    [House Hearing, 111 Congress]
    [From the U.S. Government Publishing Office]

                           PATENT REFORM ACT OF 2009

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

                                    HEARING

                                   BEFORE THE

                           COMMITTEE ON THE JUDICIARY
                            HOUSE OF REPRESENTATIVES

                         ONE HUNDRED ELEVENTH CONGRESS

                                 FIRST SESSION

                                       ON

                                   H.R. 1260

                                   __________

                                 APRIL 30, 2009

                                   __________

                               Serial No. 111-92

                                   __________

             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. ``BOBBY'' SCOTT, Virginia  HOWARD COBLE, North Carolina
    MELVIN L. WATT, North Carolina       ELTON GALLEGLY, California
    ZOE LOFGREN, California              BOB GOODLATTE, Virginia
    SHEILA JACKSON LEE, Texas            DANIEL E. LUNGREN, California
    MAXINE WATERS, California            DARRELL E. ISSA, California
    WILLIAM D. DELAHUNT, Massachusetts   J. RANDY FORBES, Virginia
    ROBERT WEXLER, Florida               STEVE KING, Iowa
    STEVE COHEN, Tennessee               TRENT FRANKS, Arizona
    HENRY C. ``HANK'' JOHNSON, Jr.,      LOUIE GOHMERT, Texas
      Georgia                            JIM JORDAN, Ohio
    PEDRO PIERLUISI, Puerto Rico         TED POE, Texas
    MIKE QUIGLEY, Illinois               JASON CHAFFETZ, Utah
    LUIS V. GUTIERREZ, Illinois          TOM ROONEY, Florida
    BRAD SHERMAN, California             GREGG HARPER, Mississippi
    TAMMY BALDWIN, Wisconsin
    CHARLES A. GONZALEZ, Texas
    ANTHONY D. WEINER, New York
    ADAM B. SCHIFF, California
    LINDA T. SANCHEZ, California
    DEBBIE WASSERMAN SCHULTZ, Florida
    DANIEL MAFFEI, New York

           Perry Apelbaum, Majority Staff Director and Chief Counsel
          Sean McLaughlin, Minority Chief of Staff and General Counsel

                                C O N T E N T S

                                  ----------

                                 APRIL 30, 2009

                                                                       Page

                                TEXT OF THE BILL

    H.R. 1260, the ``Patent Reform Act of 2009''.....................     2

                               OPENING STATEMENTS

    The Honorable John Conyers, Jr., a Representative in Congress
      from the State of Michigan, and Chairman, Committee on the
      Judiciary......................................................     1
    The Honorable Lamar Smith, a Representative in Congress from the
      State of Texas, and Ranking Member, Committee on the Judiciary.    22
    The Honorable Howard Berman, a Representative in Congress from
      the State of California, and Member, Committee on the Judiciary    24
    The Honorable Bob Goodlatte, a Representative in Congress from
      the State of Virginia, and Member, Committee on the Judiciary..    24
    The Honorable Brad Sherman, a Representative in Congress from the
      State of California, and Member, Committee on the Judiciary....    26
    The Honorable Howard Coble, a Representative in Congress from the
      State of North Carolina, and Member, Committee on the Judiciary    26
    The Honorable Darrell E. Issa, a Representative in Congress from
      the State of California, and Member, Committee on the Judiciary    27
    The Honorable Louie Gohmert, a Representative in Congress from
      the State of Texas, and Member, Committee on the Judiciary.....    27
    The Honorable Zoe Lofgren, a Representative in Congress from the
      State of California, and Member, Committee on the Judiciary....    28
    The Honorable Ted Poe, a Representative in Congress from the
      State of Texas, and Member, Committee on the Judiciary.........    28
    The Honorable William D. Delahunt, a Representative in Congress
      from the State of Massachusetts, and Member, Committee on the
      Judiciary......................................................    29

                                   WITNESSES

    Mr. David Simon, Chief Patent Counsel, Intel, Inc.
      Oral Testimony.................................................    30
      Prepared Statement.............................................    32
    Mr. Phillip S. Johnson, Chief Intellectual Property Counsel,
      Johnson & Johnson
      Oral Testimony.................................................    45
      Prepared Statement.............................................    47
    Mr. John R. Thomas, Professor, Georgetown University Law School
      Oral Testimony.................................................    70
      Prepared Statement.............................................    72
    Mr. Jack W. Lasersohn, Partner, Vertical Group
      Oral Testimony.................................................    78
      Prepared Statement.............................................    81
    Mr. Dean Kamen, Inventor, DEKA Research and Development, Inc.
      Oral Testimony.................................................    87
      Prepared Statement.............................................    89
    Mr. Mark Chandler, Senior Vice President, Cisco
      Oral Testimony.................................................    93
      Prepared Statement.............................................    96
    Mr. Bernard J. Cassidy, Senior Vice President and General
      Counsel, Tessera, INC.
      Oral Testimony.................................................   101
      Prepared Statement.............................................   103

                                    APPENDIX

    Material Submitted for the Hearing Record........................   147

                           PATENT REFORM ACT OF 2009

                                  ----------

                            THURSDAY, APRIL 30, 2009

                              House of Representatives,
                                    Committee on the Judiciary,
                                                        Washington, DC.

        The Committee met, pursuant to notice, at 10:16 a.m., in
    room 2141, Rayburn House Office Building, the Honorable John
    Conyers, Jr. (Chairman of the Committee) presiding.
        Present: Representatives Conyers, Berman, Boucher, Scott,
    Watt, Lofgren, Jackson Lee, Waters, Delahunt, Johnson, Sherman,
    Schiff, Sanchez, Smith, Sensenbrenner, Coble, Goodlatte,
    Lungren, Issa, King, Franks, Gohmert, Jordan, Poe, and
    Chaffetz.
        Staff present: Christal Sheppard, Majority Counsel; Blaine
    Merritt, Minority Counsel.
        Mr. Conyers. Good morning, ladies and gentlemen. The
    Committee will come to order. We are here today for the hearing
    on H.R. 1260, the ``Patent Reform Act of 2009.''
        You will recall that the Judiciary Committee passed this
    bill out in July of 2007--passed out of the House in September
    of 2007, but it did not receive dispositive action in the other
    body. So we continue it.
        We welcome the seven witnesses that have joined us today.
    In the time of economic crisis, seems to me that we need patent
    reform more than ever. And while necessity may be the mother of
    invention, invention could be the mother of recovery.
        We need a patent system that will help us invent our way
    out of recession. Now, we are aware that the Senate has reached
    a compromise on a number of issues. This body is no more a
    rubber stamp for the Senate than the Senate is a rubber stamp
    for the House.
        And so it is our intention to look at these issues, of
    which there are many, independently and ensure that the bill
    that comes out of the Judiciary Committee will be fair to all
    parties concerned, or as fair as we can get it, and will also
    serve the public interest.
        In the last Congress, there was an agreement on
    interparties reexamination. Unless something is arrived at, we
    expect that that will still be the prevailing way that we move
    this bill forward. The United States Patent and Trademark
    Office even now doesn't have a director.
        We need our leadership to comment on whether this bill has
    been drafted in a way that recognizes the challenges that the
    patent office faces. And while the bill doesn't currently
    contain language on inequitable conduct, we have made an
    agreement to work with Senator Hatch on this issue, and that
    agreement is still good.
        Now the Patent and Trademark Office has incredible
    responsibilities and really rather limited authority to meet
    them. I think that it may be time that we give them the power
    to set their own fees.
        And finally, it seems important that we keep our trigger on
    first to file language in order to pressure our trading
    partners to adopt grace period language that benefits the
    United States inventors.
        [The text of the bill, H.R. 1260, follows:

    HR 1260 IH  ___________________________________________________

     deg.

                                                                          I
    111th CONGRESS
        1st Session

                                    H. R. 1260

    To amend title 35, United States Code, to provide for patent reform.
                                   __________
                        IN THE HOUSE OF REPRESENTATIVES
                                 March 3, 2009
    Mr. Conyers (for himself, Mr. Smith of Texas, Mr. Berman, Mr.
        Goodlatte, and Ms. Jackson-Lee of Texas) introduced the following
        bill; which was referred to the Committee on the Judiciary
                                   __________

                                     A BILL

    To amend title 35, United States Code, to provide for patent reform.

        Be it enacted by the Senate and House of Representatives of the
    United States of America in Congress assembled,

    SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

        (a) Short Title.--This Act may be cited as the ``Patent Reform Act
    of 2009''.
        (b) Table of Contents.--The table of contents for this Act is as
    follows:

        Sec. 1. Short title; table of contents.
        Sec. 2. Definition.
        Sec. 3. Right of the first inventor to file.
        Sec. 4. Inventor's oath or declaration.
        Sec. 5. Right of the inventor to obtain damages.
        Sec. 6. Post-grant procedures and other quality enhancements.
        Sec. 7. Definitions; patent trial and appeal board.
        Sec. 8. Study and report on reexamination proceedings.
        Sec. 9. Preissuance submissions by third parties.
        Sec. 10. Venue and jurisdiction.
        Sec. 11. Patent and trademark office regulatory authority.
        Sec. 12. Residency of Federal Circuit judges.
        Sec. 13. Micro-entity defined.
        Sec. 14. Technical amendments.
        Sec. 15. Effective date; rule of construction.
        Sec. 16. Study of special masters in patent cases.
        Sec. 17. Study on workplace conditions.
        Sec. 18. Study on patent damages.
        Sec. 19. Severability.

    SEC. 2. DEFINITION.

        In this Act, the term ``Director'' means the Under Secretary of
    Commerce for Intellectual Property and Director of the United States
    Patent and Trademark Office.

    SEC. 3. RIGHT OF THE FIRST INVENTOR TO FILE.

        (a) Definitions.--Section 100 of title 35, United States Code, is
    amended by adding at the end the following:
        ``(f) The term `inventor' means the individual or, if a joint
    invention, the individuals collectively who invented or discovered the
    subject matter of the invention.
        ``(g) The terms `joint inventor' and `coinventor' mean any 1 of the
    individuals who invented or discovered the subject matter of a joint
    invention.
        ``(h) The `effective filing date of a claimed invention' is--
                ``(1) the filing date of the patent or the application for
            the patent containing the claim to the invention; or
                ``(2) if the patent or application for patent is entitled
            to a right of priority of any other application under section
            119, 365(a), or 365(b) or to the benefit of an earlier filing
            date in the United States under section 120, 121, or 365(c),
            the filing date of the earliest such application in which the
            claimed invention is disclosed in the manner provided by the
            first paragraph of section 112.
        ``(i) The term `claimed invention' means the subject matter defined
    by a claim in a patent or an application for a patent.
        ``(j) The term `joint invention' means an invention resulting from
    the collaboration of inventive endeavors of 2 or more persons working
    toward the same end and producing an invention by their collective
    efforts.''.
        (b) Conditions for Patentability.--
                (1) In general.--Section 102 of title 35, United States
            Code, is amended to read as follows:

    ``Sec. 102. Conditions for patentability; novelty

        ``(a) Novelty; Prior Art.--A patent for a claimed invention may not
    be obtained if--
                ``(1) the claimed invention was patented, described in a
            printed publication, or in public use, on sale, or otherwise
            available to the public--
                        ``(A) more than 1 year before the effective filing
                    date of the claimed invention; or
                        ``(B) 1 year or less before the effective filing
                    date of the claimed invention, other than through
                    disclosures made by the inventor or a joint inventor or
                    by others who obtained the subject matter disclosed
                    directly or indirectly from the inventor or a joint
                    inventor; or
                ``(2) the claimed invention was described in a patent
            issued under section 151, or in an application for patent
            published or deemed published under section 122(b), in which
            the patent or application, as the case may be, names another
            inventor and was effectively filed before the effective filing
            date of the claimed invention.
        ``(b) Exceptions.--
                ``(1) Prior inventor disclosure exception.--Subject matter
            that would otherwise qualify as prior art based upon a
            disclosure under subparagraph (B) of subsection (a)(1) shall
            not be prior art to a claimed invention under that subparagraph
            if the subject matter had, before such disclosure, been
            publicly disclosed by the inventor or a joint inventor or
            others who obtained the subject matter disclosed directly or
            indirectly from the inventor or a joint inventor.
                ``(2) Derivation, prior disclosure, and common assignment
            exceptions.--Subject matter that would otherwise qualify as
            prior art only under subsection (a)(2) shall not be prior art
            to a claimed invention if--
                        ``(A) the subject matter was obtained directly or
                    indirectly from the inventor or a joint inventor;
                        ``(B) the subject matter had been publicly
                    disclosed by the inventor or a joint inventor or others
                    who obtained the subject matter disclosed, directly or
                    indirectly, from the inventor or a joint inventor
                    before the effective filing date of the application or
                    patent set forth under subsection (a)(2); or
                        ``(C) the subject matter and the claimed invention,
                    not later than the effective filing date of the claimed
                    invention, were owned by the same person or subject to
                    an obligation of assignment to the same person.
                ``(3) Joint research agreement exception.--
                        ``(A) In general.--Subject matter and a claimed
                    invention shall be deemed to have been owned by the
                    same person or subject to an obligation of assignment
                    to the same person in applying the provisions of
                    paragraph (2) if--
                                ``(i) the claimed invention was made by or
                            on behalf of parties to a joint research
                            agreement that was in effect on or before the
                            effective filing date of the claimed invention;
                                ``(ii) the claimed invention was made as a
                            result of activities undertaken within the
                            scope of the joint research agreement; and
                                ``(iii) the application for patent for the
                            claimed invention discloses or is amended to
                            disclose the names of the parties to the joint
                            research agreement.
                        ``(B) For purposes of subparagraph (A), the term
                    `joint research agreement' means a written contract,
                    grant, or cooperative agreement entered into by 2 or
                    more persons or entities for the performance of
                    experimental, developmental, or research work in the
                    field of the claimed invention.
                ``(4) Patents and published applications effectively
            filed.--A patent or application for patent is effectively filed
            under subsection (a)(2) with respect to any subject matter
            described in the patent or application--
                        ``(A) as of the filing date of the patent or the
                    application for patent; or
                        ``(B) if the patent or application for patent is
                    entitled to claim a right of priority under section
                    119, 365(a), or 365(b) or to claim the benefit of an
                    earlier filing date under section 120, 121, or 365(c),
                    based upon 1 or more prior filed applications for
                    patent, as of the filing date of the earliest such
                    application that describes the subject matter.''.
                (2) Conforming amendment.--The item relating to section 102
            in the table of sections for chapter 10 of title 35, United
            States Code, is amended to read as follows:

        ``102. Conditions for patentability; novelty.''.
        (c) Conditions for Patentability; Nonobvious Subject Matter.--
    Section 103 of title 35, United States Code, is amended to read as
    follows:

    ``Sec. 103. Conditions for patentability; nonobvious subject matter

        ``A patent for a claimed invention may not be obtained though the
    claimed invention is not identically disclosed as set forth in section
    102, if the differences between the claimed invention and the prior art
    are such that the claimed invention as a whole would have been obvious
    before the effective filing date of the claimed invention to a person
    having ordinary skill in the art to which the claimed invention
    pertains. Patentability shall not be negated by the manner in which the
    invention was made.''.
        (d) Repeal of Requirements for Inventions Made Abroad.--Section 104
    of title 35, United States Code, and the item relating to that section
    in the table of sections for chapter 10 of title 35, United States
    Code, are repealed.
        (e) Repeal of Statutory Invention Registration.--
                (1) In general.--Section 157 of title 35, United States
            Code, and the item relating to that section in the table of
            sections for chapter 14 of title 35, United States Code, are
            repealed.
                (2) Removal of cross references.--Section 111(b)(8) of
            title 35, United States Code, is amended by striking ``sections
            115, 131, 135, and 157'' and inserting ``sections 131 and
            135''.
        (f) Earlier Filing Date for Inventor and Joint Inventor.--Section
    120 of title 35, United States Code, is amended by striking ``which is
    filed by an inventor or inventors named'' and inserting ``which names
    an inventor or joint inventor''.
        (g) Conforming Amendments.--
                (1) Right of priority.--Section 172 of title 35, United
            States Code, is amended by striking ``and the time specified in
            section 102(d)''.
                (2) Limitation on remedies.--Section 287(c)(4) of title 35,
            United States Code, is amended by striking ``the earliest
            effective filing date of which is prior to'' and inserting
            ``which has an effective filing date before''.
                (3) International application designating the united
            states: effect.--Section 363 of title 35, United States Code,
            is amended by striking ``except as otherwise provided in
            section 102(e) of this title''.
                (4) Publication of international application: effect.--
            Section 374 of title 35, United States Code, is amended by
            striking ``sections 102(e) and 154(d)'' and inserting ``section
            154(d)''.
                (5) Patent issued on international application: effect.--
            The second sentence of section 375(a) of title 35, United
            States Code, is amended by striking ``Subject to section 102(e)
            of this title, such'' and inserting ``Such''.
                (6) Limit on right of priority.--Section 119(a) of title
            35, United States Code, is amended by striking ``; but no
            patent shall be granted'' and all that follows through ``one
            year prior to such filing''.
                (7) Inventions made with federal assistance.--Section
            202(c) of title 35, United States Code, is amended--
                        (A) in paragraph (2)--
                                (i) by striking ``publication, on sale, or
                            public use,'' and all that follows through
                            ``obtained in the United States'' and inserting
                            ``the 1-year period referred to in section
                            102(a) would end before the end of that 2-year
                            period''; and
                                (ii) by striking ``the statutory'' and
                            inserting ``that 1-year''; and
                        (B) in paragraph (3), by striking ``any statutory
                    bar date that may occur under this title due to
                    publication, on sale, or public use'' and inserting
                    ``the expiration of the 1-year period referred to in
                    section 102(a)''.
        (h) Repeal of Interfering Patent Remedies.--Section 291 of title
    35, United States Code, and the item relating to that section in the
    table of sections for chapter 29 of title 35, United States Code, are
    repealed.
        (i) Action for Claim to Patent on Derived Invention.--Section 135
    of title 35, United States Code, is amended to read as follows:

    ``Sec. 135. Derivation proceedings

        ``(a) Dispute Over Right to Patent.--
                ``(1) Institution of derivation proceeding.--An applicant
            may request initiation of a derivation proceeding to determine
            the right of the applicant to a patent by filing a request
            which sets forth with particularity the basis for finding that
            an earlier applicant derived the claimed invention from the
            applicant requesting the proceeding and, without authorization,
            filed an application claiming such invention. Any such request
            may only be made within 12 months after the date of first
            publication of an application containing a claim that is the
            same or is substantially the same as the claimed invention,
            must be made under oath, and must be supported by substantial
            evidence. Whenever the Director determines that patents or
            applications for patent naming different individuals as the
            inventor interfere with one another because of a dispute over
            the right to patent under section 101, the Director shall
            institute a derivation proceeding for the purpose of
            determining which applicant is entitled to a patent.
                ``(2) Determination by patent trial and appeal board.--In
            any proceeding under this subsection, the Patent Trial and
            Appeal Board--
                        ``(A) shall determine the question of the right to
                    patent;
                        ``(B) in appropriate circumstances, may correct the
                    naming of the inventor in any application or patent at
                    issue; and
                        ``(C) shall issue a final decision on the right to
                    patent.
                ``(3) Derivation proceeding.--The Board may defer action on
            a request to initiate a derivation proceeding until 3 months
            after the date on which the Director issues a patent to the
            applicant that filed the earlier application.
                ``(4) Effect of final decision.--The final decision of the
            Patent Trial and Appeal Board, if adverse to the claim of an
            applicant, shall constitute the final refusal by the United
            States Patent and Trademark Office on the claims involved. The
            Director may issue a patent to an applicant who is determined
            by the Patent Trial and Appeal Board to have the right to
            patent. The final decision of the Board, if adverse to a
            patentee, shall, if no appeal or other review of the decision
            has been or can be taken or had, constitute cancellation of the
            claims involved in the patent, and notice of such cancellation
            shall be endorsed on copies of the patent distributed after
            such cancellation by the United States Patent and Trademark
            Office.
        ``(b) Settlement.--Parties to a derivation proceeding may terminate
    the proceeding by filing a written statement reflecting the agreement
    of the parties as to the correct inventors of the claimed invention in
    dispute. Unless the Patent Trial and Appeal Board finds the agreement
    to be inconsistent with the evidence of record, it shall take action
    consistent with the agreement. Any written settlement or understanding
    of the parties shall be filed with the Director. At the request of a
    party to the proceeding, the agreement or understanding shall be
    treated as business confidential information, shall be kept separate
    from the file of the involved patents or applications, and shall be
    made available only to Government agencies on written request.
        ``(c) Arbitration.--Parties to a derivation proceeding, within such
    time as may be specified by the Director by regulation, may determine
    such contest or any aspect thereof by arbitration. Such arbitration
    shall be governed by the provisions of title 9 to the extent such title
    is not inconsistent with this section. The parties shall give notice of
    any arbitration award to the Director, and such award shall, as between
    the parties to the arbitration, be dispositive of the issues to which
    it relates. The arbitration award shall be unenforceable until such
    notice is given. Nothing in this subsection shall preclude the Director
    from determining patentability of the invention involved in the
    derivation proceeding.''.
        (j) Elimination of References to Interferences.--(1) Sections 6,
    41, 134, 141, 145, 146, 154, 305, and 314 of title 35, United States
    Code, are each amended by striking ``Board of Patent Appeals and
    Interferences'' each place it appears and inserting ``Patent Trial and
    Appeal Board''.
        (2) Sections 141, 146, and 154 of title 35, United States Code, are
    each amended--
                (A) by striking ``an interference'' each place it appears
            and inserting ``a derivation proceeding''; and
                (B) by striking ``interference'' each additional place it
            appears and inserting ``derivation proceeding''.
        (3) The section heading for section 134 of title 35, United States
    Code, is amended to read as follows:

    ``Sec. 134. Appeal to the Patent Trial and Appeal Board''.

        (4) The section heading for section 146 of title 35, United States
    Code, is amended to read as follows:

    ``Sec. 146. Civil action in case of derivation proceeding''.

        (5) Section 154(b)(1)(C) of title 35, United States Code, is
    amended by striking ``interferences'' and inserting ``derivation
    proceedings''.
        (6) The item relating to section 6 in the table of sections for
    chapter 1 of title 35, United States Code, is amended to read as
    follows:

        ``6. Patent Trial and Appeal Board.''.
        (7) The items relating to sections 134 and 135 in the table of
    sections for chapter 12 of title 35, United States Code, are amended to
    read as follows:

        ``134. Appeal to the Patent Trial and Appeal Board.
        ``135. Derivation proceedings.''.
        (8) The item relating to section 146 in the table of sections for
    chapter 13 of title 35, United States Code, is amended to read as
    follows:

        ``146. Civil action in case of derivation proceeding.''.
        (9) Certain Appeals.--Section 1295(a)(4)(A) of title 28, United
    States Code, is amended to read as follows:
                        ``(A) the Patent Trial and Appeal Board of the
                    United States Patent and Trademark Office with respect
                    to patent applications, interference proceedings
                    (commenced before the date of enactment of the Patent
                    Reform Act of 2009), derivation proceedings, and post-
                    grant review proceedings, at the instance of an
                    applicant for a patent or any party to a patent
                    interference (commenced before the effective date of
                    the Patent Reform Act of 2009), derivation proceeding,
                    or post-grant review proceeding, and any such appeal
                    shall waive any right of such applicant or party to
                    proceed under section 145 or 146 of title 35;''.
        (k) Effective Date.--
                (1) In general.--The amendments made by this section--
                        (A) shall take effect 90 days after the date on
                    which the President issues an Executive order
                    containing the President's finding that major patenting
                    authorities have adopted a grace period having
                    substantially the same effect as that contained under
                    the amendments made by this section; and
                        (B) shall apply to all applications for patent that
                    are filed on or after the effective date under
                    subparagraph (A).
                (2) Definitions.--In this subsection:
                        (A) Major patenting authorities.--The term ``major
                    patenting authorities'' means at least the patenting
                    authorities in Europe and Japan.
                        (B) Grace period.--The term ``grace period'' means
                    the 1-year period ending on the effective filing date
                    of a claimed invention, during which disclosures of the
                    subject matter by the inventor or a joint inventor, or
                    by others who obtained the subject matter disclosed
                    directly or indirectly from the inventor or a joint
                    inventor, do not qualify as prior art to the claimed
                    invention.
                        (C) Effective filing date.--The term ``effective
                    filing date of a claimed invention'' means, with
                    respect to a patenting authority in another country, a
                    date equivalent to the effective filing date of a
                    claimed invention as defined in section 100(h) of title
                    35, United States Code, as added by subsection (a) of
                    this section.
                (3) Retention of interference procedures with respect to
            applications filed before effective date.--In the case of any
            application for patent that is filed before the effective date
            under paragraph (1)(A), the provisions of law repealed or
            amended by subsections (h), (i), and (j) shall apply to such
            application as such provisions of law were in effect on the day
            before such effective date.
        (l) Review Every 7 Years.--Not later than the end of the 7-year
    period beginning on the effective date under subsection (k), and the
    end of every 7-year period thereafter, the Director shall--
                (1) conduct a study on the effectiveness and efficiency of
            the amendments made by this section; and
                (2) submit to the Committees on the Judiciary of the House
            of Representatives and the Senate a report on the results of
            the study, including any recommendations the Director has on
            amendments to the law and other recommendations of the Director
            with respect to the first-to-file system implemented under the
            amendments made by this section.

    SEC. 4. INVENTOR'S OATH OR DECLARATION.

        (a) Inventor's Oath or Declaration.--
                (1) In general.--Section 115 of title 35, United States
            Code, is amended to read as follows:

    ``Sec. 115. Inventor's oath or declaration

        ``(a) Naming the Inventor; Inventor's Oath or Declaration.--An
    application for patent that is filed under section 111(a), that
    commences the national stage under section 363, or that is filed by an
    inventor for an invention for which an application has previously been
    filed under this title by that inventor shall include, or be amended to
    include, the name of the inventor of any claimed invention in the
    application. Except as otherwise provided in this section, an
    individual who is the inventor or a joint inventor of a claimed
    invention in an application for patent shall execute an oath or
    declaration in connection with the application.
        ``(b) Required Statements.--An oath or declaration under subsection
    (a) shall contain statements that--
                ``(1) the application was made or was authorized to be made
            by the affiant or declarant; and
                ``(2) such individual believes himself or herself to be the
            original inventor or an original joint inventor of a claimed
            invention in the application.
        ``(c) Additional Requirements.--The Director may specify additional
    information relating to the inventor and the invention that is required
    to be included in an oath or declaration under subsection (a).
        ``(d) Substitute Statement.--
                ``(1) In general.--In lieu of executing an oath or
            declaration under subsection (a), the applicant for patent may
            provide a substitute statement under the circumstances
            described in paragraph (2) and such additional circumstances
            that the Director may specify by regulation.
                ``(2) Permitted circumstances.--A substitute statement
            under paragraph (1) is permitted with respect to any individual
            who--
                        ``(A) is unable to file the oath or declaration
                    under subsection (a) because the individual--
                                ``(i) is deceased;
                                ``(ii) is under legal incapacity; or
                                ``(iii) cannot be found or reached after
                            diligent effort; or
                        ``(B) is under an obligation to assign the
                    invention but has refused to make the oath or
                    declaration required under subsection (a).
                ``(3) Contents.--A substitute statement under this
            subsection shall--
                        ``(A) identify the individual with respect to whom
                    the statement applies;
                        ``(B) set forth the circumstances representing the
                    permitted basis for the filing of the substitute
                    statement in lieu of the oath or declaration under
                    subsection (a); and
                        ``(C) contain any additional information, including
                    any showing, required by the Director.
        ``(e) Making Required Statements in Assignment of Record.--An
    individual who has assigned rights in an application for patent may
    include the required statements under subsections (b) and (c) in the
    assignment executed by the individual, in lieu of filing such
    statements separately.
        ``(f) Time for Filing.--A notice of allowance under section 151 may
    be provided to an applicant for patent only if the applicant for patent
    has filed each required oath or declaration under subsection (a) or has
    filed a substitute statement under subsection (d) or recorded an
    assignment meeting the requirements of subsection (e).
        ``(g) Earlier-Filed Application Containing Required Statements or
    Substitute Statement.--The requirements under this section shall not
    apply to an individual with respect to an application for patent in
    which the individual is named as the inventor or a joint inventor and
    that claims the benefit under section 120 or 365(c) of the filing of an
    earlier-filed application, if--
                ``(1) an oath or declaration meeting the requirements of
            subsection (a) was executed by the individual and was filed in
            connection with the earlier-filed application;
                ``(2) a substitute statement meeting the requirements of
            subsection (d) was filed in the earlier filed application with
            respect to the individual; or
                ``(3) an assignment meeting the requirements of subsection
            (e) was executed with respect to the earlier-filed application
            by the individual and was recorded in connection with the
            earlier-filed application.
        ``(h) Supplemental and Corrected Statements; Filing Additional
    Statements.--
                ``(1) In general.--Any person making a statement required
            under this section may withdraw, replace, or otherwise correct
            the statement at any time. If a change is made in the naming of
            the inventor requiring the filing of 1 or more additional
            statements under this section, the Director shall establish
            regulations under which such additional statements may be
            filed.
                ``(2) Supplemental statements not required.--If an
            individual has executed an oath or declaration under subsection
            (a) or an assignment meeting the requirements of subsection (e)
            with respect to an application for patent, the Director may not
            thereafter require that individual to make any additional oath,
            declaration, or other statement equivalent to those required by
            this section in connection with the application for patent or
            any patent issuing thereon.
                ``(3) Savings clause.--No patent shall be invalid or
            unenforceable based upon the failure to comply with a
            requirement under this section if the failure is remedied as
            provided under paragraph (1).
        ``(i) Acknowledgment of Penalties.--Any declaration or statement
    filed pursuant to this section shall contain an acknowledgment that any
    willful false statement made in such declaration or statement is
    punishable under section 1001 of title 18 by fine or imprisonment of
    not more than 5 years, or both.''.
                (2) Relationship to divisional applications.--Section 121
            of title 35, United States Code, is amended by striking ``If a
            divisional application'' and all that follows through
            ``inventor.''.
                (3) Requirements for nonprovisional applications.--Section
            111(a) of title 35, United States Code, is amended--
                        (A) in paragraph (2)(C), by striking ``by the
                    applicant'' and inserting ``or declaration'';
                        (B) in the heading for paragraph (3), by striking
                    ``and oath''; and
                        (C) by striking ``and oath'' each place it appears.
                (4) Conforming amendment.--The item relating to section 115
            in the table of sections for chapter 11 of title 35, United
            States Code, is amended to read as follows:

        ``115. Inventor's oath or declaration.''.
        (b) Specification.--Section 112 of title 35, United States Code, is
    amended--
                (1) in the first paragraph--
                        (A) by striking ``The specification'' and inserting
                    ``(a) In General.--The specification''; and
                        (B) by striking ``of carrying out his invention''
                    and inserting ``or joint inventor of carrying out the
                    invention'';
                (2) in the second paragraph--
                        (A) by striking ``The specifications'' and
                    inserting ``(b) Conclusion.--The specifications''; and
                        (B) by striking ``applicant regards as his
                    invention'' and inserting ``inventor or a joint
                    inventor regards as the invention'';
                (3) in the third paragraph, by striking ``A claim'' and
            inserting ``(c) Form.--A claim'';
                (4) in the fourth paragraph, by striking ``Subject to the
            following paragraph,'' and inserting ``(d) Reference in
            Dependent Forms.--Subject to subsection (e),'';
                (5) in the fifth paragraph, by striking ``A claim'' and
            inserting ``(e) Reference in Multiple Dependent Form.--A
            claim''; and
                (6) in the last paragraph, by striking ``An element'' and
            inserting ``(f) Element in Claim for a Combination.--An
            element''.

    SEC. 5. RIGHT OF THE INVENTOR TO OBTAIN DAMAGES.

        (a) Damages.--Section 284 of title 35, United States Code, is
    amended to read as follows:

    ``Sec. 284. Damages

        ``(a) In General.--Upon finding for the claimant the court shall
    award the claimant damages adequate to compensate for the infringement
    but in no event less than a reasonable royalty for the use made of the
    invention by the infringer, together with interest and costs as fixed
    by the court, subject to the provisions of this section.
        ``(b) Determination of Damages; Evidence Considered; Procedure.--
    The court may receive expert testimony as an aid to the determination
    of damages or of what royalty would be reasonable under the
    circumstances. The admissibility of such testimony shall be governed by
    the rules of evidence governing expert testimony. When the damages are
    not found by a jury, the court shall assess them.
        ``(c) Standard for Calculating Reasonable Royalty.--
                ``(1) In general.--The court shall determine, based on the
            facts of the case and after adducing any further evidence the
            court deems necessary, which of the following methods shall be
            used by the court or the jury in calculating a reasonable
            royalty pursuant to subsection (a). The court shall also
            identify the factors that are relevant to the determination of
            a reasonable royalty, and the court or jury, as the case may
            be, shall consider only those factors in making such
            determination.
                        ``(A) Entire market value.--Upon a showing to the
                    satisfaction of the court that the claimed invention's
                    specific contribution over the prior art is the
                    predominant basis for market demand for an infringing
                    product or process, damages may be based upon the
                    entire market value of that infringing product or
                    process.
                        ``(B) Established royalty based on marketplace
                    licensing.--Upon a showing to the satisfaction of the
                    court that the claimed invention has been the subject
                    of a nonexclusive license for the use made of the
                    invention by the infringer, to a number of persons
                    sufficient to indicate a general marketplace
                    recognition of the reasonableness of the licensing
                    terms, if the license was secured prior to the filing
                    of the case before the court, and the court determines
                    that the infringer's use is of substantially the same
                    scope, volume, and benefit of the rights granted under
                    such license, damages may be determined on the basis of
                    the terms of such license. Upon a showing to the
                    satisfaction of the court that the claimed invention
                    has sufficiently similar noninfringing substitutes in
                    the relevant market, which have themselves been the
                    subject of such nonexclusive licenses, and the court
                    determines that the infringer's use is of substantially
                    the same scope, volume, and benefit of the rights
                    granted under such licenses, damages may be determined
                    on the basis of the terms of such licenses.
                        ``(C) Valuation calculation.--Upon a determination
                    by the court that the showings required under
                    subparagraphs (A) and (B) have not been made, the court
                    shall conduct an analysis to ensure that a reasonable
                    royalty is applied only to the portion of the economic
                    value of the infringing product or process properly
                    attributable to the claimed invention's specific
                    contribution over the prior art. In the case of a
                    combination invention whose elements are present
                    individually in the prior art, the contribution over
                    the prior art may include the value of the additional
                    function resulting from the combination, as well as the
                    enhanced value, if any, of some or all of the prior art
                    elements as part of the combination, if the patentee
                    demonstrates that value.
                ``(2) Additional factors.--Where the court determines it to
            be appropriate in determining a reasonable royalty under
            paragraph (1), the court may also consider, or direct the jury
            to consider, any other relevant factors under applicable law.
        ``(d) Inapplicability to Other Damages Analysis.--The methods for
    calculating a reasonable royalty described in subsection (c) shall have
    no application to the calculation of an award of damages that does not
    necessitate the determination of a reasonable royalty as a basis for
    monetary relief sought by the claimant.
        ``(e) Willful Infringement.--
                ``(1) Increased damages.--A court that has determined that
            an infringer has willfully infringed a patent or patents may
            increase damages up to 3 times the amount of the damages found
            or assessed under subsection (a), except that increased damages
            under this paragraph shall not apply to provisional rights
            under section 154(d).
                ``(2) Permitted grounds for willfulness.--A court may find
            that an infringer has willfully infringed a patent only if the
            patent owner presents clear and convincing evidence that acting
            with objective recklessness--
                        ``(A) after receiving written notice from the
                    patentee--
                                ``(i) alleging acts of infringement in a
                            manner sufficient to give the infringer an
                            objectively reasonable apprehension of suit on
                            such patent, and
                                ``(ii) identifying with particularity each
                            claim of the patent, each product or process
                            that the patent owner alleges infringes the
                            patent, and the relationship of such product or
                            process to such claim,
                    the infringer, after a reasonable opportunity to
                    investigate, thereafter performed 1 or more of the
                    alleged acts of infringement;
                        ``(B) the infringer intentionally copied the
                    patented invention with knowledge that it was patented;
                    or
                        ``(C) after having been found by a court to have
                    infringed that patent, the infringer engaged in conduct
                    that was not colorably different from the conduct
                    previously found to have infringed the patent, and
                    which resulted in a separate finding of infringement of
                    the same patent.
                ``(3) Limitations on willfulness.--
                        ``(A) In general.--A court may not find that an
                    infringer has willfully infringed a patent under
                    paragraph (2) for any period of time during which the
                    infringer had an informed good faith belief that the
                    patent was invalid or unenforceable, or would not be
                    infringed by the conduct later shown to constitute
                    infringement of the patent.
                        ``(B) Good faith established.--An informed good
                    faith belief within the meaning of subparagraph (A) may
                    be established by--
                                ``(i) reasonable reliance on advice of
                            counsel;
                                ``(ii) evidence that the infringer sought
                            to modify its conduct to avoid infringement
                            once it had discovered the patent; or
                                ``(iii) other evidence a court may find
                            sufficient to establish such good faith belief.
                        ``(C) Relevance of not presenting certain
                    evidence.--The decision of the infringer not to present
                    evidence of advice of counsel is not relevant to a
                    determination of willful infringement under paragraph
                    (2).
                ``(4) Limitation on pleading.--Before the date on which a
            court determines that the patent in suit is not invalid, is
            enforceable, and has been infringed by the infringer, a
            patentee may not plead and a court may not determine that an
            infringer has willfully infringed a patent.''.
        (b) Report to Congressional Committees.--
                (1) In general.--Not later than 2 years after the date of
            enactment of this Act, the Director shall report to the
            Committee on the Judiciary of the House of Representatives and
            the Committee on the Judiciary of the Senate, the findings and
            recommendations of the Director on the operation of prior user
            rights in selected countries in the industrialized world. The
            report shall include the following:
                        (A) A comparison between patent laws of the United
                    States and the laws of other industrialized countries,
                    including the European Union, Japan, Canada, and
                    Australia.
                        (B) An analysis of the effect of prior user rights
                    on innovation rates in the selected countries.
                        (C) An analysis of the correlation, if any, between
                    prior user rights and start-up enterprises and the
                    ability to attract venture capital to start new
                    companies.
                        (D) An analysis of the effect of prior user rights,
                    if any, on small businesses, universities, and
                    individual inventors.
                        (E) An analysis of legal and constitutional issues,
                    if any, that arise from placing trade secret law in
                    patent law.
                (2) Consultation with other agencies.--In preparing the
            report required under paragraph (1), the Director shall consult
            with the Secretary of State and the Attorney General.
        (c) Defense to Infringement Based on Earlier Inventor.--Section
    273(b)(6) of title 35, United States Code, is amended to read as
    follows:
                ``(6) Personal defense.--The defense under this section may
            be asserted only by the person who performed or caused the
            performance of the acts necessary to establish the defense as
            well as any other entity that controls, is controlled by, or is
            under common control with such person and, except for any
            transfer to the patent owner, the right to assert the defense
            shall not be licensed or assigned or transferred to another
            person except as an ancillary and subordinate part of a good
            faith assignment or transfer for other reasons of the entire
            enterprise or line of business to which the defense relates.
            Notwithstanding the preceding sentence, any person may, on its
            own behalf, assert a defense based on the exhaustion of rights
            provided under paragraph (3), including any necessary elements
            thereof.''.
        (d) Effective Date.--The amendments made by this section shall
    apply to any civil action commenced on or after the date of enactment
    of this Act.
        (e) Review Every 7 Years.--Not later than the end of the 7-year
    period beginning on the date of the enactment of this Act, and the end
    of every 7-year period thereafter, the Director shall--
                (1) conduct a study on the effectiveness and efficiency of
            the amendments made by this section; and
                (2) submit to the Committee on the Judiciary of the House
            of Representatives and the Committee on the Judiciary of the
            Senate a report on the results of the study, including any
            recommendations the Director has on amendments to the law and
            other recommendations of the Director with respect to the right
            of the inventor to obtain damages for patent infringement.

    SEC. 6. POST-GRANT PROCEDURES AND OTHER QUALITY ENHANCEMENTS.

        (a) Citation of Prior Art.--Section 301 of title 35, United States
    Code, is amended to read as follows:

    ``Sec. 301. Citation of prior art

        ``(a) In General.--Any person at any time may cite to the Office in
    writing--
                ``(1) prior art consisting of patents or printed
            publications which that person believes to have a bearing on
            the patentability of any claim of a particular patent;
                ``(2) written statements of the patent owner filed in a
            proceeding before a Federal court, the Patent and Trademark
            Office, or the United States International Trade Commission
            under section 337 of the Tariff Act of 1930 (19 U.S.C. 1337),
            in which the patent owner takes a position on the scope of one
            or more patent claims; or
                ``(3) documentary evidence that the claimed invention was
            in substantial public use or on sale in the United States more
            than 1 year prior to the date of the application for patent in
            the United States.
        ``(b) Submissions Part of Official File.--If the person citing
    prior art, written submissions, or documentary evidence under
    subsection (a) explains in writing the pertinence and manner of
    applying the prior art or documentary evidence to at least one claim of
    the patent, the citation of the prior art or documentary evidence (as
    the case may be) and the explanation thereof shall become a part of the
    official file of the patent.
        ``(c) Procedures for Written Statements.--
                ``(1) Submission of additional materials.--A party that
            submits written statements under subsection (a)(2) in a
            proceeding shall include any other documents, pleadings, or
            evidence from the proceeding that address the patent owner's
            statements or the claims addressed by the written statements.
                ``(2) Limitation on use of statements.--Written statements
            submitted under subsection (a)(2) shall not be considered for
            any purpose other than to determine the proper meaning of the
            claims that are the subject of the request in a proceeding
            ordered pursuant to section 304 or 313. Any such written
            statements, and any materials submitted under paragraph (1),
            that are subject to an applicable protective order shall be
            redacted to exclude information subject to the order.
        ``(d) Identity Withheld.--Upon the written request of the person
    making the citation under subsection (a), the person's identity shall
    be excluded from the patent file and kept confidential.''.
        (b) Request for Reexamination.--The first sentence of section 302
    of title 35, United States Code, is amended to read as follows: ``Any
    person at any time may file a request for reexamination by the Office
    of any claim on a patent on the basis of any prior art or documentary
    evidence cited under paragraph (1) or (3) of subsection (a) of section
    301 of this title.''.
        (c) Reexamination.--Section 303(a) of title 35, United States Code,
    is amended to read as follows:
        ``(a) Within three months following the filing of a request for
    reexamination under section 302, the Director shall determine whether a
    substantial new question of patentability affecting any claim of the
    patent concerned is raised by the request, with or without
    consideration of other patents or printed publications. On the
    Director's own initiative, and at any time, the Director may determine
    whether a substantial new question of patentability is raised by
    patents and publications discovered by the Director, is cited under
    section 301, or is cited by any person other than the owner of the
    patent under section 302 or section 311. The existence of a substantial
    new question of patentability is not precluded by the fact that a
    patent or printed publication was previously considered by the
    Office.''.
        (d) Request for Inter Partes Reexamination.--Section 311(a) of
    title 35, United States Code, is amended to read as follows:
        ``(a) In General.--Any third-party requester at any time may file a
    request for inter partes reexamination by the Office of a patent on the
    basis of any prior art or documentary evidence cited under paragraph
    (1) or (3) of subsection (a) of section 301 of this title.''.
        (e) Conduct of Inter Partes Proceedings.--Section 314 of title 35,
    United States Code, is amended--
                (1) in the first sentence of subsection (a), by striking
            ``conducted according to the procedures established for initial
            examination under the provisions of sections 132 and 133'' and
            inserting ``heard by an administrative patent judge in
            accordance with procedures which the Director shall
            establish'';
                (2) in subsection (b), by striking paragraph (2) and
            inserting the following:
        ``(2) The third-party requester shall have the opportunity to file
    written comments on any action on the merits by the Office in the inter
    partes reexamination proceeding, and on any response that the patent
    owner files to such an action, if those written comments are received
    by the Office within 60 days after the date of service on the third-
    party requester of the Office action or patent owner response, as the
    case may be.''; and
                (3) by adding at the end the following:
        ``(d) Oral Hearing.--At the request of a third party requestor or
    the patent owner, the administrative patent judge shall conduct an oral
    hearing, unless the judge finds cause lacking for such hearing.''.
        (f) Estoppel.--Section 315(c) of title 35, United States Code, is
    amended by striking ``or could have raised''.
        (g) Reexamination Prohibited After District Court Decision.--
    Section 317(b) of title 35, United States Code, is amended--
                (1) in the subsection heading, by striking ``Final
            Decision'' and inserting ``District Court Decision''; and
                (2) by striking ``Once a final decision has been entered''
            and inserting ``Once the judgment of the district court has
            been entered''.
        (h) Post-Grant Opposition Procedures.--
                (1) In general.--Part III of title 35, United States Code,
            is amended by adding at the end the following new chapter:

                   ``CHAPTER 32--POST-GRANT REVIEW PROCEDURES

        ``Sec.
        ``321. Petition for post-grant review.
        ``322. Timing and bases of petition.
        ``323. Requirements of petition.
        ``324. Prohibited filings.
        ``325. Submission of additional information; showing of sufficient
    grounds.
        ``326. Conduct of post-grant review proceedings.
        ``327. Patent owner response.
        ``328. Proof and evidentiary standards.
        ``329. Amendment of the patent.
        ``330. Decision of the Board.
        ``331. Effect of decision.
        ``332. Settlement.
        ``333. Relationship to other pending proceedings.
        ``334. Effect of decisions rendered in civil action on post-grant
    review proceedings.
        ``335. Effect of final decision on future proceedings.
        ``336. Appeal.

    ``Sec. 321. Petition for post-grant review

        ``Subject to sections 322, 324, 332, and 333, a person who is not
    the patent owner may file with the Office a petition for cancellation
    seeking to institute a post-grant review proceeding to cancel as
    unpatentable any claim of a patent on any ground that could be raised
    under paragraph (2) or (3) of section 282(b) (relating to invalidity of
    the patent or any claim). The Director shall establish, by regulation,
    fees to be paid by the person requesting the proceeding, in such
    amounts as the Director determines to be reasonable.

    ``Sec. 322. Timing and bases of petition

        ``A post-grant proceeding may be instituted under this chapter
    pursuant to a cancellation petition filed under section 321 only if--
                ``(1) the petition is filed not later than 12 months after
            the issuance of the patent or a reissue patent, as the case may
            be; or
                ``(2) the patent owner consents in writing to the
            proceeding.

    ``Sec. 323. Requirements of petition

        ``A cancellation petition filed under section 321 may be considered
    only if--
                ``(1) the petition is accompanied by payment of the fee
            established by the Director under section 321;
                ``(2) the petition identifies the cancellation petitioner;
                ``(3) for each claim sought to be canceled, the petition
            sets forth in writing the basis for cancellation and provides
            the evidence in support thereof, including copies of patents
            and printed publications, or written testimony of a witness
            attested to under oath or declaration by the witness, or any
            other information that the Director may require by regulation;
            and
                ``(4) the petitioner provides copies of the petition,
            including any evidence submitted with the petition and any
            other information submitted under paragraph (3), to the patent
            owner or, if applicable, the designated representative of the
            patent owner.

    ``Sec. 324. Prohibited filings

        ``A post-grant review proceeding may not be instituted under
    section 322 if the petition for cancellation requesting the
    proceeding--
                ``(1) identifies the same cancellation petitioner and the
            same patent as a previous petition for cancellation filed under
            such section; or
                ``(2) is based on the best mode requirement contained in
            section 112.

    ``Sec. 325. Submission of additional information; showing of sufficient
                        grounds

        ``(a) In General.--The cancellation petitioner shall file such
    additional information with respect to the petition as the Director may
    require. For each petition submitted under section 321, the Director
    shall determine if the written statement, and any evidence submitted
    with the request, establish that a substantial question of
    patentability exists for at least one claim in the patent. The Director
    may initiate a post-grant review proceeding if the Director determines
    that the information presented provides sufficient grounds to believe
    that there is a substantial question of patentability concerning one or
    more claims of the patent at issue.
        ``(b) Notification; Determinations Not Reviewable.--The Director
    shall notify the patent owner and each petitioner in writing of the
    Director's determination under subsection (a), including a
    determination to deny the petition. The Director shall make that
    determination in writing not later than 60 days after receiving the
    petition. Any determination made by the Director under subsection (a),
    including whether or not to institute a post-grant review proceeding or
    to deny the petition, shall not be reviewable.

    ``Sec. 326. Conduct of post-grant review proceedings

        ``(a) In General.--The Director shall prescribe regulations, in
    accordance with section 2(b)(2)--
                ``(1) establishing and governing post-grant review
            proceedings under this chapter and their relationship to other
            proceedings under this title;
                ``(2) establishing procedures for the submission of
            supplemental information after the petition for cancellation is
            filed; and
                ``(3) setting forth procedures for discovery of relevant
            evidence, including that such discovery shall be limited to
            evidence directly related to factual assertions advanced by
            either party in the proceeding, and the procedures for
            obtaining such evidence shall be consistent with the purpose
            and nature of the proceeding.
    In carrying out paragraph (3), the Director shall bear in mind that
    discovery must be in the interests of justice.
        ``(b) Post-Grant Regulations.--Regulations under subsection
    (a)(1)--
                ``(1) shall require that the final determination in a post-
            grant proceeding issue not later than one year after the date
            on which the post-grant review proceeding is instituted under
            this chapter, except that, for good cause shown, the Director
            may extend the 1-year period by not more than six months;
                ``(2) shall provide for discovery upon order of the
            Director;
                ``(3) shall provide for publication of notice in the
            Federal Register of the filing of a petition for post-grant
            review under this chapter, for publication of the petition, and
            documents, orders, and decisions relating to the petition, on
            the website of the Patent and Trademark Office, and for filings
            under seal exempt from publication requirements;
                ``(4) shall prescribe sanctions for abuse of discovery,
            abuse of process, or any other improper use of the proceeding,
            such as to harass or to cause unnecessary delay or unnecessary
            increase in the cost of the proceeding;
                ``(5) may provide for protective orders governing the
            exchange and submission of confidential information; and
                ``(6) shall ensure that any information submitted by the
            patent owner in support of any amendment entered under section
            329 is made available to the public as part of the prosecution
            history of the patent.
        ``(c) Considerations.--In prescribing regulations under this
    section, the Director shall consider the effect on the economy, the
    integrity of the patent system, and the efficient administration of the
    Office.
        ``(d) Conduct of Proceeding.--The Patent Trial and Appeal Board
    shall, in accordance with section 6(b), conduct each post-grant review
    proceeding authorized by the Director.

    ``Sec. 327. Patent owner response

        ``After a post-grant proceeding under this chapter has been
    instituted with respect to a patent, the patent owner shall have the
    right to file, within a time period set by the Director, a response to
    the cancellation petition. The patent owner shall file with the
    response, through affidavits or declarations, any additional factual
    evidence and expert opinions on which the patent owner relies in
    support of the response.

    ``Sec. 328. Proof and evidentiary standards

        ``(a) In General.--The presumption of validity set forth in section
    282 shall not apply in a challenge to any patent claim under this
    chapter.
        ``(b) Burden of Proof.--The party advancing a proposition under
    this chapter shall have the burden of proving that proposition by a
    preponderance of the evidence.

    ``Sec. 329. Amendment of the patent

        ``(a) In General.--In response to a challenge in a petition for
    cancellation, the patent owner may file one motion to amend the patent
    in one or more of the following ways:
                ``(1) Cancel any challenged patent claim.
                ``(2) For each challenged claim, propose a substitute
            claim.
                ``(3) Amend the patent drawings or otherwise amend the
            patent other than the claims.
        ``(b) Additional Motions.--Additional motions to amend may be
    permitted only for good cause shown.
        ``(c) Scope of Claims.--An amendment under this section may not
    enlarge the scope of the claims of the patent or introduce new matter.

    ``Sec. 330. Decision of the Board

        ``If the post-grant review proceeding is instituted and not
    dismissed under this chapter, the Patent Trial and Appeal Board shall
    issue a final written decision addressing the patentability of any
    patent claim challenged and any new claim added under section 329.

    ``Sec. 331. Effect of decision

        ``(a) In General.--If the Patent Trial and Appeal Board issues a
    final decision under section 330 and the time for appeal has expired or
    any appeal proceeding has terminated, the Director shall issue and
    publish a certificate canceling any claim of the patent finally
    determined to be unpatentable and incorporating in the patent by
    operation of the certificate any new claim determined to be patentable.
        ``(b) New Claims.--Any new claim held to be patentable and
    incorporated into a patent in a post-grant review proceeding shall have
    the same effect as that specified in section 252 for reissued patents
    on the right of any person who made, purchased, offered to sell, or
    used within the United States, or imported into the United States,
    anything patented by such new claim, or who made substantial
    preparations therefor, before a certificate under subsection (a) of
    this section is issued.

    ``Sec. 332. Settlement

        ``(a) In General.--A post-grant review proceeding shall be
    terminated with respect to any petitioner upon the joint request of the
    petitioner and the patent owner, unless the Patent Trial and Appeal
    Board has issued a written decision before the request for termination
    is filed. If the post-grant review proceeding is terminated with
    respect to a petitioner under this paragraph, no estoppel shall apply
    to that petitioner. If no petitioner remains in the proceeding, the
    panel of administrative patent judges assigned to the proceeding shall
    terminate the proceeding.
        ``(b) Agreement in Writing.--Any agreement or understanding between
    the patent owner and a petitioner, including any collateral agreements
    referred to in the agreement or understanding, that is made in
    connection with or in contemplation of the termination of a post-grant
    review proceeding, must be in writing. A post-grant review proceeding
    as between the parties to the agreement or understanding may not be
    terminated until a copy of the agreement or understanding, including
    any such collateral agreements, has been filed in the Office. If any
    party filing such an agreement or understanding requests, the agreement
    or understanding shall be kept separate from the file of the post-grant
    review proceeding, and shall be made available only to Government
    agencies on written request.

    ``Sec. 333. Relationship to other proceedings

        ``(a) In General.--Notwithstanding subsection 135(a), sections 251
    and 252, and chapter 30, the Director may determine the manner in which
    any reexamination proceeding, reissue proceeding, interference
    proceeding (commenced with respect to an application for patent filed
    before the effective date provided in section 3(k) of the Patent Reform
    Act of 2009), derivation proceeding, or post-grant review proceeding,
    that is pending during a post-grant review proceeding, may proceed,
    including providing for stay, transfer, consolidation, or termination
    of any such proceeding.
        ``(b) Stays.--The Director may stay a post-grant review proceeding
    if a pending civil action for infringement of a patent, or a pending
    proceeding before the United States International Trade Commission
    under section 337 of the Tariff Act of 1930 (19 U.S.C. 1337), addresses
    the same or substantially the same questions of patentability raised
    against the patent in a petition for the post-grant review proceeding.
        ``(c) Effect of Commencement of Proceeding.--The commencement of a
    post-grant review proceeding--
                ``(1) shall not limit in any way the right of the patent
            owner to commence an action for infringement of the patent; and
                ``(2) shall not be cited as evidence relating to the
            validity of any claim of the patent in any proceeding before a
            court or the International Trade Commission concerning the
            patent.

    ``Sec. 334. Effect of decisions rendered in civil action or ITC
                        proceeding on post-grant review proceedings

        ``If a final decision is entered against a party in a civil action
    arising in whole or in part under section 1338 of title 28, or a
    determination made by the United States International Trade Commission
    against a party in a proceeding under section 337 of the Tariff Act of
    1930 (19 U.S.C. 1337) has become final, establishing that the party has
    not sustained its burden of proving the invalidity of any patent
    claim--
                ``(1) that party to the civil action or proceeding (as the
            case may be) and the privies of that party may not thereafter
            request a post-grant review proceeding on that patent claim on
            the basis of any grounds, under the provisions of section 321,
            which that party or the privies of that party raised or could
            have raised; and
                ``(2) the Director may not thereafter maintain a post-grant
            review proceeding that was requested, before the final decision
            was so entered or final determination was so made (as the case
            may be), by that party or the privies of that party on the
            basis of such grounds.

    ``Sec. 335. Effect of final decision on future proceedings

        ``If a final decision under section 330 is favorable to the
    patentability of any original or new claim of the patent challenged by
    the cancellation petitioner, the cancellation petitioner may not
    thereafter, based on any ground that the cancellation petitioner raised
    during the post-grant review proceeding--
                ``(1) request or pursue a reexamination of such claim under
            chapter 31;
                ``(2) request or pursue a derivation proceeding with
            respect to such claim;
                ``(3) request or pursue a post-grant review proceeding
            under this chapter with respect to such claim;
                ``(4) assert the invalidity of any such claim in any civil
            action arising in whole or in part under section 1338 of title
            28; or
                ``(5) assert the invalidity of any such claim in defense to
            a proceeding brought under section 337 of the Tariff Act of
            1930 (19 U.S.C. 1337).

    ``Sec. 336. Appeal

        ``A party dissatisfied with the final determination of the Patent
    Trial and Appeal Board in a post-grant proceeding under this chapter
    may appeal the determination under sections 141 through 144. Any party
    to the post-grant proceeding shall have the right to be a party to the
    appeal.''.
        (i) Conforming Amendment.--The table of chapters for part III of
    title 35, United States Code, is amended by adding at the end the
    following:

                                        ``32. Post-Grant Review Proceedings
                                                         321''.
        (j) Repeal.--Section 4607 of the Intellectual Property and
    Communications Omnibus Reform Act of 1999, as enacted by section
    1000(a)(9) of Public Law 106-113, is repealed.
        (k) Effective Dates.--
                (1) In general.--The amendments and repeal made by this
            section shall take effect at the end of the 1-year period
            beginning on the date of the enactment of this Act.
                (2) Applicability to ex parte and inter partes
            proceedings.--Notwithstanding any other provision of law,
            sections 301 and 311 through 318 of title 35, United States
            Code, as amended by this section, shall apply to any patent
            that issues before, on, or after the effective date under
            paragraph (1) from an original application filed on any date.
                (3) Applicability to post-grant proceedings.--The
            amendments made by subsections (h) and (i) shall apply to
            patents issued on or after the effective date under paragraph
            (1).
        (l) Regulations.--The Under Secretary of Commerce for Intellectual
    Property and Director of the United States Patent and Trademark Office
    (in this subsection referred to as the ``Director'') shall, not later
    than the date that is 1 year after the date of the enactment of this
    Act, issue regulations to carry out chapter 32 of title 35, United
    States Code, as added by subsection (h) of this section.

    SEC. 7. DEFINITIONS; PATENT TRIAL AND APPEAL BOARD.

        (a) Definitions.--Section 100 of title 35, United States Code (as
    amended by section 3 of this Act), is further amended--
                (1) in subsection (e), by striking ``or inter partes
            reexamination under section 311''; and
                (2) by adding at the end the following:
        ``(k) The term `cancellation petitioner' means the real party in
    interest requesting cancellation of any claim of a patent under chapter
    31 of this title and the privies of the real party in interest.''.
        (b) Patent Trial and Appeal Board.--Section 6 of title 35, United
    States Code, is amended to read as follows:

    ``Sec. 6. Patent Trial and Appeal Board

        ``(a) Establishment and Composition.--There shall be in the Office
    a Patent Trial and Appeal Board. The Director, the Deputy Director, the
    Commissioner for Patents, the Commissioner for Trademarks, and the
    administrative patent judges shall constitute the Patent Trial and
    Appeal Board. The administrative patent judges shall be persons of
    competent legal knowledge and scientific ability who are appointed by
    the Secretary of Commerce. Any reference in any Federal law, Executive
    order, rule, regulation, or delegation of authority, or any document of
    or pertaining to the Board of Patent Appeals and Interferences is
    deemed to refer to the Patent Trial and Appeal Board.
        ``(b) Duties.--The Patent Trial and Appeal Board shall--
                ``(1) on written appeal of an applicant, review adverse
            decisions of examiners upon application for patents;
                ``(2) on written appeal of a patent owner, review adverse
            decisions of examiners upon patents in reexamination
            proceedings under chapter 30;
                ``(3) conduct derivation proceedings under subsection
            135(a); and
                ``(4) conduct post-grant opposition proceedings under
            chapter 32.
    Each appeal and derivation proceeding shall be heard by at least 3
    members of the Patent Trial and Appeal Board, who shall be designated
    by the Director. Only the Patent Trial and Appeal Board may grant
    rehearings. The Director shall assign each post-grant review proceeding
    to a panel of 3 administrative patent judges. Once assigned, each such
    panel of administrative patent judges shall have the responsibilities
    under chapter 32 in connection with post-grant review proceedings.''.

    SEC. 8. STUDY AND REPORT ON REEXAMINATION PROCEEDINGS.

        The Director shall, not later than 2 years after the date of the
    enactment of this Act--
                (1) conduct a study of the effectiveness and efficiency of
            the different forms of proceedings available under title 35,
            United States Code, for the reexamination of patents; and
                (2) submit to the Committee on the Judiciary of the House
            of Representatives and the Committee on the Judiciary of the
            Senate a report on the results of the study, including any of
            the Director's suggestions for amending the law, and any other
            recommendations the Director has with respect to patent
            reexamination proceedings.

    SEC. 9. PREISSUANCE SUBMISSIONS BY THIRD PARTIES.

        Section 122 of title 35, United States Code, is amended by adding
    at the end the following:
        ``(e) Preissuance Submissions by Third Parties.--
                ``(1) In general.--Any person may submit for consideration
            and inclusion in the record of a patent application, any
            patent, published patent application, or other publication of
            potential relevance to the examination of the application, if
            such submission is made in writing before the earlier of--
                        ``(A) the date a notice of allowance under section
                    151 is mailed in the application for patent; or
                        ``(B) either--
                                ``(i) 6 months after the date on which the
                            application for patent is published under
                            section 122, or
                                ``(ii) the date of the first rejection
                            under section 132 of any claim by the examiner
                            during the examination of the application for
                            patent,
                    whichever occurs later.
                ``(2) Other requirements.--Any submission under paragraph
            (1) shall--
                        ``(A) set forth a concise description of the
                    asserted relevance of each submitted document;
                        ``(B) be accompanied by such fee as the Director
                    may prescribe;
                        ``(C) include a statement by the person making such
                    submission affirming that the submission was made in
                    compliance with this section; and
                        ``(D) identify the real party-in-interest making
                    the submission.''.

    SEC. 10. VENUE AND JURISDICTION.

        (a) Venue for Patent Cases.--Section 1400 of title 28, United
    States Code, is amended by striking subsection (b) and inserting the
    following:
        ``(b) Notwithstanding section 1391 of this title, in any civil
    action arising under any Act of Congress relating to patents, a party
    shall not manufacture venue by assignment, incorporation, or otherwise
    to invoke the venue of a specific district court.
        ``(c) Notwithstanding section 1391 of this title, any civil action
    for patent infringement or any action for declaratory judgment may be
    brought only in a judicial district--
                ``(1) where the defendant has its principal place of
            business or in the location or place in which the defendant is
            incorporated or formed, or, for foreign corporations with a
            United States subsidiary, where the defendant's primary United
            States subsidiary has its principal place of business or is
            incorporated or formed;
                ``(2) where the defendant has committed substantial acts of
            infringement and has a regular and established physical
            facility that the defendant controls and that constitutes a
            substantial portion of the operations of the defendant;
                ``(3) where the primary plaintiff resides, if the primary
            plaintiff in the action is--
                        ``(A) an institution of higher education as defined
                    under section 101(a) of the Higher Education Act of
                    1965 (20 U.S.C. 1001(a)); or
                        ``(B) a nonprofit organization that--
                                ``(i) qualifies for treatment under section
                            501(c)(3) of the Internal Revenue Code (26
                            U.S.C. 501(c)(3));
                                ``(ii) is exempt from taxation under
                            section 501(a) of such Code; and
                                ``(iii) serves as the patent and licensing
                            organization for an institution of higher
                            education as defined under section 101(a) of
                            the Higher Education Act of 1965 (20 U.S.C.
                            1001(a)); or
                ``(4) where the plaintiff resides, if the sole plaintiff in
            the action is an individual inventor who is a natural person
            and who qualifies at the time such action is filed as a micro-
            entity pursuant to section 123 of title 35.
        ``(d) If a plaintiff brings a civil action for patent infringement
    or declaratory judgment relief under subsection (c), then the defendant
    may request the district court to transfer that action to another
    district or division where, in the court's determination--
                ``(1) any of the parties has substantial evidence or
            witnesses that otherwise would present considerable evidentiary
            burdens to the defendant if such transfer were not granted;
                ``(2) such transfer would not cause undue hardship to the
            plaintiff; and
                ``(3) venue would be otherwise appropriate under section
            1391 of this title.''.
        (b) Interlocutory Appeals.--Subsection (c) of section 1292 of title
    28, United States Code, is amended--
                (1) by striking ``and'' at the end of paragraph (1);
                (2) by striking the period at the end of paragraph (2) and
            inserting ``; and''; and
                (3) by adding at the end the following:
                ``(3) of an appeal from an interlocutory order or decree
            determining construction of claims in a civil action for patent
            infringement under section 271 of title 35.
    Application for an appeal under paragraph (3) shall be made to the
    court within 10 days after entry of the order or decree. The district
    court shall have discretion whether to approve the application and, if
    so, whether to stay proceedings in the district court during pendency
    of the appeal.''.
        (c) Technical Amendments Relating to Venue.--Sections 32, 145, 146,
    154(b)(4)(A), and 293 of title 35, United States Code, and section
    21(b)(4) of the Act entitled ``An Act to provide for the registration
    and protection of trademarks used in commerce, to carry out the
    provisions of certain international conventions, and for other
    purposes'', approved July 5, 1946 (commonly referred to as the
    ``Trademark Act of 1946'' or the ``Lanham Act'' (15 U.S.C. 1071(b)(4)),
    are each amended by striking ``United States District Court for the
    District of Columbia'' each place that term appears and inserting
    ``United States District Court for the Eastern District of Virginia''.

    SEC. 11. PATENT AND TRADEMARK OFFICE REGULATORY AUTHORITY.

        (a) Fee Setting.--
                (1) In general.--The Director shall have authority to set
            or adjust by rule any fee established or charged by the Office
            under sections 41 and 376 of title 35, United States Code or
            under section 31 of the Trademark Act of 1946 (15 U.S.C. 1113)
            for the filing or processing of any submission to, and for all
            other services performed by or materials furnished by, the
            Office, provided that such fee amounts are set to reasonably
            compensate the Office for the services performed.
                (2) Reduction of fees in certain fiscal years.--In any
            fiscal year, the Director--
                        (A) shall consult with the Patent Public Advisory
                    Committee and the Trademark Public Advisory Committee
                    on the advisability of reducing any fees described in
                    paragraph (1); and
                        (B) after that consultation may reduce such fees.
                (3) Role of the public advisory committee.--The Director
            shall--
                        (A) submit to the Patent or Trademark Public
                    Advisory Committee, or both, as appropriate, any
                    proposed fee under paragraph (1) not less than 45 days
                    before publishing any proposed fee in the Federal
                    Register;
                        (B) provide the relevant advisory committee
                    described in subparagraph (A) a 30-day period following
                    the submission of any proposed fee, on which to
                    deliberate, consider, and comment on such proposal, and
                    require that--
                                (i) during such 30-day period, the relevant
                            advisory committee hold a public hearing
                            related to such proposal; and
                                (ii) the Director shall assist the relevant
                            advisory committee in carrying out such public
                            hearing, including by offering the use of
                            Office resources to notify and promote the
                            hearing to the public and interested
                            stakeholders;
                        (C) require the relevant advisory committee to make
                    available to the public a written report detailing the
                    comments, advice, and recommendations of the committee
                    regarding any proposed fee;
                        (D) consider and analyze any comments, advice, or
                    recommendations received from the relevant advisory
                    committee before setting or adjusting any fee; and
                        (E) notify, through the Chair and Ranking Member of
                    the Committee on the Judiciary of the House of
                    Representatives and the Committee on the Judiciary of
                    the Senate, the Congress of any final decision
                    regarding proposed fees.
                (4) Publication in the federal register.--
                        (A) In general.--Any rules prescribed under this
                    subsection shall be published in the Federal Register.
                        (B) Rationale.--Any proposal for a change in fees
                    under this section shall--
                                (i) be published in the Federal Register;
                            and
                                (ii) include, in such publication, the
                            specific rationale and purpose for the
                            proposal, including the possible expectations
                            or benefits resulting from the proposed change.
                        (C) Public comment period.--Following the
                    publication of any proposed fee in the Federal Register
                    pursuant to subparagraph (A), the Director shall seek
                    public comment for a period of not less than 45 days.
                (5) Congressional comment period.--Following the
            notification described in paragraph (3)(E), Congress shall have
            not more than 45 days to consider and comment on any proposed
            fee under paragraph (1). No proposed fee shall be effective
            prior to the end of such 45-day comment period.
                (6) Rule of construction.--No rules prescribed under this
            subsection may diminish--
                        (A) an applicant's rights under this title or the
                    Trademark Act of 1946; or
                        (B) any rights under a ratified treaty.
        (b) Fees for Patent Services.--Division B of Public Law 108-447 is
    amended in title VIII of the Departments of Commerce, Justice and
    State, the Judiciary, and Related Agencies Appropriations Act, 2005, in
    section 801(a) by striking ``During fiscal years 2005, 2006 and 2007'',
    and inserting ``Until such time as the Director sets or adjusts the
    fees otherwise,''.
        (c) Adjustment of Trademark Fees.--Division B of Public Law 108-447
    is amended in title VIII of the Departments of Commerce, Justice and
    State, the Judiciary and Related Agencies Appropriations Act, 2005, in
    section 802(a) by striking ``During fiscal years 2005, 2006 and 2007'',
    and inserting ``Until such time as the Director sets or adjusts the
    fees otherwise,''.
        (d) Effective Date, Applicability, and Transitional Provision.--
    Division B of Public Law 108-447 is amended in title VIII of the
    Departments of Commerce, Justice and State, the Judiciary and Related
    Agencies Appropriations Act, 2005, in section 803(a) by striking ``and
    shall apply only with respect to the remaining portion of fiscal year
    2005, 2006 and 2007.''.
        (e) Rule of Construction.--Nothing in this section shall be
    construed to affect any other provision of Division B of Public Law
    108-447, including section 801(c) of title VII of the Departments of
    Commerce, Justice and State, the Judiciary and Related Agencies
    Appropriations Act, 2005.
        (f) Definitions.--In this section:
                (1) Director.--The term ``Director'' means the Director of
            the United States Patent and Trademark Office.
                (2) Office.--The term ``Office'' means the United States
            Patent and Trademark Office.
                (3) Trademark act of 1946.--The term ``Trademark Act of
            1946'' means an Act entitled ``Act to provide for the
            registration and protection of trademarks used in commerce, to
            carry out the provisions of certain international conventions,
            and for other purposes'', approved July 5, 1946 (15 U.S.C. 1051
            et seq.) (commonly referred to as the Trademark Act of 1946 or
            the Lanham Act).

    SEC. 12. RESIDENCY OF FEDERAL CIRCUIT JUDGES.

        Section 44(c) of title 28, United States Code, is amended by
    striking the second sentence.

    SEC. 13. MICRO-ENTITY DEFINED.

        Chapter 11 of title 35, United States Code, is amended by adding at
    the end the following new section:

    ``Sec. 123. Micro-entity defined

        ``(a) In General.--For purposes of this title, the term `micro-
    entity' means an applicant who makes a certification under either
    subsections (b) or (c).
        ``(b) Unassigned Application.--For an unassigned application, each
    applicant shall certify that the applicant--
                ``(1) qualifies as a small entity, as defined in
            regulations issued by the Director;
                ``(2) has not been named on 5 or more previously filed
            patent applications;
                ``(3) has not assigned, granted, or conveyed, and is not
            under an obligation by contract or law to assign, grant, or
            convey, a license or any other ownership interest in the
            particular application; and
                ``(4) does not have a gross income, as defined in section
            61(a) of the Internal Revenue Code, exceeding 2.5 times the
            median household income, as reported by the Bureau of the
            Census, in the calendar year immediately preceding the calendar
            year in which the examination fee is being paid.
        ``(c) Assigned Application.--For an assigned application, each
    applicant shall certify that the applicant--
                ``(1) qualifies as a small entity, as defined in
            regulations issued by the Director, and meets the requirements
            of subsection (b)(4);
                ``(2) has not been named on 5 or more previously filed
            patent applications; and
                ``(3) has assigned, granted, conveyed, or is under an
            obligation by contract or law to assign, grant, or convey, a
            license or other ownership interest in the particular
            application to an entity that has 5 or fewer employees and that
            such entity has a gross income, as defined in section 61(a) of
            the Internal Revenue Code, that does not exceed 2.5 times the
            median household income, as reported by the Bureau of the
            Census, in the calendar year immediately preceding the calendar
            year in which the examination fee is being paid.
        ``(d) Income Level Adjustment.--The gross income levels established
    under subsections (b) and (c) shall be adjusted by the Director on
    October 1, 2009, and every year thereafter, to reflect any fluctuations
    occurring during the previous 12 months in the Consumer Price Index, as
    determined by the Secretary of Labor.''.

    SEC. 14. TECHNICAL AMENDMENTS.

        (a) Joint Inventions.--Section 116 of title 35, United States Code,
    is amended--
                        (1) in the first paragraph, by striking ``When''
                    and inserting ``(a) Joint Inventions.--When'';
                        (2) in the second paragraph, by striking ``If a
                    joint inventor'' and inserting ``(b) Omitted
                    Inventor.--If a joint inventor''; and
                        (3) in the third paragraph, by striking
                    ``Whenever'' and inserting ``(c) Correction of Errors
                    in Application.--Whenever''.
        (b) Filing of Application in Foreign Country.--Section 184 of title
    35, United States Code, is amended--
                (1) in the first paragraph, by striking ``Except when'' and
            inserting ``(a) Filing in Foreign Country.--Except when'';
                (2) in the second paragraph, by striking ``The term'' and
            inserting ``(b) Application.--The term''; and
                (3) in the third paragraph, by striking ``The scope'' and
            inserting ``(c) Subsequent Modifications, Amendments, and
            Supplements.--The scope''.
        (c) Reissue of Defective Patents.--Section 251 of title 35, United
    States Code, is amended--
                (1) in the first paragraph, by striking ``Whenever'' and
            inserting ``(a) In General.--Whenever'';
                (2) in the second paragraph, by striking ``The Director''
            and inserting ``(b) Multiple Reissued Patents.--The Director'';
                (3) in the third paragraph, by striking ``The provision''
            and inserting ``(c) Applicability of This Title.--The
            provisions''; and
                (4) in the last paragraph, by striking ``No reissued
            patent'' and inserting ``(d) Reissue Patent Enlarging Scope of
            Claims.--No reissued patent''.
        (d) Effect of Reissue.--Section 253 of title 35, United States
    Code, is amended--
                (1) in the first paragraph, by striking ``Whenever'' and
            inserting ``(a) In General.--Whenever''; and
                (2) in the second paragraph, by striking ``in like manner''
            and inserting ``(b) Additional Disclaimer or Dedication.--In
            the manner set forth in subsection (a),''.
        (e) Correction of Named Inventor.--Section 256 of title 35, United
    States Code, is amended--
                (1) in the first paragraph, by striking ``Whenever'' and
            inserting ``(a) Correction.--Whenever''; and
                (2) in the second paragraph, by striking ``The error'' and
            inserting ``(b) Patent Valid if Error Corrected.--The error''.
        (f) Presumption of Validity.--Section 282 of title 35, United
    States Code, is amended--
                (1) in the first undesignated paragraph, by striking ``A
            patent'' and inserting ``(a) In General.--A patent'';
                (2) in the second undesignated paragraph, by striking ``The
            following'' and inserting ``(b) Defenses.--The following''; and
                (3) in the third undesignated paragraph, by striking ``In
            actions'' and inserting ``(c) Notice of Actions; Actions During
            Extension of Patent Term.--In actions''.

    SEC. 15. EFFECTIVE DATE; RULE OF CONSTRUCTION.

        (a) Effective Date.--Except as otherwise provided in this Act, this
    Act and the amendments made by this Act shall take effect upon the
    expiration of the 12 month period beginning on the date of the
    enactment of this Act and shall apply to any patent issued on or after
    that effective date.
        (b) Continuity of Intent Under the Create Act.--The enactment of
    section 102(b)(3) of title 35, United States Code, under section 3(b)
    of this Act is done with the same intent to promote joint research
    activities that was expressed, including in the legislative history,
    through the enactment of the Cooperative Research and Technology
    Enhancement Act of 2004 (Public Law 108-453; the ``CREATE Act''), the
    amendments of which are stricken by section 3(c) of this Act. The
    United States Patent and Trademark Office shall administer section
    102(b)(3) of title 35, United States Code, in a manner consistent with
    the legislative history of the CREATE Act that was relevant to its
    administration by the United States Patent and Trademark Office.

    SEC. 16. STUDY OF SPECIAL MASTERS IN PATENT CASES.

        (a) In General.--Not later than 1 year after the date of the
    enactment of this Act, the Director of the Administrative Office of the
    United States Courts shall conduct a study of, and submit to the
    Committee on the Judiciary of the House of Representatives and the
    Committee on the Judiciary of the Senate a report on, the use of
    special masters in patent litigation who are appointed in accordance
    with Rule 53 of the Federal Rules of Civil Procedure.
        (b) Objective.--In conducting the study under subsection (a), the
    Director of the Administrative Office of the United States Courts shall
    consider whether the use of special masters has been beneficial in
    patent litigation and what, if any, program should be undertaken to
    facilitate the use by the judiciary of special masters in patent
    litigation.
        (c) Factors To Consider.--In conducting the study under subsection
    (a), the Director, in consultation with the Federal Judicial Center,
    shall consider--
                (1) the basis upon which courts appoint special masters
            under Rule 53(b) of the Federal Rules of Civil Procedure;
                (2) the frequency with which special masters have been used
            by the courts;
                (3) the role and powers special masters are given by the
            courts;
                (4) the subject matter at issue in cases that use special
            masters;
                (5) the impact on court time and costs in cases where a
            special master is used as compared to cases where no special
            master is used;
                (6) the legal and technical training and experience of
            special masters;
                (7) whether the use of special masters has an impact on the
            reversal rate of district court decisions at the Court of
            Appeals for the Federal Circuit; and
                (8) any other factors that the Director believes would
            assist in gauging the effectiveness of special masters in
            patent litigation.

    SEC. 17. STUDY ON WORKPLACE CONDITIONS.

        The Comptroller General shall, not later than 2 years after the
    date of the enactment of this Act--
                (1) conduct a study of workplace conditions for the
            examiner corps of the United States Patent and Trademark
            Office, including the effect, if any, of this Act and the
            amendments made by this Act on--
                        (A) recruitment, retention, and promotion of
                    employees; and
                        (B) workload, quality assurance, and employee
                    grievances; and
                (2) submit to the Committee on the Judiciary of the House
            of Representatives and the Committee on the Judiciary of the
            Senate a report on the results of the study, including any
            suggestions for improving workplace conditions, together with
            any other recommendations that the Comptroller General has with
            respect to patent reexamination proceedings.

    SEC. 18. STUDY ON PATENT DAMAGES.

        (a) In General.--The Director shall conduct a study of patent
    damage awards in cases where such awards have been based on a
    reasonable royalty under section 284 of title 35, United States Code.
    The study should, at a minimum, consider cases from 1990 to the
    present.
        (b) Conduct.--In conducting the study under subsection (a), the
    Director shall investigate, at a minimum, the following:
                (1) Whether the mean or median dollar amount of reasonable-
            royalty-based patent damages awarded by courts or juries, as
            the case may be, has significantly increased on a per case
            basis during the period covered by the study, taking into
            consideration adjustments for inflation and other relevant
            economic factors.
                (2) Whether there has been a pattern of excessive and
            inequitable reasonable-royalty-based damages during the period
            covered by the study and, if so, any contributing factors,
            including, for example, evidence that Federal courts have
            routinely and inappropriately broadened the scope of the
            ``entire market value rule'', or that juries have routinely
            misapplied the entire market value rule to the facts at issue.
                (3) To the extent that a pattern of excessive and
            inequitable damage awards exists, measures that could guard
            against such inappropriate awards without unduly prejudicing
            the rights and remedies of patent holders or significantly
            increasing litigation costs, including legislative reforms or
            improved model jury instructions.
                (4) To the extent that a pattern of excessive and
            inequitable damage awards exists, whether legislative proposals
            that would mandate, or create a presumption in favor of,
            apportionment of reasonable-royalty-based patent damages would
            effectively guard against such inappropriate awards without
            unduly prejudicing the rights and remedies of patent holders or
            significantly increasing litigation costs.
        (c) Report.--Not later than 1 year after the date of the enactment
    of this Act, the Director shall submit to the Congress a report on the
    study conducted under this section.

    SEC. 19. SEVERABILITY.

        If any provision of this Act or of any amendment or repeals made by
    this Act, or the application of such a provision to any person or
    circumstance, is held to be invalid or unenforceable, the remainder of
    this Act and the amendments and repeals made by this Act, and the
    application of this Act and such amendments and repeals to any other
    person or circumstance, shall not be affected by such holding.

        Mr. Conyers. And now I turn to my friend, the Ranking
    Member, Lamar Smith, for his comments.
        Mr. Smith. Thank you, Mr. Chairman, and thank you for your
    opening statement as well.
        Mr. Chairman, our Committee's jurisdiction over patent law
    is described in Article 1, Section 8 of the Constitution. The
    foresight of our founders, particularly Thomas Jefferson, in
    creating an intellectual property system, demonstrates their
    understanding of how patent rights ultimately benefit the
    American people.
        In the previous two Congresses, we laid a substantial
    foundation for patent reform by passing bills in the House. We
    have continued that momentum this year with the introduction of
    H.R. 1260, the Patent Reform Act of 2009. Chairman Conyers and
    I have discussed the text of this legislation, and we agree
    that modifications need to be made when appropriate, but we do
    not want to amend an otherwise sound bill.
        We support the core principles that have animated our work
    these past 5 years. We must enact a bill that enhances patent
    quality, discourages frivolous litigation, harmonizes
    international patent principles, and enforces core rights.
        Frankly, our bill promotes these goals better than the
    Senate version. In terms of individual issues, I am concerned
    about the Senate Judiciary Committee's treatment of damages,
    post-grant opposition, and venue.
        On damages, the key sticking point in our debate during
    previous years, the House bill acknowledges the difficulty with
    which courts and juries have struggled with evaluating the
    actual contributions made by patent holders defending their
    rights versus contributions made by other.
        The Senate gate keeper treatment needs more review. I am
    concerned that it may result in confusion for jurors when
    called upon to apportion value fairly when calculating damages.
    Concerning post-grant opposition, one of the achievements from
    the 110th Congress was the compromise we struck to create a
    robust 1-year window of review coupled with an enhanced
    interparties reexamination construct that would substitute for
    a second window.
        I know there are parties who want to jettison reexamine in
    favor of a limitless second window. Unless the principles and
    the stakeholders can unanimously agree to this change, I think
    we may end up going backwards on an issue of significant
    importance.
        As for venue, many of us are digesting the recent court
    cases, especially In re TS Tech, which may obviate the need to
    legislate in this area. But TS Tech didn't address a
    complicated factual scenario or require highly nuanced legal
    reasoning.
        Given the simple fact at issue in TS Tech, we may need to
    insist on a legislative response that provides greater guidance
    and clarity about time, litigant presence, and behavior to a
    particular judicial district.
        This Committee has taken the initiative because patent law
    changes are necessary to bolster the U.S. economy and our
    Nation's global competitiveness and to improve the quality of
    living for all Americans.
        A recent study valued U.S. intellectual property at
    approximately $5 trillion or about half of the U.S. gross
    domestic product. American IP industries now account also for
    over half of all U.S. exports and represent 40 percent of our
    economic growth.
        These industries provide millions of Americans with well-
    paying jobs. This progress will end unless we address frivolous
    patent litigation against high-tech companies, which has
    doubled in the last 5 years. This bill eliminates the legal
    gamesmanship, and it rewards lawsuit abuses over genuine
    innovation and creativity.
        It enhances the quality of patents and increases public
    confidence and their integrity. All industries directly or
    indirectly affected by patents including finance, automotive
    manufacturing, high tech, bio tech, and pharmaceuticals will
    benefit.
        H.R. 1260 will help all legitimate enterprises from the
    lone inventor in their garage to a high-tech company that files
    1,000 patents each year and all business in between.
        Mr. Chairman, I look forward to hearing from our witnesses
    today and to working with you and others on this legislation in
    the weeks ahead, and I will yield back the balance of my time.
        Mr. Conyers. Thank you for an excellent statement. Does any
    other Member feel the desire to make a brief comment before we
    start?
        Yes. Well, let me look this side first.
        Mr. Berman? Have you an opening comment?
        Mr. Berman. If you are going to open it up for comments, I
    have an opening comment.
        Mr. Conyers. Open for comment.
        Mr. Berman. Okay. First I want to thank you really very
    much for taking on and leading the effort on this complex and
    thorny and not always exciting issue.
        Congressman Boucher and I were concerned about poor patent
    quality and started some of these reform efforts, we think, 6
    or 7 years ago. As we get older, our memory is--well, never
    mind.
        But we got a lot of bolstering on that notion from the
    National Academies of Science report and the FDC report, and as
    you said, we think a robust patent protection promotes
    innovation, but we want patents to protect only those
    inventions that are truly innovative.
        If a patent system allows questionable patents to issue and
    doesn't provide adequate safeguards about patent abuses, the
    system stifles innovation and interferes with the competitive
    market forces.
        So I felt last year we really tried very hard to find a
    compromise on almost every single issue. We addressed an issue
    that was pushed by a number of witnesses here, Mr. Johnson, to
    deal with what was viewed at--we talk about frivolous
    litigation, but you made a case for frivolous defenses and the
    inequitable conduct defense and the abuse and the cost.
        And I notice in the Senate bill there is not a word of
    reform on what for you, at that time, was a huge burden and an
    unfair burden. So I wanted that dig. And then I think the
    Chairman would like me to close. Mr. Smith, as well as the
    Chairman, we have all been heavily involved in all of this.
        On the damages issue, I will just say this: There are
    problems of overbroad claiming, juries not having adequate
    guidance, costs of litigation versus settlement, and the case
    for some valuation of the nature of the infringement in the
    context of the total product. Is the gate keeper system a way
    of dealing with those problems, or is it just simply a
    formalized codification of existing law.
        I think that is going to be a big issue for our Committee
    as we look at it, and I think the Chairman made reference at
    the end of his comments, which I just want to reaffirm this
    whole notion of the budget deficit at PTO, the backlog, all the
    problems caused there, we got to find a way of number one,
    insuring against the diversion, and ensuring that that system
    is adequately financed to not let our innovation suffer because
    of the time it takes for an inventor to get a patent approved.
        Thank you.
        Mr. Conyers. Thank you.
        Bob Goodlatte?
        Mr. Goodlatte. Thank you, Mr. Chairman. I want to thank you
    and Ranking Member Smith. We have been working for many years
    to update our patent laws to ensure that the incentives our
    framers envisioned when they wrote Article 1, Section 8 of our
    Constitution remain meaningful and effective.
        The U.S. patent system must work efficiently if America is
    remain the world leader in innovation. It is only right that as
    more and more inventions with increasing complexity emerge, we
    should examine our Nation's patent laws to ensure that they
    still work efficiently, and that they still encourage and not
    discourage innovation.
        However, it is becoming increasingly clear that current
    patent laws and the court's interpretation of those laws do not
    sufficiently contemplate the complexities of today's economy.
    Cottage industries are springing up that seek to take advantage
    of this complexity as well as loopholes in our patent laws to
    extort money from companies both large and small.
        To be sure, these problems are not limited to the high-tech
    industry. Inventors in all industries are increasingly facing
    these types of problems. The solutions to these problems
    involve both insuring that quality patents are issued in the
    first place and ensuring that we take a good hard look at
    patent litigation and enforcement laws to make sure that they
    do not create incentives for opportunists with invalid claims
    to exploit.
        H.R. 1260 addresses both of these concerns. It would create
    a new post-grant opposition system in which interested parties
    would request the U.S. PTO to review the scope and validity of
    a patent after its issuance. It also includes provisions to
    ensure that patent litigation benefits those valid claims but
    not those opportunists who seek to abuse the litigation
    process.
        The Senate is also working on this issue, and I am
    encouraged by the Senate Judiciary Committee's action on patent
    reform this year. The Senate Judiciary Committee has reported
    out legislation that tackles many big problems that innovators
    face in today's economy.
        I look forward to seeing the final version that emerges
    from the Senate floor. However, I would caution the House
    against automatically taking up the Senate bill on the House
    floor. While that bill goes a long way, it needs further
    improvement.
        One area in particular that needs additional work is the
    damages section. The Senate legislation takes positive steps
    forward by requiring determinations on the record as to the
    appropriate methodologies used to calculate damages; however, I
    believe further guidance is needed in order to bring more
    predictability to the process.
        While I am sympathetic to the arguments of those who work
    in fields where there are relatively few patents involved in
    any one product, I also believe that the advent of products
    comprised of hundreds and even thousands of patented inventions
    requires that more attention be given to the apportionment of
    damages. I look forward to working with all the parties to come
    up with language that addresses this issue.
        Another issue that is missing in the Senate and House bills
    this year is the controversial award of tax strategy patents.
    Increasingly, individuals and companies are filing patents to
    protect tax strategy. When one individual or business is given
    the exclusive right to a particular method of complying with
    the tax code, it increases the cost and complexities for every
    other citizen or tax preparer to comply with the tax code.
        It is not difficult to foresee a situation where taxpayers
    are forced to choose between paying a royalty in order reap the
    best tax treatment and complying with the tax code in another
    less favorable way. These types of disincentives add additional
    costs and complications to an already overly complex process.
        I play to join Representative Boucher in reintroducing
    legislation addressing tax strategy patents, and it is my hope
    that this issue can be addressed in H.R. 1260 as well.
        Again, I applaud you, Mr. Chairman, and Ranking Member
    Smith for holding this important hearing, and I look forward to
    working closely with you as we seek to improve our Nation's
    patent laws.
        Mr. Conyers. Thank you, Mr. Goodlatte.
        Brad Sherman?
        Mr. Sherman. Thank you, Mr. Chairman. I want to echo the
    comments of the gentleman from California that we need the
    patent office to be funded properly and without diversion and
    echo the comments of the gentleman from Virginia on tax
    strategy patents but perhaps with a slightly different
    viewpoint.
        The purpose of patent law is to encourage useful
    innovation. There is some cost to the taxpayer in operating a
    patent system. We do that to encourage useful innovation. Why
    we should use taxpayer money to encourage the innovation of tax
    avoiding strategies is something I have yet to figure out.
        And so while there is one circuit court opinion that may
    close the door on these absurd tax strategy patents, we ought
    to shut the door completely, bolt it, and do it in this bill if
    at all possible. I yield back.
        Mr. Conyers. Thank you.
        Howard Coble?
        Mr. Coble. Mr. Chairman, I thank you. I will not take 5
    minutes, Mr. Chairman. You and Mr. Sensenbrenner and Mr. Berman
    and I have been exposed to this issue for a long, long time,
    and I recall, Mr. Chairman, some years ago when we were on the
    House floor, we had Democrats fighting Democrats and
    Republicans fighting Republicans on this issue.
        And I shared this with Howard, a reporter from the west
    coast called me, and he said, the law of patents is the most
    dull, boring area of the law. He said it induces sleep, but he
    said until now it is interesting, because they had each other
    fighting one another.
        Hopefully, we can avoid that this time. But, Mr. Chairman,
    as we all know, patent reform is a national priority. It is
    important to all aspects of our economy, and we should be
    concerned about changing the system without a new captain in
    the wheelhouse.
        Now, I know that the Obama administration has had a full
    plate, but I hope they can fully appreciate the urgency and
    importance of installing the new undersecretary at the U.S.
    Patent and Trademark Office. It is difficult for us, Mr.
    Chairman, in the Congress to bolster our patent system and
    address the needs of the patent office without an office to
    promote their policies, which its experts believe will best
    serve the people.
        And I thank you, Mr. Chairman, for calling this hearing and
    thank the witnesses for being here. I yield back.
        Mr. Conyers. Thanks for all of your work in this, Mr.
    Coble.
        Darrell Issa?
        Mr. Issa. Thank you, Mr. Chairman, and thank you for
    leading this bipartisan effort to find the right balance. And I
    must admit that I have been a cosponsor of the bill in the past
    with Ranking Member Smith, Mr. Coble, yourself, and Mr. Berman.
        You have been very generous in allowing me to have positive
    input that appears in this bill. I am not a cosponsor in this
    Congress not because I lack enthusiasm for the legislation, but
    because I am quite concerned that we need to make sure that
    there are some honest brokers who have a price that they want
    to extract in order to get their vote.
        And in this case, the price that I would extract is that it
    has to be on the House side something which I believe the
    Senate can embrace at least in a conference. And so I will work
    with the Chairman and the Ranking Member and Mr. Berman, of
    course, to get to that point to make sure that what leaves the
    House is something that we have come to an understanding with
    the Senate that whether we can come to a full bill or not
    always remains to be seen.
        But I do not want to have repeat of what we had in the last
    Congress where we put together a bill that we knew was not
    perfect. We moved it out in a dutiful way, in a bipartisan way,
    only to have it languished in the Senate.
        So I look forward to finding the best possible bill. I
    might note that in the last Congress I encouraged that perhaps
    less of a bill would be the better bill to move and things to
    come back to. I am pleased to report that in the Senate, they
    saw the bill that we passed unanimously on patent pilot as so
    good that they included it in their version of the legislation.
        So perhaps I will have to consider if it becomes law that
    more could be better at times too in addition to less. I thank
    the leadership at the dais and yield back.
        Mr. Conyers. Thank you.
        Judge Gohmert?
        Mr. Gohmert. Thank you, Chairman Conyers. And I will
    surprisingly be brief as well. Like Ranking Member Smith
    indicated, the founders of this country recognized that there
    was one area where we felt like monopoly would be okay, and
    that would be copyright and patent.
        To protect intellectual property, we would give you such
    time to recoup all of the ingenuity that went into the design--
    to the creation, and so as the patent system has evolved over
    the years, and as we look at trying to tweak it further to get
    it to where it is even more effective, I just want to encourage
    we have got to be careful that we do not hurt the system in our
    zealousness to help the system.
        We don't need patent trolls gaming the system. At the same
    time, we need to be careful on venue, and perhaps the TS Tech
    is helpful in this area, but we don't need to force cases to go
    to the most reversed circuit in the country where cases may be
    drug out for many, many years so that it takes forever to get
    to trial, and once you get to trial, you have the best chance
    of being reversed and having to retry it again.
        We don't need to change damages so substantially that even
    after years of litigation in a rifle case, there is no chance
    of recovering enough to make it worth while. And then that
    would lead to the situation so that the movie ``Flash of
    Genius'' would be just that. It would be a flash. There would
    be no compensation. It would not be the incentives for people
    to create and have that creation protected.
        And so I appreciate both sides of the aisle being concerned
    about that issue so that we don't have people who created their
    inventions, got wealthy, and I am grateful for it, and then
    pulled up the ladder behind them so that others could not
    follow.
        And I appreciate the opportunity to work with others in
    getting to that point. Thank you, Mr. Chairman.
        Mr. Conyers. Thank you very much, and my appreciation for
    not naming the circuit that you had in mind.
        Mr. Berman. [Presiding.] Oh, more opening statements.
        Judge Poe?
        Oh, Ms. Lofgren. Forget everything. We have had a couple of
    gentlemen from that side of the aisle.
        Mr. Scott? Did you have opening, no?
        Ms. Lofgren is recognized.
        Ms. Lofgren. I will be brief, because I want to hear from
    the witnesses. I think obviously everyone in the room is in
    favor of strong patent protections, high quality patents, the
    prevention of litigation abuses. The problem is, having agreed
    on the details, how do we achieve that? And I think in the end
    it is in a way more important where we end up than where we
    started.
        I think this hearing is certainly a positive step forward
    to hear from the various perspectives about what the Senate
    did, what the thoughts are in terms of whether we have achieved
    that overarching goal. As I look at the witness stand, I think
    I am pretty familiar with most of the people here. They are
    smart people with great knowledge but in different elements of
    the whole issue.
        So I am sure that we will know more at the end of this
    hearing than we do at the beginning, and I yield back, Mr.
    Chairman.
        Mr. Berman. Thank the gentlelady.
        And the gentleman from Texas is recognized.
        Mr. Poe. Thank you, Mr. Chairman. I appreciate the
    witnesses that have been here. Patent law is difficult. That is
    why like my friend from Massachusetts, we chose criminal law
    where things are a whole lot simple, stealing and killing.
        But I am concerned about four issues: The small
    entrepreneurs who I think have fueled advancement in this
    country since our beginning, that we don't kill their work. I
    am concerned about the length of time it takes to get a patent.
    It takes forever. You know, the OJ Simpson trial lasted a
    shorter time than some of these patents do to get a patent.
        And thirdly, I am concerned about diminishing the value of
    patents to persons who actually have those patents in the
    country. For example, and fourthly, I am very concerned about
    the transfer of wealth from the United States to other
    countries, and I hope that we don't do anything to tinker with
    that and make it harder on Americans that have patents by the
    wealth going to foreign countries.
        So with that, I yield back. Thank you, Mr. Chairman.
        Mr. Berman. The gentleman from Massachusetts.
        Mr. Delahunt. Yes. Thank you, Mr. Chairman. I just simply
    want to associate myself with everything that everybody has
    said. With that, I yield back.
        Mr. Berman. Is there anything left to say? If not, we will
    go to the people who know what they are saying.
        I am pleased to introduce the witnesses for today's
    hearing. The first is David Simon, who is chief patent counsel
    for Intel, where he is involved in running intellectual
    property matters. Prior to joining Intel in 1996, Mr. Simon was
    in private practice in Los Angeles for 15 years specializing in
    intellectual property matters, licensing and high technology
    law.
        Second is Phillip Johnson, chief intellectual property
    counsel for Johnson & Johnson. Mr. Johnson's also president of
    the IPO Education Foundation and chairman of the board of
    AIPLA's Educational Foundation and heads AIPLA's Patent
    Litigation Committee.
        We will hear from J. Thomas, once again, professor at
    Georgetown University Law School. Professor Thomas served as
    the visiting scholar in economic growth and entrepreneurship at
    the Congressional Research Service.
        His extensive patent experience includes clerking for Chief
    Judge Helen Nies at the Federal circuit, teaching at George
    Washington University, Cornell, and the University of Tokyo, a
    visiting fellowship at the Max Planck Institute in Germany, and
    serving as a research scholar at the Institute of Intellectual
    Property in Tokyo, Japan. He has also been in private practice
    and has published numerous articles and five books on
    intellectual property law.
        Next will be Jack Lasersohn, a partner with the Vertical
    Group, a venture capital fund and here representing the
    National Venture Capital Association. Mr. Lasersohn serves on
    the board of directors of Kyphon, Incorporated, a NASDAQ listed
    medical technology company as well as on the boards of
    directors of a number of privately held medical device
    companies.
        Fifth is Dean Kamen, an inventor and engineer who has
    testified 2 years ago whose inventions include the Segway
    Electric Transporter, the first portable insulin pump, and a
    prototype wheelchair called the iBot that allows users to climb
    stairs and raise themselves upright.
        He founded and is now president of DEKA Research and
    Development Corporation to develop internally generated
    inventions and conduct R and D for corporate clients. Mr. Kamen
    also founded FIRST, standing for, For Inspiration and
    Recognition of Science and Technology.
        FIRST is a program to encouraging young scientists and
    inventors using wholesale marketing and media techniques to
    motivate the next generation to learn about science and
    technology. It hosts national robotics championships each year
    at Walt Disney World's EPCOT Center that break attendance
    records.
        Mr. Kamen also served on the Patent Public Advisory
    Committee for the U.S. Patent and Trademark Office and has won
    numerous awards and honors and been dubbed the pied piper of
    technology by Smithsonian Magazine.
        Sixth is Mark Chandler, senior vice president and general
    counsel and secretary of Cisco Systems. Previously, he was
    managing attorney for Europe, the Middle East, and Africa based
    in Paris and before that, he was general counselor for
    StrataCom, which Cisco acquired in 1996.
        Mr. Chandler also serves on the board of visitors of
    Stanford Law School and the advisory council of the Woodrow
    Wilson International Center for Scholars in Washington.
        And last, we will hear from Bernard Cassidy, senior vice
    president and general counsel and secretary of Tessera
    Technologies. Mr. Cassidy held a similar position at Tumbleweed
    Communications Corp, and before that, was in private practice
    for 10 years.
        Thank you all for being with us today. It is an unusually
    large panel, and without objection, your written statements
    will be placed in the record. It would be very appreciative if
    you would limit your oral remarks to 5 minutes. We have a
    lighting system that starts with a green light, at 4 minutes,
    it turns yellow, then red at 5 minutes, and then the gavel.
        Mr. Simon? Will you proceed with your testimony?

      TESTIMONY OF DAVID SIMON, CHIEF PATENT COUNSEL, INTEL, INC.

        Mr. Simon. Thank you, Congressman Berman. I would like to
    thank the Chairman and Ranking Member Smith and the other
    Members of this Committee for this opportunity to come here and
    testify on a subject near and dear to my heart, patent reform.
        I think you were right, Congressman Berman, that it was
    about 6 years ago that you held hearings in this room on
    patents, and I think it was like two or three Members of the
    Committee, then two or three patent attorneys each trying to
    get my business and a bunch of homeless people. Things have
    changed a little bit.
        So this is a vitally important issue to Intel. We spend
    over $5 billion a year on R&D every year. We are currently in
    the process of investing over $7 billion in our manufacturing
    capacity. In the United States they are--on our new line
    products, and these products, which are each the size of
    roughly your fingernail, have over a billion transistors in
    them.
        And you can just imagine how many different parts beyond
    those billion transistors are in there. As a result, we had
    gone through the exercise some years ago--this isn't even for
    our latest product--that one of our then state-of-the-art
    processors had over 1,500 patents in it and that wasn't the
    limit, we just stopped counting at that point.
        We make very complex products, and because of the
    complexity of the products, the system creates lots of problems
    for us currently. Many of the members write the comment about
    some of the difficulties in the patent office and the quality
    issues that over the years hampered the patent office.
        The Patent and Trademark Office is an extremely difficult
    job to deal with the 400,000 plus patent applications they get
    a year and the amount of resources that are available to them
    to examine those. As a result, even with their best efforts, we
    do get many patents that are quite frankly problematic, and
    those are the patents that we then see in the litigation system
    and then become subject to abuse.
        Currently, just to give the Committee some idea of the
    amount of money and effort that is pursuing this, there is over
    three-and-a-half billion dollars, and I actually believe it is
    substantially more than that, of funds being put into the
    purchase of patents for licensing and bringing of lawsuits, and
    many of those will eventually make their way to Intel.
        In 2007 alone, the number of defendants doubled in patent
    cases--not the number of cases doubled, but the number of
    defendants doubled, because what we now have is a phenomena
    with cases having many defendants.
        I have a list of cases in my written testimony, which by
    the way, for example, in the Odum case, there are 28 software
    companies being sued. In the Clearwoods Computers case, there
    are, I think, two cases, but there are 52 companies being sued
    in one case for a patent.
        Now, we all know patents tend to be a very complex, and I
    will apologize, sometimes dull subject, but the issue that we
    have is that when you have a complex subject matter with lots
    of defendants, all of whom do things somewhat differently, this
    leads for further complexity in the case.
        And then you have the problem that in a typical case, you
    have a relatively short time period for actual trial testimony.
    Our Federal courts have many other pressing matters that need
    to be heard. As much as patents are important to me, I think
    one of the congressmen was right to comment that there are
    other pressing issues that the courts are faced with.
        As a result, there is a limited amount of time that courts
    can hear a case, and it is a limited amount of time that the
    jury can get educated on the both technical complexity and the
    business issues that are involved. And this is further
    exacerbated by the current standard that we have for damages,
    which is on reasonable royalties, it is the--Georgia-Pacific
    factors.
        The Federal circuit has made it clear that if you instruct
    the jury on those 15 factors, they will not reverse a case on
    damages unless the jury verdict is ``monstrous.'' They have yet
    to see a verdict that is monstrous.
        As a result, we--and although the patent cases themselves
    are--actually go through trial and go through--including
    damages are relatively small percentage--in most cases settle.
    Those jury verdicts do drive the settlement values of the
    cases. As a result, this is something that we find increasingly
    difficult.
        In addition, the other issue that I wanted to touch briefly
    on is venue. Many of the members have rightly commented on TS
    Tech, but there is another decision that has come down after TS
    Tech, a published decision called In re Telular on venue. And
    in that case, because there were witnesses in--the parties were
    in Illinois, witnesses in Atlanta, the court said, well, it is
    not clearly more convenient to be in Illinois than some place
    else, so we are going to leave the case where it is.
        [The prepared statement of Mr. Simon follows:]
                       Prepared Statement of David Simon

                                   __________

        Mr. Berman. I am sorry. The time has expired.
        And, Mr. Johnson, welcome back, and look forward to your
    testimony.

     TESTIMONY OF PHILLIP S. JOHNSON, CHIEF INTELLECTUAL PROPERTY
                       COUNSEL, JOHNSON & JOHNSON

        Mr. Johnson. Thank you. Distinguished Members of the
    Committee, we very much appreciate the opportunity to be here
    today on behalf of the 21st Century Coalition.
        We strongly agree with the sponsors of H.R. 1260 and many
    of the Members who have spoken here today that patent reform is
    really all about stimulating our economy through innovation and
    the creation and maintenance of jobs.
        Within Johnson & Johnson, we conservatively estimate that
    60,000 of our 118,000 employees jobs depend on patents. We
    estimate that during their 20-year lives, each of our patents
    preserves and protects 150 job years. During the past 3 years,
    Johnson & Johnson companies have invested an average of $7.5
    billion per year in R&D, or about $15 million for each patent
    granted.
        These R&D expenditures resulted in well-paying jobs for
    thousands of people throughout the United States. We want to
    preserve and protect the patent systems incentives to invest
    heavily in R&D so we can keep these jobs and hopefully create
    many, many more.
        But to do this in this challenging economic environment, we
    need to make it clear to inventors and investors alike that our
    patent system will live up to its promise. They need to know
    that it will protect the deserving inventions that come out of
    the R&D, and that the resulting U.S. patents will serve as a
    solid base upon which to build future businesses.
        To accomplish these goals, we need to strengthen not weaken
    the value of American patents. Now we can do this, as many of
    the speakers have already mentioned, by improving the quality
    of the original patent examination so that the patents issued
    by our patent office are readily and reliably enforceable
    against those who don't respect them.
        This should be accomplished by immediately harmonizing our
    patent system with the rest of the world, not waiting for a
    trigger that may never come to pass, and by giving our patent
    office a reliable source of adequate funding to get the job
    right.
        Now H.R. 1260 goes a long way toward reaching these goals
    but not yet quite far enough. But we shouldn't stop there. A
    balance needs to be struck between the public's interest in
    questioning a patents validity, and the public's desire to
    induce continued investment in the patented technology.
        A system that overly favors continuing third party patent
    challenges destroys the quiet title that is needed to stimulate
    further investment. Our coalition believes that the post-grant
    provisions of H.R. 1260, which are based on the hard work of
    the Members of this Committee in this and the last Congress,
    comes very close to striking the proper balance.
        It allows an initial period of post-grant opposition
    followed by life of the patent reexaminations. But contrary to
    how H.R. 1260 is now written, the basis under which
    examinations may be brought should be limited as they were in
    H.R. 1908. The question is based on prior patents and printed
    publications not prior uses and sales.
        When it comes to patent damages, we do urge the Committee
    to adopt the gate keeper compromise that is now included in S.
    515 as ordered reported. After years and years of trying, this
    damages compromise has the most support of any proposed during
    years and years of stakeholder wrangling.
        It will provide fairness and uniformity to the way
    reasonable royalty damages issues are handled in the courts,
    and ensure that orderly development of the case law may
    continue on contentious issues such as the proper application
    of the entire market value rule, regular and established
    royalties, and apportionment.
        Most importantly, it will not pick winners and losers among
    different stakeholders. All will benefit from the gate keeper
    approach. Other patent damages alternatives that at their
    hearts rely upon prior--subtraction are ill advised and
    politically untenable. It makes no sense to base reasonable
    royalty awards on less than all of these elements that were
    shown to be required to achieve the patent.
        During the original patent examination, opposition,
    reexamination and in the validity and infringement phases of
    the patent trial, all of the elements of the patents claimed
    are deemed essential. Having thus proven entitlement to
    protection of the entirety of what is claimed, there is no
    justification for awarding damages on anything less.
        Valuation that the invention contributes, however, is quite
    a different matter. Here the question is what is the invention
    worth, and this is best addressed, as the law does, by looking
    to a willing licensee, willing licensor model.
        My time is up, but I do very much appreciate the
    opportunity to testify today as does our coalition, and our
    coalition looks forward to working with the Committee in order
    to achieve a bill that can quickly be enacted into law.
        Thank you very much.
        [The prepared statement of Mr. Johnson follows:]
                    Prepared Statement of Phillip S. Johnson

                                   __________
        Mr. Berman. Thank you, Mr. Johnson.
        And, Professor Thomas?

                TESTIMONY OF JOHN R. THOMAS, PROFESSOR,
                    GEORGETOWN UNIVERSITY LAW SCHOOL

        Mr. Thomas. Distinguished Members of the Committee, I am
    grateful to testify today on my own behalf as a concerned
    member of the public and as a concerned observer of the patent
    system. Allow me to thank you and your staff for your many
    years of hard work on patent-related issues.
        Expanded efforts to derive value from patents have
    increased demand for greater precision in patent law damages
    principles. Unfortunately, the perception is widely shared that
    the rules pertaining to damages are less certain than many
    other patent doctrines. Many observers believe that the
    substantive law of patent damages is undisciplined and
    indefinite.
        The lack of a coherent standard for assessing reasonable
    royalties and not leaning toward over compensation are among
    the areas of concern. The result has been insufficiently
    predictable awards that served the purposes of the patent
    system poorly.
        To address these concerns, two types of patent damages
    reforms have been proposed before the 111th Congress. Proposed
    evidentiary reforms, while potentially valuable, appear largely
    to focus attention upon existing standards.
        Patent trial practice already allows for extensive
    discovery into the litigants' theories of damages, the
    discovery exchanges of expert reports, depositions of relative
    witnesses and experts. Accused infringers may file daubert
    motions or a post-verdict motions to the extent they feel there
    were evidentiary short comings.
        Despite these standards and procedures, many innovative
    firms have continued to voice concerns about the state of
    patent damages law. So absent reforms of substantive law that
    then applies the facts of individual cases, evidentiary reforms
    may ultimately work--improvement to the current environment of
    patent damages.
        In addition, inherent limitations upon the judiciary appear
    to render the legislature the more appropriate venue for
    achieving meaningful reforms to damages law. The prominent use
    of juries in patent trials, the differential standard of review
    that they receive and the limited time one has to state
    arguments on appeal don't place the Federal circuit or other
    judicial fora in an enviable position to work meaningful
    reforms to damages law as compared to other doctrines.
        Now prevailing substantive reforms as I have mentioned have
    been criticized for their indeterminacy and logical
    shortcomings. Experience suggests simply that the Georgia-
    Pacific factors are difficult to apply consistently. Although,
    the Georgia-Pacific case provides a long list of ingredients,
    it provides no recipe, no guiding principle or mechanism for
    weighing one of the seemingly randomly ordered elements more
    heavily than the others.
        Indeed, the laundry list of Georgia-Pacific factors often
    include several subcomponents with each factor. They can't
    plausibly consider it a standard at all. The result has been a
    grab bag of factors that experts may apply with virtually
    unlimited discretion.
        The hypothetical negotiation framework also possesses
    shortcomings, because in theory, two people come to the
    bargaining table and both walk away with something valuable.
    Yet judicial decisions at times seem to have lost sight that a
    bargain for exchange is supposed to offer a benefit to both
    negotiating parties.
        Several judicial opinions issues quite recently during
    discussions on the Hill on this issue of ordered royalties that
    are higher than the infringements in that profit margin. So for
    these and other reasons, damages rulings are widely viewed as
    unpredictable and difficult to review but also as tending
    toward overcompensation.
        A promising first step toward patent damages reform would
    be to replace the hypothetical negotiating issues of Georgia-
    Pacific with ostensible rule that tracks real-world decision
    making. And in my opinion, that is what the House bill does.
        Now faced with the choice of using a proprietary technology
    and manufactured to size, what advantage would accrue through
    the use of that technology in comparison with the next best
    alternative including public domain technology, designing
    distinct technology itself or not incorporating that
    functionality into the adjudicated infringement at all.
        The difference in that value is between the patented
    technology and the next best alternative should comprise the
    maximum amount of the damages award and the amount that the
    patent owner would effectively share through the payment of a
    reasonable royalty from one party to the next.
        Let me close by noting that patent damages reform is an
    important element in ensuring a strong patent system that meets
    modern needs and can ensure that the patent system remains
    robust but also recognize that in patent law, one person's
    incentive is another person's limitation.
        I believe that both evidentiary and substantive reforms
    would ultimately bring greater rationality and predictability
    to the patent system.
        Thank you.
        [The prepared statement of Mr. Thomas follows:]
                      Prepared Statement of John R. Thomas

                                   __________

        Ms. Lofgren. [Presiding.] Thank you, Professor.
        And we would love to hear from you, Mr. Lasersohn.

               TESTIMONY OF JACK W. LASERSOHN, PARTNER,
                             VERTICAL GROUP

        Mr. Lasersohn. Distinguished Members, thank you very much
    for inviting us to testify.
        My name is Jack Lasersohn. I have been a venture capital
    investor since 1981 in high tech, clean tech and bio tech. I am
    also a board member of the National Venture Capital
    Association, the NVCA, which represents over 460 venture firms
    across the country.
        It is my privilege to be here today to representing the
    NVCA to share our views on the patent reform proposals. Venture
    backed companies currently account for more than 10 million
    jobs and $2.3 trillion dollars in U.S. revenue, representing 10
    percent of U.S. sector employment and 20 percent of U.S. GDP.
        Most of the semiconductor, networking, personal computer,
    software, Internet, medical device, and bio tech industries
    were created based upon the support of the venture capital
    system. More recently clean tech has become one of the fastest-
    growing areas for investment for us.
        Many household names including many at this table,
    Genentech, AMJEN, Intel, Cisco, Google, Medtronic, Microsoft,
    eBay were started with venture capital dollars. Their need for
    fundamental breakthroughs is increasing out of the millions of
    patents that will be filed, only a few are really going to
    affect the future in enormously important ways--inventions to
    cure cancer, inventions to address obesity, diabetes, and
    Alzheimer's disease; inventions that treat pandemics;
    inventions that end our dependence on foreign oil.
        If history is any guide, these inventions will likely come
    from small venture backed entrepreneurial companies and,
    indeed, I can tell you that we are working on all of these
    projects right now. All of them are highly dependent on a very
    strong U.S. patent system.
        This vial contains crude oil made by algae from carbon
    dioxide extracted from the atmosphere. It has already powered
    an airplane, of course, a very small airplane, but the venture
    capital firms that invested more than $150 million in this
    project have relied completely on the strength of our patent
    system to justify this investment.
        It is one of the reasons that the United States has been at
    the center of all major technological innovations. And, in
    fact, the relatively weaker patent systems in other countries
    are an important reason why they lag so far behind us. I would
    like to discuss damages in particular.
        In general, the venture capital community believes the
    current methodology for calculating damages is appropriate and
    working. And that patentees are not systematically
    overcompensated. I hope that we can all accept the longstanding
    principle that an inventor is entitled to the fuel economic
    value of his invention and that damages should reflect that.
        However, we understand that there have been outlier
    infringement cases that have involved excessive damage awards.
    However, a large number of larger technology companies have
    proposed a change to patent law on damages so that damages will
    only reflect the incremental value of an infringement product
    that is attributable to specific contribution over the prior
    art and not the full economic impact of the invention as under
    current law.
        NVCA believes that the value of the patent features is
    almost always difficult to separate from its impact on the
    value of the whole product. Almost all innovation takes place
    in small incremental steps and is combined with prior art.
        And while the incremental step can appear modest,
    especially compared to the complexity of the underlying
    product, the change can result in dramatic shifts in market
    shares for the combined product, creating much more value than
    just the incremental improvement.
        A new coating on a solar cell that increases its conversion
    efficiency just a little bit can dramatically shift the market
    through the entire multi-billion dollar solar energy plant. A
    more effective drug on a drug looting stint can shift the
    entire stint market. In both cases the question is, who is
    entitled to what share of the profits arising from those
    shifts, the inventor or the infringer?
        As these examples illustrate, there is no simple answer.
    Apportioning damages as proposed in the bill appears to be
    designed to deprive patent owners of the true full economic
    value of their patents and will lead to tremendous uncertainty
    about the value of patent. Determining its value is extremely
    complicated and manufacturers in circumstances, in fact, need
    to be considered.
        As Albert Einstein famously said, ``You should make
    something as simple as possible but no more.'' We support an
    approach to calculating these damages which would maintain the
    current Georgia-Pacific multi-factored analysis for the
    majority of cases and incorporate language directing an
    enhanced gate-keeper function.
        We also believe the most important reform we can make is to
    improve the quality of patents. If the patent's office
    consistently issued high quality patents, many of these
    problems would disappear. To this end, we support increased
    funding and the end of the diversion. We do support a limited
    12-month window after a patent is granted to allow time for
    challenges to file opposition, but we must realize that many
    large competitors will use this system to delay issuances of
    patents by small startups, and the system must avoid these
    abuses.
        Thank you very much for your attention.
        [The prepared statement of Mr. Lasersohn follows:]
                    Prepared Statement of Jack W. Lasersohn

                                   __________

        Mr. Conyers. [Presiding.] Thank you, sir.
        Mr. Dean Kamen? Welcome.

                  TESTIMONY OF DEAN KAMEN, INVENTOR,
                  DEKA RESEARCH AND DEVELOPMENT, INC.

        Mr. Kamen. First, I would like to thank you for
    specifically pointing out in your opening remarks that we
    should be inventing a way out of problem.
        I think this whole debate, sadly, has come to be a
    discussion of all of the costs of patents--all of the costs,
    some of which everybody, I think, agrees are appropriate, some
    of which, in fact, some people think are inappropriate, and
    they may be right.
        But collectively, the costs of all these patents, I think,
    pales in comparison to the value of them, and I don't think
    anybody in this room would question that. Look at this country,
    look at our wealth, look at the rest of the world. There is a
    reason. We have innovators; we have inventors; we take risks,
    and I think the founding fathers got it right.
        That clause in the Constitution is one of my favorite
    things. I hope you guys don't screw it up. So I would just like
    to very quickly explain maybe an issue that I first found out
    about the first time I was asked to come here.
        I listened to a bunch of people speak about this problem,
    and I found out that I am a troll, because I heard that the
    definition of a troll is somebody who doesn't build and sell
    their product. I am happy to hear that phrase has gone away,
    but there is a new phrase, which are NPEs, nonpracticing
    entities.
        I am not sure if becoming an NPE today is going to be a
    step up or down from being a troll, but I think I am one of
    those two. I will explain to you why I think that is not so
    bad, and why I am concerned if you do anything substantial to
    further weaken the patent system.
        I had a business when I wasn't an NPE. I started it in high
    school. I had an older brother who is a brilliant guy, an MD-
    Ph.D. student at the time, treating babies with cancer. He
    needed ways to deliver drugs to these kids.
        I started building on that stuff in the basement of my
    parent's house. It turned into a business. I was building these
    things mostly for his little research applications, but later
    it turned out I had some big applications like treating large
    populations of people, for instance, with diabetes.
        After a number of years, nearly a decade, it had become a
    pretty big business from my perspective, and I realized that 80
    or 90 percent of the people involved in that business were
    doing manufacturing, marketing, sales, support, purchasing,
    worrying about global reach, worrying about supply chain
    management. That is not my strength.
        I sold that business knowing I probably could have made
    more if I held onto it, but I sold it because I thought I
    should get back to doing what I do well, work on inventing.
    There is no shortage of big problems out there. In fact, I also
    got to see the big companies are very good, very good at cost
    effectively, efficiently, reaching out, getting products to
    people way more than I could with the small product line that
    had to support a whole manufacturing operation and a whole
    distribution operation.
        So I sold that to one of the big medical companies, and
    said I am going to go back to doing what I do well then I will
    partner up with these guys and make a win-win-win out of it.
    And in the last 25 years, my little company, which no longer
    does the manufacturing, sales, marketing, distribution has
    grown to 300 technology people and engineers, and I am working
    in virtually--I don't know this man, but we are working on
    diabetes, obesity, energy systems. We work on lots of things
    that we hope that these other companies will bring to market to
    make the world a better place.
        But I have spent on all these products many tens of
    millions of dollars, and in the end, all I ever end up with is
    a patent, and every once in a while, those patents turn out to
    be valuable, because I can show up at the door of these big
    companies and say, here it is. I can promise you the exclusive
    right to put this in production, which will cost them in many
    cases $50 or $100 or $200 million in return for giving us some
    royalties.
        And oh, by the way, what we use those royalties for is to
    go on and invest in the next thing that most of these, in fact,
    large companies are sometimes reluctant to do. In the last 7 or
    8 years, my little company has invested in excess of $50
    million trying to develop systems to deliver water to the
    developing world, to develop electricity to the developing
    world.
        We hope our patents on those will be good. We hope the
    products will work, and we hope to go out to some of these big
    companies and ask them to put in the enormous amounts of money
    it is going to take to bring these things to market.
        The only thing I show up with when I sit across the table
    from some big company is a patent. And if I can't be sure that
    that is going to be reliable, I can't run my business. I can't
    get support. I can't sell my ideas to the world, because if you
    can have them for free, nobody will pay for them. And you can
    do a lot of work to reduce the cost of patents, but when you
    finish doing that, you might have protected nothing. There will
    be nothing left.
        I have to stop.
        [The prepared statement of Mr. Kamen follows:]
                        Prepared Statement of Dean Kamen

                                   __________

        Mr. Conyers. Those bells weren't for you.
        Mr. Mark Chandler, senior vice president, Cisco.

        TESTIMONY OF MARK CHANDLER, SENIOR VICE PRESIDENT, CISCO

        Mr. Chandler. Chairman Conyers, Ranking Member Smith,
    Members of the Committee, thanks for the opportunity to appear
    before you today. Nearly 2 years ago, patent reform legislation
    was reported by this Committee and passed by the House with a
    strong bipartisan majority.
        The bill before you today is very similar to the earlier
    bill and should be approved by this Committee. CISCO believes
    in a strong patent system, because our success as a company is
    a direct result of successful and continuous innovation
    starting from two people on a university campus 24 years ago.
    Today, we hold over 5,200 U.S. patents, have another 5,000
    pending, and we spend $4 billion a year on research and
    development.
        We have over 14,000 engineers working in the United States
    to develop and support new product. The patent law should
    ensure that in case of infringement of valid patents, the
    inventor should and must receive fair compensation. But by the
    same token, those who are developing and manufacturing real
    product should not be forced to pay a patent holder if a patent
    wasn't properly granted or be forced to pay damages based on
    value not commensurate with the innovation described in the
    patent.
        Yet that is what is happening. At a time of economic
    crisis, the flaws in our current patent law drain resources
    away from R&D manufacturing and toward defending unjustified
    patent suits with overblown damage requests.
        I will focus my oral testimony on the importance of
    clarifying vague patent litigation damages rules, because
    reform in this area is essential to eliminate burdens on
    innovation that are preventing job creation. For technology
    companies, patent litigation means spending increasing amounts
    on increasing number of infringement claims.
        I can choose to spend millions of dollars per case on
    defense fees, millions of dollars per case on settlement
    payments or both, but it is virtually certain that every new
    claim whether justified or not will require the expenditure of
    millions of dollars.
        The number of these claims has been increasing. Royalty
    requests are up 650 percent over 4 years. Litigation measured
    by total number of patent defendants has increased
    significantly in that time as well. Total litigation costs born
    by technology companies have doubled in that period to an
    estimated $4.6 billion.
        In my own company, we have gone from defending three
    infringement suits a decade ago, all involving competitors, to
    over 30 today with only a small fraction involving companies
    that actually produced a product. Patent litigation expenses
    are now the single biggest cost in my legal budget. We have got
    literally hundreds of royalty demands as well.
        Increasingly, our courts have become a magnet for suits by
    foreign patent holders who prefer to sue in our courts rather
    than in their own countries where the patents were originally
    issued. In the last 5 years, French, German, Australian,
    Canadian, Finnish, and Israeli patent holders with no products
    of their own have broadly sued across the entire industry
    including my company draining my company and our country of
    important R&D resources.
        Why is this happening? The reason is that the imbalance in
    patent litigation rules has triggered the creation of well-
    funded litigation syndicates that purchase patents not to
    develop innovative products but rather to obtain licensing
    payments from companies that have brought innovative products
    to market.
        Fully 88 percent of the patent claims against technology
    companies are asserted by folks who don't make any product.
    Unlike the typical model for the small inventor, the one that
    Mr. Kamen described who seeks to license intellectual property
    to those who can develop a product and build a market, these
    syndicates typically lie in wait until an industry is
    developed, often get going after those who are relying on
    established industry standards with far fetched claims that
    leverage the uncertainty and the possibility of a jury jackpot
    award.
        The patent systems litigation rules were designed when
    claims typically were filed by manufacturers such as Cisco's
    patent for being infringed by a competitor. The built-in
    protections that prevented against unjustified opportunistic
    claims are not effective against the syndicate.
        Just as flaws in financial services regulation led to
    financial engineering that lacked economic substance, today's
    dysfunctional patent litigation rules have produced a new form
    of patent engineering instead of product engineering, which is
    a task on those who are actually building products and
    employing people.
        Key among the culprits is a vague test for calculating
    reasonable royalty damages. The litigation syndicates don't
    seek lost profits since they don't manufacture a product. They
    leverage a vague 15-factor test that threatens large jury
    verdicts; they run a volume business suing numerous defendants
    at a time as they attack an entire industry.
        The threats coerce settlement payments from defendants
    unwilling to spend millions in litigation costs and run the
    risk of a jackpot verdict.
        In conclusion, in our sector alone, reform of the
    reasonable royalties standard will create tens of thousands of
    jobs over the next 5 years, and if nothing is done, research
    shows our economy can lost tens of thousands of jobs from
    continued adverse effect of the legal standards.
        We have this effect in Cisco today. But this issue is not
    simply about jobs, it is about our continued technological
    leadership. Less resources for research and development at
    Cisco in the U.S. means the next key innovation is more likely
    to come from a competitor in Europe, in India, in China, not in
    our country.
        Thank you, and I look forward to answering the Committee's
    questions.
        [The prepared statement of Mr. Chandler follows:]
                      Prepared Statement of Mark Chandler

                                   __________
        Mr. Conyers. Before we go for a vote on the rule on the
    credit card bill, we will hear from the senior vice president
    and general counsel of Tessera, attorney Bernard Cassidy.

      TESTIMONY OF BERNARD J. CASSIDY, SENIOR VICE PRESIDENT AND
                     GENERAL COUNSEL, TESSERA, INC.

        Mr. Cassidy. Thank you, Chairman Conyers, Ranking Member
    Smith and distinguished Members of the Committee.
        Tessera is a high-tech company, nearly 300 of our 400
    employees are engaged in research and development. We develop
    innovative technologies to make consumer products faster,
    better, and cheaper. If you have a cell phone that fits in your
    pocket, you are using our technology.
        Rather than talk about damages, I will defer to the
    testimony of Mr. Johnson, Mr. Lasersohn, and Mr. Kamen and my
    written testimony. I would like to take up the lonely and
    perhaps painful task of addressing post-grant review.
        I understand the Congress, the House at least, has done a
    lot of hard work on this topic and may not wish to reopen it,
    but notwithstanding that hard work, we urge Congress to look at
    post-grant review with a fresh eye.
        The reason is the slew of cases from the Supreme Court and
    Federal circuit that have come down since those provisions were
    drafted that have significantly tilted the balance in favor of
    patent users rather than patent holders.
        At a policy level, patent reexamination and other forms of
    post-grant review are designed as a limited safety valve to
    catch and repair the agency level patents that were
    inadvertently or improvidently granted.
        The idea is similar to en banc review by a court of
    appeals. In neither case is the extra review process designed
    to be a lengthy or a disdainful reaction to the initial review
    process that preceded it.
        The epilog should not be longer than the book. In practice,
    however, even the current re-exam process has become an
    instrument of abuse and patent nullification. Patents, of
    course, are time bound property rights. Specialist law firms
    have emerged to brag about their ability to use the re-exam
    process to nullify patents.
        Let me offer you two quotes from a white paper one such law
    firm in California has published. The firm can proceed
    anonymously to ``create a simulated swell of opposition to the
    patent. This can hide your identity and even draw the patent
    owners higher toward your competitors.''
        Secondly, ``By creating uncertainty about a patent and
    tying it up in a long re-exam process, the firm can effectively
    nullify the patent.'' That is the system today without the
    bill. At a high level, the cumulative effect of the bill's
    proposed procedures would be to create a post-grant review
    system that heavily favors the interest of the challenger
    regardless of the challenger's motives.
        A challenger would be permitted to initiate a PGO
    proceeding with no meaningful evidence of invalidity to attack
    the patent's validity on any ground, to tie up the patent
    holder in expensive discovery and evidentiary proceedings, and
    to invalidate the patent according to a very low evidentiary
    standard of proof.
        And after a patent holder manages to survive this
    unbalanced system, she will remain vulnerable to successive
    attacks by the same challengers and different ones as well.
        So specifically, we oppose the bill's expansion of
    reexamination to permit challengers based on prior public use
    or sell. This provision is unfair to patent holders. The prior
    use and sell language was not part of the compromise bill that
    this House passed in the last Congress and has been deleted
    from the compromised Senate bill reported out of the Senate
    Judiciary Committee. We urge the same here.
        Second, the bill should preserve the existing estoppel
    effect applicable to interparties reexamination. Estoppel is
    necessary to encourage efficient and proper use of the limited
    reexamination proceedings and to prevent serial attacks against
    the patent.
        Third, the bill should establish a firm 12-month deadline
    for completion of interparties proceedings. Current average is
    about 33 months. Without a firm statutory deadline, the
    interparties reexamination process will subject the patent
    holders to a lengthy and costly proceeding and serve, in
    effect, as a rolling nullification of legitimately issued
    patents.
        Fourth, the bill should impose a more rigorous threshold
    test for initiating interparties and post-grant opposition
    challenges. The current threshold, ``a substantial question of
    patentability,'' sounds impressive, but it is not meaningful in
    practice.
        The PTO grants an estimated 97 percent of reexamination
    requests based on this test. A higher standard is necessary.
    Fifth, the bill should affirm that a patent is presumed valid
    when challenged in a post-grant proceeding.
        It is completely unreasonable to strip an issued patent of
    its presumption of validity by merely filing a piece of paper.
    A system that creates such a whimsical vulnerability would
    immediately devalue all U.S. patents as an asset class, whether
    or not a particular patent is challenged.
        And finally, the bill should explicitly allow the PTO to
    extend the patent term of a challenge patent simply out of
    fairness to the patent holder.
        In short, the current proposal is troubling. It would allow
    repeated frivolous challenges to U.S. patents resulting in
    increased costs, decreased certainty and lower value patents
    for the entire asset class. That, in turn, will undermine
    patent rights, threaten the jobs that depend upon them, and
    discourage investment in new technology.
        Thank you, Mr. Chairman.
        [The prepared statement of Mr. Cassidy follows:]
                    Prepared Statement of Bernard J. Cassidy

                                   __________
        Mr. Conyers. Thank you. We will examine the credibility of
    your persuasiveness when we return.
        Thank you all. We will immediately return after this one
    vote. There are cafeterias and feeding places on the B level if
    you think you can grab a sandwich in the next 20 minutes or so.
        The Committee stands in recess.
        [Recess.]
        Mr. Conyers. The Chair recognizes Lamar Smith for
    questions.
        Mr. Smith. Thank you, Mr. Chairman. Mr. Chairman let me
    direct my first question to Mr. Chandler, and also ask Mr.
    Simon, Mr. Johnson, and Professor Thomas if they would respond
    very briefly as well.
        This goes to the subject of damages, no surprise. And what
    I want to mention, Mr. Chandler, to you is that a compromise
    has been proposed, and it would define a reasonable royalty as
    an appropriate share of the value of the patented technology
    over the next best alternative.
        I am not necessarily promoting it, I just want to put the
    idea and see what kind of a response we get for that kind of a
    compromise.
        Mr. Chandler. Thanks. The Senate bill is an important but
    not a sufficient step to address what is going on with the
    damage awards, and we are real concerned that the gate keeping
    provision while advising the judge to take a more active hand--
    fixes some of the procedural problems in the way things are
    given to the jury but doesn't really help in setting a
    substantive standard that would be available for appeal and put
    some certainty into the system.
        We also think that that gate keeper function should occur
    earlier in the litigation. The Senate bill says it should occur
    no later than the final pre-trial order, but we would like to
    move it forward. In terms of nearest not available alternative,
    I will just say intuitively to me, one of the problems that
    that potentially raises is the number of cases that we have
    that are based on industry standards where it is unclear how
    you do an alternative.
        What I would say though is there is a--I think David Simon,
    who you mention in your question, will do a better job on that.
    There is a good reason that my title is general and his is
    intellectual.
        Mr. Smith. Okay. Thank you.
        The compromise I mentioned is actually not in the Senate
    bill. That is it is a new concept that--Mr. Simon? Real
    quickly.
        Mr. Simon. Thank you. I would like to echo Mr. Chandler's
    comments on the importance of more than a gate keeper. If I
    may, the issue you get into is really fundamentally an issue of
    complexity.
        From my view, you would have to do this at the time the
    design is occurring, and if you--in other words, you know, once
    we have already designed something into the product and it is
    out there, and sometimes we get sued on a patent that issues
    years after our products have first embodied whatever we are
    being sued on. It can, you know, taking it out of products, and
    particularly if there are other products that rely on it, is
    very difficult.
        So you really have to go back in time to look at when it
    was designed in. And then you get into some other issues such
    as, you know, at that time, nobody is sure which technique is
    going to work. And you get into--I have sat in design
    meetings----
        Mr. Smith. More complicated than we might think.
        Mr. Johnson? Real quickly.
        Mr. Johnson. Georgia-Pacific factor number nine already
    relates to the--advantages of the patented property over the
    old modes or devices if any that have been used for working out
    similar results. So it is a factor, and it is a good factor.
    But whether how important the factor is depends upon the
    circumstances between the parties. Are they competitors, you
    know, what is the impact of infringing and so on?
        Mr. Smith. Okay.
        Professor Thomas? Any thoughts?
        Mr. Thomas. I favor that approach, because I believe it
    best mimics what happens in the real world when technologists
    make decisions about whether these are proprietary rights or
    not.
        Mr. Smith. Okay. That is helpful. Thank you. Next question,
    Mr. Cassidy, you mentioned this in your testimony, the post-
    grant opposition system. Just a real practical question, do you
    think PTO is able to handle a post-grant opposition system?
        Mr. Cassidy. I believe we have been told by the PTO that
    they are overburdened already, and this is a very serious step
    to create another layer of administrative patent judges and so
    forth. I think it is with great caution the Congress should go
    ahead and create a new system.
        Mr. Smith. My time couldn't possibly be up, Mr. Chairman.
        Mr. Kamen? Real quickly, and I am going to sneak in one
    more question if I can to Professor Thomas. Do you think they
    could--PTO can handle--do you agree with Mr. Cassidy on that?
        Mr. Kamen. As a former member of the PPAC, I can tell you
    we spent a lot of time there trying to figure out how to deal
    with all the strains their under now. They have a pendency of
    three-quarters of a million patents. Some of them are 4 years
    old. The last thing we need to do is give them another burden.
        Mr. Smith. Okay.
        Mr. Kamen. So I would say no.
        Mr. Smith. And that is not a surprising answer. Thanks.
        Professor Thomas? Last question for you real quickly. A lot
    has been made about the excessive royalties, the unfair
    damages, some people claim that is exaggerated. What do you
    think about it? And Mr. Chandler, you did a lot in your
    testimony to answer the question as well, but I wanted to see
    what Professor Thomas had to say.
        Mr. Thomas. I believe that the uncertainty may be the
    biggest problem at this point. However, I believe that there is
    a tendency toward overcompensation. The average award--but are
    reported are high, and when rates are rewarded in court rooms
    that are higher than our--would be bargained for in board
    rooms, it promotes speculation and litigation.
        Mr. Smith. Okay. Thank you. Thank you, Mr. Chairman.
        Mr. Conyers. Thank you very much, Lamar.
        Zoe Lofgren?
        Ms. Lofgren. Well thank you, Mr. Chairman. I just have a
    couple of questions, and as I said in my brief opening remarks,
    this has been an interesting process over the past, I think it
    is almost 10 years now of sorting through these issues, and the
    frustrating thing, I think, for all of us is that there are--
    all the witnesses said some things that were actually in
    conflict with each other, and how do we get to a point that
    really works for the American economy in a very vigorous way.
        Along those lines, Mr. Simon, you talk about non-practicing
    entities and the meritless litigation brought by some of them
    that weakens the patent system. And I know that in some cases
    that is correct, and yet, we also know that there are non-
    practicing entities that license--that are legitimate
    businesses, and so how do you make that distinction if you are
    trying to approach this in a legislative way?
        Mr. Simon. Well, I frankly don't think that you can make
    that distinction in a legislative way of saying these non-
    practicing entities are good other than that their leader's
    name starts with Dean, and these others are not so good.
        I think what you really have to do is you have to have,
    from my view, some objective standards that remove uncertainty,
    and if you do that, I think you go a long way to helping the
    system.
        A big part of the problem is that just the cost are so
    tilted to one side in a patent litigation today with
    contingency fee cases that, you know, we have had instances
    where it has cost us $10 million just to produce the electronic
    documents. And, you know, the other side doesn't bare any of
    those----
        Ms. Lofgren. No, I am aware of that.
        Mr. Simon [continuing]. And that creates--you know, that is
    part of it. And there is----
        Ms. Lofgren. Well, it pushes to settle whether it is
    meritorious or not just because of the cost of litigation.
        Mr. Chandler? Do you have any thoughts on that same
    subject?
        Mr. Chandler. I think that we need to recognize that
    liquidity in the patent system is very important. People need
    to be able to enter into transactions to license their patents,
    and I think Dean Kamen's stories of his creative activity and
    invention and the way he has helped bring those products to
    market by being able to do transactions with companies that can
    then do that for him in terms of marketing and sales and all
    the other things that go into it----
        Ms. Lofgren. Yes, legitimate.
        Mr. Chandler. Legitimate and critical, and it is also
    critical that if others try to piggyback on that without the
    right to do so under his patent that there be an ability to
    stop them or to force them to pay compensation. So that is
    purely legitimate.
        What we are the issue is uncertainty. And I don't think
    that--I can't speak for Mr. Kamen, but I don't get any sense
    that he benefits from uncertainty in being able to value patent
    rights. I think we all do. I think there are people who want to
    enforce patents who think that the biased toward
    overcompensation that comes from uncertainty is people will pay
    a premium to avoid risk is what is the issue in the system.
        And those who like the idea that the idea that--like a
    hiker on a trail who makes himself very large to scare off the
    bear, people who are doing that like the idea that they may
    seem larger than they really are, and yet, there is a huge
    economic impact when we allow the law to let people look larger
    than they really are.
        And I think the problem will be solved in a way that
    protects people like Mr. Kamen who are doing what they are
    doing and eliminate the people who are leveraging the system if
    we simply come up with a clearer set of rules. The non-
    practicing entities are a symptom. They are not the disease.
        Ms. Lofgren. Mr. Kamen? Do you have opinions on that?
        Mr. Kamen. I violently agree with everything. Uncertainty
    is the biggest issue. The reason I am sitting here today is if
    the uncertainty that already exists, which is problematic some
    of if it due to the you wait 5 years to get your patent. So I
    would urge you whatever you do, make sure the patent office has
    the resources to respond quickly.
        We couldn't run banks where they wait 5 years to tell you
    where your money is or you couldn't build houses if you needed
    5 years to get your title to your deed or that if you had after
    your deed a post-deed review where they said, after you build
    your house, we will come back in a year or 2 with some
    different rules, and maybe the deed's good and maybe we will
    take your land away. Your deed has to have certainty.
        The timing has to be efficient. The certainty is critical
    to me, and one of my concerns is, well intentioned as they are,
    some of these things that we are talking about in perhaps
    unintended consequences are going to add uncertainty. The
    second window adds uncertainty. Some of these issues add
    uncertainty.
        I would ask you to think about the fact that right now you
    may be trying to solve an insoluble problem if you want a one
    size fits all. I really do believe that if you have got billion
    dollar investments and making a dive, it takes 5 years to do,
    you have got 1,500 patents, clearly, people have demonstrated
    and everybody is sympathetic to the fact that people are gaming
    the system. We ought to go after the bad actors.
        But when you have got a great system, and you have got a
    few bad actors, the goal should be take out the bad actors,
    don't bring down the system. And right now, we see that there
    is real issues here. We have got a fire in a wastebasket and it
    is blazing. But you don't flood the house to put out that fire.
        I would say, as the Chairman said, we need invention here.
    Maybe the invention is a fire extinguisher. You ought to find a
    way to deal with the specific problems that exist without
    taking some of the fundamental systems and making them more
    uncertain and putting them into a system where there is more
    change especially at a fragile time like this.
        Ms. Lofgren. Mr. Chairman, I know my time has expired. I
    don't know if there is going to be a second round, but I guess
    I have to yield back.
        Mr. Conyers. If you have a last final urgent question, we
    will entertain it. Well, I had two, but maybe I will have to
    choose between them.
        Let me just ask this: Mr. Johnson, you have spoken
    favorably of the first to file concept. Mr. Kamen has expressed
    grave reservations about that system. I wonder if the two of
    you could address whether it is possible to reconcile those
    competing points of view.
        Mr. Johnson. I think it is, because I think Mr. Kamen's
    concerns relate as much as to an orderly transition to first to
    file as to an objection to first to file itself. I see he is
    nodding yes, so I will yield my time to Mr. Kamen.
        Mr. Kamen. I would agree with that. Of all the issues out
    there now, that one if it is carefully implemented, if the
    transition is well taken care of, but I would point out that
    you have some of the icon of the tech industry, of the bio
    tech, of the medical products companies of the world here, I
    think the individual inventors, rightly or wrongly, the
    inventors around the country have a knee-jerk reaction by which
    they are very concerned.
        And in some cases, I think, appropriately concerned that
    unless some accommodation is made, the individual inventor is
    going to see that I have got to run to the patent office every
    time I have a good idea, because if it is first to file, I am
    in trouble, and the little inventor then is going to (A) swamp
    the patent office with marginally prepared patents, it is going
    to cost them a fortune.
        So even though I might admit I could deal with some of
    this, I think dealing with your real small individual
    inventors, they ought to have a voice.
        Ms. Lofgren. The other question I was going to ask and
    maybe I will just have to ask for--I don't know if there is
    time, but----
        Mr. Issa. I guess we continue enjoying her second round,
    right?
        Ms. Lofgren. Bilski. You know, there was discussion had--
    some of the Members talked about patenting, you know, tax
    preparation. I mean, there is a lot of angst about some of the
    stupid stuff that is going on here, honestly. But there still
    is, in my judgment--well, I mean, take a look at Oracle, I
    mean, there is a role for patents in the software arena.
        I think Bilski moves us in a direction but it is still a
    little spongy, and it has been suggested that perhaps we might
    use this opportunity to put a little more certainty onto
    Bilski. I am not sure that is correct, and I am wondering if
    anybody has a firm view on that?
        Mr. Johnson. I think that the nature of case law is when
    you make a major change, which Bilski is that good case law
    develops by not trying to decide everything in one decision,
    because we have a very complex technological landscape here,
    and I think as the case law goes on, these individual issues
    will come up to the courts and be handled appropriately.
        It is quite different, of course, in legislation where you
    have to do one rule and that is it, and you are done. So I
    would agree with you. Spongy isn't the word I would have used,
    but not completely defined is probably better. But I do have
    great faith that as the courts then take up individual
    additional cases in that framework that we will have
    substantial improvement in the area.
        Mr. Lasersohn. Just one aside, not directly on the question
    of methods for tax preparation, but the whole business method
    question is a very important question and the method question
    is a very important question and so, I can tell you that many,
    many patents that the venture capital community relies on in
    starting companies are based on methods.
        Some of them begin to spill over to business methods, and
    drawing those lines about what is a business method versus say
    a technical method can be very difficult. I will point out in
    Europe, where method patents are just generally not allowed,
    many industries don't exist for that reason.
        And so we have to be very, very careful not, again, to draw
    those lines very carefully.
        Mr. Conyers. Darrell Issa?
        Mr. Issa. Thank you, Mr. Chairman. I make note that our
    unwillingness to properly protect designer dresses and suits in
    our patent law has been a source of problems for us and not the
    French.
        Mr. Kamen. And not for me.
        Mr. Issa. Dean, I must say that when you wear timeless
    clothes, you know, no one need question that.
        First of all, I would like to say although I saw this is as
    a hearing about what we had already all heard about it, it is
    never a bad idea to have a gathering of brain trusts in one
    room that is this great to bounce ideas off of, particularly
    since Thomas Jefferson is long since dead, you are the next
    best thing. Perhaps with Dean here maybe the same thing.
        The questions that come today, particularly as to the gate
    keeper--I think, Mr. Chandler, I will lead off with you.
    Knowing that Markman decisions are supposed to be decided early
    but not always decided early, and since they are something with
    a judge much comes to grips with and most often, a good Markman
    causes both sides to see their product and patent and dispute
    differently.
        Should we consider linking those two inseparably in the
    discovery process so that both are encouraged by the judge so
    that then a potential quiet period of reflection could lead to
    settlement often?
        Mr. Chandler. Moving that function earlier in the process
    than, for instance, is reflected in the Senate bill as reported
    by the Judiciary Committee, would be positive. The Markman is
    one possible place to link it, but I wouldn't necessarily adopt
    the word ``inseparably'' that you posed in the question----
        Mr. Issa. Well I posed it for a reason----
        Mr. Chandler [continuing]. To do it.
        Mr. Issa. If there is no Markman, can you really--if you
    have not yet defined the patent and the product, then without a
    Markman, can you do the gate keeper?
        Mr. Chandler. I certainly think it would be hard to do
    before the Markman. I just would need to think about it some
    more to decide whether the word ``inseparably'' should be part
    of that.
        But certainly the goal of having decision making as early
    in the case that give guidance to the parties as to the factors
    that are going to be relevant in determining damages, will then
    remove the jackpot element and allow the parties to have a
    successful negotiation, and that is what we believe the patent
    system should aim to look like a good functioning commercial--
    system where people can negotiate to transfer rights at prices
    they can agree on.
        Mr. Issa. Okay.
        Mr. Johnson? You clearly want to weigh in on this.
        Mr. Johnson. Thank you. I wouldn't link them because I
    think that the Markman frequently would be earlier than you
    could do the gate keeper. The nature of the development of a
    pretrial action requires the fact discovery to be completed
    before the experts can really opine on what the evidence is,
    and the gate keeper really comes as a pretrial procedure.
        You need the experts testimony that would then be
    challenged in gate keeper. So you are pretty far down the line,
    and so----
        Mr. Issa. So you buy them as sequential but not
    inseparable?
        Mr. Johnson. No, because what you would be doing is you
    would be delaying the Markman, and I don't think you want to
    delay the Markman.
        Mr. Issa. I do not ever want to delay the Markman, trust
    me.
        Mr. Johnson. So I think you shouldn't link them.
        Mr. Issa. Okay. The question came up on the post-grant
    review, and this whole window and whether the PTO was equipped
    to handle it.
        What I heard and, Mr. Kamen, I think I will choose you. You
    often are very smart at showing why people throwing a lot of
    money at something do not necessarily reach the conclusion that
    somebody throwing a better idea at is does.
        So let me pose it this way: Since we generally only throw
    money at things and perhaps some rules of the road that help
    from time to time, if, in fact, the money were made available
    either through the fee process, eliminating fee diversion
    completely or through additional fees, is there any reason to
    believe that the PTO could not develop the ability to be the
    best place should this law pass as it is to do it rather than
    some other entity, whether it be modeled after the ITC over at
    Commerce or men and women in black robes.
        Is there any inefficiency that you see there, because
    wherever we put this, we want to fund it, but also wherever we
    put this, I am sure we want to make sure we put it in the most
    efficient place.
        Mr. Kamen. I can't comment on all the other places you
    could put it and what would be the intended and unintended
    consequences. I could say as a general statement, I just
    believe that whenever you have a problem of any kind--instead
    of putting Band-Aids on it or patches over it, you ought to
    first--and it is generally the hardest part of solving any
    problem is defining it well.
        And if we absolutely believe that we could give the patent
    office right up front the best resources, the best technology,
    the best training, the incentives to keep their people--up
    until a few years ago, the turnover among young people there
    was so extraordinary that you would see why they have such
    great pendency now.
        If the pendency has left the problem, if the quality has
    left a sea of problems, trying to put other systems around is
    putting Band-Aids on there. You go back, and you say, let's
    make sure that they have the right tools, they have a right
    amount of time, they are trained properly, and they give you a
    good patent quickly.
        After that, to the extent that there needs to be something
    done, I think it should be done by those people in one place,
    cost effectively and quickly, and I would beg you all to make
    sure whatever you have them do it is--that is such a rigid
    timeframe on it, and it has got such a clear definition to it
    that we don't make it a source of more mischief and more cost
    and more uncertainty.
        Until you deliver the guy his patent or the woman her
    patent that says, it is real, I can count it, you are adding
    tremendous problems to the system, and adding other agencies, I
    don't think----
        Mr. Issa. Thank you, Mr. Chairman. I have just 35 more
    questions, but I will limit it to one, if I may?
        Mr. Conyers. You always do.
        Mr. Issa. Thank you, Mr. Chairman.
        And, Dean, by the way, I spoke to two graduating classes at
    the PTO on Monday, and you said it better than I did, but mine
    was a prepared speech.
        The earlier comment on--and I think rightfully so--on
    people who invest tens or hundreds of millions or even billions
    of dollars in a new product go along, produce the product and
    then intrinsically in this product and follow ons become some
    feature which is later claimed successfully in a patent.
        Do you believe--and it is not in the legislation--do you
    believe that as we look at the history of laches developing,
    that we should put into this legislation some sort of
    protection for--and some has been done by eBay but for the
    threat of a injunctive relief being limited when, in fact, by
    definition, these known technologies have been allowed to
    develop, investments made, and they have gone a very far along,
    because today, as we all know, you can sit on your rights a
    substantial period of time, then make the claim and have little
    or now harm done to the moving party.
        Well, many of you know that you can be in a jackpot when
    they make the claim. So is that something that is not in the
    legislation that should be spoken to above or below the line in
    order to provide further guidance to the courts?
        Yes, Mr. Lasersohn?
        I will let you all answer if the Chairman will.
        Mr. Lasersohn. I would say that we would have to be very,
    very careful about a system like that. I think the key question
    is did the inventor, in fact, invent it or not?
        And if the inventor, in fact, really did invent it, there
    are many reasons, as you know even better than I, why it may
    not be in the first issued patent or why the patent may take
    time to issue.
        As Dean points out, the issuance of the patent, the timing
    of the issuance is not within our control. And so, I think the
    operative question gets back to the main point, which is who
    really invented it? If the inventor, in fact, did invent that,
    he or she is entitled to the economic value of that.
        Mr. Issa. And I want you all to be able to answer, but I
    want to make sure the question is properly narrowed. I am only
    speaking to the injunctive relief further guidance. There is no
    question that we must make sure the actual inventor is entitled
    to fair compensation. What we are speaking of is the Intel
    chip, for example, that is 4 years down the road and second
    generation and somebody gains a patent on it, and a whole
    industry and even standards have been built on that technology.
        Is it a reasonable royalty as a matter of law or is
    injunctive relief an appropriate hammer, and like I say, the
    court's been deciding some, should we weigh in because we have
    further guidance that we might need to give.
        Mr. Lasersohn. I would just say injunctive relief is a
    major, major question for us and for our companies. eBay has
    already created a high level of uncertainty about when we are
    entitled to injunctive relief. And very often, that is in fact
    the bargaining chip that allows an inventor----
        Mr. Issa. And now from the other side, a little bit,
    please.
        Mr. Lasersohn [continuing]. The economic benefit.
        Mr. Simon. If I may? The specific issue brought to mind an
    incidence of a few years ago, Congressman Issa, where we were
    presented with a pending application that had been filed over a
    decade before, never claimed anything like what they were
    claiming, and then, very late in the process, stuck in a claim
    even though the patent was going to expire not that far into
    the future if these claims would have issued on fundamental
    memory technology that was used in every single computer.
        We solved the problem. We bought the patent. It took care
    of it, and we have never asserted it either.
        Mr. Issa. By the way, a problem is defined as something
    which money cannot solve. So you solved it, it must not have
    been a problem, it was a business decision.
        Mr. Simon. My boss doesn't quite view that the same way.
    Certainly not my CFO. There is a problem here. I am not sure
    that the injunction is necessary the right way. There used to
    be a doctrine in some circuits before the advent of the Federal
    circuit called the doctrine of late claiming, which is--and
    disfavored for a variety of reasons.
        Whether that might be a solution, whether there might be
    some other laches type solution, all of them should be
    considered. I mean, there is an evidentiary issue of how do you
    show, did they really claim this when they filed the
    application or did they later on say, we didn't reclaim
    something here, but you know, we have seen what industry has
    done.
        If they have done it 10, 15 years after the fact, I don't
    think they invented it, quite frankly.
        Mr. Issa. Mr. Cassidy?
        Mr. Cassidy. Congressman, I think the eBay case does solve
    a great deal of the problems, especially the prong of the
    equitable test of does this harm the public interest. If
    something is placed in the commerce and the public is largely
    dependent upon it, it is very difficult for a court today,
    after eBay, to enjoin the use of that product.
        Mr. Issa. Thank you very much, Mr. Chairman. I would say
    that we have jurisdiction over the courts, and they agree with
    us mostly. We do not have jurisdiction over the ITC, and they
    do not yet agree with us.
        Thank you.
        Mr. Conyers. Thank you.
        Sheila Jackson Lee?
        Ms. Jackson Lee. Thank you very much, Mr. Chairman. As
    usual, I appreciate, I think, what is certainly a detailed
    hearing and, Mr. Chairman, I hope that we will make a home run
    this session with respect to, I think, helping to ensure the
    inventiveness of America.
        I would like to focus my questions on this concept of
    reasonable royalty damages. And I would appreciate comments
    from a willing witness that wants to make the argument that
    there needs to be a more definitive language and possibly a
    language that suggests Federal damages and/or in another form.
    So that is my first question.
        I would like to pointedly ask Mr. Lasersohn the question
    dealing with the apportionment of damages based on a patent-
    specific contribution over the prior art. It is suggested that
    you feel that that would encourage infringement rather than
    licensing arrangements for the product. So it would not do what
    I think we would want it to do.
        And then to Dean Kamen, forgive me for approving of your
    comfortable attire, you give off the signals of an inventor.
    And we need more of you. I would appreciate your sort of ending
    your testimony--and you thought the bell ended--but I would
    like you to give one addition to this legislation that would
    create the vast or the more attractive atmosphere.
        I think we have a very solid document here, but that would
    open up even more for our inventors. And I will just end on
    this note as I offer--I would like some volunteers on my first
    question on the reasonable damages. But I think in the light of
    the economy that we have now, and this whole opportunity of
    turning around the economic engine.
        It will be based upon the next generation of inventions,
    and I want to see as vast an opportunity as possible and as
    fair an opportunity as possible, and I do think we are on a
    very positive track with the underlying bill, H.R. 1260.
        Mr. Simon, and others? Would you like to comment on this
    reasonable damage question, please?
        Mr. Simon. Sure. Thank you. So I do think there is
    something that we clearly need to do on having a meaningful
    damages standard rather than to say, here is the key factors.
    When I was at the FDC hearings a few weeks ago, they had five
    economists who basically all said the same thing. I can reach
    any result you want from the 15 factors.
        As to the idea of treble damages, their currently is a
    provision in the law about the treble damages, as I think you
    are aware, but that is for really bad conduct--infringement.
    You have to be careful in sending the appropriate remedies.
        If you make patent damages too low, you have the problem
    that you are not protecting invention, but if you make it too
    high, you stifle innovation because people will not invent
    around patents or avoid patents or try to come up with their
    own inventions for fear that if they didn't do it well, they
    are going to get hit with a punitive type damage.
        Ms. Jackson Lee. So you argue for tightening the language?
        Mr. Simon. Yes.
        Ms. Jackson Lee. Okay.
        Mr. Johnson. Johnson.
        Ms. Jackson Lee. Johnson, everybody is seated in a
    different--Mr. Johnson, thank you.
        Mr. Johnson. The problem when you talk about damages is
    that it is a very complex business world out there, and Mr.
    Simon, in his written testimony, for example, has spent a lot
    of time explaining to us the particular circumstances of his
    business and what they face when they receive charges, but that
    is only one business. That is only one setting.
        And there are literally millions of settings out there, and
    when you come down and try to write one rule, one rule that
    will fit everything, what we found in years of trying is it is
    difficult to impossible to write a rule for patent damages that
    will fit everybody is business circumstance.
        Yet, I think most of the witnesses on this panel would
    agree that it should be business appropriate what the damages
    are. Mr. Simon just said it. Others have said it that it should
    be market based, and so right now, we do have 15 factors.
        I don't agree with the people Mr. Simon mentioned who say
    they can come out anywhere, because the one thing that
    businesses are really good at is figuring out how much they are
    likely to make by selling a product and how much they are
    making if they sell a product, and if somebody comes in and
    interferes with that, and they infringe the patent, they are
    also pretty good at figuring out how much they really lose from
    it.
        And that is with the current flexibility in the law, which
    is, indeed, using the Georgia-Pacific factors. You can take
    into account all these business realities and come up with, I
    think, the overwhelming number of cases, you come up with a
    pretty fair result. And I think there is actually pretty
    widespread agreement to that.
        Ms. Jackson Lee. Mr. Lasersohn? Thank you.
        Thank you, Mr. Chairman, for letting them answer the
    questions.
        Mr. Lasersohn. With respect to your specific question, I
    think my answer is that our understanding is that an
    apportionment of damage type test as the only test would reduce
    damage awards, and that would lower the cost of infringement,
    and therefore, there would be more infringement.
        In fact, we were very surprised to see an article last year
    in the middle of this debate coming from the head of the
    Chinese patent court who wrote a paper reviewing the
    legislation--this particular idea--suggesting that that would,
    in fact, be the case. That is, it would enable Chinese
    companies to infringe with much less risk.
        With respect to the broader question, the answer really is
    that Georgia-Pacific is complicated because the question is
    complicated. You can't make it any less complicated than it
    actually is. Figuring out when I negotiate patent royalties or
    patent arrangements or deals between a small company and a
    large company, this goes on for weeks and months, and it is an
    enormously complicated negotiation where all of these factors
    in Georgia-Pacific, in fact, come into play.
        This isn't a hypothetical case at all. They actually enter
    into our negotiations almost every single one of them. We weigh
    them, and sometimes, one is more important than the other.
    Sometimes five are more important than three, but it is simply
    that complicated, because it is that complicated.
        Ms. Jackson Lee. Mr. Kamen? Thank you.
        Mr. Kamen. You asked a couple of things. I thank you for
    that, by the way. One of them, you asked what are we going to
    do to ensure the next generation of great innovators and
    inventors, and I think that is the only real solution this
    country is going to count on.
        I did deliver to the counsel to the Chairman a bunch of
    pieces of data, Congresswoman Lofgren, actually, hopefully will
    be a supporter here, but we started an organization, a not-for-
    profit, 16 years ago with 20 some odd of these companies
    sponsoring high schools around the country to help teach them
    how to be inventive and creative.
        It has grown such that this year we have 16,000 schools. We
    took over the Georgia Dome for our finals last week. That is
    what this is. But I can tell you that women and minorities in
    the United States are not underrepresented; they are virtually
    unrepresented in the world of patents, and it is really quite
    outrageous to me. And 39 percent of the kids we have on these
    teams doing science and technology are women. So we are working
    on that separately.
        To your other question, what one thing would I do? I think
    it is sort of what I would say to Congressman Issa, let's get
    back to the basic problem. If we don't trust the patents that
    we get--if they are going to be attacked, and sometimes rightly
    so, if people are going to act inappropriately, the first thing
    we got to do is make sure that the patent office is properly
    equipped to deal, frankly, with the good news that so many
    people are filing so many patents.
        Again, as Congressman Issa pointed out, we ought to run
    this thing like a business. Not too many businesses out there
    would be saying, whoa is me; what am I going to do? I have got
    750,000 orders I just can't ship. I think GM and Ford would
    love to have that problem today.
        But the patent office is sitting there now saying we have a
    problem. We have pendency. Well, if we know that there are more
    and more patents being filed, and we know people are willing to
    pay to get these things done, the idea that they have got a
    backlog of 700,000 of them is hurting everybody everywhere.
        It is hurting the people that need to know what they got to
    protect against. It is hurting the people that could be adding
    these great solutions to the economy. So I would say, no matter
    what else you put in this reform bill, let's add some stuff to
    make sure that the patent office gets all the resources it
    needs to make the highest quality patents and reject all the
    crummy ones, but make the highest quality patents as fast as
    you can. Get them out there, but then leave us with something
    we can trust when we are done.
        And, you know, I really have to continue to say, I am
    genuinely sympathetic to unique problems, but they are unique
    problems. If you got a fire in that waste basket, let's not
    assume that we got to write a law that floods the building to
    put it out, and let's focus on solving the problem.
        And, again, this might sound a little callous, but if those
    industries are now so big that somehow even your own numbers
    point out it is a few billion dollars, and trust me, I know
    that is a lot of money--never have that kind of money--but in
    context, of all the other places our economy is dealing with
    money, if somebody said to you, our $16 trillion economy now
    has $3 billion that has gone out in these kinds of cases, let's
    say 50 percent of which might not have gone out appropriately,
    you got a billion or $2 billion that people are gaming the
    system of which we have a national economy of $15 trillion or
    $16 trillion, 60 percent of which is purely based on
    innovation.
        I am not sure I would put at risk the large part of that
    $16 trillion to try to make this other thing perfect. We got to
    deal with this situation in context and innovation and finding
    ways to keep creating more incentive for innovation and
    rewarding it is more important than ever and solving this
    little problem by destroying a magnificent process and model we
    have in this country.
        I would just ask you to focus more on the value than on the
    cost.
        Mr. Conyers. Mr. Kamen? Were you a salesman before you were
    an inventor? Or are you a salesman and an inventor?
        Mr. Kamen. Both. Mr. Chairman, I am just afraid that my
    ability to continue to keep 300 people working on projects
    could be dramatically reduced or eliminated if I can't go out
    to these companies and say, here, I have got something that is
    going to be valuable to you.
        Ms. Jackson Lee. Very crucial issue, Mr. Chairman. I don't
    know if Mr. Chandler wanted to answer the treble damages or the
    reasonable damages really quickly if the Chairman will indulge?
        Mr. Chandler. Sure. Thank you for the question. We
    certainly support----
        Ms. Jackson Lee. Thank you----
        Mr. Chandler [continuing]. The treble damages in cases of
    willfulness, and that is a very important part of the law. It
    is a strong disincentive to infringement. I think we have to
    remember that patent infringement does not require any kind of
    copying.
        One infringes simply by doing something that someone is
    able to prove to a jury looks enough like what is in the patent
    that a finding is made of infringement. What we do need is to
    have that willfulness standard so that people who set out to
    infringe someone else's intellectual property will be made to
    stop.
        And we support that. We view that as a separate question
    from figuring out what the appropriate damages should be for
    nonwillful infringement.
        Ms. Jackson Lee. Thank you.
        Mr. Cassidy? Do you have any comments?
        Mr. Cassidy. Thank you, Congresswoman. Yes, I think it is
    important to focus on the data. The data that we have is over
    the last 5 years, there is about 100 cases per year that go to
    conclusion and patent arena. Those are resolved at an average
    price when there is a grant of an award of $5 million. If you
    include cases where the plaintiff loses, it is $2 million.
        So that is the data. It is not a national calamity that 1
    percent of our Federal cases deal with patent issues. It is not
    a calamity that the average award at the end of those cases is
    $2 million. The cost is $5 million. So we need to keep that in
    mind and not just the giant figures that the other witnesses
    are tossing around.
        Thank you.
        Ms. Jackson Lee. You want to quickly?
        Mr. Chandler. If I might. I think that looking at the cases
    that are in court that result in judgment is looking at the
    very tip of an iceberg and trying to define what the iceberg
    looks like. There is a huge amount of settlement activity that
    is based on threat and leverage.
        And in the case of my own company, that amounts to hundreds
    and hundreds of millions of dollars from situations where you
    are trying to avoid a jackpot situation. You can't. This is a
    very real and significant problem with these syndicates that
    have set up that leverage uncertainty in the system.
        And I think it is a complete red herring to look only at
    cases that are reported in court and ignore the rest of the
    environment that we are all trying to operate in today.
        Ms. Jackson Lee. Thank you very much, Mr. Chairman. My last
    word in concluding is of the Mr. Lasersohn's comment about a
    very large competitor of sorts, China. And whatever we do in
    this bill, I hope that we will protect the ingenuity and the
    inventiveness of America as we share it with the world.
        I yield back, Mr. Chairman.
        Mr. Conyers. Mr. Brad Sherman?
        Mr. Sherman. Thank you, Mr. Chairman. I believe I am last.
    I am certainly least in my knowledge of patent law. I know as
    much about patent law as the average tax attorney.
        So I may be asking questions that are just kind of
    discordant with the way people who do know about patent law
    think about these issues.
        First, Mr. Chairman, the one thing everybody seems to agree
    on is that the patent office be adequately funded. And I hope
    that we pass full patent reform soon, but perhaps we want a
    separate piece on that to go through more quickly, and I know
    the appropriators love the opportunity, or at least some of
    them, to steal money from the patent fees.
        I can't think of anything stupider to do. We spend tens of
    billions of dollars having an investment tax credit that may or
    may not generate patents and, you know, I think it does, but to
    underfund the patent office in order to allow the appropriators
    to spend $5 or $10 or $50 million dollars more is--I mean, it
    is tough to do the absolute stupidest thing that is done in
    Washington to the economy, but that might be it.
        So perhaps a bill that allows the patent office to set fees
    and prohibit those feels from being stolen could be passed
    expeditiously.
        Mr. Issa. Would the gentleman yield?
        Mr. Sherman. I will yield.
        Mr. Issa. The gentleman, I don't know was on the Committee
    the last time we dealt with this. We are less stupid than we
    used to be, because we used to just divert, and in the
    beginning of the Bush administration, they asked for huge
    increase, all of which would have been diverted.
        But the Senate is----
        Mr. Sherman. So that is the inventor tax. Any country that
    has an investment tax--no, not investment tax, excuse me, an
    R&D tax credit. I was referring to the R&D tax credit earlier.
    But, yes.
        Mr. Issa. For the gentleman's edification, the Senate is
    working, and we will be working with them and the appropriators
    to find a fix for this backlog and the shortage of funds the
    PTO now has and possibly we can use the remaining fee
    diversion, because there is some that is legacy in order to do
    it.
        But the amazing thing is you should have been here in 2000
    when we found out how dumb we used to be.
        Mr. Sherman. Well, I am grateful for the improvement, and I
    would point out I think we ought to have a patent office that
    has speakers going out to colleges saying, we are waiting for
    more applications rather than the other way around.
        There has been discussion here of, in effect, our trade
    deficit and how this affects American jobs as opposed to
    others. And it seems to me that there are kind of three
    elements here.
        You have got invention, marketing integration, and
    manufacturing. We are pretty good at invention, perhaps even
    better at marketing and integration, and manufacturing, we have
    pretty much figured out a way to destroy in this country.
        Likewise, we have a lot of assets in invention. Americans
    own a lot of patents. We own a lot of trademarks and marketing
    machines, and if we have any manufacturing plants, we are in
    the process of dismantling them.
        So I can see how protecting patents is in our interest vis
    a viz other countries, but is there anything in our law that
    gives ore of an incentive to a guy in a basement in the United
    States versus tin the basement of Calcutta?
        Is there anything we could do in our patent law that would
    help us vis a viz our trade deficit and the rest in the global
    system other than just recognize that at least at this stage,
    we are better at inventing than we are at this other stuff so,
    we better protect invention one way or the other?
        Does anybody have a comment?
        Yes, Mr. Lasersohn?
        Mr. Lasersohn. I think it is a very, very important
    question, and I think part of the answer is that, in fact,
    those inventors--and there are clearly issues around this, but
    many of those inventors in Calcutta and China where there are,
    in fact, extraordinarily weak patent systems where they cannot
    protect their inventions come here and start----
        Mr. Sherman. Well, yes, they don't have to come here, they
    just have to send their patent application here.
        Mr. Lasersohn. Well in many cases, at least in Silicon
    Valley and the companies that we finance, I can tell you many
    of those entrepreneurs today are, in fact, coming here and
    starting companies. They are not just sending their patents.
    They are coming here and starting companies.
        One reason is that they find starting the company in their
    home territories won't necessarily give them the patent
    protection that they----
        Mr. Sherman. But wouldn't it be just as perfectly fine
    business plan to say we are going to have a Calcutta based
    research company who is going to get all its money by filing
    patents in the United States?
        Mr. Lasersohn. You would think so, but it doesn't work that
    way.
        Mr. Sherman. There is just a tendency for people who view
    the U.S. market and the U.S. patent system as their revenue
    source.
        Mr. Lasersohn. And it is an echo system, so I don't mean to
    suggest the only factor, obviously, the patent. But it is a
    major factor. The whole echo system--the fact that we have
    Silicon Valley, that we have a venture capital industry, that
    we support and frankly honor inventors in ways here that they
    don't necessarily in other places. All of that goes into that
    decision.
        Mr. Sherman. The boogey man here is the outfit that buys a
    patent or even the inventor that develops a patent never
    intending to do anything with it except hope that somebody else
    invents something pretty much along the same lines and then sue
    them.
        Can we add something to our patent laws that just says, you
    get far less in damages? We will let Mr. Simon write the damage
    provision calculation and the venue provision for any inventor
    or patent holder who has failed diligently to try to exploit
    their inventions?
        Yes, Mr. Johnson?
        Mr. Johnson. I would redefine who that boogey man is, and I
    would say it is people who collect patents to assert not
    because of the merits of the patent but simply to trigger the
    tremendous cost on defendants that comes for defending against
    those claims.
        Mr. Sherman. Well, are you saying that a Chinese should
    have less rights than----
        Mr. Johnson. No, not at all. I think that, in fact, it
    might be that Mr. Kamen could have an excellent invention, and
    that he may need to sell it to Mr. Lasersohn who may need to
    enforce it, because he raises the venture capital to make it a
    business, and I don't want to see Mr. Lasersohn not be able to
    give Mr. Kamen what is fair, because I want Mr. Kamen to come
    up with more inventions.
        Because sitting at this table, J&J may be the party----
        Mr. Sherman. So the boogey man would be an assignee who has
    no intention to exploit except through the court system?
        Mr. Johnson. I would say it would be anyone who is gaming
    the litigation system when they have a frivolous suit----
        Mr. Sherman. You are using pejorative terms like gaming and
    frivolous----
        Mr. Johnson. Okay, I will----
        Mr. Sherman. I mean we could just say low damages to bad
    plaintiffs.
        Mr. Johnson. No.
        Mr. Sherman. That doesn't----
        Mr. Johnson. I would say it is someone who brings a suit
    not intending to have that suit decided on the merits of their
    rights, but rather one who intends to use it to settle out at
    less than the cost of litigation cost, which is what I
    understand happens about 75 percent of the time in some----
        Mr. Sherman. I don't know how we could write a statute that
    focused on what was going on in the mind of the plaintiff,
    because I guarantee you every plaintiff will put in their
    pleadings, we are bringing this lawsuit for the purpose of
    winning. And a few of the times, they will win.
        If they had no chance of winning, you guys wouldn't settle.
        Mr. Johnson. When they bring a claim against us for $50
    million----
        Mr. Sherman. Right.
        Mr. Johnson. And then, when you sit down to talk about
    settlement, and they say, well, it is going to cost you $5
    million to defend, we will settle this lawsuit for $2 million;
    pay us $2 million, and we will be on our way, one does--no
    matter how----
        Mr. Sherman. Let's put it this--I don't think a statute
    that prohibits plaintiffs from telling you in negotiations what
    your cost of defense is going to be----
        Mr. Johnson. No, no----
        Mr. Sherman [continuing]. Is going to make your lives any
    easier.
        Mr. Johnson. And I wasn't suggesting any of that.
        Mr. Sherman [continuing]. And they will all be able to----
        Mr. Johnson. I was suggesting what the problem is that we
    perceive.
        Mr. Sherman. Yes. Obviously, in any kind of lawsuit,
    somebody brings a frivolous lawsuit for the purpose of
    collecting not based on the merits of the lawsuit but based on
    the cost of defense. I if there was a way to stop that, we
    would want to stop it.
        Mr. Johnson. But it is a uniquely difficult problem as Mr.
    Simon points out, because it can cost the defendant $20 million
    or so to defend.
        Mr. Sherman. Does anyone else have a way to define the kind
    of plaintiff who should be getting lower damages because, while
    they do own a patent, they can show infringement. They were not
    doing anything to allow--I mean, the purpose of the patent is
    to encourage people to do things that are going to be useful.
        So if you put the patent in the drawer, maybe you are
    entitled to far less ownership. Does anyone else have a
    comment?
        Yes, Mr. Lasersohn?
        Mr. Lasersohn. I would just suggest, I mean, the one
    problem is what if the invention really matters?
        So if Dean Kamen invents something extraordinarily
    important but for whatever set of reasons he chooses that he
    doesn't want to pursue it as a development project, and he
    licensed it to somebody else----
        Mr. Sherman. Well, I am not--I mean, there are many ways to
    exploit an invention--licensing, trying to license are all ways
    to exploit an invention. I mean Kamen here may never invent
    anything. I mean, correction, he may never manufacture
    anything, but he is going to invent an awful lot of things and
    work very hard to exploit them.
        Mr. Lasersohn. Right.
        Mr. Sherman. But what we are talking about here is the
    person who owns a patent and has no intention of having that
    patent be useful to the manufacturing process.
        Mr. Lasersohn. But he is interested in making money, and to
    make money----
        Mr. Sherman. But, yes, one way to make money is to invent
    something and then to have all your inventive work be
    absolutely useless to society. To take your invention, put it
    in a drawer, do nothing to exploit it, and then wait and hope
    that somebody else invents it, and then you can sue them.
        And the question is, should that person get the same level
    of damages as someone who invents something and diligently
    tries to get it manufactured one way or another.
        Mr. Lasersohn. I am just pointing out that the problem with
    looking at the nature of the entity that is bringing the
    lawsuit is that, I think, what really ultimately matters is the
    value of the patent.
        So there can be cases where the value is enormous, but you
    don't--there is all sorts of reasons the inventor has chosen
    not to pursue the development of it--has chosen, for example,
    to want to license it to somebody----
        Mr. Sherman. I am including people who diligently try to
    get it licensed. I am talking about the inventor who puts it in
    the drawer, doesn't go around trying to find somebody to buy
    it, license it, manufacture it or uses it--who has as only one
    business plan, and that is to wait for somebody else to invent
    the same thing, and then sue them.
        What do we do with that business plan.
        Mr. Lasersohn. I am just pointing out that these
    organizations in many cases are, in fact, attempting to get the
    economic value of the invention through a negotiation with
    these companies who are using--they didn't invent it; Dean
    invented it first, so he is the inventor.
        They are using the invention, and these organizations are
    simply trying to get the economic value. All of these
    discussions--what the other side forgets to tell you, is that
    these discussions start with the licensing negotiation. The so-
    called trolls go to these organizations and say, will you
    please license this for whatever----
        Mr. Sherman. Right, but will you license something--will
    you pay us for a license on an invention where our inventive
    efforts have done nothing to help society, because, in fact,
    while we invented something useful, upon inventing it, we put
    it in a drawer. We told no one. We made no effort to license it
    to anyone. We waited for years.
        Mr. Johnson?
        Mr. Johnson. Well, when you apply for a patent, it becomes
    public knowledge, and in fact, the reason that a patent is
    granted is because you make your invention known. And depending
    on what the invention is, it could be the invention of the
    laser. People read patents. They come out. They are available
    on the Internet.
        They may then rush to their laboratory and build them. They
    may build plants, and so on, taking advantage of someone's
    invention. The patent system doesn't require that the inventor
    become the manufacturer, and he is not putting it in a drawer.
    He is putting it up for the world to see.
        Mr. Sherman. Maybe just filing for the patent is a
    marketing plan, although, not a very aggressive one.
        Mr. Johnson. He could invent the laser and, indeed, stick
    it in a drawer and keep it secret, and that would be terrible
    for society because we wouldn't get it, and the original
    historical foundations of the patent system came from exactly
    that in medieval Europe with the guilds where they would not
    share information.
        So the basis of patents is the public disclosure of
    information.
        Mr. Sherman. Okay. I think I am well over time--questions.
    Thank you.
        Mr. Conyers. Thank you very much.
        The Chair recognizes the gentlelady from California, Linda
    Chavez who, as the most imminent mother in the Congress, has
    all of us on pins and needles for these last 2\1/2\ weeks.
        Ms. Sanchez. Thank you, Mr. Chairman. I have been following
    the discussion with some degree of interest also in the back
    room, and I appreciate all of our panelists for being here and
    the different perspectives that you lend to this complex issue.
        I am sort of going to go off in a different direction here,
    because I know that, sort of, the emphasis in trying to reform
    patents is to trying to keep innovation alive and well in the
    United States and trying to make sure that American innovation
    and technology leads in the world.
        But, sort of, scratching the surface, one thing that I have
    become aware of and this is what I specifically want to ask all
    of our panelists about, is--and in particular, I am concerned
    about business methods patents, especially because of late, it
    has been brought to my attention that there are business method
    patents that are being awarded for tax strategies, some of
    which don't even comply with U.S. tax law, which I find highly
    amusing.
        So I am interested in knowing from our panelists, and I am
    just going to have each of you respond, in kind, what your
    thoughts on business method patents are, generally speaking,
    whether or not you that there are patents that are too broad
    for business methods that are being issued? How would each of
    you address those kinds of patents in a less costly and more
    effective and efficient alternative to legislation?
        I am just, sort of, trying to get, generally speaking, all
    of your thoughts on that, and we can just go down the line.
        Mr. Simon. Thank you. So briefly, I just want to be very
    careful here. For example, the way that you would tune a radio
    used to be with physical components called resisters,
    capacitors, inductors. That has all now changed to, in almost
    all instances, to what you, in essence, call a software
    patent--computer implement invention--called filtering
    electronically. Filtering is done mostly on computer these
    days. And so we want to be very careful that we don't take out
    areas of things that I think most people would agree should be
    patentable.
        If it is purely, gee, how you feel out the form, I think
    the Bilski decision goes a long way to fixing that problem. but
    you have to be careful if you know--and I think there is some
    other cases that have said, or at least suggested that all you
    have done is computerize something that was already out there.
    That is not good enough to be patentable from an obvious
    standard.
        But I think we want to be very careful about how we deal
    this, because it is very--and you can actually find instances
    where filtering functions can be used in taxes as bizarre as
    that may seem. So we need to be somewhat careful about that.
        And with that, I apologize, Mr. Chairman, I am under strict
    orders from the chairman of my household to be home tonight. I
    have to leave--if I may leave?
        Mr. Conyers. Of course.
        Mr. Simon. Thank you.
        Mr. Johnson. I think the Bilski decision went along way
    toward solving some of the concerns, many of the concerns,
    about business method patents. I would comment on the tax
    strategy part that I think there is a long tradition that the
    patent office can deny the grant of a patent if it is not in
    the public interest. You, for example, can't get patents on
    ways to commit crimes and the like.
        Mr. Thomas. Congresswoman, I share your concerns about
    business method patents. Patents on marketing, finance,
    insurance, sports methods have clogged up the patent rules.
    They have made the United States look like a laughing stock
    compared to our trading partners. They have been inflicted upon
    industries with no grace period.
        The patent office just grants patents that pertain to these
    fields, and there is no waiver or notice. We just do it. That
    is the way we roll in the patent system. I am less confident
    than some that the Bilski opinion has taken care of all of
    these problems.
        Because I believe the Bilski opinion still leaves room for
    clever patent drafters--you don't have to be that clever simply
    to draft something that looks more machine based, that looks
    more apparatus oriented even though what you have truly done is
    invented something that lies with outside traditional
    technological areas.
        So I believe there is still room for legislation, and
    particularly in targeted areas like tax legislation or tax
    patent legislation. Thank you.
        Mr. Lasersohn. I am very happy to be able to agree with Mr.
    Simon on something, and that is, obviously, patents that are
    illegal, that practice in something that is illegal, we should
    just throw out, and the obviousness test is critical here.
    Again, filling out a form is obvious and should be able to be
    thrown out on that basis.
        However, it is complicated. I am sorry?
        Ms. Sanchez. I don't think--oh, there we go. Sometimes,
    though, that can take a lot of litigation before something that
    is clearly obvious to most people like peanut butter and jelly
    sandwiches without the crust, you know, gets litigated to the
    point where they say, oh, this was pretty obvious.
        Mr. Lasersohn. And that is, I think, exactly where I was
    going here, which is one of the way we do support post-grant
    review. There really is a need to improve the quality of
    patents that are issued.
        We should do something, and I think if we had more money
    for the patents office, we all are in favor of that, and some
    type of a limited carefully managed post-grant review that many
    of these really silly patents would never really see the light
    of day, but we have to be very careful about throwing out the
    method concept as a whole.
        It is really very critical and gives us a competitive
    advantage in many industries versus, for example, Europe and
    countries that do not have method patterns.
        Ms. Sanchez. Okay.
        Mr. Kamen. All I would say, not to risk sounding like the
    broken record, but get the quality up. Obviously, I include in
    that package of quality, as you were saying, overly broad
    claims. I mean, speaking against my own interests here, every
    time I try to get a patent, I think I have invented something
    great, and they keep coming back at you with this and this and
    this, and as long as everybody is judged the same way, and as
    long as when you finally get it in the end, it shouldn't be
    overly broad.
        So it will be not that--it shouldn't be obvious. It
    shouldn't be not in the best interest of the--it should meet
    all those standards, but all of those standards are encompassed
    in give us the capability to get smart people on the other side
    to grant a high quality patent, and I think all those issues
    really will dramatically, dramatically fade.
        Mr. Chandler. I agree with everybody else.
        Ms. Sanchez. I think I found common ground among all of our
    panelists. Do I get a gold star for that, Mr. Chairman?
        Mr. Cassidy. We propose a gold star for the congresswoman.
    We agree Bilski was an important step in the direction of
    avoiding ridiculous patents. Personally, I would favor that
    this not be a subject of legislation. The courts have this well
    in hand and should be allowed to develop this in the case law
    arena rather than trying to get it right on the legislative
    front and possibly not getting it right----
        Ms. Sanchez. So if I am hearing you correctly, you trust
    the judiciary more than you do your Members of Congress?
        Mr. Cassidy. I trust the judiciary to resolve problems that
    it has created, which it did in----
        Ms. Sanchez. Very diplomatically put. I yield back, Mr.
    Chairman.
        Mr. Conyers. Thank you very much, Ms. Sanchez.
        Howard Coble?
        Mr. Coble. Mr. Chairman, I apologize to you and to the
    witnesses. I had three previously scheduled hearings today. I
    am late getting here, but I have four very short questions, Mr.
    Chairman, if I may?
        Mr. Cassidy? I am a longtime opponent of diversion of
    patent fees from the patent office. Application filings have
    decreased, as we all know, because of the soft economy. And now
    the office must deal with pending applications and close this
    new funding gap.
        Should we include a provision in H.R. 1260 to prevent the
    diversion of patent fees from the patent office? Mr. Cassidy? I
    looked at the wrong end of the table.
        Mr. Cassidy. I have a simple answer, absolutely, if the
    appropriators will allow you to include it----
        Mr. Coble. That is the problem. I concur with you.
        Mr. Johnson? Your testimony raises a number of concerns
    with the bill as introduced specifically with the damages
    provision. Is there language that you would support, and how
    does it differ from what is in the present bill?
        Mr. Johnson. We would support the language which is in S.
    515 as ordered reported, which is the gate keeper solution. And
    it differs from the language in the bill in that the language
    in the bill relies on a prior art subtraction approach and
    forces a methodology that steps through that would not allow
    people to rely on the existing breadth of the case law to
    handle individual circumstances to get to the right result.
        Mr. Coble. I thank you, sir.
        Mr. Chandler? Has the best mode requirement outlived its
    efficacy, and should it be left alone, amended, or eliminated?
        Mr. Chandler. I believe the best mode is a useful way to
    ensure that patents are granted with the inventor having to
    show why the invention is useful and the best way that it can
    be applied as part of the teaching process of patents to
    explain to the world why it is a valuable invention and how to
    use it. So that when it does expire, it can be best exploited.
        Certainly, that is an area where I think there is room for
    discussion as we move the bill forward. There are a number of
    defenses that those accused of patent infringements have
    available to them that have taken on a life of their own
    through judicial decision making, where as part of a
    comprehensive patent reform, it is worth looking at them and
    figuring out what really makes sense.
        And there are other areas in addition to best mode that we
    could look at modifying to achieve that end of a more rational
    patent system. Right now, we have a system where each side
    tries to amass as many nuclear weapons as it can instead of
    trying to rationally function like a commercialized system
    would to encourage trading of rights and economic development,
    which is what our patent system should be about.
        Mr. Coble. I thank you, sir.
        And, Mr. Chairman, one final question to Mr. Kamen.
        Mr. Kamen? You invent things. You are an inventor and
    hopefully that, in turn, creates jobs. In your opinion, which
    provisions of H.R. 1260 will encourage innovation?
        Mr. Kamen. Sadly, I think, this bill in its entirety is
    focusing on getting rid of problems, some of which to some
    extent are real and people can vary on how real they are, but I
    think what this bill in its entirety is missing is the other
    half, and I said a couple of times today, they are focusing on
    the cost of patents, and some of them are unreasonable and bad
    costs.
        There is nothing in that bill that recognizes or focuses on
    the value of the system that drives innovation in this country.
        A simple one that somebody recommended, Congressman
    Sherman, that I think everybody agreed with was at the very
    least let's make a bill or even go so quickly make it a
    separate bill that we fund the whole patent office.
        And frankly, while they are down now in new applications,
    don't let them let some of their workforce go. They have 1,200
    or 1,500 examiners, use this golden opportunity to quickly get
    rid of all this pendency, and bring them to a new standard
    where nothing takes more than a year or at most 2 years to
    review.
        None of you would live in a place where you wait 2 years to
    find out whether there is a deed for that lot you want to build
    your house on.
        But then I would say to each and every provision in this
    bill, if you could make sure when you step back and look at it,
    did it add certainty so that at least when you got your patent,
    it is something that we know how to value and move into
    commerce. So if there is a second window, make it clear, make
    it short, make it once. If there is issues about the damages--
    if anything you do, in any way, can encourage somebody to make
    the rational business decision that the penalties aren't so bad
    for essentially infringing, I will just do it and as
    Congressman Issa said, it is the cost of business.
        It is going so far in the wrong direction, it will
    instigate more lawsuits. It will burden the system even more.
    It will take good actors and put them in a suit with bad
    actors, and I think all the stuff about damages is adding more
    uncertainty and less clarity to something that is desperately
    in need----
        Mr. Coble. Well, Mr. Kamen, I want to beat that red light
    before the Chairman gets on me. I want to thank the Chairman
    for having called this hearing and thank you all for
    participating.
        Thank you, Mr. Chairman.
        Mr. Conyers. And I thank the witnesses for their intellect
    and their stamina, and we declare this hearing adjourned.
        [Whereupon, at 1:05 p.m., the Committee was adjourned.]
                                A P P E N D I X

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