cell phones.
    The question, though, is, if getting trolls quickly off 
your back needs to be part of the process, meaning somebody who 
hands you up 20 patents that they've purchased for $20, that 
they say even though the title and everything in there doesn't 
seem to read on your product,that, in fact, it's in there, sort 
of like Prego, go into that tomato sauce and somewhere you will 
find meat--not that you have ever actually seen the meat--the 
question is, if, in fact, we empowered or maybe even sought 
language that would embolden the courts to consistently 
bifurcate their cases into a what-does-the-patent-mean as 
quickly as possible--and this beyond just saying Markman shall 
be done before the jury is empanelled--but, in fact, force that 
issue to be an issue before other issues could be brought 
forward, before they discover how much money you made last 
year, before they look at every other discoverable item; if we 
did that, and if at the same time that decision--and we'll just 
refer to it as a Markman for now, although it might be a 
different level--if that were the beginning of any question of 
willfulness, if knowing what the patent means became, by a 
court of independent jurisdiction, not by the inventor who says 
it means everything and you say it means nothing--if that first 
time a patent is brought against a product, either yours or a 
substantially similar, that you would have to have that first 
process in order to cross willfulness, and, by the way, in 
order to cross the question of injunctive relief, would that 
substantially change how you would view the danger of trolls 
and the risk to your company and so on?
    And I'll start with Mr. Fish.
    Mr. Fish. Yes, sir. I think that would be a very helpful 
thing. You know, whether it were adopted by the judiciary as a 
rule, you know, in local rules or some sort of national 
procedural rule, or if the Committee were to indicate it, I 
think determining what the patent rights are, making it more 
like, you know, we hear a patent right is a property right just 
like a deed, and the problem is that surveying is an old art. 
People know how to do it, you get a deed, and you can actually 
read it, and you can actually walk the line and decide if 
something is a trespass or not.
    Mr. Issa. This is a little more like water rights though.
    Mr. Fish. It's like water rights, or perhaps even worse; 
because it's water rights that pop up, and nobody knew where 
they came from. So I think it would be a very helpful thing.
    I mean, I would add that it won't entirely fix the problem. 
We had an occurrence this week that shows you what happens. 
There is a company called USA Video that sued MovieLink, the 
biggest downloader of movies, 2\1/2\ years ago in Delaware. The 
patent was very questionable. They lost on summary judgment. 
Last week, Friday, the Federal Circuit handed down their 
opinion, and that loss on summary judgment was affirmed. This 
week, Tuesday, they sued the entire cable industry in Marshall, 
Texas, on the same questionable patent, and the problem was 
that the invalidity motions were found by the first judge to be 
moot because there was such a clear case of noninfringement.
    And so what I'm saying is that there could be still be 
serial troll behavior going on, but the proposal that you make, 
I think, would be very helpful, sir.
    Mr. Issa. Yes, Mr. Reines.
    Mr. Reines. Yeah, thank you. I sit on the Patent Rules 
Committee for the Northern District of California, and there is 
good work being done in the different districts to come up with 
rules that make sense.
    Mr. Issa. Mr. Chairman, I want to note that that's good 
work being done in the Ninth Circuit.
    Mr. Reines. But the takeaway is that I think we've got to 
be careful about a one-size-fits-all that doesn't let the 
different district judges who have experience and different 
experiences come up with sets of rules and adopt sets of rules 
for specific situations. So that's just a caution.
    Mr. Issa. Thank you, Mr. Chairman.
    Mr. Smith. Thank you, Mr. Issa. By the way, it's an 
exception to the rule regarding the Ninth Circuit.
    The gentlelady from California Ms. Lofgren is recognized.
    Ms. Lofgren. I thank you, Mr. Chairman.
    I was actually intrigued by Mr. Schiff's suggestion on 
vexatious litigants. I remember when I was in local government, 
the county would get sued by people who had mental problems. I 
mean, 50, hundreds of lawsuits that were fantasies, and we did 
actually use vexatious litigant statutes to go where the court 
had to approve their lawsuit before they were allowed to file 
it. It really helped a lot.
    But I don't know that it would work in this area, because 
when you think about it, it's not just litigation, it is the 
steps precedent to litigation. You send out 400 demand letters, 
you really can't deal with that in the same way as a vexatious 
litigant. But I like the concept of having some kind of 
scrutiny, and maybe that's something that we could pursue down 
the line.
    I'm interested--my prior question, the consensus seemed to 
be that willfulness and damage issues were ones that we should 
pay particular attention to. And if you take a look at the 
draft bill that we have before us that I think all of us have 
co sponsored, been working with, section 6 addresses the issue 
of damages in two ways. It amends 284 of the Patent Act that 
authorizes the court to award treble damages for willfulness 
conduct, and imposes a threshold notice requirement that 
applies in any case in which an accused infringer did not 
intentionally copy an invention known to be patented, and an 
infringer could still rely upon the advice of counsel as a 
defense, but it would prevent an adverse inference if that had 
not occurred.
    And then as to damages, the bill says that the damages will 
be based on the portion of the realizable profit that should be 
credited to the invented contribution, as distinguished from 
other features of the combination, the manufacturing process, 
business risk, or significant features or improvements added by 
the infringer.
    In your judgment, do these two provisions adequately 
address the willfulness and damage issues that you have 
identified as important? And could we start with you, Mr. 
Reines?
    Mr. Reines. I think on the willfulness front, those are 
good steps. On the damages apportionment front, I think it's a 
really difficult problem. I'm concerned that that doesn't go 
far enough in terms of really addressing the magnification of 
the patent. If there is a patent in trial, there is so much 
focus on that one patent that sometimes you get exaggerations. 
So I think additional steps on the apportionment issue is worth 
looking at.
    Ms. Lofgren. Mr. Kamen.
    Mr. Kamen. Well, what little I know about the willfulness 
business seems to be, again, another opportunity by which 
people end up--the good people end up doing work they shouldn't 
have had to do, and the bad ones game it, because it literally 
is like what I hope is perceived as a humorous statement that 
somebody says I'm so sick and tired of reading about the link 
between smoking and cancer, I'm going to just have to give up 
reading. And if, as I understand it, you're forced to get all 
these opinions which cost a lot of money, and worse than that, 
now companies are telling their inventors and engineers, don't 
read all of those things, then you'll be aware of these things, 
that seems to me to have exactly the opposite intent of what 
the patent system was about, which is this Faustian deal that 
the Government made with me; the reason they're going to give 
me for a limited time a monopoly is because I'm educating the 
world about new ideas. That methodology that was imposed with 
the best of intentions has the consequence of having people not 
do patents.
    Ms. Lofgren. That's a very good point. We talked about 
litigation, but bringing it back to the constitution of the 
deal is that we want to incent you not just for your benefit, 
but for the benefit of the broader society so that future 
inventors can build upon your invention to the greater benefit 
of mankind.
    Mr. Kamen. So anything that you do should be in the spirit 
of that disclosure being broadly read and not narrowly being 
prevented from being used by the gamers of the system.
    Ms. Lofgren. Mr. Misener.
    Mr. Misener. Yes, ma'am. The sections in the bill on 
willfulness and apportionment reform are important. We welcome 
them, we thank you for them, they're great, and we hope that 
they're enacted soon.
    We also just suggest these two other aspects of damages 
that have borne out of our corporate experience without--so we 
didn't even know or had no realistic way of knowing about the 
applicability or the potential applicability of some patents, 
and also this fiction of lost profits when we're not competing 
in any way with the plaintiff. And if those four aspects of 
damages were fixed, we would be very happy. Thank you.
    Mr. Fish. I think you're hearing some more consensus, 
ma'am. Time Warner would say that the willfulness proposals in 
really all of the versions of bills that we've seen look great. 
The problem I think with the apportionment proposals, which 
vary or are missing in some points, I would say is twofold. The 
first one is if you look at the damages, the current patent 
damages statute, it's written at a very high level, I think, 
for a good reason. It wasn't substantially changed in 1952, and 
the courts have developed the notion of the patentee will have 
at a minimum a reasonable royalty on an case-by-case basis. And 
through the development of common law, there has been largely 
good progress--perhaps the Federal circuit could have done a 
little bit more, but it's been largely good.
    To move the statute down by mandating certain factors and 
not others is problematic, as we've heard in the discussion, 
for example, from the people who hate the idea of 
apportionment. So I would suggest that if you legislate at an 
appropriately high level to allow development by the courts--
so, for example, by using some of the suggestions that Mr. 
Misener mentions, or just incorporating the apportionment 
principle in a mandatory fashion into the statute and letting 
the courts decide, you know, is this a Georgia Pacific type of 
a case, or is this a case where something else should work, I 
would think that that would probably fix the problem, ma'am.
    Ms. Lofgren. Thank you, Mr. Chairman.
    Mr. Smith. Thank you, Ms. Lofgren.
    The gentleman from California Mr. Schiff.
    Mr. Schiff. Thank you. I'll be very brief, Mr. Chairman.
    Zoe really asked what I wanted to follow up on as well. The 
only remaining question I had was on the issue of forum 
shopping. And, Mr. Kamen, I just want to get your thoughts. If 
the forum was more limited in the sense of suing where the 
defendant has their principle place of business or where the 
infringement took place or whatnot, is that something you could 
live with?
    Mr. Kamen. Again, I think there is this incredible fine art 
in the legal profession of knowing all the subtleties. I don't 
do that. I'm happy to say in 30 years of business, I've never 
been sued over a patent, I've never sued anybody over a patent. 
I don't have a lot of direct experience, but when you hear as a 
laymen or a business person about these things, they all seem 
to have this issue of the unintended way of, whether it's the 
lawyer or the troll, gaming the system. And if you put a rule 
in which in the end makes it easier and cheaper and faster to 
get smart judges to get to good decisions, everybody has to 
win. And if you can create these special courts, if you can do 
anything to prevent these various forms of gaming, I would be 
in favor of it.
    The concern I continue to have is that inevitably the 
unintended consequence is every time you guys put a patch 
somewhere, given enough time, people play with it, so you have 
to be careful to get back to the basics. And the basics to me 
are that intellectual property is valuable and important, it's 
responsible for a lot of great things, and we're here talking 
about all these different versions, including that one, of 
looking at other issues, and if we get back to making sure that 
when there are bad actors that are abusing a system, you don't 
go after the system, you go after the bad actors. Our system of 
intellectual property is a good one.
    Mr. Schiff. Is it your sense, Mr. Kamen, that any changes 
on the presumptions regarding injunctions would be too blunt an 
instrument and do more harm than good?
    Mr. Kamen. Again, as I said, I'm not a lawyer, but the 
certainty of our system, people, again, take advantage of 
banking. If I have a deed or I have a bond, if you do anything 
that makes me less confident in my ownership of that deed or 
return that I'm supposed to get from that financial institution 
or the Government, whatever other problem you are fixing, you 
might be unleashing a huge set of issues.
    If people can't count on owning intellectual property, the 
investment by all sorts of individuals, large corporations, the 
willingness for people to go forward and take risk will be, I 
think, so dramatically hindered--maybe not by intent--that when 
we look back at trying to go after trolls, which you might 
successfully do in some way, I think it would be like you 
flooded the building to put out a fire in a wastepaper basket.
    Mr. Reines. Mr. Schiff, just let me address one thing so 
that the Committee is clear just on the venue issue. There are 
some granular issues with it, but at the big-picture level, the 
current venue statute for patents provides effectively that you 
can sue anywhere that the products are sold. So we've got 
millions of Mr. Kamen's tubes going around. Anyplace in this 50 
States and territories that they go, you can initiate your case 
there. That's effectively the rule. And I just think we need to 
think about whether a more focused venue statute that doesn't 
let someone that's doing business in New Hampshire that's a 
relatively small company, has some tubes that go up to Alaska, 
and all of a sudden they can be sued--under the statute there 
is a right to seek to transfer for which the presumption is 
against you--but gets sued in Alaska, and Mr. Kamen all of a 
sudden has to go up to Alaska.
    Mr. Schiff. What do you think about changing that 
presumption, Mr. Reines?
    Mr. Reines. Well, that's what the general transfer statute 
says, that the party seeking transfer has the burden of 
demonstrating that the plaintiff's choice of forum shall be 
overcome. And that's a basic principle of the law that I don't 
think we're going to change anytime soon.
    Mr. Schiff. And I don't know whether it makes sense to have 
a more specific venue statute for patent cases, but you could, 
in theory, do that.
    Mr. Reines. You could handle it by making it----
    Mr. Schiff. You can have the current, sort of generalized--
you can bring the case anywhere the product is sold, but remove 
the presumption in terms of transfer of venue if the equities 
favor transfer, or you could change the venue statute to limit 
the jurisdictions where you can bring suit.
    Mr. Reines. Any of those approaches would work and I think 
are worthy of the attention of the Committee.
    Mr. Fish. There is one other possibility. You could create 
a special patent removal right and give it to both parties. So 
if Mr. Kamen finds himself in Alaska, he has a right to remove 
either Mr. Issa's patent courts or some other place's. That 
would be a possibility as well.
    Mr. Schiff. Thank you, Mr. Chairman.
    Mr. Smith. Thank you, Mr. Schiff.
    This has been a particularly informative panel and 
interesting subject, and I appreciate the contributions that 
everybody has made today.
    We stand adjourned.
    [Whereupon, at 11:06 a.m., the Subcommittee was adjourned.]


                            A P P E N D I X

                              ----------                              


               Material Submitted for the Hearing Record

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

    Mr. Chairman,
    Thank you for scheduling this hearing so quickly after the e-bay 
decision. As we have tried to move forward with patent reform, our 
efforts have been stymied by the many groups clinging to the notion 
that there was an entitlement to an automatic injunction upon a finding 
of infringement. I am hopeful that as a result of the Supreme Court's 
findings we will be able to progress with legislation.
    Congressman Boucher and I introduced our patent bill 2 months ago, 
believing that the Federal Circuit's interpretation of the injunction 
statute invited abuse. We said that if we could merely underline or 
bold the current words in the statute guiding the grant of injunctions, 
words like may--and--equities--and--reasonable we would have done so. 
Our goal was to achieve what the Supreme Court has now done for us: a 
return to the standard originally intended--that of providing courts 
with discretion and requiring a weighing of the equities. Therefore, I 
do not believe at this time there is any further need to legislate on 
the injunction issue. However, the concurrence in the e-bay decision 
raises additional issues relating to ``an industry [newly] developed in 
which firms use patents not as a basis for producing and selling goods, 
but instead primarily for obtaining licensing fees.''
    Perhaps the place to start at this hearing is not the question of 
whether patent trolls are ``fact or fiction'' but rather the 
definitional question of--``what is a patent troll?'' Justice Kennedy 
asked it best--``is the troll the scary thing under the bridge, or it 
is a fishing technique?'' Depending on where you are standing, the view 
from the bridge may render the same entity either a patent holder, who 
is simply trying to enforce their rights, or a patent troll, who is 
unfairly leveraging their newly acquired property.
    In part, some of the irony surrounding the analogy to a troll--is 
that if I remember my fairy tales correctly, the troll usually loses in 
the end contrary to what occurs in the marketplace today with patents.
    While I can provide no clear definition, I can tell you that in 
undertaking an effort to clarify aspects of the patent law to prevent 
abuse of the system . . .

          there is no attempt to impose a use requirement on a 
        patentee

          there is no attempt to prevent general licensing; and

          there is no attempt to weaken intellectual property 
        rights

    I have concerns about those who take advantage of the current 
patent system to the detriment of future innovation. Whether called 
trolls, entrepreneurs or ``those that shall not be named'' there is a 
significant problem if the patent being asserted is of questionable 
validity.
    I firmly believe that robust patent protection promotes innovation. 
However, I also believe that the patent system is strongest, and that 
incentives for innovation are greatest, when patents protect only those 
inventions that are truly inventive. When functioning properly, the 
patent system should enable and encourage inventors to push the 
boundaries of knowledge and possibility. If the patent system allows 
questionable patents to issue and fails to provide adequate safeguards 
against patent abuses, the system itself may stifle innovation and 
interfere with competitive market forces.
    When considering these principles together, I introduced a bill 
which provides the reform necessary for the patent system to achieve 
its intended goal of promoting innovation, including amendments to the 
willfulness standard, submission of third party prior art and a post-
grant opposition procedure. These reforms are clearly not the only 
possibilities and I look forward to hearing from the witnesses as they 
describe other alternatives and suggestions. As the New York Times has 
pointed out, ``[t]here is legislation in the House to address th[e] 
issue[s], and it needs to be taken up.'' I hope that introduction of 
the bill in combination with the recent Supreme Court decision and 
these hearings will facilitate the necessary advancement of patent 
reform legislation.
    High patent quality is essential to continued innovation. 
Litigation abuses, especially those which thrive on low quality 
patents, impede the promotion of the progress of science and the useful 
arts. Thus, we must act quickly during this 109th Congress to maintain 
the integrity of the patent system.
    Letter from Mark T. Banner, Banner & Witcoff, LTD, Intellectual 
 Property Law, with attachment from Chief Judge Paul R. Michel, to the 
         Honorable Lamar Smith and the Honorable Howard Berman



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