[Senate Hearing 109-983]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 109-983
 
                        PERSPECTIVES ON PATENTS

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

                                HEARING

                               before the

                 SUBCOMMITTEE ON INTELLECTUAL PROPERTY

                                 of the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                             APRIL 25, 2005

                               __________

                          Serial No. J-109-17

                               __________

         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

Cornyn, Hon. John, a U.S. Senator from the State of Texas........     6
Feinstein, Hon. Dianne, a U.S. Senator from the State of 
  California.....................................................     7
Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah......     1
    prepared statement...........................................   108
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont.     4
    prepared statement...........................................   135

                               WITNESSES

Armitage, Robert A., Senior Vice President and General Counsel, 
  Eli Lilly and Company, Indianapolis, Indiana...................    30
Dudas, Jon W., Under Secretary of Commerce for Intellectual 
  Property, and Director, U.S. Patent and Trademark Office, 
  Department of Commerce, Washington, D.C........................     7
Kamen, Dean, President, DEKA Research & Development Corporation, 
  Manchester, New Hampshire......................................    28
Kirk, Michael K., Executive Director, American Intellectual 
  Property Law Association, Washington, D.C......................    32
Levin, Richard C., President, Yale University, New Haven, 
  Connecticut, and Co-Chair, Committee on Intellectual Property 
  Rights in the Knowledge-Based Economy, Board on Science, 
  Technology, and Economic Policy, National Research Council.....    17
Myers, Mark B., Visiting Executive Professor, Management 
  Department, Wharton Business School, University of 
  Pennsylvania, Philadelphia, Pennsylvania, and Co-Chair, 
  Committee on Intellectual Property Rights in the Knowledge-
  Based Economy, Board on Science, Technology, and Economic 
  Policy, National Research Council..............................    19
Parker, William, Chief Executive Officer and Director of 
  Research, Diffraction, Ltd., Waitsfield, Vermont...............    23
Poppen, Joel L., Deputy General Counsel, Micron Technology, Inc., 
  Boise, Idaho...................................................    25
Simon, David, Chief Patent Counsel, Intel Corporation, Santa 
  Clara, California..............................................    26

                       SUBMISSIONS FOR THE RECORD

Armitage, Robert A., Senior Vice President and General Counsel, 
  Eli Lilly and Company, Indianapolis, Indiana, prepared 
  statement and attachment.......................................    44
Dudas, Jon W., Under Secretary of Commerce for Intellectual 
  Property, and Director, U.S. Patent and Trademark Office, 
  Department of Commerce, Washington, D.C., prepared statement...    93
Kamen, Dean, President, DEKA Research & Development Corporation, 
  Manchester, New Hampshire, prepared statement..................   112
Kirk, Michael K., Executive Director, American Intellectual 
  Property Law Association, Washington, D.C., prepared statement.   115
Levin, Richard C., President, Yale University, New Haven, 
  Connecticut, and Co-Chair, Committee on Intellectual Property 
  Rights in the Knowledge-Based Economy, Board on Science, 
  Technology, and Economic Policy, National Research Council; and 
  Mark B. Myers, Visiting Executive Professor, Management 
  Department, Wharton Business School, University of 
  Pennsylvania, Philadelphia, Pennsylvania, and Co-Chair, 
  Committee on Intellectual Property Rights in the Knowledge-
  Based Economy, Board on Science, Technology, and Economic 
  Policy, National Research Council, prepared statement..........   137
Parker, William, Chief Executive Officer and Director of 
  Research, Diffraction, Ltd., Waitsfield, Vermont, prepared 
  statement......................................................   146
Poppen, Joel L., Deputy General Counsel, Micron Technology, Inc., 
  Boise, Idaho, prepared statement...............................   156
Simon, David, Chief Patent Counsel, Intel Corporation, Santa 
  Clara, California, prepared statement..........................   167


                        PERSPECTIVES ON PATENTS

                              ----------                              


                         MONDAY, APRIL 25, 2005

                              United States Senate,
                     Subcommittee on Intellectual Property,
                                Committee on the Judiciary,
                                                   Washington, D.C.
    The Subcommittee met, pursuant to notice, at 1:37 p.m., in 
Room SD-226, Dirksen Senate Office Building, Hon. Orrin G. 
Hatch, Chairman of the Subcommittee, presiding.
    Present: Senators Hatch, Cornyn, Leahy and Feinstein.

 OPENING STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM 
                       THE STATE OF UTAH

    Chairman Hatch. Good afternoon. Today, I am pleased to 
chair the first hearing of the newly created Intellectual 
Property Subcommittee of the Senate Judiciary Committee. I 
commend Senator Specter for his support in establishing the IP 
Subcommittee. I also want to thank Senator Leahy for agreeing 
to serve as the ranking Democratic member on this important 
Subcommittee.
    We have always worked together in a bipartisan fashion on 
intellectual property issues, and many others as well. For 
example, Senator Leahy and I, along with all Judiciary 
Committee members, joined together on legislation last year 
designed to curtail the diversion of patent fees from PTO. I 
have every hope and expectation that this Subcommittee will 
attempt to continue to address IP issues on a bipartisan basis.
    To Senators Cornyn and Feinstein, I am grateful for all 
their work last Congress and appreciate the work that they do 
especially in securing passage of an important bill that passed 
the House last Tuesday, S. 167, the Family Entertainment and 
Copyright Act of 2005. I am pleased that this important piece 
of intellectual property legislation has finally been sent to 
the President.
    That bill contains several provisions, including the anti-
camcording protections that Senators Cornyn and Feinstein 
championed in the Senate. The bill also authorizes the National 
Film Preservation Board, a matter of great interest to Senator 
Leahy, myself and many others.
    Additionally, the bill contains a provision protecting 
certain technologies that help parents shield their families 
from material in motion pictures that may be too graphic for 
young family members. This has been a matter of some interest 
in my home State of Utah and I am pleased that it has finally 
passed both Houses of Congress. I commend Chairman Lamar Smith 
and Jim Sensenbrenner and ranking Democratic members Howard 
Berman and John Conyers for their contributions in bringing 
this bill through the House.
    Today, we will move to the patent side of the intellectual 
property arena. This is the first in a series of hearings that 
we plan to hold on patent reform to discuss in a fairly 
comprehensive manner some of the proposed changes to the 
substantive procedural and administrative aspects of the system 
that governs how entities here in the United States apply for, 
receive, and eventually make use of patents covering everything 
from computer chips to pharmaceuticals, to medical devices, to, 
I am told, at least one variety of crustless peanut and jelly 
sandwiches.
    As the Founding Fathers made clear in Article I, Section 8, 
of the Constitution, Congress is charged with promoting the 
progress of science and useful arts by securing, for limited 
times to authors and inventors, the exclusive right to their 
respective writings and discoveries. It is my hope that today's 
hearing will help further that charge by encouraging an active 
debate on patent reform.
    There is a growing consensus among those who use the patent 
system that reform is needed. For example, at least two of the 
organizations represented here today--the Business Software 
Alliance and the American Intellectual Property Law 
Association--have taken the initiative to develop discussion 
drafts of patent legislation, many key provisions of which have 
been incorporated in Chairman Smith's committee print over in 
the House.
    I have also received a number of other suggestions, some of 
them fairly broad, some very narrow, from a variety of 
individuals and businesses around the country on changes they 
would like to see made to the current patent system. Both 
Senator Leahy and I always welcome constructive suggestions 
throughout the legislative process.
    There appears to be a high degree of agreement on some 
issues relating to patent reform, such as the advisability of 
creating a new post-grant review process. There are other areas 
such as modifying the role of injunctive relief in patent 
litigation where, at least based on the testimony before us, 
significant differences remain. I hope that today's hearing 
will help to further the important debate regarding patent 
reform.
    Now, in order to better understand the current state of 
affairs of U.S. patents and the climate from which these reform 
proposals have emerged, we will first hear from Jon Dudas, 
Under Secretary for Intellectual Property and Director of the 
United States Patent and Trademark Office.
    We certainly welcome you, Under Secretary Dudas, back to 
this hearing room and look forward to hearing your testimony.
    Under Secretary Dudas will help describe the growing 
importance of patent protection in the increasingly 
interdependent global economy.
    The United States has consistently led the world in many 
critical areas of technology development, such as the computer 
hardware and software, telecommunications and biotechnology 
industries. To remain in the forefront of developing and 
translating new ideas into tangible goods and services for the 
benefit of Americans and other consumers around the world, 
there must be in place an equitable and efficient patent review 
and protection system both here and abroad.
    We should all take pride in the fact that the United States 
Patent and Trademark Office is widely recognized as one of the 
leading IP organizations in the world today. Thousands of 
dedicated professionals at PTO are responsible for this 
success, but the agency faces great challenges in accommodating 
the ever-increasing number and complexity of patent 
applications being filed each year. As Under Secretary Dudas 
will detail, U.S. patent applications have doubled since 1992, 
and last year the PTO issued more patents, some 173,000 
patents, than it did during the first 40 years of the agency's 
existence.
    We will also hear today where PTO stands in the 
implementation of its 21st Century Strategic Plan. In addition, 
we will have an opportunity to discuss how PTO is responding to 
the key recommendations contained in the September 2004 
Department of Commerce Inspector General's report entitled 
``USPTO Should Reassess How Examiner Goals, Performance 
Appraisal Plans and the Awards System Stimulate and Reward 
Examiner Production.''
    As well, we plan to explore the degree to which Under 
Secretary Dudas agrees or disagrees with the recommendations 
made by the National Research Council of the National Academy 
of Sciences in its major study, ``A Patent System for the 21st 
Century.''
    We are pleased to have the distinguished Co-Chairs of this 
report on our second panel today--Dr. Mark Myers, of the 
Wharton School of the University of Pennsylvania, and Dr. 
Richard Levin, President of Yale University. We welcome them to 
the Subcommittee, as well.
    On our third panel we will have a collection of inventors 
and protectors of intellectual property. This panel includes 
two inventors--William Parker, of Waitsfield, Vermont, and Dean 
Kamen, who was recently inducted into the National Inventors 
Hall of Fame. I am pleased to have these two independent 
inventors before us today because it helps to emphasize that 
although we lawyers have a modest role to play, the real 
purpose of intellectual property is to help ensure that the 
interests of innovators and consumers are both well served.
    We will also hear from David Simon, Chief Patent Counsel of 
Intel, and Bob Armitage, General Patent Counsel of Eli Lilly. 
Bob is a veteran of testifying before the Judiciary Committee 
due to his work on improving the Schumer-McCain amendments to 
the Hatch-Waxman Act that were part of the 2003 modernization 
bill.
    We are also particularly pleased to have with us Joel 
Poppen, Deputy General Counsel of Micron Technology. While 
Micron is based in Boise, I understand that they have some 
outstanding employees and facilities in Utah. Of course, I 
understand that. I have been there.
    [Laughter.]
    Chairman Hatch. I have enjoyed working with Micron on a 
number of trade issues to ensure that U.S. computer chip makers 
are treated fairly in Asia and around the world.
    Last, and by no means least, we have Mike Kirk, Executive 
Director of the American Intellectual Property Law Association. 
Dating back to his days at PTO, Mike has long been a calm, 
clear and reasonable voice in all intellectual property 
legislation.
    I would also like to recognize that there are a number of 
distinguished authorities on patent law present today that we 
were not able to invite to testify today. Particularly, I would 
like to note the presence of Herb Walmsley, of the Intellectual 
Property Owners Association, as well as representatives from a 
variety of intellectual property groups here in Washington.
    It is my hope that today's hearing will help the members of 
this Committee better understand what works well and what 
should be improved in our current patent system. Before we 
attempt to fashion any legislative fixes to the patent system, 
it is essential that we carefully identify the problems we are 
attempting to solve.
    We have learned time and time again--the Digital Millennium 
Copyright Act and the American Inventors Protection Act come to 
mind--that it can take a lot of time-consuming and hard work to 
forge successful consensus on IP legislation. I stand ready to 
roll up my sleeves and work with my colleagues in the Congress 
and other affected parties on intellectual property issues.
    One area where I hope we can join together on a broad 
bipartisan basis is working to help curtail international 
piracy of U.S. intellectual property. We must be vigilant in 
our trade negotiations to make sure that our trading partners 
do not merely talk the talk. They must walk the walk on 
enforcing intellectual property laws.
    Not to put too fine a point on it, many of us in Congress 
are watching USTR closely to see what the agency will do in 
relation to IP theft in the next special 301 round with respect 
to such countries as China and Russia. While there may--I 
emphasize the word ``may''--be a case to support Russia's entry 
into the WTO, Russia should not be permitted to become the new 
China when it comes to only half-heartedly enforcing laws that 
some experts believe are only half-baked to begin with intended 
to protect against the piracy of intellectual property. The 
Subcommittee plans to hold a hearing on piracy of intellectual 
property in the week following the next recess.
    Let me close by saying that I think the fact that 13 of the 
very busy 18 members of the full Judiciary Committee have made 
it a priority in their already overcrowded schedules to join 
this new Subcommittee speaks volumes about how important we on 
both sides of the aisle view intellectual property matters to 
the continued success and growth of the American economy and, 
of course, the quality of life of U.S. citizens and people all 
over the world.
    [The prepared statement of Senator Hatch appears as a 
submission for the record.]
    So I look forward to today's hearing and the future work of 
this new Subcommittee, and I will turn to the Vice Chairman of 
this Subcommittee, Senator Leahy.

  STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR FROM THE 
                        STATE OF VERMONT

    Senator Leahy. Thank you, Mr. Chairman. I applaud you for 
holding this hearing. Today, the Intellectual Property 
Subcommittee does begin its public examination of all the 
issues--and there are a lot of them--facing the patent system.
    We can sit here and enjoy the fact that the spirit of 
American innovation has made the United States the world's 
leader in intellectual property--something we would like to 
maintain throughout my children's and grandchildren's lives. 
But the expressions of American innovation in the patented 
goods and processes are only as good as the system that fosters 
and protects such innovation.
    I share the growing concern about our patent system's 
ability to address many of the challenges it faces. I looked 
forward to hearing from Mr. Dudas at a hearing last Thursday, 
but that hearing was canceled at the last minute. I am grateful 
that you were able to rearrange your schedule to be here with 
us this afternoon.
    We have all worked with Mr. Dudas, first, to get him 
confirmed, and that was a bipartisan effort. Both Republicans 
and Democrats on this Committee worked on it. Before, of 
course, we worked with him when he staffed the Republican 
leadership in the House and on their Judiciary Committee. I am 
looking forward to continuing our collaboration. You have a 
very exciting time ahead of you--exciting and probably daunting 
as we come into the 21st century.
    I am also pleased that Professor Richard Levin of Yale 
University is here, and Professor Mark Myers from the Wharton 
School of Business. They are the authors of the acclaimed 
National Academy of Sciences report on patent reform. Their 
continued assistance is going to be very useful.
    The size of the project we are undertaking seems to be 
reflected by the number of witnesses we have here, and I want 
to thank them all because they are the people who live with 
this every single day.
    If I might, Mr. Chairman, I would like to draw attention to 
one of those witnesses, for it is particularly fitting that in 
discussing creativity and innovation, we have someone who knows 
and understands both and just happens to be a Vermonter. I want 
to thank Bill Parker for traveling to Washington today to share 
his thoughts with us as an inventor and a spokesperson for 
inventors.
    Of course, he is part of our wonderful tradition in our 
little State, exemplified by the fact that the first U.S. 
patent issued and signed by George Washington went to a 
Vermonter. I just thought I would throw that in, and we have 
been doing it ever since. I think in at least one year, on a 
per-capita basis we had the most patents in the country.
    In 2002, the House and Senate directed the Patent and 
Trademark Office to develop a five-year plan designed to 
modernize and expedite, and parts of that plan are being 
implemented. Last year, I supported a compromise in the 
Appropriations Committee that will, for one year, prevent PTO 
user fees from being diverted to other Government programs. So 
I am interested in hearing more from our witnesses about the 
implementation of the PTO's plan. I am also interested in 
discussing the proposal we have all been hearing that suggests 
improvements in the quality of the patents the PTO is issuing.
    You have a herculean task. The volume of patent 
applications has increased three-fold since the 1980s. Just to 
put this in perspective, the PTO receives more than 350,000 
patent applications every year. They approved 187,000 in 2004 
alone. That is roughly 500 approved patents every single day. I 
think that could be a matter of concern.
    When you have non-innovative inventions that are patented, 
some patent-holders fear they will spend more time litigating 
than they do innovating as a result of predatory tactics. It is 
a real problem. We should explore ways to alter the patent 
examination process in order to allow for patent challenges 
before you tie it all up just with costs of litigation. I am 
especially interested in the suggestion that we find ways to 
allow outsiders with prior art to present information in the 
examination stage.
    At the same time, we are hearing calls to reform the very 
way in which these cases are being litigated. One criticism I 
have heard is that the standards which courts use to determine 
whether a patent violation is willful have been applied in a 
way that encourages patent-holders to wear blinders to what 
others invent.
    We have also heard about abusive litigation practices of 
``patent trolls,'' described to me as companies that neither 
invent new or produce anything at all, but simply acquire 
patent rights and then push the bounds of their patent, suing 
patent-holders who actually do innovate. I am interested in 
hearing more about these concerns, as well as proposed 
solutions. I want to encourage those people who actually do 
innovate, and they ought to be able to get the benefit of their 
innovation. I don't want somebody who is just going to leach on 
their innovations.
    So these are just a few of the things we have before us. I 
can think of no better issue to start off with. The House 
finally granted final passage of the Family Entertainment and 
Copyright Act. I know looking around this table, Senator Hatch, 
Senator Cornyn, Senator Feinstein and myself sponsored that. We 
approved it last year and again this year, in February of this 
year. Chairman Hatch and I worked cooperatively on that 
legislative package last year, with the result that it has now 
been enacted by the Congress. It is an example, as the Chairman 
was saying, of bipartisan legislation.
    I have more which I will put in the record because I find 
with the beauty of spring and pollen, my voice is gone. Thank 
you, Mr. Chairman.
    [The prepared statement of Senator Leahy appears as a 
submission for the record.]
    Chairman Hatch. Thank you, Senator.
    Senator Cornyn, would you care to make any comment? Then I 
will call on Senator Feinstein, since this is our first 
meeting.

STATEMENT OF HON. JOHN CORNYN, A U.S. SENATOR FROM THE STATE OF 
                             TEXAS

    Senator Cornyn. Mr. Chairman, I don't have anything 
extended, but I did want to congratulate you as the new 
Chairman of this brand new Subcommittee for convening this 
hearing and the series of hearings on patent reform.
    Of course, as Senator Leahy said, intellectual property 
protection has been something that the Judiciary Committee has 
been concerned about. Senator Feinstein and I, along with 
Senator Leahy and you, had a chance to work on some important 
legislation that has just recently passed to do that.
    It is important for America to maintain our edge as the 
innovator in the world in a global economy that we do provide a 
means by which innovation can be fostered, but also, once 
people invest their intellectual capital and their hard-earned 
money into a product, that it be protected. This is a matter 
that remains a tremendous challenge around the world.
    I am delighted to be on the Subcommittee with you. 
Unfortunately, I won't be able to stay long because I am going 
to be working on another subject near and dear to your heart, 
Mr. Chairman, and that is asbestos. But I do want to 
congratulate you for holding the hearing, and thanks to all of 
our witnesses for contributing their insight and expertise in 
tackling some of the tremendous challenges we have before us.
    Thank you.
    Chairman Hatch. Thank you, Senator.
    Senator Feinstein, and then we will go the witnesses.

  STATEMENT OF HON. DIANNE FEINSTEIN, A U.S. SENATOR FROM THE 
                      STATE OF CALIFORNIA

    Senator Feinstein. Thanks very much, Mr. Chairman. I would 
like to echo those words. Patent and copyright protection is a 
very big deal to California, and that is really why I am here.
    It is interesting to harken back on an early patent, and 
that was a patent which was issued to Levi Strauss for jeans in 
1873. I believe at that time, it was a 17-year patent. It is 
now a 20-year patent from date of application, or 17 years. So 
there are a lot of questions about these patents. Is 17 years 
fair? Should it have been longer?
    I mean, when Levi Strauss came forward in those early Gold 
Rush days, it was a very big deal to come up with a fabric like 
jean fabric because the pants of the miners were wearing out 
too fast. Yet, as soon as that patent expires, you see Levi-
type jeans everywhere. In this day of high costs, high labor 
costs, high every kind of cost, I have begun to wonder whether 
the time for the patent is really an adequate time.
    So I look forward very much to hearing your comments, Mr. 
Dudas, on that subject.
    May I put my full remarks in the record, please?
    Chairman Hatch. You certainly can.
    Senator Feinstein. Thank you very much, Mr. Chairman.
    Chairman Hatch. I appreciate that, Senator Feinstein.
    We will turn to you, Mr. Dudas. We are honored to have you 
here and we appreciate the work you are doing in the Patent 
Office, among other things.

  STATEMENT OF JON W. DUDAS, UNDER SECRETARY OF COMMERCE FOR 
INTELLECTUAL PROPERTY, AND DIRECTOR, U.S. PATENT AND TRADEMARK 
        OFFICE, DEPARTMENT OF COMMERCE, WASHINGTON, D.C.

    Mr. Dudas. Thank you, Mr. Chairman. Thank you, Ranking 
Member Leahy and members of the Subcommittee. It is an honor 
for me to testify here today at the first hearing of this 
Subcommittee.
    I would like to note that it is an appropriate time to 
reflect on the incredible success of innovation and of our 
patent system in the United States. It was 215 years ago this 
month that our young Nation adopted our first patent statute. 
There is a lot of talk about history. It was 215 years ago this 
month, on April 5, 1790, that your predecessors in the Senate 
passed the final version of the statute and President George 
Washington signed it into law on April 10.
    The benefits of our patent system have always been obvious 
to Americans. You are all familiar with Article I, section 8, 
clause 8 of the Constitution granting Congress the power ``to 
promote the progress of science and the useful arts by securing 
for limited times to authors and inventors the exclusive right 
to their respective writings and discoveries.''
    James Madison wrote in one of the Federalist Papers, ``The 
utility of this power will scarcely be questioned.'' He was 
right. That clause was adopted into the Constitution without a 
single dissenting vote. It was adopted without even any 
recorded debate.
    History has repeatedly affirmed the wisdom of these 
decisions of our Nation's Founders. The tremendous ingenuity of 
American inventors, coupled with an intellectual property 
system that encourages and rewards innovation, has propelled 
the growth of our Nation from a small agrarian society to the 
world's preeminent technological and economic superpower.
    The flexibility and strength of our system have helped 
entire industries to flourish rather than perish. Everyone has 
benefitted from the innovative products encouraged by that 
system. And all of this technology finds its way into the 
public domain within 20 years, freely available to any and all, 
going to your thought, Senator Feinstein.
    The success of this system has not been limited to the 
United States. It has been the basis for economic development 
in nations throughout the world. Unfortunately, a growing 
chorus of critics is questioning whether the fundamental patent 
system that has been so critical to the growth of innovation 
and economic success in the United States and other nations 
will enhance or hinder the development in their own nations.
    Many of the nations questioning the efficacy of this 
intellectual property system have become hotbeds for the 
manufacture and export of counterfeit goods, with more than 90 
percent of goods in some industries being counterfeited and 
pirated. Quite frankly, in many cases that thought process 
occurs in reverse. Many nations that have expanded economic 
development by allowing their citizens to counterfeit and 
pirate others' intellectual property have then come to question 
a system that encourages and rewards innovation and discourages 
copying and free-riding.
    I believe it is our responsibility not only to do 
everything we can to perfect the patent system in the United 
States--something you are clearly doing by holding this hearing 
today--but we must also actively educate the rest of the world 
that it is fundamentally the right system.
    Having the fundamentally right system, however, is not 
enough. I will be the first to acknowledge that even the best 
system in the world can and should improve. As you know, the 
genesis of the USPTO's 21st Century Strategic Plan was the 
result of directives from the President and the Congress that 
the USPTO improve. We are implementing a multitude of 
improvements and are building on these initiatives, and there 
is more that we plan to do.
    To remain the best patent examination system in the world, 
the USPTO is focused on improved quality and productivity. To 
ensure the timely granting of patent rights, we must reduce our 
backlog of patent applications. Earlier this year, the USPTO 
announced several initiatives to improve quality and 
efficiency. They include increasing our transparency, improved 
our ex parte reexamination, and saving applicants tens of 
millions of dollars by revamping our process of appeal brief 
submissions.
    The USPTO is a collection of 7,000 people, including 
scientists, engineers and Ph.D.s, many of whom spend their time 
considering how we might improve our system. A multitude of 
others are reflecting upon our system as well, and many of them 
have been or will be at your doorsteps to suggest changes.
    We are hearing legislative proposals in three general 
categories--operational issues and administrative issues, 
litigation reform, and convergence of international laws and 
best practices. In my view, each of these discussions must 
center on how the patent system encourages innovation and how 
well it serves the public at large.
    We and you, I believe, must look at these issues from every 
angle. We must look at them from the perspective of the 
independent inventor who may be the next Thomas Edison, to the 
perspective of a large and successful company that believes its 
innovations are being tied frivolously in unnecessary legal 
knots. We must look at these proposals from the perspective of 
an economic superpower negotiating treaties to create a better 
intellectual property system throughout the world, to the 
perspective of an American patent examiner who is striving to 
improve high-quality and timely examinations.
    I will certainly not shy away from focusing on how we can 
improve our processes at the USPTO. We have spent the last 
three years working to do just that, and I am thankful for all 
of the work you have done on this Committee in passing 
legislation that will give us many of the tools that we need to 
improve. And there is definitely more that we can do.
    Although Washington is a place where it is easy to identify 
problems and give excuses, it is my responsibility to identify 
opportunities and deliver results. I fully appreciate that you 
will hold the USPTO and me accountable, and I am confident that 
we will deliver you results.
    As you reflect upon the proposals you will hear, I urge 
that you not focus exclusively on litigation--an occurrence at 
the end of the process--nor exclusively on how the USPTO 
handles an application--the middle of the process. Those are 
areas that must be reviewed, and must be reviewed vigorously, 
but patent quality begins with the application and it begins 
with the applicant.
    When we have shown the light on the USPTO, we have found 
areas where we can improve and we will continue to implement 
those improvements. But I can tell you that the challenge I 
hear most often from our examiners in the office is the problem 
quality. I do not purport to have all of the answers at this 
time. However, I can assure you that we are reviewing this 
issue within the USPTO and will welcome the opportunity to 
share what we learn with you and how we believe we can 
appropriately address the issue of application quality.
    Let me assure you we are committed to adopting practices 
and policies at the USPTO that promote the innovation and 
dissemination of new technologies. While we work to improve our 
systems by internal reform at the USPTO, we realize that 
measures within your domain will make invaluable contributions 
to our system. In this regard, the USPTO and the entire 
administration look forward to continuing to work with you as 
you consider legislation to ensure that the U.S. patent 
continues to lead the world.
    Thank you.
    [The prepared statement of Mr. Dudas appears as a 
submission for the record.]
    Chairman Hatch. Thank you, Mr. Dudas.
    Now, there appears to be a growing consensus that the U.S. 
should abandon its long-held policy which rewards the first to 
invent in favor of the international system of first inventor 
to file. For example, the NAS report is supportive of this 
concept.
    I understand that former Commissioner Mossinghoff and 
colleagues have produced empirical evidence that our existing 
system actually works to the detriment of small independent 
inventors. I also understand that under this new system, you 
can't just be the first to the PTO; you must still be a genuine 
inventor, not necessarily the first inventor. Nevertheless, it 
may be counterintuitive to some that the ``first to invent'' 
policy should be discarded, since it is based on the principle 
``first in time, first in right.''
    I would like to know what the administration's position is 
on this particular issue. If there is no final position at this 
time, please take the opportunity to explain to the 
Subcommittee and the public what this issue is all about and 
what the tradeoffs really are.
    Mr. Dudas. Absolutely. Thank you, Mr. Chairman. Well, there 
is growing, broad support among private sector groups and 
internationally moving toward adoption of a first inventor to 
file standard. It is perceived of by offices throughout the 
world as an international best practice.
    As you point out, advocates point to the fact that it is a 
simpler method. There are downsides to our current interference 
practice which make it very difficult to enter into the 
subjective elements of finding out who was the first to invent, 
the kinds of questions you need to ask there.
    I believe that ``first to invent''--many believe that it is 
philosophically more consistent with the basis of our patent 
system. Senator Feinstein brought up that the basis of our 
patent system is to disclose. Ultimately, it is to disclose 
innovation; it is to make things available. If you choose to 
use the patent, you choose to invent and protect, and that is a 
way to incentivize you to invent because you get that 
protection. You can also go the trade secret route, where you 
will hide what you have. You will keep secret what you have, 
but you don't have the protection of the law. What our system 
should do is encourage people to disclose.
    Supporters of our ``first to invent'' system have focused 
on concerns that others can more easily steal inventions and 
that applications might be filed more rapidly. So a small 
inventor or a new inventor might feel more pressure to apply 
quickly and then question whether or not there is the quality. 
So there is a tradeoff in that regard.
    I am eager to hear the debate on both sides. It is a debate 
that has been around for many decades. But, again, the studies 
you point to by former Commissioner Mossinghoff have suggested 
and have shown that the high costs of our current interference 
practices under our ``first to invent'' system may be 
disproportionately falling on independent inventors and small 
businesses.
    Chairman Hatch. Your testimony and the testimony of many 
others here today supports the development of a new system of 
post-grant review at PTO. Can you tell is where this issue is 
among your priorities for patent code reform, how much you 
believe it will cost and whether you have any position on the 
issue of whether the challenge period should last for nine 
months, two years or some other time period?
    Mr. Dudas. It is a high priority. It is a very high 
priority, but a post-grant opposition proceeding is something 
that the United States Patent and Trademark Office has talked 
about from the very beginning of our strategic plan back in 
2002 when we began putting that together.
    Some of the questions you ask depend on how that post-grant 
opposition system might work. I believe that we can implement 
that system in the United States Patent and Trademark Office. I 
think the post-grant opposition system is an answer to many of 
the problems that people raise right now.
    One of the concerns now is that litigation is too costly, 
litigation takes too long, litigation is too subjective, and 
perhaps you are not sitting before the experts when you go to a 
district court. Post-grant reexamination is a proceeding we 
have in the office right now that allows you to go before the 
office, but doesn't give you all of the freedoms; it doesn't 
give you all of the options that you have in litigation. Post-
grant opposition gives you the benefits of the protections of 
litigation, while still gets you before the office.
    I think we can implement that, and it will take resources 
and it will be necessary for us to get the resources in place. 
It will be something that, if it is authorized, we will have to 
have the appropriation for it as well.
    As far as the time period, I think there is a lot of 
agreement toward a nine-month. At the Patent and Trademark 
Office, we believe that it should be a one-year period where 
you can raise an issue in post-grant opposition, and then after 
that time if you show a credible sign of being sued for 
infringement or have otherwise a reason to bring that up.
    Chairman Hatch. Well, let me just ask one last question. 
Let me draw you into the thicket of injunctive relief. I know 
that there is no final administration policy on either the BSA 
or the AIPLA versions of the injunction provision. Mr. Kamen, 
who will testify later, also has strong feelings about this 
issue, coming from the small inventor perspective.
    I am not asking you for a final answer on this issue at 
this point because I think the affected parties need to 
continue to work on this issue, but help us understand the 
issues involved.
    Please tell us what is at stake and why the tech folks and 
biotech folks, as well as some small inventors, look on this 
issue so differently, and please help us define the problems 
associated with the granting of injunctions with respect to 
patent litigation.
    Mr. Dudas. Thank you.
    Chairman Hatch. My time is up, so if you could answer this.
    Mr. Dudas. I am sorry. I didn't hear the last--
    Chairman Hatch. My time is up, if you could answer this.
    Mr. Dudas. Okay, absolutely. Thank you. This is an 
excellent example of where a balance needs to come in, and you 
made a point in there that you need to listen to everyone. In 
my testimony, I pointed out that on these kinds of issues we 
need to listen to independent inventors, we need to listen to 
big companies, we need to listen across industries. I think you 
are right to say that we need to hear a whole lot more.
    I will tell you one thing that I find disturbing. A study 
was done last year that talks about increases in litigation 
costs. The increases in prosecuting patents went up 1 percent. 
The increase in litigation across the board went up 1 percent. 
The increase in patent litigation and intellectual property 
litigation went up 32 percent.
    So there is statistical evidence and there is also 
anecdotal evidence that some predatory practices in litigation 
are finding their way into intellectual property, into the 
courts, and we are seeing more issues along those lines. I 
think it is important that we look at that.
    The other side of the issue which you hear from many 
people--and this is what is very important--is there is a real 
problem, but is the injunctive relief solution the right 
solution, is what people are raising. It is throwing the baby 
out with the bath water?
    Injunctive relief has been looked at because the right is 
an exclusive right, the right to exclude others from the use of 
your patent. Under injunctive relief, there are four areas 
where you need to look to determine whether or not there is 
injunctive relief. One area is whether or not there is 
irreparable harm. I think the debate really turns on that.
    If you hold a patent and you have a right to exclude 
others, then if you can't get injunctive relief, is there or is 
there not irreparable harm? The moment you allow someone to 
encroach upon that or develop along those lines, the original 
patent owner loses the right to exclude.
    If you compared it to a real property example, if someone 
holds a deed and title to property and someone else came along 
and said I would like to build on that property, I don't think 
you own it, et cetera, does the court say, well, you can build 
so long as you can get monetary damages? That is what I think 
the debate has turned on.
    I think you hear other industries being concerned because 
they want to maintain that they have consistently the right to 
exclude. They are worried that this would create a system of 
compulsory licenses, but you see a real difference based on the 
experiences that different industries have had both in the 
courts and in the patent system.
    Chairman Hatch. Thank you.
    Senator Leahy, we will turn to you.
    Senator Leahy. I raised earlier this question of patent-
holders seeking multiple continuations of their patents, and I 
understand the practice may be abused. One, I would like to 
know if you feel there is a possibility of it being abused, and 
would it be a good idea to put a specific numerical cap on the 
number of times a patent applicant can file an application for 
continuation, three strikes and you are out or something like 
that?
    Mr. Dudas. I am glad you raised that point. Continuation 
practice is something that we are looking at in our office both 
in terms of quality and in pendency, because over 25 percent of 
the work we are doing is working on continuing applications. 
There are many legitimate reasons to have continuing 
applications, but in essence that means a quarter of our work 
is going to rework.
    Our system allows a great deal of flexibility, but I think 
we are at a point now--and it is something that many of you 
have raised--where we have to start choosing how many different 
flexibilities we can have and what judgments we need to make in 
our system. There are cost/benefit analyses that perhaps didn't 
exist that do exist today after we have broken records in the 
number of applications we receive.
    Senator Leahy. Are you seeing an abuse of this 
continuation?
    Mr. Dudas. There are certainly people that are reporting 
that there are abuses of the continuation practice. 
Particularly, I think what people are focusing on is the idea 
that you can broaden out your claims through a continuation 
after another technology develops. So we have certainly heard 
reported abuses and there is evidence that people have tried to 
use continuation practice in that light.
    I will also tell you from our standpoint I don't know if a 
hard limit is the right answer. We have looked at that in our 
office and there are concerns if there can be more. But what we 
ask our patent applicants to bring up--this is one of the 
questions at the heart of application quality that I referred 
to earlier. Perhaps we need to either charge more or we need to 
have them have higher burdens to bring in if they are going to 
have that many continuations.
    Senator Leahy. Well, you mention charges. One proposal I 
have heard to help small inventors is the elimination of filing 
fees at the PTO for individual inventors and small businesses. 
For large businesses, you would have to have some kind of a 
standard, of course, that they would be required to pay. I 
wonder if you have a position on that proposal. What about 
universities, some of whom partner with the private sector? 
Should they part of an exemption from fees?
    Mr. Dudas. I am glad you raised that. I think there are 
concerns with a system that would allow no cost/benefit in 
whether or not to file a patent application. Currently, under 
our system small inventors, universities, independent inventors 
and small businesses, as defined by the Small Business Act, get 
half off of fees. So there is a sense that there is a break in 
place. There are those who question whether or not there are 
too many applications that get a price break, a half off.
    There is a concern sometimes in our system, often in other 
patent offices, of whether or not junk is filed, whether or not 
the system allows for too much to come in and that bogs down 
the system. If there were no fees whatsoever for an application 
for any particular group, I think that is a concern that we 
would have to look at, if there was no cost/benefit that was 
made at all. We want to make certain of the quality of 
applications that come in. Our office and the administration 
has always been supportive of having smaller fees for smaller 
inventors and independent inventors.
    Senator Leahy. I think we should, but you talk about the 
high number coming in. I have heard that the patent examination 
process doesn't allow for relevant information of third parties 
to be brought to the PTO prior to the time when you are in 
litigation. I am wondering if there should be a better way of 
getting information from third parties, those who work in the 
same field and have expertise and have an incentive to make 
sure the new inventions are truly innovative, some kind of a 
partnership there.
    Might that be a way to help the PTO so that you are not 
over-patenting inventions? You have some reference in your 
testimony to something along this line. Would you want to 
elaborate on that, please?
    Mr. Dudas. Certainly, that can be helpful. In fact, we are 
engaged now with partnerships with a number of different 
industries, not on particular patent applications, but our 
examiners will get together with industry representatives and 
discuss what relevant art is, what is the state of art in each 
of the industries.
    This is particularly important when you begin to see 
patenting techniques used in new industries. So in the 
financial industries, after the Supreme Court decided State 
Street Bank, we saw patenting techniques used more and more in 
certain industries. Our examiners, who are always eager--and 
when compared internationally, the examiners throughout are 
always eager to get more information and are working with 
sometimes hundreds of people from the industry coming in and 
training our examiners, et cetera.
    I think what you are talking about is a more robust system 
of seeing applications, published applications, et cetera, and 
being able to submit prior art with a little bit more 
relevance. We are very open to that. We would have to manage it 
properly.
    Senator Leahy. I will put my other questions in the record, 
but I was concerned about a letter I received from the head of 
the Patent Office Professional Association. You probably have 
seen it. They claim that the recent contract proposal has 
demoralized a workforce that they feel is highly motivated. It 
says PTO wants to reduce current performance incentives and 
eliminate a current contract provision that says employees will 
be treated equitably and fairly by management. According to 
their newsletter, they say when the PTO's automated systems 
fail to function, as sometimes they will, employees will be 
sent home without pay.
    Now, in the 21st Century Strategic Plan you speak of how 
you get a highly motivated workforce. Is this showing an area 
where that motivation may be undercut?
    Mr. Dudas. I don't think ultimately it will and I sincerely 
hope it isn't. I can tell you one thing where our union, our 
examiners and management in our office agree. We are one team 
and our goal is to make sure that we provide the examiners with 
the tools they have.
    I would hate to think--and I have talked to a number of 
folks--that a proposal would in any way cause a demoralization 
because it is a discussion process. I have solicited comments 
from our union, from our managers and from our examiners. In 
fact, I get some of the best comments on how we can change and 
how we can improve from working out in the fitness center in 
our office. So this is meant to be a collaborative process, one 
in which we are bringing everyone in.
    We certainly feel a certain amount of responsibility in my 
office--I feel it--for us to be able to improve and become more 
efficient, and the only way we can do that is by passing 
those--within in the office, how can we improve? So my sense 
would be that there is not a sense of demoralization based upon 
that, or if there is, I think that will be remedied as people 
discover how there will be give-and-take and discussion as we 
go forward. The goal is indeed to give our examiners the tools 
they need. We are the most efficient office in the world and 
our examiners, I am certain, are the best in the world.
    Senator Leahy. Thank you very much. Thank you, Mr. 
Chairman.
    Chairman Hatch. Well, thank you, Senator Leahy.
    Senator Feinstein.
    Senator Feinstein. Thank you very much, Mr. Chairman.
    Mr. Dudas, I want to ask you a question about university of 
patents. The University of California is listed by the Patent 
and Trademark Office as the university that received the 
largest number of patents in the Nation last year, with over 
400 patents. Its patents and its licensees have contributed a 
lot to the development of high-tech and biotech in California. 
All of American biotech sprung right out of the University of 
California. It was amazing. However, in a university setting 
research is not always done with patenting in mind, and 
depending on how changes in the patent system are structured 
they may have an adverse effect on large research-oriented 
universities.
    What do you think the impact of some of the reforms 
mentioned such as the change from the current ``first to 
invent'' standard to a ``first to file'' standard will be on 
universities?
    Mr. Dudas. I think you raise what is at the heart of what 
is happening within universities. There is a sense that 
university research and what professors want to do are 
sometimes inconsistent with the patent system. The patent 
system is about protecting and keeping private until you apply. 
The university system is often about getting information out as 
quickly as you can.
    My sense is that the universities can do just as well in a 
``first to invent'' as in a ``first inventor to file'' system. 
Particularly as you point out, I think the universities have 
really gotten beyond the issue, most universities have, through 
education, of wanting to publish before they think about 
patents.
    You talk about an incredibly successful system in the 
University of California, Wisconsin, Stanford. There are a 
number of universities that now work that problem out very 
well. I think that universities can and will thrive in either 
environment. The Bayh-Dole Act is an example of how 
universities came into thrive where government couldn't thrive, 
where government couldn't really develop these patents. So the 
experiences I have had in working with universities and seeing 
that is that they adjust very rapidly and can thrive under 
either system.
    Senator Feinstein. But are you saying that they are better 
off under the ``first to invent'' rather than ``the first to 
file?''
    Mr. Dudas. I am not saying that they would be better off 
under ``first to invent,'' and I apologize. They probably would 
be better able to articulate, if they do feel that way, why 
they would feel that way. I find that the system is one that 
can adjust either way and I don't feel that a ``first to 
invent'' system--or at least it is not obvious to me why that 
would be a preferred method for universities.
    Senator Feinstein. Could you tell me a little bit more 
about the backlog in the patent office and what other steps you 
would take to ensure that the patent office would be able to 
handle the new class of proceedings on top of its existing 
workload?
    Mr. Dudas. Yes, two questions. One was about the backlog 
and the second is how we can handle the hiring that we are 
doing now.
    Senator Feinstein. The number in the backlog.
    Mr. Dudas. The number in the backlog, absolutely. In the 
last 20 years, the Patent and Trademark Office has broken a 
record every single year for more than 20 years in how many 
applications it has received. That is great news for our 
economy. It is great news for the United States because, of the 
American filers, that number has consistently gone up.
    It is also great news for the USPTO, but it is a challenge 
as well. Despite the growing numbers of applications, certainly 
in the last several years and years before we did not hire in 
record numbers. We now have, because of the bill that was 
passed last year--I am sorry.
    Senator Feinstein. I guess I am asking you what is the 
current backlog.
    Mr. Dudas. The current backlog is approximately 490,000 
applications in the backlog.
    Senator Feinstein. That is a big backlog.
    Mr. Dudas. That is a very big backlog.
    Senator Feinstein. Is that the highest ever?
    Mr. Dudas. It is the highest ever, and it won't comfort you 
much to know that it will certainly grow over the next few 
years.
    Senator Feinstein. So what are you doing to have at it, so 
to speak?
    Mr. Dudas. What we are doing now is we are hiring more 
examiners now. We are going to start getting at that backlog. 
The reason that backlog will grow is because pendency is 
measured going backward, basically. If pendency is at 28 
months, that means we are measuring a patent that comes out 
today and 28 months ago it was filed.
    So we know you could hire 12,000 patent examiners now and 
it wouldn't affect where it goes in the next two years.
    What you will see is three years down the line, four years 
down the line, the hiring we are doing will have an effect. We 
are hiring at record numbers now more patent examiners than we 
have ever hired before. Eight hundred and sixty patent 
examiners is what we plan to hire this year. We have already 
achieved 80 percent of the goal.
    Senator Feinstein. How many do you have now?
    Mr. Dudas. We are going from 3,600 to about 4,400, and 
there will be some attrition in there. We are hiring a quarter 
of our workforce.
    Senator Feinstein. I guess the second part--well, I guess 
the hiring is the answer to the second part of the question.
    Thank you very much, Mr. Chairman.
    Chairman Hatch. Well, thank you, Senator.
    Could I just ask you for some help? We would like you to 
continue to work with us as we fashion patent reform 
legislation. We would like to have the best advice you can give 
us.
    Secondly, Senator Lieberman and I will likely be shortly 
reintroducing our bioterrorism legislation. This bill has 
several IP provisions in it and I just want to know if Senator 
Lieberman and I can count on you to aid us and help us with 
that on this very important bipartisan bill.
    Mr. Dudas. Absolutely. Whatever we can do we will do, and 
thank you very much for having me.
    Chairman Hatch. Thank you so much. We appreciate you taking 
time, we appreciate you being here and we look forward to 
working with you on these issues and we appreciate the good 
work you do.
    Mr. Dudas. Thank you.
    Chairman Hatch. Thanks so much.
    Panel two will consist of Dr. Richard C. Levin, President 
of Yale University, from New Haven, Connecticut, and Co-Chair 
of the Committee on Intellectual Property Rights in the 
Knowledge-Based Economy, Board on Science, Technology and 
Economic Policy of the National Research Council, and Dr. Mark 
B. Myers, Visiting Executive Professor, Management Department, 
at the Wharton Business School at the University of 
Pennsylvania, in Philadelphia, Pennsylvania, and Co-Chair of 
the Committee on Intellectual Property Rights in the Knowledge-
Based Economy, Board on Science, Technology, and Economic 
Policy, National Research Council.
    We welcome both of you here today and look forward to 
hearing what you have to say. We will start with you, Dr. 
Levin, first, and then we will go to Dr. Myers.

STATEMENT OF RICHARD D. LEVIN, PRESIDENT, YALE UNIVERSITY, NEW 
  HAVEN, CONNECTICUT, AND CO-CHAIR, COMMITTEE ON INTELLECTUAL 
   PROPERTY RIGHTS IN THE KNOWLEDGE-BASED ECONOMY, BOARD ON 
  SCIENCE, TECHNOLOGY, AND ECONOMIC POLICY, NATIONAL RESEARCH 
                            COUNCIL

    Mr. Levin. Chairman Hatch, Senator Leahy, Senator 
Feinstein, thank you for offering me the opportunity to discuss 
the National Research Council's recommendations for improving 
the patent system in the United States. Patents play a crucial 
role in promoting the technological innovation that is the most 
important underpinning of economic growth. I am grateful to the 
Subcommittee on Intellectual Property for scheduling this 
hearing.
    The project undertaken by the National Research Council was 
the most comprehensive review of the patent system in decades. 
Our committee was perhaps the first to bring together 
practicing patent lawyers, judges, academic lawyers and 
economists, business leaders, technologists and inventors.
    We started with highly divergent views, but over the course 
of our deliberations our views converged and we reached 
consensus on several important recommendations. We concluded 
that, on the whole, the patent system is working well and does 
not need fundamental revision. Yet, we did note some causes for 
concern.
    The sheer volume of patent applications, especially those 
involving new areas of technology, overwhelms the examination 
corps in ways that affect the quality and timeliness of 
decisions. In addition, it has become more expensive to acquire 
patents, to obtain licenses to patented technologies, and 
especially to enforce and challenge patents through litigation.
    Our recommendations are set forth in greater detail in an 
accompanying written statement coauthored with Dr. Myers. But, 
here, I would like to emphasize three main themes.
    First, we believe the Congress and the PTO should take 
steps to ensure the quality of patents that are issued. The 
single most important step would be the establishment of a 
simple administrative procedure for opposing a patent after it 
has been granted, a post-grant review system. The process 
should be timely and efficient so that uncertainty can be 
resolved quickly without either inhibiting socially productive 
investment by competitors in situations where the patent proves 
to be invalid or, on the other hand, encouraging wasteful 
investment when the patent proves to be valid.
    A new post-grant review system is needed because the 
existing inter partes reexamination procedure only permits 
challenges to be lodged on narrow grounds. It is rarely used 
and has not proven to be effective. The only way to challenge 
patent through the courts today is to infringe it and to draw 
either an infringement suit or a demand to take a license. This 
is an unnecessarily expensive method to resolve doubts about a 
patent's validity, and disputes take many, many years to 
resolve.
    Patent quality can also be improved by the assiduous 
application of the non-obviousness standard by the Patent and 
Trademark Office. The PTO needs to develop new approaches to 
gathering information about the state of the art in emerging 
areas of technology, relying on outside experts when patent 
examiners lack expertise.
    The committee commends the PTO for the development of 
guidelines in emerging technology areas such as genomics and 
business methods. It is important to offer such guidance 
promptly as new technologies emerge. The committee also 
recommends that the Congress provide more resources for the PTO 
to hire needed examiners to improve its information systems and 
to fund a post-grant opposition procedure.
    A second theme beyond that of patent validity is the 
harmonization of the United States patent system with the 
European and Japanese systems. Differences among the world's 
major patent regimes entails wasteful duplication of effort by 
both inventors and governments. The committee believes that 
gains in efficiency from harmonization would be considerable.
    The United States is now the only country that gives 
priority to the first person to reduce an invention to 
practice. Elsewhere, it is the first inventor to file who is 
given priority. The latter test is objective. What date did you 
file with the patent office? The former requires years of 
discovery, reams of depositions and hours of trial testimony. 
Moreover, the U.S. is the only country in the world that 
requires the patent-holder to prove that he or she has 
disclosed the best mode of practicing a patent. This, too, is 
costly and time-consuming to prove. Harmonization with global 
practice makes sense.
    Finally, the committee recommended that the Congress 
mitigate other subjective elements in the law that contribute 
to the extraordinary expense of patent litigation. For example, 
Congress would be well advised to eliminate or modify the 
standards governing inequitable conduct. There should be 
penalties for misconduct by patent applicants, but misconduct 
should not automatically invalidate a patent.
    Similarly, the doctrine of willful infringement should be 
modified because willfulness is subjective and costly to prove, 
and the doctrine creates a perverse incentive for inventors to 
avoid the study of prior art, lest they fail to cite a patent 
that turns out to be relevant.
    In this brief overview, I have not mentioned all the 
recommendations of the committee which are explained more 
thoroughly in our written testimony and, of course, in our full 
report. My colleagues and I on the committee recognize that 
some of our proposals will engender controversy, but we believe 
that is imperative that the United States take the steps 
necessary to ensure the quality of patents, to harmonize patent 
systems and to reduce the cost of patent litigation.
    I would be pleased to answer any questions. Thank you.
    Chairman Hatch. Thank you so much.
    Dr. Myers, we will take your testimony.

   STATEMENT OF MARK B. MYERS, VISITING EXECUTIVE PROFESSOR, 
 MANAGEMENT DEPARTMENT, WHARTON BUSINESS SCHOOL, UNIVERSITY OF 
    PENNSYLVANIA, PHILADELPHIA, PENNSYLVANIA, AND CO-CHAIR, 
   COMMITTEE ON INTELLECTUAL PROPERTY IN THE KNOWLEDGE-BASED 
  ECONOMY, BOARD ON SCIENCE, TECHNOLOGY, AND ECONOMIC POLICY, 
                   NATIONAL RESEARCH COUNCIL

    Mr. Myers. Chairman Hatch, Senator Leahy and Senator 
Feinstein, I join my colleague, President Levin, in thanking 
you for the opportunity to discuss the recommendations of the 
National Academy of Sciences concerning the patent system.
    Rather than speak from my experience now at the university, 
I would like to speak from my experience of a career of 37 
years that I spent in industrial research and development at 
both large and small entrepreneurial firms. In the last ten 
years of my career, I was head of Xerox's corporate research, 
where I was involved in the process of creation of intellectual 
property which offered key options for economic growth of the 
firm. In the creation of new firms, patents were an imperative 
to attract the investment necessary to fuel early growth.
    Over these many years of experience and practice, there 
were two very important innovative trends that really had major 
impact on the ability to establish a firm competitiveness. One 
is the ever-accelerating pace of innovation. Time frames once 
measured in decades are now measured in years, years are now 
measured in months, and months are measured in days. A second 
major trend has been the globalization of markets and 
technology sourcing. The innovation process is unconstrained in 
time, place and movement.
    These trends place new requirements on our patent system. 
If it is going to continue to enable innovation, as it has so 
ably done in the past, the quality of patents and issues of 
potential infringement must be determined earlier in the 
innovation process. We need common standards of right to use of 
technology across global markets. Uncertainties with respect to 
these rights of use create negative incentives for innovation 
investment. The recommendations of this report speak directly 
to the needs of patent quality, earlier validity determination, 
as well as moving us along toward international harmonization.
    I would like to join now President Levin and accept 
questions from the panel.
    [The statement of Messrs. Levin and Myers appears as a 
submission for the record.]
    Chairman Hatch. Thank you very much.
    Dr. Levin, I am tempted to ask you a question on the minds 
of many parents, what role will the new essay on the SAT play 
in college admissions, but I won't ask you that.
    Both of you come from leading academic institutions. The 
NAS report contains a lengthy discussion of the extent to which 
universities should be liable in patent infringement cases. I 
will stipulate that probably no party enjoys patent litigation, 
certainly not universities.
    I am struck, however, by the examples that you gave on 
pages 74 to 76 of your report. This includes several extremely 
important university-assigned and licensed biotechnology 
inventions, such as the Harvard mouse and the University of 
Wisconsin stem cell lines. The Federal Circuit, in Madley v. 
Duke, distinguished between research, quote, ``solely for 
amusement to satisfy idle curiosity or for the strictly 
philosophical inquiry is protected,'' but that ``organized 
scientific research with commercial dimensions is not protected 
from infringement liability.''
    Given the manifest commercial character of some university-
based science, why should this type of research be shielded? 
Your report notes that, quote, ``University administrators and 
legal counsel were uncertain what precautions to take to avoid 
infringement.''
    Now, as members of the NAS study and key university 
leaders, can you update us on the developments in this area 
since the report was written and tell us the extent to which 
you believe that immunity should be granted to university 
research and why?
    Mr. Levin. Well, the committee did not in the end recommend 
a blanket exemption for university research. We actually looked 
at the possibility of crafting several types of narrow research 
exemptions and actually noted strengths and weaknesses of each 
of them, and in a sense tossed it back to you, Senator Hatch, 
and others in the Congress for resolution.
    We are concerned about access to research tools, but we 
have worked out ways of doing it. I mean, I would say that 
there are increasing numbers of agreements these days within 
universities, even since our committee completed the substance 
of its work more than a year-and-a-half ago. We are getting 
better at figuring out how to license these tools and to make 
our faculty compliant with taking licenses for the intellectual 
property they are using. On the other hand, it is important 
that we not inhibit fundamental research that is undertaken for 
non-commercial purposes.
    Much more is proprietary now in the area of research tools 
than was the case even a decade ago. So to do even fundamental 
research in universities now, especially in the genomics area, 
requires significant numbers of licenses and agreements to be 
crafted. And we are worried about this, but as I say, it is not 
easy to craft good language.
    In principle, what you would like to do is protect basic 
research that has no commercial purpose. But, of course, 
universities are engaged in commercial activity and we 
shouldn't have an unfair advantage in competition, so we should 
have to take the same kind of licenses the private sector 
takes. So you see the dilemma. There is no simple answer to 
this.
    Chairman Hatch. Dr. Myers.
    Mr. Myers. As a study group, we did not come to one mind on 
this question. Part of it is it is a very complicated issue 
which people from the university community and industrial 
community have not yet reached common ground, and so it is 
clearly going to be the subject of more conversation.
    I think, though, it is an extraordinarily important 
question for the following reason. One of my focuses is on 
international competitiveness, and particularly competitiveness 
in U.S. industry. As we have seen the transition of private 
research in the United States move less from basic science into 
more downstream-related activities, a great deal of the force 
of laboratories like Bell Laboratories in the past will be now 
present in our national research universities.
    So our national research universities are going to be 
increasingly important agents in our competitiveness posture. 
We are not completely sure how that should be shaped in the 
future so that we do not harm or destroy what is great about 
the university research environment. But, clearly, in the kind 
of knowledge-based economy that we are in today, our national 
research universities will be key competitive factors of our 
future.
    Chairman Hatch. Thank you.
    Senator Feinstein.
    Senator Feinstein. No questions.
    Chairman Hatch. Let me just ask one other question, then. 
It is my understanding that the PTO is currently engaged in 
international harmonization negotiations. Some have expressed 
concerns that if Congress pushes ahead with international 
harmonization of the patent system before these negotiations 
are concluded, it will undercut the United States' negotiating 
position. This seems to be a real problem to me.
    In your opinion, should Congress hold off on harmonization?
    Mr. Levin. I would offer the point that I think it is in 
the unilateral advantage of U.S. companies to harmonize; that 
is to say, no, Congress should not hold off. The things we are 
proposing in many ways are simply going to be better for firms 
that are trying to do business around the world. It is going to 
simplify their lives to operate under one standard, such as the 
first inventor to file, and save lots of litigation costs right 
here in the United States. So we think you should go ahead.
    Chairman Hatch. As you know, there is a hearty debate 
taking place over how to change the injunctive relief 
provisions of the Patent Code. Do either of you have any views 
on this matter?
    Mr. Levin. The committee didn't take a position on this.
    Do you have a personal view?
    Mr. Myers. No, I would rather not offer a personal 
position, but we did not discuss this subject.
    Chairman Hatch. Let me thank you and the rest of your panel 
and staff and outside consultants and participants for all the 
hard work that you have done in producing the NAS report.
    Can you give us a sense on what you believe are the highest 
priorities among the seven key recommendations in the NAS 
study? Let me just put it this way: If there was one thing that 
Congress could do to make the patent system better in the 
future, what, in your opinion, would that be? Similarly, if 
there were one thing that you could prevent from happening 
legislatively, what would that be? I would like to have your 
best advice on those two issues.
    Mr. Levin. Well, I am very partial to the idea of the post-
grant review system. In an environment where technology is 
changing very rapidly, such as the Internet business patents 
that were filed in the late 1990s, or at an earlier time 
genetic patents, having the capacity to quickly determine what 
kinds of patents are going to hold up, what kinds of patents 
are going to be valid, is going to create such a stronger 
environment of certainty for the industrial sector that you 
will see a more rapid pace of innovation.
    People won't hold back in making investments because they 
are worried that they are infringing. On the other hand, people 
won't make wasteful investments that turn out to be invalid 
later. Having a timely way to really test an emerging area of 
law, which is always the case when there is a new technology--
there are new questions to resolve--is very, very important. I 
would say that is the most important of our recommendations.
    Chairman Hatch. Thank you.
    Mr. Myers. I would agree with that. I think that I would 
put it under patent quality. I think patent quality is 
extremely important, and I think the post-grant review enables 
that. I would have to slip in, if you would allow me, that 
international harmonization, as rapidly as we can move there, 
is a very close second.
    Chairman Hatch. Well, thank you very much. We really 
appreciate you both taking time from your busy lives to come 
down here and help us try to understand this a little bit 
better. Thank you very much.
    Mr. Levin. It is an honor to help. Thank you.
    Mr. Myers. Thank you.
    Chairman Hatch. It is an honor to have you here.
    We will turn to our third panel now: William Parker, of 
Diffraction, Limited, in Waitsfield, Vermont; Dean Kamen, 
President of DEKA Research and Development Corporation, in 
Manchester, New Hampshire; David Simon, Chief Patent Counsel 
for Intel Corporation, in Santa Clara, California; Robert A. 
Armitage, Senior Vice President and General Counsel for Eli 
Lilly and Company, in Indianapolis, Indiana; Joel Poppen, 
Deputy General Counsel of Micron Technology, Inc., in Boise, 
Idaho; and Michael K. Kirk, Executive Director of the American 
Intellectual Property Law Association here in Washington, D.C.
    Mr. Parker, we will begin with you.

   STATEMENT OF WILLIAM PARKER, CHIEF EXECUTIVE OFFICER AND 
  DIRECTOR OF RESEARCH, DIFFRACTION, LTD., WAITSFIELD, VERMONT

    Mr. Parker. Mr. Chairman, Ranking Member Leahy--I guess he 
stepped out of the room--and members of the Subcommittee, my 
name is Bill Parker and I am Chief Executive Officer and 
Director of Research for Diffraction, Ltd., a technology and 
intellectual property-based small business in Vermont. Thank 
you very much for inviting me to testify today on this most 
important topic.
    In my testimony, I hope to present some of the views of 
individual inventors and other small entities on needed changes 
to the United States patent system. As evidenced by the 
substantial numbers of innovations and patents that spring from 
small businesses around this great country and the jobs that 
these innovations create or maintain, these small-scale 
operations have a significant role to play in the United States 
economy.
    My company, Diffraction, Ltd., is not just small, it is a 
micro business. This panel's members are by and large from 
large entities or represent groups of patent-holders. I will 
try to make this presentation as focused as possible on a few 
issues of patent reform as they affect individuals and small 
businesses.
    Like many small technology-based businesses, our company 
was founded by an inventor and patent-holder. In our case, it 
was my wife Julie. After earning a graduate degree from MIT, 
having little or no business background, she decided to start 
her own company to further develop and capitalize on her 
skills, talents, inventions and discoveries.
    She thought it was useful to have a partner in this 
endeavor, and that is where I came in. As an inventor from 
childhood with some reasonable commercial successes, I had 
collected a considerable range of experience learning about the 
things one did and did not do to capitalize on one's 
creativity. Fifteen years later, we have three little inventors 
at home and a company with a staff of 20 innovators. We have 
produced a number of commercially-viable developments and 
patents in holography, optics, micro electronics and 
nanotechnology. We recently launched an effort to develop 
innovations that may help win the war against terrorism, work 
supported with Federal government contracts as well as private 
funds.
    It is important to note that we believe our intellectual 
property in the long term will have value than our tangible 
output will in the short term. Said a different way, the 
product of our minds probably has more value than the things we 
can make with our hands.
    When we have done our inventing job well, we may need to 
depend on others to take our innovation to the market. Like 
other inventors that choose the licensing route over 
manufacturing, we then ask for a royalty payment as a return on 
our investment in the innovation.
    That the United States is moving toward an economy where 
money generated from intellectual property is a significant 
element of the GDP is undeniable. That we are doing everything 
we can as a country to protect our IP is questionable. The 
future world market will need new rules regarding the ownership 
of ideas, rules that need to be fair and balanced. We would 
like to offer an image to the Subcommittee of a day when the 
U.S. has little to offer other than intellectual property, a 
few raw materials and some farm produce. This is a scary 
scenario if we are not prepared or able to protect our most 
important assets.
    On the quality of patents--this is the number one issue, I 
think, for all inventors--the patent process must be flawless 
for a patent to be above question, and it must be above 
question to have any real value. As the art becomes more 
involved and specialized, it is increasingly more difficult to 
factor out mistakes of omission. Better access to prior art is 
part of the solution, but more is needed in the examination 
process to prevent a poor outcome despite a significant amount 
of time and money being spent.
    Redirecting PTO fees is not part of the solution. Money not 
spent by the PTO to ensure quality is often spent instead by 
the patent-holders and their challengers in legal actions. 
Tremendous amounts of money are spent in challenges, when a 
fraction of that could have been spent better to prevent the 
problem at its source.
    There is a need for skilled examiners in emerging 
technology areas, keeping in mind that experts in their 
specific art are, in fact, their customers. From biotechnology 
to nanotechnology and software and micro electronics, as well 
as other cutting-edge fields, the experts are the ones making 
the inventions, not the ones determining if they are, in fact, 
inventions.
    On first to file versus first to invent, it sounds like a 
good approach in many ways for individual inventors, for 
harmonization and for the system in general. But, in fact, it 
poses a few big problems for small entities. It would be very 
difficult, but not impossible, to change the system and not 
disadvantage small inventors. Due to the high cost of building 
prototypes or doing laboratory work, it takes a small inventor 
a reasonable amount of time to go from idea to reduction to 
practice. The ability to submit continuances in part and amend 
claims are the other tools available to small inventors.
    We would like to see ways to encourage the creativity and 
capabilities of our country's small inventors, but reduce their 
cost in obtaining patents, while still giving them protection 
in the world market. As far as injunctive relief, we don't 
believe that all inventors are opportunists or patent 
predators, even though a lot of talked is aimed at protecting 
big businesses from the actions of a few opportunists who try 
to use the system against itself.
    In conclusion, I speak for many of my colleagues and small 
entities when I thank the Subcommittee for this opportunity to 
be able at the table for this hearing. We only ask for more 
chances to provide views to Congress on this important topic 
and for more presence on advisory boards during the patent 
reform debate.
    I personally thank you for the opportunity to be here 
before you today, Mr. Chairman, and I offer my continuing 
efforts to find or invent ways to make our patent system work 
for the 21st century and beyond.
    Thank you.
    [The prepared statement of Mr. Parker appears as a 
submission for the record.]
    Chairman Hatch. Thank you, Mr. Parker.
    We will just go across the table.
    Mr. Poppen, we will take you next.

  STATEMENT OF JOEL L. POPPEN, DEPUTY GENERAL COUNSEL, MICRON 
                 TECHNOLOGY, INC., BOISE, IDAHO

    Mr. Poppen. Chairman Hatch, Senator Leahy and members of 
the Subcommittee, I am the Deputy General Counsel for Micron 
Technology. Thank you for allowing me to testify today on the 
very important issue of patent reform. Since my submitted 
testimony covers a number of issues in some detail, I will 
focus on just a couple of major points today.
    Micron is one of the world's leading providers of advanced 
semiconductor products. Our products are used in today's most 
advanced computing, networking, communications and imager 
products. Micron's investment in R&D has led to over 12,000 
U.S. patents, and in the past five years Micron has been among 
the top ten recipients of U.S. patents. Accordingly, Micron is 
a significant stakeholder in the patent system and has a keen 
interest in its improvement.
    In recent years, opportunists have exploited the patent 
system to attack those who innovate and manufacture products. 
According to studies, this trend has led to a 60-percent 
increase in patent suits in the last decade and staggering 
costs. As authors Jaffe and Lerner note in a recent book, 
quote, ``Burgeoning patent litigation is increasingly making 
lawyers the key players in competitive struggles rather than 
entrepreneurs and researchers. As the patent system becomes a 
distraction from innovation rather than a source of incentive, 
the engine of technological progress and economic growth begins 
to labor,'' close quote.
    To curb the growing abuse of the patent system, to realign 
the intended incentives and to restore fairness for everyone, 
the patent system should be reformed through targeted 
legislation.
    First, manufacturers increasingly are coming under attack 
from those who are inventing patents rather than patenting 
inventions. These inventors of patents use continuation 
practices in the patent office to tailor patent claims over 
time to cover the activities of others. Later, they surprise 
manufacturers who are locked into technologies with 
unanticipated patent claims and steep royalty demands. To 
redress the patent problem, patent applicants should be 
required to file their broadest claims very early in the 
process and should not be allowed to later claim broader or 
different inventions after watching the activities of others.
    A second problem area relates to significant judge-made 
advantages for patent plaintiffs. When plaintiffs prevail, 
courts virtually automatically enter an immediate injunction 
shutting down a defendant's business, even though the 
applicable statute plainly requires that principles of equity 
be weighed first. Courts simply short-cut the analysis by 
presuming that the plaintiff will suffer irreparable harm if an 
injunction does not issue. But many patent plaintiffs are in 
the business of only collecting royalties and money damages are 
sufficient to fix any harm. To ensure the proper balancing, the 
patent injunction statute should be amended to instruct courts 
to weigh all the equities before issuing an injunction.
    A final area of problems relates to excessive damage 
awards. Patent opportunists use system claims and court-
sanctioned damage theories to claim damages on entire products 
even when only a small part is the actual invention. 
Accordingly, the patent damages statute should be amended so 
that damages are limited to the proportion of the value 
directly attributable to the invention rather than the larger 
system in which it resides.
    Additionally, defendants almost always are faced with 
allegations of willful infringement and the threat of triple 
damages. But since enhanced damages are punitive in nature, 
they should only be available upon an express finding that the 
defendant's conduct was egregious or reprehensible.
    In conclusion, targeted manufacturers often face a Hobson's 
choice: daunting litigation costs, slanted evidentiary 
standards, exorbitant damage awards and virtually certain 
injunction relief on the one hand, and predatory licensing 
demands on the other. Patent reform legislation is essential to 
restore fairness and to protect the integrity of the patent 
system.
    Thank you again for the opportunity to provide some 
perspectives on patents.
    [The prepared statement of Mr. Poppen appears as a 
submission for the record.]
    Chairman Hatch. Well, thank you, Mr. Poppen.
    We will turn to you, Mr. Simon, and take your testimony.

     STATEMENT OF DAVID SIMON, CHIEF PATENT COUNSEL, INTEL 
              CORPORATION, SANTA CLARA, CALIFORNIA

    Mr. Simon. Thank you, Mr. Chairman. My name is David Simon. 
I am the Chief Patent Counsel of Intel Corporation and I am 
here to testify on behalf of the Business Software Alliance. 
Our group contains not only some of the largest patent-holders 
in the United States, but we also contain many small patent-
holders, and I am here to talk about the imbalances that arise 
from complex products that contain often billions of components 
or billions of lines of code that are alleged to be touched 
upon by thousands of patents.
    It is our belief the patent system needs some adjustment to 
meet the needs of our industry. In addition to being 
overwhelmed by new applications, which have caused a five-fold 
increase in backlog in patents, the PTO also faces a deluge of 
continuation applications. I believe it is about 25 percent, 
according to Director Dudas.
    Patentees file these continuation applications even up to a 
decade after the original filing date, filing to stretch their 
disclosures to claim evolving technology or standards. They 
then tax the industry with what can only be viewed as inventive 
patents. Then, once issued, the procedures by which the PTO can 
review the validity of these patents are inadequate.
    Ex parte reexamination has proven futile over 85 percent of 
the time. Why? Because after filing the request, the requester 
is no longer participating in the process. The patentee will 
then narrow the claims, while avoiding the prior art sitting 
there with the requester's product trying to make sure that the 
claims cover that.
    We firmly believe that a robust inter partes opposition 
procedure needs to be there so the patent office can deal with 
the mistakes that overtaxed examiners will unfortunately make, 
particularly if, as Director Dudas said, we are going to have 
25 percent new staff. Specifically, inter partes reexamination 
should be fixed by removing the time limitation on patents that 
may be reexamined and by fixing the collateral estoppel 
provision in Section 315(c) of Title 35.
    In addition, we firmly believe in a meaningful post-grant 
opposition procedure. We do not believe that a nine-month 
window, however, is sufficient, as advocated by others. We 
think that there needs to be a second window because, 
unfortunately, with the speed with which our technology moves, 
it could be years before we realize that a patent that issued 
years ago might be significant or not.
    While we support the efforts to improve the patent office's 
internal procedures, we also believe that it is important to 
fix major problems that have cropped up in litigation.
    First, the law of triple damages and willful infringement 
needs to be fixed. We believe these are punitive damages and 
they should be reserved, according to the standards set forth 
by the Supreme Court, for cases of reprehensible conduct, such 
as intentional copying of a patent without a good-faith belief 
that the patent is inviolate.
    The current gamesmanship of letters or the gamesmanship of 
artfully drawn letters that are advocated by some other 
organizations has little to do with ferreting out reprehensible 
conduct. Instead, it creates hardships, including forcing a 
defendant to choose between defending against triple damages, 
on the one hand, or on the other hand waiving its attorney-
client privilege. These hardships are used by clever litigants 
seeking only to maximize the settlement value of their cases.
    Second, the BSA supports adding certainty to the measure of 
damages on complex products. Today, when a small feature of a 
multi-faceted product is alleged to infringe a patent, the 
patentee will often claim that they are entitled to the entire 
market value of the good rather than the value of their little 
patented feature. We believe that reform is needed to rein in 
these excessive damages.
    In addition, the BSA supports clarifying the jurisprudence 
regarding injunctions. The law today directs the courts to 
balance equities before issuing an injunction. Nonetheless, 
essentially the only reason that courts frequently will cite 
for not granting an injunction is in the face of a national 
health emergency. That interpretation of the public interest 
risks turning equity into a needle's eye which is very 
difficult to meet.
    All of these issues have led to a new business model of 
acquiring control of patents from distressed companies and then 
suing American manufacturers in plaintiff-friendly 
jurisdictions, with the threat of inevitable permanent 
injunctions and high damages at the end of the case to extort 
settlements.
    The defendant is thus threatened with having its entire 
business shut down, and no matter how convinced we may be on 
the merits of our position, we cannot simply afford to take 
even a 10-percent chance of losing and having billions of 
dollars of business or factories worth billions of dollars 
being shut down.
    We are aware of the concerns of some that this would 
undermine the exclusive rights of inventors, but there are 
persons who abuse these exclusive rights that run contrary to 
the equitable principles set out in Section 283 and to the 
fundamental goals of the patent system. What we are saying is 
that Congress needs to address these abuses by ensuring that 
equities are fully taken into account by the courts and the 
public will continue to see the system as fair and balanced.
    Thank you.
    [The prepared statement of Mr. Simon appears as a 
submission for the record.]
    Chairman Hatch. Thank you, Mr. Simon.
    Mr. Kamen, we will turn to you.

STATEMENT OF DEAN KAMEN, PRESIDENT, DEKA RESEARCH & DEVELOPMENT 
                CORP., MANCHESTER, NEW HAMPSHIRE

    Mr. Kamen. Good afternoon, Mr. Chairman and the other 
members of the Subcommittee. I appreciate having the 
opportunity to speak from the perspective of a small inventor.
    By way of introduction, I really am a small inventor. I 
started my first business inventing in the basement of my 
parents' house. I was building audio-visual systems and then 
started building medical systems products for my older brother, 
who was then in medical school. At the time I started my first 
business, we actually did it all. We conceived it, we designed 
it, we developed it, we manufactured it, we marketed it, sold 
it, serviced it.
    As our medical products company grew, we learned a bunch of 
things, one of which was all of that takes a lot of work. After 
about a decade of doing that, I sold that business to a major 
medical products company in this country and decided that we 
should focus on what we really do well, which is conceive of 
solutions, design them, develop them, make sure they work, and 
then try to align ourselves with large companies that have the 
reach and the scale in terms of manufacturing, distribution, 
sales and support so that our technology could get out to the 
people that need it.
    I started a company to do that 20-some-odd years ago, and 
over that period of time we have built home dialysis equipment 
which is used all over the world, stents and many other kinds 
of products. I think that system works for everybody. We can 
focus on what we do very well. Our corporate partners can get 
these products much more quickly and much more cost-effectively 
to people around the world.
    The only bug in all of that is we turn these things over 
and even though my company now has 180 people working in it, 
since we don't have a brand name, we don't have distribution, 
we don't have manufacturing, what we bring to the table is the 
solutions to these problems broadly represented in patents. It 
is what we have. We are an intellectual property company. 
Almost our entire revenue stream is derived from the royalties 
we get by licensing our partners to be able to make these 
products. I really think it is a win-win-win, and it is what 
the Founders had in mind. Patents were there to encourage 
people to take risks to invent things. We focus on doing 
precisely that.
    Since I only have about two minutes, I guess I would like 
to restrict my remarks then to two issues. One which is sort of 
down in the weeds--and I know a little bit about it because I 
have been recently made a member of PPAC, the Public Patent 
Advisory Committee, in which I have had an opportunity to see 
the patent office from the inside.
    One of my issues then would be to say we have got to make 
sure the quality of patents is kept high. We have heard 
different people talk about staggering numbers, Jon Dudas 
pointing out that they are 400,000-some-odd behind, so to 
speak, in pendency. But, frankly, a problem like that for most 
private companies would be an embarrassment of riches. The 
whole world is now seeing the importance of patents. There is 
enormous growth and demand for these patents.
    That is a problem a lot of companies would like to have, 
but the way a company would resolve that is they would quickly 
grow, put resources to it and hopefully not allow the quality 
of that company's products to suffer as they dealt with this 
great growth opportunity.
    I would urge you--and I heard you say that in your opening 
remarks--to make sure, for instance, that there is no diversion 
of fees away from the patent office, not at a critical time 
like this, but to do everything you possibly can to make sure 
that the quality of patents is kept high, because if there is 
no quality there, there is nothing there. When you hold up that 
patent that you have worked for years and spent millions of 
dollars to develop, it is in everybody's best interest that it 
is a quality product.
    My second issue is speaking not as somebody who knows the 
inside, but just as a citizen, an inventor, not a lawyer, on 
this issue of dramatically weakening the value of patents by 
removing the presumption of injunctive relief. The idea that my 
patent gives me exclusive rights to my own property is pretty 
clear.
    I mean, the Constitution, as has already been pointed out, 
doesn't say I have the right to my idea. I don't need the 
Constitution to give me the right to think. What it gives me is 
the exclusive right to my idea so that after I show the world 
what it is, they still, for a limited period of time, need to 
come to an agreement with me to exploit it. If we eliminate my 
capability to give an exclusive right to my invention to my 
partners, it will be very difficult to get investors or large 
corporations to invest the time and money, many times millions 
of dollars, in developing new products if they are being asked 
to uniquely invest in these ideas, but in the end they don't 
get a unique and exclusive license to it.
    If we take away the right to prevent other people from 
exploiting our technology, a patent would be nothing but an 
empty promise, and I hope that that doesn't happen because I 
think we all know that intellectual property and investment in 
it are what drive this economy. And in the next century, they 
will be the primary driver of the economy of the United States.
    Thank you.
    [The prepared statement of Mr. Kamen appears as a 
submission for the record.]
    Chairman Hatch. Thank you.
    Mr. Armitage, welcome back to the Committee. We are glad to 
have you here.

  STATEMENT OF ROBERT A. ARMITAGE, SENIOR VICE PRESIDENT AND 
 GENERAL COUNSEL, ELI LILLY AND COMPANY, INDIANAPOLIS, INDIANA

    Mr. Armitage. Chairman Hatch, I am delighted to be back. 
Senator Leahy, thank you very much for allowing me to appear 
here today.
    Dean Kamen gave a very impassioned speech and relatively 
preempts the first part of what I was going to say. We had a 
chance to talk very briefly before the hearing began and I 
discovered that he and I are partners, unbeknownst to me.
    One of his pumps was a pump that is used in one of our 
high-tech insulin devices, and the ability to marry a high-
technology delivery system with a high-technology insulin 
product literally changed the lives of patients who use our 
drug. I know this because one of my first experiences as a 
Lilly employee was practically being tackled by one of our 
patients at an evening reception telling me how much her life 
had changed.
    So, Mr. Kamen, thank you.
    I want to address perhaps three areas. I would like to talk 
a little bit about what I think the highest priorities are for 
patent reform. One area is I would like to provide a cautionary 
flag on a reform that I really do believe is important and 
desirable, and then there really is one area where I need to 
ask the Committee to proceed with great caution before making a 
change to the patent system.
    Because this last area is the one of most importance to the 
pharma-biotechnology industry, I would like to begin with it 
first, and that deals with the issues of injunctions and 
damages. As you have heard, Congress is being asked to consider 
whether to deny an injunction to the owner of a valid patent 
who can't make an affirmative showing that he has been 
irreparably harmed. Also, the proponents, BSA, of this proposal 
have paired it with a second one that would impact the 
provisions in the patent statute that guarantee the patent 
owner the right to adequate compensation when a valid patent 
has been infringed.
    Lilly would urge Congress to take these two proposals off 
the patent reform table. Congress simply should not compromise 
on the principle that absent some overarching public interest, 
demonstrating ownership of a valid patent property right should 
be the only showing needed to stop someone from trespassing on 
that right. In a similar vein, no owner of a valid patent 
should be denied adequate compensation when a valid patent has 
been shown to have been infringed.
    I would now like to just raise a couple of cautionary 
flags. You are being asked to consider a new post-grant review 
procedure for issued patents beyond the two such procedures 
that are already in the patent statute. This perhaps is the 
most important reform of all the reforms that we have been 
talking about today.
    However, experience in other countries should provide some 
sobering realities. In Europe, oppositions cost enormous 
amounts of money and can take years and years to conclude. 
Their system clearly is not a model for our emulation.
    The new capabilities that the office will need to implement 
these oppositions could be staggering. If you just assume that 
1 percent of patents will be opposed, which is far fewer than 
the percentage of oppositions you see in countries outside the 
United States, it could perhaps take years for the Patent and 
Trademark Office to assemble a cadre of experienced 
administrative patent judges who would be able to efficiently 
handle these procedures.
    Also, Lilly has been at the forefront of support for 
creating a nine-month window for post-grant oppositions, and it 
is clear to us that it will be a huge challenge to get a nine-
month post-grant opposition window law done just right. 
However, the proponents have much more ambitious proposals that 
wouldn't limit the right to seek an opposition to just this 
nine-month window. We frankly see no possibility that giving 
the patent office expansive jurisdiction over all issued 
patents potentially at any time in their life could possibly 
make sense at this juncture.
    As a last point, there really is no other country in the 
world that attempts to couple a post-grant opposition system 
with the complexities we now have in our law as a result of the 
``first to invent'' principle, and indeed it is far from clear 
that unless we are prepared also to move to a ``first inventor 
to file'' system that a post-grant opposition system here could 
be successfully implemented.
    Now, let me move on to the top areas that I see for patent 
reform and suggest that we may rally around Director Dudas' 
call for reforms that make the work of the patent office 
easier. In this respect, I would suggest we look at four areas.
    One, of course, is the ``first inventor to file'' reforms 
that eliminate the need you have heard about today for the 
office to consider invention date proofs and conduct patent 
interferences. Second are the other best practices reforms that 
would eliminate other tests or conditions for patentability 
that also make the work of the office more difficult.
    Third, we need to rein in the inequitable conduct defense, 
which in Director Dudas' statement is quite clearly responsible 
for a lot of the defensive patent prosecution practices that he 
bemoans and that make the work of the office more difficult. 
Fourth, it truly is important for Congress to find a way to 
stop continuing application abuse. They are now about a third 
to a quarter of all the work in the patent office.
    The time is right for reform, and from our point of view we 
are just delighted to be here providing our perspective and 
hoping to be able to work with all the constituencies to move 
this process forward.
    Thank you.
    [The prepared statement of Mr. Armitage appears as a 
submission for the record.]
    Chairman Hatch. Thank you, Mr. Armitage.
    Mr. Kirk, we are always happy to have you here. We will 
take your testimony.

  STATEMENT OF MICHAEL K. KIRK, EXECUTIVE DIRECTOR, AMERICAN 
    INTELLECTUAL PROPERTY LAW ASSOCIATION, WASHINGTON, D.C.

    Mr. Kirk. Thank you, Mr. Chairman and Senator Leahy. I am 
pleased to have the opportunity to present the views of AIPLA 
on the need to improve the U.S. patent system. My complete 
statement sets forth the convergence of the recommendations by 
the Federal Trade Commission, the National Academy of Sciences 
and AIPLA for addressing this need and the proposals that AIPLA 
has developed based on these recommendations.
    These proposals were explained to stakeholders across the 
country in three town hall meetings cosponsored by NAS, FTC and 
AIPLA, and we refined our proposals to reflect the input that 
we received following these town meetings. There will be a 
fourth meeting in June of this year here in Washington to wrap 
up this proposal and further attempt to educate and involve all 
stakeholders.
    On the basis of this effort--and I must say, being last, 
there is a certain amount of repetitiveness, but I will try not 
to dwell on this--we believe that a coordinated and 
interrelated set of reforms should be made to the patent 
system; adopt the ``first inventor to file,'' we have heard; 
eliminate the subjective elements of patent litigation, as 
President Levin said earlier and Mr. Armitage just said; 
complete the desirable legislative enhancements in the American 
Inventors Protection Act, that is mandate the publication of 
all applications at 18 months; and, finally, adopt a fair and 
balanced post-grant opposition system that takes advantage of 
the elimination of the subjective elements in patentability 
criteria that follow the elimination of a ``first to file'' 
principle.
    AIPLA would like to highlight the most fundamental problem 
in need of a solution. Of course, you, Mr. Chairman, are well 
aware of this, and that is the urgent need for adequate and 
stable funding for the PTO. Both NAS and the FTC agreed with 
the user community on this crucial point, as pointed out 
earlier this afternoon. The reforms that AIPLA and others are 
proposing will require that the USPTO play a greater role in 
the overall patent system, a role it cannot play unless 
adequately funded.
    Let me turn now to a few of the other reform proposals 
mentioned today, if I might. First, perhaps of most concern to 
AIPLA is the proposal to preclude a court from granting a 
permanent injunction for a valid and infringed patent. AIPLA 
believes that this proposal would essentially destroy the 
exclusivity of patents, as suggested by Dean Kamen earlier.
    This impact is going to be especially hard, in our opinion, 
on universities and independent inventors, who already face 
great difficulty in getting their patent inventions 
commercialized. It would be extremely unfortunate also 
internationally for the United States to suggest that there may 
need to be no exclusivity for inventions that aren't worked in 
the local marketplace. I spent a lot of my first career 
traveling around the world to fight against this, and this 
would be a suggestion we feel that would move in this 
direction.
    We do believe that there are opportunities for addressing 
some of the concerns that have been expressed by BSA or others. 
Whether or not these will be to their satisfaction remains to 
be seen. For example, where a court refuses to stay a permanent 
injunction pending an appeal, there may be some room to think 
about alternatives here. However, we strongly believe that a 
valid and infringed patent should enjoy exclusivity.
    Another proposal discussed today was the abusive use of 
continuations. We believe that it is appropriate to consider a 
targeted solution to these truly abusive practices. However, 
the solutions that we have seen to date in proposals are too 
draconian. They would deny any possibility of broadening claims 
before applicants will even have received the results of an 
examiner's search of the claimed invention to know what scope 
of claims they might be entitled to receive.
    In the effort to deal with a few bad and indeed abusive 
actors, we believe that these solutions that we have seen would 
unfairly preclude the legitimate efforts of most inventors to 
obtain the full measure of protection for their inventions 
which they deserve.
    It has also been mentioned that there is a proposal to 
limit damages. This is the situation where a small component of 
a larger machine is patented and found to be infringed. It is 
proposed that somehow this is resulting in damage awards that 
are out of proportion to the value of the small patented 
component.
    We understand that there are cases that may go in this 
direction, but also there are many situations that are 
addressed in current case law. One of the written statements 
earlier mentioned the Georgia Pacific case where there are 15 
factors that courts routinely consider, and there have been 
cases where the courts have taken these factors and addressed 
cases to properly balance the award, be it on the entire value 
of the product or be it limited to the specific component. This 
has occurred also in cases where the component was actually 
claimed in the patent as part of an overall, entire product, 
and courts have been able to look at this and deal with this. 
So we are concerned that we not unfairly and unnecessarily 
limit the value-added to these damage awards.
    Finally, there is a proposal that we have seen that would 
reverse the decision of the Federal Circuit in Eolas 
Technologies and the Regents of the University of California v. 
Microsoft. This proposal would limit the definition of the term 
``component,'' as used in Section 271(f) of the patent statute, 
to a tangible item that is itself physically combined with 
other components of the patented combination.
    It is argued that this interpretation creates an incentive 
to move software development outside the United States. 
Assuming there is evidence to support this, one might ask 
whether or not the Eolas case would have similar consequences 
for tangible components; that is, should we, in fact, revisit 
271(f) entirely and should it now be repealed in light of 
today's trading situation around the globe?
    I thank you for the opportunity to present the views of 
AIPLA and I would be happy to attempt to answer any of your 
questions.
    [The prepared statement of Mr. Kirk appears as a submission 
for the record.]
    Chairman Hatch. Well, thank you so much. We appreciate this 
whole panel. It has been very interesting for us to listen.
    Mr. Kamen, let me just start with you. I always salute 
successful people who take the time and make the effort to give 
back to society.
    Senator Leahy. I think, Mr. Chairman, we should have both 
come in on a Segway here.
    Chairman Hatch. Yes, that right.
    Senator Leahy. The last time I saw him, we were riding them 
together.
    Chairman Hatch. Well, I was able to ride one of those 
pretty well. I liked that a lot, I will tell you. We need 
Segways for every Senator to get back and forth to the floor. I 
think it would be very helpful to us. We would probably be 
rolling over people, though, knowing some of the people around 
here and how athletic they are.
    Tell us what you were doing in Atlanta this weekend. You 
are a person who does give back.
    Mr. Kamen. This weekend, I had the final event--and by the 
way, Senator, you are going to get homework out of that event. 
I met three teams from your State who said they are determined 
to have one of our events next year in Utah. I told them to 
personally get to you as quickly as they could.
    Chairman Hatch. I am surprised you haven't come to Utah. We 
have more patents than any State in the Union, you know, and it 
is a nice atmosphere.
    Mr. Kamen. Well, these three teams are going to send you 
some pictures and some great memorabilia.
    We run a program, a non-profit, that tries to convince 
students while they are still making career choices that 
science and technology and engineering are every bit as much 
fun and accessible and rewarding as what are typically put in 
front of most kids these days, the world of sports and 
entertainment.
    In order to compete with sports and entertainment with our 
program, we make it a very exciting sporting event. We have 
grown to the point that we have a 1,000 high schools around the 
country competing in 30 cities, and that happened throughout 
each weekend in March. We took over the home of the 1996 
Olympics, the Georgia Dome, in Atlanta, this weekend and about 
30,000 engineers, 1,000 corporate sponsors behind them, and all 
of these high school students showed up to be in this robotics 
competition, in which what they are really doing is learning 
how much fun and excitement and reward there is for kids that 
will put passion into thinking and creating and problem-
solving.
    I can also tell you that I asked the Director of the United 
States Patent Office to show up there and convince these kids 
that they are his next generation's customer, and he did an 
extraordinary job, I think, of energizing all these kids about 
the prospects of being inventors and carrying the tradition of 
the United States as a world leader in technology forward.
    I had one other speaker who might be relevant to the patent 
office. I convinced Larry Page, one of the founders of Google, 
to come out, and he stood on stage and pointed out to these 
kids that his company which he started in college has now got a 
market cap of $50 billion. He doesn't make anything that is 
physical. He is an intellectual property company. I think he is 
a poster child for that. These kids certainly responded to 
that. It was a great event. I hope that we will have events in 
Utah next year. I thank you for asking.
    Chairman Hatch. I hope so, too. Thank you.
    Let me just ask this. While it appears that there are many 
issues upon which there is consensus for patent term reform, 
one area in which there appears to be substantial disagreement 
is with respect to changing the standards for injunctive relief 
under the Patent Code.
    I see that BSA and AIPLA and Mr. Kamen have different 
positions on this issue. Before the Congress chooses an option, 
should it do so, it would be helpful for us to more fully 
understand not just your respective positions, but your 
respective interests. So please help us define the issue and 
why it is important to your various industries and tell us 
where you find mutual interests and where you find conflicting 
interests.
    We can just start with Mr. Parker, if you would care to 
respond. You don't have to respond, but anybody who cares to, 
from our left to my right.
    Mr. Parker. Thank you. I think the comments that Dean Kamen 
made on injunctive relief are pretty universal among individual 
inventors and small entities. By the time you have a patent, 
you have worked very hard. You have risked a lot both 
personally and in your finances and in your time and in your 
energies.
    It might be the one invention that you have made that will 
eventually make some money. You need to have every tool in the 
toolbox to be able to prevent someone from infringing that and 
you be able to recover your rights that you have lost from an 
infringer. And having strong injunctive relief is the answer to 
those problems.
    Chairman Hatch. Thank you.
    Mr. Poppen.
    Mr. Poppen. Well, Micron finds itself on both sides of this 
issue. We are both patent plaintiff and patent defendant in 
some circumstances. So we come at this understanding that it 
could impact us on both sides. The reason that we focused on it 
in our comments is that it is one of the most critical issues 
to us that we see on a day-to-day basis in real-world 
situations.
    There is a model that is developing that Mr. Simon referred 
to of essentially professional patent predators who are buying 
patents and exploiting them against manufacturers. The one 
thing that they point to, and increasingly publicly so, is the 
benefit that they enjoy of the threat of an injunction.
    For businesses like Micron and Intel and others, ultimately 
at the end of the day we need to advise our CEOs as to whether 
we can litigate a patent even when we think that it is a patent 
of little substance. We are faced with the prospect of saying 
if we lose here, we face a virtually automatic injunction.
    I think it is important to note that what we are really 
asking is for the statute to be returned to where it started. 
The statute itself, the existing Section 283 injunction, in 
fact, calls for weighing principles of equity. Over time, that 
has evolved into essentially skipping that step and saying that 
it is automatic.
    The other thing that I think is worth noting is that this 
isn't to say that in most circumstances an injunction wouldn't 
be appropriate or wouldn't be available. All that it says is 
that in appropriate circumstances you weigh the equities. If, 
for example, it is a licensing outfit that all they do is 
license their technology to a number of different companies, 
they clearly are in the business of collecting royalties. It is 
very clear that there is no advantage to them in shutting down 
a company. What they really want to do is use that as a lever 
to extract larger dollars than they otherwise would be able to 
if we could fairly litigate the merits of the patent. That is 
why we are in favor of the change to the injunction statute.
    Thank you.
    Chairman Hatch. Thank you.
    Mr. Simon.
    Mr. Simon. I agree with much of what Mr. Poppen said, but I 
would like to give the Subcommittee a very specific example. A 
few years ago, we were sued by a company over a patent that 
they had acquired for $50,000, and they immediately turned 
around and demanded $5 billion for settlement, saying that--
    Chairman Hatch. Is that million or billion?
    Mr. Simon. That was billion, Senator.
    Chairman Hatch. Billion, with a ``b?''
    Mr. Simon. Yes, $5 billion for settlement, and threatening 
us with, you know, we will just take it to trial and we will 
get an injunction and we will shut you down and then you will 
have to pay us the $5 billion.
    Fortunately, we have happened in that case to be in a forum 
where we had a judge who would consider summary judgment on 
some very complex technology. We thought we were in a very good 
position. We won that case. Summary judgment was affirmed.
    However, there are many fora in this country where there 
are judges unfortunately who are hesitant to grant summary 
judgment, and even some where they refuse to grant summary 
judgment in patent cases. There are some forums where there has 
been, for example, a track record, over 8 years, 50-some-odd 
cases with plaintiff verdicts and no defense verdicts. It makes 
it very hard, when you are looking down the barrels of an 
injunction, to take the case to trial.
    It is very hard to go to your management and say I have got 
billions of dollars in factories at risk that could potentially 
be shut down. And they say to you, well, how often has the 
defendant prevailed in this forum, and you say, well, in the 
least eight years, Mr. Chairman--it is a different chairman, by 
the way--zero. That is why this is the most important issue for 
Intel and this is the most important issue for the Business 
Software Alliance members.
    Thank you.
    Chairman Hatch. Thank you.
    Mr. Kamen, we know your point of view, but if you would 
care to say anything about this.
    Mr. Kamen. I would just say that I would be totally 
sympathetic to eliminating bad actors. Bad actors in any field 
hurt all the good actors. There are people taking steroids in 
baseball and I know that the Senate is considering what to do 
about that, but I haven't heard them talk about shutting down 
the national pastime of baseball. They go after the people who 
take the steroids. They don't destroy the game.
    Chairman Hatch. We have come close a few times, I have to 
say.
    [Laughter.]
    Mr. Kamen. Well, I would simply tell you that taking away 
the right of the owner of a piece of property--and know you 
have put the preface ``intellectual'' property, but unless that 
word ``intellectual'' is supposed to make it sub-standard or 
less important than any other kind of property--and I think, 
quite the contrary, in the future it will be the important--
after a person has worked to develop that property and has a 
valid patent, and after somebody has had the right and 
opportunity in the courtroom to challenge it and loses, and 
only after they lose, the person who has gone through all of 
this that has this piece of property should have the right to 
use it or dispose of it as they see fit, as we do with any 
other property.
    Anything that changes that essentially is equivalent in a 
patent system to compulsory licensing, which this country has 
rejected at every opportunity it can on a global scale. I think 
we should go after the problem and we should not wipe out a 
system that for 200 years has made us the envy of the world.
    Chairman Hatch. One of the problems is the court system. 
When you have a hundred percent granting of injunctive relief, 
even the most serious plaintiff's lawyer would have to 
acknowledge that that might not quite be kosher. So I can see 
the problem here. The question is how do we solve it.
    Mr. Armitage.
    Mr. Armitage. I am in the pharmaceutical business, so I 
won't use the sports analogy, but I will use another analogy. I 
have tried to listened carefully to the BSA and I have 
concluded that there probably is a cancer on the patent system, 
but you don't get credit for killing off the cancer by killing 
off the patient.
    The issue you have is are you going to kill off 
intellectual property as a property right. It is recognized 
under the Fifth Amendment as a property right. Congress needs 
to take that under consideration under the Takings Clause if it 
is going to affect any of the patents that are going to affect 
Business Software Alliance companies during the next decade.
    But what is the cancer rather than the patient? I think the 
cancer we are talking about is patents commanding intimidation 
rather than patents commanding respect. Patents ought to 
command respect, but they ought not to be so intimidating 
because of the way the legal system works that you can't afford 
the business risk of taking on a potentially bad patent and, if 
need be, wrestling it to the ground. I think the dilemma we 
have is that we are not talking to each other about the cancer. 
We are talking about the future of the patient.
    I don't want to prolong this discussion, but I just came 
back from a trip to India where I sat down with a senior 
government official who told me that the Indian parliament had 
just passed a law that would stop us from enforcing some of our 
patents, but that was okay because we could go to the patent 
office and they would give us reasonable compensation, probably 
a couple percent of the selling price of the generic versions 
of our medicine.
    You can do a quick mental calculation and realize that 
royalty stream, if we invested it entirely in innovative 
medicines, wouldn't be enough money to fund our Indianapolis 
research labs long enough to come up with a new medicine before 
the next ice age is likely to freeze them over. So my only plea 
would be it may be that there are some industries for which it 
is okay for patents not to be property rights. The 
pharmaceutical and biotechnology industries are not such 
industries.
    Chairman Hatch. Thank you.
    Mr. Kirk.
    Mr. Kirk. Senator Hatch, the AIPLA is made up of attorneys 
from corporations and private firms. About a third of our 
members are corporate attorneys; two-thirds are private 
attorneys. We have discussed the issue that is before us here 
and our corporate attorneys have not been able to be 
sympathetic to the proposal that is being advanced by BSA. They 
believe that a company can adequately protect itself by looking 
at what is coming out of the patent office, by investigating 
the validity of the patents.
    If, in fact, it is going to impinge upon one of their 
operations--and many of these companies have large, complex 
machines like, for example, Kodak, Xerox. If these companies 
see something coming, they either will reengineer, which 
advances the progress of the useful arts because we now have 
perhaps new inventions, or they will affirmatively go forward 
and seek a license.
    Looking it at from the standpoint of the smaller inventors, 
however, small businesses and/or universities, we believe that, 
as Mr. Armitage said, this really is killing the patient to go 
after a few bad actors. We are certainly not against trying to 
address the problems that BSA has identified with the bad 
actors. We think this, though, is the wrong solution.
    Chairman Hatch. Thank you. My time is way over.
    Senator Leahy.
    Senator Leahy. I think these are important questions, and 
as I mentioned to you, I certainly have no objection to the 
actual time.
    As some of you noted, I have had to go in and out a couple 
of times because of another matter that is going on. The other 
matter is work. This is the part that is really interesting, so 
I appreciate that I could come back.
    I want to tell Bill Parker how pleased I am that he came 
down. Was it 1997 the last time you were before our 
microphones? Does that seem about right?
    Mr. Parker. I think that is about right.
    Senator Leahy. Eight years ago. Time goes by.
    Mr. Parker. It sure does.
    Senator Leahy. You were extremely helpful then and you are 
extremely helpful today. I appreciate you coming here. Your own 
perspective is as a small inventor, not just by being a 
Vermonter, but being a small inventor. But I think you are 
typical of many of the small inventors we have not only in our 
State, but in the other 49 States. As you know, some of those 
inventions end up being major factors in our commerce 
throughout the country, as Mr. Kamen and others have noted.
    In your written testimony, you mentioned that moving the 
U.S. to a ``first of file'' standard is basically a good idea, 
but raises some concerns for the smaller inventors. Obviously, 
this is going to be one of the issues we are going to facing 
here, this ``first to file.'' If you were sitting in those 
discussions, what are some of the things you would tell us to 
watch out for?
    Mr. Parker. Thank you for bringing that point up. The 
``first to file'' has harmonization aspects to it that are 
positive. It has aspects of reducing some of the uncertainty 
about the pedigree of an invention. Some of those issues could 
be solved at a later date, for example, with a post-grant 
review process.
    But, overall, I think the major differences, as I see them, 
are how that will affect the small inventor over the large 
inventor. In the final analysis, it all comes down to money. 
There are a lot of activities that occur in getting a patent 
cued up that drain an inventor. To think that they have time 
against them as well is a difficult proposition. And as many 
advantages as a small inventor can have, he needs.
    Certainly, the provisional patent application process has 
helped to get an idea written down and into the patent office 
in a way that starts the clock. That certainly should be 
maintained, and any allowances that come out of the post-grant 
review for an argument to be finally sealed against an 
invention being valid should be considered also in a timely 
manner. I think it has been discussed a year, possible longer 
for that process.
    I think we are more likely to see the small inventor run 
out of money by the time that process is over, if they have an 
active participatory role in the review, so shortening that or 
making it as inexpensive as possible for the small inventor to 
participate.
    So to get to the heart of the question of the first to 
file, it is a major change in the way that inventors, 
particularly small inventors, would be going about their 
business, and there should be as many safeguards to protect 
them and level the playing field, if that is possible, if we go 
to that system.
    Senator Leahy. Thank you. You talked about the quality of 
the patents issued by the PTO. Certainly, we are all worried, 
and PTO is worried about it, the sudden huge numbers and how 
you keep up the quality.
    What about permitting third parties to provide prior art to 
the patent examiners as they are examining a patent 
application? Would that help a small investor or would it make 
any difference one way or the other--a small inventor, I meant, 
not a small--well, a small investor, small inventor. Sometimes, 
a big investor is a small inventor.
    Mr. Parker. Yes. Very often, the small inventor is also the 
small investor in their own ideas. The entrepreneur is really 
the life that they are living at that point. They are taking 
all the risks from both sides, an emotional risk as well as a 
financial risk.
    To have third-party involvement sounds like it is fraught 
with a few difficulties with bringing ideas that have been very 
carefully kept by the inventor to themselves. They are sharing 
it only with the Patent and Trademark Office. They are only 
sharing it with others in a non-disclosure agreement. They are 
doing everything they possibly can to keep those ideas private. 
To bring in a third party that is now going to be looking over 
the shoulder of the examination process has those issues of 
confidentiality.
    For a patent examiner to do their job well, they should 
have as many resources as they can, including consulting with 
experts, but not at the cost of the confidentiality that is 
expressed in a relationship they have with the inventor.
    Senator Leahy. You don't think they could write 
confidentiality agreements that could protect all the parties?
    Mr. Parker. Well, that is done today in many cases with the 
belief that a non-compete or a confidentiality agreement will 
be capable of protecting the holder of the intellectual 
property. Business works on that principle everyday. We 
probably sign two or three non-disclosure agreements a week 
that we believe are going to act to protect both parties in the 
business transaction.
    At the scale that we are working with, going to a patent 
with a non-disclosure agreement as a form of protection for the 
inventor--I am not sure that that system is robust enough, nor 
has it been tested, but it certainly is worth reviewing. It is 
one of the many ideas that need to come forward in this 
process. There has to be perhaps some inventing of a new system 
based on not just taking old principles and reworking them, but 
coming up with some really new ideas. The world and its 
intellectual property value is changing. It is an exploding 
market for ideas and we are no longer at the tip of that spear. 
We have many others that we need to bring to the table in that 
process.
    Senator Leahy. Thank you. I have some other questions and I 
may write to you after this hearing to continue on.
    Mr. Simon, you touched on this in the questions and all, 
but one of the concerns about current patent law is the threat 
of a court-ordered injunction that prohibits a company from 
selling products that are in dispute in patent cases.
    When I think of Intel, some of your products can be 
cutting-edge today and can be outdated two years from now. I 
shouldn't say outdated, but you are constantly changing them. 
So the idea of having a product taken off the market for maybe 
a year or so while you litigate it is a great problem. On the 
other hand, if somebody has a legitimate complaint, they are 
looking for an injunction because they wouldn't want you--and I 
mean you generically--to be going and getting that market share 
that they will never get back.
    So what do you suggest? How do you get the balance? I mean, 
suppose, for example, your company sees somebody going out for 
a product and you think you have a good argument that it is 
infringing and you want an injunction. On the other hand, you 
also face the problem that somebody may have an injunction, and 
they may have a legitimate injunction and they may have one, 
however, because they want to negotiate a settlement. How do 
you work your way out of this?
    Mr. Simon. Well, first of all, to be clear, we are not for 
the elimination of injunctions in patent cases. I just want to 
be clear on that point. Rather, what we are for is the 
application of equitable principles to the determination of 
whether it is appropriate for the injunction to be granted.
    From our perspective, you have to look at the situation. If 
you have somebody who has developed something, pushed it, 
worked hard on it and is seeking an injunction, that might be 
the appropriate thing for a court do in the circumstances. On 
the other hand, if you have somebody who went into bankruptcy 
court and paid $50,000 to buy a patent and then is turning 
around and using it for a litigation business, that might be a 
case where a court would say maybe I shouldn't be granting an 
injunction. We think it should be dealt with on equitable 
principles. That is what the statute says and we think that 
that is the best solution for the problem.
    Senator Leahy. You said also in your testimony that 
software companies have to develop their products around other 
inventions that may be of dubious quality so you don't have 
litigation. Can you give me some examples of what you believe 
to be non-obvious software patents that have been asserted and 
forced software makers to react in that way?
    Mr. Simon. Well, other than the over a thousand that we own 
personally--
    Senator Leahy. I have heard the anecdotal, but can you 
think of some specifics?
    Mr. Simon. Software patents that are non-obvious?
    Senator Leahy. That have been asserted and then forced 
software makers to do this working around inventions of dubious 
quality.
    Mr. Simon. Well, the problem is my colleagues at other 
software companies don't disclose those issues to me, generally 
speaking, or to the extent they do, we are doing it under a 
non-disclosure agreement. For what we do at Intel, we would 
have the same problem. It is an issue. We do look at it. We do 
try to avoid infringement.
    Senator Leahy. What you are saying is you are not about to 
give an example here in this room?
    Mr. Simon. That is correct, Senator.
    Senator Leahy. Well, just say so. Orrin and I are 
reasonable people. We never frighten people, I don't think.
    Mr. Armitage said that the Congress shouldn't change the 
burden of proof at trial for proving a patent is invalid. Mr. 
Poppen in his written testimony disagrees. He says that the 
preponderance of evidence is the standard in granting a patent 
and why shouldn't the same standard be applied in a patent 
challenge?
    Mr. Armitage. I am glad you asked me that question.
    Senator Leahy. I thought you might be. If it is a 
preponderance of the evidence--in my old business as a 
prosecutor, you had to prove it beyond a reasonable doubt, but 
what is wrong with a preponderance of the evidence being the 
standard all the way through?
    Mr. Armitage. Well, we are fair-minded in the pharma-
biotech industry and we don't ask for beyond a reasonable 
doubt. We are willing to settle for clear and convincing 
evidence.
    Senator Leahy. Even though that is more than the original--
    Mr. Armitage. More, though, than a preponderance.
    Senator Leahy. It is more than what was required before to 
get the patent.
    Mr. Armitage. No, no. I mean, the current standard and the 
standard traditionally applied to patents in litigation has 
been clear and convincing evidence to invalidate a patent.
    Senator Leahy. I understand, but it took preponderance of 
the evidence to grant the patent.
    Mr. Armitage. Right.
    Senator Leahy. But you want more at a trial to prove the 
patent is invalid.
    Mr. Armitage. That is correct, and the reason for that--and 
maybe I will give you a couple of answers, but one has to go 
the pharmaceutical and biotechnology industry and I will just 
take the situation where we are going to buy some technology 
from a small company and they have invested a huge amount of 
money. We may invest another $2 or $300 million and then we may 
invest twice that much money in order to educate and develop 
physicians and educate a market so there is a market for that 
product.
    We want to do that all that today fundamentally, as Senator 
Hatch well knows, on the strength of the patents that we have. 
And if it is tossing a coin in court as to whether that patent 
might or might not be held valid, it makes a much more risky 
investment. It makes our partners' portion of that much less 
valuable, and our willingness to pay and our willingness to 
invest that much less.
    So there are industries for which patents are so important 
that it is absolutely critical, if they have gone through a 
rigorous process in the patent office and been found valid, 
that we have a patent that can be respected, not that 
intimidates, but can be respected.
    Let me just say, as we talk about crafting a post-grant 
opposition system, we are talking about many proposals, notably 
the proposal of AIPLA. Also, the American Bar Association's IPL 
section has a proposal that would say that in the post-grant 
opposition proceeding it would be only a preponderance of the 
evidence that the opposer would need to show.
    Now, particularly if Congress were to take that step and 
not only have the patent office do a quality, rigorous 
examination, but allow an opposer to come in early within a 
nine-month window under a preponderance of the evidence 
standard, then it is absolutely to me categorically clear that 
a patent owner going through the trauma of examination and the 
rigors of an opposition ought to be able to bank on that patent 
in the courts and ought to have someone, if they wish to come 
later and challenge, come with clear and convincing evidence as 
to why that property right should be taken away.
    Senator Leahy. I think I understand your answer. I am going 
to submit questions to Mr. Kirk, but I suspect Mr. Poppen may 
want to say something.
    Mr. Poppen. I will be very brief. I think from our 
perspective if you talk about preponderance of evidence, it is 
a little different than saying flipping a coin. The reason for 
that is the realities of litigation are that the plaintiff, 
whether it is Micron or Intel or anyone else for that matter, 
has the opportunity to hold up a patent with a ribbon on it and 
say this was blessed by the patent office.
    They also enjoy a presumption of validity. When you think 
about the realities of the patent office and the process, 
including the process that you mentioned that it issues based 
on a preponderance of evidence, what we are really saying is no 
matter what you do in the patent office, they will never be 
perfect.
    To give a patent owner the advantage in litigation of being 
able to say it is presumed valid--all we are saying is the 
defendants really ought to be able to then take on the validity 
of that patent in a fair way. The reality is, as Mr. Simon 
mentioned, there are jurisdictions where jurors have a hard 
time taking on the patent office because based on the 
presumption and the level of proofs, they have a very difficult 
time thinking that the patent office ever makes a mistake with 
respect to a patent, including in situations where they don't 
have all the art in front of them. So the idea of a change in 
standard is really to give some fairness to the fight over 
whether the patent ought to be valid or not.
    Thank you.
    Senator Leahy. Thank you, Mr. Chairman. I will submit the 
rest of my questions for the record. And, of course, everybody 
is going to have a chance to add in anything they want to, 
having heard everybody else's testimony. But I applaud you for 
having this hearing, Mr. Chairman. I think it is a good idea.
    Chairman Hatch. Well, thank you, Senator Leahy.
    We will keep the record open for questions until the end of 
this week, and we hope you will assist here because this is 
important stuff and we don't want to make any mistakes, or at 
least we don't want to make the usual mistakes. We will put it 
that way. But we can use a lot of help here and we surely think 
it is time to resolve some of these problems, and hopefully 
with your help we will be able to do so.
    We are very grateful to have all of you here to take this 
kind of time to spend with us, and we will do our very best to 
try and sift through all of these problems and come up with 
patent reform that will be hopefully beneficial to everybody 
concerned.
    With that, I am going to come down and say hello to all of 
you, but we will adjourn until further notice.
    [Whereupon, at 3:53 p.m., the Subcommittee was adjourned.]
    [Submissions for the record follow.]

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