[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]


 
                     AMERICAN INNOVATION AT RISK: 
                       THE CASE FOR PATENT REFORM

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

                                HEARING

                               BEFORE THE

                 SUBCOMMITTEE ON COURTS, THE INTERNET,
                       AND INTELLECTUAL PROPERTY

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION

                               __________

                           FEBRUARY 15, 2007

                               __________

                            Serial No. 110-8

                               __________

         Printed for the use of the Committee on the Judiciary


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


                                 ______

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                       COMMITTEE ON THE JUDICIARY

                 JOHN CONYERS, Jr., Michigan, Chairman
HOWARD L. BERMAN, California         LAMAR SMITH, Texas
RICK BOUCHER, Virginia               F. JAMES SENSENBRENNER, Jr., 
JERROLD NADLER, New York                 Wisconsin
ROBERT C. SCOTT, Virginia            HOWARD COBLE, North Carolina
MELVIN L. WATT, North Carolina       ELTON GALLEGLY, California
ZOE LOFGREN, California              BOB GOODLATTE, Virginia
SHEILA JACKSON LEE, Texas            STEVE CHABOT, Ohio
MAXINE WATERS, California            DANIEL E. LUNGREN, California
MARTIN T. MEEHAN, Massachusetts      CHRIS CANNON, Utah
WILLIAM D. DELAHUNT, Massachusetts   RIC KELLER, Florida
ROBERT WEXLER, Florida               DARRELL ISSA, California
LINDA T. SANCHEZ, California         MIKE PENCE, Indiana
STEVE COHEN, Tennessee               J. RANDY FORBES, Virginia
HANK JOHNSON, Georgia                STEVE KING, Iowa
LUIS V. GUTIERREZ, Illinois          TOM FEENEY, Florida
BRAD SHERMAN, California             TRENT FRANKS, Arizona
ANTHONY D. WEINER, New York          LOUIE GOHMERT, Texas
ADAM B. SCHIFF, California           JIM JORDAN, Ohio
ARTUR DAVIS, Alabama
DEBBIE WASSERMAN SCHULTZ, Florida
KEITH ELLISON, Minnesota
[Vacant]

            Perry Apelbaum, Staff Director and Chief Counsel
                 Joseph Gibson, Minority Chief Counsel
                                 ------                                

    Subcommittee on Courts, the Internet, and Intellectual Property

                 HOWARD L. BERMAN, California, Chairman

JOHN CONYERS, Jr., Michigan          HOWARD COBLE, North Carolina
RICK BOUCHER, Virginia               TOM FEENEY, Florida
MARTIN T. MEEHAN, Massachusetts      F. JAMES SENSENBRENNER, Jr., 
ROBERT WEXLER, Florida               Wisconsin
MELVIN L. WATT, North Carolina       ELTON GALLEGLY, California
SHEILA JACKSON LEE, Texas            BOB GOODLATTE, Virginia
STEVE COHEN, Tennessee               STEVE CHABOT, Ohio
HANK JOHNSON, Georgia                CHRIS CANNON, Utah
BRAD SHERMAN, California             RIC KELLER, Florida
ANTHONY D. WEINER, New York          DARRELL ISSA, California
ADAM B. SCHIFF, California           MIKE PENCE, Indiana


                     Shanna Winters, Chief Counsel

                    Blaine Merritt, Minority Counsel


                            C O N T E N T S

                              ----------                              

                           FEBRUARY 15, 2007

                           OPENING STATEMENT

                                                                   Page
The Honorable Howard L. Berman, a Representative in Congress from 
  the State of California, and Chairman, Subcommittee on Courts, 
  the Internet, and Intellectual Property........................     1
The Honorable Tom Feeney, a Representative in Congress from the 
  State of Florida, and Member, Subcommittee on Courts, the 
  Internet, and Intellectual Property............................     3
The Honorable Lamar Smith, a Representative in Congress from the 
  State of Texas, and Ranking Member, Committee on the Judiciary.     5

                               WITNESSES

Mr. Adam B. Jaffe, Professor of Economics and Dean of Arts and 
  Sciences, Brandeis University, Waltham, MA
  Oral Testimony.................................................     7
  Prepared Statement.............................................     9
Mr. Mark B. Myers, Co-Chair of the National Academy of Sciences' 
  Report ``A Patent System for the 21st Century,'' Unionville, PA
  Oral Testimony.................................................    15
  Prepared Statement.............................................    16
Ms. Suzanne Michel, Chief Intellectual Property Counsel and the 
  Deputy Assistant Director for Policy Coordination, Federal 
  Trade Commission, Washington, DC
  Oral Testimony.................................................    20
  Prepared Statement.............................................    22
Mr. Daniel B. Ravicher, Executive Director, Public Patent 
  Foundation, New York, NY
  Oral Testimony.................................................    35
  Prepared Statement.............................................    37

                                APPENDIX
               Material Submitted for the Hearing Record

Prepared Statement of the Honorable Sheila Jackson Lee, a 
  Representative in Congress from the State of Texas, and Member, 
  Subcommittee on Courts, the Internet, and Intellectual Property    83
Prepared Statement of the Honorable Steve Cohen, a Representative 
  in Congress from the State of Tennessee, and Member, 
  Subcommittee on Courts, the Internet, and Intellectual Property    84
Federal Trade Commission Executive Summary, ``To Promote 
  Innovation: The Proper Balance of Competition and Patent Law 
  and Policy''...................................................    85
National Academy of Sciences Executive Summary, ``A Patent System 
  for the 21st Century''.........................................   103
Letter from Coalition for Patent Fairness to the Honorable Nancy 
  Pelosi, Speaker of the House, United States House of 
  Representatives; and the Honorable John Boehner, Minority 
  Leader, United States House of Representatives.................   111


                     AMERICAN INNOVATION AT RISK: 
                       THE CASE FOR PATENT REFORM

                              ----------                              


                      THURSDAY, FEBRUARY 15, 2007

                  House of Representatives,
              Subcommittee on Courts, the Internet,
                         and Intellectual Property,
                                Committee on the Judiciary,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 2:01 p.m., in 
Room 2141, Rayburn House Office Building, the Honorable Howard 
Berman (Chairman of the Subcommittee) presiding.
    Staff present: Perry Apelbaum, Staff Director-Chief 
Counsel; Joseph Gibson, Minority Chief Counsel; Shanna Winters, 
Subcommittee Chief Counsel, Blaine Merritt, Subcommittee 
Minority Counsel; and Rosalind Jackson, Professional Staff 
Member.
    Mr. Berman. It has been 12 years, and I forgot how to do 
this. I have only waited 24 years for this. [Laughter.]
    But I thank you all for coming, and I call to order the 
meeting of the Subcommittee on Courts, the Internet, and 
Intellectual Property.
    Before I begin, I want to apologize to my colleagues for 
holding a hearing when the Ranking Member and a number of other 
Members couldn't be here because they are attending Congressman 
Norwood's funeral. By the time I realized the conflict between 
the funeral and the Subcommittee meeting, it was really too 
late to avoid disrupting the travel plans of the witnesses, so 
I went ahead with it.
    And I do want to thank the witnesses who had to come from 
out of the Washington area for traveling through the snow and 
ice to get here to testify. You are sort of essential to the 
hearing.
    We don't have too many of them here yet, but I want to 
welcome the new Members to this Subcommittee and both 
recognize, in his absence, I am delighted being able to work 
with the Ranking Member, who I got to serve with when he was 
Chair of the Subcommittee several terms ago, Howard Coble, the 
Ranking Member of the full Committee, who I worked with a great 
deal on so many issues over the last years that we have been in 
Congress, including on the issue that is the subject of the 
hearing today, patent reform.
    Also, the vice Ranking Member--is that the right title--
deputy Ranking Member, who is going to be serving as Ranking 
Member at the Subcommittee for this hearing, Congressman 
Feeney, because of Howard Coble's absence.
    I am going to recognize myself and the deputy Ranking 
Member of the Subcommittee for opening statements. And I know 
the Ranking Member of the full Committee, Congressman Smith, 
intends to give a statement, and then any other Members.
    I also want to welcome someone who has been part of this 
Subcommittee since she came to this Congress, but who, at least 
at this point in time, is not on the Subcommittee, for coming 
and participating. As Lamar knows, Congresswoman Lofgren and I 
and the Ranking Member of the full Committee have worked on 
this issue at great length over the past few years, and so it 
is good to have her here.
    Patents are one of the cornerstones of the American economy 
and are the foundation of live-saving drugs and groundbreaking 
technologies. It is beyond dispute that robust patent 
protection promotes innovation.
    However, I also believe that the patent system is strongest 
and that incentives for innovation are greatest when the system 
only protects those patents that are truly inventive.
    When functioning properly, the patent system should 
encourage and enable inventors to push the boundaries of 
knowledge and possibility. If the patent system allows 
questionable patents to issue and does not provide adequate 
safeguards against patent abuses, the system will stifle 
innovation and interfere with competitive market forces.
    The issuance of the one-click patent, the patent for 
standing in line for the bathroom, the patent for a side-to-
side swing, and, my personal favorite, the patent for the 
Fosbury Flop--if anyone is old enough to remember the Fosbury 
Flop--and many others generated concern from industry experts 
on the soundness of our current patent system. While I won't 
opine on the validity of these patents, many have questioned 
whether such patents meet the standard of patentability.
    Therefore, beginning in 2001, in the 107th Congress and in 
each successive Congress, Congressman Rick Boucher and I have 
introduced patent reform bills designed to address the need for 
increasing patent quality. Since our initial attempt at 
bringing this issue to the forefront, a number of people have 
joined in those efforts.
    Over the course of the last 5 years, there have been 
numerous attempts to define the challenges that face the patent 
system today. For example, the PTO developed its 21st-century 
strategic plan. The Federal Trade Commission released a report 
entitled ``To Promote Innovation: The Proper Balance of 
Competition in Patent Law and Policy.''
    Soon thereafter, the National Research Council published a 
compilation of articles about a patent system for the 21st 
century and two economists authored a critique of patent law in 
a book titled ``Innovation and Its Discontents.''
    These experts make a number of recommendations for 
increasing patent quality and ensuring that the patent system 
promotes, rather than inhibits, economic growth and scientific 
progress. I am pleased that some of these experts will be our 
witnesses today.
    The Supreme Court is also recognized the need for greater 
guidance in the patent system and has recently addressed the 
issue of automatic permanent injunctions in eBay v. 
MercExchange and granted certiorari on both the obviousness 
issue in KSR v. Teleflex and the issue of interpretation of 
section 271(f) of the Patent Act in Microsoft v. AT&T.
    While I acknowledge someone deserving patents will 
inevitably slip through the system, I have concerns about a 
number of situations. It is inconceivable that a patent 
application with over 650 claims would receive a cursory 
review, ENTP BlackBerry matter, and it is worrisome that the 
PTO can grant a patent for tax strategy which many claim the 
patent office lacks the requisite expertise to determine 
whether the particular tax business method is novel.
    Therefore, part of any reform to the system begins by 
strengthening the PTO. The PTO has implemented a number of 
quality initiatives and has hired additional staff.
    While the continuing resolution would have diverted close 
to $90 million, we worked with the appropriators to ensure that 
the PTO could keep all of the fees collected. The Subcommittee 
should continue its effort to stop the diversion of PTO fees.
    But we need to look further and address the goals and 
recommendations of the reports I mentioned earlier in an effort 
to improve patent quality, deter abusive practices by 
unscrupulous patent-holders, and provide meaningful low cost 
alternatives to litigation for challenging patent validity.
    Past legislative attempts at achieving more comprehensive 
patent reform have met with resistance and, for one reason or 
another, failed to move out of the Subcommittee.
    Now, however, the call for legislative action is loud. The 
New York Times has noted, ``Something has gone very wrong with 
the United States patent system.'' The Financial Times has 
stated, ``It is time to restore the balance of power in U.S. 
patent law.''
    I intend, with a number of my colleagues, to introduce a 
patent reform bill soon which will have bipartisan and 
bicameral support in addressing some of the more urgent patent 
reform concerns.
    But the notion of this hearing was to start at the 
beginning, explore some of the issues which make the case for 
patent reform. This was not intended as a hearing to get all 
the different interested parties and people directly involved 
in these issues to testify and give their perspective, but, 
given my predisposition, to bring in some people who make the 
case to the Members of the Subcommittee and to the public of 
the need to make that reform a high priority on my agenda.
    I now recognize the distinguished gentleman and deputy 
Ranking Member, the gentleman from Florida, Congressman Feeney, 
for his opening statement.
    Mr. Feeney. I want to thank the Chairman. It is a real 
honor to be here.
    The Chairman said that he waited 24 years to get into his 
position. I have been fighting just for 4 years to get on the 
Subcommittee, but it has felt like 24 years at times because I 
have had a keen interest.
    Having said that, I have only been part of the Subcommittee 
for officially about 9 minutes now, and it didn't take me long 
to weasel my way into the first fiddle chair, and I am looking 
forward to starting at the beginning. [Laughter.]
    It is a great place for a beginner on this Committee to 
start with a wonderful panel.
    I am here today because our good friend, Congressman Coble, 
is at the funeral of Congressman Norwood. And we are very 
grateful that we have colleagues down there representing all of 
us as we send our condolences to the whole family surrounding 
Congressman Norwood.
    I am also delighted that the Ranking Member of the full 
Committee, Congressman Smith, who I expect will be recognized 
in a minute, is here. He has a keen interest and an enormous 
amount of experience in the issue that this Subcommittee is 
interested in, having chaired it for some time.
    Mr. Chairman, we all look forward to working with you, my 
colleagues across the aisle, in both parties, to discuss how 
the patent issuance process can be improved, how patent quality 
can be reinvigorated, and what types of reforms will best serve 
not only to preserve, but to encourage the innovative spirit 
that keeps our economy strong.
    I love reading the Constitution. Because our founding 
fathers understood the vital importance of intellectual 
property rights, they included special protections for them in 
our Constitution.
    Most of my constituents think about property rights in 
terms of their real estate rights. It wasn't until an 
afterthought in the Bill of Rights, in articles 4 and 5, that 
the founders got around to clarifying certain aspects of real 
property rights.
    But right in article 1, section 8, the Constitution states, 
``The Congress shall have the power to promote the progress of 
science and useful arts for securing, for limited times, to 
authors and inventors, the exclusive right to their respective 
writings and discoveries.''
    I have done a quick search of the Constitution. The 
mechanisms that are set out in the Constitution for governance 
of this great country are very clear often. Sometimes they are 
ambiguous and the Supreme Court and others have to resolve 
them.
    But this may be unique, Mr. Chairman. The only place I can 
find, upon a cursory review, where the founding fathers 
actually explained not just what Congress's, in this case, 
power was, but why it was important.
    Now, the president has a veto. The founders never explained 
why that was important. Congress has the right to declare war 
and appropriate, and the founders never, at least in the 
Constitution, explained why those things were important, but, 
obviously, it was near and dear to the founders to express the 
importance of protecting intellectual property rights.
    I won't attempt today to provide an abridged description of 
all of the many topical issues which we are going to find our 
way in dealing with in this Committee in the near future. We 
would be here until after dinnertime if I tried to do that.
    But I would comment on what I believe is the most important 
point in this debate. Different individuals and companies use 
the patent process in different ways and for different 
purposes. They have different business models and they often 
clash.
    This has engendered a discussion on whether too many 
patents of poor quality are circulating in the economy, which, 
in turn, has generated some questionable lawsuit practices 
concerning infringement.
    None of us wants to support a system that rewards legal 
gamesmanship over true creativity and a desire to commercialize 
an invention that will become a great benefit to the American 
people.
    But in our zeal to weed out bad lawsuits, we should not 
proceed on the assumption that every patent-holder who wants to 
license an invention or enforce his or her property rights is 
ill intentioned.
    The drive to innovate and continue fresh, new approaches is 
a standard and time-honored component of the patent system that 
must be protected.
    The topics we will discuss here today have evolved over 
time, as has the contours of the debate have been shaped by 
recent Supreme Court decisions and litigation across the 
country involving patent issues.
    I hope today's hearing will mark the starting point in the 
110th Congress for deliberation on the extent to which 
comprehensive patent reform is required and desirable.
    I am greatly appreciative of the willingness of the panel 
of some distinguished witnesses to be here with us today.
    That concludes my opening remarks. Again, Mr. Chairman, I 
look forward to working with you and all the Members of the 
Subcommittee for the next 2 years.
    And with that, I yield back the balance of my time.
    Mr. Berman. Very interesting, and I thank the gentleman.
    I am pleased to recognize, really, my partner and our 
partner in all of this, the Ranking Member of the full 
Committee, Congressman Smith.
    Mr. Smith. Thank you, Mr. Chairman. Mr. Chairman, first of 
all, thank you for your earlier opening comments.
    And, Mr. Feeney, thank you for your gracious remarks, as 
well.
    Mr. Chairman, I can't stay long today because of an 
impending conflict, but I did want to come by and congratulate 
you on your first hearing as Chairman of this Subcommittee.
    As you know, because we have worked together in the past, 
this is a wonderful Subcommittee, with great jurisdiction and 
great responsibilities, as well, and you are an able leader and 
an able Chairman, and I look forward to continuing to work with 
you on patent reform.
    Let me recall to you a quick conversation we had at the end 
of the last Congress, when you and I had a fairly serious 
discussion about the outcome of the election and you and I 
agreed that one of us was going to have to revise and extend 
our remarks in the next Congress depending on the outcome of 
that election.
    It looks like I am the one revising and extending and you 
are the Chairman of this Subcommittee, and, as I say, 
congratulations to you on that.
    I also want to note, Mr. Chairman, that the interest in 
patent reform continues, witness the number of people in this 
room and the long lines that were standing outside in the hall 
before the doors opened, and that is good to see.
    It reminds me of the times we had hearings and markups last 
year and I think the reason why so many people are here and why 
there is so much interest is because this subject matter is so 
important.
    When we talk about patent reform, we are literally talking 
about the potential to help businesses grow, to help Americans 
prosper, and to help our country remain competitive in the 
world.
    And when we talk about patent reform, though, we are 
certainly talking about any unanimity of agreement. We are 
certainly talking about a bipartisan issue and I consider the 
I.P. Subcommittee to sort of be an oasis on the Judiciary 
Committee, because we are all working, I think, for the same 
goals and that is for better patent quality and, hopefully, an 
expeditious review of those patents, as well.
    Mr. Chairman, one final thought and that is just a little 
bit to paint the picture of the patent reform effort.
    We are literally in our efforts to come trying to help 
everyone from a lone inventor in their garage who has one light 
bulb idea and might get one patent that might involve into a 
small business that employs 20 or 30 people to several high-
tech companies today that actually apply for over 1,000 patents 
every year and all companies and business owners in between.
    But that is the breadth that indicates the importance of 
the issue. And if we are successful in accomplishing that 
patent reform that we have been working on for several years, 
we are going to do a lot of people a lot of good.
    And in those efforts, I do look forward to working with you 
and, again, congratulations on being Chairman of the I.P. 
Subcommittee.
    Mr. Berman. Thank you very much for your nice comments, and 
I look forward to working with you.
    If there is no objection, I would like to get unanimous 
consent to recognize our colleague during the questioning 
period, who is not a Member of the Subcommittee, to allow her 
to participate in the questioning of the witnesses, 
Congresswoman Lofgren.
    Does any other Member of the Subcommittee want to make an 
opening statement?
    Then, our witnesses.
    Our first witness is Adam Jaffe, the dean of arts and 
sciences and Fred C. Heck professor in economics at Brandeis 
University. Since coming to Brandeis in 1994, he has been chair 
of both the economics department and the Intellectual Property 
Policy Committee. He was previously an assistant and associate 
professor at Harvard University and senior staff economist at 
the President's Council of Economic Advisers.
    Professor Jaffe's research focuses on the economics of 
innovation. His book, ``Innovation and Its Discontents: How Our 
Broken Patent System is Endangering Innovation and Progress and 
What to Do About It,'' a long title, coauthored with Josh 
Lerner of Harvard Business School, was published in 2004.
    Professor Jaffe earned his Ph.D. in economics at Harvard 
and both an S.M. in technology and policy, whatever S.M. is--
master's of science, I guess--and a bachelor's of science in 
chemistry from MIT.
    Our next witness is Dr. Mark Myers, chairman of the board 
of trustees at Earlham College, who has held visiting faculty 
positions at the University of Pennsylvania's Wharton Business 
School, the University of Rochester and Stanford University.
    Dr. Myers retired from the Xerox Corporation in 2000, after 
a 37-year career in its research and development organizations. 
While at Xerox, he was senior vice president in charge of 
corporate research, advanced development, systems architecture 
and corporate engineering.
    In addition, Dr. Myers served on the National Academies' 
Science, Technology and Economic Policy Board from 1995 to 
2005. He co-chaired the board study of the patent system 
resulting in the report entitled ``A Patent System for the 21st 
Century.''
    He holds a bachelor's degree from Earlham College and a 
doctor in material science from Penn State.
    The next witness is Suzanne Michel, the deputy assistant 
director for policy and coordination at the Federal Trade 
Commission and the FTC's chief counsel for intellectual 
property. She is involved in many of the I.P. and antitrust 
issues that arise in the agency's enforcement and policy 
initiatives and speaks frequently on those topics.
    She was one of the contributors to the FTC report entitled 
``To Promote Innovation: The Proper Balance of Competition and 
Patent Law and Policy.'' Before joining the FTC 7 years ago, 
Ms. Michel worked in the civil division of the Department of 
Justice, where she defended the U.S. in patent infringement 
litigation.
    She received her B.S. with honors from Northwestern 
University, her Ph.D. in chemistry from Yale, and her J.D. from 
Boalt.
    Our final witness is Dan Ravicher, the executive director 
of the Public Patent Foundation. PUBPAT is a not-for-profit 
legal services organization founded by Mr. Ravicher to 
represent the public interest against harms caused by wrongly 
issued patents and unsound patent policy.
    Mr. Ravicher writes and speaks frequently on patent law and 
is adjunct Professor of Patent Law at Benjamin Cardozo School 
of Law. He received is bachelor's degree in material science 
from the University of South Florida and his law degree from 
the University of Virginia.
    All your written statements will be made part of the record 
in their entirety. I would ask each of you, if you could, to 
summarize your testimony in about 5 minutes. And to help stay 
within that time, there is a timing light at your table. When 1 
minute remains, the light will switch from green to yellow and 
then red when 5 minutes are up.
    We welcome all of you.
    Dr. Jaffe, would you begin?

  TESTIMONY OF ADAM JAFFE, PROFESSOR OF ECONOMICS AND DEAN OF 
      ARTS AND SCIENCES, BRANDEIS UNIVERSITY, WALTHAM, MA

    Mr. Jaffe. I have never done this before.
    Mr. Berman. Neither have I. [Laughter.]
    Mr. Jaffe. Thank you, Chairman Berman and Congressman 
Feeney and other distinguished Members of the Subcommittee. It 
is a pleasure to be here today.
    I will try to just hit some of the highlights of my written 
testimony that has already been filed.
    You gentlemen have made my job easier because you have 
already made several of the points that I would have made in my 
initial statement about the importance of the patent system to 
the innovation process.
    So let me then go right from that to a follow-up point 
which I think it is important, which is exactly what it is that 
the patent system does from the perspective of economic policy.
    We often think of patents as encouraging invention or 
innovation or creativity. I would submit that that is not 
actually what the patent system really does that is important, 
because I think it is human nature to be creative and inventive 
and we would always have people coming up with ideas whether we 
encouraged it or not.
    What the patent system does that is very important is to 
support the next phase of the process, which is the conversion 
of an idea into a commercially useful product or process, 
which, of course, has to happen for that invention to actually 
be of use to anyone.
    And that process development is an expensive and risky 
process. And what patents do is they mitigate the uncertainty 
inherent in that process by providing some measure of 
reassurance that someone who develops a commercial product or 
process from their idea will be able to profit from it, and 
that is very important, because if that development is too 
risky and too expensive, it will be inhibited and we won't have 
the innovation that we would like to have.
    Now, they do this in a very powerful way. They allow the 
owner of a patent to exclude competitors, which is something 
normally we think is a bad idea. And it is important here to 
recognize that there is this balance at the heart of the patent 
system, which is we want to protect innovation, but we do it in 
a powerful way and so we have to be careful about it.
    What has happened in the last 2 decades in the United 
States is this balance has gotten out of whack and for a 
variety of reasons that we can talk about more, we have 
simultaneously made patents much easier to get and made them 
much more powerful and effective competitive weapons, and those 
two things don't go well together.
    If you are going to have a very powerful and effective 
weapon, you don't want to make it too easy to get and you don't 
want to give it, as the Chairman indicated, to people who 
haven't really earned it.
    So as a result of this balance getting out of kilter, what 
has happened is that, in many cases now, instead of being the 
engine of innovation, the patent system is increasingly, we use 
the metaphor in our book of sand in the gears of the innovation 
system, because people who are in the process of bringing new 
products and processes to market, even if they have their own 
patents, many of whom are themselves holders of patents and 
users of the patent system, increasingly what they find is that 
they are spending too much time and too much money dealing with 
the risk of litigation associated with other people asserting 
patent claims against their products.
    And this fear of litigation and the consumption of revenues 
and time and effort in dealing with it is increasingly 
perceived in many sectors of the economy as inhibiting the 
process of bringing new products and processes to market rather 
than helping it.
    So I think we can go into more details, but there are 
basically two things that fall out of that in terms of thinking 
about what we need to do.
    One is to look at the way patents are granted and to think 
about changing the fundamental model that we use for deciding 
whether or not a patent should be granted to be sure that the 
information that is necessary to make that decision and to make 
it intelligently is actually brought to the patent office, so 
that the patent office can make an effective decision about 
whether a patent should be granted. That is one side.
    Then the other side is in terms of litigation, because 
there will always be litigation, as the Chairman indicated. 
Some patents are always going to get through that perhaps 
shouldn't have been granted.
    To ensure that in the litigation process, there is an 
appropriate balance between the needs of patent-holders who 
hold valid patents to enforce those patents and the opportunity 
of firms who may feel that a patent is not valid and needs to 
be challenged to have a forum for doing that.
    And in a variety of ways that I think we will discuss at 
greater length, the existing system is out of balance in that 
regard. Too often, people who are accused of infringement, even 
if they feel the patent is not valid, feel they can't afford 
the risk and the expense of fighting that in court and making 
their case.
    So this is all difficult stuff and I am glad to see that 
there is a large crowd here today, because I have been working 
on this issue for about 20 years and, for a long time, you 
couldn't get anyone to come to a hearing to talk about patent 
policy.
    I think the Members of this Subcommittee have played a 
major role in the last couple of years of beginning to change 
that and bringing these issues to the forefront and I commend 
you for your persistence in that, and I am now optimistic that 
this is an issue that we are all ready to act on as a country.
    Thank you.
    [The prepared statement of Mr. Jaffe follows:]

                  Prepared Statement of Adam B. Jaffe

    My name is Adam B. Jaffe. I am Fred C. Hecht Professor in Economics 
and the Dean of Arts and Sciences at Brandeis University in Waltham, 
Massachusetts. I am the co-author (with Prof. Joshua Lerner of Harvard 
University) of Innovation and Its Discontents: How our Broken Patent 
System is Endangering Innovation and Progress, and What to do About it 
(Princeton University Press, 2004). My testimony today is on my own 
behalf, and does not necessarily represent the views of Brandeis 
University or Prof. Lerner.
    Over the course of the nineteenth and twentieth centuries, the 
United States evolved from a colonial backwater to become the pre-
eminent economic and technological power of the world. The foundation 
of this evolution was the systematic exploitation and application of 
technology to economic problems: initially agriculture, transportation, 
communication and the manufacture of goods, and then later health care, 
information technology, and virtually every aspect of modern life.
    From the beginning of the republic, the patent system has played a 
key role in this evolution. Based in the Constitution itself, and 
codified in roughly its modern form in 1836, the patent system was an 
essential aspect of the legal framework in which inventions from 
Edison's light bulb and the Wright brothers' airplane to the cell phone 
and Prozac were developed.
    Much popular discussion of the patent system emphasizes its role in 
creating an economic incentive for the creative act of invention. From 
an economic perspective, this incentive for invention is not paramount, 
because creativity seems to be inherent in human nature, making a flow 
of new creative ideas likely under any incentive system. But a creative 
idea does not help society, unless it is taken further and converted to 
a commercially useful new product or process. And this stage of 
converting inventive ideas into real products and processes is very 
costly and very uncertain. The economic function of the patent system 
is to provide a measure of predictability and protection to this 
expensive and risky process of product and process development. At 
such, it lies at the very heart of technological process, which is in 
turn the primary engine of economic growth.
    In the last two decades, however, the role of patents in the U.S. 
innovation system has changed from fuel for the engine to sand in the 
gears. Two apparently mundane changes in patent law and policy have 
subtly but inexorably transformed the patent system from a shield that 
innovators could use to protect themselves, to a grenade that firms lob 
indiscriminately at their competitors, thereby increasing the cost and 
risk of innovation rather than decreasing it.
    Examples of dysfunctional patent behavior have become staples of 
the business and popular press. They range from the amusing and 
economically irrelevant, to not-so-funny cases that seriously threaten 
important technologies in important industries:

          Patents on inventions that are trivially obvious, 
        such as the ``Method for Swinging on a Swing,'' ``invented'' by 
        a five-year-old, and ``User Operated Amusement Apparatus for 
        Kicking the User's Buttocks'' (``invented'' by a supposed 
        grown-up);

          Patents in areas new to patenting, but covering 
        purported discoveries familiar to practitioners and academics 
        alike, such as Amazon.com's attempt to prevent 
        Barnesandnoble.com from allowing customers to buy books with a 
        single mouse-click, and a bright MBA student's patents on an 
        option-pricing formula published in the academic finance 
        literature two decades earlier;

          Patents that have become weapons for firms to harass 
        competitors, such as the decade-long effort by Rambus, a 
        semiconductor designer, to control computer memory technology 
        by making sure that a long string of patents, all derived from 
        a single 1990 patent application, incorporated important 
        features of an industry-wide standard developed through a 
        voluntary industry standard-setting association;

          Litigation by patent-holders who are not themselves 
        market competitors, that hold up or impose huge costs on 
        innovative, commercially successful products, such as the $612 
        million dollar settlement that was necessary to prevent patent 
        litigation from shutting down the Blackberry handheld device.

    In the last several years, a variety of groups concerned with 
different aspects of public policy related to innovation have 
undertaken studies and issued reports calling for major reform of the 
patent system. These include the Federal Trade Commission (U.S. Federal 
Trade Commission, 2003, cited hereinafter as ``FTC Report''), and the 
Board on Science, Technology and Economic Policy of the National 
Research Council (Merrill, Levin and Myers, 2004, cited hereinafter as 
``STEP Report''). After the issuance of the FTC Report and the STEP 
report, the American Intellectual Property Law Association (AIPLA) 
joined with the FTC and STEP Board to sponsor a series of ``Town 
Meetings'' across the country in 2005, and the AIPLA endorsed many of 
the reform recommendations of the FTC and the STEP Board. This 
subcommittee has also, of course, been active in this issue, with 
hearings and proposed legislation that has garnered bipartisan support.
    In my testimony today, I will summarize the background for these 
discussions and discuss why patent policy reform is so crucial to our 
national well-being. Since I understand the subject of this hearing to 
be the ``Case for Patent Reform'' rather than the details of such 
reform, I will discuss the substance of reform only in the most general 
terms, but specific reform recommendations are discussed at length in 
my book with Prof. Lerner.

          PATENT POLICY DEVELOPMENTS OVER THE LAST TWO DECADES

    The origin of today's problems goes back to 1982, when the process 
for judicial appeal of patent cases in the federal courts was changed, 
so that such appeals are now all heard by the Court of Appeals for the 
Federal Circuit (``CAFC''), rather than the twelve regional courts of 
appeal, as had previously been the case. And in the early 1990s, 
Congress changed the structure of fees and financing of the U.S. Patent 
and Trademark Office (PTO) itself, trying to turn it into a kind of 
service agency whose costs of operation are covered by fees paid by its 
clients (the patent applicants).
    It is now apparent that these seemingly mundane procedural changes, 
taken together, have resulted in the most profound changes in U.S. 
patent policy and practice since 1836. The CAFC has interpreted patent 
law to make it easer to get patents, easier to enforce patents against 
others, easier to get large financial awards from such enforcement, and 
harder for those accused of infringing patents to challenge the 
patents' validity. At roughly the same time, the new orientation of the 
patent office has combined with the court's legal interpretations to 
make it much easier to get patents. However complex the origins and 
motivations of these two Congressional actions, it is clear that no one 
sat down and decided that what the U.S. economy needed was to transform 
patents into much more potent legal weapons, while simultaneously 
making them much easier to get.
    An unforeseen outcome has been an alarming growth in legal 
wrangling over patents. More worrisome still, the risk of being sued, 
and demands by patent holders for royalty payments to avoid being sued, 
are seen increasingly as major costs of bringing new products and 
processes to market. Thus the patent system--intended to foster and 
protect innovation--is generating waste and uncertainty that hinder and 
threaten the innovative process.
    The growth in the shear magnitude of the patent phenomenon has been 
breathtaking. The weakening of examination standards and the increase 
in patent applications has led to a dramatic increase in the number of 
patents granted in the U.S. The number of patents granted in the U.S., 
which increased at less than 1% per year from 1930 until 1982 (the year 
the CAFC was created), roughly tripled between 1983 and 2001 (from 62 
thousand per year to over 180 thousand per year, an annual rate of 
increase of about 6%). The total number of patents granted peaked at 
about 187 thousand in 2003, and seems to have leveled off or perhaps 
declined a bit since then (The 2005 total was 158 thousand; the number 
for 2006 is not yet available.) Applications, too, have ballooned, from 
less than 120 thousand in 1982, to 418 thousand in 2005, with no sign 
of slowing down.\1\
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    \1\ http://www.uspto.gov/web/offices/ac/ido/oeip/taf/us--stat.htm
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    While some of this increase appears to reflect real growth in 
innovation, it is clear that a large part of the increase is a response 
to the increased laxity of the PTO, which grants a significantly larger 
fraction of the applications it receives than do its counterparts in 
Europe and Japan. More worrisome still is a dramatic and inexorable 
increase since the early 1990s in the rate of litigation around 
patents. The number of patent cases filed has doubled in a decade and 
continues to rise. And the cost of defending a patent suit has risen as 
well; a patent infringement allegation from a competitor can now mean 
legal fees in the millions. For an under-capitalized startup, this 
prospect creates an overwhelming pressure to settle even frivolous 
complaints. Consumers therefore have less access to new products--from 
lifesaving drugs to productivity-enhancing software--than would be the 
case if innovative companies were not distracted from innovation by 
litigation and fear of litigation.
    Much public attention has focused on the expansion of patenting 
into areas where it was previously unimportant or non-existent, such as 
biotechnology, software and business methods. Indeed, some of the worst 
abuses are in these areas. But concern about specific technologies 
potentially masks the deeper, fundamental problem. The incentives in 
the system now encourage frivolous applications, cursory review of 
those applications by the PTO, and indiscriminate filing of patent 
infringement suits as a generic competitive weapon. To get the system 
back on track, the system must be changed so that its incentives 
discourage frivolous applications, encourage rigorous patent 
examination, and discourage patent litigation where there is not a true 
invention to protect.

                          GOALS AND OBJECTIVES

    While different analysts of the patent landscape have emphasized 
different aspects of the patent policy problems, there is general 
agreement on broad goals for reform of the system:
    Improve patent quality.\2\ As illustrated by examples discussed 
above, people are getting patents for inventions that are not new and/
or are obvious. One way to solve this, of course, would be to make it 
much harder to get a patent on anything. If we did that, the few 
patents that did issue would be of very high quality, in the sense of 
being very deserved by the applicant. But the objective of patent 
quality has to be more than just making sure bad patents don't issue. 
It has to include also making sure that inventors do get patents when 
they have a truly novel, non-obvious invention, that such patents are 
processed relatively quickly and reliably, and that once granted they 
provide an adequate property right to protect subsequent investment in 
the invention.
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    \2\ See STEP Report, pp 87-94.
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    Reduce uncertainty. A primary objective of reform should be to 
reduce the uncertainty that now pervades many aspects of the patent 
system. (Ironically, the only aspect of the patent process that has 
become more certain is the application process itself, as the ultimate 
granting of some patent from each original application has become 
almost a sure thing!) The sand in the gears of the innovation machine 
is that companies and individuals must constantly fear that their 
research and product development may come to naught, because someone is 
going to assert an as-yet unknown or untested patent against them. 
Further, when such an assertion of patent infringement is made, the 
uncertainty about the ability to defend against that assertion often 
leads either to abandonment of the allegedly infringing technology, or 
to an agreement to pay possibly unnecessary royalties.
    Keep costs under control. In FY 2006, the Patent Office spent about 
$1.7 Billion for its operations. In recent years, Congress has 
increased PTO fees and budgetary appropriations, thereby responding to 
one aspect of the recommendations of groups such as the FTC, the STEP 
Board and the AIPLA. It is important to remember that appropriations to 
the PTO represent only a small fraction of what society spends on the 
patent system. Patent applicants spend several times that amount, and 
patent litigants billions more. These resources might be well spent, if 
they achieved a reasonably smoothly functioning system. But the system 
is not working well, and it is reasonable to wonder whether we need to 
invest more of society's resources in the patent process. We need to 
look for solutions that go beyond throwing money at the problem.

                           SOME SIMPLE TRUTHS

    The next step towards reform is to understand some basic realities 
about the innovation process.

Mistakes will always be with us
    Patent examination is never going to be perfect. Examiners are 
human. More important, there is an essentially irreducible aspect of 
judgment in determining if an invention is truly new. After all, even 
young Albert Einstein faced challenges while assessing applications as 
a ``Patent Examiner-Third Class'' in the Swiss Patent Office (Clark, 
1973). Therefore, we cannot hope to have a system in which no ``bad'' 
patents ever issue. What is important is to have a system with fewer 
bad patents. And, since there will always be mistakes, it is important 
to have a system that functions reasonably well despite the issuance of 
some bad patents.
    At current application rates, it would be very expensive to give 
all patent applications an examination sufficiently thorough to reduce 
significantly the problems with bad patents being issued. Now, the 
patent system is important, so it is possible that spending several 
billion additional dollars on the PTO would be worthwhile for society. 
But this kind of dramatic increase in PTO resources does not seem very 
realistic in the current fiscal environment. Fortunately, it is also 
not necessary to expend the resources necessary to provide very 
reliable examination for all patent applications.

Much more chaff than wheat
    The first step to understanding why greatly increasing the 
resources for examination is not the best solution to the problem is to 
understand that most patents are, and always will be, worthless and 
unimportant. This is not a feature of the patent office; it is a 
feature of the innovation process. It is partly due to the human 
tendency for us each to think that our ideas are better than other 
people think they are. But it also reflects a deeper attribute of the 
process of technological development: the significance of a new idea 
usually cannot be known when it is first developed, because that 
significance depends on subsequent developments, both technological and 
economic. Many, many, ``good'' ideas are patented that never actually 
turn out to be worth anything. It is not that they shouldn't have been 
patented to begin with. It's just that for every invention with lasting 
technological or economic significance, there will always be dozens or 
hundreds of ideas that seemed potentially worthwhile, but which 
eventually proved to be valueless.
    The fact that almost all patents are ultimately worthless has an 
important implication for the ``patent quality'' problem. If most 
patents are doomed to be consigned to the dustbin of technological 
history, it can't make sense to spend a lot of resources to make sure 
that they all receive very high quality examination before issuing. The 
legions of inventors and patent attorneys may not like to think about 
this, but for the vast majority of patent applications, it will simply 
never matter--either to the inventor, her employer, or competitors--
whether the patent is allowed to issue or not.

``Rational Ignorance''
    If careful examination is expensive, and the vast majority of 
patents will never matter to anyone, then it would be inefficient to 
expend society's resources on careful examination of all patent 
applications. In the colorful phrase of Mark Lemley (2002), we can 
think of the poor quality of patent examination as representing 
``Rational Ignorance,'' by which he means that society is rationally 
choosing to remain ignorant about which patents really should be 
granted by the PTO. Lemley argues that it is, in fact, reasonably 
efficient to simply accept that PTO examination will be of poor 
quality, and that the cases that really matter will have to be sorted 
out in the courts. Court cases are expensive, but because only the 
small fraction of patents that matter will ever get litigated, Lemley 
argues that the cost of litigation is, overall, efficient.
    I agree with Lemley that it would be inefficient to provide 
thorough examination for all applications at the current rate of patent 
application. I disagree, however, that the current situation is 
acceptably efficient. First, while the out-of-pocket cost of litigation 
may be tolerable, the intangible cost of a system with pervasive low-
quality patents is much higher than just the cost of paying lawyers to 
file and defend patent cases. The uncertainty that the current system 
creates for all parties regarding who can legally use what technologies 
is a cost that is very hard to quantify, but is surely significant. 
Talk to anyone involved in trying to commercialize new technologies, 
and you are likely to hear complaints about the headaches and 
uncertainty created by overlapping patent claims. Further, this 
uncertainty undermines everyone's incentives to invest in new 
technology. From the perspective of society as a whole, the loss of new 
products and processes that never make it to market, or that gain a 
toehold and are then abandoned after a threatened patent fight, is much 
larger than the visible costs of patent litigation. And, fortunately, 
there are changes that could be made in the system that would improve 
patent quality without requiring dramatic increases in the resources 
used in the examination process.

Inventors respond to how the Patent Office behaves
    The key to more efficient patent examination is to go beyond 
thinking about what patent examiners do, to consider how the nature of 
the examination process affects the behavior of inventors and firms. To 
put it crudely, if the patent office allows bad patents to issue, this 
encourages people with bad applications to show up. While the increase 
in the rate of patent applications over the last two decades is driven 
by many factors, one important factor is the simple fact that it has 
gotten so much easier to get a patent, so applications that never would 
have been submitted before now look like they are worth a try. 
Conversely, if the PTO pretty consistently rejected applications for 
bad patents, people would understand that bad applications are a waste 
of time and money. While some people would still try--either because 
they aren't smart enough to know they have a bad application, or 
because they are willing to take a roll of the dice--the number of 
applications would likely be considerably fewer that it has been in 
recent years.

Get information to flow into the PTO
    Another important aspect of incentives has to do with information: 
who has it, and what do they do with it? Much of the information needed 
to decide if a given patent application should issue--particularly 
information about what related technologies already exist--is in the 
hands of competitors of the applicant, rather than in the hands of the 
PTO. And there are strong incentives for firms to share this 
information. If a competitor of mine has filed a patent application, 
the last thing I want to see is for them to be issued a patent on an 
application that would have been rejected if the PTO had known about my 
technology. I would thus have a strong incentive to provide this 
information, if only the PTO would give me an opportunity for input, 
and if taking advantage of such an opportunity does not create 
strategic disadvantages for me down the road. So creating opportunities 
of this sort is another way that the system could exploit the 
incentives of private parties in order to increase efficiency.

Potential litigants respond to how the courts behave
    When the CAFC issues rulings that increase the chance of the 
patentee prevailing in an infringement suit, the consequences of this 
change are not limited to possible changes in the outcome of specific 
cases. Such a change in perceived success probabilities changes what 
disputes are, in fact, litigated. Conversations with attorneys involved 
in patent disputes make clear that the CAFC's strengthening of the 
offensive and defensive weapons of the patentee has significantly 
increased patentees' willingness to bring suit. Similarly, the change 
has significantly decreased the willingness of accused infringers to 
fight, even when they believe that the patents being used to threaten 
them are not valid. In particular, firms with highly successful 
products--when faced with a jury trial over complex issues of novelty 
and obviousness, and the risk that defeat might mean large penalties 
for willful infringement and/or an injunction shutting down their 
product--may feel that they have no rational business choice but to pay 
a ransom to avoid litigation. When this happens, the cost of innovation 
rises and society is the loser. Constraining the growth in litigation, 
and the uncertainty created for all innovators by the risk of suit, 
will require a change in these incentives.

                       BUILDING BLOCKS OF REFORM

    There are three key conceptual pieces for thinking about patent 
policy reform:

        1.  Investigate ways to create incentives and opportunities for 
        parties that have information about the novelty and obviousness 
        of inventions to bring that information to the PTO when it is 
        considering a patent grant.

        2.  Consider the possibility for multiple levels of review of 
        patent applications, with the time and effort expended 
        escalating as an application proceeds to higher levels, so that 
        money is not wasted on unimportant patents, but sufficient care 
        is taken to avoid mistakes where the stakes are high.

        3.  Address the balance of incentives and opportunities for 
        patent holders and alleged infringers in the context of 
        litigation. People with valid patents that are being infringed 
        must have opportunity to seek redress, but the current system 
        makes it too easy for patent holders to use threatened 
        litigation--even when based on patents of dubious validity--too 
        risky for alleged infringers to fight.

    The first two of these concepts are aimed at making the PTO more 
effective at reasonable cost. The third addresses the reality that the 
best of all possible PTOs will still make mistakes, and so we need a 
court system that is capable of rectifying those mistakes.
    Effective reform must start with the recognition that much of the 
information needed to decide if a given application should be approved 
is in the hands of competitors of the applicant, rather than the PTO. A 
review process with multiple potential review levels efficiently 
balances the need to bring in outside information with the reality that 
most patents are unimportant. Multilevel review, with the barriers to 
invoking review and the thoroughness of that review both increasing at 
higher levels, would naturally focus attention on the most potentially 
important applications. Most patents would never receive anything other 
than the most basic examinations. But for those applications that 
really mattered, parties would have an incentive and opportunities to 
bring information in their possession before the PTO, and the PTO would 
have more resources to help it make the right decision. Although there 
is disagreement about the details, implementation of a review procedure 
or procedures of this kind has been endorsed by the FTC, the STEP Board 
and the AIPLA.
    If bad patents with important consequences were weeded out by the 
PTO, the incentive to file frivolous applications in the first place 
would be reduced. This would break the current vicious cycle in which 
inventors are induced to make marginal applications by their likelihood 
of success, and the resulting flood of applications overwhelms the 
patent office and makes it harder to separate the wheat from the chaff.
    Breaking the vicious cycle of bad examination and bad applications 
is the key to reform of the patent review process. But there are always 
going to be mistakes, and so it is important that the court system 
operate efficiently to rectify those mistakes, while protecting holders 
of valid patents. Today, the legal playing field is significantly 
tilted in favor of patentees.
    Prof. Lerner and I have highlighted the role of juries in deciding 
patent validity questions as a crucial source of undesirable and 
unnecessary uncertainly in the litigation process. The evidence in a 
patent case can be highly technical, and the average juror has little 
competence to evaluate it. Having decisions made by people who can't 
really understand the evidence increases the uncertainty surrounding 
the outcome. The combination of this uncertainty with the legal 
presumption of validity--the rule that patents must be presumed 
legitimate unless proven otherwise--is a big reason why accused 
infringers often settle rather than fight even when they think they are 
right.
    For accused infringers, the difficulties associated with the 
presumption of validity and the uncertainty of juries are compounded by 
the availability of remedies or penalties for infringement that are far 
out of proportion to the economic harm that a patent holder may have 
suffered as the result of infringement. While it is important that 
patent holders have the ability to uphold valid patents, remedies that 
are vastly disproportionate to the economic significance of the patent 
at issue do not serve any legitimate public policy purpose, and create 
the incentive and opportunity for those who would use the patent system 
for ransom and extortion rather than innovation.

                               CONCLUSION

    The protection for true innovators created by a workable patent 
system is vital to technological change and economic growth. The 
problems in the existing U.S. patent system are structural, and the 
solutions need to be fundamental. As much as the USPTO and the Courts 
can and should address some of the weaknesses of the existing system, 
meaningful reform requires important modifications to the statutory 
framework. In these days of polarization and ideological divide in 
Washington, patent policy reform offers an unusual opportunity for real 
action in the public interest. As evidenced by the discussion in the 
FTC and STEP reports, being pro-reform does not make one anti-patent. 
On the contrary, the motivation for patent reform derives precisely 
from the recognition that a well-functioning patent system is 
absolutely crucial to our technological progress and economic health.

                               REFERENCES

Ronald W. Clark, Einstein: The Life and Times, London: Hodder and 
        Stoughton, 1973.
Cohen, Wesley and Stephen Merrill, Eds., Patents in the Knowledge-Based 
        Economy, National Academy Press, www.nap.edu/catalog/10770.html 
        (2003)
Adam B. Jaffe, and Josh Lerner, Innovation and Its Discontents: How Our 
        Broken Patent System is Endangering Innovation and Progress, 
        and What To Do About It, Princeton: Princeton University Press, 
        2004.
Mark Lemley, ``Rational Ignorance at the Patent Office,'' Northwestern 
        University Law Review, 95 (2001) 1495-1532.
Merrill, Stephen A., Richard C. Levin and Mark B. Myers, Eds., A Patent 
        System for the 21st Century (Report of the Committee on 
        Intellectual Property Rights in the Knowledge-Based Economy), 
        Board on Science Technology and Economic Policy, National 
        Research Council (``STEP Report''), www.nap.edu/html/
        patentsystem (2004)
U.S. Federal Trade Commission, To Promote Innovation, The Proper 
        Balance of Competition and Patent Law and Policy, www.ftc.gov/
        os/2003/10/innovationrpt.pdf (2003)

TESTIMONY OF MARK B. MYERS, CO-CHAIR OF THE NATIONAL ACADEMY OF 
  SCIENCES' REPORT ``A PATENT SYSTEM FOR THE 21ST CENTURY,'' 
                         UNIONVILLE, PA

    Mr. Myers. Over the past 45 years, we have been in a 
decidedly pro-patent and pro-intellectual property area. As a 
result, patents are being more zealously sought, vigorously 
asserted and aggressively enforced than ever before.
    There are many indications that firms, as well as 
universities and public institutions are attaching greater 
importance to patents, are willing to pay higher costs to 
acquire and exercise to defend them.
    The workload of the U.S. Patent Office has increased 
several-fold in the last several decades, to the point that it 
is issuing approximately 100 patents every working hour.
    Meanwhile, the cost of acquiring patents, promoting or 
securing licenses to patenting technology and prosecuting and 
defending against infringements are rising rapidly.
    There have been a number of concerns that have arisen 
during this period. One is decline in patent quality, 
difficultly in negotiating patent thickets, increasing 
probability of holdup, especially in cumulative technology, 
increase in defensive patenting, rising transaction costs, 
incursions on public domain of ideas, impediments to research 
and disclosure purpose not being well-served.
    In particular, concerns were raised about patents having 
chilling effects on research tools, cumulative technologies, 
network systems technologies, where open standards are 
required.
    As we look at evaluating the patent system, our study used 
seven criteria. The patent system should accommodate new 
technologies. The system should reward only those inventions 
that meet statutory tests of novelty and utility.
    The patent system should serve a second function of 
disseminating technical information. Administrative and 
judicial decisions should be timely and the costs associated 
with them reasonable and proportionate.
    Access to patent technology is important in research and 
development of cumulative technologies where one advance builds 
upon another and previous advances.
    Integration or reciprocity of the three major patent 
systems, United States, Japan and Europe, would reduce the 
public and private transaction costs, facilitating trade, 
investment and innovation, and there should be a playing field 
with all intellectual property holders who are similarly 
situated enjoying the same benefits and having the same 
obligations.
    The Academy study made seven recommendations to improve the 
patent system. Preserve an open-ended unitary flexible patent 
system, reinvigorate the non-obvious standard, institute a 
post-open review procedure, strengthen U.S. Patent Office 
capabilities, shield some research uses of patented inventions 
from liability for infringement, modify or remove the 
subjective elements of litigation, and that would include best 
mode, inequitable conduct and willful infringement, and, 
finally, reduce the redundancies and inconsistencies among the 
patent systems.
    And particularly we feel that the reforms that we take 
should move us toward a stronger position with respect to 
having the ability to have successful common practices between 
the European, Japan and U.S. systems.
    And that concludes my remarks. Thank you.
    [The prepared statement of Mr. Myers follows:]

                  Prepared Statement of Mark B. Myers

    Good afternoon, Chairman Berman and members of the subcommittee. I 
am the former senior vice president for research and technology of the 
Xerox Corporation. Together with Richard Levin, President of Yale 
University, I chaired the Committee on Intellectual Property Rights in 
the Knowledge-Based Economy of the National Academies, comprised of the 
National Academy of Sciences, National Academy of Engineering, and the 
Institute of Medicine, originally chartered by Congress in 1863 to 
advise the government on matters of science, technology, and health.
    Although most Academy studies are conducted in response to an 
agency's or a congressional request, the study I will describe was 
initiated by the Academies' standing Board on Science, Technology, and 
Economic Policy (STEP), because it recognized that the breakneck pace 
of technological change across many industries was creating stresses in 
the patent system that needed to be examined to ensure that it 
continues to be a stimulus to innovation and does not become an 
impediment to it.
    I want to underscore that our panel began work in 2000 and we 
completed our report, A Patent System for the 21st Century, nearly 
three years ago in the spring of 2004. I realize that there has been 
much discussion of strengths and weaknesses of the patent system since 
then and some legislative activity and considerable judicial attention, 
and new issues have emerged in the course of that discussion. 
Nevertheless, I believe that the concerns that motivated our 
recommendations, several of which were incorporated in bills introduced 
in the last Congress and paralleled recommendations of the October 2003 
Federal Trade Commission report, remain the principal reasons for 
moving forward on patent reform. I may have personal views on some of 
the issues that have become contentious in the past couple of years, 
but of course I cannot speak for the committee or for the National 
Academies on matters we did not consider in depth.
    Since 1980 a series of judicial, legislative, and administrative 
actions have extended patenting to new technologies (biotechnology) and 
to technologies previously without or subject to other forms of 
intellectual property protection (software and business methods), 
encouraged the emergence of new players (universities), strengthened 
the position of patent holders vis-a-vis infringers domestically and 
internationally, relaxed other restraints on the use of patents 
(antitrust enforcement), and extended their reach upstream from 
commercial products to scientific research tools and materials.
    As a result, patents are being more zealously sought, vigorously 
asserted, and aggressively enforced than ever before. There are many 
indications that firms in a variety of industries, as well as 
universities and public institutions, are attaching greater importance 
to patents and are willing to pay higher costs to acquire, exercise, 
and defend them. The workload of the U.S. Patent and Trademark Office 
has increased several-fold in the last few decades, to the point that 
it is issuing approximately 100 patents every working hour. Meanwhile, 
the costs of acquiring patents, promoting or securing licenses to 
patented technology, and prosecuting and defending against infringement 
allegations in the increasing number of patent suits are rising 
rapidly.
    In spite of these changes and the obvious importance of patents to 
the economy, there had not been a broad-based study of the patent 
system's performance since the Depression. Accordingly, the Academies 
assembled a committee that included three corporate R&D managers, a 
university administrator, three patent holders, and experts in 
biotechnology, bioengineering, chemicals, telecommunications, 
microelectronics, and software, as well as economists, legal scholars, 
practicing attorneys, and a former federal judge. This diversity of 
experience and expertise distinguished our panel from nearly all 
previous commissions on the subject, as did our study process. We held 
conferences and public hearings and we commissioned original empirical 
research on some aspects of the system. The resulting report provides a 
thoroughly researched, timely perspective on how well the system is 
working.
    High rates of technological innovation, especially in the 1990s but 
continuing to this day, suggest that the patent system is not broken 
and does not require fundamental changes. Nevertheless, the committee 
was able to identify five issues that should and can be addressed now.
    First, maintaining consistent patent quality is important but 
difficult in fast-moving fields. Over the past decade, the quality of 
issued patents has come under frequent sharp attack, as it sometimes 
has in the past. One can always find patents that appear dubious and 
some that are even laughable--the patent for cutting and styling hair 
using scissors or combs in both hands. Some errors are unavoidable in a 
system that issues more than 160,000 patents annually, and many of 
those errors will have no economic consequence because the patents will 
not be enforced. Still, some critics have suggested that the standards 
of patentability have been lowered by court decisions. Other observers 
fault the USPTO's performance in examining patent applications, 
variously attributing the alleged deterioration to inadequate time for 
examiners to do their work, lack of access to prior art information, 
perverse incentives to grant patents rather than carefully evaluate 
applications, and inadequate examiners' qualifications.
    Because the claim that quality has deteriorated in a broad and 
systematic way has not been empirically tested, conclusions must remain 
tentative. But there are several reasons to suspect that more issued 
patents are substandard, particularly in technologies newly subject to 
patenting. One reason to believe that quality has suffered, even before 
taking examiner qualifications and experience into account, is that in 
recent years the number of patent examiners has not kept pace with the 
increase in workload represented by the escalating number and growing 
complexity of applications. The result, in part, has been longer 
pendency, but in all likelihood there has also been inadequate 
scrutiny. Second, patent approval rates are higher than in some other 
major nations' patent offices. Third, changes in the treatment of 
business method and genomic patent applications, introduced in 2000 and 
2001 as a result of criticisms of the quality of patents being issued, 
reduced or at least slowed down the number of patent grants in those 
fields. And fourth, there does appear to have been some dilution of the 
application of the non-obviousness standard, particularly in 
biotechnology, and some limitations on its proper application, for 
example to business methods patent applications. Although quality 
appears to be more problematic in rapidly moving areas of technology 
newly subject to patenting and perhaps is corrected over time, the cost 
of waiting for an evolutionary process to run its course may be too 
high when new technologies attract the level of investment exhibited by 
the Internet, biotechnology, and now nanotechnology.
    What are the costs of uncertainty surrounding patent validity in 
areas of emerging technology? First, uncertainty may induce a 
considerable volume of costly litigation. Second, in the absence of 
litigation, the holders of dubious patents may be unjustly enriched, 
and the entry of competitive products and services that would enhance 
consumer welfare may be deterred. Third, uncertainty about what is 
patentable in an emerging technology may discourage investment in 
innovation and product development until the courts clarify the law, or 
inventors may choose to incur the cost of product development only to 
abandon the market years later when their technology is deemed to 
infringe. In sum, greater certainty about patent validity would benefit 
innovators, technological followers, and consumers alike.
    Second, differences among national patent systems continue to 
result in avoidable costs and delays. In spite of progress in 
harmonizing the U.S., European, and Japanese patent examination 
systems, important differences in standards and procedures remain, 
ensuring search and examination redundancy that imposes high costs on 
users and hampers market integration. In 2003 it was estimated to cost 
as much $750,000 to $1 million to obtain comprehensive worldwide patent 
protection for an important invention, and that figure was increasing 
at a rate of 10 percent a year. Important differences include the 
following: Only the United States gives preference to the ``first to 
invent'' rather than the ``first to file.'' Only the United States 
requires that a patent application disclose the ``best mode'' of 
implementing an invention. U.S. law allows a grace period of one year, 
during which an applicant can disclose or commercialize an invention 
before filing for a patent, whereas Japan offers a more limited grace 
period and Europe provides none.
    Third, some U.S. practices seem to be slowing the dissemination of 
information. In the United States there are many channels of scientific 
interaction and technical communication, and the patent system 
contributes more to the flow of information than does the alternative 
of maintaining technical advances as trade secrets. There are 
nonetheless features peculiar to the U.S. patent system that inhibit 
information dissemination. One is the exclusion of a nontrivial number 
of U.S. patent applications from publication after 18 months, an 
international norm since 1994. A second U.S. idiosyncrasy is the legal 
doctrine of willful infringement, which can require an infringer to pay 
triple damages if it can be demonstrated that the infringer was aware 
of the violated patent before the violation. Some observers believe 
that this deters an inventor from looking at the patents of possible 
competitors, because knowledge of the patent could later make the 
inventor subject to enhanced damages if there is an infringement case. 
This undermines one of the principal purposes of the patent system: to 
make others aware of innovations that could help stimulate further 
innovation.
    Fourth, litigation costs are escalating rapidly and proceedings are 
protracted. Surveys conducted periodically by the American Intellectual 
Property Law Association indicate that litigation costs, millions of 
dollars for each party in a case where the stakes are substantial, are 
increasing at double digit rates. At the same time the number of 
lawsuits in District Courts is increasing.
    Fifth, access to patented technologies is important in research and 
in the development of cumulative technologies, where one advance builds 
on one or several previous advances. Faced with anecdotes and 
conjectures about restrictions on researchers, particularly in 
biotechnology, we conducted a modest survey of diverse participants in 
the field to determine whether patent thickets are emerging or access 
to foundational discoveries is restricted. We found very few cases 
although some evidence of increased research costs and delays and much 
evidence that research scientists are largely unaware of whether they 
are using patented technology. During our study, the Court of Appeals 
for the Federal Circuit ruled that university researchers are not 
shielded by the common law research exception against infringement 
liability. This combination of circumstances--ignorance of intellectual 
property on the one hand and full legal liability on the other--
represents an exposure that universities are not equipped to eliminate 
by the kinds of due diligence performed by companies and investors.

                     TOWARD A BETTER PATENT SYSTEM

    The Academies' committee supported seven steps to ensure the 
vitality and improve the functioning of the patent system:
    1) Preserve an open-ended, unitary, flexible patent system. The 
system should remain open to new technologies, and the features that 
allow somewhat different treatment of different technologies should be 
preserved without formalizing different standards; for example, in 
statutes that would be exceedingly difficult to draft appropriately and 
equally difficult to change if found to be inappropriate. Among the 
tailoring mechanisms that should be exploited is the USPTO's 
development of examination guidelines for new or newly patented 
technologies. In developing such guidelines, the office should seek 
advice from a wide variety of sources and maintain a public record of 
the submissions. The results should then be part of the record of any 
appeal to a court, so that they can inform judicial decisions.
    This information could be of particular value to the Court of 
Appeals for the Federal Circuit, which is in most instances the final 
arbiter of patent law. To keep this court well informed about relevant 
legal and economic scholarship, it should encourage the submission of 
amicus briefs and arrange for temporary exchanges of members with other 
courts. Appointments to the Federal Circuit should include people 
familiar with innovation from a variety of perspectives, including 
management, finance, and economic history, as well as nonpatent areas 
of law that bear on innovation.
    2) Reinvigorate the nonobviousness standard. The requirement that 
to qualify for a patent an invention cannot be obvious to a person of 
ordinary skill in the art should be assiduously observed. In an area 
such as business methods, where the common general knowledge of 
practitioners is not fully described in published literature likely to 
be consulted by patent examiners, another method of determining the 
state of knowledge needs to be employed. Promising experiments are 
underway to encourage the submission of relevant prior art during the 
examination, but turning examination into an adversarial process could 
be counter-productive and very likely unacceptable to applicants. 
Nevertheless, the open review procedure we describe next provides a 
means of obtaining expert participation if a patent is challenged.
    Gene sequence patents present a particular problem because of a 
Federal Circuit ruling making it difficult to apply the obviousness 
test in this field. This is unwise in its own right and is also 
inconsistent with patent practice in other countries.
    3) Institute an ``Open Review'' procedure. Congress should pass 
legislation creating a procedure for third parties to challenge patents 
after their issuance in a proceeding before administrative patent 
judges of the USPTO. The grounds for a challenge could be any of the 
statutory standards--novelty, utility, nonobviousness, disclosure, or 
enablement--or the case law proscription on patenting abstract ideas 
and natural phenomena. The time, cost, and other characteristics of 
this proceeding need to make it an attractive alternative to litigation 
to resolve questions of patent validity. For example, federal district 
courts could more productively focus their attention on patent 
infringement issues if they were able to refer validity questions to an 
Open Review proceeding. The result should be much earlier, less 
expensive, and less protracted resolution of validity issues than we 
have with litigation and of a greater variety of validity issues than 
we have with re-examination even if it were used.
    4) Strengthen USPTO resources. To improve its performance, the 
USPTO needs additional resources to hire and train additional examiners 
and implement a robust electronic processing capability. Further, the 
USPTO should create a strong multidisciplinary analytical capability to 
assess management practices and proposed changes, provide an early 
warning of new technologies being proposed for patenting, and conduct 
reliable, consistent, reputable quality reviews that address office-
wide as well as individual examiner performance. Since our report 
congressional appropriations have approximated USPTO receipts from 
application and maintenance fees. This is a positive development, but 
additional resources will be needed, for example to operate an 
efficient open review system.
    5) Modify or remove the subjective elements of litigation. Among 
the factors that increase the cost and reduce the predictability of 
patent infringement litigation are issues unique to U.S. patent 
jurisprudence that depend on the assessment of a party's state of mind 
at the time of the alleged infringement or the time of patent 
application. These include whether someone ``willfully'' infringed a 
patent, whether a patent application included the ``best mode'' for 
implementing an invention, and whether a patent attorney engaged in 
``inequitable conduct'' by intentionally failing to disclose all prior 
art when applying for a patent. Investigating these questions requires 
time-consuming, expensive, and ultimately subjective pretrial 
discovery. The committee believed that significantly modifying or 
eliminating these rules altogether would increase the predictability of 
patent dispute outcomes without substantially affecting the principles 
that these aspects of the enforcement system were meant to promote.
    6) Harmonize the U.S., European, and Japanese patent examination 
systems. The United States, Europe, and Japan should further harmonize 
patent examination procedures and standards to reduce redundancy in 
search and examination and eventually achieve mutual recognition of 
applications granted or denied. The committee recommended that the 
United States should conform to practice elsewhere by adopting the 
first inventor to file system, dropping the ``best mode'' requirement, 
and eliminating the current exception to the rule of publication of an 
application after 18 months. The committee also recommends that the 
United States encourage other jurisdictions to adopt provisions for a 
grace period for filing an application. These objectives should be 
pursued on a trilateral or even bilateral basis if multilateral 
negotiations do not progress.
    7) Consider enacting a narrowly drawn exception from infringement 
liability for some research activities. Here we do not propose specific 
legislative language, but we do suggest some principles for Congress to 
consider in drafting a narrow research exception that would preserve 
the intent of the patent system and avoid some disruptions to 
fundamental research.
    In making these recommendations, our committee was mindful that 
although the patent law is designed to be uniform across all 
applications, its practical effects vary greatly across technologies, 
industries, and classes of inventors. There is a tendency in discourse 
on the patent system to identify problems and solutions to them from 
the perspective of one field, sector, or class. Although the committee 
did not attempt to deal with the specifics of every affected field, the 
diversity of the membership enabled us to consider each of the proposed 
changes from the perspective of very different sectors. Similarly, we 
examined very closely the claims made that one class of inventors--
usually individuals and very small businesses--would be disadvantaged 
by some change in the patent system. Some of the committee's 
recommendations--universal publication of applications, Open Review, 
and shifting to a first-inventor-to-file system--have in the past been 
opposed on those grounds. The committee reviewed very carefully, for 
example, how small entities currently fare in interference proceedings, 
examination, and re-examination. We also studied how European 
opposition proceedings impact small businesses. We concluded they enjoy 
little protection and in fact are often at a disadvantage in the 
procedures we propose to change. In short, we believe that our 
recommendations, on balance, would be as beneficial to small businesses 
and individual inventors as to the economy as a whole.
    I appreciate the opportunity afforded by the subcommittee to 
testify on our conclusions and would be happy to answer any questions.

   TESTIMONY OF SUZANNE MICHEL, CHIEF INTELLECTUAL PROPERTY 
     COUNSEL AND THE DEPUTY ASSISTANT DIRECTOR FOR POLICY 
     COORDINATION, FEDERAL TRADE COMMISSION, WASHINGTON, DC

    Ms. Michel. Chairman Berman and Members of the 
Subcommittee, I appreciate this opportunity to discuss the 
findings and recommendations of the FTC's report on the patent 
system, ``To Promote Innovation: The Proper Balance of 
Competition in Patent Law and Policy.''
    Before doing so, please allow me to make this disclaimer. 
The written testimony that we submitted represents the views of 
the Federal Trade Commission. My oral testimony and answers to 
questions today reflect my own views and not necessarily those 
of the commission or any individual commissioner.
    Both competition and patents influence innovation, which 
drives economic growth and increases standards of living.
    To examine the relationship of competition and patent 
policy, the FTC and the Department of Justice held 24 days of 
hearings involving more than 300 panelists. The report 
summarizes testimony from the hearing and explains the 
commission's recommendations for improving the patent system.
    Following the release of the report, the FTC cosponsored 
several additional meetings on patent reform.
    The FTC report confirms that patents play an important role 
in promoting innovation by providing an incentive to develop 
and commercialize inventions.
    It is important to remember, however, that competition also 
plays an important role in stimulating innovation. The report 
raises concerns that patents of questionable quality cause 
misalignment of competition and patent policy to the detriment 
of consumers.
    For instance, questionable patents may discourage firms 
from conducting R&D in areas that the patent improperly covers. 
If a competitor chooses to pursue R&D without a license, it 
risks expensive and time-consuming litigation.
    If that competitor chooses instead to pay royalties to 
avoid litigation, the cost of follow-on innovation and 
commercial development increase.
    The FTC report makes 10 recommendations for changes to the 
patent system. I will highlight two today.
    First, post-grant opposition. Once a questionable patent 
has issued, litigation to challenge it is extremely costly and 
lengthy and litigation is not an option unless the patent owner 
has threatened the potential challenger with patent 
infringement.
    As I described, these problems can lead a competitor to 
forego an area of R&D or pay unjustified royalties.
    Therefore, the FTC report recommends creation of a post-
grant opposition procedure and identifies several 
characteristics that might contribute to its success. A 
successful post-grant review should be allowed to address all 
important patentability issues.
    The report suggests several other features that the 
procedures should incorporate to be meaningful and to protect 
patentees from harassment.
    Second, willful infringement. Some hearing participants 
explained that they do not read their competitors' patents out 
of a concern for potential treble damages liability based on a 
finding of willful infringement.
    Failure to read competitors' patents undermines one of the 
primary benefits of the patent system, the public disclosure of 
new invention. Moreover, many firms complain that the ease with 
which a patentee can send a notice of a patent to competitors 
and trigger the need for an expensive legal opinion raises 
competitors' costs.
    Nonetheless, infringers must not be allowed to profit from 
knowingly and deliberately using another's patented invention.
    Therefore, the FTC report recommends that legislation be 
enacted requiring either actual written notice of infringement 
from the patentee sufficient to confer standing to challenge 
patent validity or deliberate copying of the patentee's 
invention as a predicate to willful infringement.
    The FTC's recommendations would permit firms to read 
patents for their disclosure value, but the recommendation 
would also retain a viable willfulness doctrine that protects 
both wrong patentees and competition.
    In conclusion, implementing these and other recommendations 
in the FTC's report will increase the ability of patents and 
competition to work together to promote innovation, consumer 
welfare and our nation's prosperity.
    We look forward to working with you on this important 
issue, and I would be happy to answer any questions you may 
have.
    [The prepared statement of Ms. Michel follows:]
                  Prepared Statement of Suzanne Michel




    Mr. Berman. Thank you very much.
    Mr. Ravicher?

TESTIMONY OF DANIEL RAVICHER, EXECUTIVE DIRECTOR, PUBLIC PATENT 
                    FOUNDATION, NEW YORK, NY

    Mr. Ravicher. Chairman Berman and Members of the 
Subcommittee, despite what most people think, the patent system 
has extremely far-reaching effects on all Americans.
    Although the public undoubtedly benefits from a properly 
functioning patent system, since patents are Government-created 
restraints on freedom and competition, the public can also be 
severely harmed by errors within the patent system.
    As with any body of law that applies to and affects all 
Americans, patent policy should be made with consideration of 
all of the public's interests, not just the special interests 
that benefit from an enlarged patent system, namely patent-
holders and patent attorneys.
    Thus, I am extremely pleased to have been invited to 
represent the general public's interests in my testimony today 
and I applaud your commitment to ensuring that all affected 
interests are represented in patent policy discussions in the 
future.
    There are several ways to strengthen the patent systems so 
that it benefits all Americans. One of the most important 
issues on which to concentrate is ensuring high patent quality.
    Of the several sources available to help us determine the 
current level of quality for U.S. patents, each paints a very 
clear picture that patent quality today in America is not as 
high as we would all like it to be.
    Poor patent quality has many harmful effects, not the least 
of which is that undeserved patents can impede otherwise 
permissible, socially desirable conduct and they do this 
without providing any social benefit whatsoever, because what 
they disclose is not, in fact, new or unobvious.
    Poor patent quality also bears much of the blame for the 
intensive increase in patent litigation, the dramatically 
higher costs of patent litigation, and the rapid rise of patent 
speculators.
    It also leads to thickets of patents that choke out first 
inventors with countless small improvement patents claimed by 
others. In what is akin to great inflation, by granting too 
many people too many patents, those inventors who legitimately 
did derive wonderful new technology get less credit than they 
deserve because of all the other patents that are issued in the 
related field.
    This results in less incentive for the truest of innovators 
amongst us and instead encourages investments in making minor 
improvements to the inventions of others.
    These are, unfortunately, only a few of the many harmful 
effects that poor patent quality is having on the American 
public today. The problem of poor patent quality is often cast 
simply in terms of the PTO's inability to find prior art, which 
would suggest a simple solution of giving the PTO more funding 
so examiners can spend more time searching.
    But the problem with patent quality is much larger than 
that and it cannot be solved by just providing additional 
resources to the PTO.
    We have found that there are three interrelated causes for 
today's poor patent quality. First, the current examination 
process for patent applications denies examiners the ability to 
reject patent applications of questionable validity because it 
is crippled by perverse incentives and perspectives.
    Second, the threshold of inventiveness required to receive 
a patent has been severely whittled down by the court of 
appeals for the Federal circuit.
    Third, patent boundaries are too indeterminate, leading 
actors to make decisions regarding behavior based on their own 
best guess at the scope of a patent's claims, which too often 
leads to an avoidance of socially beneficial activity.
    Since there are several causes of poor patent quality, 
there are also several ways to improve and maintain a high 
level of patent quality. First, the improper incentives placed 
on the patent office and its examiner corps to grant patents 
should be eliminated so that the decision of whether to grant 
or reject a patent application can be made on a purely 
scientific and technological basis, uninfluenced by political 
or financial concerns.
    Second, continuation applications which allow patent 
applicants to get an unlimited number of bites at an unlimited 
number of apples should be completely eliminated.
    Third, a vigorous obviousness standard for patentability 
should be reinstated.
    Fourth, a post-grant review procedure can be a valuable and 
efficient tool to perform quality assurance on issued patents, 
so long as the public is enabled to bring an opposition 
proceeding for a patent whenever they are threatened by not, 
just within the first 9 or 12 months of its issuance.
    Fifth, the Federal circuit's super presumption of validity 
should be negated.
    Lastly, to address the problem of indeterminate patent 
boundaries, a patent's validity should always be analyzed 
according to the broadest reasonable interpretation of its 
claims, a much less debatable interpretation and the one used 
by the patent office in reviewing applications.
    And the currently dormant statutory prohibition against 
indefinite claim language should be awakened and strengthened.
    In addition to patent quality, there are other aspects of 
the patent system that are in need of reform, as well.
    First, inventions should be made available to the American 
public as quickly as possible, regardless of whether the 
patentee does so herself or not.
    Second, patents should not be allowed to restrict the 
exercise of constitutional rights or the performance of 
technological research.
    Third, the statutory limitations on what things may be 
patented, which have been eviscerated by the Federal circuit, 
should be revived.
    And, lastly, the doctrine of willful infringement no longer 
services any socially beneficial purpose and, as such, should 
be abolished.
    Thank you, Chairman Berman and Members of the Subcommittee, 
once again for inviting me to make the remarks about our 
current patent system and the need for patent reform.
    I and others in the public interest community look forward 
to continuing to assist your efforts to ensure the patent 
system achieves its constitutional purpose of advancing 
technology.
    [The prepared statement of Mr. Ravicher follows:]

                Prepared Statement of Daniel B. Ravicher




    Mr. Berman. Well, thank you very much.
    It is the Chair's intent to recognize, as a general matter, 
for the future, people who are here in the order of seniority 
at the beginning of the hearing and then as they come in, in 
that order.
    Assuming the witnesses don't have flights to catch, I am 
hoping to have at least two rounds of questions and, if 
everyone else leaves, maybe six or seven rounds for myself. 
[Laughter.]
    But I yield myself 5 minutes.
    Dr. Myers, in your testimony, you list a number of reasons 
for declining patent quality. One of the reasons you list, 
without elaborating, is that patent approval rates are higher 
than in some other major nations' patent offices.
    First, I might add that I have been told recently that 
actually the U.S. Patent Office rate of approval is starting to 
go down.
    But why do you think the U.S. PTO issues more patents than 
other offices and just what is the problem with that?
    Mr. Myers. I am not certain of the differences between the 
European patent and the United States, because, in fact, there 
are actually so many different patent systems within Europe and 
Japan, as well.
    What I think, though, is we had a great expansion of 
patenting in the technology period of the 1990's. At the same 
time, we did not increase the number of patent examiners 
proportionate to the workload and it is, frankly, seen, in 
part, as productivity, that is to say, yielding more patents 
for the amount of examiner hours.
    And I think what Mr. Ravicher, I think it was, referred to 
the incentive to----
    Mr. Berman. The grant.
    Mr. Myers. Yes. There is a high incentive to grant in that 
period and I think that that was at play within the United 
States system.
    Mr. Berman. If both Mr. Ravicher and Professor Jaffe could 
comment on this. Much opposition to an additional re-examine or 
a robust post-grant opposition proceeding, a lot of the 
opposition to the post-grant opposition is that it would impact 
on the ability for a patent-holder to maintain quiet title.
    Mr. Ravicher, you addressed this issue in your testimony. I 
would appreciate if you could expand on that.
    And, Mr. Jaffe, I would also be curious about you 
commenting on the economic impact of the instability in the 
market resulting from that kind of a review process.
    Mr. Ravicher. I understand the desire of patent-holders to 
want quiet title. It is important and valuable to them and 
their investors, and I believe they can provide it for 
themselves.
    If they are willing to agree to not assert their patent 
against the public, then there is no reason for the public to 
be worried about the existence of the patent.
    But so long as the patent is issued, the current Patent Act 
says that all the public must abide by it and avoid infringing 
it.
    Mr. Berman. I don't understand. Why would you want a patent 
that you couldn't assert?
    Mr. Ravicher. Well, you can change your perspectives on 
that. Cisco is one large company that generally is known to 
have a no first strike policy. IBM has licensed hundreds, if 
not thousands of their patents for free use, so long as no one 
sues them for patent infringement.
    A lot of large companies, Microsoft, et cetera, sign these 
cross-licensing agreements which are, in effect, agreements not 
to assert against one another, because of the transaction costs 
that would be involved if they did have these numerous fights 
of patent challenges.
    So the same principal, why would someone do that amongst 
their large competitors, why wouldn't they do it, generally 
speaking, there are the same incentives.
    But so long as a patent is issued, the public must abide by 
it and respect it. So, therefore, if there are questions about 
its validity, a post-grant review procedure which is efficient 
and fair should be eligible at any time of its validity.
    Mr. Berman. Dean Jaffe?
    Mr. Jaffe. I think I have a slightly different perspective 
on this and I am going to talk about this like an economist, 
not a lawyer, because I am not a lawyer.
    I think there is a tension here. On the one hand, it is 
vital that holders of valid patents can, in some sense, in an 
economically meaningful sense, rely on the patent protection 
that they believe that they have gotten.
    And, therefore, that is why, for example, I don't agree 
with the recommendation that the Federal Trade Commission made 
about changing the fundamental notion of the presumption of 
validity, because I think once a patent really has been issued, 
if it has been subjected to a process that we are confident in 
to ensure that it should have been granted, I think it is 
important that patent-holders have that presumption of validity 
so that they can rely on that in investing in their technology.
    But I think the flipside of that then is if you are going 
to have a presumption of validity, we have to have a review 
process that is a logical basis for presuming that these things 
really are valid once they have been issued.
    And I think given that we have hundreds of thousands of 
applications a year, it is simply not practical to have an 
examination process which, in the first instance, is 
sufficiently thorough to guarantee the level of validity that 
would, as a logical matter, not as a legal matter, but as a 
logical matter, would support a presumption of validity.
    So in my view, some kind of post-grant review is the 
logical resolution of that tension. Once it ultimately comes 
out of the patent office, we need to be able to presume that it 
is valid.
    But on the other hand, we can't afford to have the kind of 
thorough review of every patent that would guarantee that.
    And so to say we will review the patents, if someone wants 
to, in some way, ask for re-examination, there will be that re-
examination and, therefore, patents which have either survived 
such a re-examination or for which no one has asked for it, 
there will be a logical basis for presumption of validity.
    And that is why I do think, again, I would disagree with 
Mr. Ravicher at this point. It is not unreasonable for there to 
be some time period in which that post-grant review or re-
examination or whatever you are going to call it ought to 
occur, because that is the way in which people who really do 
have a valid patent can in some way get to the point where they 
can rely on the fact that their patent has been granted, either 
has been challenged and survived or it has not been challenged, 
and, therefore, they can go about their business and rely on 
then protection that the patent offers.
    Mr. Berman. The time has expired.
    Mr. Jaffe. That is because I am longwinded, I am sorry.
    Mr. Berman. No, no, no. It was very interesting.
    I recognize the gentleman from Florida, Mr. Feeney, for 5 
minutes.
    Mr. Feeney. Thank you, Mr. Chairman.
    First, Professor Jaffe, as an economist, I remember one 
wit, and it may well have been an economist, once saying that 
there was a direct correlation and he could give you a 
prediction of the relative prosperity of a nation based on the 
number of patents that issued in that country.
    And he specifically cited, for example, that the number of 
scientists born in India that came to America and established 
patents far exceeded by multiples of hundreds or thousands the 
number of patents that had been issued at that time, which was 
some years ago, in India.
    Number one, if that historical correlation was roughly 
accurate, if it ever was, when did we get to the point where 
the concerns were more about the quality and the mechanisms for 
enforcement as opposed to the raw number of patents issued, 
telling us how prosperous we are likely to be?
    Mr. Jaffe. I don't know if I can give you a comprehensive 
answer to that, but I would say from 1836, which was the time 
that the patent system, in roughly its current form, was 
established in this country, until 1985, the number of patents 
granted in the U.S. increased at about 1 percent a year, quite 
steadily, which is less than the population.
    So over the entire 19th and first three-quarters of the 
20th century, a time of tremendous technology development in 
this country, we were actually producing fewer and fewer 
patents every year relative to the population.
    And then what happened is 1985, almost to the day, there 
was a radical upward shift in that trend. So that the number of 
patents has increased dramatically since 1985, at a rate of 
more like 6 percent a year.
    Now, my colleagues and I in the scholarly profession have 
actually wasted a lot of computer time and a lot of paper 
trying to dissect that increase into the portion that may be 
attributable to a true acceleration in innovation and the 
portion that seems to be attributable to a change in the 
practice at the patent office and the answer seems to be it is 
some of both.
    So I think the last 2 decades, something really has changed 
and what we have seen--I am not claiming innovation has 
stopped, obviously. There is still a lot of innovation in this 
country and much of it is patented and some of it is supported 
by the patent system.
    But what we have seen is an increasing loosening of the 
connection and an increase in the amount of patenting that is 
not connected to true innovation.
    Mr. Feeney. Well, I think that is the best you can do about 
a comprehensive question.
    I wanted to know, of all the witnesses, and I will just be 
brief here, but there are some key issues.
    Could anybody raise their hand if they do not agree with 
the following statement, because there seems to be unanimity 
that all the witnesses agree that resources at PTO is a 
problem.
    Raise your hand if you disagree.
    There seems to be unanimity that the obviousness standard 
needs to be reinvigorated or reinserted. There seems to be some 
agreement that the Federal circuit's decisions have impacted 
the effective mechanism for enforcement.
    Now, there is disagreement that the willfulness standard 
has utility.
    Mr. Ravicher, you don't believe it has any meaningful 
utility.
    Anybody else agree with Mr. Ravicher?
    Mr. Myers?
    Mr. Myers. In our report, we did not believe that the 
willfulness was useful at this stage.
    Mr. Feeney. So there are some differences in the panel on 
that.
    I also wanted to ask Dr. Myers, you talk about harmonizing 
Europe, the Japanese and the American patent examination system 
and that will be an interesting subject for a whole variety of 
reasons.
    But one of the things I would like to ask you is how would 
that impact some of the more egregious countries that fail to 
protect property rights in an increasingly flat global world? I 
am thinking especially China and Russia, but there are many 
more.
    I mean, the fact that we harmonize, does that put us at a 
relative advantage or disadvantage with people that aren't 
doing a good job at all?
    Mr. Myers. Well, those are, in fact, interrelated, but 
separable issues. In fact, if we take a look at the weight of 
the innovation processes at the present time, that Europe, 
Japan and the United States are, in fact, by far the most 
innovative of these economies.
    Clearly, China is coming up, but still is far behind. And 
what we argue is that as we make changes in our system, we 
should, in fact, make them in such a way to make a 
harmonization possible and not to put remedies in place that 
remove us away from harmonization.
    I have worked for years for our global corporation, 
American-based global corporation, of which we produce products 
in 41 different economies in the world and that having a common 
base of intellectual property to be able to move our products 
in the world would be an extraordinary benefit to American-
based corporations.
    Mr. Berman. The time of the gentleman has expired.
    The gentleman from Virginia, Mr. Boucher.
    Mr. Boucher. Thank you very much, Mr. Chairman. I want to 
commend you, Mr. Chairman, for your leadership in this very 
important policy area.
    It has been my privilege to work for what has now been 5 
years with Chairman Berman as we have constructed now two 
separate bills in two separate Congresses to address the need 
for better patent quality.
    We started 5 years ago out of a concern about business 
method patents and the fact that some of the ones issued were 
so broad that they were effectively walling off entire areas to 
commerce and instead of enhancing innovation, actually 
retarding innovation, because fewer people could get involved 
in the business and in the process of innovation.
    And the more we looked into the matter, the more we decided 
there were really deeper problems and those deeper problems 
were the need for better patent quality.
    So now, over two Congresses, we have introduced two bills 
and, under the Chairman's leadership and sponsorship, we will 
be putting a third one in very shortly, hopefully within the 
next month.
    But I am still concerned about business method patents. I 
read in the New York Times back in the fall that now business 
method patents are being awarded for tax strategies.
    And I know the CPA profession is very concerned about this 
and I guess all of us, as taxpayers and clients of the advising 
profession on tax strategies should be worried about it, too.
    And I am worried about it generally in terms of whether or 
not this fact and the award of patents like that perhaps means 
that the patent office is not doing what they represented to us 
they were doing.
    They told us a couple of years ago that they had instituted 
something called the second look policy and that the second 
look policy was designed to apply a tighter screen and greater 
care on the patent examiners in reviewing and passing on 
business method patents and they have talked about a decline in 
the relative awards of business method patents as compared to 
the numbers of applications filed.
    But if they are issuing awards for things like tax 
strategies, I have to question how effective that screen and 
that new second look really is.
    So what I would ask each of you is to give me your thoughts 
on business method patents generally. Is the second look at the 
patent office working? Are we seeing business method patents 
that are too broad being issued?
    And while our bill doesn't address that, because we were 
relying on this second look to solve the problem, do you think 
we perhaps ought to go back to where we started and add to our 
patent quality bill provisions addressing business method 
patents, either restricting the scope of them or, as a few 
people have suggested, eliminating them all together?
    Who would like to begin?
    Mr. Jaffe. Well, I have thoughts on that.
    Mr. Boucher. Mr. Jaffe?
    Mr. Jaffe. I think I share many of your concerns, but I 
think that at the end of the day, I would like to encourage you 
to stay where you are as opposed to go back to where you 
started or something like that.
    I think that the problem with business method patents is 
the fundamental problem of the obviousness standard and the 
operation of the patent office and its inability to get the 
appropriate information from the people who really know about 
what really is novel and what really is obvious.
    I think that the danger with trying to, from a statutory 
perspective, somehow create a special standard for business 
method patents or, alternatively, remove patent protection from 
that category is that it is very difficult once you go down the 
road of trying to have a patent system that is different for 
different kinds of inventions to make that work in the public 
interest, and the example that you cite of the extra look is a 
case in point.
    My coauthor, Josh Lerner, has actually done some empirical 
work looking carefully at what has actually happened to patents 
that generally relate to business since the patent office 
implemented this second look approach.
    And what he has shown is that there has, in fact, been a 
significant decline in patents in what are categorized as 
business methods and a corresponding increase in patents in 
closely related fields that are not subject to the second look.
    Basically, what applicants have figured out how to do is, 
at least to some extent, to craft their applications so that 
they get around the tighter scrutiny that is imposed on 
business methods.
    Mr. Boucher. Sounds like campaign finance reform.
    Mr. Jaffe. I have no opinion on campaign finance reform.
    I would submit that that same kind of difficulty would crop 
with intensity with the statutorily, which is to say the world 
out there is just too complicated.
    Mr. Boucher. I don't disagree with you. We basically 
decided not to put provisions in our bills relating to business 
methods for many of those reasons.
    I will have to confess, though, some measure of concern 
seeing the kinds of broad business method patents, such as tax 
strategies, that now apparently are getting through the screen.
    Let me just quickly, and I know my time has expired, see if 
anyone else wants to comment on business method.
    Mr. Ravicher. I would actually like to argue that expanded 
patentable subject matter was not caused by the PTO.
    In fact, if you look at the PTO's history, they have 
generally fought very hard against the expansion of patentable 
subject matter.
    It has been the Federal circuit that has actually done all 
the----
    Mr. Boucher. I am aware of the State Street Bank case.
    Mr. Ravicher. And I am very concerned about introducing 
patents in a field where they have no economically positive 
effect.
    Mr. Boucher. So your recommendation?
    Mr. Ravicher. Is that software should not be patentable 
subject matter and neither should business method.
    Economists have studied his and found that it doesn't 
enlarge investments and it actually increases the costs, 
transaction costs of patent litigation and hiring patent 
attorneys. So there is a negative effect on the industry.
    Mr. Boucher. Mr. Chairman, it is up to you as to whether we 
carry this on. There are others who want to respond.
    Mr. Berman. Let's take an additional minute.
    Mr. Myers. Both software and business method patents, I 
treat them the same way. What I find is the European thinking 
on this subject attractive, is that there has to be an 
inventive step and I generally look for technical advances in 
the underlying inventive step.
    Then it becomes less ambiguous to me that it actually 
should be a patent.
    Mr. Berman. Let's move on to the gentleman from Virginia, 
who has also been very involved in this, Mr. Goodlatte.
    He is gone, all right. I think Mr. Cannon was here next.
    Mr. Cannon. Thank you, Mr. Chairman.
    First of all, I appreciate your having this hearing. It is 
a very important topic, and we spent a lot of time last year 
working on it, and I hope we make some progress this year.
    It is a complicated debate, and I believe what we are doing 
intellectually is the most important production in America 
today, and we need to take care of that.
    One of the issues we dealt with extensively last year was 
venue. And, of course, there are a number of articles about 
venue and about the issues and about the filing of patent cases 
in Marshall, Texas, as a way to game the system.
    I am supportive of the language that would limit the 
ability of true patent trolls to pick forums with which neither 
party has any connection and where no evidence concerning the 
case could be found.
    So I would like to ask the panelists generally, each of 
them, do you perceive any problems of having venue language 
expressly establishing a de minimis context standard for the 
filing of a patent suit, while the limiting the ability to game 
the system by, for example, assigning the patent to a shell 
entity located in a particular forum, or should these disputes 
be heard where the real parties of interest are located?
    And what would be the benefits or problems of attempting to 
create such a standard?
    I am not sure if all of you have--you have various 
backgrounds here, and, frankly, an economics approach to this 
is as important to me as the legal approach.
    But I suspect that, Ms. Michel, you were making notes and 
you are a lawyer and you might want to take a first cut at 
that.
    Ms. Michel. Actually, Congressman, I am aware of the debate 
surrounding the venue issue. However, it was not part of the 
FTC's study or part of the FTC's report. So I won't be able to 
comment on that.
    Mr. Cannon. Thank you.
    Do we have any comments on venue from others?
    Well, it is sort of a legal technicality. I hate to bug you 
with this, but what it really does is it distorts the market by 
having judges chosen by people whose interests may not be as 
substantial and getting into a long process that never gets 
booted out of court and, in fact, the party may win.
    Mr. Berman. Would the gentleman yield?
    Mr. Cannon. Certainly.
    Mr. Berman. It has been a great boon to the hotel and 
restaurant industry in the area.
    Mr. Cannon. I know. I am trying to figure out where this 
argument was going, because maybe we can do something in Utah 
along those lines for economic development.
    Although I hasten to add that because we have a lot of 
intellectual property, our unemployment rate is like 2.6 
percent, 2.7 percent in Utah. So we are not complaining we 
don't need this industry.
    Mr. Ravicher, do you have any ideas on this issue?
    Mr. Ravicher. Well, my only concern is that everyone gets a 
fair day in court and that right is deserved by patent-holders 
as much as defendants.
    So a venue statute, a change in venue may work to balance 
more fairness in the playing field, but I would just want to 
encourage that we don't go too far and make the court of choice 
determined by the venue statue to be too favorable to 
defendants.
    It should just be fair. And I agree with you, there are 
lots of concerns about the eastern district of Texas at this 
point. Hopefully, that will work itself out over time, but a 
venue statute might also help address that more quickly.
    Mr. Cannon. You know, the fact is that it is very 
complicated. If you go too far, you really foul up. And so that 
is the key to be balanced. But we have had some excesses and 
people with no--I don't know how you even describe what we 
often call trolls, getting an exceedingly great advantage based 
upon a choice of venue.
    Mr. Myers, do you have comments on that?
    Mr. Myers. No. That was not part of our study and I do not 
have personal knowledge to contribute to this.
    Mr. Cannon. Mr. Jaffe, do you have an input?
    Mr. Jaffe. Sorry, I really haven't looked at it.
    Mr. Cannon. One of the problems here with, if I can just 
give my own perception here for the record, one of the problems 
with this issue is this is a very complicated issue and how you 
do what you said, Mr. Ravicher, how you balance this so you 
don't go too far in any direction is very, very important, 
involves many things that some parties would like that are 
dramatically opposed by other parties.
    Some of the simple rules may be the best way to actually 
deal with that.
    Maybe, Mr. Jaffe, you could address this to some degree. We 
have had this proliferation of patent cases on the Supreme 
Court docket.
    Does that signal a need for us to do more here in Congress 
to clarify things?
    Mr. Jaffe. From my perspective, I don't think the Supreme 
Court taking these cases signals one way or the other. I think 
that a number of the cases that they have taken offer the 
potential for them to do some good on some of the issues that 
we have talked about, but I don't think anyone thinks that 
those cases are going to solve all the problems.
    So I think the issues that we have talked about are 
neither--that neither makes them more urgent nor less urgent. 
They are there and they need to be dealt with.
    Mr. Cannon. The rumbling in the background, we hope someday 
somebody will invent a round wheel to solve that problem.
    I see that my time has expired, Mr. Chairman. I yield back. 
Thank you, Mr. Chairman.
    Mr. Berman. If the Subcommittee will allow me, I am going 
to go out of order and recognize the gentlelady from 
California.
    Ms. Lofgren. Thank you, Mr. Chairman.
    I really want to commend you for scheduling this hearing 
and I am really very excited about the prospects for successful 
action in this Congress on a bipartisan, bicameral basis.
    I just sense that we are going to be able to achieve a 
useful reform in this Congress and that is good news.
    It has been interesting to hear you, Mr. Ravicher. I have 
not run into you before.
    But just thanks to all the witnesses. What you have done, 
actually, all of you, has helped to bring us here today. I 
mean, the National Academy report really had a profound 
influence on my thinking and I think the thinking of all of us.
    And, Professor Jaffe, your book came out and we are all 
reading it and it really was a major impact on helping us to 
understand issues.
    Obviously, we may not agree on every single recommendation, 
but it was a very useful publication. And, certainly, the FTC 
report, also, very, very helpful.
    I was interested, when I read your book, Professor Jaffe, 
about the impact--I wasn't in the Congress when the Federal 
circuit court was devised, but certainly the impact was 
different than anybody intended.
    And I am thinking about how all of you are familiar with 
the various things that we have had in the various bills. I am 
haunted by the fact that really the best of intentions had 
unintended consequences in terms of the Federal circuit.
    Do you see any of the various remedies that we have 
considered in the various bills having that kind of unintended 
outcome, such as the circuit court?
    Is that fair to ask, Professor, or any of you?
    Mr. Jaffe. Well, it is always fair to ask. I always tell my 
students there are no bad questions, there are only bad 
answers.
    I guess what I would say is, obviously, you could never 
know for sure. I think what I would urge you to try to think 
about to avoid that, I think with the benefit of hindsight, but 
I think perhaps there could have been foresight there, what 
went wrong with the court of appeals for the Federal circuit is 
that Congress viewed the problem as purely an administrative 
one and thought about it as an issue of what will make the 
administrative system, the court system, work best on its own 
terms.
    And what an economist would say is what you always need to 
think about is how the people out there are going to respond. 
What incentives are you creating for them to act differently 
than they were acting before?
    And I think that if you try to keep in the front of your 
mind the incentives that you are creating for the people in the 
economy, inventors, lawyers, companies, and how you are 
changing their incentives, I think you at least increase the 
chances that you will avoid some unintended consequences.
    I do think there is a danger; we have already talked about 
it, so it is not like it is unseen. Congress is right to be 
concerned that the changes that it makes to deal with patent 
quality will create opportunities for people who simply want to 
make trouble for those who really have invented something and 
are trying to get a valid patent to make it harder for them.
    I think we all recognize that there is a balance there and 
that is something that we need to be conscious of in designing 
these changes.
    Ms. Lofgren. Dr. Myers?
    Mr. Myers. Well, the unintended consequence that I would 
hope that we would avoid is to take acts of reform that, in 
fact, would make harmonization more difficult.
    Ms. Lofgren. Well, I was wondering, I was intrigued by your 
comment and I think of all the things that we might want to do, 
directly stepping up on harmonization is probably politically 
one of the more difficult things to achieve.
    Mr. Myers. Yes.
    Ms. Lofgren. But are there any of the remedies, and they 
are really litigation remedies more than anything else, that 
you think we should look at and probe as a potential barrier to 
eventual harmonization?
    Mr. Myers. Well, one of those that we need to act on is to 
align ourselves with the rest of the world and to resolve the 
issue of first to invent versus first to file.
    Ms. Lofgren. That may be one of the harder things to do.
    Mr. Myers. That is one of the hardest. But if we cannot get 
there, we never can get started.
    Ms. Lofgren. I agree with you and actually I agree with 
where we need to be ultimately on that, but are there any set 
of remedies that, if we were to adopt them, that we have 
considered, would put us farther away rather than closer to 
eventual harmonization?
    Mr. Myers. Yes. To the extent that we tailor remedies to 
specific industries, we will make it harder to, in fact, have a 
uniform harmonization.
    Ms. Lofgren. The TRIPS issue.
    Mr. Myers. Right, and the TRIPS issue. I might just add, 
with respect to your comment, one of the things, though, that 
the importance of the Supreme Court acting on a number of these 
cases, to the extent that they consider the obviousness 
standard, that is not something that we can achieve through 
legislation.
    And the obviousness standard could be treated at the 
Supreme Court, which would have significant impact on the----
    Ms. Lofgren. My time is over.
    I agree, I am eager to see. Of course, we will know 
probably before we act what the court is going to do on that.
    I recall Mr. Berman saying, I think in the last Congress, 
on the injunctive issue, maybe we should just re-enact the 
statute and say this time we mean it.
    So some of this is really not as easily subject to 
legislation.
    And I appreciate the gentleman for recognizing me.
    Mr. Berman. It is funny you should raise that, because we 
looked at that statute, we were all talking and we said, ``This 
is what we think it says,'' even though the Federal circuit has 
said something else and then the Supreme Court, in its infinite 
wisdom, said it did say what we thought it said.
    Mr. Issa?
    Mr. Issa. Thank you, Mr. Chairman, and thank you for 
continuing the work begun so many years ago and with new vigor.
    It is not often that I have local inventors and people 
interested in a hearing so much that we have endless e-mails 
requesting that I ask specific questions.
    So I have culled through the many questions to just one, 
which you can respond to very, very quickly and/or in writing, 
then I will have met my obligation at least in one part of 
many.
    That is that I have a constituent who is convinced and says 
that the 30 to 35 percent invalidity that is found on patents 
when they are litigated today is actually lower than the 55 
percent or so that had all or part struck down in the 1970's 
and 1980's.
    I couldn't find validity in that. Is there anyone that has 
knowledge that could give me the fact that apparently we are 
actually lowering the amount of striking of claims in current 
litigation versus previous litigation?
    Mr. Ravicher. Those numbers are absolutely correct. There 
was a much higher rate of finding patents invalid in litigation 
prior to the creation of the Federal circuit and that was one 
of the reasons for the creation of the Federal circuit.
    Mr. Issa. Okay, so we are not going to pooh-pooh the 
Federal circuit anymore today. They have done at least that 
amount of good.
    Let me move on to a few of my own questions and some of 
them also mirror constituent questions.
    I guess, first of all, let's establish something maybe as a 
common ground. What this Committee has looked in legislation at 
is the question of post-grant re-examination or post-grant 
opposition.
    But can we all agree that today the patent office, during 
the entire life of a patent, has an unlimited amount of time in 
which it can re-examine based on submittals of ex parte 
information or information it obtains directly, it can choose 
to re-examine patents? Is that correct? Am I missing something?
    So those would argue that they want certainty don't have it 
today. Is that correct?
    Second question--and that is a ``yes,'' by the way, for the 
note-taker.
    Mr. Berman. Yes, it sounds like yes.
    Mr. Issa. The second question would be, do we all agree 
that re-examination, as it is today, is not well-appreciated or 
regarded by the outside world and that that has at least 
partially led to the PTO changing from the examiner re-
examining oneself to the board that they are now beginning to 
implement?
    Is that pretty well-agreed that it was dissatisfaction with 
the quality of re-examinations that led to this? It is okay not 
to have an opinion, but if I have missed something, I want to 
know.
    Mr. Ravicher. Well, I will agree that there is a general--
not a lot of safe in the re-examination process being as 
successful for challengers to patents as other methods of 
challenging the patent.
    Mr. Issa. Then because I have draft legislation that we 
have been working on in our office, I am going to ask the next 
question, because I really want the answer.
    Is there any reason that any of you can find that we 
wouldn't try to combine post-grant, which was in the previous 
two Congresses, and the re-examination process and make a 
robust workable system that recognizes that if there is 
significant new information in the current re-examination, we 
already have the ability to look as many times as an 
independent body believes that there is significant new 
material to be re-evaluated, if we hybrid that, in a sense, 
with post-grant, but make it have higher certainty and higher 
credibility, is that ultimately an acceptable goal for 
legislation this body may come up with?
    Ms. Michel. If I could address that, Congressman.
    There are other concerns, though, with the current inter 
parte re-examination procedure that we think a post-grant 
opposition procedure might remedy, that being, for instance, 
the current inter parte procedure before the patent office 
doesn't allow the challenger to raise some important issues of 
validity.
    Mr. Issa. Right, and I have no problem with--and I would 
like to have that in writing, because as we craft, assuming 
that no one has any objection to the idea that you have a post-
grant re-examination process.
    People just don't like it or believe in it or feel that it 
is fair or feel that it has the certainty and they don't like 
that it isn't really truly effectively binding on the court.
    So it doesn't resolve anything if you are proceeding to a 
district court. It doesn't necessarily bring you the finality 
you would like to have and it certainly doesn't bring you an 
automatic appeal to the fed circuit.
    Assuming many of those things might be in the follow-on 
legislation, I would ask each of you that has information on 
how you would like to see it, please submit it in writing.
    My reason for it and the reason I am sure the Chairman will 
look forward to seeing it is that the hope is that there is 
something between one of the biggest stumbling blocks we had in 
the previous two Congresses on this legislation, which was 
everyone--if you will indulge me for a second, Mr. Chairman--
believing, wait a second, post-grant, that is somehow new, when 
I said it and said, ``No, wait a second.''
    I have done a re-examination of a patent against my own 
company that was more than a decade old. Actually, it was near 
expiring and we succeeded. It is not uncommon.
    So knowing that that existed is why I hope that all of you 
could respond with if we assume we are going to consolidate 
into one effective system in our legislation, if the Chairman 
allows it to be entered, that we would like to have as much 
information into it.
    If you will, the theme of it is ``mend it, don't end it.''
    Thank you, Mr. Chairman. I yield back, even though I have 
4,000 more questions.
    Mr. Berman. Thank you very much.
    The gentleman from California, Mr. Schiff?
    Mr. Schiff. Thank you, Mr. Chairman.
    Thank all of you for being here. This has been a struggle 
for us for a number of years to get a bill that we could all 
agree on. But I am confident that our Chairman, who is a master 
of the legislative process, will find a way to make it happen.
    Mr. Berman. Mastery of the legislative process?
    Mr. Schiff. If it can be done, you are the person who could 
do it. I am sure it will be correctly placed in the record.
    One of the obstacles, on a very kind of macro level, we had 
and still have is disagreement among industries about the 
proposed reforms. Since they use the patent process in 
different ways, the technology and software industries, patents 
having many sub-patents in them.
    Pharmaceuticals may be relying on one patent for a drug or 
a small number of patents.
    Do you have any suggestions about how to reconcile those 
conflicts, since there have to be reforms in order--to any 
inventor and legitimate patent-holder's benefit, there ought to 
be a common ground that we can find that don't have either 
unintended consequences or reduce the potential for unintended 
consequences or that represent simply a tradeoff of one 
industry's advantage for another.
    Do you have any thoughts on how to bridge that problem that 
we have wrestled with?
    Ms. Michel. I will take a stab. It is the $64,000 question 
here.
    But I actually believe that there is quite a bit of common 
ground between both industries, that they are both--I don't 
mean to say both industries, there are certainly more than two 
involved.
    But certainly I think all industries that use the patent 
system are deeply committed to improving patent quality. There 
is a wide range of agreement that there ought to be some kind 
of post-grant opposition procedure and that the disagreement 
really comes down to the details on that one.
    I can't give you an answer on how to reconcile their 
disputing views, but they do agree there should be some kind of 
procedure there.
    The other big area of disagreement was the injunction issue 
and I think, at this point, with the Supreme Court's eBay 
decision and with the district courts dealing with that 
decision right now and approaching it, the Federal circuit has 
not yet taken a case, that probably the best procedure there, 
in my view, would be to just wait and see what happens.
    So that area of disagreement is off the table and that 
leaves a lot less.
    Mr. Schiff. Thank you.
    Anyone else care to jump in?
    Mr. Myers. The big difference that has been, say, between 
the pharmaceutical industry and the electronics industry, the 
pharmaceutical industry still is built around the notion of 
blockbuster patents, a single patent creating an entire drug, 
and the electronic industry, as Intel might have thousands of 
patents that would be composed of a single product.
    Where I see that all of these technologies are going will 
be complex systems. And so the drug industry will, in fact, I 
think move into what looks very much like what the electronics 
information industry is today.
    And so when we talk about bioinformatics, it is biology, 
traditional pharmaceutical, but informatics is information 
technology. And so I think it is going to become an 
increasingly shared space.
    Mr. Schiff. So we are going to see in this area what we 
have seen in the entertainment industry with content providers 
becoming tech providers becoming pipeline companies.
    Mr. Myers. Yes.
    Mr. Schiff. Let me ask you, since you mentioned the post-
grant opposition being one of the remaining potential issues, 
what are the unintended consequences?
    For the people out there, Professor, as you describe them, 
how are they either going to take advantage of a post-grant 
opposition, game a post-grant opposition or otherwise make good 
economic use out of post-grant opposition?
    How should we look at the incentives that would create with 
an eye to preventing abuse?
    Mr. Jaffe. Well, from my perspective, I guess, as Suzanne 
said, the details do matter and people are going to argue over 
the details and it may be difficult to know exactly how that is 
going to play out or how that is going to affect people.
    But conceptually, from my perspective, what the post-grant 
opposition is about is creating a system in which people who 
have information about the novelty and obviousness of patents 
that have been applied for and recently granted are induced to 
bring that information to the patent office, because the patent 
office itself, no matter how much you give it resources, if it 
remains in a mode of operating in Washington and interacting 
with the applicant and the applicant's representatives and 
trying to decide what technology is new and what technology is 
not obvious, is not going to be able to do a good job at that.
    The world is just too complicated and changing too fast.
    Mr. Schiff. And what is the nature of an incentive you 
would suggest?
    Mr. Jaffe. The incentive is that if my competitor is about 
to get a patent on something that I don't think is really new, 
that is going to hurt me and if I really have the information 
that shows that it is not new, what we need to do is create an 
environment in which I am not so handicapped by sharing that 
information with the patent office that it is not in my 
interest to do so.
    My understanding of the current inter partes re-examination 
procedure is that people in the world feel that the way the 
procedure is established, that given what they might hope to 
get out of it relative to the disadvantages it creates for 
themselves in later litigation if they bring information to the 
patent office, just choose not to use it, because the lawyers 
advise them that you are better off waiting and seeing the guy 
in court.
    So what we need to do is we need to create an environment 
in which they don't feel that way, in which everybody 
recognizes that if there is a true dispute about the potential 
validity of a patent, it is in everyone's interest to get it 
resolved early so that the uncertainty can go away and people 
can go on with the real business of innovating.
    So that is the key is to have a process where people who 
are the holders of the relevant information feel that it is in 
their economic interest to bring that information forward and 
give it to the patent office, so that it can be brought to bear 
at that stage, rather than having the patent issue, having a 
lawsuit, having lots of uncertainty and lots of expense to 
resolve that issue in Federal court with a jury who doesn't 
really have a clue what these guys are actually arguing about.
    Now, the balance to that is you don't want to create an 
incentive or competitors to say, ``A-ha, Mr. Schiff is about to 
get this great patent on a really good idea that is going to 
make my life difficult, let me muck up the works for him. Let 
me come in and throw all kinds of mud at the wall and see what 
sticks.''
    Mr. Schiff. Thank you, Mr. Chairman.
    Mr. Berman. The gentleman from Florida, Mr. Wexler?
    Mr. Wexler. Thank you very much, Mr. Chairman.
    I was wondering if I could ask Dr. Myers and any of the 
other panelists, if they wish.
    The Committee that you chaired identified, of course, that 
the second compelling issue that should be addressed, the 
harmonization issue, and you have talked about it a good bit 
this afternoon, I was curious if you have had an opportunity to 
familiarize yourself, maybe very much so, with Chancellor 
Merkel's proposal to harmonize the regulatory schemes between 
the United States and Europe and create a far-reaching economic 
non-tariff-based agreement between the United States and 
Europe, which obviously is much broader than patents, so even 
just intellectual property.
    But Germany has identified this as one of their key 
principals of their E.U. presidency, and I was curious if you 
had any thoughts as to whether or not this presents a rather 
unique opportunity to potentially harmonize patent issues with 
Europe.
    And if you do, what role do you think Congress should seek 
to play in that process?
    Mr. Myers. This was not part of our study. First is I think 
harmonization will be difficult with or without some overriding 
impetus such as this.
    But the impetus that I feel at this moment that Congress 
should place is to move in such a direction in reform which 
will not make unintended consequences of making harmonization 
more difficult.
    That, I think, would be the first prudent direction for 
Congress to consider.
    Mr. Wexler. If I may, Mr. Chairman, just quickly, I think 
just in hearing the comments and so forth and given what 
appears to be the relative degree of importance of 
harmonization, we have this extraordinary, I think, opportunity 
where, arguably, the most important leader in Europe has come 
forth with a proposal to harmonize regulatory schemes, one of 
which would be the patent scheme, and it is being debated all 
over Europe as a major proposal and not a peep in America, 
which maybe says something about us. I don't know.
    But I think it would probably be a worthy topic at least to 
think about what role we might be able to play, what you might 
be able to lead on this Committee, given the environment that 
exists in Europe in terms of the energy that is being put 
behind the issue.
    Mr. Berman. You are seeing the convergence of a long-time 
and interested Member of the Intellectual Property Subcommittee 
and the Chairman of the Europe Subcommittee of the House 
Foreign Affairs Committee talking about an issue that I was--I 
was in Germany last weekend and their vision of sort of the 
dynamic direction of the trans-Atlantic relationship, at least 
on economic issues, was very much this regulatory 
harmonization, which very much included within it the 
intellectual property and patent area.
    Thank you, Mr. Wexler, and we will think about how to do 
that.
    Do you think the Commerce Committee will let us?
    Mr. Wexler. They don't know about it yet.
    Mr. Berman. I recognize the gentleman from California, Mr. 
Sherman.
    Mr. Sherman. Harmonizing with Europe is probably easier 
than harmonizing with the Commerce Committee.
    I am new to this Committee, new, of course, to this 
Subcommittee and just learning at this point. I look forward to 
reading some of the materials.
    I have served on the Financial Services Committee and 
talked to a number of those engaged in financial services, 
banking, mortgage lending, et cetera, where they describe a 
particular horrible scenario.
    They, over the years, develop business procedures and 
eventually they end up with an organization chart to lend 
mortgages with 50 different State laws, et cetera, and then 
somebody becomes aware of what their paper flow or information 
flow system is and patents it.
    Now, it strikes me that it is unlikely to be novel if you 
learned about it by talking to friends at a mortgage lending 
company.
    There is also this discussion of first to invent versus 
first to file. Is the current patent system to the point where 
I can file for a patent on somebody else's business system and 
then have them pay me royalties if they want to keep doing 
business the way they have been doing business?
    Professor Jaffe? That is what you get for being the one 
nodding while I was asking the question.
    Mr. Jaffe. Right. It is not supposed to be. As you 
indicated, in the scenario you described, the patent 
application is for something which is not novel.
    And without going into the details of first to file versus 
first to invent, that is actually not directly relevant here. I 
mean, the fact that the organization has not filed for a patent 
on its organization doesn't bear on the fact that it is still 
not novel, if they, in fact, have been doing it for a period of 
time.
    The difficulty is, and I am not going to speak to the 
specifics that you have addressed, because I don't know, but I 
think the generic difficulty the patent office has is in these 
new areas, it is harder for them than in other areas to learn 
as to whether things really are novel, because there aren't 
patents for them to go look at to see what has been done 
before.
    And that is why I think the problem is not patents on 
financial services or business models, the problem is a system 
where things that are not novel won't get through because 
people will make sure the patent office knows that.
    Mr. Sherman. Now, some experts perceive a problem with the 
way damages are calculated in patent infringement cases. Their 
concern is that courts will award to a patent-holder damages 
amounting to the entire market value or entire profit of a 
good, even when the producer of that good has infringed the 
patent unintentionally and, in fact, the patent that they have 
unintentionally infringed represents just one aspect of the 
patent.
    Should we allow courts to determine awards based upon the 
entire product and the entire profit to be generated in selling 
that product and is there some other measure of damages that 
would be more fair?
    Mr. Ravicher. Well, the Patent Act says that the damages 
you are entitled to are equal to the higher of either 
reasonable royalty or your lost profits and there is very well-
documented case law on how you calculate lost profit.
    Sometimes you get a hybrid result. So the statute is quite 
fair in its language. It has been interpreted by some courts, 
including the Federal circuit, to be a little bit larger, a 
little bit more favorable for patent-holders and perhaps that 
statute should be clarified to better define the term 
``reasonable royalty'' and that that royalty is not based off 
the value of the entire product of which one small component 
infringes your patent, but the reasonable royalty related to 
that component which you added.
    Mr. Sherman. So it is the higher of your reasonable royalty 
or what was the other standard?
    Mr. Ravicher. Lost profit.
    Mr. Sherman. Lost profit. Well, my lost profit is you have 
to conjure up the idea that I somehow went from the patent to 
having the whole product, the factory, the marketing plan, et 
cetera.
    Do the courts engage in that kind of fantasy or do they 
look in a situation like that to some sort of fair royalty?
    Mr. Ravicher. Well, to get your lost profits, you have to 
come in with some good evidence of what is called convoyed 
sales, that you actually lost sales to the infringer.
    So it is not as ephemeral as your----
    Mr. Sherman. So if I don't even have a product that I am 
marketing, I focus only on the royalty.
    Mr. Ravicher. But the real penalty in damages is the 
trebling of damages under willfulness and the right to get 
attorney's fees. That is where you are really exposed and that 
is where you increase your likelihood of being willing to pay 
even more than you should pay because of your extra exposure 
provided by the willfulness doctrine.
    Mr. Sherman. So you might end up setting for well more than 
is fair because you are afraid that a court will determine that 
you infringed intentionally, even though, in fact, it was 
unintentional.
    Mr. Ravicher. Absolutely.
    Mr. Sherman. I yield back.
    Mr. Berman. Thank you.
    We will have a second. I will recognize myself for 5 
minutes. Just a couple of loose strands here.
    Mr. Issa raised the issue of findings of invalidity in 
court cases in the 1970's compared to now. I think to properly 
look at it in context, you would also have to deal with the 
issue of settlements that came as a result of litigation to get 
a comparative handle on that.
    Just two other notions. One, the notion that injunctions 
now off the table, post-grant is a big issue. There are other 
issues. Mr. Sherman just raised one.
    The National Academy of Sciences has talked about these 
what they call sort of subjective tests, best mode, inequitable 
conduct, willfulness and all those are going to sort of come 
into play in what changes we make in all of this.
    But I would like to ask a few questions. Maybe I will start 
again with Dr. Myers and Ms. Michel.
    The obviousness issue, do you think the KSR case is going 
to have the potential to resolve your concerns?
    I guess this is a bit of a speculative question, but at 
least conceivably could or do you think we in Congress are 
going to have to deal with that? Although let me also just 
interject here, and I guess this is really for the whole panel.
    Do notions like formalizing sort of third-party submission 
of prior art, aren't those the kinds of things that are going 
to reduce mistakes on the obviousness issue and the novelty 
issue or at least have the potential to reduce it, as well as 
post-grant?
    Mr. Myers. Well, first is that when the Supreme Court, as 
it considers the KSR case and obviousness is part of that 
determination, I think that is vitally important to the lower 
courts with respect to standard-setting. It will have an 
influence.
    Now, the specific concerns that we had raised were a couple 
biotechnology cases and certain areas such as business methods, 
which are not exactly at issue in this particular case.
    Generally, though, we do not propose a legislative action 
to deal with the obviousness. I think that that is a court and 
probably the PTO administrative process that will have to deal 
with that.
    Mr. Berman. And would the submission of prior art, giving 
the examiner more information----
    Mr. Myers. Giving the examiner more information is clearly 
helpful, yes.
    Ms. Michel. Chairman Berman, I think you have identified 
two very important issues related to patent quality, but it is 
also helpful to keep them separated.
    One is what is the standard of obviousness, and that is the 
issue that the KSR case is dealing with. I would agree that 
that case does have the potential to address many of the 
concerns the FTC talked about in its report with the 
obviousness standard.
    The FTC participated in formulating the Government's 
position and the VSG put in a brief to the Supreme Court 
arguing that the standard of obviousness was currently too low 
in the way that the Federal circuit was interpreting it.
    Mr. Berman. Now, the word ``too low'' means?
    Ms. Michel. Too easy to get a patent, that is right. The 
Government did argue before the Supreme Court----
    Mr. Berman. Too high to find obviousness.
    Ms. Michel. Too high, that is correct. It is too easy to 
get a patent under the current standard of obviousness.
    The other related issue, the patent quality, is does the 
patent office have the information it needs to make a good 
determination.
    Now, the patent office needs to follow the law as set out 
by the Federal circuit. And so even when the PTO has all the 
right information, if the standard of obviousness makes getting 
a patent too easy, just not getting the information to the PTO 
won't fix everything.
    So we do need to attack this other issue.
    And you mentioned a couple of mechanisms for getting the 
right information to the PTO, because the way the system is set 
up, only the patent applicant is dealing with the patent office 
and it is sometimes competitors of the patent applicant that 
will really have the best information on prior art.
    So one way to do that is post-grant opposition. Another way 
to do that would be to allow third parties to submit prior art 
to the patent office during prosecution.
    The FTC did look at this issue in its report. We heard some 
comments at the hearings that perhaps third parties would not 
use that procedure as much as we would like if it were 
available, because when a third party just submits the art to 
the patent office, without any ability to make a comment and 
point out the significance of the art to the patent examiner, 
there is concern that if the examiner then allows the patent in 
spite of that prior art, that competitor is then in a weaker 
situation later in litigation.
    So although it could be a useful mechanism, I think it is 
unclear how much it would be used.
    Mr. Berman. And, of course, the problem is you end up 
creating a pre-grant opposition that certainly doesn't go in 
the way of harmonization.
    Mr. Ravicher. Mr. Chairman, may I just make two quick 
comments.
    On KSR, legally, it will not resolve the problems with 
obviousness. Politically, it might.
    Legally, it won't, because it only addresses one of the so-
called secondary considerations that the Federal circuit has 
made preeminent on the obviousness inquiries, specifically the 
suggestion, motivation or teaching to combined secondary 
consideration.
    There are other secondary considerations, such as 
commercial success, failure of others, teaching, that the 
Federal circuit has made preeminent.
    All those secondary considerations need to be relegated 
back down to the correct level, that they are not the 
preeminent focus of an obviousness inquiry.
    Politically, they may see the signals on the wall that they 
have gone too far in lowering the obviousness bar. So they may 
fix that on their own, but I still think legislative action 
would be merited.
    On prior art for examiners, the examiners do a really good 
job. They find good prior art.
    The problem is continuations allow the applicant, even when 
the examiner has made a rejection, made it final, the 
applicants can just pay a fee and keep the argument going. I 
have seen examiners do it six, seven, eight, nine times in a 
row, rejecting, with good prior art.
    But the availability of filing continuations just defeats 
their ability to actually end the case, end the matter, and get 
it over.
    Mr. Berman. Mr. Feeney?
    Mr. Feeney. Thank you, Mr. Chairman.
    Again, for the witnesses, we are really grateful.
    We heard about the problem, I am sure this maxim is in the 
public domain of unintended adverse consequences. I have to 
tell you that I have had dozens of individuals and groups come 
to me in my office and talk about patent reform and they are 
all in favor of it, as long as they get to write the details.
    I would like to copyright one of Feeney's maxim about 
legislating, and that is, that no situation is so bad that 
Congress can't make it worse and I think all of us want to be 
careful that we do the best we can to think about what reforms 
we do put in place and what the consequences will be.
    One of the issues that hasn't been talked about a lot here 
today, but is talked a lot about when you speak to people that 
are trying to be creative and put useful products out on the 
market, is, after all, Professor Jaffe said it is not the 
innovation and creativity so much as the usefulness of that to 
our consumers that is the goal of the patent process.
    We hear a lot about patent trolls out. I am a real estate 
lawyer by background and if Bill buys Black Acre from Mary, 
Bill has the same bundle of rights under real estate theory as 
Mary did, and that is part of Mary's bundle, what makes it 
valuable.
    Presumably, when Michael Jackson writes and sings a song 
and has the ownership rights, he has the same interest when the 
guys the Beatles' music and the rights to it as the stuff that 
he created, and that is important to the Beatles and other 
would be music creators.
    The problem with patent trolls that has been identified, 
and I would like to ask you whether this is fair, is that you 
have somebody who is not an inventor, is or knows some very 
successful and capable litigators, that buys existing 
technology, puts it on a shelf somewhere, and denies the use of 
that, as a practical matter, to anybody that would put it out 
on the streets, because he warehouses it, hoping that he or 
she, I am talking about the patent troll--do we need to define 
what a patent troll is?
    Is the problem of patent trolling real? And what are your 
thoughts about what patent reform ought or ought not to do 
about so-called patent trolls once we define them?
    Mr. Jaffe. I will go on that. And at some point, you will 
decide you don't need to keep asking me questions, because I 
give the same answer to every question, which is to say I don't 
think that patent trolls, in and of themselves, are a problem.
    I agree with you, someone who buys a patent from someone 
else has the same stature and ought to have all of the same 
rights to enforce that patent as an inventor has.
    The problem that----
    Mr. Feeney. Why do you assume that that person is called a 
patent troll?
    Mr. Jaffe. Well, different people use the word in different 
ways. I think to the extent that there is a problem with patent 
trolls, the problem is patents that people think are invalid 
and a legal system that doesn't create the right incentives for 
people to be able to oppose----
    Mr. Feeney. But, Professor, on those incentives--if I 
could, I will let you continue.
    Would it make sense if we would adopt Mr. Ravicher's 
suggesting of getting rid of treble damages? Would that 
diminish the incentive for somebody to take some small piece of 
technology that could be useful on the streets later as part of 
a big product and then just dumping it in a warehouse and 
hoping he gets lucky?
    Would it reduce the incentive to warehouse technological 
pieces or components if we adopted Mr. Ravicher's suggestion?
    Mr. Jaffe. Yes. And I think more generally, if you have 
good quality patents and you have a balanced litigation 
system----
    Mr. Feeney. We are all in favor of that.
    Mr. Jaffe. I am just saying then there isn't a separate 
problem of patent trolls. People can call people trolls if they 
want to, but from a public policy perspective----
    Mr. Feeney. Does Dr. Myers or anybody else want to comment?
    Mr. Myers. Yes. First is that I think that there will be a 
market in intellectual property, that is to say, which will 
mean that the originator of the intellectual property will sell 
that and it can be sold multiple times.
    I don't think that will be harmful. In fact, I think that 
can be helpful.
    But we do have to keep in mind that this, though, is a 
grant to the public to, in fact, innovate. So that just 
withholding intellectual property from the public good, I think 
at some point, has a negative impact, because, in fact, as we 
are offering a monopoly right so that people will pursue the 
development of a needed value to society.
    So it is not just an economic collection right, it is a 
right to serve the public in some beneficial way.
    Ms. Michel. If I could address the question, also.
    I think the problem is not so much a patent-owner 
warehousing its technology, because then the patent-owner is 
not making any money.
    The business model is actually to go out and seek licenses 
to obtain royalties on those patents and the complaint is more 
based in that firms feel they are paying unjustified royalties 
on poor quality patents.
    So, then, again, we always get back to patent quality. But 
reason they do that is because of the high cost of litigation 
and the uncertainty of litigation.
    Therefore, a post-grant opposition procedure that serves as 
a faster, less expensive alternative to litigation is one 
possible way to address the problem.
    The other big problem you hear in this context is that you 
have a patentee coming after a firm and that patent might cover 
only one little tiny piece of the chip, the computer chip or 
whatever, and the accused infringer can't take that risk of 
being completely shut down because of this one patent.
    And, therefore, even though maybe the chance of being shut 
down if it is a poor quality patent, the result would be 
catastrophic and, therefore, you get the firm paying, again, 
perhaps unjustified royalties and raising its cost.
    Mr. Berman. Mr. Issa?
    Mr. Issa. Thank you, Mr. Chairman.
    Boy, so much. I am a little perplexed on two things, many 
things, but these two in particular.
    First of all, the idea that it seems like this panel tends 
to agree that we should let the court continue to legislate, 
continue to change the rules, for example, as to obviousness.
    The Constitution gives a very broad simple statement to 
what it means and, after that, it leaves it all to this body to 
create laws as to how to promote.
    So it appears as though the House, with the acquiescence of 
the Senate, we trust, and the president, we are supposed to 
promote these inventions and works of art and we have done that 
repeatedly and the Supreme Court, in copyright, showed 
incredible deference to us making the inducement of 100 years 
or so on Michael Jackson's portfolio, if he lives a little 
longer.
    So I am a little confused on why in the world we would say 
that figuring out what the obviousness standard is, in other 
words, figuring out what is patentable as useful and promoting 
that should be left to the courts.
    Why in the world shouldn't we change the standard if the 
standard has been ambiguous and difficult? And you seem to all 
agree that basically they are producing poor patents and then 
doing a relatively difficult job of running it through the 
courts.
    What am I missing?
    Ms. Michel. I will take a stab at that. Any determination 
of patentability is necessarily going to involve a judgment 
call where you are applying inherently ambiguous language to a 
highly technical question.
    Mr. Issa. But let's take a stab at it for a second. Right 
now, we look at the case law that is built up on 102 and 103 
and we look at an incredible amount of what has been objected 
to by the PTO, which is combinations of combinations of 
combinations of combinations of unpatentable material.
    And I just call them combination patents, because you will 
find 5,000 claims that put together different things that 
individually are not patentable and each and every single one 
is granted another claim, sometimes dependent, sometimes 
independent.
    Now, if we take the standard or the bias of the PTO and buy 
legislative act change that bias, which I think is the only way 
you are going to do it effectively, and we say, look, as the 
courts have done for us in the case of discovery, they say, 
look, you--I watch ``Law and Order,'' like most of America 
seems to.
    If there is inevitable discovery that I would have 
discovered the smoking gun in the bad guy's house, then it is 
admissible, even if I originally got it another way, because I 
can show I would have gotten it anyway. One standard.
    We could change it to that. We could also change it to 
likely discover, likely if there are two patents that include 
all the claims and all the elements and they reference each 
other in the patents and then somebody comes up with these 
claims and puts them together in a different way and gets 
another patent.
    Certainly, if we gave a likely discoverable standard, we 
would dramatically reduce the court's job and the PTO's job of 
limiting the amount of things which are patentable.
    Do you all agree with that? And isn't that something that 
would require us to say there is a different standard? Because 
the courts had a bunch of whacks at it.
    Okay, I like the nodding heads, that is always good. And 
before the Chairman nods----
    Mr. Berman. I am just wondering, is there a reaction to 
that?
    Mr. Jaffe. I confess to having nodded my head. I am not a 
lawyer.
    Mr. Issa. Did you think nodding your head doesn't count if 
you are not a lawyer?
    Mr. Jaffe. No, I was just going to say I was similarly 
puzzled at the notion that Congress can't write the statute, 
but I can't tell you how to do it.
    Mr. Issa. We provide guidance for a lot of other things.
    Ms. Michel. I didn't mean to suggest, Congressman, that 
Congress could not write the statute. Certainly, absolutely, 
that guidance would be welcomed.
    Mr. Berman. We are not talking about war powers here.
    Ms. Michel. No. My point was only that I think any written 
standard which will be general enough to apply to all 
technologies will never eliminate the individual judgment calls 
for an individual patent.
    And so we will always have----
    Mr. Issa. Sure, I can agree that if we seek to reduce the 
amount of patents by making obviousness more likely to be 
declared, then we will only reduce the number, we will not 
eliminate the in betweens.
    Let me go on to a couple more questions, because I know the 
Chairman has limited indulgence.
    I am hearing, look, eBay says you got a license, 
essentially, if it stands the way it is, and, Daniel, you 
basically said you want to give it willfulness.
    To me, isn't that catch me if you can and pay me only what 
you would have paid, at most, if I had taken a license to begin 
with?
    Mr. Ravicher. I agree with you that actual damages, if you 
eliminate willfulness, as I propose, you may need to modify 
actual damages by some factor in order to create the sufficient 
disincentive that you want to, such as in antirust law, where 
the actual damages are trebling whatever actual harm there was.
    So you may want to up actual damages if you eliminate 
willfulness damages to try to make it the right amount.
    Mr. Issa. So it is ``mend it, don't end it'' on that. I was 
a little concerned that we were simply going to tell everyone, 
``Don't bother until you are done in court.''
    Since this is the last round, if I can just ask one more 
quick question.
    Mr. Ravicher. I am sorry. Just to go back to your Federal 
circuit issue.
    Without politically opining about it, the Federal circuit, 
in my opinion, is quite a judicially activist court and part of 
that is because they historically have seen themselves as being 
asked by Congress to do that.
    They seem themselves as having been created in order to 
build out a good patent policy for whatever reason. So they 
feel that that is part of their charter is to be slightly more 
aggressive with their interpretation and implementation of 
policy than your regular circuit courts of appeals.
    Mr. Issa. I think Justice Breyer would agree with you.
    And as a general rule, I don't think we disagree that we 
like the fact that they look at this and go a little further 
than some courts will as technology advances.
    The last question, though, is if we change the standard, if 
you will, to inevitable discovery, that these things would have 
come out, and we changed the bias and, at the same time, we 
improved the courts, which this Committee has moved out a piece 
of legislation we hope the Senate will take up quickly, then my 
real question still comes back to how really hurt are we going 
to be if we don't make the huge changes, but rather pick up a 
couple of significant changes?
    Improve the existing patents by literally reducing the 
likelihood of getting as many claims, particularly combination 
claims, coming up with a post-grant re-examination that 
effectively is, if you will, fixing the non-functional re-
examination process, improving the courts they go before, 
including administrative remedies, if possible, that 
dramatically reduce the burden to the court, but are appealable 
to the fed circuit, because the Chairman, rightfully so, wants 
to move a very large piece of legislation.
    But if we do this relatively small things, do you believe 
that we can do a wait-and-see or do you believe there are 
dramatic other ones that are in the major legislation that 
still absolutely need to be done, is the broad question.
    But it begs the question of we talk about little things 
that mean a lot. Do you need other bold ones and are there 
unintended consequences?
    Mr. Ravicher. I think one of the most critical problems to 
address that wasn't enumerated in your list is the fuzziness of 
patent boundaries or the indeterminateness of patent 
boundaries, because there is incentive to have arguable or 
ambiguous language in your claims, because you want to be able 
to argue at the patent office that it is narrower than the 
prior art.
    Then once it is issued, you want to have that freedom as a 
plaintiff to argue that it is much broader.
    So there is this incentive to have ambiguous claim terms 
and it is hard to know whether I am trespassing or not if I 
don't know where the border is between what is in the public 
domain and what is covered by the patent.
    Mr. Issa. I certainly agree with you, but when the courts 
really limited considerably means plus function and said, 
``Look, you only get what is there'' and the walls are very 
hard and you can't break through them, they did a lot to one 
type of statement of what I am doing.
    Again, if we take measures to provide language to the PTO 
and ultimately to the courts that similarly restricts the four 
walls, in other words, it is an invalid patent if it is 
ambiguous, therefore, if you want to re-expand what you 
narrowed, you, by definition, invalidate your patent, would 
that get past your concern?
    Because, again, we are looking at patent quality on this 
Committee as much as we are looking at every other part of the 
patent process.
    Mr. Ravicher. Section 112's prohibition against 
indefiniteness I think has been missed and should be 
reawakened, as I said in my opening statement.
    Mr. Issa. Anyone else? Mr. Chairman is being indulgent.
    Thank you.
    Mr. Berman. I think for my last sort of questions, I would 
like to go back to the underlying picture. What is large versus 
what is small is sort of in the eyes of the beholder.
    I have a feeling, for maybe 400 Members of Congress, this 
is all pretty small. It is certainly not exciting in the 
traditional sense of the word, or in almost any other sense of 
the word.
    But is it important? Can you, in some terms--perhaps 
quantifying is not the thing to do.
    If we just walk away from this issue and leave the system 
sort of as it is, what are the costs for not dealing with 
issues of an alternative less expensive quicker procedure for 
determining validity, gathering more prior art, clarifying 
things which are now perhaps not serving any particular useful 
purpose, but are leading to lots of litigation and 
controversies, creation of these sort of settlements that maybe 
aren't based on real issues, but just on avoiding the expense 
of litigation?
    What are the costs in terms of the economy as a whole as 
opposed to a particular company or individual? Is there a real 
cost here? It is sort of why should we care?
    Mr. Myers. First is that increasingly our standard of 
living will be dependent upon how innovative we are as a 
society and we are talking about a key part, not the only part, 
but a key part of our innovation system is the intellectual 
property system.
    What we have to keep in mind is we have talked about 
validity, to actually determine validity today takes about 12 
years. It is the 12 years it takes to go through the court 
processes to finally determine the validity of a patent going 
through all the legal challenges.
    Under any circumstance, in a shortening time constant of 
technology life cycles, that is just totally inconsistent with 
respect to an innovation process.
    I can't quantify what the impact of that is, but we know 
that we have a system that is now out of synch and that this is 
what I think we have to--all of the panel members and the 
questions I have heard, there is a recognition that that 
problem exists.
    Mr. Berman. Anybody else?
    Ms. Michel. Well, we certainly know we are living in the 
knowledge-based economy, where innovation is an extremely 
powerful driver in the economy and the ability to increase 
standards of living.
    I wouldn't say the sky would fall, but on the other hand, 
this is an extremely important area and it is difficult to 
quantify the benefits of patent reform, and, yet, I think the 
FTC has made a case that they would be there.
    Mr. Berman. By the way, just to interrupt myself, some 
people say FTC, they are focused on competition issues and 
don't like monopolies and concentrations of power and here we 
have, as Mr. Feeney indicated, the beginning of a 
constitutionally mandated system of exclusivity.
    The FTC is a biased source to be opining on this issue, 
because they are coming from a perspective that is really about 
challenging what the founding fathers wanted to do.
    What say you?
    Ms. Michel. Well, thank you for allowing me to clarify. I 
think there is a misconception in that competition policy, 
antitrust policy really shares the same goal as the patent 
system and that is to enhance consumer welfare.
    And the antitrust law and competition policy have done an 
excellent job in the past stretch of time, past few years, of 
taking the power of innovation to enhance consumer welfare into 
account when formulating competition policy.
    And, therefore, I don't see really any conflict between the 
patent laws and the antitrust laws, because they are both 
aiming for that goal.
    I think what the FTC brings to this discussion is the 
viewpoint of consumers and what consumers want is to maximize 
innovation, because that is the way that we are going to do the 
best job at enhancing consumer welfare.
    And this is not about being contrary to the patent system. 
It is really about maximizing innovation.
    Mr. Berman. Anything else?
    Mr. Jaffe. Can I mention one thing? I actually think what 
Dr. Myers and Dr. Michel mentioned are the most important 
things, but I wanted to mention one other thing we haven't 
talked about today.
    Coming down on the plane, I read the PTO's new strategic 
plan, which talks about hiring over 1,000 new examiners a year 
basically every year and contemplates that despite that, by 
2010, they might have a million patents at any given time in 
the pendency pool.
    And what is going on here is this is basically 
unsustainable, that we can't throw enough--we have all agreed 
with Mr. Feeney that they need more resources, but we can't 
give them enough resources to deal with the system under the 
existing rules.
    And one of the things we haven't talked about is part of 
that increase in the number of applications is precisely the 
fact that it has gotten easier to get a patent, which 
encourages people to apply for patents that they wouldn't 
otherwise be applying for.
    So if we can recalibrate this system, we will eventually 
discourage those frivolous applications and deal with what 
otherwise is going to eventually become a just completely 
unmanageable system.
    Mr. Berman. So your notion basically is people aren't 
applying for patents for the fun of it, they are applying for 
it because they think they can get it pretty easily and make it 
a more rigorous test.
    The other way is just to raise the fee so high no one could 
afford to apply for a patent.
    Mr. Jaffe. I would not support that.
    Mr. Issa. Mr. Chairman, that was already tried two 
Congresses ago. We fought that, remember?
    Mr. Chairman, if I could make one closing statement, just 
10 seconds, just to opine on the 1985 increase.
    After considerable research, I realized that it was the 
advent of the PC, IBM and others, that created the ability to 
so easily make so many claims and submit them and I would only 
suggest that if we go back to requiring IBM Selectrics with the 
courier element on it, that it be hand-typed, we could easily 
roll back this growth.
    With that, I would yield back.
    Mr. Berman. The downside of innovation.
    Mr. Issa. Yes.
    Mr. Berman. Mr. Feeney?
    Mr. Feeney. Well, thanks. And, again, thanks for 
participating in the hearing.
    Congressman Issa has indicated he has some 40,000 questions 
for the panel and, by my count, that means he has still got 
39,900-some to go.
    But I will make these my last questions, but I really do 
appreciate it. This certainly has been helpful, in my first 
hearing, in formulating some of the key issues in front of us.
    I do want to raise a constitutional issue and this is not 
the Constitution Subcommittee, but we are the Judiciary 
Committee and now and then we touch on the Constitution here 
and there.
    Dr. Myers brought up the interest in harmonizing U.S. 
patent law. Again, article 1 gives plenary authority to the 
Congress to establish patent protections and I guess it would 
be an interesting constitutional query.
    Could we delegate, temporarily or otherwise, to some 
international organization and if the 110th Congress does 
decide to delegate some organization to, say, the E.U. and 
Japan and the U.S. and other appropriate parties, whether or 
not the 111th Congress would have the power, treaty or 
otherwise, just to simply ignore it, given the fact that 
protecting patent rights is not something that the three 
branches share equally in.
    It is a plenary authority, the way I read article 1, that 
vests in the Congress.
    So, anyway, it is a question. As we talk about harmonizing, 
we will have to get some better constitutional minds than 
myself involved in thinking about it.
    I want to go back, because there was a discussion about 
Congress's role versus the role of the courts here.
    Clearly, each individual court case where these matters are 
ultimately resolved is a decision where the courts are going to 
have to apply between parties A and B and maybe multiple 
parties, but Congress can go as far as we like in terms of 
establishing what those criteria are.
    And the question is where to draw those lines, in my view.
    Dr. Myers, you suggest, on number five of your proposals, 
that we ought to modify or remove the subjective elements of 
litigation, including things like obviousness.
    And when we talk about standards like new and obvious, it 
seems like reasonable minds could agree on what is new or 
obvious and we could have an objective as opposed to a 
subjective standard.
    But I guess I would suggest that reasonable minds can 
differ over what issues reasonable minds might different over 
and, in fact, we have had now the Federal circuit court differ 
about what is or isn't new or obvious from reasonable minds on 
the U.S. Supreme Court.
    So I think probably is appropriate for Congress to at least 
explore the advantages of giving additional guidance on these 
and other issues and certainly leaving the courts to a vacuum.
    Sometimes it works, if you can establish a clear standard 
and give everybody guidance, but ultimately it is our 
prerogative to decide whether things are working well or not 
and I think, for the most part, people agree that things are 
not working as well as they could.
    Does anybody want to comment? Because I know we had a 
discussion about this earlier, but in light of all that.
    Mr. Myers. What basically our first point of maintaining a 
unitary patent system, which is really the legislative level, 
and that whatever is legislated we believe should apply to all 
of the sectors, the business sectors that the patent system 
covers.
    The courts will make differentiations around individual 
cases and I think that that would be appropriate because of the 
circumstances of those cases.
    But I think we would not recommend making individual 
obviousness standards with respect to pharmaceuticals versus 
electronics in a legislative way, try to maintain the 
legislation.
    Mr. Feeney. But you think the courts can differentiate.
    Mr. Myers. The courts, on an individual case, or the PTO, 
in some of their procedures, to adapt to peculiar or special 
situations.
    Mr. Feeney. Thank the witnesses.
    I will yield back the balance of my time.
    Mr. Berman. Thank you.
    And I want to thank all of you for your testimony. It did 
occur to me, given the gentleman's comments about harmonization 
and sovereignty, that the other alternative is to try to extend 
U.S. patent law extraterritorially and impose sanctions on 
anyone who doesn't go along.
    I want to thank the witnesses for the testimony.
    Members may have additional written questions to you, for 
which we will forward them to you and ask that you answer them 
as promptly as possible.
    And the hearing record, because of the upcoming recess, 
will remain open until the close of business next Thursday, 
February 22, for submission of any additional materials.
    This has been a helpful hearing for me and, I think, for 
the other Members.
    And with that, the hearing is adjourned. Thank you.
    [Whereupon, at 4:15 p.m., the Subcommittee was adjourned.]

                            A P P E N D I X

                              ----------                              


               Material Submitted for the Hearing Record

       Prepared Statement of the Honorable Sheila Jackson Lee, a 
    Representative in Congress from the State of Texas, and Member, 
    Subcommittee on Courts, the Internet, and Intellectual Property

    Mr. Chairman, I move to strike the last word.
    Thank you, Mr. Chairman for holding this hearing. Let me 
congratulate you also on your election as Chairman of this very 
important subcommittee. Congratulations also to you Mr. Coble, on 
assuming leadership of this panel for the minority. I am confident that 
working together, we can achieve great things for the American people. 
We have much work to do and I look forward to working with all members 
of the subcommittee to address the real challenges facing our country 
in the areas of patent reform and protection of intellectual property.
    Let me also welcome each of our witnesses. I look forward to their 
testimony.
    The subject of today's hearing is ``American Innovation at Risk: 
The Case for Patent Reform.'' This hearing could not be more timely, 
Mr. Chairman.
    This hearing will explore the necessity of comprehensive patent 
reform is required, and will address whether inadequacies in the 
current patent system hamper innovation and hurt the American economy. 
As the Blackberry litigation demonstrated, deficiencies in the current 
system have the ability to paralyze America. Indeed, the New York Times 
noted that ``[something] has gone very wrong with the United States 
patent system.'' The Financial Times opined that ``[i]t is time to 
restore the balance of power in U.S. patent law.''
    The Constitution mandates that we ``promote the progress of science 
and the useful arts . . . by securing for limited times to . . . 
inventors the exclusive right to their . . . discoveries.'' In order to 
fulfill the Constitution's mandate, we must examine the system 
periodically to determine whether there may be flaws in the system that 
may hamper innovation, including the problems described as decreased 
patent quality, prevalence of subjective elements in patent practice, 
patent abuse, and lack of meaningful alternatives to the patent 
litigation process.
    One important place to look is U.S. Patent and Trademark Office 
(``PTO''). In order to determine whether to grant a patent, PTO 
examiners must ascertain whether a discovery is of patentable subject 
matter, useful, novel, nonobvious, and accompanied by an adequate 
description. The PTO requires an adequate number of examiners and easy 
access to information resources in order to process the high number of 
patent applications filed each year. Because each year the PTO must 
wait to see whether it will be appropriated all of the funds it 
collects, it cannot plan the hiring of staff or the implementation of 
quality initiatives in advance. While the quick efforts of the 
Subcommittee averted the fee diversion this year, there is no guarantee 
that the PTO will receive its user fees next year.
    Some attribute the lack of resources at the PTO as the cause of the 
deterioration of patent quality, which has wasted valuable resources by 
sanctioning frivolous third-party court challenges and ultimately 
discouraging private-sector investment. As the world's technology 
leader and center of innovation, America must set a higher bar to 
ensure that undeserving inventions to not pass through the patent 
process. To that end, the PTO needs more guidance so that it only 
issues patents to discoveries that are truly inventive.
    Once the PTO issues a patent of questionable quality, it is easier 
for unscrupulous patent holders to engage in abusive practices that 
hurt the economy. American inventors should no longer receive 
threatening licensing letters containing vague patent infringement 
accusations from patent holders, raising the specter of treble damages 
if they do not give in to the senders' demands. In striking a proper 
balance between patent holder rights and the prevention of abusive 
practices, a rejuvenated patent system would protect and reward the 
hard work of American inventors, but would also ensure that ``patent 
trolls'' do not stop the American economy in its tracks.
    The availability of meaningful and low-cost alternatives to 
litigation for challenging patent validity would provide an additional 
quality check. Such alternatives could include giving third parties a 
window to submit ``prior art'' to patent examiners before the issuance 
of a patent, creating a post-grant opposition procedure that would 
allow administrative challenges to patent validity instead of the 
current option of going to court, and by relaxing estoppel and inter-
partes re-examination requirements to make them more available as 
options for opposing patent validity.
    Taken together, these improvements would bring the American patent 
system up to speed for the twenty-first century and may also harmonize 
American law with that of foreign countries. Instead of remaining a 
hindrance to innovation and economic growth, the patent system should 
work for inventors and with competitive market-forces, ensuring 
America's patent system remains the best in the world and prevents 
risks to innovation.
    Again, thank you Mr. Chairman for holding this hearing. I look 
forward to hearing from our distinguished panel of witnesses. I yield 
back my time.

                                

 Prepared Statement of the Honorable Steve Cohen, a Representative in 
   Congress from the State of Tennessee, and Member, Subcommittee on 
            Courts, the Internet, and Intellectual Property

    Today the Subcommittee considers a matter that is of critical 
importance to the nation's intellectual and commercial development. 
Most agree that some degree of patent reform is needed, though I 
recognize that there is disagreement concerning the nature and extent 
of the changes that are necessary. In considering all arguments 
regarding any specific patent reform proposal, I will keep my focus on 
what is best for the public interest. In serving the public interest, 
any reform in the patent system will also be what is best for business 
interests, regardless of the specific industry at issue. I look forward 
to hearing from the witnesses today to help us obtain a better grasp of 
the issues at stake.

 Federal Trade Commission Executive Summary to Promote Innovation: The 
        Proper Balance of Competition and Patent Law and Policy




            National Academy of Sciences Executive Summary, 
                ``A Patent System for the 21st Century''



   Letter from Coalition for Patent Fairness to the Honorable Nancy 
 Pelosi, Speaker of the House, United States House of Representatives; 
and the Honorable John Boehner, Minority Leader, United States House of 
                            Representatives



                                 
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