[Senate Hearing 109-182]
[From the U.S. Government Publishing Office]
S. Hrg. 109-182
PERSPECTIVE ON PATENTS: HARMONIZATION AND OTHER MATTERS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON INTELLECTUAL PROPERTY
of the
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
__________
JULY 26, 2005
__________
Serial No. J-109-35
__________
Printed for the use of the Committee on the Judiciary
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COMMITTEE ON THE JUDICIARY
ARLEN SPECTER, Pennsylvania, Chairman
ORRIN G. HATCH, Utah PATRICK J. LEAHY, Vermont
CHARLES E. GRASSLEY, Iowa EDWARD M. KENNEDY, Massachusetts
JON KYL, Arizona JOSEPH R. BIDEN, Jr., Delaware
MIKE DeWINE, Ohio HERBERT KOHL, Wisconsin
JEFF SESSIONS, Alabama DIANNE FEINSTEIN, California
LINDSEY O. GRAHAM, South Carolina RUSSELL D. FEINGOLD, Wisconsin
JOHN CORNYN, Texas CHARLES E. SCHUMER, New York
SAM BROWNBACK, Kansas RICHARD J. DURBIN, Illinois
TOM COBURN, Oklahoma
David Brog, Staff Director
Michael O'Neill, Chief Counsel
Bruce A. Cohen, Democratic Chief Counsel and Staff Director
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Subcommittee on Intellectual Property
ORRIN G. HATCH, Utah, Chairman
JON KYL, Arizona PATRICK J. LEAHY, Vermont
MIKE DeWINE, Ohio EDWARD M. KENNEDY, Massachusetts
LINDSEY O. GRAHAM, South Carolina JOSEPH R. BIDEN, Jr., Delaware
JOHN CORNYN, Texas DIANNE FEINSTEIN, California
SAM BROWNBACK, Kansas HERBERT KOHL, Wisconsin
TOM COBURN, Oklahoma RICHARD J. DURBIN, Illinois
Bruce Artim, Majority Chief Counsel
Bruce A. Cohen, Democratic Chief Counsel
C O N T E N T S
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STATEMENTS OF COMMITTEE MEMBERS
Page
Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah...... 1
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont,
prepared statement............................................. 58
WITNESSES
Beier, David, Senior Vice President for Global Government
Affairs, Amgen, Washington, D.C................................ 12
Dickinson, Q. Todd, former Under Secretary of Commerce for
Intellectual Property and Director of the U.S. Patent and
Trademark Office, and Vice President and Chief Intellectual
Property Counsel, General Electric Company, Fairfield,
Connecticut.................................................... 5
Mossinghoff, Gerald J., former Assistant Secretary of Commerce
and Commissioner of Patents and Trademarks, and Senior Counsel,
Oblon, Spivak, McClelland, Maier & Neustadt, Alexandria,
Virginia....................................................... 3
Phelps, Charles E., Provost, University of Rochester, on behalf
of the Association of American Universities, American Council
on Education, Association of American Medical Colleges and
Council on Governmental Relations, Rochester, New York......... 10
Phelps, Marshall C., Jr., Corporate Vice President and Deputy
General Counsel for Intellectual Property, Microsoft
Corporation, Redmond, Washington............................... 7
Siwik, Christine J., Partner, Rakoczy Molino Mazzochi Siwik, LLP,
Chicago, Illinois.............................................. 8
SUBMISSIONS FOR THE RECORD
Beier, David, Senior Vice President for Global Government
Affairs, Amgen, Washington, D.C., prepared statement........... 24
Bureau of National Affairs, Inc., Patent, Trademark & Copyright
Journal, C. Boyden Gray, former White House Counsel and
Partner, Wilmer Cutler Pickering Hale and Dorr, Washington,
D.C., article.................................................. 34
Dickinson, Q. Todd, former Under Secretary of Commerce for
Intellectual Property and Director of the U.S. Patent and
Trademark Office, and Vice President and Chief Intellectual
Property Counsel, General Electric Company, Fairfield,
Connecticut, prepared statement................................ 40
Mossinghoff, Gerald J., former Assistant Secretary of Commerce
and Commissioner of Patents and Trademarks, and Senior Counsel,
Oblon, Spivak, McClelland, Maier & Neustadt, Alexandria,
Virginia, prepared statement................................... 60
Phelps, Charles E., Provost, University of Rochester, on behalf
of the Association of American Universities, American Council
on Education, Association of American Medical Colleges and
Council on Governmental Relations, Rochester, New York,
prepared statement............................................. 72
Phelps, Marshall C., Jr., Corporate Vice President and Deputy
General Counsel for Intellectual Property Microsoft
Corporation, Redmond, Washington, prepared statement........... 80
Siwik, Christine J, Partner, Rakoczy Molino Mazzochi Siwik, LLP,
Chicago, Illinois, prepared statement.......................... 86
Teva North America, Steven J. Lee, Partner, Kenyon & Kenyon,
Thomas L. Creel, Partner, Goodwin Procter LLP, Outside Patent
Counsel, North Wales, Pennsylvania, prepared statement......... 103
PERSPECTIVE ON PATENTS: HARMONIZATION AND OTHER MATTERS
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TUESDAY, JULY 26, 2005
United States Senate,
Subcommittee on Intellectual Property, of the Committee on
the Judiciary,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:37 p.m., in
room SD-226, Dirksen Senate Office Building, Hon. Orrin G.
Hatch, Chairman of the Subcommittee, presiding.
Present: Senator Hatch.
OPENING STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM
THE STATE OF UTAH
Chairman Hatch. Good afternoon. Welcome to today's hearing
on patent reform.
Today we are going to focus principally on an important
group of issues in the patent reform debate surrounding the
proposals to increase harmonization in patent law and practice
in the United States with prevailing international norms. I am
pleased to note that we have really a great, top-notch panel of
experts to inform our views about this highly technical area or
set of areas of patent reform.
We are a little bit pressed for time today because there is
another important hearing in this room at 4 o'clock, so I will
try and keep my remarks brief.
Over the past several decades various experts, including
academics, presidential commissions and blue-ribbon panels,
have advocated increased harmonization between the U.S. patent
system and the patent systems of other countries.
Advocates of harmonization often site three different types
of anticipated benefits from increased harmonization: first,
faster, more predictable patentability determinations; second,
decreased litigation costs in the long term; and third, reduced
redundancy in patent examination and associated decreases in
cost to patent holders in obtaining global patent protection.
However, there are those who question the need for
increased harmonization or who oppose it outright on a variety
of bases. Some argue that harmonization would disadvantage
specific interests or groups including independent inventors,
small businesses, nonprofit entities and educational
institutions. Others argue that the potential efficiencies of
harmonization simply do not outweigh the perceived benefits of
some of the unique aspects of patent law.
I hope that today's hearing will shed some light on these
and other issues that are central to the current patent reform
debate. In particular, I hope that it will clarify some of the
arguments from multiple perspectives regarding moving from our
traditional first-to-invent regime to the internationally
adopted first-to-file system, eliminating the best mode
requirement, requiring publication of all patent applications
after 18 months, and moving toward a more uniform definition of
prior art that is closer to what is used internationally.
I also suspect that today's panelists may have some
comments on other aspects of patent reform proposals that are
circulating on Capitol Hill, and we would be interested in
hearing about that as well.
I want to note that we have endeavored to achieve a balance
between diversity of viewpoints and expertise on this panel,
but of course, not all affected parties can testify today, so
in the interest of compiling a complete public record on these
issues, we invite other interested parties and organizations to
submit written statements for the record.
Senator Leahy is at an appropriations meeting, and he may
or may not be able to arrive, but when he does we will
certainly recognize him for any remarks he would care to make.
As I mentioned, we are lucky to have such a truly amazing
and outstanding panel of witnesses with us today. First we are
going to hear from an old friend, Gerald J. Mossinghoff, former
Assistant Secretary of Commerce and Commissioner of Patents and
Trademarks. Mr. Mossinghoff is currently Senior Counsel at
Oblon, Spivak, McClelland, Maier & Neustadt, where he continues
to focus on patent issues for a wide variety of clients.
Next we will hear from Q. Todd Dickinson, Former Under
Secretary of Commerce for Intellectual Property and Director of
the United States Patent and Trademark Office. Mr. Dickinson--
and we welcome all of you here--is now Vice President and Chief
Intellectual Property Counsel at GE.
After Mr. Dickinson is Marshall C. Phelps, who is Corporate
Vice President and Deputy General Counsel for Intellectual
Property at Microsoft.
Next we will have Christine J. Siwik. I think I am
pronouncing that right, Christine. Is that okay? Okay. Outside
Counsel for Barr Laboratories, the company she is representing
here today, or at least that viewpoint.
Following that we will hear from Charles E. Phelps, Provost
of the University of Rochester--we are very grateful to have
all of you here--who is representing the Association of
American Universities at this hearing.
And last but not least, we have David Beier, Senior Vice
President of Global Governmental Affairs at Amgen. While I
suspect Mr. Beier remains a committed Democrat, I still have
hopes that he will someday see the light.
[Laughter.]
Chairman Hatch. I have been working on him. He has always
been a great witness for this Committee and has always helped
me in every way to hopefully do a better job.
I want to thank you all for being here today. I really look
forward to this testimony. Because of the time constraints
today I may be a little stricter than usual in limiting opening
statements to 5 minutes. I would ask that all witnesses attempt
to wrap up their statements when the yellow light shows on this
little thing in front of you, when that yellow light comes on,
so that we will have enough time for as many statements and
questions and as much dialogue as possible.
I also want to commend our colleagues over in the House,
Chairman Lamar Smith and ranking Democratic member, Howard
Berman. They have done an awful lot of hard work in moving
patent reform in the House, and Senator Leahy and I will
continue to work with them and other interested parties. We are
very interested in getting some work done that basically is
correct, does the best job we can for the overall processes
that we are all concerned about here.
So with that, Mr. Mossinghoff, we will turn to you.
STATEMENT OF GERALD J. MOSSINGHOFF, FORMER ASSISTANT SECRETARY
OF COMMERCE AND COMMISSIONER OF PATENTS AND TRADEMARKS, AND
SENIOR COUNSEL, OBLON, SPIVAK, MCCLELLAND, MAIER & NEUSTADT,
P.C., ALEXANDRIA, VIRGINIA
Mr. Mossinghoff. Thank you, Mr. Chairman. It is a great
honor for me to appear before the Subcommittee today to discuss
international patent harmonization, an area that I have worked
at for a long time as you know.
In the interest of time I am going to move to page 3 in my
statement, and point to Figure 1 that is on page 3. That is an
analysis done by the Japan Patent Office of the cross-border
flow of patent applications among Japan, Europe and the United
States last year. You see a total of 210,000 applications flown
across the borders, separating those three trilateral barriers.
A total of more than 940,000 applications were filed last
year in the European Patent Office, the U.S. Patent and
trademark Office and Japan Patent Office, 940,000. It is going
to be a blink of an eye till that gets up to a million
applications filed each year in those three offices. We really
do need to move to deep harmonization and work sharing if we
are going to do a decent job of examining that one million
number of applications filed each year.
An initial effort to achieve deep harmonization of patent
laws within the World Intellectual Property Organization was
cut short in 1997 when then Secretary of Commerce, the Ronald
H. Brown, informed the WIPO that while ``international
negotiations continue, [the United States] will maintain our
first-to-invent system, while keeping open the option of full
harmonization in the future.''
Recent efforts of the World Intellectual Property
Organization's Standing Committee on Patent Law, working on a
substantive patent law treaty, have not fared much better,
largely as a result of a few developing countries trying to use
that forum to roll back the progress that we made in the
landmark TRIPS agreement.
Currently, the hopes for substantive patent harmonization
hinge on the efforts of a number of countries that signed a
statement of intent of interested countries. They met in
Alexandria in February, and April in Europe, and they are going
to meet again in JPO, the Japan Patent Office, and the USPTO.
I have attached to my statement an article I wrote some
time ago about what a world patent system might look like, and
I would appreciate that being put in the record of these
hearings.
Chairman Hatch. Without objection we will do that.
Mr. Mossinghoff. Although there are many aspects of deep
patent harmonization, none is more important than the United
States moving to a first-inventor-to-file system of priority.
At the end of 1997 there were two nations that used the so-
called first-to-invent system, the United States and the
Philippines. Effective January 1, 1998, under its Republic Act
No. 82-93, the Philippines adopted a first-to-file system,
leaving the United States alone in the world with a first-to-
invent system.
An argument is sometimes heard that adopting the universal
first-inventor-to-file rule, would somehow disadvantage
independent and small businesses, two classes of extremely
important and productive users of the U.S. patent system. 22
years of experience indicates that that is not the case;
actually, the opposite is true. Small entities were
disadvantaged more often than they were advantaged by the
first-to-invent system.
As you recall, Mr. Chairman--it is a long time ago, but it
is still very important--you introduced a bill in the Senate
under President Reagan's administration to greatly increase
user fees and to let the Patent Office use those user fees to
run its operations rather than having them go into
miscellaneous receipts of the Treasury. That bill was enacted
in Public Law 97-247.
A key part of the statutory scheme, which we recommended
and you went along with, was that we would give a 50 percent
discount to independent inventors, small businesses and
nonprofit institutions, and that is happening today and has
happened for the last 22 years in the U.S. Patent and Trademark
Office. As a result of that, the applications now have earmarks
on them. We know what applications came from independent
inventors, what came from small business and what came from
nonprofits and what came from large concerns. So for the first
time in 1983 we have earmarks on each application. Thus, for
the first time the Patent and Trademark Office can tell what
happened to them in interferences.
Turning very quickly to page 9 of my statement, of those
advantaged by the first-to-invent system, there was 296 small
entities, 289 were disadvantaged, a virtual tie. For nonprofit
institutions it was 50 to 30; for small businesses, 97 to 92;
and then for independent inventors, some of those most vocally
in favor of first-to-invent, 139 were advantaged--on page 10--
and 167 were disadvantaged. Two things about that, one it is
extremely small numbers, but during that period of time we have
4-1/2 million applications, 2-1/2 million patents, and we are
talking about whether 139 were advantaged and 167 were
disadvantaged. But basically on net, independent inventors did
not do as well as they would have under a first-to-file system
during our 22 years when we have earmarks on the applications.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Mossinghoff appears as a
submission for the record.]
Chairman Hatch. Thank you, Mr. Mossinghoff. We appreciate
that.
Mr. Dickinson?
STATEMENT OF Q. TODD DICKINSON, FORMER UNDER SECRETARY OF
COMMERCE FOR INTELLECTUAL PROPERTY AND DIRECTOR OF THE U.S.
PATENT AND TRADEMARK OFFICE, AND VICE PRESIDENT AND CHIEF
INTELLECTUAL PROPERTY COUNSEL, GENERAL ELECTRIC COMPANY,
FAIRFIELD, CONNECTICUT
Mr. Dickinson. Thank you, Mr. Chairman. I join my good
friend and colleague, Commissioner Mossinghoff, in thanking you
and the Committee for hearing from us today. Although we have
different political backgrounds, Commissioner Mossinghoff and I
are very much aligned on a number of these issues, and
particularly on the great need for harmonization, which these
hearings seek to address today.
I enjoyed working with you and your colleagues and your
staff in the past, particularly on the American Inventor's
Protection Act of 1999, and look forward to working together on
harmonization and the patent reform efforts which may help
implement that.
I am now at General Electric, and we probably have one of,
if not the, broadest intellectual property portfolio almost of
any other company. It is often said that we are the only
company that may have won both a Nobel prize and an Academy
Award. This gives us kind of an interesting and maybe a little
bit of a unique position on a number of these issues, but in
the area of harmonization and international harmonization, as
Commissioner Mossinghoff said, this is one of our most
important priorities. The breadth of these technologies and the
need to protect them around the world, makes this an urgent
issue for us. It is also an urgent issue I saw as Commissioner
as well, helped negotiate a number of treaties and participated
in a number of international organizations. I continue to do so
as the American Bar Association's IP Sections Representative to
the WIPO.
The challenge right at the moment for international patent
harmonization is that we are stuck basically at the WIPO, and
there are a few reasons for that. But partly, and candidly, I
think it is because there is not a general desire and there is
not a sufficient incentive for the bodies to move collectively
forward, and so something needs to be done. One of the issues
we have talked about, Commissioner Mossinghoff addressed and I
will too, the first-inventor-to-file I think is a good faith
effort to move that forward.
The impact of international harmonization on a company like
mine is enormous. We spend something like $26 million a year
maintaining our patent portfolio around the world, and a huge
piece of that is a function of the redundancies in the system.
Before I delve into that, I think I should for the record,
as we almost always do, touch on another issue that both the
recent NAS and FTC reports highlighted, and that is giving the
USPTO the resources it needs to perform its critical job.
Harmonization will not mean anything if the USPTO does not have
the resources that it needs, and while the administration and
the Congress ought to be commended for in this fiscal year
stopping the fee diversion that has occurred in the past, we
need to end it permanently. If we get those resources let me
suggest that one area we should focus some attention is using
those resources for additional examination time.
Turning back to harmonization, the key question in large
part, as Commissioner Mossinghoff has mentioned, is the
priority question, the question of whether we grant priority to
the first inventor, as we do alone, or the first inventor to
file. The study which Commissioner Mossinghoff cites, a ground-
breaking study, clearly shows that the process we use for
determining priority is a failed promise for small inventors,
even though they are the organization or the collective group
which feels most impacted, or believes they are most impacted
by this change. No one is more sympathetic to independent
inventors than I am. I established the Office of Independent
Inventor Programming when I was Commissioner. I outreached to
them in every way possible. So I think I understand their
concerns, but we need to get, and probably do a better job at
educating them about how those concerns are not being met by
the current system.
I had the opportunity, when I was Director, to speak to a
lot of small inventors. One day a woman from North Carolina
came up to me, and she had invented a new soccer net for the
children to practice with, and she was complaining, she said,
because in Poland she understands people were copying that net
and she was not getting anything for her invention, and that
was unfair and why could we not do something about that? I had
to explain to her patiently that the systems are territorial
and that without an international harmonized system, her
ability to protect her invention worldwide, even as a small
inventor, is severely, severely compromised.
One criticism of the first-inventor-to-file system is that
somehow inventors may disclose their invention, someone else
may find out something about it through a publication or
otherwise, and race to the patent office ahead of them and file
the application. They would not be the first inventor though,
that is why we call this first-inventor-to-file. They would be
a deriver or, frankly, a thief, and we have a mechanism that
has been proposed in various legislation that is currently
pending, which would deal with that question of determining
inventorship in an efficient and effective manner, that would
cure this problem, which is probably the leading problem.
The other issue that is very important I think that links
to this is grace period. We need to make sure that we maintain
the grace period in the United States and that we need to build
in incentives to cause other countries like Japan and the
European Patent Convention to also put in place a grace period.
You touched on some of the other important harmonization
issues, eliminating best mode, permitting the filing in the
name of the assignee, publishing all patent applications. Those
are very critical.
Post-grant review, which we do not have time to talk about
now, is another key area which I know other witnesses will
address, which we are very, very supportive of.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Dickinson appears as a
submission for the record.]
Chairman Hatch. Thank you.
Mr. Phelps?
STATEMENT OF MARSHALL C. PHELPS, JR., CORPORATE VICE PRESIDENT
AND DEPUTY GENERAL COUNSEL FOR INTELLECTUAL PROPERTY, MICROSOFT
CORPORATION, REDMOND, WASHINGTON
Mr. Marshall Phelps. Chairman Hatch, I want to thank you
for the opportunity to be here today.
Microsoft believes that our patent system is fundamentally
strong, but its long-term health requires we take this
opportunity to embrace reforms for the 21st century challenges
ahead of us. Through its recent hearings on the opportunities
to improve it, the Subcommittee has heard testimony on patent
quality, the impact of excessive litigation and the benefits of
promoting international harmonization. I will talk about all 3
briefly.
Microsoft is among the Nation's largest investors in R&D
spending, about $7 billion a year. This makes us one of the
Nation's largest holders of IP rights and one of its leading
patent filers. Indeed, we are a major customer of the system.
Patents are a key part of our IP portfolio and that of
virtually every technology company. The reasons for this are
simple. Because patents provide critical protection for
distinctive technologies, they encourage technology developers
to license and share their technologies, and they provide a
repository of accumulated knowledge. Like many companies in the
IT sector, Microsoft earns more than 50 percent of its revenues
overseas.
While our business and that of a growing number of American
companies big and small is global, there is not a global patent
system. Inventors who desire protection in a particular country
must seek to obtain protection in that country. A focus on
promoting international harmonization and greater cooperation
at work sharing among national patent authorities is key to
reducing these barriers.
It is essential that the U.S. recognize where its system is
out of step. As you just heard, the United States is the only
country that applies a first-to-invent standard for
establishing priority. Every other country awards the patent to
the first-inventor-to-file. In the past some have argued that
this first-to-invent system benefits small inventors and should
be preserved. You just heard about some recent research, and if
we have questions on that, I think Commissioner Mossinghoff
would be the best one to address that briefly.
As we move to the first-inventor-to-file system, care must
be taken to avoid unnecessary changes that would impact patent
quality. For example, wholesale redefinition of what
constitutes prior art is not required in our opinion for
harmonization with a worldwide first-inventor-to-file system,
and could serve to increase uncertainty.
We also endorse USPTO publication 18 months after initial
filing. The law already requires this where the invention is
also the subject of a foreign patent application.
We believe continued adequate funding for the agency and an
end to the diversion of user fees paid to the USPTO must be a
priority. In fact, if you ask me what one thing we could do, it
would be that.
We also believe persistent concerns about patent quality
could be mitigated if interested parties were given sufficient
opportunity to address questionable patents through appropriate
and carefully structured administrative mechanisms. Currently
the primary way to challenge the validity of a patent is
through litigation. Well, patent litigation is expensive, time
consuming and unpredictable. We support the establishment of a
post-grant opposition procedure to enable third parties to
challenge the validity of issued patents, and we also support
proposals to ensure that interested parties have sufficient
opportunity to alert the USPTO of questionable patents within
the review process itself.
Finally, the IT industry, like so many others, is
encountering the enormous cost of dealing with patents of
questionable quality. Today hundreds of patent infringement
cases are pending against computer software and hardware
companies, costing the industry hundreds of millions of dollars
each year.
Too many of these cases are brought by speculators who do
not develop, make or distribute anything. Our industry is
particularly vulnerable to such claims because our complex
products often have hundreds of patent or patentable features
contained in them.
Patent reform that deals only with the harmonization issue
or only with administrative procedures of the PTO ignore the
legacy problems associated with the system's weaknesses. In
urging that litigation excesses be addressed, we recognize that
other industries are not as directly impacted by speculators
and others who would abuse the system. We have been working
with affected interests to explore ways to address the
challenges of excessive litigation, while ensuring that the
patent system continues to function well and fairly for all
sectors, and we continue to engage in those discussions.
Thank you again for the opportunity for Microsoft to
testify today.
[The prepared statement of Mr. Marshall Phelps appears as a
submission for the record.]
Chairman Hatch. Thank you, Mr. Phelps.
Ms. Siwik.
STATEMENT OF CHRISTINE J. SIWIK, PARTNER, RAKOCZY MOLINO
MAZZOCHI SIWIK, LLP, ON BEHALF OF BARR LABORATORIES, INC.,
CHICAGO, ILLINOIS
Ms. Siwik. Thank you, Mr. Chairman. I am pleased to testify
today on behalf of Barr Laboratories, the first member of the
generic industry invited to express its views on these
important patent-related issues.
For the generic industry there is always one paramount
question when considering the relative merits of various patent
reform proposals: will the legislation have negative, albeit
unintended, consequences on successful Federal statutes,
specifically the Hatch-Waxman Act of 1984?
As you know, Mr. Chairman, the Hatch-Waxman Act largely is
responsible for the robust generic industry that we see today.
In its 20 plus years of existence, your legislation has saved
the taxpayers and consumers literally tens of billions of
dollars. It is in fact an essential component of our health
care system, and several critical Federal programs depend on
and require the savings that flow from swift generic market
entry.
Unfortunately, many of the patent reform proposals
currently under consideration, including some proposed in the
name of harmonization, threaten to undermine these savings.
Indeed, these proposals could jeopardize Congress's ability to
finance existing programs such as the MMA's prescription drug
benefit which is set to being in 2006, as well as additional
programs Congress is considering.
Let me give you an example. H.R. 2795, the legislation
being discussed in the House, would eliminate unenforceability
as an independent defense to patent infringement. Enactment of
this provision would reward fraud before the PTO with a
Government-sanctioned patent monopoly. Today a valid patent can
be rendered unenforceable because of the patentee's misconduct
during the patent application process. But under the proposed
House bill, an applicant could be caught in an outright lie to
the PTO and continue to reap the benefits of a patent monopoly.
In some industries unenforceable patents might not have a
big impact on the consumer, but in the pharmaceutical industry
they can cost the public billions of dollars. For instance, a
series of patents once protected the drug product OxyContin
from generic competition. However, the Federal Circuit recently
upheld a decision finding those patents to be unenforceable in
light of the material misrepresentations that the patentee made
with an intent to deceive the PTO.
If H.R. 2795 was a law of the land today, despite that
misconduct finding, that company could continue to generate
sales in excess of $2 billion a year through the year 2013 when
the last of its patents would expire, and this does not include
the 5 plus billion dollars in sales that that company reaped
while the litigation itself was pending.
It is hard to see how this result would square with the
goals of one of the most successful components of the Hatch-
Waxman Act, encouraging generic pharmaceutical companies to
challenge the invalid and unenforceable patents that often
block introduction of less expensive generic drugs.
Another problematic provision in H.R. 2795 that I would
like to briefly mention today is the proposed elimination of
the best mode requirement currently found in Section 112 of the
Patent Act. The patent law strikes a bargain. In the
pharmaceutical context that means that the public suffers
monopoly prices for medicines for a limited period of time in
exchange for the patentee's complete disclosure of the claimed
invention and the right of generic companies to use that
invention once the patent expires. Without the best mode
requirement, a patentee continues to get exclusivity while
actively concealing the best way to carry out its invention.
The bargain no longer exists, leaving the public with the short
end of the stick.
At the same time that Congress is considering such
counterproductive proposals, abuses of the patent system go
unaddressed. In Barr's experience, many of the patents that
brand companies obtain seem to have more to do with inventive
legal strategies than with true scientific innovation. For
example, on a single product that Barr currently is pursuing,
the brand company has amassed over 200 patents which would
provide that company with roughly four decades of patent
production.
From Barr's perspective, addressing this kind of
manipulation of the patent system would have at least two
obvious benefits to the public. First, it would help ensure
that consumers continue to enjoy the much-needed benefits of
Hatch-Waxman, one of the most important consumer protection
bills ever passed by Congress. Second, it would help lighten
the load of an already beleaguered Patent Office, which must
contend with applications that all too often the pharmaceutical
arena reflect little if any technological advancement.
Again, Mr. Chairman, thank you very much for the
opportunity to testify. As I stated at the outset of my
remarks, Barr believes it is imperative that Congress carefully
scrutinize any patent reform legislation to ensure that it does
not create negative consequences for the many people who rely
on Hatch-Waxman's continued success.
I would be happy to answer any questions that the Committee
might have.
[The prepared statement of Ms. Siwik appears as a
submission for the record.]
Chairman Hatch. You certainly know how to talk about Hatch-
Waxman is all I can say.
[Laughter.]
Chairman Hatch. I am happy to hear all of that.
Mr. Phelps.
STATEMENT OF CHARLES E. PHELPS, PROVOST, UNIVERSITY OF
ROCHESTER, ON BEHALF OF THE ASSOCIATION OF AMERICAN
UNIVERSITIES, AMERICAN COUNCIL ON EDUCATION, ASSOCIATION OF
AMERICAN MEDICAL COLLEGES AND COUNCIL ON GOVERNMENTAL
RELATIONS, ROCHESTER, NEW YORK
Mr. Charles Phelps. Thank you, Chairman Hatch. I appreciate
the opportunity to appear before the Subcommittee to present
the views of four associations that represent the universities
and medical colleges that conduct most of the Nation's basic
research, and whose working group on patent reform I chair.
The research conducted in our Nation's universities expands
the frontiers of knowledge and produces discoveries that
enhance our Nation's security, strengthen our economic
competitive, enrich the lives of our citizens. We believe the
landmark 1980 Bayh-Dole Act has been an extraordinarily
successful mechanism for facilitating the transfer of
university basic research into the commercial sector for
development, and of course the patent system is an integral
part of this process.
Changing the U.S. patent system from a first-to-invent to a
first-inventor-to-file process would harmonize U.S. patent law
with that of other countries, increasing the simplicity and
reducing the costs of patent filing, all desirable goals.
Moving to a first-inventor-to-file process would also add
greater clarity to the patent system by replacing subjective
determination of the first inventor with the objective
identification of first filer. This change would reduce or
eliminate unpredictable and often substantial costs of
interferences and litigations associated with determining the
first inventor.
However, other ramifications of moving to a first-inventor-
to-file process raise concerns among some members of the
university community. Before filing a patent application,
universities often need time to consider the potential
commercial application of a basic research discovery.
Universities also need to assess the receptivity within the
commercial sector to licensing any resultant patent for
development. Budgetary limitations may limit the resources
universities can devote to rapid filing of full developed
patent applications.
Despite these concerns, the associations recognize the
benefits of a first-inventor-to-file and would not oppose a
move to such a process if the U.S. patent law maintains three
components of the current law: first, the 12-month grace period
for published articles containing a disclosure of the
invention; second, provisional applications; and third, the
requirement that an applicant sign an oath or a declaration
that he or she is an inventor of the claimed invention.
Let me comment briefly more on two of these issues. First
the provisional application procedure under which the patent
applicant can file a provisional application and obtain an
early filing date. This can aid in rapid filing. It will be
particularly important to universities operating in a first-
inventor-to-file process.
Second, current U.S. patent law provides a broad 12-month
grace period before the effective filing date of an invention,
during which the publication or other disclosures of the
inventor and others carrying out research in the same area are
not treated as prior art. This provisions facilitates research
collaboration and encourages publication and other forms of
disseminating research results. A broad grace period preserves
the ability of researchers to decide what to publish, where to
publish and when without foreclosing of the opportunity of
other researchers in the field to pursue a patent application.
We recognize that in a first-inventor-to-file patent system
such a grace period could allow another person to scoop up or
at least speed up the work based on an original inventor's
publication. But we believe the benefits to research
collaboration and open communication encouraged by a broad
grace period would override this problem.
The benefits of the grace period should not be limited to
the United States. In the spirit of harmonization we urge
Congress to request the administration to seek adoption by
other countries of the U.S. grace period as recommended by the
National Research Council.
My written testimony presents the views of these
associations on several other patent reform proposals. I note
here briefly our support for post-grant opposition procedures
and continuation of the CREATE Act. I also want to emphasize
the importance of the continuation applications for
universities, particularly in some fields such as the life
sciences. The rapid pace of discovery makes continuation
applications, particularly including continuation in part, an
important procedure for updating applications to reflect recent
developments.
In general the goals of the associations for which I am
testifying today would be to support harmonization when
possible, find ways to reduce cost and remove ambiguity in the
patent system, and I am pleased to answer any questions that
might arise later.
Thank you.
[The prepared statement of Mr. Charles Phelps appears as a
submission for the record.]
Chairman Hatch. Thank you, Mr. Phelps.
Mr. Beier.
STATEMENT OF DAVID BEIER, SENIOR VICE PRESIDENT FOR GLOBAL
GOVERNMENT AFFAIRS, AMGEN, WASHINGTON, D.C.
Mr. Beier. Chairman Hatch, my name is David Beier.
I am here today representing Amgen, which earlier this year
celebrated its 25th birthday. Amgen began as a result of a
collaboration between researchers at the University of
California Los Angeles and venture capitalists.
In our 25-year history we have produced products as a
result of massive investments of billions of dollars that have
treated 8 million Americans and people worldwide. The products
that we produce, 7 in number that are approved, 7 major
products treat anemia associated with dialysis, anemia
associated with chemotherapy and rheumatoid arthritis and a
number of other grievous illnesses.
The representation here today is on behalf of Amgen, but
you should know, and I am sure you do, Mr. Chairman, there are
1,500 biotechnology in the United States. The United States is
a leader in biotechnology. The biotech industry currently
employs 400,000 Americans. Each of those jobs in turn has a
multiplier effect of 5.7 other jobs, and the total market
capitalization of the industry has gone from virtually nothing
in 1980 to over $300 billion. The industry has produced scores
of products that have been approved by the FDA and those
products have treated worldwide more than 320 million people.
The reason that the United States is substantially ahead of
the rest of the world in biotechnology is through, Mr.
Chairman, to be blunt, a lot of your work. It is a product of a
science-based economy that has supported basic research at the
NIH, a science-based approach to regulation at the FDA, access
to venture capital through sound tax rules, and also to be even
blunter, the world's best patent system.
We as Amgen are deeply worried that in the rush to change
the patent law that we lose focus on the importance of all of
the accomplishments of a strong intellectual property system.
There are, however, some systems' changes that are appropriate.
Therefore we support an end to fee diversion, making sure, as
Todd Dickinson noted, that the PTO has adequate funding.
We support increased compensation for examiners especially
in hard to recruit examination areas like biotechnology or
software. We support changes in rules of litigation which
require courts to inquire into the subjective mindset of patent
applicants, things like inequitable conduct. And we support
changes in the standard of willfulness, which we believe will
increase the amount of due diligence that inventors have to
engage in before they can avoid liability.
We also support changes in the first-inventor-to-file
system along the lines of the testimony of Mr. Mossinghoff and
Mr. Dickinson.
We do have two major sets of concerns. The first is with
respect to procedures that have been proposed in the House with
respect to injunctions. The reason for that opposition is
multi-fold. First, to the extent that it includes anything like
a working requirement--which, Mr. Chairman, you worked a long
time to eliminate in WTO--we think it could be a dangerous
precedent in a international context. We are also concerned
that it would be inconsistent with legislation that you helped
author in 1988 on the Tariff Act changes, eliminating the
requirement of proving injury in addition to validity and
infringement.
Most importantly, we are concerned that changes in the law
of injunctions will fundamentally alter the equation the
Supreme Court has upheld many times, which is, intellectual
property is property, and that once you have found that it is
validly obtained, that the title is settled and it has been
infringed, there should be action taken against it and not just
damages.
The second set of concerns relates to post-grant opposition
procedures. This procedure is known in Europe and it has been
frequently used, somewhere between 5 and 9 percent of the time.
If that system were in place in the United States, it would
choke the Patent and Trademark Office and make it unable to
achieve the proponent's goals of security quality. That dilemma
is exacerbated of there is a different burden of proof in a
post-grant opposition procedure. If you have a lower standard
to invalidate a patent, the fear is that more people will rush
into a post-grant system and that the goals of the proponents
will be undermined.
We are also concerned that the standard in order to get
into a post-grant opposition procedure is not high enough, and
therefore you have not narrowed the funnel enough to be
effective.
In sum, Mr. Chairman, there are many elements of a
consensus bill that could go forward that Congress should pass.
There are some elements that should be neglected. If not, there
a substantial risk if language on injunctions or inappropriate
procedures on post grant are included that there will be fewer
cures, slower approvals and fewer choices for patients at the
end of the day.
Thank you.
[The prepared statement of Mr. Beier appears as a
submission for the record.]
Chairman Hatch. Thank you. You have all been very
interesting here today. I am extremely interested in every one
of your comments. What a wonderful panel this is.
Let me just say, in hopes of generating some discussion on
the core feature of many of harmonization proposals, the first-
to-file rule. I would like each witness on the panel to expand
on what was said in your opening statements about whether the
U.S. should move to a first-to-file system, what are the
perceived benefits and detriments of doing so? What are your
best arguments from each of your perspectives on both sides of
these issues? Mr. Mossinghoff?
Mr. Mossinghoff. Mr. Chairman, I would lead off. For U.S.
going to a first-to-file system I believe is something the U.S.
ought to do outside of harmonization concerns. I think that as
long as we have a so-called first-to-invent system, any
discussion of deep harmonization, it becomes hypothetical or
theoretical. It is just not going to happen.
Setting that aside, I think first-inventor-to-file makes a
lot of sense for everyone. As I have indicated, and the data
are pretty clear over the last 22 years that it does not favor
independent inventors. To the contrary, it somewhat disfavors
them or disadvantages them. It is much simpler. It removes a
very complicated set of subjective issues. When did an inventor
have a concept of the invention? What kind of proofs can they
bring forward? Can they bring corroboration forward?
Interferences, in the patent profession there is a subset
called the interference bar, and it is a very, very cumbersome,
expensive process to determine under our current rules what is
first-to-invent. So I would say first-to-invent is the best
practice that we should go to even if there were no concerns of
international harmonization. Add the fact that harmonization
simply will not occur with our having a system different from
the entire rest of the world, that is just a reinforcing reason
to go to first-inventor-to-file.
Chairman Hatch. Mr. Dickinson.
Mr. Dickinson. I probably should just say ditto and sit
down. I think Commissioner Mossinghoff has outlined it very,
very well. I think in addition to some of the arguments which
he made, we have--since the last time when this was thoroughly
debated internationally, when the first President Bush--and
there was a diplomatic conference at the time--tried to deal
with this issues--since that time, a lot of the concerns at the
time have been changed by either circumstance or things which
we have put in our own law, a provisional patent application,
for example, the development of the Internet, which gives the
small inventor a lot more access to online searching
capability, a lot more online access to legal assistance for
the filing of patent applications, and frankly, you can file
patent applications online now and search at the USPTO. So the
playing field, which was a concern of small inventors, has
become a lot more leveled.
In some ways, to be candid, small inventors may actually be
slightly advantaged. At a big company like mine we have,
unfortunately for good or bad--we try to work on it--we have
sometimes cumbersome procedures ourselves to get a potential
patent application through our bureaucracy. So I the can be
nimble if I need to be, but it is not as easy as it might be
for an individual inventor who can make those kinds of
decisions to file their application themselves, and can
generally do it pretty quickly.
One final point. I think there is a growing consensus.
Commissioner Mossinghoff's study in particular was a key in
this. There is a growing consensus that this should and is a
best practice.
Most recently the House of Delegates of the American Bar
Association reversed an over-30-year-old position this past
winter, and has now endorsed first-inventor-to-file as a best
practice stand alone, exclusive of international harmonization.
Chairman Hatch. Mr. Phelps.
Mr. Marshall Phelps. I would just echo what you have heard.
I would say two things. There is no doubt it is a best
practice. And there is little doubt in my mind at least, we
will not have harmonization without this issue being
undertaken.
I guess to the small inventors of the world I would say if
we need to do more to make the system accessible to small
inventors and work for small inventors, then we ought to do it,
and we ought to find ways to make that happen if they are not
sufficient already.
I would agree with Todd that we are in a world-is-flat
situation here, and I do think that the system is far more
accessible than it used to be for all concerned.
Chairman Hatch. Ms. Siwik.
Ms. Siwik. Mr. Chairman, we obviously understand the points
that my fellow panel members have made. But speaking for a
generic pharmaceutical company, we see some potential benefits
to adopting the first-inventor-to-invent system, including for
the generic companies certainty when evaluating what is and is
not prior art. However, Barr has not yet seen a proposal
implementing that system where the cost to the generic
companies outweighs the harm that would be done. H.R. 2795 is
an example of such a proposal where the harm that would be done
in implementing that system, the harm to generic companies,
would far outweigh the benefits that Barr sees to adopting the
system at this time.
Chairman Hatch. Mr. Phelps.
Mr. Charles Phelps. Thank you. I would like to put a
slightly different cast on the discussion by turning to the
primary business of higher education, which is teaching and
research. Quite honestly, the current system in the United
States is very comfortable for universities in the sense that
it provides no impediments at all to open scholarly
communication among scholars worldwide. There is no problem in
the current system of publishing in advance. It does not harm
your ability to file a patent or do anything of that sort.
Under a shift to a first-inventor-to-file system, we can
operate under that system reasonably comfortably as long as we
have the grace period for publications. The worst outcome for
scholarly communication in that world would be one where there
is no grace period, because there you have to dampen off all
scholarly communication about your work until the patent is
filed. It is very inhibiting of appropriate scholarly
communication.
The best circumstance would be a very broad grace period
such as we currently have, that gives a year's grace both for
the publications of the inventor and others from the field, and
a narrow grace period that only gives an exception or exemption
for publications of the person who is filing for that patent is
in between, and that in between or narrow grace period has some
perverse incentives in affecting where I would want to publish
my work and when and how. There in effect would be a race to
get a publication out if you could preempt others from getting
a patent, and it might affect the quality of our scholarly
publication in ways that I think would be adverse.
So to me the most important aspect of this is not the shift
to first-to-file, which I think we can live with quite
comfortably so long as we have that grace period intact,
preferably the broadest of all possible grace periods in terms
of how much publication it encompasses.
Chairman Hatch. Thank you.
Mr. Beier. Mr. Chairman, I am just going to focus on one
component, that is best mode and the elimination of best mode
that was first proposed in 1992 by an advisory Committee under
President Bush and has been ratified as a recommendation by the
National Academy of Sciences. There is good reason for
eliminating best mode separate and apart from harmonization.
There is already an enablement requirement, and the only
purpose that best mode serves is to permit the courts to
inquire into the mental state of the patent applicant, as to
whether they knew the best mode at the time of the application.
It does not advance in any kind of material way, according to
the National Academy, the useful arts and sciences, which is
after all the constitutional purpose for the patent law.
Chairman Hatch. Most of all of you today are in agreement
that harmonizing the U.S. patent system could benefit U.S.
interests, if I have read you all correctly. Ms. Siwik says
that while this goal is laudable, implementation could be
problematic from the standpoint of the industry she represents,
that is, the generic drug industry.
For example, you raise, Ms. Siwik, concerns about the
proposal to eliminate the best mode requirement, if I have it
correctly, and I think you said that this is part of the
tradeoff in being exclusive rights in exchange for the full
public disclosure of the invention.
Mr. Beier, if I understood you correctly, you said that is
a subjective requirement that is the source of extensive
litigation designed to attack the underlying invention, not to
promote public disclosure, if I have you correctly.
Let me just start with the two former Patent Commissioners,
and then we will go across again, and ask what they have to say
about the continuing need for the best mode requirement, and
then let everybody else comment right across the board.
Mr. Mossinghoff. Mr. Chairman, I support eliminating the
best mode requirement. I think the National Academy and the
Federal Trade Commission, focusing on expense in litigation and
expense of discovery, it is a purely subjective area. The
Patent and Trademark Office examiners rarely, if ever, examine
against best mode. They have no way of knowing inside the
inventor's mind whether there was a mode different from or
better than the mode that is disclosed in the patent
application. The rest of the world operates on an objective
standard to have you enable someone of ordinary skill in the
art to make and use the invention. If the answer is yes, then
you have filed a sufficient quid pro quo, a constitutional quid
pro quo or whatever their version of that is, so I support
eliminating the best mode as an unnecessary subjective issue in
the current system.
Chairman Hatch. Mr. Dickinson.
Mr. Dickinson. I would join Commissioner Mossinghoff in
that, and again, would support the elimination of the best
mode. It is highly subjective, and in litigation it is almost a
trap for the unwary, the benefit of which is minimal.
Speaking to international harmonization, and particularly
now at the deliberations at the WIPO on this topic, most of the
developed countries would like us to eliminate it because we
stand alone again with this requirement, so if we are going to
have harmonization this is one thing we should consider
eliminating to get that harmonization.
Interestingly, there are developing countries, poor
countries, who have talked about having us retain the best
mode. And what is their reason for that? Well, because they
would like to be able to learn very quickly or learn easily how
to make our patented inventions and then use them many times
possibly while there are still patents in force, and I think
that kind of, shall we say, technology transfer is
inappropriate.
Chairman Hatch. Mr. Phelps?
Mr. Marshall Phelps. Not much to add except to say that any
time you can eliminate an unnecessary subjective test is
probably a good thing, and this is probably one of those good
things, at least if you pay attention to the National Academy
studies on this, and we would support that.
Chairman Hatch. Ms. Siwik?
Ms. Siwik. Mr. Chairman, I cannot speak for what the best
mode does or does not do in other areas of technology or how it
fares from a purely intellectual, theoretical standpoint for
debating purposes, but in the pharmaceutical industry the best
mode is critical. It is not duplicative of the written
description requirement. It is not duplicative of the
enablement requirement, and it does not increase the cost of
litigation. I have been litigating Hatch-Waxman cases for 10
years. I can scarcely think of a case that I was not litigating
where we did not talk with the inventor for one reason or
another during deposition. The fact that we asked some
questions about whether or not he or she had a subjective best
way of carrying out the invention did not appreciably add to
the length of deposition, let alone the cost of the litigation.
The best mode in the generic pharmaceutical or
pharmaceutical context provides a very different function than
enablement or the written description. It tells the public the
inventor's best way of carrying out an invention. The inventor
should be the most familiar person with the subject matter of
that patent, and if he or she has a best way of carrying it
out, that is what the public is entitled to under the bargain
that the law strikes.
In the pharmaceutical industry the public suffers monopoly
prices for years, and the exchange, the benefit they are
supposed to get from that is public disclosure sufficient for
companies like Barr and other generics to pick up those
teachings and use them to develop their own products.
I understand that the best mode can sometimes involve
commercially sensitive information, and it is information that
companies might not want to share, but that amounts to a trade
secret. If someone wants to maintain that information as a
trade secret they certainly can, but the patent law should not
let them allow trade secrets by burying the best mode of
carrying out the invention and still receiving the monopoly
that the Patent Act provides.
Chairman Hatch. Interesting.
Mr. Phelps.
Mr. Charles Phelps. I think the general view of those in
higher education would be that removal of subjectivity would be
generally desirable, and the best mode certainly falls into
that class.
I would also ask the question, as an empirical economist--
my training before I became provost--and that is, how often--
and I do not know the answer to this, but ask how often would
the best mode described in original patent filing still be the
best mode at the time the patent had expired and became
available for others to use? My conjecture would be that
technical progress would make that best mode at original
declaration somewhat outmoded, but that is an empirical
question in balancing the benefits and cost of that clause.
Mr. Beier. Mr. Chairman, Provost Phelps is absolutely
correct. One of the reasons best mode does not make a lot of
sense is the best mode at the time a patent is filed and the
best mode at the time the patent is issued is oftentimes
different, so it is a trap for the unwary to determine how best
mode might change during the patent application process.
There is little doubt, however, that I need to disagree
with the witness from the generic drug industry who has used
twice the phrase ``suffers monopoly prices.'' All of us up here
who have represented inventors and copyright owners have been
in a situation where people have attempted to free ride on our
inventions. The fact that we have gone through a process of
obtaining a patent or a copyright and have the opportunity to
exclude others from free riding does not mean monopoly prices,
and no one is suffering under the current intellectual property
system in the United States. In fact, the reason we have
economic growth is we have such a strong intellectual property
system.
Chairman Hatch. Let me just say to Mr. Dickinson and Mr.
Mossinghoff again, although it is not strictly relevant to most
of the harmonization issues, I would like to just raise the
issue of patent quality while we have this distinguished panel
before us, because some argue that certain practices and the
incentive structure at the PTO may negatively affect patent
quality, and in particular, some argue that the combination of
the compensation system for patent examiners and the time
pressure to finish the examination serve to create incentives
to allow patents to issue without sufficient scrutiny.
Any witness on the panel will be welcome to comment on
this, but I would like to at least ask both Mr. Mossinghoff and
Mr. Dickinson and Ms. Siwik, in particular, to give their views
on the effect of these types of incentives within the PTO.
And also beyond the specific issue of these incentives, I
would be interested in hearing the panel's views on the one or
two most important things Congress could do legislatively to
increase patent quality if we could.
So I turn to you first, Mr. Mossinghoff.
Mr. Mossinghoff. Thank you, Mr. Chairman. Patent quality is
job one at the U.S. Patent and Trademark Office, and those
elements of patent reform that people are talking about that
could have an adverse impact on patent quality, I think should
be really thought through. Two I would bring to mind. One is in
the inequitable conduct area there was a provision in the
original House bill that had the office doing several
investigations and making determinations on inequitable
conduct. I think that would detract from the job one of the
Patent Office, which is to examine applications in a quality
way.
Secondly, the idea of a post-grant opposition, which I
fully support, and in fact wrote an article two or 3 years ago
proposing a post-grant review--and I talked about what is being
called the second window, that there would be a first time
immediately after the grant of a patent, and then there would
be when you were challenged by the patent. I have since thought
more about and heard a lot of discussion, and I think we ought
to move very slowly in that area, because we do not want to
take the best examiners who do job one and move them off to the
opposition procedure. I think we ought to go very slowly in
that area.
In terms of more time, I hypothetically support that, but
then I am very alive to the number of applications that are
being filed these days. There are 350,000 applications. If a
patent is granted six or 7 years after the application is
filed, it does not serve any interest, and so the office this
year is hiring 900 examiners. That is pretty close to the limit
of number of people you can bring in and train and mentor, and
so I do not in any way disagree that the examiners could use
more time productively, but I would go very carefully because
of the fact that if a patent is not granted for six or 7 years,
it really is not worth a lot to a large number of industries
that rely upon a patent being issued a lot sooner than that. So
it is a real tradeoff that you and the policymakers in the
Government are going to have to make on how to do that.
Chairman Hatch. Mr. Dickinson.
Mr. Dickinson. Just to speak to something I spoke to in my
testimony and to link it up to some of the things Commissioner
Mossinghoff just said, I think the resources that the office
needs desperately to do this job is the number one and number
two issue with regard to patent quality. It affects everything
from top to bottom. It affects the ability to hire more
examiners. I also went through a situation where I hired almost
1,000 examiners 1 year when we had raised the additional
revenue to allow us to do that, and it was extremely important.
This is not throwing money at the problem as it is sometimes
characterized. It is a system that desperately needs the
additional resources, additional training resources, additional
search and examination resources, additional ability to develop
and library prior art and gain access to that prior art, a key
issue for quality.
Examiner compensation continues to be an issue. I was
pleased that during my tenure we were able to increase examiner
compensation by around 10 percent 1 year, and I think that is a
good thing, and it slowed attrition, which was a major problem
at the time. Retaining skilled examiners, who we have a
significant investment in, is a key issue for the office.
I may differ just slightly with Commissioner Mossinghoff on
the issue of time. I am probably more of a proponent of
devoting some of those resources to the issue of time.
With regard to the question of incentives in the current
system, I think--Commissioner Mossinghoff may correct me--I
think the last time this was reviewed may have been over 20
years ago. A Rand study was done as to how that time gets
allocated. It may be that it is time to do that again. I had
given some consideration to that. It takes many to do that, so
additional resources are needed for that kind of study, but it
may be that the time has come to do that.
Chairman Hatch. Ms. Siwik, should we go to you? And then
anybody else who cares to comment.
Ms. Siwik. Mr. Chairman, you are correct that Barr believes
that increase patent quality should start in the Patent Office,
and this sentiment has obviously been echoed by several people
here today and by other witnesses that appeared in the House.
Barr, in its written testimony, emphasized the compensation
system, and we believe that a balance has to be struck between
quick review of patent applications and a quality review of
patent applications, that the compensation system cannot just
compensate people for saying yes to patent applications, but
that they have to say yes to quality patent applications.
The Federal Circuit has recently emphasized that the
issuance of invalid patents has extremely detrimental
consequences to the public, and in the pharmaceutical context
those negative ramifications are huge because the public does
get saddled with monopoly prices for drugs. And I understand
that the representative from Amgen does not like the term
``monopoly prices for drugs,'' but the fact of the matter is
the American public today pays an enormous amount for their
health care costs, and that is particularly true in the
biologic area where today there is not generic competition.
Chairman Hatch. Okay. Anybody else care to comment?
Mr. Beier. Mr. Chairman, if I could comment briefly on the
proposals that have been made by the other witnesses with
respect to post-grant opposition as a cure. I think we need to
be modest in our ambitions. Many of the proposals that are
before the Committee today go back to recommendations from
President Johnson--that is five Presidents ago--including a
post-grant procedure. The experience to day in Europe is that
it is not a panacea for quality problems. And if you do not
have a high hurdle before you can file a post-grant procedure,
that is something like a prima facie showing of invalidity, or
if you have procedures which encourage people to take advantage
of the differences in the burden of proof for invalidating a
patent, for example, having a preponderance standard if it is
an administrative or quasi-judicial proceeding in the Patent
Office and it is clear and convincing evidence in court, you
may have more people using post-grant than is appropriate and
it may not solve the problems that the proponents really want.
There are ways of attempting to deal with that either
through experimentation or the like, but the idea that you can
quickly implement a massive program which could potentially
involve thousands of cases and substantial cost, probably very,
very high user fees, as a solution to quality I think goes in
the wrong direction. The correct direction is that mentioned by
Mr. Mossinghoff and Mr. Dickinson, which is to focus on the
front end of the funnel to make sure that patent examiners are
given the resources, that there is a second eye review of
important patents, that the training is adequate and the like,
instead of trying to build in a better, bigger filter for
allegedly invalidly issued patents.
Mr. Marshall Phelps. Senator, just one quick point. You
were asked what Congress can do. I think there are three
things. The first thing is much of what comes down in all of
this discussion are resources, and that is the whole diversion
question, and so if I were to pick one thing that Congress
could do it would be to fix the diversion of fees.
I think some of these administrative points--
Chairman Hatch. I am trying to do that.
[Laughter.]
Mr. Marshall Phelps. I know. Whether it is pre-grant
submissions or post-grant procedures or whatever you have,
clearly we ought to walk before we run, but that does not mean
we should not consider them, because I would just add that the
worst place to work this stuff out is in the courtroom at the
back end of the system, and that is today what we are doing, so
I would say anything that at the end of the day results in
better patents is a victory for everybody, and I would say let
us put the weight behind that arrow at this point.
Chairman Hatch. Okay. Let me--I know I am keeping you too
long, but it has been interesting to me. I would like to just
chat a little bit about patent trolls, and much has been said
about that, where it meant nothing but litigation, I might add.
Has anybody on this panel ever met a patent troll?
[Laughter.]
Mr. Beier. Mr. Chairman, yes.
Chairman Hatch. You have?
Mr. Beier. Yes. I think you are actually asking the right
question.
Chairman Hatch. Is this a big part of the problem? I mean I
would like to know, and what is the actual evidence if you can?
Mr. Beier. Well, I think it is really a definitional
question. If the question is, should there be people who obtain
patents who have no intention of commercializing them, that is,
manufacturing and distributing them, I think the answer is,
yes, there should be such people. One of them is sitting next
to me representing the university community. Universities are
not about the business of making and distributing products.
Dean Kamen, who testified before you some weeks ago, by all
legitimate definitions of most proponents of patent troll cure
legislation, he would be a patent troll. I would submit
probably General Electric could be construed as a patent troll
because they have patents that they do not--
Chairman Hatch. Are you going to take that?
Mr. Dickinson. I am going to be forced to agree with him.
Chairman Hatch. I did not ask you. I asked General
Electric.
[Laughter.]
Mr. Beier. So I think the question is not whether you use
the nomenclature of troll. The question really is, are there
adequate remedies for the perceived misconduct of parties in
certain industrial sectors in whether the patent law per se
should be changed for all technologies to accommodate those
sectoral aberrations, and I think that is the point of
differentiation, for example, between ourselves and Microsoft.
Microsoft has a valid, legitimate business model. It is quite
different. Their turnaround time for their $7 billion of R&D is
quite a bit faster. It is not the 15 years, $1.2 billion for
product development that the biotechnology industry goes
through. And they are going to face different competitors and
different pressures.
So when people start talking about trolls, it really is
going to have to be sectorially specific, factually specific
and then procedurally focused.
Chairman Hatch. I have to let----
Mr. Dickinson you agree that GE is a patent troll?
Mr. Dickinson. Again, as Mr. Beier pointed out, it is a
definitional matter. Thomas Edison, who was the founder of our
company was actually accused of being a troll on a panel on
this topic not too long ago.
We do indeed own patents which we do not use, but which we
license to others. We participate in patent pools, like the
MPEG patent pool, for example, so this is in large part, any
attempt to do something about the issues that are raised here,
the problems that are raised here--and they are genuine--is a
definitional one at the start.
There are industries which are more affected by this than
others. I think the software industry makes a good case. They
have a particular set of problems. The challenge is how we
define the remedy here. And the principal remedy that has been
proposed to this point, which may be changing, but the
principal remedy proposed at this point is to change the
injunction system, particularly permanent injunctions, and the
challenge there, the big challenge there, the big problem
there, is that you lower the value of everybody's patents to
deal with what I think is a much more discrete problem, a much
more bounded problem than even its proponents would have it.
Yes, predatory patent trolls are a problem, but let us
confine the remedy of that problem much more narrowly than
something like a broad attack on the permanent injunction
system.
Chairman Hatch. This has been a wonderful panel. Let me
just say that I am going to submit this question to all of you
in writing. I would like you to think about it. You do not have
to answer it here today, but I would like to go over it with
you.
While today's hearing does not focus on following off-
patent biologics, I would like to make a comment on this matter
while I have this distinguished panel to see if anyone would
like to respond in writing back. I will not take your time
today to ask you.
One of the most controversial decisions handed down by the
United States Supreme Court last term was the takings case in
Kelo v. New London. The majority opinion in that case relied
upon a 1984 precedent, and that was Ruckelshaus v. Monsanto. It
involved a provision of the Federal Insecticide Fungicide and
Rodenticide Act under which the EPA could use data including
trade secrets submitted by a pioneer pesticide applicant in
approving a subsequent application if--and it is a big if--the
subsequent applicant paid just compensation.
Now, the recent Kelo decision said that while the Monsanto
case acknowledged that the, ``most direct beneficiaries'' were
the subsequent applicants, it ``found sufficient in Congress's
belief that sparing applicants the cost of time-consuming
research eliminated a significant barrier to entry in the
pesticide market and thereby enhanced competition.''
I have been interested in the whole area of off-patent
follow on biologics for some time, and in addition to the
formidable, but in the minds of many experts surmountable,
scientific issues. There will be many challenges relating to
intellectual property. This includes the extent or manner to
which a pioneer firm's data may be relied upon by the FDA, and
the competitor firms. There is much to be explored here in my
opinion.
The full Judiciary Committee held a hearing on this matter
last summer. Now, as we consider this issue, I believe that we
should keep it advisable to keep I mind the balance nature of
the original 1984 Drug Price Competition and Patent Term
Restoration Act, which is called the Hatch-Waxman Bill, and
consider trying to design a balanced set of incentives so that
both generic and pioneer firms receive, and can do what they
actually do best to provide innovative, cost effective products
to the American public.
The Subcommittee is going to examine these issues further
in the future, but I thought that I would bring to your
attention the way the Supreme Court analyzed the Monsanto case
in the most recent takings decision in Kelo.
If you can, if you would take some time and answer that for
me, I would be very grateful. I do not expect you to answer
that here today, but I would like to have your best feelings on
that matter just for the record because it is something of
interest today, and at least those in the pharmaceutical
industry ought to be interested in as well.
This has been a wonderful hearing. I am very appreciative.
You are all top people in your fields, and I have picked up a
lot from this hearing. We just hope we can put together
legislation that will be beneficial for most everybody.
We appreciate any further help or assistance you can give
us. You folks really understand this better than anybody
because you are right on the front lines in these areas. It is
an extremely interesting area. I do not want to see us foul it
up, and we have a tendency to do that up here on Capitol Hill,
so we need some help.
You guys should not be giving those big grins when I say we
are fouling it up. That was just a nice little admission by me,
and I cannot blame you for grinning. I think I fully
understand.
I am just grateful that you all took the time to come and
visit with us today. This has been a particularly prescient
panel, and it means a lot to me. Thank you for being here, and
we will recess until further notice.
[Whereupon, at 3:45 p.m., the Subcommittee was adjourned.]
[Submissions for the record follow.]
[Additional material is being retained in the Committee
files.]
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