[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]
PATENT TROLLS: FACT OR FICTION?
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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
______
U.S. GOVERNMENT PRINTING OFFICE
28-201 WASHINGTON : 2006
_____________________________________________________________________________
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COMMITTEE ON THE JUDICIARY
F. JAMES SENSENBRENNER, Jr., Wisconsin, Chairman
HENRY J. HYDE, Illinois JOHN CONYERS, Jr., Michigan
HOWARD COBLE, North Carolina HOWARD L. BERMAN, California
LAMAR SMITH, Texas RICK BOUCHER, Virginia
ELTON GALLEGLY, California JERROLD NADLER, New York
BOB GOODLATTE, Virginia ROBERT C. SCOTT, Virginia
STEVE CHABOT, Ohio MELVIN L. WATT, North Carolina
DANIEL E. LUNGREN, California ZOE LOFGREN, California
WILLIAM L. JENKINS, Tennessee SHEILA JACKSON LEE, Texas
CHRIS CANNON, Utah MAXINE WATERS, California
SPENCER BACHUS, Alabama MARTIN T. MEEHAN, Massachusetts
BOB INGLIS, South Carolina WILLIAM D. DELAHUNT, Massachusetts
JOHN N. HOSTETTLER, Indiana ROBERT WEXLER, Florida
MARK GREEN, Wisconsin ANTHONY D. WEINER, New York
RIC KELLER, Florida ADAM B. SCHIFF, California
DARRELL ISSA, California LINDA T. SANCHEZ, California
JEFF FLAKE, Arizona CHRIS VAN HOLLEN, Maryland
MIKE PENCE, Indiana DEBBIE WASSERMAN SCHULTZ, Florida
J. RANDY FORBES, Virginia
STEVE KING, Iowa
TOM FEENEY, Florida
TRENT FRANKS, Arizona
LOUIE GOHMERT, Texas
Philip G. Kiko, General Counsel-Chief of Staff
Perry H. Apelbaum, Minority Chief Counsel
------
Subcommittee on Courts, the Internet, and Intellectual Property
LAMAR SMITH, Texas, Chairman
HENRY J. HYDE, Illinois HOWARD L. BERMAN, California
ELTON GALLEGLY, California JOHN CONYERS, Jr., Michigan
BOB GOODLATTE, Virginia RICK BOUCHER, Virginia
WILLIAM L. JENKINS, Tennessee ZOE LOFGREN, California
SPENCER BACHUS, Alabama MAXINE WATERS, California
BOB INGLIS, South Carolina MARTIN T. MEEHAN, Massachusetts
RIC KELLER, Florida ROBERT WEXLER, Florida
DARRELL ISSA, California ANTHONY D. WEINER, New York
CHRIS CANNON, Utah ADAM B. SCHIFF, California
MIKE PENCE, Indiana LINDA T. SANCHEZ, California
J. RANDY FORBES, Virginia
Blaine Merritt, Chief Counsel
David Whitney, Counsel
Joe Keeley, Counsel
Ryan Visco, Counsel
Shanna Winters, Minority Counsel
C O N T E N T S
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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?
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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