[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
                                 ------                                

                 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

                              ----------                              

                    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

                              ----------                              


                         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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